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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
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îßò ß°°»²¼·¨æ Ú·²¿²½·¿´ ß²¿´§-·- º±® Ó¿®µ»¬·²¹ д¿²²·²¹ ¿²¼ ݱ²¬®±´ ìç
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
Ú®±²¬ Ó¿¬¬»® Ю»º¿½»
ݱ³°¿²·»-ô îððë
The challenges oI providing superior value to customers have become critical to many companies
around the world in their eIIorts to achieve high levels oI perIormance. Delivering value requires
understanding markets, buyers, and competition, and deciding how to match the organization•s
distinctive capabilities with promising value opportunities. Understanding markets and how they
will change in the Iuture is essential in guiding business and marketing strategies.
Strategic marketing•s demanding role in business perIormance is demonstrated in the market-
driven strategies oI successIul organizations competing in a wide array oI market and competitive
situations. Superior customer value, leveraging distinctive capabilities, responding rapidly to
diversity and change in the marketplace, developing innovation cultures, and recognizing global
business challenges are demanding initiatives that require eIIective marketing strategies Ior gaining
and sustaining a competitive edge. Strategic Marketing examines the concepts and processes in
designing and implementing market-driven strategies.
Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§
Gaining a competitive advantage requires providing superior value to customers. Several initia-
tives are necessary in achieving customer objectives.
· Marketing strategy provides the concepts and processes that are essential in delivering superior
customer value.
· Marketing is a major stakeholder in essential organizational core processesœnew product
development, customer relationship management, value/supply-chain management, and business
strategy implementation.
· The use oI cross-Iunctional teams to manage core business processes is rapidly changing the
role and structure oI the traditional hierarchical organization.
· Collaborative relationship initiatives place new priorities on Iorging eIIective relationships
with customers, suppliers, value-chain members, and competitors.
· Understanding customers, competitors, and the market environment requires the active
involvement oI the entire organization to manage market knowledge decisively.
· Developing processes that enable the organization to continually learn Irom customers, com-
petitors, and other sources is vital to sustaining a competitive edge.
· The powerIul technologies provided by the Internet and the World Wide Web, corporate
intranets, and advanced communication and collaboration systems Ior customer and supplier
relationship management underpin eIIective processes.
· The environmental and ethical aspects oI business practice are critical concerns Ior individual
executives as well as their companies, requiring management direction and active involvement
by the entire organization.
Customer diversity and new Iorms oI competition create impressive growth and perIormance
opportunities Ior those Iirms that successIully apply strategic marketing concepts and analyses
in business strategy development and implementation. The challenge to become market-driven
is apparent in a variety oI industries around the world. Analyzing market behavior and matching
strategies to changing conditions require a hands-on approach to marketing strategy develop-
ment and implementation. Penetrating Iinancial analysis is an important skill oI the marketing
Strategic Marketing examines marketing strategy using a combination oI text concepts, appli-
cation processes, and cases to develop decision-making processes and apply them to business
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
Ú®±²¬ Ó¿¬¬»® Ю»º¿½»
ݱ³°¿²·»-ô îððë
Ю»º¿½» ª··
situations. The book is designed Ior use in undergraduate capstone management marketing
courses and in the MBA marketing core and advanced strategy courses.
Ò»© ¿²¼ Û¨°¿²¼»¼ ͽ±°»
Regardless oI business size and scope, competing in any market today requires a global perspective.
The eighth edition accentuates this global perspective. The author team provides an extensive range
oI global involvement. The shrinking time-and-access boundaries oI global markets establish new
competitive requirements. The rapid emergence oI powerIul new competitive Iorces throughout the
world, oIten Iacilitated by new business models, mandates an international viewpoint Ior executives
in most organizations. The global dimensions oI marketing strategy are integrated throughout the
chapters oI the book and also considered in several cases.
Customer relationship management (CRM) has been given special attention in this edition.
There is a new CRM Appendix to Chapter 7. The topic is also covered in several chapters.
Internet initiatives comprise a vital part oI the marketing strategies oI many companies.
Internet strategies are rapidly expanding in most companies. Because oI the nature and scope oI
the various uses oI the Internet, we have integrated this important topic into several chapters
rather than developing a separate chapter. Internet Eeatures are included in all chapters.
Brand leveraging coverage is examined along with related topics on brand identity, brand
strategy, and brand portIolio management. Sustaining and disruptive innovation strategies are
Special attention has been given to marketing metrics throughout the book. Similar emphasis
is placed on segmentation, positioning, and value creation.
̸» Ì»¨¬
Strategic Marketing uses a decision process perspective to examine the key concepts and issues
involved in selecting strategies. It is apparent that many instructors want to consider a marketing
strategy perspective that extends beyond the traditional emphasis on the marketing program (4Ps).
Coverage on services as well as goods is continued in the eighth edition. The length and design oI
the book oIIer Ilexibility in the use oI the text material and cases. Internet and Eeature applications
are also included in each chapter. They can be used Ior class discussion and assignments.
The book is designed around the marketing strategy process with a clear emphasis on analysis,
planning, and implementation. Part I provides an overview oI market-driven strategy and business
marketing strategies. Part II considers markets, segments, and customer value. Part III discusses
designing market-driven strategies. Part IV considers market-driven program development.
Einally, Part V examines implementing and managing market-driven strategies. Various decision
process guides are provided throughout the book to assist the reader in applying the analysis and
strategy development approaches discussed in the text.
̸» Ý¿-»-
There are 28 new cases out oI a total oI 44. Many are well-known companies that students
should Iind both interesting and challenging. Shorter application-Iocused cases are placed at the
end oI each part oI the book. These cases are useIul in applying the concepts and methods dis-
cussed in the chapters, and they can be used Ior class discussion, hand-in assignments, and/or
class presentations. The cases consider a wide variety oI business environments, both domestic
and international. They include goods and services; organizations at diIIerent value-chain levels;
and small, medium, and large enterprises. The Ieatures in every chapter provide additional case
illustrations and inIormation Ior consideration and discussion.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
Ú®±²¬ Ó¿¬¬»® Ю»º¿½»
ݱ³°¿²·»-ô îððë
ª··· Ю»º¿½»
Many oI the cases examine the marketing strategies oI well-known companies. The cases
are very timely, oIIering an interesting perspective on contemporary business practice. These
companies have available extensive Iinancial and product inIormation on the Internet, which
expands analysis opportunities.
Part VI includes comprehensive cases that oIIer students a variety oI opportunities to apply
marketing strategy concepts. Each case considers several important strategy issues. The cases
represent diIIerent competitive situations Ior consumer and business goods and services as well
as domestic and international markets.
ݸ¿²¹»- ·² ¬¸» Û·¹¸¬¸ Û¼·¬·±²
The eighth edition oI Strategic Marketing Iollows the basic design oI previous editions.
Nevertheless, the revision incorporates many signiIicant changes, additions, and updated examples.
Every chapter includes new material and expanded treatment oI important topics.
Eeatures are included in each chapter. They Iollow a theme, emphasizing topics such as strategy,
ethics, Internet, cross-Iunctional relationships, innovation, and global applications.
Each chapter has been revised to incorporate new concepts and examples, improve readability
and Ilow, and encourage reader interest and involvement. Topical coverage has been expanded (or
reduced), where appropriate, to better position the book Ior teaching and learning in today•s rapidly
changing business environment. An expanded set oI Internet and Eeature applications is included
at the end oI each chapter. Einancial analysis guidelines are in the Chapter 2 Appendix, and sales
Iorecasting materials are included in the Chapter 3 Appendix. A discussion oI customer relation-
ship management (CRM) is provided in the Chapter 7 Appendix.
Ì»¿½¸·²¹ñÔ»¿®²·²¹ λ-±«®½»-
A complete and expanded teaching-learning portIolio is available on the Instructor•s Resource
CD-ROM. It includes an Instructor•s Manual with course-planning suggestions, answers to end-
oI-chapter questions, Internet application guidelines, Eeature application guidelines, instructor•s
notes Ior cases, and a multiple-choice question bank. A PowerPoint
presentation Ior each chapter
is also included on the CD-ROM. The PowerPoint presentations provide an organized coverage
oI the chapter topics.
This edition oI the manual has been substantially revised and expanded to improve its
eIIectiveness in supporting course planning, case discussion, and examination preparation.
Detailed instructor•s notes concerning the use oI the cases are provided, including epilogues
when available. Additional inIormation such as chapter summaries and case studies can be Iound
on the book•s Web site www.mhhe.com/cravens06.
The text, cases, Web site and Instructor•s Manual oIIer considerable Ilexibility in course
design, depending on the instructor•s objectives and the course Ior which the book is used.
The eighth edition has beneIited Irom the contributions and experiences oI many people and
organizations. Business executives and colleagues at universities in many countries have inIlu-
enced the development oI Strategic Marketing. While space does not permit thanking each
person, a sincere note oI appreciation is extended to all. We shall identiIy several individuals
whose assistance was particularly important.
A special thank you is extended to the reviewers oI this and prior editions and to many
colleagues that have oIIered numerous suggestions and ideas. Throughout the development oI
the eighth edition, several individuals made important suggestions Ior improving the book.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
Ú®±²¬ Ó¿¬¬»® Ю»º¿½»
ݱ³°¿²·»-ô îððë
Ю»º¿½» ·¨
We are also indebted to the case authors who gave us permission to use their cases. We appreciate
the opportunity to include them in the book. Each author or authors are speciIically identiIied with
each case.
Special thanks to the management and proIessional team oI McGraw-Hill/Irwin Ior their
support and encouragement on this and prior editions oI Strategic Marketing: Andy Winston, as
publisher, has provided an important editorial leadership role; Editorial Assistant Jill O•Malley,
has been a constant source oI valuable assistance and encouragement; Dan Silverburg provided
important marketing direction Ior the project; Trina Hauger guided the book through the various
stages oI production while Cara David polished the design.
Many students provided various kinds oI support that were essential to completing the revision.
In particular, we appreciate the excellent contributions to this edition made by Jose Guerra and
Andrew Soule, TCU graduate assistants. We also appreciate the helpIul comments and suggestions
oI many students in our classes.
We appreciate the support and encouragement provided by Shannon Shipp, Chair oI the TCU
Marketing Department and Howard Thomas, Dean oI Warwick Business School. Special thanks
are due to Connie Clark at TCU and Sheila Erost and Janet Biddle at Warwick University Ior
typing the manuscript and Ior their assistance in other aspects oI the project.
David W. Cravens
Nigel F. Piercy
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹
Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§
The challenges Irom radical market change and ever Iiercer competition conIronting executives
around the world are complex and rapidly escalating. Market and industry boundaries are oIten
diIIicult to deIine because oI the entry oI new and disruptive Iorms oI competition. Customers•
demands Ior superior value Irom the goods and services (products) they purchase are unprece-
dented, as they become yet more knowledgeable about products and more perceptive in the
judgments they make. External inIluences Irom diverse pressure groups and lobbyists have
increased dramatically in country aIter country. Major change initiatives are under way in many
industries ranging Irom aerospace to telecommunications. Innovative business models that alter
the traditional roles oI an industry are deIining a new agenda Ior business and marketing strat-
egy development. Companies are adopting market-driven strategies guided by the logic that all
business strategy decisions should start with a clear understanding oI markets, customers, and
Increasingly, it is clear that enhancements in customer value provide a primary
route to delivering superior shareholder value.
Procter & Gamble (P&G), the household products giant, is an interesting example oI a com-
pany that was slow to adapt to major market changes and competitive initiatives in the 1990s.
P&G lost its lead market position in product categories such as diapers and toothpaste. By 2000
it was apparent that P&G needed to strengthen its market-driven strategy. P&G•s stock experi-
enced a 43 percent decline, growth had leveled, and proIit margins had declined. A. G. LaIley
was appointed chieI executive oIIicer (CEO) in the summer oI 2000. LaIley•s market-driven
strategy initiatives have resulted in impressive market position gains and Iinancial perIormance.
The new CEO placed major emphasis on making the customer the Iocal point oI P&G•s total
Gaining an understanding oI the beneIits customers are seeking Irom products
is a high priority throughout the company. Management is encouraging innovation synergies
through collaboration between P&G business units to develop new products. Leveraging oI these
distinctive capabilities has resulted in several new products such as Crest Whitestrips, Dawn
Power Dissolver, and Tide Stain Brush. P&G has been unusually successIul in matching cus-
tomers• value requirements with the distinctive capabilities oI its business units.
P&G•s perIormance since 2000 highlights the positive impact oI market-driven strategy. The
stock price is up Irom a low in 2000 oI $53 to $105 in mid-2004. Sales increased Irom $40 bil-
lion to nearly $50 billion in 2004. The Crest toothpaste brand regained its lead position Irom
Colgate, and P&G moved Irom IiIth position to the lead position with the Iams pet Iood brand.
P&G•s earnings displayed consistent increases during this period.
We begin with a discussion oI market-driven strategy, and its pivotal role in designing and
implementing business and marketing strategies. Then, we look closely at the importance and
process oI becoming market-oriented. Next, we examine the capabilities oI market-driven
organizations, Iollowed by discussion oI creating value Ior customers. Einally, we look at the
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
î ﮬ Ѳ» Strategic Marketing
initiatives that are necessary to become market-driven, and the challenges that marketing exec-
utives Iace in making eIIective decisions in an era oI unprecedented complexity and change.
Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§
The underlying logic oI market-driven strategy is that the market and the customers that Iorm
the market should be the starting point in business strategy Iormulation. “Considerable progress
has been made in identiIying market-driven businesses, understanding what they do, and meas-
uring the bottom-line consequences oI their orientation to their markets.’
Importantly, as illus-
trated by P&G, market-driven strategy provides a companywide perspective, which mandates
more eIIective integration oI activities and processes that impact customer value. We examine
the characteristics oI market-driven strategy and discuss several issues associated with adopting
the strategy.
ݸ¿®¿½¬»®·-¬·½- ±º Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹·»-
A key advantage oI becoming market-oriented is gaining an understanding oI the market and
how it is likely to change in the Iuture. This knowledge provides the Ioundation Ior designing
market-driven strategies. Developing this vision about the market requires obtaining inIormation
about customers, competitors, and markets; viewing the inIormation Irom a total business per-
spective; deciding across business Iunctions how to deliver superior customer value; and taking
these actions to provide value to customers.
There is compelling support Irom research Iindings
and business practice indicating that market-driven strategies enhance business perIormance.
The major characteristics oI market-driven strategies are shown in Exhibit 1.1. The organi-
zation•s market orientation helps management to identiIy customers whose value requirements
provide the best match with the organization•s distinctive capabilities. SuccessIul market-driven
strategy design and implementation should lead to superior perIormance Ior an organization.
Dell Inc.•s successIul market-driven strategy is illustrative. Dell•s value-chain strategy combines
technologies Irom Intel, IBM, and MicrosoIt to serve customers eIIiciently and with state-oI-
the-art computer technology. Dell is able to introduce next generation products Iaster than its
competitors can because its market-driven strategy is developed around a direct sales, built-to-
order business design. This distinctive process capability is supported by eIIective supplier,
distribution, and service partnerships with other companies. Dell•s management understands its
customers since company personnel are in close contact with buyers who make inquiries and
place orders. Not only does Dell process some 500,000 calls each week, 65,000 corporate cus-
tomers are linked to Dell through their own Dell Premier Pages on the Internet. Dell•s 2004 sales
should exceed $47 billion.
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±º Ó¿®µ»¬ó
to Capabilities
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy í
We examine each market-driven characteristic in the remainder oI the chapter. A discussion
oI relevant strategy concepts, methods, and applications is provided throughout the book, begin-
ning with the marketing strategy overview developed in Chapter 2.
ɸ§ Ы®-«» ¿ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§á
While our understanding oI market-driven strategy is Iar Irom complete, the available evidence
indicates a strong supporting logic Ior pursuing this type oI strategy.
Importantly, the charac-
teristics shown in Exhibit 1.1 oIIer guidelines Ior strategy development rather than advocating
a particular strategy. Market-driven strategy needs to be linked to the organization•s unique
competitive strategy.
The achievements oI companies that display market-driven characteristics are impressive.
Examples include Dell Inc., Louis Vuitton, Southwest Airlines, Tesco PLC, TiIIany & Co., Wal-
Mart, and Zara. Many other companies are in the process oI developing market-driven strategies.
We examine successIul and unsuccessIul strategies oI several companies throughout the book,
to illustrate the underlying strategy concepts.
The development oI a market-driven strategy is not a short-term endeavor. A considerable
amount oI eIIort is necessary to build a market-driven organizational culture and processes.
Also, the methods oI measuring progress extend beyond short-term Iinancial perIormance meas-
ures. While Iinancial perIormance is important, it may not indicate whether progress is being
made in pursuing a successIul market-driven strategy. Responding to this need, “balanced score-
card’ measures are being adopted by an increasing number oI companies.
The scorecard
approach includes the use oI customer, learning and growth, and internal business process meas-
ures as well as Iinancial perIormance measures. This approach recognizes that short-term cost
savings and proIit enhancements may undermine the achievement oI strategic goals and the
building oI superior customer value.
Þ»½±³·²¹ Ó¿®µ»¬óÑ®·»²¬»¼
A market orientation is a business perspective that makes the customer the Iocal point oI a com-
pany•s total operations. “A business is market-oriented when its culture is systematically and
entirely committed to the continuous creation oI superior customer value.’
Importantly, achiev-
ing a market orientation involves the use oI superior organizational skills in understanding and
satisIying customers.
Becoming market-oriented demands ethical behavior within the organization and with cus-
tomers, suppliers, and other stakeholders. The Ethics Eeature describes the consequences oI
questionable ethical behavior concerning Boeing Co. executives• relationships with an Air Eorce
procurement oIIicer.
Becoming market-oriented requires the involvement and support oI the entire workIorce. The
organization must monitor rapidly changing customer needs and wants, determine the impact oI
these changes on customer satisIaction, increase the rate oI product innovation, and implement
strategies that build the organization•s competitive advantage. We now describe the characteris-
tics and Ieatures oI market orientation and discuss several issues in becoming market-oriented.
ݸ¿®¿½¬»®·-¬·½- ±º Ó¿®µ»¬ Ñ®·»²¬¿¬·±²
A market-oriented organization continuously gathers inIormation about customers, competitors,
and markets; views the inIormation Irom a total business perspective; decides how to deliver
superior customer value; and takes actions to provide value to customers.
Importantly, these
initiatives involve cross-Iunctional participation. Market orientation requires participation by
everyone in the organization. An organization that is market-oriented has both a culture com-
mitted to providing superior customer value and processes Ior creating value Ior buyers. Market
orientation requires a customer Iocus, competitor intelligence, and cross-Iunctional cooperation
and involvement. This initiative extends beyond the marketing Iunction in an organization.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ì ﮬ Ѳ» Strategic Marketing
Ý«-¬±³»® Ú±½«-ò The marketing concept has proposed a customer Iocus Ior halI a century,
yet until the 1990s this emphasis had limited impact on managers as a basis Ior managing a busi-
There are similarities between the marketing concept and market orientation, although
the Iormer implies a Iunctional (marketing) emphasis. The important diIIerence is that market
orientation is more than a philosophy since it consists oI a process Ior delivering customer value.
The marketing concept advocates starting with customer needs/wants, deciding which needs to
meet, and involving the entire organization in the process oI satisIying customers. The market-
oriented organization understands customers• preIerences and requirements and eIIectively
deploys the skills and resources oI the entire organization to satisIy customers. Becoming cus-
tomer-oriented requires Iinding out what values buyers want to help them satisIy their purchas-
ing objectives. Buyers• decisions are based on the attributes and Ieatures oI the product that
oIIers the best value Ior the buyers• use situations. A buyer•s experience in using the product is
compared to his/her expectations to determine customer satisIaction.
Dell Inc.•s direct contact with its buyers is an important inIormation source Ior guiding
actions to provide superior customer value. The direct, built-to-order process used by
Dell avoids stocking computers that may not contain state-oI-the-art technology. Also, each
computer contains the speciIic Ieatures requested by the buyer. Dell•s competitors that market
their computers through distributors and retailers have higher costs because price reductions Ior
purchased components (e.g., chips) cannot be utilized on computers in inventory. Dell•s built-
to-order business model enables taking advantage oI lower prices and technology improvements
oI components.
ݱ³°»¬·¬±® ײ¬»´´·¹»²½»ò A market-oriented organization recognizes the importance oI
understanding its competition as well as the customer:
The key questions are which competitors, and what technologies, and whether target customers
perceive them as alternate satisIiers. Superior value requires that the seller identiIy and understand
the principal competitors• short-term strengths and weaknesses and long-term capabilities and
Eailure to identiIy and respond to competitive threats can create serious consequences Ior a com-
pany. Eor example, Polaroid•s management did not deIine its competitive area as all Iorms oI
photography, concentrating instead on its instant photo monopoly position, and eventually
the company was outIlanked by digital photography. Had Polaroid been market-oriented its
management might have better understood the changes taking place, recognized the competitive
threat, and developed strategies to counter the threat. Instead, the company Iiled Ior bankruptcy.
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ÝÛÑ ®»-·¹²»¼ ±² Ü»½»³¾»® ïô îððíò ײ ¿¼¼·¬·±² ¬±
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-¬®¿¬»¹·½ ¼·®»½¬·±²ò
ͱ«®½»-æ “Þ±»·²¹æ Ý¿«¹¸¬ ·² ׬- Ñ©² Ì«®¾«´»²½»ô’ Þ«-·²»--É»»µô
Ü»½»³¾»® èô îððíô íéå ͬ¿²´»§ ر´³»-ô “Þ±»·²¹æ ɸ¿¬ λ¿´´§
Ø¿°°»²»¼ô’ Þ«-·²»--É»»µô Ü»½»³¾»® ïëô îððíô íí›íèò
Ý«-¬±³»® λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy ë
Ý®±--óÚ«²½¬·±²¿´ ݱ±®¼·²¿¬·±²ò Market-oriented companies are eIIective in getting all
business Iunctions working together to provide superior customer value. These organizations are
successIul in removing the walls between business Iunctionsœmarketing talks with research and
development and Iinance. Cross-Iunctional teamwork guides the entire organization toward
providing superior customer value.
л®º±®³¿²½» ׳°´·½¿¬·±²-ò Companies that are market-oriented begin strategic analysis
with a penetrating view oI the market and competition. Moreover, an expanding body oI
research Iindings points to a positive relationship between market orientation and superior per-
Companies that are market-oriented display Iavorable organizational perIormance
compared to companies that are not market-oriented. The positive market orientation/perIorm-
ance relationship has been Iound in several studies.
Þ»½±³·²¹ ¿ Ó¿®µ»¬óÑ®·»²¬»¼ Ñ®¹¿²·¦¿¬·±²
Becoming a market-oriented company involves several interrelated requirements. The major
activities include inIormation acquisition, interIunctional assessment, shared diagnosis, and
coordinated action. The objective is to deliver superior customer value.
Í«°»®·±® Ý«-¬±³»® Ê¿´«»ò Customer value is the trade-oII oI beneIits less the costs
involved in acquiring a product. The bundle oI beneIits includes the product, the supporting
services, the personnel involved in the purchase and use experience, and the perceived image oI
the product (brand). The costs include the price oI purchase, the time and energy involved, and
the psychic costs (e.g., perceived risk).
ײº±®³¿¬·±² ß½¯«·-·¬·±²ò “A company can be market-oriented only iI it completely under-
stands its markets and the people who decide whether to buy its products or services.’
these insights requires proactive inIormation gathering and analysis. In many instances a wealth
oI inIormation is available Irom company records, inIormation systems, and employees. The
challenge is to develop an eIIective approach to gathering relevant inIormation that involves
participation oI all business Iunctions, not just sales and marketing personnel.
P&G•s CEO encourages employees to think oI brands as consumers rather than as scientists
seeking technical perIection.
Eor example, in 2004 the P&G baby care division launched a
new product line, Pampers Eeel•n Learn Advanced Trainers, based on Iindings Irom the diaper-
testing center indicating that parents are Irustrated by lengthy toilet training experiences.
A key part oI inIormation acquisition is learning Irom experience. Learning organizations
encourage open-minded inquiry, widespread inIormation dissemination, and the use oI mutually
inIormed managers• visions about the current market and how it is likely to change in the
Eor example, Intuit•s obsession with customer service gave its Quicken design team
revealing insights into the problems users encounter with the Quicken personal Iinance soItware
and the preIerences users have concerning soItware Ieatures. Making the Quicken soItware sim-
ple to use requires understanding market needs, extensive use testing, customer Ieedback, and
continuous product improvement.
Ý®±--óÚ«²½¬·±²¿´ ß--»--³»²¬ò Zara, the Spanish apparel retailer, is very eIIective in
overcoming the hurdles oI getting people Irom diIIerent Iunctions to share inIormation about the
market and to work together to develop innovative products. Delivering superior customer value
at Zara involves all business Iunctions. Zara designs and produces some 12,000 apparel styles
each year, and each is available in stores in only Iour weeks. Zara stores renew nearly halI their
stock every two weeks. The short time span between new ideas and their transIormation into store
oIIerings is impressive. Zara•s shared vision about customers and competition guides the design
process, and inIormation technology plays a vital role in Zara•s success. Zara•s business design
and operations are described in the Cross-Eunctional Eeature. Inditex sales were $5.6 billion in
2003, growing at a 25 percent rate.
Inditex opened 364 stores and launched Zara Home in 2003.
Zara•s U.S. coverage includes stores in New York, Washington, Miami, Orlando, and Las Vegas.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ê ﮬ Ѳ» Strategic Marketing
͸¿®»¼ Ü·¿¹²±-·- ¿²¼ ß½¬·±²ò Becoming market-oriented requires moving beyond inIor-
mation gathering and analysis to deciding what actions to take to provide superior customer
value. This involves shared discussions among company personnel and analysis oI alternatives
in meeting customer needs.
Cross-Iunctional collaboration Iacilitates diagnosis and coordi-
nated decision making and implementation. The speed oI Zara•s new-product introduction and
inventory turnover highlights the importance oI all business Iunctions working together toward
a common purpose.
Becoming market-oriented oIten requires making major changes in the culture, processes,
and structure oI the traditional pyramid-type organization typically structured into Iunctional
units. Nonetheless, the mounting evidence suggests that the market-oriented organization has an
important competitive advantage in providing superior customer value and achieving superior
Ü·-¬·²½¬·ª» Ý¿°¿¾·´·¬·»-
IdentiIying an organization•s distinctive capabilities (competencies) is a vital part oI market-
driven strategy (Exhibit 1.1). “Capabilities are complex bundles oI skills and accumulated
knowledge, exercised through organizational processes, that enable Iirms to coordinate activities
and make use oI their assets.’
The major components oI distinctive capabilities are shown in
Exhibit 1.2, using Southwest Airlines• business model to illustrate each component.
The airline•s growth and Iinancial perIormance are impressive. Although Southwest is the
Iourth largest U.S. airline, its market capitalization is greater than the total capitalization oI
AMR (American Airlines), Delta Airlines, and UAL Corp. Southwest•s revenues will approach
Ý®±--óÚ«²½¬·±²¿´ Ú»¿¬«®»
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¼·ºº·½«´¬ò ײ ß³»®·½¿ô »ó¬¿·´·²¹ ½±«´¼ ¾±±-¬ ·¬- ´±© °®±º·´»ò
“ß³»®·½¿²- ¸¿ª» ´»-- ®»´«½¬¿²½» ¬± ¾«§ ±²´·²» ¬¸¿²
¸»®» ·² ͱ«¬¸»®² Û«®±°»ô’ -¿§- ײ¼·¬»¨ ÝÛÑ Ö±-7 Ó¿®3¿
Ý¿-¬»´´¿²±ò ̸¿²µ- ¬± Æ¿®¿ô ß³»®·½¿²- ½±«´¼ ¾»¹·² ¬±
¿--±½·¿¬» Í°¿·² ©·¬¸ ײ¬»®²»¬ ·²²±ª¿¬·±² ¿- ©»´´ ¿- -¬§´·-¸
¬¿²µ ¬±°-ò
œÉ·´´·¿³ Û½¸·µ-±²
ͱ«®½»æ “̸» Ú¿-¸·±² ݧ½´» Ø·¬- Ø·¹¸ Ù»¿®ô’ Þ«-·²»--É»»µ ÛòÞ·¦ô
Í»°¬»³¾»® ïèô îðððô ÛÞêêò
Æ¿®¿ Ó±ª»- Ò»© Ý´±¬¸·²¹ Ü»-·¹²-
º®±³ ݱ²½»°¬ ¬± ͬ±®» ο½µ ·² Ì©±
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy é
$7 billion in 2005, compared to $5.6 billion in 2000. In contrast to the major airlines, Iavorable
net proIits were recorded during the same period.
Zara•s new-product development process illustrates the retailer•s distinctive capabilities. The
new-product development process applies the skills oI the design team and beneIits Irom the
team•s accumulated knowledge. Coordination of activities across business Iunctions during
new-product development is Iacilitated by inIormation technology. Eor example, Zara•s product
designs take into account manuIacturing requirements as well as oIIering high Iashion products.
Assets such as Zara•s strong brand image help to launch new products.
It is apparent Irom the Southwest Airlines and Zara examples that an organization•s capabil-
ities are not a particular business Iunction, asset, or individual, but instead consist oI core
processes oI the organization. Michael Porter indicates that “the essence oI strategy is in the
activitiesœchoosing to perIorm activities diIIerently or to perIorm diIIerent activities than
His concept oI activity networks is consistent with viewing distinctive capabilities as
groupings oI skills and accumulated knowledge, applied through organizational processes. Dell
Inc.•s direct-to-the-customer, built-to-order process is a distinctive capability that operates using
Dell•s skills and accumulated knowledge in coordinating the activities that comprise the process,
and beneIiting Irom Dell•s strong brand image in the personal computer market. The outcome oI
the process is the delivery oI superior customer value to the organizations that purchase Dell•s
computers (over 90 percent oI Dell•s buyers are businesses rather than consumers).
Organizational capabilities and organizational processes are closely related:
It is the capability that enables the activities in a business process to be carried out. The business
will have as many processes as are necessary to carry out the natural business activities deIined by
the stage in the value chain and the key success Iactors in the market.
We know that processes are not the same across industries or Ior businesses in the same
industry. Eor example, Dell Inc. and Hewlett-Packard have diIIerent processes, and the activity
networks Ior Dell will diIIer Irom those oI Wal-Mart. Compared to the retailer, Dell is at an
ÛÈØ×Þ×Ì ïòî
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¾§ ³¿²§ ¿·®´·²»-ò ̸» ¿·®´·²» ±ºº»®- -»®ª·½»- ¬± ëé ½·¬·»- ·² îç -¬¿¬»-ô ©·¬¸ ¿² ¿ª»®¿¹» ¬®·°
¿¾±«¬ ëðð ³·´»-ò ̸» ½¿®®·»®•- ª¿´«» °®±°±-·¬·±² ½±²-·-¬- ±º ´±© º¿®»- ¿²¼ ´·³·¬»¼ -»®ª·½»-
ø²± ³»¿´-÷ò Ò±²»¬¸»´»--ô ³¿¶±® »³°¸¿-·- ¬¸®±«¹¸±«¬ ¬¸» ±®¹¿²·¦¿¬·±² ·- °´¿½»¼ ±² ¾«·´¼·²¹
¿ ´±§¿´ ½«-¬±³»® ¾¿-»ò Ñ°»®¿¬·²¹ ½±-¬- ¿®» µ»°¬ ´±© ¾§ «-·²¹ ±²´§ Þ±»·²¹ éíé ¿·®½®¿º¬ô
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´±§¿´¬§ò ̸» ½±³°¿²§ ½±²¬·²«»- ¬± ¹®±© ¾§ »¨°¿²¼·²¹ ·¬- °±·²¬ó¬±ó°±·²¬ ®±«¬» ²»¬©±®µò
͵·´´- ¿²¼ ß½½«³«´¿¬»¼ Õ²±©´»¼¹»
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ݱ±®¼·²¿¬·±² ±º ß½¬·ª·¬·»-
ݱ±®¼·²¿¬·±² ±º ¿½¬·ª·¬·»- ¿½®±-- ¾«-·²»-- º«²½¬·±²- ·- º¿½·´·¬¿¬»¼ ¾§ ¬¸» °±·²¬ó¬±ó°±·²¬ ¾«-·ó
²»-- ³±¼»´ò ̸» ¸·¹¸ ¿·®½®¿º¬ «¬·´·¦¿¬·±²ô -·³°´·º·½¿¬·±² ±º º«²½¬·±²-ô ¿²¼ ´·³·¬»¼ °¿--»²¹»®
-»®ª·½»- »²¿¾´» ¬¸» ¿·®´·²» ¬± ³¿²¿¹» ¬¸» ¿½¬·ª·¬·»- ª»®§ »ºº·½·»²¬´§ ¿²¼ ¬± °®±ª·¼» ±²ó¬·³»
°±·²¬ó¬±ó°±·²¬ -»®ª·½»- ±ºº»®»¼ ±² ¿ º®»¯«»²¬ ¾¿-·-ò
ͱ«¬¸©»-¬•- µ»§ ¿--»¬- ¿®» ª»®§ ´±© ±°»®¿¬·²¹ ½±-¬-ô ´±§¿´ ½«-¬±³»® ¾¿-»ô ¿²¼ ¸·¹¸
»³°´±§»» »-°®·¬ ¼» ½±®°-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
è ﮬ Ѳ» Strategic Marketing
earlier stage in the value chain that links suppliers, manuIacturers, distributors/retailers, and end
users oI goods and services.
We now look more closely at the distinctive capabilities oI an organization, Iollowed by a dis-
cussion oI diIIerent types oI capabilities. Then, we examine the relationship between capabili-
ties and customer value.
×¼»²¬·º§·²¹ Ü·-¬·²½¬·ª» Ý¿°¿¾·´·¬·»-
Understanding the organization•s distinctive capabilities and how they relate to customers•
value requirements are important considerations in marketing strategy design. Management
should place a company•s strategic Iocus on its distinctive capabilities.
These capabilities
may enable the organization to compete in new markets, provide signiIicant value to customers,
and create market-entry barriers to potential competitors. Eor example Hewlett-Packard (H-P)
has a strong capability in ink-jet printer technology, which enabled the company to become the
world leader in computer printers. H-P leveraged this capability to develop the ink-jet Iax
through a strategic alliance with a Japanese partner, which contributed a distinctive capability
in Iax technology.
Capabilities are important Iactors in shaping corporate and business strategies. Many companies
are deciding what they do best, concentrating their strategies around their distinctive capabilities.
Eor example, in the late 1990s Tandy Corporation, aIter unsuccessIul ventures into computer man-
uIacturing, computer retailing, megastore electronics, and appliance retailing, exited Irom these
businesses and Iocused its growth initiatives on the core capabilities oI the Radio Shack retail
chain. The corporation•s name was changed to Radio Shack to provide brand Iocus.
A distinctive capability: (1) oIIers a disproportionate (higher) contribution to superior cus-
tomer value, or (2) enables an organization to deliver value to customers in a substantially more
cost-eIIective manner.
Southwest Airlines• distinctive capability is its business design,
enabling the carrier to oIIer travelers low Iares in combination with satisIactory services.
An important issue is deciding which capability to emphasize.
How, Ior example, did
Wal-Mart•s management decide to invest heavily to build its inIormation and logistics system?
Why did Dell choose the direct sales, built-to-order business design? What supporting logic led
Hewlett-Packard to invest heavily in ink-jet technology and to position its printers against dot
matrix printers rather than laser printers? These choices are not always apparent, and may
involve developing new capabilities that oIIer the potential oI being distinctive.
The starting point in deciding which capability to pursue is identiIying and evaluating the
organization•s existing capabilities. The three characteristics shown in Exhibit 1.3 are useIul
criteria Ior identiIying distinctive capabilities. The capability must be superior to the competi-
tion and diIIicult to duplicate. GORE-TEX Iabric technology satisIies these criteria. Moreover,
various applications oI GORE-TEX materials have been developed (e.g., Iabric Ior raincoats,
ÛÈØ×Þ×Ì ïòí
Superior to
Applicable to
Difficult to
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy ç
medical supplies, and dental Iloss. A capability may not always be applicable to multiple com-
petitive situations, but in order to be sustainable it needs to be superior to competition and diIIi-
cult to duplicate. Multiple competitive situation applications add additional strength to the
̧°»- ±º Ý¿°¿¾·´·¬·»-
ClassiIying the organization•s capabilities is useIul in identiIying distinctive capabilities. As
shown in Exhibit 1.4, one way oI classiIication is to determine whether processes operate Irom
outside the business to inside, inside out, or spanning processes. The processes shown are illus-
trative rather than a complete enumeration oI processes. Moreover, since a company may have
unique capabilities, the intent is not to identiIy a generic inventory oI processes.
The process capabilities shown in Exhibit 1.4 diIIer in purpose and Iocus.
The outside-in
processes connect the organization to the external environment, providing market Ieedback and
Iorging external relationships. The inside-out processes are the activities necessary to satisIy
customer value requirements (e.g., manuIacturing/operations). The outside-in processes play a
key role in oIIering direction Ior the spanning and inside-out capabilities, which respond to the
customer needs and requirements identiIied by the outside-in processes. Market sensing,
customer linking, channel bonding (e.g., manuIacturer/retailer relationships), and technology
monitoring supply vital inIormation Ior new-product opportunities, service requirements, and
competitive threats.
This process view oI capabilities highlights the interrelated nature oI organizational processes
and points to several important issues:
· The market-driven organization has a clear external Iocus.
· Capabilities typically span several business Iunctions, involving teams oI people.
· Processes need to be clearly deIined and have identiIiable owners.
· InIormation should be shared with all process participants.
· Processes are interconnected to other processes and management needs to coordinate the
While many companies are structured according to business Iunctions, an increasing number
are placing emphasis on cross-Iunctional processes. As companies alter their traditional organi-
zational hierarchies, they may retain Iunctional groupings (e.g., engineering, Iinance, marketing,
etc.), while placing emphasis on processes like those shown in Exhibit 1.4.
ÛÈØ×Þ×Ì ïòì
Source: Chart Irom George
S. Day, “The Capabilities
oI Market-Driven
Journal of Marketing,
October 1994, 41.
Reprinted with permission
oI the American Marketing
Market sensing
Customer linking
Channel bonding
Technology monitoring
Customer order fulfillment
Customer service delivery
Strategy development
Financial management
Cost control
Technology development
Ìntegrated logistics
Human resources
Environmental health
and safety
Spanning Processes
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ïð ﮬ Ѳ» Strategic Marketing
The organizational process view oI distinctive capabilities requires shiIting away Irom the
traditional specialization oI business Iunctions (e.g., operations, marketing, research and devel-
opment) toward a cross-Iunctional process perspective. Implications oI these changes include:
· Managing and participating in process-driven organizations create new skill requirements and
· Eunctional organizations require individual skills in inIormation gathering, data analysis, and
external collaboration.
· Process-driven organizations emphasize skills in relationship management, internal commu-
nication and persuasion, team building, inIormation interpretation, and strategic reasoning.
Ê¿´«» ¿²¼ Ý¿°¿¾·´·¬·»-
Value Ior buyers consists oI the beneIits and costs resulting Irom the purchase and use oI products.
Value is perceived by the buyer. Superior value occurs when there are positive net beneIits. A com-
pany needs to pursue value opportunities that match its distinctive capabilities. A market-oriented
company uses its market sensing processes, shared diagnosis, and cross-Iunctional decision mak-
ing to identiIy and take advantage oI superior value opportunities. Management must determine
where and how it can oIIer superior value, directing these capabilities to customer groups (market
segments) that result in a Iavorable capability/value match.
Ý®»¿¬·²¹ Ê¿´«» º±® Ý«-¬±³»®-
“Customer value is the outcome oI a process that begins with a business strategy anchored in a
deep understanding oI customer needs.’
The creation oI customer value is an important chal-
lenge Ior managers. The priority placed on customer value is the result oI companies• experi-
ence with Total Quality Management, intense competition, and the increasing demands oI
customers. Several beneIits oI value initiatives reported by executives in a study conducted by
The ConIerence Board are shown in Exhibit 1.5. The purpose oI the study was to determine iI
companies are taking actions to improve customer value, and obtain an assessment oI the
results (beneIits) oI the value initiatives. Exhibit 1.5 oIIers positive evidence oI companies•
proactive eIIorts to increase customer value. About halI oI the study respondents were Irom the
quality Iunction, nearly one-third Irom marketing, and the rest Irom other business Iunctions.
About 80 percent oI the participating companies were Irom the United States, and the remain-
ing Irom Europe.
We take a closer look at the concept oI customer value, and consider how value is generated.
Then we look at the progress being made in the value initiatives oI companies.
ÛÈØ×Þ×Ì ïòë
ß Í»´ºó
λ-«´¬- ±º
Ý«-¬±³»® Ê¿´«»
Source: Graph Irom
Kathryn Troy, Change
Management. Striving for
Customer Jalue (New
York: The ConIerence
Board, 1996), 6. Reprinted
with permission Irom
The ConIerence Board.
Great/very great, positive impact
Negligible or no positive impact
Ability to
Ability to build
Ability to attract
new customers
Growth in
market share
in profit
in sales
Reduction in
Growth in
24 23
Those choosing a “moderate’ impact are not shown on the chart but account Ior the diIIerence between the percentages shown and 100 percent.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
Ý«-¬±³»® Ê¿´«»
OIIering superior customer value is at the core oI the eBay business design. Consider how con-
ventional companies would have reacted to a proposal Ior this business only a Iew years ago.
eBay•s impressive customer value delivery is described in the Internet Eeature.
Buyers Iorm value expectations and decide to purchase goods and services based on their
perceptions oI products• beneIits less the total costs incurred.
Customer satisIaction indicates
how well the product use experience compares to the buyer•s value expectations. Superior cus-
tomer value results Irom a very Iavorable use experience compared to buyers• expectations and
the value oIIerings oI competitors.
Ю±ª·¼·²¹ Ê¿´«» ¬± Ý«-¬±³»®-
As discussed earlier, the organization•s distinctive capabilities are used to deliver value by diI-
Ierentiating the product oIIer, oIIering lower prices relative to competing brands, or a combina-
tion oI lower cost and diIIerentiation.
Deciding which avenue to Iollow requires matching
capabilities to the best value opportunities.
Consider, Ior example, Hewlett-Packard•s (H-P) very successIul ink-jet printer strategy
which positioned the printer as an alternative to dot matrix technology. H-P•s management
decided not to target laser printers by oIIering the ink-jet as a lower-cost option to laser printers.
The dot matrix strategy oIIered H-P a much larger market opportunity. The H-P product man-
agement team•s vision about the market was correct in that dot matrix users would soon become
dissatisIied with the quality and capabilities oI the printers.
Ê¿´«» ײ·¬·¿¬·ª»-
The ConIerence Board customer value survey indicates that a majority oI companies consider value
initiatives to be producing positive results. Strong progress was reported in the Iollowing areas:
· Analyzing customer needs and instilling customer-Iocused behavior in Irontline employees
(70 percent or more);
· Analyzing target markets and boosting service quality (60 to 70 percent);
ײ¬»®²»¬ Ú»¿¬«®»
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-¿²¼- ±º ½¿¬»¹±®·»-ò
̸» ·¼»¿ º±® »Þ¿§ ¹®»© ±«¬ ±º ¿ ½±²ª»®-¿¬·±² ¾»¬©»»²
½±³°«¬»® -§-¬»³- ¼»ª»´±°»® з»®®» ѳ·¼§¿® ¿²¼ ¸·-
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¸»® ½±´´»½¬·±²ò ß² ײ¬»®²»¬ ¿¼ª»®¬·-»³»²¬ ´»¼ ¬± ¿ ³¿--·ª»
®»-°±²-» ¿²¼ ¬¸» »-¬¿¾´·-¸³»²¬ ±º »Þ¿§ ¿- ¿² ±²´·²» ¿«½ó
¬·±² -·¬»ò
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¿²¼ ïéë ³·´´·±² -»¿®½¸»- ¿ ¼¿§ò
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˲·¬»¼ ͬ¿¬»- ¹¿ª» «° ¬¸»·® ¶±¾- ¬± ¾»½±³» º«´´ó¬·³» »Þ¿§
¬®¿¼»®-ô ¿²¼ ¾§ îððì ¬¸» ²«³¾»® ±º °»±°´» ·² ¬¸» ˲·¬»¼
ͬ¿¬»- ³¿µ·²¹ ¬¸»·® ´·ª·²¹ °¿®¬ó¬·³» ±® º«´´ó¬·³» ±² »Þ¿§
¸¿¼ ®»¿½¸»¼ ìíðôðððò
ײ ¬¸» º·®-¬ ¯«¿®¬»® ±º îððìô ¹®±-- -¿´»- ¸¿¼ ®»¿½¸»¼ üè
¾·´´·±²ò ײ îððíô ¬¸» ½±³°¿²§•- ³¿®µ»¬ ª¿´«» ¸¿¼
®»¿½¸»¼ üìð ¾·´´·±²ò Û-¬·³¿¬»- -«¹¹»-¬ ¬¸¿¬ üïðð ·²ª»-¬»¼
·² »Þ¿§ ±² ¬¸» º·®-¬ ¼¿§ ±º ¬®¿¼·²¹ -¬±½µ ·² ïççç ©±«´¼
¸¿ª» ¾»»² ©±®¬¸ üîôîéî ±²´§ º·ª» §»¿®- ´¿¬»®ò
ͱ«®½»-æ Ü¿ª·¼ ̸±³¿-ô “É»·®¼ ɱ®´¼ ±º »Þ¿§ô’ Ü¿·´§ Ó¿·´ô Ö«²» ïðô
îððìô íî›ííå »Þ¿§ò½±³ É»¾ -·¬»ò
̸» ɱ®´¼ ±º »Þ¿§
ݸ¿°¬»® ï Market-Driven Strategy ïï
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ïî ﮬ Ѳ» Strategic Marketing
· Using cross-Iunctional teams to develop products and services (about halI);
· Achieving operational excellence (about halI); and
· Innovating (about halI).
Twenty-Iive oI the companies that have completed the implementation oI a value initiative
report major progress in instilling customer-Iocused behavior Ior employees not in Irontline con-
tact with customers.
These same companies indicate stronger perIormance in expanding mar-
ket share, innovation, and retaining customers, when compared to companies that are beginning
value initiatives. The companies that have value initiatives under way are becoming market-
oriented and leveraging their distinctive capabilities. The results oIIer substantial support Ior the
beneIits oI market-driven strategy.
Nonetheless, there is an important distinction between value and innovation. An Economist
Intelligence Unit Report in 1999 contained interviews with executives Irom many leading com-
panies throughout the world: “What counts, conclude the participants, is value innovation. This
is deIined as creating new value propositions . . . that lead to increased customer satisIaction, loy-
alty andœultimatelyœsustainable, proIitable growth. Market leaders are just thatœpioneers.’
Innovation in customer value coming Irom outside the traditional industry boundaries and
disrupting conventional ways oI doing business is underlined by Apple•s iPod and iTunes inno-
vations in recorded music described in the Strategy Eeature. While competitors prepare to
develop yet better ways oI delivering value to the consumer oI music, the success oI iPod illus-
trates the payoII oI eIIective value innovation (see accompanying iPod photo).
Þ»½±³·²¹ Ó¿®µ»¬óÜ®·ª»²
The discussion so Iar points to the importance oI becoming market-oriented, leveraging the dis-
tinctive capabilities, and Iinding a good match between customers• value requirements and
the organization•s capabilities. The supporting logic Ior these actions is that they are expected to
lead to superior customer value and organizational perIormance. Moreover, research evidence
indicates that these characteristics are present in market-driven organizations, which display
higher perIormance than their counterparts that are not market-driven.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
A market-driven organization must identiIy which capabilities to develop and which invest-
ment commitments to make. These decisions can beneIit Irom:
a shared understanding oI the industry structure, the needs oI the target customer segments, the
positional advantages being sought, and the trends in the environment.
A major objective oI this book is examining the concepts and processes that are relevant in gain-
ing a shared understanding oI customers and deciding how to satisIy their needs and preIerences
by Iavorably positioning the organization•s value oIIer.
Ó¿®µ»¬ Í»²-·²¹ ¿²¼ Ý«-¬±³»® Ô·²µ·²¹ Ý¿°¿¾·´·¬·»-
Market orientation research, evolving business strategy paradigms, and the ConIerence Board
study all point to the importance oI market sensing and customer linking capabilities in achiev-
ing successIul market-driven strategies.
ͬ®¿¬»¹§ Ú»¿¬«®»
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̸» ¾®»¿µ¬¸®±«¹¸ ½¿³» º®±³ ͬ»ª» Ö±¾- ¿¬ ß°°´»
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©¿²¬ º®±³ ¬¸» É»¾ -·¬»ò ̸»®» ¿®» -·¹²- ¬¸¿¬ -±³» ¿®¬·-¬-
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±«¬´»¬-ô ¿²¼ ¬¸¿¬ ½±²-«³»®- ³¿§ °®»º»® ¬± ¬»³°±®¿®·´§
“®»²¬’ ³«-·½ ®¿¬¸»® ¬¸¿² ¾«§ ·¬ ±«¬®·¹¸¬ò
ͱ«®½»-æ Ò·½µ É·²¹º·»´¼ô “Ѳ´·²» Ó«-·½•- Ô¿¬»-¬ Ì«²»ô’ ̸» É¿´´
ͬ®»»¬ Ö±«®²¿´ô ß«¹«-¬ îéô îððìô ÞïóÞîò 묻® Þ«®®±©-ô “Ûª»®§¾±¼§
É¿²¬- ¿ з»½» ±º ¬¸» ·Ð±¼ô’ Þ«-·²»--É»»µô ѽ¬±¾»® îéô îððíô ìðò
묻® Þ«®®±©-ô “͸±©¬·³»ÿ’ Þ«-·²»--É»»µô Ú»¾®«¿®§ îô îððìô
몱´«¬·±² ·² ¬¸» Ó«-·½ ײ¼«-¬®§
ݸ¿°¬»® ï Market-Driven Strategy ïí
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ïì ﮬ Ѳ» Strategic Marketing
Ó¿®µ»¬ Í»²-·²¹ Ý¿°¿¾·´·¬·»-ò Market-driven companies have eIIective processes Ior
learning about their markets. Sensing involves more than collecting inIormation. It must be
shared across Iunctions and interpreted to determine what actions need to be initiated. Zara•s
close contact with store managers by telephone and computer generates valuable inIormation Ior
diagnosis and action.
Developing an eIIective market sensing capability requires Iinding and processing inIorma-
tion Irom various sources. Sources must be identiIied and processes developed to collect and
analyze the inIormation. InIormation technology plays a vital role in market sensing activities.
DiIIerent business Iunctions have access to useIul inIormation and need to be involved in mar-
ket sensing activities.
Ý«-¬±³»® Ô·²µ·²¹ Ý¿°¿¾·´·¬·»-ò There is substantial evidence that creating and maintain-
ing close relationships with customers are important in market-driven strategies.
These rela-
tionships oIIer advantages to both buyer and seller through inIormation sharing and
collaboration. Customer linking also reduces the possibility oI a customer shiIting to another
supplier. Customers are valuable assets.
Quintiles Transnational (services Ior drug companies) has very eIIective customer linking
Its drug testing and sales services are available in 27 countries. The company has
extensive experience in clinical trials and marketing. Quintiles• customers are located in many
countries around the world. Ongoing collaborative relationships are essential to Quintiles• suc-
cess. It oIIers specialized expertise, assisting drug producers to reduce the time necessary in
developing and testing new drugs.
ß´·¹²·²¹ ͬ®«½¬«®» ¿²¼ Ю±½»--»-
Becoming market driven may require changing the design oI the organization, placing more
emphasis on cross-Iunctional processes. Market orientation and process capabilities require
cross-Iunctional coordination and involvement. Many oI the companies in the ConIerence Board
study discussed earlier made changes in organization structures and processes as a part oI their
customer value initiatives. The initiatives included improving existing processes as well as
redesigning processes. The processes that were primary targets Ior reengineering included sales
and marketing, customer relations, order IulIillment, and distribution.
This emphasis was no
doubt the result oI the extensive work during the last decade on quality improvement that was
concentrated in operations (manuIacturing and services).
The objectives oI the business process changes made by the companies in the ConIerence
Board survey were to improve the overall level oI product quality, reduce costs, and improve
service delivery.
Nine out oI the ten participating companies made changes in their business
processes as part oI their customer value eIIort. Interestingly, 42 percent oI the companies•
change initiatives came Irom the top oI the organizations, while nearly as many initiatives (40
percent) were grass roots (bottom-up) approaches. This indicates the beneIits oI both top-down
and bottom-up initiatives.
Underpinning such changes and initiatives is the importance oI what has been called “imple-
mentation capabilities,’ or the ability oI an organization to execute and sustain market-driven
strategy, and do so on a global basis.
In addition to Iormulating the strategies essential to deliv-
ering superior customer value, it is vital to adopt a thorough and detailed approach to strategy
ݸ¿´´»²¹»- ±º ¿ Ò»© Û®¿ º±® ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹
At the midpoint oI the Iirst decade oI the 21st century it is apparent that executives Iace unprece-
dented challenges in strategic marketing to cope with turbulent markets, competitive revolution,
and escalating customer demands Ior value superiority. In this chapter we describe the rationale
Ior market-driven strategy and its components as a business approach relevant to the new
challenges oI the present and Iuture.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy ïë
Importantly, the personal demands Ior incisiveness and ingenuity in creating and implement-
ing innovative and robust marketing strategies should not be ignored. In addition to the techni-
cal skills oI analysis and planning required to implement market-driven strategy, capabilities Ior
understanding new market and competitor phenomena will be at a premium. Societal and global
change also mandates high levels oI personal integrity in managers and leaders, and the reIlec-
tion oI these qualities in the social responsiveness oI organizations.
Û-½¿´¿¬·²¹ Ù´±¾¿´·¦¿¬·±²
The internationalization oI business is well recognized in terms oI the importance oI
export/import trade and the growth oI international corporations, particularly in the Triad, com-
prising North America, Europe, and Japan. However, Ior strategic marketing in the 21st century,
such a view oI the international marketing issue may be shortsighted. The most intriguing and
surprising challenges are likely to come Irom outside the mature Triad economies. It is impor-
tant to understand the degree and extent oI diIIerence between the developed economies and the
new world beyond.
Eor example, considerable attention is being given to the growing roles oI China and India
in the global economy. Consider that while the United States has a gross national income per
capita oI $35,400 and the United Kingdom has a comparable Iigure oI $25,510, the same indi-
cator oI individual income in India is $470 and in China is $960. Then compare the population
Iigures that show the United States has 293 million people, while India has 1.1 billion and
China has 1.3 billion. The implications oI these massive diIIerences are beginning to impact
Eor example, it is clear that major customers may source Irom countries with a massive cost
advantage in labor costs. In 2004, Wal-Mart was the world•s largest purchaser oI Chinese goods,
spending $15 billion in China in 2003, making the company China•s IiIth largest trading part-
ner, ahead oI countries like Russia and Britain. Indeed, U.S. consumers are reacting to price diI-
Ierences Ior medical treatments by traveling abroad. While a heart bypass may cost $25›35,000
in the United States, the operation is available in Thailand and India Ior $8›15,000.
However, what is less predictable are the other ways in which economic diIIerences may have
dramatic eIIects. Eor example, there has been some concern about the trend Ior Western-based
companies to outsource Iunctions like back-oIIice operations, call centers, and soItware devel-
opment to India and China to take advantage oI the low labor costs available.
Surprisingly, by
mid-2004 Indian companies had quickly purchased a dozen or more U.S. call centers and busi-
ness processing outsourcers in a Iorm oI reverse migration.
Consider, Iurther, that iI one important source oI proIitable growth is serving the world•s poor
proIitablyœon the grounds that Iour billion people in the world have purchasing power oI less
than $2,000 per year
œthen the expertise to achieve this goal may be located within the devel-
oping world not in the advanced economies. The most important exports Irom countries like
India and China may well be new business models, which will impact established ways oI doing
business in the developed world.
It is apparent that a new kind oI transnational business organization is emerging, which is
eIIectively “stateless.’
Eor example, Trend Micro operates a computer virus center in low-
cost Manila with six smaller virus-response laboratories around the world, allowing this
Taiwanese/American/Japanese company to guarantee delivery oI inoculation against major viruses
in less than two hours. Similarly, the R&D expertise being deployed by Korean multinationals like
LG Electronics, Daewoo Electronics, Samsung Electronics, and Salus Biotech is being acquired in
Russia where Russian engineers have considerable expertise and work Ior very low wages.
It is illustrative oI changing global priorities that in an unprecedented break with industry
norms, GlaxoSmithKlein Biologicals, the world•s largest vaccine company, plans a “south-Iirst
strategy’ with its vaccine productsœthey will be introduced Iirst in Latin America and Asia, and
only subsequently in Europe. The eIIect is to take the vaccine Iirst to where it is needed most
and to achieve the company•s goal oI being the vaccine maker Ior the world.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ïê ﮬ Ѳ» Strategic Marketing
The global marketplace is dynamic and changing in complex ways with Iundamental eIIects
on the competitiveness and viability oI companies in many sectors. Those who underestimate the
rate oI change and important shiIts in international relationships run the risk oI being outma-
Ì»½¸²±´±¹§ Ü·ª»®-·¬§ ¿²¼ ˲½»®¬¿·²¬§
The impact oI technology on business may also be underestimated. There is nothing surprising
in recognizing that technological advances will continue to produce new-product opportunities.
What is more surprising is the radical nature oI an increasing number oI those opportunities.
Consider, Ior example, the innovations described in Exhibit 1.6.
The skills and vision required to decide which radical innovation opportunities can be
successIully commercialized will be extremely demanding, and the risks oI Iailure will be high.
These examples identiIy innovations that have the potential to revolutionize a range oI diIIerent
industries. They demand a strategic perspective that accepts the potential Ior revolution but
balances this with commercial imperatives. The danger is that conventional approaches and
shortsighted management may miss out on the most important opportunities.
ÛÈØ×Þ×Ì ïòê
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°±¬»²¬·¿´ º±® º¿¾®·½- ¬¸¿¬ ¿®» -»´ºó½´»¿²·²¹ò ̸» ·²²±ª¿¬·±² «-»- ¿² «´¬®¿¬¸·² ´¿§»® ±º ¬·¬¿²·«³
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½±¿¬·²¹ º±® ½±¬¬±²ò ɸ»² ¬¸» ¬®»¿¬»¼ ½±¬¬±² ·- »¨°±-»¼ ¬± -«²´·¹¸¬ ¿ ®»¿½¬·±² ·- ¬®·¹¹»®»¼ ·²
¬¸» ¬·¬¿²·«³ ¼·±¨·¼» ²¿²±°¿®¬·½´»-ô ©¸·½¸ ¿®» îðôððð ¬·³»- ¬¸·²²»® ¬¸¿² ¿ ¸«³¿² ¸¿·®ô
½¿«-·²¹ ¬¸»³ ¬± ®»¿½¬ ©·¬¸ ±¨§¹»² ·² ¬¸» ¿·® ¿²¼ ½®»¿¬» ¿² ±¨·¼·¦·²¹ ¿¹»²¬ ©¸·½¸ ¾®»¿µ-
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º¿¾®·½ º±® ¿°°¿®»´ ¿²¼ ¸±«-»¸±´¼ °®±¼«½¬- ¬¸¿¬ ½´»¿²- ·¬-»´ºò
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±º Í°¿½»Í¸·°Ñ²» °®»¼·½¬- ¬¸¿¬ ©·¬¸·² ïë §»¿®- -°¿½» ¬±«®·-³ ©·´´ ¾»½±³» ¿ ³«´¬·¾·´´·±² ¼±´ó
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½±²¬»²¬ò ر³» ÐÝ󲻬©±®µ- ±ºº»® ¬¸» °±¬»²¬·¿´ º±® ²»¬©±®µ»¼ ¿°°´·¿²½»- ¿²¼ º»¿¬«®»-ò
и·´·°- Û´»½¬®±²·½- ¾»´·»ª»- ¬¸» ¹±¿´ ·- ¬± ¿½¸·»ª» “¿³¾·»²¬ ·²¬»´´·¹»²½»ô’ ©¸»®» ¸±«-»¸±´¼
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¬¸¿¬ ¬«®²- ·²¬± ¿ º´¿¬ó-½®»»² ¬»®³·²¿´ ¿²¼ ¬»´»ª·-·±²ô ¬± ¬¸» ½±±µ»® ¬¸¿¬ ´»¬- ¬¸» ½±±µ µ²±©
¾§ °¸±²» ¬¸¿¬ ¬¸» º±±¼ ·- ²»¿®´§ ®»¿¼§ô ¬± ¿«¬±³¿¬»¼ ½±²¬®±´ ±º ¬¸» ¬»³°»®¿¬«®» ·² ¬¸»
Í»´ºóÝ´»¿²·²¹ É·²¼±©-ò з´µ·²¹¬±² ·² ¬¸» ˲·¬»¼ Õ·²¹¼±³ ¸¿- -°»²¬ ¿ ¼»½¿¼» ¼»ª»´±°ó
·²¹ ·¬- ß½¬·ª °®±¼«½¬œ¹´¿-- ©·¬¸ ¿ ³·½®±-½±°·½ ½±¿¬·²¹ ¬¸¿¬ ®»¿½¬- ©·¬¸ -«²´·¹¸¬ ¬± ¼·--±´ª»
¼·®¬ ¿²¼ ¹®·³»ô ´»¿ª·²¹ ¿ ®»-·¼«» ¬¸¿¬ ·- ©¿-¸»¼ ¿©¿§ ¾§ ¬¸» ®¿·²ò ß½¬·ª ·- îð ¬·³»- ³±®»
»¨°»²-·ª» ¬¸¿² ²±®³¿´ ¹´¿--ô ¾«¬ ¿ª±·¼- ¬¸» ²»»¼ º±® ½¸»³·½¿´ ½´»¿²»®- ¿²¼ ´¿¾±® ·² ½±²ó
ª»²¬·±²¿´ ©·²¼±© ½´»¿²·²¹ò ̸» ½±³°¿²§ ·- ®»-»¿®½¸·²¹ ©¿§- ¬± ¿¼¿°¬ ¬¸» °®±¼«½¬ º±®
¿«¬±³±¾·´» ¿°°´·½¿¬·±²-ò Ѭ¸»® °±¬»²¬·¿´ «-»- ±º ¬¸» ¬»½¸²±´±¹§ ¿®» -»´ºó½´»¿²·²¹ -«®º¿½»-ô
«-·²¹ ¬¸» ½±¿¬·²¹ ¬± ¾®»¿µ ¼±©² ¾¿½¬»®·¿´ ·²º»½¬·±²-ò
Robin Yapp, “The Hi-Tech Shirt That You•ll Never Have to Wash,’ Daily Mail, June 15, 2004, 7.
Otis Port, “Private Space Travel: We May Have LiIt OII,’ BusinessWeek, June 21, 2004, 48.
“Digital Homes,’ BusinessWeek, Special Report, July 21, 2003, 56›59.
Andy Dolan, “SelI-Cleaning Window,’ Daily Mail, June 9, 2004, 17.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy ïé
Û¬¸·½¿´ Þ»¸¿ª·±® ¿²¼ ͱ½·¿´
The demands on individuals with high levels oI personal integrity will likely increase in the
Iuture. Increasing levels oI transparency mandate that manager behavior should meet the high-
est standards. The penalties Ior Iailing to meet the highest standards are likely to be severe.
Growing emphasis is placed on corporate citizenship and the establishment and protection oI
secure corporate reputation as an asset with a Iinancial return associated.
Throughout our
examination oI the elements oI strategic marketing we emphasize the ethical and corporate
responsibility issues oI which a manager should be aware.
While these Iorces oI change describe a challenging yet exciting environment Ior strategic
marketing, across the world marketing proIessionals are Iinding new and better ways to respond
to the new realities, to deliver superior customer value to their markets, and enhance shareholder
value. Underpinning processes oI reinvention and radical innovation are principles oI robust
marketing strategy. The goal oI this book is to identiIy and illustrate these principles, and pro-
vide processes Ior responding to the challenges.
Market-driven strategies begin with an understanding oI the
market and the customers that Iorm the market. The charac-
teristics oI market-driven strategies include becoming market-
oriented, determining distinctive capabilities, Iinding a match
between customer value and organizational capabilities, and
obtaining superior perIormance by providing superior cus-
tomer value. The available evidence indicates a strong sup-
porting logic Ior adopting market-driven strategies,
recognizing that a long-term commitment is necessary to
develop these strategies.
Achieving a market orientation requires a customer Iocus,
competitor intelligence, and coordination among the business
Iunctions. Becoming market-oriented involves making major
changes in the culture, processes, and structure oI the tradi-
tional pyramid organization organized into Iunctional units.
Several interrelated actions are required, including inIormation
acquisition, sharing inIormation within the organization, inter-
Iunctional assessment, shared diagnosis, and decision making.
The objective oI market orientation is to provide superior cus-
tomer value.
Leveraging distinctive capabilities is a key part oI devel-
oping a market-driven strategy. Capabilities are organiza-
tional processes that enable Iirms to coordinate related
activities and employ assets using skills and accumulated
knowledge. Distinctive capabilities are superior to the com-
petition, diIIicult to duplicate, and applicable to multiple
competitive situations. Capabilities can be classiIied as out-
side-in, inside-out, and spanning processes. The outside-in
processes provide direction to the inside-out and spanning
processes by identiIying customer needs and superior value
The creation oI superior customer value is a continuing
competitive challenge in sustaining successIul market-driven
strategies. Value is the trade-oII oI product beneIits minus the
total costs oI acquiring the product. Superior customer value
occurs when the buyer has a very Iavorable use experience
compared to his/her expectations and the value oIIerings oI
competitors. The avenues to value may be product diIIerentia-
tion, lower prices than competing brands, or a combination oI
lower cost and diIIerentiation.
Becoming market-driven is a continuing process beginning
with deciding which capabilities to develop. Capabilities need
to be identiIied and analyzed, market sensing and customer
linking capabilities developed, and necessary organizational
changes implemented.
The new era oI strategic marketing creates several impor-
tant challenges Ior executives. Escalating globalization pres-
ents an array oI complex opportunities. Radical innovations
will produce many new product opportunities, requiring skill
and vision in deciding which options to pursue. Moreover, the
new era promises to increase the demands Ior ethical behavior
and social responsibility.
Our discussion oI the major components oI market-driven
strategy (Exhibit 1.1) provides an essential perspective con-
cerning the development oI business and marketing strategies.
In Chapter 2, we examine the major decisions necessary in
developing and implementing marketing strategy.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ïè ﮬ Ѳ» Strategic Marketing
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Discuss some oI the reasons why managing in an environ-
ment oI continuing change will be necessary in the Iuture.
2. Explain the logic oI pursuing a market-driven strategy.
3. Examine the relevance oI market orientation as a guiding
philosophy Ior a social service organization, giving partic-
ular attention to user needs and wants.
4. How do the organization•s distinctive capabilities con-
tribute to developing market-driven strategy?
5. Discuss the relationship between customer value and a
company•s distinctive capabilities.
6. What role does product/service innovation play in provid-
ing superior customer value?
7. How would you explain the concept oI superior customer
value to a new Iinance manager?
8. Suppose you have been appointed to the top marketing
post oI a corporation and the president has asked you to
1. George S. Day, “The Capabilities oI Market-Driven
Organizations,’ Journal of Marketing, October 1994,
2. Peter Doyle, Jalue-Based Marketing-Marketing Strategies
for Corporate Growth and Shareholder Jalue (Chichester:
John Wiley, 2000).
3. Patricia Sellers, “P&G: Teaching an Old Dog New
Tricks,’ Fortune, May 31, 2004, 167›180.
4 Day, “The Capabilities oI Market-Driven Organizations,’
5. Stanley E. Slater and John C. Narver, “Market Orientation,
Customer Value, and Superior PerIormance,’ Business
Hori:ons, March/April 1994, 22›27.
6. Day, “The Capabilities oI Market-Driven Organizations.’
7. See, Ior example, Robert S. Kaplan and David P. Norton,
1he Balanced Scorecard (Boston: Harvard Business
School Press, 1996).
8. Slater and Narver, “Market Orientation’, 22.
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Read the Cross-Eunctional EeatureœZara Moves New
Clothing Designs Irom Concept to Store Rack in Two
Weeks and identiIy the strengths oI Zara•s business model.
Consider how other Iashion retailers might respond to
protect their market share.
B. Review the Strategy EeatureœRevolution in the Music
Business and consider what is likely to happen next in the
music business. In particular, where do these innovations
and new types oI competition leave the music production
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Discuss how Dell Inc.•s Web site (www.Dell.com) sup-
ports its mission, value proposition, and brand image.
What advantages (and limitations) does the Web site pro-
vide to business buyers?
B. Go to www.travelocity.com and investigate the site. How
does travelocity.com collect inIormation about its
customers and how might this prove valuable to the com-
pany and ultimately the customer? What privacy issues
could arise?
C. Review the McKinsey & Co. Web site. Are there indica-
tions that the consulting company is market-oriented?
explain market-driven strategy to the board oI directors.
What will you include in your presentation?
9. Discuss the importance oI developing a strategic vision
about the Iuture Ior competing in today•s business envi-
10. Discuss the issues that are important in transIorming a
company into a market-driven organization.
11. How is the Internet likely to contribute to an organiza-
tion•s market-driven strategy in the Iuture?
12. Develop a list oI the personal challenges conIronting
the marketing executive, and consider the qualities and
capabilities that may be most relevant to meeting these
9. George S. Day, Market-Driven Strategy. Processes for
Creating Jalue (New York: Eree Press, 1990).
10. Slater and Narver, “Market Orientation,’ 23.
11. Day, “The Capabilities oI Market-Driven Organizations,’
12. Philip Kotler, Marketing Management, 8th ed.
(Englewood CliIIs, NY: Prentice-Hall, 1994), Chapter 2.
13. Slater and Narver, “Market Orientation,’ 23.
14. Rohit Deshpande and John V. Earley, “Organizational
Culture, Market Orientation, Innovativeness, and Eirm
PerIormance: An International Research Odyssey,’
International Journal of Research in Marketing 21,
2004, 3›22.
15. Benson P. Shapiro, “What the Hell Is Market Oriented?’
Harvard Business Review, November/December 1988, 120.
16. Sellers, “P&G,’ 172.
17. George Day, “Continuous Learning about Markets,’
California Management Review, Summer 1994, 9›31.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ï Market-Driven Strategy ïç
18. “Inditex! Spain•s World Beating Business Model,’
BusinessWeek, June 7, 2004, 78›79.
19. Shapiro, “What the Hell Is Market Oriented?’ 122.
20. Day, “The Capabilities oI Market-Driven Organizations,’
21. Michael Porter, “What Is Strategy?’ Harvard Business
Review, November/December 1996, 64.
22. Day, “The Capabilities oI Market-Driven Organizations,’
23. C. K. Prahalad and Gary Hamel, “The Core Competence
oI the Corporation,’ Harvard Business Review, May/June
1990, 79›91.
24. Day, “The Capabilities oI Market-Driven Organizations,’
25. Ibid., 39›40.
26. Ibid., 40›43.
27. Ibid.
28. Erederick E. Webster Jr., “The Euture Role oI Marketing
in the Organization,’ in Reflections on the Futures of
Marketing,’ Donald R. Lehmann and Katherine E. Jocz
(eds.) (Cambridge, MA: Marketing Science Institute,
1997), 39›66.
29. Kathryn Troy, Change Management. Striving for
Customer Jalue (New York: The ConIerence Board Inc.,
1996), 5.
30. Philip Kotler, Marketing Management, 9th ed., (Upper
Saddle River, NJ: Prentice-Hall, 1997), Chapter 2.
31. George S. Day and Robin Wensley, “Assessing
Advantage: A Eramework Ior Diagnosing Competitive
Superiority,’ Journal of Marketing, April 1988, 1›20.
32. Troy, “Change Management,’ 6.
33. Ibid., 6.
34. Laura Mazur, “Wrong Sort oI Innovation,’ Marketing
Business, June 1999, 49.
35. Day, “The Capabilities oI Market-Driven Organizations,’
36. Ibid., 43›45.
37. Ibid.
38. David W. Cravens, Gordon Greenley, Nigel E. Piercy, and
Stanley Slater, “Mapping the Path to Market Leadership:
The Market-Driven Strategy Imperative,’ Marketing
Management, Eall 1998.
39. Troy, “Change Management,’ 7.
40. Ibid.
41. Nigel E. Piercy, “Marketing Implementation: The
Implications oI Marketing Paradigm Weakness Ior the
Strategy Execution Process,’ Journal of the Academy of
Marketing Science 13(213), 1999, 113›131.
42. “Over the Sea, Then Under the KniIe,’ BusinessWeek,
Eebruary 16, 2004, 20›22.
43. “Job Exports: Europe•s Turn,’ BusinessWeek, April 19,
2004, 20›21.
44. Manjeet Kripalani, “Now It•s Bombay Calling the U.S.,’
BusinessWeek, June 21, 2004, 30.
45. C. K. Prahalad and Allen Hammond, “Serving the World•s
Poor ProIitability,’ Harvard Business Review, September
2002, 48›57.
46. Steve Hamm, “Borders Are So 20th Century,’
BusinessWeek, September 22, 2003, 70›71.
47. Moon Ihlwan, “Want Innovation, Hire a Russian,’
BusinessWeek, March 8, 2004, 22.
48. Bruno Stevens, “Big Pharma Booster Shot,’
BusinessWeek, June 7, 2004, 66.
49. Roger L. Martin, “The Virtue Matrix: Calculating the
Return on Corporate Responsibility,’ Harvard Business
Review, March, 2002, 69›75.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹
ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
Business and marketing strategies are being altered and renewed in a wide range oI companies
by executives in their eIIorts to survive and prosper in an increasingly complex and demanding
business environment. Choosing high perIormance strategies in this environment oI constant
change requires vision, sound strategic logic, and commitment. Market-driven organizations
develop closely coordinated business and marketing strategies. Executives in many companies
are reinventing their business models with the objective oI improving their competitive advan-
tage. These changes include altering market Iocus, expanding product scope, partnering with
other organizations, outsourcing manuIacturing, and modiIying internal structure.
Strategic imperatives have shiIted to a priority emphasis on developing a superior capacity
Ior reinventing the business model. Key issues underpinning strategic choices are:
· 몱´«¬·±²œIn many industries, the drivers oI radical, revolutionary change have created
most oI the new wealth over the last decade. Examples include JetBlue, Costco, and eBay.
· λ²»©¿´œTo survive, existing companies must innovate with respect to their traditional
business models. P&G•s renewal initiatives are impressive as discussed in Chapter 1.
· λ-·´·»²½»œThe capacity Ior continuous reconstruction requires innovation with respect to
the organizational values, processes, and behaviors that systematically Iavor perpetuating the
past rather than innovation Ior renewal.
The strategic initiative pursued by Airbus, the European airplane giant, to achieve a dominant
position in the global aviation industry with its 555-seater super-jumbo airplane is an example
oI innovation-driven strategy. With its multinational production design, new technology to
reduce the weight oI the massive plane, and potential cost advantages Ior international airlines,
many industry analysts are positive concerning Airbus• strategy, but some question the under-
lying Iorecast oI demand Ior the super-jumbo, upon which proIit depends. The company•s strat-
egy is described in the Global Eeature.
Corporate strategy consists oI deciding the scope and purpose oI the business, its objectives,
and the initiatives and resources necessary to achieve the objectives. Marketing strategy is
guided by the decisions top management makes about how, when, and where to compete. This
should be a two-way relationshipœwhile corporate strategy deIines strategic direction, allocates re-
sources, and deIines constraints on what cannot be done, executives responsible Ior marketing
strategy have a responsibility to inIorm corporate strategists about external change in the market
that identiIies opportunities and threats, as shown in Exhibit 2.1.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
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͸±®¬¿¹»- ±º ¬¿µ»ó±ºº -´±¬- ¿¬ ³¿¶±® ·²¬»®²¿¬·±²¿´ ¿·®ó
°±®¬- ´·µ» Ô±²¼±²•- Ø»¿¬¸®±© ¿´-± º¿ª±® ´¿®¹»® ¿·®½®¿º¬ò
̸» ¾·¹¹»-¬ ¯«»-¬·±² ®»³¿·²- ©¸»¬¸»® ß·®¾«- ¸¿-
½±®®»½¬´§ ¹¿«¹»¼ ¬¸» ´±²¹ó¬»®³ ¼»³¿²¼ º±® ¬¸»
׺ -«½½»--º«´ô ¬¸» ßíèð ©·´´ ½¸¿²¹» ¬¸» ¾¿´¿²½» ±º
°±©»® ·² ¹´±¾¿´ ¿ª·¿¬·±²ô ©¸·´» º¿·´«®» ©·´´ ¾®·²¹
³¿--·ª» º·²¿²½·¿´ ´±--»- ¿²¼ ½±«´¼ ¬¸®»¿¬»² ß·®¾«-•-
ͱ«®½»æ Ý¿®±´ Ó¿¬´±½µ ¿²¼ ͬ¿²´»§ ر´³»-ô “Ó»¹¿°´¿²»ô’
Þ«-·²»--É»»µô Ò±ª»³¾»® ïðô îððíô ëð›ëêò
̸» ßíèðæ ß Ð¿²óÛ«®±°»¿² д¿²»
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy îï
ÛÈØ×Þ×Ì îòï
Þ«-·²»--ô ¿²¼
Strategic Direction
Market Knowledge
Business and
Eor example, planning at IBM is complex because oI the sheer size and diversity oI the com-
panyœrevenues in excess oI $80 billion and 315,000 staII. Marketing is closely involved with
the strategy oI evolving the company toward becoming a service business. Marketing planning
is carried out by marketing managers in brand/business units and customer-based organizations.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
îî ﮬ Ѳ» Strategic Marketing
As they develop strategies around brands and customers, marketing managers have to bid Ior and
“buy’ the resources they need Ior execution Irom the corporate level oI the organization.
Because oI this close relationship between diIIerent levels oI strategy, it is important to exam-
ine the major aspects oI designing and implementing business strategy.
We begin the chapter with a look at the nature and scope oI corporate strategy. A discussion
oI business and marketing strategy relationships Iollows. Next, the marketing strategy process is
described and illustrated. Einally, we examine the steps in preparing the strategic marketing plan.
ݱ®°±®¿¬» ͬ®¿¬»¹§
We describe the characteristics oI corporate strategy and consider how organizations are chang-
ing. The section is concluded with a discussion oI the major dimensions oI corporate strategy.
ɸ¿¬ ×- ݱ®°±®¿¬» ͬ®¿¬»¹§á
It is important to reach a reasonable consensus concerning the nature and scope oI corporate
strategy. One authority, Michael Porter, indicates that an eIIective strategy should display these
· Unique competitive position Ior the company.
· Activities tailored to strategy.
· Clear trade-oIIs and choices vis-a-vis competitors.
· Competitive advantage arising Irom Iit across activities.
· Sustainability coming Irom the activity system, not the parts.
· Operational eIIectiveness as a given.
This concept oI strategy views distinctive capabilities as comprised oI business activities which
are aligned to Iorm processes. An example is Wal-Mart•s distribution system comprised oI
various activities such as tracking each item in inventory. Other examples are Dell Inc.•s direct
personal computer sales and built-to-order process, and Southwest Airline•s city-to-city business
design coupled with very eIIicient perIormance oI the activities needed to transport passengers
Irom point to point.
Corporate strategy consists oI the decisions made by top management and the resulting
actions taken to achieve the objectives set Ior the business. The major strategy components and
several key issues related to each component are shown in Exhibit 2.2. The issues highlight
important questions that management must answer in charting the course oI the enterprise.
Management•s skills and vision in addressing these issues are critical to the perIormance oI the
corporation. Essential to corporate success is matching the capabilities oI the organization with
opportunities to provide long-term superior customer value.
It is apparent that in the 21st century marketing environments, companies are drastically alter-
ing their business and marketing strategies to get closer to their customers, counter competitive
threats, and strengthen competitive advantages. The challenges to management include escalat-
ing international competition, new types and sources oI competition, political and economic
upheaval, dominance oI the customer, and increasing marketing complexity.
Ñ®¹¿²·¦¿¬·±²¿´ ݸ¿²¹»
In recent decades massive changes were made in the size and structure oI many business Iirms.
These changes are described as rightsizing, reengineering, and reinventing the organization.
The renewal (reIorming) oI the traditional organization typically moves through three phases:
vertical disaggregation, internal redesign, and network Iormation.
Ê»®¬·½¿´ Ü·-¿¹¹®»¹¿¬·±²ò Disaggregation reduces the si:e oI the organization by eliminat-
ing jobs and layers oI middle managers and leveling the hierarchy. The ConIerence Board, Inc.
reports that 90 percent oI its members downsized during the 1990s and about two-thirds oI the
executives representing a broad cross section oI business say downsizing will continue.
5 Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy îí
The resulting Ilat corporation may organize its activities into a small number oI key processes
(e.g., new-product planning, sales generation, and customer service).
Alternatively, organiza-
tions may retain Iunctional departments, overlaying them with processes. Cross-Iunctional teams
manage the processes, and providing superior customer value is a key objective and measure oI
perIormance. Employees are encouraged to make regular contact with suppliers and customers.
ײ¬»®²¿´ λ¼»-·¹²ò Organizational renewal is more than just reducing staII, eliminating
layers oI management, and adopting worker empowerment processes. The second phase alters
the internal design oI the organization. The new organization Iorms are lean, Ilexible, adaptive,
and responsive to customer needs and market requirements.
The altered business designs
involve innovation in designing products to meet customer needs, arranging supply and distri-
bution networks, and constantly staying in touch with the marketplace. A priority oI these organ-
izations is understanding customer needs, oIIering value to customers, and retaining customers.
Ò»© Ñ®¹¿²·¦¿¬·±² Ú±®³-ò The third phase oI organizational change involves the Iorma-
tion oI relationships with other organizations and the use oI processes as the basic organizing
concept. Although interorganizational relationships are oIten present in the traditional organiza-
tion, companies are expanding these relationships with suppliers, customers, and even competi-
tors. These new organization Iorms are called networks since they involve several collaborative
arrangements. Networks are more likely to be launched by entrepreneurs, since the traditional
vertically integrated, hierarchically organized company Iinds diIIiculty in shiIting to the network
ÛÈØ×Þ×Ì îòî
¿²¼ ×--«»-
Source: Orville C. Walker,
Jr., Harper W. Boyd, Jr.,
and Jean-Claude Larreche,
Marketing Strategy
(Homewood, IL: Richard
D. Irwin, 1992), 38.
Copyright © The
McGraw-Hill Companies.
Used with permission.
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·²¬¿²¹·¾´»- ø»ò¹òô ¾®¿²¼ ®»½±¹²·¬·±²ô ®»°«¬¿¬·±²÷ ³·¹¸¬
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-¸¿®» ¬± ·²½®»¿-» ¬¸»·® »ºº·½·»²½§á
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
îì ﮬ Ѳ» Strategic Marketing
paradigm. TransIormation means Iewer people on the corporate payroll, diIIerent management
challenges, drastic cultural changes, and complex collaborative relationships with other organi-
zations. Nevertheless, traditional companies like IBM are successIully transIorming themselves
to more Ilexible and adaptive network Iorms. The Innovation Eeature describes how IBM is
using soItware alliances to compete with Oracle Corp.
ݱ³°±²»²¬- ±º ͬ®¿¬»¹§
Recognizing that there are several deIinitions oI corporate strategy, we utilize this deIinition:
Corporate strategy is the way a company creates value through the conIiguration and coordination
oI its multimarket activities.
This deIinition emphasizes value creation, considers the multimarket scope oI the corporation
(product, geographic, and vertical value-chain boundaries), and points to how the organization
manages its activities and businesses that Iall under the corporate umbrella. A key premise oI
this view oI strategy is that the multibusiness corporation must contribute to the competitive
advantage oI its units.
Thus, there needs to be a close relationship between the corporation and
the businesses that are part oI the Iirm.
A useIul basis Ior examining corporate strategy that is consistent with the earlier deIinition
consists oI (1) management•s long-term vision Ior the corporation; (2) objectives that serve as
milestones toward the vision; (3) assets, skills, and capabilities; (4) businesses in which the
corporation competes; (5) structure, systems, and processes; and (6) creation oI value through
multimarket activity.
We examine each strategy component.
Ü»½·¼·²¹ ݱ®°±®¿¬» Ê·-·±²ò Management•s vision deIines what the corporation is and
what it does and provides important guidelines Ior managing and improving the corporation. The
Iounder initially has a vision about the Iirm•s mission, and management may alter the mission
over time. Strategic choices about where the Iirm is going in the Iutureœchoices that take into
account company capabilities, resources, opportunities, and problemsœestablish the vision oI
the enterprise. Developing strategies Ior sustainable competitive advantage, implementing them,
and adjusting the strategies to respond to new environmental requirements is a continuing
process. Managers monitor the market and competitive environment. The corporate vision
may, over time, be changed because oI problems or opportunities identiIied by monitoring. Eor
ײ²±ª¿¬·±² Ú»¿¬«®»
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¿¹» ±º -±º¬©¿®» º®±³ ³±®» ¬¸¿² ëð -±º¬©¿®» °¿®¬²»®-ô
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Ó¿§ îèô îððïô êë›êêò
Ì·¹¸¬´§ ײ¬»¹®¿¬»¼ ͱº¬©¿®» ª»®-«- ͱº¬©¿®»
ß´´·¿²½»-œÑ®¿½´» ª»®-«- ×ÞÓ
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy îë
example, IBM•s management is placing major emphasis on consulting services as a direction oI
Iuture growth.
Early in the strategy-development process management needs to deIine the vision oI the
corporation. It is reviewed and updated as shiIts in the strategic direction oI the enterprise occur
over time. The vision statement sets several important guidelines Ior business operations:
1. The reason Ior the company•s existence and its responsibilities to stockholders, employees,
society, and other stakeholders.
2. The Iirm•s customers and the needs (beneIits) that are to be met by the Iirm•s goods or
services (areas oI product and market involvement).
3. The extent oI specialization within each product-market area and the geographical scope oI
4. The amount and types oI product-market diversiIication desired by management.
5. The stage(s) in the value-added chain where the business competes Irom raw materials to the
end user.
6. Management•s perIormance expectations Ior the company.
7. Other general guidelines Ior overall business strategy, such as technologies to be used and
the role oI research and development in the corporation.
Ѿ¶»½¬·ª»-ò Objectives need to be set so that the perIormance oI the enterprise can be
gauged. Corporate objectives may be established in the Iollowing areas: marketing, innovation,
resources, productivity, social responsibility, and finance.
Examples include growth and
market-share expectations, improving product quality, employee training and development,
new-product targets, return on invested capital, earnings growth rates, debt limits, energy reduc-
tion objectives, and pollution standards. Objectives are set at several levels in an organization
beginning with those indicating the enterprise•s overall objectives.
The time Irame necessary Ior strategic change oIten goes beyond short-term Iinancial report-
ing requirements. Companies are using more than Iinancial measures to evaluate longer-term
strategic objectives, and nonIinancial measures Ior short-term budgets. The “balanced score-
card’ approach provides an expanded basis Ior tracking organizational perIormance.
It con-
siders both long-term and short-term perIormance metrics. This method oI keeping score
includes objectives, measures, targets, and initiatives regarding Iinancial, customer, internal
business processes, and learning and growth perspectives. The balanced scorecard method is
being used by many companies as a basis Ior managing and evaluating market-driven strategies.
Ý¿°¿¾·´·¬·»-ò As we discussed in Chapter 1, it is important to place a company•s strategic
Iocus on its distinctive capabilities.
These capabilities may oIIer the organization the potential
to compete in diIIerent markets, provide signiIicant value to end user customers, and create
barriers to competitor duplication. Eor example, Hewlett-Packard developed a distinctive
capability in ink-jet printer technology, enabling the company to become the world leader in
We know that distinctive capabilities are important in shaping the organization•s strategy. In
contrast to the diversiIication wave oI the 1970s, many companies are deciding what they do best
and concentrating their eIIorts on these distinctive capabilities. A key strategy issue is matching
capabilities to market opportunities. Capabilities that can be leveraged into diIIerent markets and
applications are particularly valuable. Eor example, the GoreTex high perIormance Iabric is used
in many applications Irom apparel to dental Iloss.
Acknowledging the constraining nature oI capabilities, resources, opportunities, and
problems, management has a lot oI Ilexibility in selecting the mission as well as changing it in the
Iuture. Sometimes the priorities and preIerences oI the CEO or the board oI directors may over-
ride Iactual evidence in selecting the business mission. Eor example, many oI the diversiIications
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
îê ﮬ Ѳ» Strategic Marketing
pursued by companies in the 1980s did not work well, and resulted in the restructuring and
downsizing oI many companies during the last decade.
Þ«-·²»-- ݱ³°±-·¬·±²ò DeIining the composition oI the business provides direction Ior
both corporate and marketing strategy design. In single-product Iirms that serve one market, it
is easy to determine the composition oI the business. In many other Iirms it is necessary to separate
the business into parts to Iacilitate strategic analyses and planning. When Iirms are serving multi-
ple markets with diIIerent products, grouping similar business areas together aids decision making.
Business segment, group, or division designations are used to identiIy the major areas oI
business oI a diversiIied corporation. Each segment, group, or division oIten contains a mix oI
related products, though a single product can be assigned such a designation. The term segment
does not correspond to a market segment (subgroup oI end users in a product-market), which we
discuss throughout the book. Most large corporations break out their Iinancial reports into busi-
ness or industry segments according to the guidelines oI the Einancial Accounting Standards
Board. Some Iirms may establish subgroups oI related products within a business segment that
are targeted to diIIerent customer groups.
A business segment, group, or division is oIten too large in terms oI product and market com-
position to use in strategic analysis and planning, so it is divided into more speciIic strategic
units. A popular name Ior these units is the strategic business unit (SBU). Typically SBUs
display product and customer group similarities. A strategic business unit is a single product or
brand, a line oI products, or a mix oI related products that meets a common market need or a
group oI related needs, and the unit•s management is responsible Ior all (or most) oI the basic
business Iunctions. The characteristics oI the ideal SBU are described in Exhibit 2.3. Typically,
the SBU has a speciIic strategy rather than a shared strategy with another business area. It is a
cohesive organizational unit that is separately managed and produces sales and proIit results.
Virgin Group is an interesting example oI the Iormation oI a large and diverse portIolio oI
business enterprises. The Iounder, Richard Branson, was knighted in England in 2000 Ior his
entrepreneurship initiatives in launching an array oI businesses under the Virgin Group corpo-
rate umbrella. With 200 separate companies, the Virgin brand identiIies hundreds oI products
Irom travel to Iinancial services to entertainment.
Core businesses are Virgin Atlantic, Virgin
Express (a Brussels-based discount airline), Virgin Blue (an Australian no-Irills airline), Virgin
Rail (running two oI Britain•s main train services), and Virgin Mobile (Britain•s Iastest-growing
mobile telephone company). New projects include Virgin USA, a discount airline business to Iill
the gaps leIt by Southwest and JetBlue, and Virgin Mobile USA, a joint venture with Sprint.
Branson describes his business as a “branded venture-capital Iirm,’ and Ior most new ventures
he supplies the brand, a small initial investment and takes majority control while partner organ-
izations provide the main Iunding. Not all oI the Virgin Group initiatives have been successIul,
but the successes have made him a very wealthy entrepreneur.
In a business that has two or more strategic business units, decisions must be made at two
levels. Corporate management must Iirst decide what business areas to pursue, and set priorities Ior
allocating resources to each SBU. The decision makers Ior each SBU must select the strategies Ior
implementing the corporate strategy and producing the results that corporate management expects.
Corporate-level management is oIten involved in assisting SBUs to achieve their objectives.
Corporate strategy and resources should help the SBU to compete more eIIectively than iI the
unit operates on a completely independent basis. “To remain competitive, corporations must
provide their business units with low-cost capital, outstanding executives, corporate R&D,
centralized marketing where appropriate and other resources in the corporate arsenal.’
Corporate resources and synergies help the SBU establish its competitive advantage. The strate-
gic Iocus and priorities oI corporate strategy guide SBU strategies. Einally, top management•s
expectations Ior the corporation indicate the results expected Irom an SBU, including both
Iinancial and nonIinancial objectives. When viewed in this context, the SBUs become the action
centers oI the corporation. One criticism oI the SBU concept is that distinctive competencies are
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy îé
not leveraged across a corporation•s businesses. However, the successIul vertical movement oI
the retailer Gap into the higher-quality/price apparel segment with Banana Republic and Old
Navy into the lower-quality/price segment suggests just the opposite. Both initiatives leveraged
Gap•s competencies in design, outsourcing, and retail operations and merchandising.
ͬ®«½¬«®»ô ͧ-¬»³-ô ¿²¼ Ю±½»--»-ò This aspect oI strategy considers how the organiza-
tion controls and coordinates the activities oI its various business units and staII Iunctions.
Structure determines the composition oI the corporation. Systems are the Iormal policies and
procedures that enable the organization to operate. Processes consider the inIormal aspects oI the
organization•s activities:
In establishing a Iirm•s inIrastructure, corporate managers have a wide array oI organizational
mechanisms at their disposal, Irom the Iormal boxes in an organization chart to the more subtle
elements oI corporate culture and style. Because every corporate strategy is diIIerent, there is not
one optimal set oI structures, systems, and processes.
The logic oI how the business is designed is receiving considerable attention because oI the
threats oI customers being attracted by designs that better satisIy their needs and requirements.
“A business design is the totality oI how a company selects its customers, deIines and diIIeren-
tiates its oIIerings, deIines the tasks it will perIorm itselI and those it will outsource, conIigures
its resources, goes to market, creates utility Ior customers, and captures proIit.’
The business
design (or business model) provides a Iocus on more than the product and/or technology, instead
looking at the processes and relationships that comprise the design. Eor example, Dell•s direct
built-to-order business design is viewed by many business buyers as oIIering superior value.
ݱ®°±®¿¬» ݱ³°»¬·¬·ª» ß¼ª¿²¬¿¹»ò This part oI corporate strategy looks at whether
the strategy components create value through multimarket activity.
The strategic issues include
evaluating the extent to which a business contributes positive beneIits minus costs somewhere
in the corporation and whether the corporation creates more value Ior the business than might
ÛÈØ×Þ×Ì îòí
±º ¬¸» ×¼»¿´
Þ«-·²»-- ˲·¬
Source: Orville C. Walker
Jr., Harper W. Boyd, Jr.,
and Jean-claud Larreche,
Marketing Strategy
(Homewood, IL: Richard
D. Irwin, 1992), 76.
Copyright © The
McGraw-Hill Companies.
Used with permission.
ݸ¿®¿½¬»®·-¬·½ ο¬·±²¿´»
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½±²-·-¬»²¬ ¾«-·²»-- -¬®¿¬»¹§ò
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º±® ¬¸» -¿³» -»¬ ±º ½«-¬±³»®- ©·¬¸ -·³·´¿®
°®±¼«½¬-ò ̸·- »²¿¾´»- ¬¸» º·®³ ¬± ¿ª±·¼
¼«°´·½¿¬·±² ±º »ºº±®¬ ¿²¼ ¸»´°- ³¿¨·³·¦»
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º±® -«½½»--º«´ °»®º±®³¿²½»ô -«½¸ ¿- -¸¿®» ®»-±«®½»-ô -«½¸ ¿- ¿ ³¿²«º¿½¬«®·²¹ °´¿²¬
ÎúÜô °®±¼«½¬·±²ô ³¿®µ»¬·²¹ô ¿²¼ ±® ¿ -¿´»- º±®½»ô ©·¬¸ ±²» ±® ³±®» ¾«-·²»-- «²·¬-ô
¼·-¬®·¾«¬·±² ¾«¬ ¬¸» ÍÞË -¸±«´¼ ¸¿ª» ¿«¬¸±®·¬§ ¬± ¼»¬»®³·²»
¸±© ·¬- -¸¿®» ±º ¬¸» ¶±·²¬ ®»-±«®½»
©·´´ ¾» «-»¼ ¬± »ºº»½¬·ª»´§ ½¿®®§ ±«¬ ·¬- -¬®¿¬»¹§ò
Ø¿- ®»-°±²-·¾·´·¬§ º±® ·¬- ±©² Þ»½¿«-» ¬±° ³¿²¿¹»³»²¬ ½¿²²±¬ µ»»° ¿² »§»
°®±º·¬¿¾·´·¬§ ±² »ª»®§ ¼»½·-·±² ¿²¼ ¿½¬·±² ¬¿µ»² ¾§ ¿´´ ·¬-
ÍÞË-ô ¬¸» -«½½»-- ±º ¿² ÍÞË ¿²¼ ·¬- ³¿²¿¹»®-
³«-¬ ¾» ¶«¼¹»¼ ¾§ ³±²·¬±®·²¹ ·¬- °»®º±®³¿²½»
±ª»® ¬·³»ò ̸«-ô ¬¸» ÍÞË•- ³¿²¿¹»®- -¸±«´¼
¸¿ª» ½±²¬®±´ ±ª»® ¬¸» º¿½¬±®- ¬¸¿¬ ¿ºº»½¬
°»®º±®³¿²½» ¿²¼ ¬¸»² ¾» ¸»´¼ ¿½½±«²¬¿¾´»
º±® ¬¸» ±«¬½±³»-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
îè ﮬ Ѳ» Strategic Marketing
be created by another owner. JC Penney•s management decided in 2004 that its Eckerd retail
drug chain was not a good strategic Iit with the core business and the unit was sold to the CVC
drug chain.
Þ«-·²»-- ¿²¼ Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
During the 1990s many strategy guidelines were oIIered by consultants, executives, and
academics to guide business strategy Iormulation. These strategy paradigms propose a range
oI actions including reengineering the corporation, total quality management, building distinc-
tive competencies, reinventing the organization, and strategic partnering. It is not Ieasible to
review the various strategy concepts and methods that are available in many books, seminars,
and consulting services. The corporate strategy Iramework presented in this chapter oIIers a
basis Ior incorporating relevant strategy perspectives and guidelines.
An important issue is whether selecting a successIul strategy has a Iavorable impact on
results. Does the uncontrollable environment largely determine business perIormance or,
instead, will the organization•s strategy have a major impact on its perIormance? SuccessIul
businesses can be Iound operating in very demanding market and competitive environments.
Examples include JetBlue Airlines (air travel), Samsung (electronics), and Wal-Mart (discount
retailing). OI course, Iavorable environments would Iurther enhance the perIormance oI these
The evidence suggests that strategic choices matter.
While environmental Iactors such as
market demand, intensity oI competition, government, and social change inIluence corporate
perIormance, the strategic choices made by speciIic companies also have a signiIicant impact on
their perIormance. Importantly, the impact may be positive or negative. Eor example, Kmart
held the leading market position over Wal-Mart in 1980, yet Wal-Mart overtook Kmart by
investing heavily in inIormation systems and distribution to develop a powerIul customer-driv-
en, low-cost retail network. Kmart declared bankruptcy in early 2002.
Ü»ª»´±°·²¹ ¬¸» ͬ®¿¬»¹·½ д¿² º±® Û¿½¸ Þ«-·²»--
Strategic analysis is conducted to: (1) diagnose business units• strengths and limitations,
and (2) select strategies Ior maintaining or improving perIormance. Management decides
what priority to place on each business regarding resource allocation and implements a strat-
egy to meet the objectives Ior the SBU. The strategic plan indicates the action agenda Ior
the business. An example oI a business plan outline is shown in Exhibit 2.4. The “major
strategies’ shown in Part VI oI the plan include the strategic actions planned Ior business
development, marketing, quality, product and technology, human resources, manuIacturing/
Iacilities, and Iinance.
The strategic analysis guides establishing the SBU•s mission, setting objectives, and deter-
mining the strategy to use to meet these objectives. The SBU•s strategy indicates market target
priorities, available resources, Iinancial constraints, and other strategic guidelines needed to
develop marketing plans. Depending on the size and diversity oI the SBU, marketing plans may
either be included in the SBU plan or developed separately. II combined, the marketing portion
oI the business plan will represent halI or more oI the business plan. In a small business
(e.g., retail store, restaurant, etc.), the marketing portion oI the plan may account Ior most oI
the plan. Plans may be developed to obtain Iinancial support Ior a new venture, or to spell out
internal business and marketing strategies.
Þ«-·²»-- ¿²¼ Ó¿®µ»¬·²¹ ͬ®¿¬»¹§ λ´¿¬·±²-¸·°-
An understanding oI business purpose, scope, objectives, capabilities, and strategy is essential
in designing and implementing marketing strategies that are consistent with the corporate and
business unit plan oI action.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy îç
The chieI marketing executive•s business strategy responsibilities include (1) participating in
strategy Iormulation, and (2) developing marketing strategies that are consistent with business
strategy priorities and integrated with other Iunctional strategies. Since these two responsibili-
ties are closely interrelated, it is important to examine marketing•s role and Iunctions in both
areas to gain more insight into marketing•s responsibilities and contributions. Peter E. Drucker
describes this role:
Marketing is so basic that it cannot be considered a separate Iunction (i.e., a separate skill or work)
within the business, on a par with others such as manuIacturing or personnel. Marketing requires
separate work and a distinct group oI activities. But it is, Iirst, a central dimension oI the entire
business. It is the whole business seen Irom the point oI view oI its Iinal result, that is, Irom the
customer•s point oI view.
Erederick E. Webster describes the role oI the marketing manager: “At the corporate level,
marketing managers have a critical role to play as advocates Ior the customer and Ior a set oI
values and belieIs that put the customer Iirst in the Iirm•s decision making, and to communicate
the value proposition as part oI that culture throughout the organization, both internally and in
its multiple relationships and alliances.’
This role includes assessing market attractiveness
in the markets available to the Iirm, providing a customer orientation, and communicating the
Iirm•s speciIic value advantages.
ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹
Marketing strategy consists oI the analysis, strategy development, and implementation
activities in:
Developing a vision about the market(s) oI interest to the organization, selecting market target
strategies, setting objectives, and developing, implementing, and managing the marketing
program positioning strategies designed to meet the value requirements oI the customers in each
market target.
ÛÈØ×Þ×Ì îòì
д¿² Ñ«¬´·²»œ
ß Ø·¹¸ó
Source: Excerpt Irom
Rochelle O•Connor,
Facing Strategic Issues.
New Planning Guides and
Practices, Report No. 87
(New York: The
ConIerence Board,
1985), 32. Reprinted with
permission Irom The
ConIerence Board.
×ò Ó¿²¿¹»³»²¬ Í«³³¿®§
××ò Þ«-·²»-- Ü»º·²·¬·±²
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Ю±¹®»-- ³¿¼» ±² ³¿¶±® -¬®¿¬»¹·»-
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ᬻ²¬·¿´ ª»®-«- -»®ª»¼ ³¿®µ»¬
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Êò ݱ³°»¬·¬·ª» ß²¿´§-·-
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Õ»§ ±¾¶»½¬·ª»-
Ó¿¶±® -¬®¿¬»¹·»- ¬± ¿½½±³°´·-¸ ¬¸» ±¾¶»½¬·ª»-
ß½¬·±² °®±¹®¿³- ¬± ·³°´»³»²¬ -¬®¿¬»¹·»-
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Ú·²¿²½·¿´ °®±¶»½¬·±²- -¬¿¬»³»²¬
л®-±²²»´ °®±¶»½¬·±²-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
íð ﮬ Ѳ» Strategic Marketing
Strategic marketing is a market-driven process oI strategy development, taking into account
a constantly changing business environment and the need to deliver superior customer value.
The Iocus oI strategic marketing is on organizational perIormance rather than a primary concern
about increasing sales. Marketing strategy seeks to deliver superior customer value by combin-
ing the customer-inIluencing strategies oI the business into a coordinated set oI market-driven
actions. Strategic marketing links the organization with the environment and views marketing as
a responsibility oI the entire business rather than a specialized Iunction.
Because oI marketing•s boundary orientation between the organization and its customers,
channel members, and competition, marketing processes are central to the business strategy
planning process.
Strategic marketing provides the expertise Ior environmental monitoring, Ior
deciding what customer groups to serve, Ior guiding product speciIications, and Ior choosing
which competitors to position against. SuccessIully integrating cross-Iunctional strategies is
critical to providing superior customer value. Customer value requirements must be transIormed
into product design and production guidelines. Success in achieving high-quality goods and
services requires Iinding out which attributes oI goods and service quality drive customer value.
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§ Ю±½»--
The marketing strategy analysis, planning, implementation, and management process that we
Iollow is described in Exhibit 2.5. The strategy stages shown are examined and applied in Parts
II through V oI the book. The strategic situation analysis considers market and competitor analy-
sis, market segmentation, and continuous learning about markets. Designing marketing strategy
examines customer targeting and positioning strategies, marketing relationship strategies, and
planning Ior new products. Marketing program development consists oI product, distribution,
price, and promotion strategies designed and implemented to meet the value requirements oI
targeted buyers. Strategy implementation and management consider organizational design and
marketing strategy implementation and control. We overview each part oI the strategy process
in the rest oI this chapter.
ͬ®¿¬»¹·½ Í·¬«¿¬·±² ß²¿´§-·-
Marketing management uses the inIormation provided by the situation analysis to guide
the design oI a new strategy or change an existing strategy. The situation analysis is conducted
on a regular basis aIter the strategy is under way to evaluate strategy perIormance and identiIy
needed strategy changes.
ÛÈØ×Þ×Ì îòë
ͬ®¿¬»¹§ Ю±½»--
and managing
marketing strategy
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy íï
Ó¿®µ»¬ Ê·-·±²ô ͬ®«½¬«®»ô ¿²¼ ß²¿´§-·-ò Markets need to be deIined so that buyers and
competition can be analyzed. Eor a market to exist, there must be (1) people with particular
needs and wants and one or more products that can satisIy buyers• needs, and, (2) buyers willing
and able to purchase a product that satisIies their needs and wants. A product-market consists oI
a speciIic product (or line oI related products) that can satisIy a set oI needs and wants Ior the
people (or organizations) willing and able to purchase it. We use the term product to
indicate either a physical good or an intangible service.
Analyzing product-markets and Iorecasting how they will change in the Iuture are vital
to business and marketing planning. Decisions to enter new product-markets, how to serve
existing product-markets, and when to exit unattractive product-markets are critical strategic
choices. The objective is to identiIy and describe the buyers, understand their preIerences
Ior products, estimate the size and rate oI growth oI the market, and Iind out what companies
and products are competing in the market.
Evaluation oI competitors• strategies, strengths, limitations, and plans is also a key aspect oI
the situation analysis. It is important to identiIy both existing and potential competitors.
Competitor analysis includes evaluating each key competitor. The analyses highlight the com-
petition•s important strengths and weaknesses. A key issue is trying to Iigure out what each
competitor is likely to do in the Iuture.
Google Inc. provides an interesting example oI a company that has reinvented the Internet
search process to build a business now estimated to be worth $20 billion. Google•s massive bank
oI servers process more than 3,000 searches every second oI the day. Launched in 1998, Google
powers over 50 percent oI all Web searches. The start-up was based on a breakthrough search algo-
rithm and a super-Iast search process. The Google Iounders kept their home page Iree oI advertis-
ing and links to other Web pages; scorned advertising in Iavor oI word-oI-mouth to build the brand,
and built a business out oI selling advertising alongside search results. Nonetheless, Google Iaces
major competitive initiatives.
The competitive situation Iacing Google is outlined in Exhibit 2.6.
Í»¹³»²¬·²¹ Ó¿®µ»¬-ò Market segmentation looks at the nature and extent oI diversity oI
buyers• needs and wants in a market. It oIIers an opportunity Ior an organization to Iocus
its business capabilities on the requirements oI one or more groups oI buyers. The objective oI
segmentation is to examine diIIerences in needs and wants and to identiIy the segments (sub-
groups) within the product-market oI interest. Each segment contains buyers with similar needs
and wants Ior the product category oI interest to management. The segments are described using
the various characteristics oI people, the reasons that they buy or use certain products, and their
preIerences Ior certain brands oI products. Likewise, segments oI industrial product-markets
may be Iormed according to the type oI industry, the uses Ior the product, Irequency oI product
purchase, and various other Iactors.
Each segment may vary quite a bit Irom the average characteristics oI the entire product-
market. The similarities oI buyers• needs within a segment enable better targeting oI the organi-
zation•s capabilities to buyers with corresponding value requirements. Eor example, active
individuals comprise an important market segment Ior Gatorade, the popular thirst-quenching
sports drink. Teenagers are an important market segment Ior carbonated beverages since they
have not yet developed strong brand preIerences.
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬ Ó¿®µ»¬-ò One oI the major realities oI achieving business
success today is the necessity oI understanding markets and competition. Sensing what is
happening and is likely to occur in the Iuture is complicated by competitive threats that may
exist beyond traditional industry boundaries. Eor example, microwave dinners compete with
McDonald•s Iast Ioods, CD-ROMs compete with books, and Iax transmission competes with
overnight letter delivery.
Managers and proIessionals in market-driven Iirms are able to sense what is happening in
their markets, develop business and marketing strategies to seize opportunities and counter
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
íî ﮬ Ѳ» Strategic Marketing
threats, and anticipate what the market will be like in the Iuture.
Several market sensing meth-
ods are available to guide the collection and analysis oI inIormation. Eor example, company
databases on customers created through Customer Relationship Management systems oIIer
valuable data mining opportunities.
Ü»-·¹²·²¹ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹·»-
The strategic situation analysis phase oI the marketing strategy process identiIies market
opportunities, deIines market segments, evaluates competition, and assesses the organization•s
strengths and weaknesses. Market sensing inIormation plays a key role in designing marketing
strategy, which includes market targeting and positioning strategies, building marketing
relationships, and developing and introducing new products. The Strategy Eeature describes
how BMW is rebuilding its positioning in the global premium automobile market.
ÛÈØ×Þ×Ì îòê
̸» Ñ«¬´±±µ º±®
Ù±±¹´» ·² ¬¸»
ײ¬»®²»¬ Í»¿®½¸
Source: Ben Elgin,
“Google,’ BusinessWeek,
May 3, 2004, 50›56.
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½±³¾·²»¼ ®»ª»²«»- ±º Ç¿¸±± ¿²¼ Ù±±¹´»ò
ß¼ª»®¬·-»®-æ É·¬¸ ïëðôððð -³¿´´ ¾«-·²»-- ¿¼ª»®¬·-»®-ô Ù±±¹´» ¸¿- ëðû ³±®» ¬¸¿² Ç¿¸±±ò
Ç¿¸±±•- ®»ª»²«» ©·´´ -«ºº»® »ª»² ³±®» ·º Ó·½®±-±º¬ ¼»½·¼»- ¬± ½®»¿¬» ·¬- ±©² ¿¼ °®±¼«½¬ ¿²¼
-¬±° ½¿®®§·²¹ Ç¿¸±±•- -»¿®½¸ ¿¼-ò
Û¨»½«¬·±²æ Ù±±¹´»•- «²½±²ª»²¬·±²¿´ ³¿²¿¹»³»²¬ -¬®«½¬«®» ³¿§ ·³°»¼» ¼»½·-·ª» ¿½¬·±²ò
Ó·½®±-±º¬ ¸¿- ¬± ¾«·´¼ ¿ -»¿®½¸ »²¹·²» º®±³ -½®¿¬½¸ò Ç¿¸±± ´±±µ- -¬®±²¹»-¬ ¸»®»ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼ ͬ®¿¬»¹·½ б-·¬·±²·²¹ò Marketing advantage is inIluenced by
several situational Iactors including industry characteristics, type oI Iirm (e.g., size), extent oI
diIIerentiation in buyers• needs, and the speciIic competitive advantage(s) oI the company
designing the marketing strategy. The core issue is deciding how, when, and where to compete,
given a Iirm•s market and competitive environment.
The purpose oI the ³¿®µ»¬ ¬¿®¹»¬·²¹ -¬®¿¬»¹§ is to select the people (or organizations)
that management wishes to serve in the product-market. When buyers• needs and wants vary, the
market target is usually one or more segments oI the product-market. Once the segments are
identiIied and their relative importance to the Iirm determined, the targeting strategy is selected.
The objective is to Iind the best match between the value requirements oI each segment and the
organization•s distinctive capabilities. The targeting decision is the Iocal point oI marketing
strategy since targeting guides the setting oI objectives and developing a positioning strategy.
The options range Irom targeting most oI the segments to targeting one or a Iew segments
in a product-market. The targeting strategy may be inIluenced by the market•s maturity, the
diversity oI buyers• needs and preIerences, the Iirm•s size compared to competition, corporate
resources and priorities, and the volume oI sales required to achieve Iavorable Iinancial results.
Deciding the objectives Ior each market target spells out the results expected by management.
Examples oI market target objectives are desired levels oI sales, market share, customer reten-
tion, proIit contribution, and customer satisIaction. Marketing objectives may also be set Ior the
entire business unit and Ior speciIic marketing activities such as advertising.
The targeting and positioning strategies used by ConAgra Inc. Ior the Healthy Choice Irozen
Iood line helped the new brand successIully enter the market in the early 1990s. The low-
calorie, low-cholesterol, low-sodium Irozen Iood line quickly gained a strong market position.
Erozen Iood is a very competitive supermarket category because Ireezer space in stores is limited.
Healthy Choice was introduced into the stagnant male-oriented Irozen dinner segment oI the mar-
ket. It was positioned as a “health product.’ This positioning was successIul even though it conIlicts
with conventional marketing guidelines: The Iemale-oriented Irozen Iood is the rapid growth seg-
ment and “health’ positioning had been used to describe poor-tasting, low-calorie brands. Health
is an issue oI great concern to men and the taste oI Healthy Choice is appealing to consumers who
try the brand. The new line oI Irozen Ioods gained an impressive 25 percent market share in the
ͬ®¿¬»¹§ Ú»¿¬«®»
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øÞÓÉ÷ ©¿- ¿² ·³°»®¿¬·ª» ¿- ¬¸» ¹´±¾¿´ ¿«¬± ³¿®µ»¬
º®¿¹³»²¬»¼ ·²¬± ²»© ²·½¸»-ô ¿²¼ ¼»³¿²¼ º±® ´«¨«®§
-»¼¿²-œÞÓÉ•- ½±®» ¾«-·²»--œ-¬¿®¬»¼ ¬± -¸®·²µ ¿- ¿
°»®½»²¬¿¹» ±º ¿´´ ¿«¬± -¿´»-ò
̸» ¹±¿´ ·- ¬± »¨°¿²¼ ¿²²«¿´ -¿´»- ¾§ ìð °»®½»²¬ ±ª»®
º·ª» §»¿®-ô ¿²¼ ¬± ¾»¿¬ Ó»®½»¼»-óÞ»²¦ ¿- ¬¸» ²«³¾»®
±²» ³¿µ»® ±º °®»³·«³ ½¿®- ·² ¬¸» ©±®´¼ò
̸» ½±³°¿²§ ´¿«²½¸»¼ ¿ ²»© ³±¼»´ ²»¿®´§ »ª»®§
¬¸®»» ³±²¬¸- ¼«®·²¹ îððì ©·¬¸ ³±®» °´¿²²»¼ º±®
îðð뜮¿²¹·²¹ º®±³ ¬¸» α´´- ᧽» и¿²¬±³ô ¬± ¬¸»
½«´¬ó½¿® ¬¸» Ó×Ò×ô ¬± ¿ ²»© ë Í»®·»- -»¼¿²ô ¬± ¬¸» Èíô
¿ ¼±©²-·¦»¼ -°±®¬-󫬷´·¬§ ª»¸·½´»ò
“ÞÓÉ ·- ¬¸» ¾®¿²¼ °»±°´» ¿-°·®» ¬± ±©²ò ɸ»² °»±ó
°´» ¹»¬ ¬± ¬¸» °±·²¬ ¬¸»§ ½¿² ¿ºº±®¼ ¿ ´«¨«®§ ½¿®ô ¬¸»§
¾«§ ¿ ÞÓÉ í Í»®·»-ô’ -¿§- ±²» ·²¼«-¬®§ »¨°»®¬ò
ÞÓÉ -¸±©- ¿² ±¾-»--·±² ©·¬¸ °»®º±®³¿²½» ¿²¼
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¬»½¸²·½¿´ ¿²¼ ¼»-·¹² ·²²±ª¿¬·±²ò
“ÞÓÉ ½¿°¬«®»¼ ¬¸» °»®º±®³¿²½» -°¿½» ·² ¬¸» ³¿®µ»¬
º±® ¬¸»³-»´ª»-ò ̸»§ ±©² ·¬ô’ -¿§- ±²» ½±³³»²¬¿¬±®ò
ײ ¬¸» ˲·¬»¼ ͬ¿¬»-ô ÞÓÉ -¿´»- ¸¿ª» ±ª»®¬¿µ»² ¬¸±-»
±º ̱§±¬¿•- Ô»¨«-ô ¿²¼ ¿®» -«¾-¬¿²¬·¿´´§ ¿¸»¿¼ ±º
Ó»®½»¼»-óÞ»²¦ô ¿- ¬¸» °®»³·«³ ½¿® ³¿®µ»¬ ´»¿¼»®ò
ͱ«®½»æ Ù¿·´ Û¼³±²¼-±²ô ݸ®·- п´³»®·ô Þ®·¿² Ù®±©ô ¿²¼ ݸ®·-¬·²»
Ì·»®²»§ô “ÞÓÉô’ Þ«-·²»--É»»µô Ö«²» çô îððíô ïç›îìò
ÞÓɜб-·¬·±²·²¹ Ю»³·«³ ß«¬±³±¾·´»-
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy íí
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
íì ﮬ Ѳ» Strategic Marketing
$700 million Irozen dinner market. Healthy Choice extended its brand in the early 1990s to include
breakIast items, deli meats, and soups. By 1992 intense price competition, new products, and pro-
motion actions oI the competition eroded Healthy Choice•s share oI the Irozen dinner market,
demonstrating the realities oI competing against experienced Iood marketers. Nonetheless, during
the 1990s Healthy Choice built a strong brand position across several Iood categories.
The marketing program °±-·¬·±²·²¹ -¬®¿¬»¹§ is the combination oI product, value-chain,
price, and promotion strategies a Iirm uses to position itselI against its key competitors in meet-
ing the needs and wants oI the market target. The strategies and tactics used to gain a Iavorable
position are called the marketing mix or the marketing program.
The positioning strategy seeks to position the brand in the eyes and mind oI the buyer and dis-
tinguish the product Irom the competition. The product, distribution, price, and promotion strat-
egy components make up a bundle oI actions that are used to inIluence buyers• positioning oI a
brand. General Motors Corp.•s (GMC) positioning problems with its automobile brands illus-
trate the strategic importance oI positioning. In 1995, GMC launched a major marketing eIIort
to reposition its brands. The objective was to identiIy the market segment targeted by each brand
and to develop a unique positioning strategy appropriate Ior the target. The problem is that GM•s
car brands are perceived by many buyers to be very similar. The objective oI GM•s new
strategy is to give each brand a distinct identity geared to the preIerences oI the brand•s market
target. GM•s management decided to drop the Oldsmobile brand in 2000, apparently because
GM was unable to sustain a competitive position Ior the brand.
Ó¿®µ»¬·²¹ λ´¿¬·±²-¸·° ͬ®¿¬»¹·»-ò Marketing relationship partners may include end
user customers, marketing channel members, suppliers, competitor alliances, and internal teams.
The driving Iorce underlying these relationships is that a company may enhance its ability to
satisIy customers and cope with a rapidly changing business environment through collaboration
oI the parties involved. Relationship strategies gained new importance in the last decade as
customers became more demanding and competition became more intense. Building long-term
relationships with customers and value-chain partners oIIers companies a way to provide supe-
rior customer value. Although building collaborative relationships may not always be the best
course oI action, this avenue Ior gaining a competitive edge is increasing in popularity.
Strategic partnering has become an important strategic initiative Ior many well-known com-
panies and brands. Many Iirms outsource the manuIacturing oI their products. Examples include
Motorola cell phones, Baskin-Robbins ice cream, Calvin Klein jeans, Pepsi beverages, and Nike
Iootwear. Strong relationships with outsourcing partners are vital to the success oI these power-
Iul brands. The trend oI the 21st century is partnering rather than vertical integration.
д¿²²·²¹ º±® Ò»© Ю±¼«½¬-ò New products are needed to replace old products because oI
declining sales and proIits. Strategies Ior developing and positioning new market entries involve
all Iunctions oI the business. Closely coordinated new-product planning is essential to satisIy
customer requirements and produce products with high quality at competitive prices. New-
product decisions include Iinding and evaluating ideas, selecting the most promising Ior devel-
opment, designing the products, developing marketing programs, use and market testing the
products, and introducing them to the market.
The new-product planning process starts by identiIying gaps in customer satisIaction. The
diIIerences between existing product attributes and those desired by customers oIIer opportuni-
ties Ior new and improved products. Over the decades 3M Co. was recognized as one oI corpo-
rate America•s most inventive and innovative companies.
Surprisingly, this core strength
began to driIt in the last decade. 3M has not had a real winner since it launched Post-it Notes
nearly 25 years ago. The new CEO is aggressively working to renew 3M•s innovative culture
and processes through redirection oI R&D eIIorts, implementing Total Quality Management
(Six Sigma), and acquiring innovative companies. 3M•s innovation priorities highlight the
pivotal role oI new-product planning in business strategy.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
Ó¿®µ»¬óÜ®·ª»² Ю±¹®¿³ Ü»ª»´±°³»²¬
Market targeting and positioning strategies Ior new and existing products guide the choice oI
strategies Ior the marketing program components. Product, distribution, price, and promotion
strategies are combined to Iorm the positioning strategy selected Ior each market target. The
relationship oI the positioning components to the market target is shown in Exhibit 2.7.
The marketing program (mix) strategies implement the positioning strategy.
The objective
is to achieve Iavorable positioning while allocating Iinancial, human, and production resources
to markets, customers, and products as eIIectively and eIIiciently as possible.
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ïð ½±«²¬®·»-ò
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øéïû÷ô Ú®¿²½» øêéû÷ô Ö¿°¿² øéìû÷ô ¿²¼ Ó»¨·½± øèëû÷ò
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ͱ«®½»æ Ý¿®´¿ ο°±°±®¬ô “Ò»-¬´7•- Þ®¿²¼ Þ«·´¼·²¹ Ó¿½¸·²»ô’
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ݸ¿°¬»® î Corporate, Business, and Marketing Strategy íë
ÛÈØ×Þ×Ì îòé
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
íê ﮬ Ѳ» Strategic Marketing
ͬ®¿¬»¹·½ Þ®¿²¼ Ó¿²¿¹»³»²¬ò Products (goods and services) oIten are the Iocal point oI
positioning strategy, particularly when companies or business units adopt organizational
approaches emphasizing product or brand management. Product strategy includes: (1) develop-
ing plans Ior new products, (2) managing programs Ior successIul products, and (3) deciding
what to do about problem products (e.g., reduce costs or improve the product). Strategic brand
management consists oI building brand value (equity) and managing the organization•s portIolio
oI brands Ior overall perIormance.
Nestle, the Swiss Iood company, has a successIul product and brand management strategy
Ior competing in world markets. As described in the Global Eeature, the company•s brand
strategy includes responding to local preIerences, providing career tracks to keep managers in
the same regional areas, and applying global Iood processing technology to gain cost and
quality advantages.
Ê¿´«»óݸ¿·²ô Ю·½»ô ¿²¼ Ю±³±¬·±² ͬ®¿¬»¹·»-ò One oI the major issues in managing
the marketing program is deciding how to integrate the components oI the mix. Product, distri-
bution, price, and promotion strategies are shaped into a coordinated plan oI action. Each
component helps to inIluence buyers in their positioning oI products. II the activities oI these
mix components are not coordinated, the actions may conIlict and resources may be wasted. Eor
example, iI the advertising messages Ior a company•s brand stress quality and perIormance, but
salespeople emphasize low price, buyers will be conIused and brand damage may occur.
Market target buyers may be contacted on a direct basis using the Iirm•s sales Iorce or by direct
marketing contact (e.g., Internet), or, instead, through a value-added chain (distribution channel)
oI marketing intermediaries (e.g., wholesalers, retailers, or dealers). Distribution channels are
oIten used in linking producers with end user household and business markets. Decisions that
need to be made include the type oI channel organizations to use, the extent oI channel manage-
ment perIormed by the Iirm, and the intensity oI distribution appropriate Ior the product or
service. The choice oI distribution channels inIluences buyers• positioning oI the brand. Eor
example, expensive watches like the Rolex brand are available Irom a limited number oI retailers
with prestigious images. These retailers help to reinIorce the brand•s image.
Price also plays an important role in positioning a product or service. Customer reaction
to alternative prices, the cost oI the product, the prices oI the competition, and various legal
and ethical Iactors establish the extent oI Ilexibility management has in setting prices. Price
strategy involves choosing the role oI price in the positioning strategy, including the desired
positioning oI the product or brand as well as the margins necessary to satisIy and motivate
distribution channel participants. Price may be used as an active (visible) component oI
marketing strategy, or, instead, marketing emphasis may be on other marketing mix compo-
nents (e.g., product quality).
Advertising, sales promotion, the sales Iorce, direct marketing, and public relations help
the organization to communicate with its customers, value-chain partners, the public, and other
target audiences. These activities make up the promotion strategy, which perIorms an essential
role in communicating the positioning strategy to buyers and other relevant inIluences.
Promotion inIorms, reminds, and persuades buyers and others who inIluence the purchasing
process. Hundreds oI billions oI dollars are spent annually on promotion activities. This
mandates planning and executing promotion decisions as eIIectively and eIIiciently as possible.
׳°´»³»²¬·²¹ ¿²¼ Ó¿²¿¹·²¹ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§
Selecting the customers to target and the positioning strategy Ior each target moves marketing
strategy development to the action stage (Exhibit 2.5). This stage considers designing the
marketing organization and implementing and managing the strategy.
Ü»-·¹²·²¹ Ûºº»½¬·ª» Ó¿®µ»¬óÜ®·ª»² Ñ®¹¿²·¦¿¬·±²-ò An eIIective organization design
matches people and work responsibilities in a way that is best Ior accomplishing the Iirm•s
marketing strategy. Deciding how to assemble people into organizational units and assign respon-
sibility to the various mix components that make up the marketing strategy are important
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy íé
inIluences on perIormance. Organizational structures and processes must be matched to the busi-
ness and marketing strategies that are developed and implemented. Organizational design needs to
be evaluated on a regular basis to assess its adequacy and to identiIy necessary changes.
Restructuring and reengineering oI many organizations in the 1990s led to many changes in the
structures oI marketing units. Organizational change continues to be an important initiative in the
21st century.
ͬ®¿¬»¹§ ׳°´»³»²¬¿¬·±² ¿²¼ ݱ²¬®±´ò Marketing strategy implementation and control
consist oI: (1) preparing the marketing plan and budget; (2) implementing the plan; and
(3) using the plan in managing and controlling the strategy on an ongoing basis. The marketing
plan includes details concerning targeting, positioning, and marketing mix activities. The plan
spells out what is going to happen over the planning period, who is responsible, how much it will
cost, and the expected results (e.g., sales Iorecasts). We discuss the preparation oI the marketing
plan in the last section oI the chapter.
The marketing plan includes action guidelines Ior the activities to be implemented, who does
what, the dates and location oI implementation, and how implementation will be accomplished.
Several Iactors contribute to implementation eIIectiveness including the skills and commitment
oI the people involved, organizational design, incentives, and the eIIectiveness oI communica-
tion within the organization and externally.
Marketing strategy is an ongoing process oI making decisions, implementing them, and track-
ing their eIIectiveness over time. In terms oI its time requirements, strategic evaluation is Iar
more demanding than planning. Evaluation and control are concerned with tracking perIormance
and, when necessary, altering plans to keep perIormance on track. Evaluation also includes look-
ing Ior new opportunities and potential threats in the Iuture. It is the connecting link in the strate-
gic marketing planning process shown in Exhibit 2.5. By serving as both the last stage and the
Iirst stage (evaluation beIore taking action) in the planning process, strategic evaluation assures
that strategy is an ongoing activity.
Rubbermaid Inc. oIIers an interesting insight into evaluation and control. AIter more than a
decade oI superior perIormance, the company began to experience problems in 1995.
slowed down and proIits declined. Increases in the costs oI resin used in plastic products
triggered price increases to retailers. This irritated retailers, who reduced Rubbermaid•s shelI
space. The already slow consumer demand Ior housewares was Iurther impacted by higher retail
prices. Rubbermaid•s management implemented cost reductions, sped up new-product introduc-
tions, and increased promotions to consumers to move results closer to expectations.
ײ¬»®²»¬ ͬ®¿¬»¹§
The explosive growth oI Internet initiatives has resulted in a variety oI Web strategies which
may impact the business and marketing strategies oI existing Iirms, and lead to the Iormation oI
new business designs. We consider the reasons why the Internet is a major Iorce Ior change, and
discuss alternative Internet strategies Ior existing companies and new business ventures.
Ó¿¶±® Ú±®½» º±® ݸ¿²¹»
The Internet era provides a new way oI developing relationships between end user customers,
value-chain members, and alliance partners.
The Web oIIers a compelling opportunity to enhance
one-on-one relationships. These impressive knowledge systems enable organizations to link
pricing, product, design, and promotion inIormation with suppliers and customers.
Various strategic initiatives are altering the basic processes underlying business transac-
tions. The reverse auction is illustrative. The reverse designation is because prices are being
bid downward rather than upward. Suppliers oI business-to-business companies have the
opportunity via the Internet to oIIer competing bids to the customer. At the end oI the process
the low bid obtains the sale. Other Web-based initiatives are impacting buying processes. The
eIIects can be dramatic. Major corporate buyers like Boeing and Motorola have warned that
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
íè ﮬ Ѳ» Strategic Marketing
suppliers not making the transition to Web-based commerce may Iind themselves locked out
oI their businesses. The Covisint online exchange, Iormed by General Motors, Daimler-
Chrysler, and Eord and now including other auto manuIacturers, already links tens oI thou-
sands oI suppliers to these major customers, and is seen as a prototype Ior other “industry-led’
online exchanges.
It is apparent that the Internet has a pervasive potential Ior change that is likely to impact
a wide range oI products and businesses. The challenge Ior existing businesses is how to
capture the advantages oI the Internet without damaging important existing relationships.
Avon Products Corp.•s challenges in sustaining its direct sales model while pursuing an Internet
strategy are illustrative. In 2000, aIter 115 years oI selling to the consumer at home, Avon changed
its strategy and took its products into department stores and shopping malls Ior the Iirst time.
ͬ®¿¬»¹§ ¿²¼ ¬¸» ײ¬»®²»¬
While some authorities argue that the Internet will make conventional strategies obsolete, a more
compelling logic is that the Internet is a powerIul complement to traditional business and
marketing strategies.
Nonetheless, competitive boundaries are likely to be altered and compe-
tition will become more intense. Tesco, the leading British supermarket retailer, illustrates both
points. Tesco has adopted a “bricks and clicks’ strategy Ior its Tesco Direct online business,
combining the strength oI its chain oI stores with Internet-based ordering. Groceries are selected
on a Web page reIlecting the customer•s local store, and are picked manually Irom the shelves
oI that same store Ior delivery to a customer. No additional warehousing or picking Iacilities are
required. Tesco is now leveraging its online customer base to sell a growing range oI high-
margin nonIood products, Irom Iresh Ilowers to apparel, as well as Iinancial services. They may
even sell automobiles by this route.
While there are various strategy initiatives regarding the Internet, they correspond to one oI
the Iollowing:
· Eormation oI a separate business model as an independent venture or an initiative by an
existing company.
Amazon.com Inc. is an example oI the Iormer whereas Sabre•s Travelocity.Com venture was
initiated by an existing company.
· Creation oI a separate value-chain channel direct Irom the producer to the end user.
Dell Inc. uses this Internet strategy.
· Using the Internet as an inIormation resource.
This initiative is used by various organizations such as BusinessWeek.
· Using the Web Ior advertising and sales promotion activities.
These activities may be provided Ior one or more sponsors by a Web-based enterprise that oIIers
users inIormation at no charge. Ad revenues support the enterprise.
An organization may pursue more than one oI the above initiatives, and the strategies may be
interrelated. Also, alliances may be Iormed between traditional companies and Internet ventures.
Independent Internet business models have experienced several Iailures. In more than a Iew
cases, the Iailures have been due to management•s optimistic estimation oI patronage and the
Iailure to consider basic business and marketing strategy guidelines. The analysis oI Webvan•s
lack oI success in the Internet groceries market is described in the Internet Eeature. It is notable
that the most successIul Internet grocery business in the world is operated by Tesco in the United
Kingdom. The Internet channel is seen as only one way to reach the consumer, alongside
regular stores, not a separate business.
Internet strategy is Iurther considered in Chapters 10 and 13. Internet Eeatures are included
in many chapters.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
Ю»°¿®·²¹ ¬¸» Ó¿®µ»¬·²¹ д¿²
Marketing plans vary widely in scope and detail. Nevertheless, all plans need to be based on
analyses oI the product-market and segments, industry and competitive structure, and the
organization•s value proposition. We look at several important planning issues that provide a
checklist Ior plan preparation.
д¿²²·²¹ λ´¿¬·±²-¸·°- ¿²¼ Ú®»¯«»²½§
Marketing plans are developed, implemented, evaluated, and adjusted to keep the strategy on
target. Since the marketing strategy normally extends beyond one year, it is useIul to develop
a three-year strategic plan and an annual plan to manage marketing activities during the year.
Budgets Ior marketing activities (e.g., advertising) are set annually. Planning is really a series oI
annual plans guided by the marketing strategic plan.
The Irequency oI planning activities varies by company and marketing activity. Market
targeting and positioning strategies are not changed signiIicantly during the year. Tactical
changes in product, distribution, price, and promotion strategies may be included in the annual
plan. Eor example, the aggressive response oI competitors to Healthy Choice•s successIul mar-
ket entry required changes in Con Agra•s pricing and promotion tactics Ior the Irozen Iood line.
д¿²²·²¹ ݱ²-·¼»®¿¬·±²-
Suppose that you need to develop a plan Ior a new product to be introduced into the national
market next year. The plan Ior the introduction should include the expected results (objectives),
market targets, actions, responsibilities, schedules, and dates. The plan indicates details and
deadlines, product plans, a market introduction program, advertising and sales promotion
actions, employee training, and other inIormation necessary to launching the product. The plan
ײ¬»®²»¬ Ú»¿¬«®»
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»²¼´»--ô’ ²»© ÝÛÑ Î±¾»®¬ Í©¿² -¿·¼ ·² ¿ Ö«²» ·²¬»®ª·»©ò
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©¿§- ±º -»®ª·½·²¹ ¬¸»-» ³¿®µ»¬-ô’ -¿§- ×ÞÓ•- Ó·²¹ Ì-¿·ò
ͱ«®½»æ Ô·²¼¿ Ø·³»´-¬»·²ô “ݱ³³»²¬¿®§ô’ Þ«-·²»--É»»µô Ö«´§ îíô
îððïô ìíò
É»¾ª¿² Ô»º¬ ¬¸» Þ¿-·½- ±² ¬¸» ͸»´º
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy íç
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ìð ﮬ Ѳ» Strategic Marketing
needs to answer a series oI questionsœwhat, when, where, who, how, and whyœIor each action
targeted Ior completion during the planning period.
λ-°±²-·¾·´·¬§ º±® Ю»°¿®·²¹ д¿²-ò A marketing executive or team is responsible Ior
preparing the marketing plan. Some companies combine the business plan and the marketing
plan into a single planning activity. Regardless oI the Iormat used, the marketing plan is devel-
oped in close coordination with the strategic plan Ior the business. There is also much greater
emphasis today to involve all business Iunctions in the marketing planning process. A product
or marketing manager may draIt the Iormal plan Ior his/her area oI responsibility, coordinating
and receiving inputs Irom advertising, marketing research, sales, and other marketing specialists.
Coordination and involvement with other business Iunctions (R&D, Iinance, operations) are also
д¿²²·²¹ ˲·¬ò The choice oI the planning unit may vary due to the product-market portIo-
lio oI the organization. Some Iirms plan and manage by individual products or brands. Others
work with product lines, markets, or speciIic customers. The planning unit may reIlect how mar-
keting activities and responsibilities are organized. The market target is a useIul Iocus Ior plan-
ning regardless oI how the plan is aggregated. Using the target as the basis Ior planning helps to
place the customer in the center oI the planning process and keeps the positioning strategy linked
to the market target.
Ю»°¿®·²¹ ¬¸» Ó¿®µ»¬·²¹ д¿²
The ConIerence Board oIIers several examples oI plan Iormats in its excellent reports on mar-
keting planning.
Eormat and content depend on the size oI the organization, managerial respon-
sibility Ior planning, product and market scope, and other situational Iactors. An outline Ior a
typical marketing plan is shown in Exhibit 2.8. We take a brieI look at the major parts oI the
planning outline to illustrate the nature and scope oI the planning process. In this discussion the
market target serves as the planning unit.
̸» Í·¬«¿¬·±² Í«³³¿®§ò This part oI the plan describes the market and its important
characteristics, size estimates, and growth projections. Market segment analysis indicates the
segments to be targeted and their relative importance. The competitor analysis indicates the key
competitors (actual and potential), their strengths and weaknesses, probable Iuture actions,
and the organization•s competitive advantage(s) in each segment oI interest. The summary
should be very brieI. Supporting detailed inIormation Ior the summary can be placed in an
appendix or in a separate analysis.
Ü»-½®·¾» ¬¸» Ó¿®µ»¬ Ì¿®¹»¬ò A description oI each market target, size and growth rate,
end users• characteristics, positioning strategy guidelines, and other available inIormation use-
Iul in planning and implementation are essential parts oI the plan. When two or more targets are
involved, it is helpIul to indicate priorities Ior guiding resource allocation.
Ѿ¶»½¬·ª»- º±® ¬¸» Ó¿®µ»¬ Ì¿®¹»¬ø-÷ò Here we spell out what the marketing strategy
is expected to accomplish during the planning period. Objectives are needed Ior each market
target, indicating Iinancial perIormance, sales, market position, customer satisIaction, and other
desired results. Objectives are also usually included Ior each marketing program component.
Ó¿®µ»¬·²¹ Ю±¹®¿³ б-·¬·±²·²¹ ͬ®¿¬»¹§ò The positioning statement indicates how
management wants the targeted customers and prospects to perceive the brand. SpeciIic strategies
and tactics Ior product, distribution, price, and promotion are explained in this part oI the plan.
Actions to be taken, responsibilities, time schedules, and other implementation inIormation are
included at this point in the plan.
Planning and implementation responsibilities oIten involve more than one person or depart-
ment. One approach is to assign a planning team the responsibility Ior each market target and
marketing mix component. Product and geographical responsibilities are sometimes allocated to
individuals or teams. The responsibilities and coordination requirements need to be indicated
Ior marketing units and other business Iunctions. Importantly, the planning process should
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy ìï
encourage participation Irom all oI the areas responsible Ior implementing the plan. Contingency
plans may be included in the plan. The contingencies consider possible actions iI the anticipated
planning environment is diIIerent Irom what actually occurs.
Ú±®»½¿-¬·²¹ ¿²¼ Þ«¼¹»¬·²¹ò Einancial planning includes Iorecasting revenues and
proIits and estimating the costs necessary to carry out the marketing plan (see the Appendix to
Chapter 2 Ior Iinancial analysis details). The people responsible Ior market target, product,
geographical area, or other units should prepare the Iorecasts and budgets. Comparative data
on sales, proIits, and expenses Ior prior years is useIul to link the plan to previous results.
ײ¬»®²¿¬·±²¿´ д¿²²·²¹ Ю±½»--ò Planning Ior global operations is more complex than
domestic planning. The major phases oI planning Ior a multinational Iirm operating in several
countries are shown in Exhibit 2.9. The Iirst step in the planning process is the market opportu-
nity analysis. This may represent a major activity Ior a company that is entering a Ioreign
market Ior the Iirst time. Several applications are discussed in subsequent chapters. Because oI
the risks and uncertainties in international markets, the market assessment is very important Ior
both new market entrants and experienced Iirms.
ÛÈØ×Þ×Ì îòè
Ñ«¬´·²» º±®
Ю»°¿®·²¹ ¿²
Ó¿®µ»¬·²¹ д¿²
ͬ®¿¬»¹·½ Í·¬«¿¬·±² Í«³³¿®§
ß -«³³¿®§ ±º ¬¸» -¬®¿¬»¹·½ -·¬«¿¬·±² º±® ¬¸» °´¿²²·²¹ «²·¬ ø¾«-·²»-- «²·¬ô ³¿®µ»¬ -»¹³»²¬ô
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Ûò Ó¿®µ»¬·²¹ λ-»¿®½¸
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Úò ݱ±®¼·²¿¬·±² ©·¬¸ Ѭ¸»® Þ«-·²»-- Ú«²½¬·±²-
Í°»½·º§ ¬¸» ®»-°±²-·¾·´·¬·»- ¿²¼ ¿½¬·ª·¬·»- ±º ±¬¸»® ¼»°¿®¬³»²¬- ¬¸¿¬ ¸¿ª» ¿² ·³°±®¬¿²¬
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¬¸» º±®»½¿-¬ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ìî ﮬ Ѳ» Strategic Marketing
Phase 1 determines which targets to pursue and establishes relative priorities Ior resource
allocation. Phase 2 Iits the positioning strategy to each target market. The objective is to match
the mix requirements to the needs identiIied and the positioning concept management selects.
Phase 3 consists oI the preparation oI the marketing plan. Included are the situation assessment,
objectives, strategy and tactics, budgets and Iorecasts, and action programs. Einally, in Phase 4,
the plan is implemented and managed. Results are evaluated and strategies adjusted when
necessary to improve results. Although the international market planning process is similar to
planning domestic marketing strategies, the environment is Iar more complex and uncertain
in international markets.
ÛÈØ×Þ×Ì îòç
Source: Philip R. Catteora
and John L. Graham,
International Marketing,
12th ed. (Burr Ridge, IL:
McGraw-Hill/Irwin, 2005),
322. Copyright © The
McGraw-Hill Companies.
Used with permission.
Environmental factors,
company character, and
screening criteria
Company character
Home country constraints
Host country(s) constraints
Management style
Financial limitations
Management and marketing skills
Level of technology
Structures of distribution
Phase 1
Preliminary analysis and screening:
Matching company/country needs
Phase 2
Adapting the marketing
mix to target markets
Phase 3
Developing the
marketing plan
Phase 4
and control
Matching mix
Brand name
Personal selling
Sales promotion
Marketing plan
and control
for error
and goals
and tactics
Ìnformation derived from each phase, market research, and evaluation of program performance
Strategy Iormulation Ior the corporation includes: (1) deIining
the corporate mission and setting objectives, (2) determining
strategic business units, and (3) establishing strategy guide-
lines Ior long-term strategic planning oI the corporation and
its business units. Top management must select the corporate
strategy to move the Iirm toward its objectives. AIter imple-
menting the strategy, management considers how the strategy
is progressing and what adjustments are needed. SuccessIully
executing these steps requires penetrating and insightIul
The corporate vision or mission statement spells out the
nature and scope oI the business and provides strategic direc-
tion Ior the corporation. The Iirm•s objectives indicate the
perIormance desired by management. II management decides
to move away Irom the core business, several paths oI corpo-
rate development are possible, including expansion into new
products and/or markets as well as diversiIication.
The available evidence indicates that well-Iormulated and
executed business strategies lead to superior perIormance.
While there are several approaches to strategy development,
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy ìí
they share common Ieatures including the objective oI superi-
or customer value, achieving a market orientation, and
competing with distinctive capabilities.
Business unit strategies are guided by corporate strategy
guidelines. The process begins by considering each business
unit•s market opportunity, position against competition,
Iinancial situation and projections, and strengths and
weaknesses. The situation analysis spells out the strategy
alternatives Ior the business unit. Management selects a
strategy and develops a strategic plan, which is then
implemented and managed.
Marketing strategy is an analysis, planning, implementa-
tion, and control process designed to satisIy customer needs
and wants by providing superior customer value. The Iirst
part oI the process includes product-market analysis, market
segmentation, competition analysis, and continuous learning
about markets. These analyses guide the choice oI marketing
strategy. Market deIinition establishes the overall competitive
arena. Market segmentation describes possible customer
groups Ior targeting by businesses. Competitor analysis looks
at the strengths, weaknesses, and strategies oI key competitors.
Continuous learning about markets supplies inIormation Ior
analysis and decision making.
Designing the marketing strategy is the second stage in
strategy development. The selection oI the people (or organiz-
ations) to be targeted is guided by the situation analysis. The
market target decision indicates the buyer groups whose needs
are to be satisIied by the marketing program positioning
strategy. The positioning strategy indicates how the Iirm will
position itselI against its key competitors in meeting the needs
oI the buyers in the market target. The relationship strategy
spells out the extent oI collaboration with consumers, other
organizations, and company personnel. New-product strategies
are essential to generate a continuing stream oI new entries to
replace mature products that are eliminated.
The third phase oI the strategy process consists oI market-
driven program development. SpeciIic marketing mix strate-
gies Ior products, distribution, price, and promotion must be
developed to implement the positioning strategy management
has selected. The objective is to combine the marketing
mix components to accomplish market target objectives in
a cost-eIIective manner.
The last phase oI the process consists oI marketing strategy
implementation and management. These activities Iocus on the
marketing organizational design and marketing strategy imple-
mentation and control. This is the action phase oI marketing
The marketing plan spells out the actions to be taken, who
is responsible, deadlines to be met, and the sales Iorecast and
budget. The plan describes the marketing decisions and guides
the implementation oI the decisions, and the evaluation and
management oI the marketing strategy.
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Examine the Web sites oI Borders (www.borders.com) and
Amazon (www.ama:on.com). Compare and contrast the
two approaches to using a Web site as part oI each com-
pany•s competitive strategy.
B. Examine the Web sites oI both ebay.com (www.ebay.com)
and uBid.com (www.uBid.com). Compare and contrast the
two approaches to using a Web site as part oI each com-
pany•s competitive strategy. Analyze the diIIerences and
similarities and suggest improvements as well as a mar-
keting strategy Ior the two companies (i.e., solely Internet-
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Review the material in the Global EeatureœThe A380: A
Pan-European Plane. How can the risks being taken by
Airbus with this venture be justiIied? What are the
major concerns that should be monitored as the project
B. Consider the points in the Strategy EeatureœBMW:
Positioning Premium Automobiles. How would you
describe BMW•s market targeting and positioning
strategy? How does it compare to other premium car
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Top management oI companies probably devoted more
time to reviewing (and sometimes changing) their corpo-
rate vision (mission) in the last decade than in any other
period. Discuss the major reasons Ior this increased
concern with the vision Ior the corporation.
2. Discuss the role oI organizational capabilities in corporate
3. What is the relationship between the corporate strategy
and the strategies Ior the businesses that comprise the cor-
porate portIolio?
4. Discuss the major issues that top management should con-
sider when deciding whether or not to expand business
operations into new business areas.
5. Discuss the environmental Iactors that should be assessed
on a regular basis by a large retail corporation like Target
6. Discuss what you consider to be the major issues in
trying to divide a corporation into strategic business
units, indicating Ior each problem suggestions Ior over-
coming it.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îò ݱ®°±®¿¬»ô Þ«-·²»--ô ¿²¼
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§
ݱ³°¿²·»-ô îððë
ìì ﮬ Ѳ» Strategic Marketing
1. Gary Hamel and Liisa Välikangas, “The Quest Ior
Resilience,’ Harvard Business Review, September 2003,
2. Anthony Marsella, Gerry Bell, Ian Ruddleston, and Merlin
Stone, “Meeting Demand,’ Marketing Business, January
2004, 22›24.
3. Michael E. Porter, “What Is Strategy?’ Harvard Business
Review, November›December 1996, 74.
4. Raymond Miles and Charles Snow, “Eit, Eailure, and the
Hall oI Eame,’ California Management Review, Spring
1984, 10›28; and James Brian Quinn, Intelligent
Enterprise (New York: Eree Press, 1992), Chapter 5.
5. Preston Townley, Comments made by the ConIerence
Board CEO during an address at Texas Christian
University in Eort Worth, Texas, Eebruary 15, 1994.
6. George S. Day, “Aligning the Organization to the Market,’
in Reflections on the Future of Marketing, Donald R.
Lehmann and Katherine E. Joez (eds.) (Cambridge, MA:
Marketing Science Institute, 1997), 67›93.
7. “The Virtual Corporation,’ BusinessWeek, Eebruary 8,
1993, 98›102.
8. David J. Collis and Cynthia A. Montgomery, Corporate
Strategy (Chicago: Irwin, 1997), 5.
9. Ibid., 7 and 8.
10. Ibid., 7›12.
11. Based in part on George S. Day, Strategic Market
Planning (St. Paul, MN: West Publishing, 1984), 18›22.
12. Peter E. Drucker, Management (New York: Harper &
Row, 1974), 100.
13. Robert S. Kaplan and David P. Norton, 1he Balanced
Scorecard (Boston: Harvard Business School Press,
14. C. K. Prahalad and Gary Hamel, “The Core Competence
oI the Corporation,’ Harvard Business Review, May›June
1990, 79›91; George S. Day, “The Capabilities oI Market-
Driven Organizations,’ Journal of Marketing, October
1994, 37›52.
15. Melanie Wells, “Red Baron,’ Forbes, July 3, 2000,
151›160; Kerry Capell and Wendy Zellner, “Richard
Branson•s Next Big Adventure,’ BusinessWeek, March 8,
2004, 16›17.
16. This discussion is based on Boris Yavitz and William H.
Newman, “What the Corporation Should Provide Its
Business Units,’ Journal of Business Strategy 3, no. 1
(Summer 1982), 14.
17. Collis and Montgomery, Corporate Strategy, 10›11.
18. Ibid., 11.
19. Adrian J. Slywotzky, Jalue Migration (Boston: Harvard
Business School Press, 1996), 4.
20. Collis and Montgomery, Corporate Strategy, 11›12.
21. Shelby D. Hunt and Robert M. Morgan, “The Comparative
Advantage Theory oI Competition,’ Journal of Marketing,
April 1995, 1›15.
22. Drucker, Management, 63.
23. Erederick E. Webster, “The Changing Role oI Marketing
in the Organization,’ Journal of Marketing, October
1992, 11.
24. George S. Day, Strategic Market Planning (St. Paul: West
Publishing, 1984), 3.
25. Ben Elgin, “Google,’ BusinessWeek, May 3, 2004, 50›56.
26. George S. Day, “Continuous Learning about Markets,’
California Management Review, Summer 1994, 9›31.
27. This example is based on D. John Loden, Megabrands
(Homewood, IL: Business One Irwin, 1992, 184›85.
28. Michael Arndt, “3M•s Rising Star,’ BusinessWeek, April
12, 2004, 63›70.
29. Webster, “The Changing Role oI Marketing,’ 13.
30. Paulette Thomas, “Rubbermaid Stock Plunges over 12°
on Projected Weak 2nd Quarter ProIit,’ 1he Wall Street
Journal, June 12, 1995, B6.
31. The Iollowing discussion is based on material developed
by Dr. John R. Nevin, Granger Wisconsin Distinguished
ProIessor, University oI Wisconsin.
32. Michael E. Porter, “Strategy and the Internet,’ Harvard
Business Review, March 2001, 63›78.
33. David S. Hopkins, 1he Marketing Plan (New York:
The ConIerence Board Inc., 1981). See also Howard
Sutton, 1he Marketing Plan in the 1990s (New York: The
ConIerence Board Inc., 1990).
7. Develop an outline oI how you would explain the
marketing strategy process to an inventor who is Iorming
a new business to develop, produce, and market a new
8. Discuss the role oI market targeting and positioning in an
organization•s marketing strategy.
9. What is the relationship between the strategic plan Ior a
business in the corporate portIolio and the marketing plan
Ior the business?
10. You have been asked to develop a marketing plan Ior a
metro-bank that has six branch oIIices. How would you
approach this assignment?
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy ìë
Several kinds oI Iinancial analyses are needed Ior
marketing analysis, planning, and control activities.
Such analyses represent an important part oI case prepa-
ration activities. In some instances it will be necessary to
review and interpret the Iinancial inIormation provided
in the cases. In other instances, analyses may be
prepared to support speciIic recommendations. The
methods covered in this appendix represent a group oI
tools and techniques Ior use in marketing Iinancial
analysis. Throughout the discussion, it is assumed that
accounting and Iinance Iundamentals are understood.
˲·¬ ±º Ú·²¿²½·¿´ ß²¿´§-·-
Various units oI analysis that can be used in marketing
Iinancial analysis are shown in Exhibit 2A.1. Two Iactors
oIten inIluence the choice oI a unit oI analysis: (1) the
purpose oI the analysis and (2) the costs and availability
oI the inIormation needed to perIorm the analysis.
Ú·²¿²½·¿´ Í·¬«¿¬·±² ß²¿´§-·-
Einancial measures can be used to help assess the pres-
ent situation. One oI the most common and best ways to
quantiIy the Iinancial situation oI a Iirm is through ratio
analysis. These ratios should be analyzed over a period
oI at least three years to discern trends.
Õ»§ Ú·²¿²½·¿´ ο¬·±-
Einancial inIormation will be more useIul to manage-
ment iI it is prepared so that comparisons can be made.
James Van Horne comments upon this need.
To evaluate a Iirm•s Iinancial condition and perIorm-
ance, the Iinancial analyst needs certain yardsticks.
The yardstick Irequently used is a ratio or index, relating
two pieces oI Iinancial data to each other. Analysis and
interpretation oI various ratios should give an experi-
enced and skilled analyst a better understanding oI the
Iinancial condition and perIormance oI the Iirm than
he would obtain Irom analysis oI the Iinancial data
As we examine the Iinancial analysis model in the next
section, note how the ratio or index provides a useIul
Irame oI reIerence. Typically, ratios are used to compare
historical and/or Iuture trends within the Iirm or to com-
pare a Iirm or business unit with an industry or other Iirms.
Several Iinancial ratios oIten used to measure business
perIormance are shown in Exhibit 2A.2. Note that these
ratios are primarily useIul as a means oI comparing:
1. Ratio values Ior several time periods Ior a particular
2. A Iirm to its key competitors.
3. A Iirm to an industry or business standard.
There are several sources oI ratio data.
include data services such as Dun & Bradstreet, Robert
Morris Associates• Annual Statement Studies, industry
and trade associations, government agencies, and invest-
ment advisory services.
Other ways to gauge the productivity oI marketing
activities include sales per square Ieet oI retail Iloor
space, occupancy rates oI hotels and oIIice buildings,
and sales per salesperson.
Ú·²¿²½·¿´ ß²¿´§-·- º±® Ó¿®µ»¬·²¹ д¿²²·²¹ ¿²¼ ݱ²¬®±´
ß°°»²¼·¨ îß
ÛÈØ×Þ×Ì îßòï ß´¬»®²¿¬·ª» ˲·¬- º±® Ú·²¿²½·¿´ ß²¿´§-·-
Ó¿®µ»¬ Ю±¼«½¬ñÍ»®ª·½» Ñ®¹¿²·¦¿¬·±²
Ó¿®µ»¬ ײ¼«-¬®§ ݱ³°¿²§
Ó¿®µ»¬ ²·½¸»ø-÷ Ю±¼«½¬ ³·¨ Í»¹³»²¬ñ¼·ª·-·±²ñ«²·¬
Ù»±¹®¿°¸·½ ¿®»¿ø-÷ °®±¼«½¬ ´·²» Ó¿®µ»¬·²¹ ¼»°¿®¬³»²¬
Ý«-¬±³»® ¹®±«°- Í°»½·º·½ °®±¼«½¬ Í¿´»- «²·¬æ
ײ¼·ª·¼«¿´ ½«-¬±³»®- Þ®¿²¼ λ¹·±²
Ó±¼»´ Ü·-¬®·½¬ ¾®¿²½¸
Ö¿³»- Ýò Ê¿² ر®²»ô Ú«²¼¿³»²¬¿´- ±º Ú·²¿²½·¿´ Ó¿²¿¹»³»²¬ ô
쬸 »¼ò øÛ²¹´»©±±¼ Ý´·ºº-ô ÒÖæ Ю»²¬·½»óØ¿´´ô ïçèð÷ô ïðí›ìò
ß «-»º«´ ¹«·¼» ¬± ®¿¬·± ¿²¿´§-·- ·- °®±ª·¼»¼ ·² η½¸¿®¼ Í¿²¦±ô
ο¬·± ß²¿´§-·- º±® ͳ¿´´ Þ«-·²»-- øÉ¿-¸·²¹¬±²ô ÜÝæ ͳ¿´´
Þ«-·²»-- ß¼³·²·-¬®¿¬·±²ô ïçéé÷ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
ìè ﮬ Ѳ» Strategic Marketing
ݱ²¬®·¾«¬·±² ß²¿´§-·-
When the perIormance oI products, market segments,
and other marketing units is being analyzed, manage-
ment should examine the unit•s proIit contribution.
Contribution margin is equal to sales (revenue) less
variable costs. Thus, contribution margin represents the
amount oI money available to cover Iixed costs, and
contribution margin less Iixed costs is net income. An
illustration oI contribution margin analysis is given in
Exhibit 2A.3. In this example, product X is generating a
positive contribution margin. II product X were elimi-
nated, $50,000 oI product net income would be lost, and
the remaining products would have to cover Iixed costs
not directly traceable to them. II the product is retained,
the $50,000 can be used to contribute to other Iixed costs
and/or net income.
Ú·²¿²½·¿´ ß²¿´§-·- Ó±¼»´
The model shown in Exhibit 2A.4 provides a useIul
guide Ior examining Iinancial perIormance and identiIy-
ing possible problem areas. The model combines several
important Iinancial ratios into one equation. Let•s exam-
ine the model, moving Irom leIt to right. ProIit margin
multiplied by asset turnover yields return on assets.
Moreover, assuming that the perIormance target is
return on net worth (or return on equity), the product oI
return on assets and Iinancial leverage determines per-
Iormance. Increasing either ratio will increase net worth.
The values oI these ratios will vary considerably Irom
one industry to another. Eor example, in grocery whole-
saling, proIit margins are typically very low, whereas
asset turnover is very high. Through eIIicient manage-
ment and high turnover, a wholesaler can stack up
impressive returns on net worth. Eurthermore, space
productivity measures are obtained Ior individual
departments in retail stores that oIIer more than one line,
such as department stores. The measures selected
depend on the particular characteristics oI the business.
Ûª¿´«¿¬·²¹ ß´¬»®²¿¬·ª»-
As we move through the discussion oI Iinancial analy-
sis, it is important to recognize the type oI costs being
used in the analysis. Using accounting terminology,
costs can be designated as Iixed or variable. A cost is
fixed iI it remains constant over the observation period,
even though the volume oI activity varies. In contrast, a
variable cost is an expense that varies with sales over
the observation period. Costs are designated as mixed or
semivariable in instances when they contain both Iixed
and variable components.
Þ®»¿µóÛª»² ß²¿´§-·-
This technique is used to examine the relationship
between sales and costs. An illustration is given in
Exhibit 2A.5. Using sales and costs inIormation, it is
easy to determine Irom a break-even analysis how many
units oI a product must be sold in order to break even,
or cover total costs. In this example 65,000 units at sales
ÛÈØ×Þ×Ì îßòì Ú·²¿²½·¿´ ß²¿´§-·- Ó±¼»´
ÛÈØ×Þ×Ì îßòí ×´´«-¬®¿¬·ª» ݱ²¬®·¾«¬·±² Ó¿®¹·² ß²¿´§-·- º±® Ю±¼«½¬ È øüððð÷
Ю±º·¬ ß--»¬ 묫®² Ú·²¿²½·¿´ 묫®² ±²
³¿®¹·² ¬«®²±ª»® ±² ¿--»¬- ´»ª»®¿¹» ²»¬ ©±®¬¸
Ò»¬ Ò»¬ Ò»¬
Ю±º·¬- Ò»¬ Ю±º·¬- ̱¬¿´ Ю±º·¬-
ø¿º¬»® ¬¿¨»-÷ I -¿´»- ø¿º¬»® ¬¿¨»-÷ I ¿--»¬- ø¿º¬»® ¬¿¨»-÷
Ò»¬ -¿´»- ̱¬¿´ ̱¬¿´ Ò»¬ Ò»¬
¿--»¬- ¿--»¬- ©±®¬¸ ©±®¬¸
Í¿´»- üíðð
Ô»--æ Ê¿®·¿¾´» ³¿²«º¿½¬«®·²¹ ½±-¬- ïðð
Ѭ¸»® ª¿®·¿¾´» ½±-¬- ¬®¿½»¿¾´» ¬± °®±¼«½¬ È ëð
Û¯«¿´-æ ݱ²¬®·¾«¬·±² ³¿®¹·² ïëð
Ô»--æ Ú·¨»¼ ½±-¬- ¼·®»½¬´§ ¬®¿½»¿¾´» ¬± °®±¼«½¬ È ïðð
Û¯«¿´-æ Ю±¼«½¬ ²»¬ ·²½±³» üëð
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy ìç
oI $120,000 are equal to total costs oI $120,000. Any
additional units sold will produce a proIit. The break-
even point can be calculated in this manner:
Price in the illustration shown in Exhibit 2A.5 is
$1.846 per unit, and variable cost is $0.769 per unit.
With Iixed costs oI $70,000, this results in the break-
even calculation:
To determine how many units must be sold to achieve
a target proIit (expressed in beIore-tax dollars), the
Iormula is amended as Iollows:
Using the same illustration as above and including
a target beIore-tax proIit oI $37,700, the target proIit
calculation becomes:
Break-even analysis is not a Iorecast. It indicates how
many units oI a product at a given price and cost must be
sold in order to break even or achieve a target proIit.
Some important assumptions that underlie the above
break-even analysis include the use oI constant Iixed
and variable costs, a constant price, and a single product.
In addition to break-even analysis, several other
Iinancial tools are used to evaluate alternatives. Net
present value oI cash Ilow analysis and return on invest-
ment are among the most useIul. Eor example, assume
there are two projects with the cash Ilows shown
in Exhibit 2A.6.
Though return on investment is widely used, it is
limited by its inability to consider the time value oI
money. This is shown in Exhibit 2A.7. Return on invest-
ment Ior both projects X and Y is 10 percent. However,
a dollar today is worth more than a dollar given in three
years. ThereIore, in assessing cash Ilows oI a project or
investment, Iuture cash Ilows must be discounted back
Target proIit units
$ ,
$ . $ .
37 700
1 846 0 769
100 000 nnits
Target proIit units
Eixed costs Target proIit (beIore tax)
PPrice per unit Variable cost per unit
BE units units
$ ,
$ . $ .
70 000
1 846 0 769
65 000
Break-even units
Eixed costs
Price per unit Variable cost peer unit
ÛÈØ×Þ×Ì îßòë
25 50 65 75 100 125
Number of units (000s)
Net profit
Variable costs
Fixed costs
Fixed costs
Break-even point
Total costs



ÛÈØ×Þ×Ì îßòê Ý¿-¸ Ú´±© ݱ³°¿®·-±² øüððð-÷
Ю±¶»½¬ È Ð®±¶»½¬ Ç
ͬ¿®¬óË° ݱ-¬- ·ïôððð> ·ïôððð>
Ç»¿® ï ëðð íðð
Ç»¿® î ëðð ìðð
Ç»¿® í íðð êðð
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
ëð ﮬ Ѳ» Strategic Marketing
to the present at a rate comparable to the risk oI the
Discounting cash Ilows is a simple process. Assume
that the Iirm is considering projects X and Y and that its
cost oI capital is 12 percent. Additionally, assume that
both projects carry risk comparable to the normal busi-
ness risk. Under these circumstances, the analyst should
discount the cash Ilows back to the present at the cost oI
capital, 12 percent. Present value Iactors can be looked
up or computed using the Iormula 1/(1 i)
, where
i equals our discounting rate per time period and
n equals the number oI compounding periods. In this
example, the present value oI cash Ilows would be as
shown in Exhibit 2A.7.
Because both projects have a positive net present
value, both are good. However, iI they are mutually
exclusive, the project with the highest net present value
should be selected.
Ú·²¿²½·¿´ д¿²²·²¹
Einancial planning involves two major activities: (1) Iore-
casting revenues and (2) budgeting (estimating Iuture
expenses). The actual Iinancial analyses and Iorecasts
included in the strategic marketing plan vary consider-
ably Irom Iirm to Iirm. In addition, internal Iinancial
reporting and budgeting procedures vary widely among
companies. ThereIore, consider this approach as one
example rather than the norm.
The choice oI the Iinancial inIormation to be used Ior
marketing planning and control will depend on its rela-
tionship with the corporate or business unit strategic
plan. Another important consideration is the selection oI
perIormance measures to be used in gauging marketing
perIormance. The objective is to indicate the range oI
possibilities and suggest some oI the more Irequently
used Iinancial analysis.
Pro Iorma income statements can be very useIul
when one is projecting perIormance and budgeting.
Usually, this is done on a spreadsheet so that assump-
tions can be altered rapidly. Usually, only a Iew assump-
tions need be made. Eor example, sales growth rates can
be projected Irom past trends and adjusted Ior new
inIormation. Erom this starting point, cost oI goods can
be determined as a percentage oI sales. Operating
expenses can also be determined as a percentage oI sales
based on past relationships, and the eIIective tax rate as
a percentage oI earnings beIore taxes. However, past
relationships may not hold in the Iuture. It may be nec-
essary to analyze possible divergence Irom past rela-
In addition, pro Iorma income statements can be used
to generate pro Iorma cash Ilow statements. It is then
possible to compare alternative courses oI action by
employing a uniIormly comparable standard cash Ilow.
Í«°°´»³»²¬¿´ Ú·²¿²½·¿´ ß²¿´§-»-
The preceding sections oI this appendix detailed the
various Iorms oI traditional Iinancial analysis useIul in
marketing decision making. There are supplemental
Iorms oI analysis that can also be helpIul in diIIerent
types oI marketing decisions. These supplemental tech-
niques draw mainly Irom the management accounting
discipline and rely on data that are available only to
internal decision makers. Many oI the Iinancial analyses
in the earlier sections employed data Irom published
Iinancial statements.
ÛÈØ×Þ×Ì îßòé Ю»-»²¬ Ê¿´«» ±º Ý¿-¸ Ú´±©-
Ì·³» Ý¿-¸ Ú´±© ÐÊ Ú¿½¬±® ÒÐÊ ±º Ý¿-¸ Ú´±©
Ю±¶»½¬ È
ð ·ïôððð> ï ñ øï òïî÷
ï ·ïôððð>
ï ëðð ïñ øï òïî÷
ðòèçîç ììêòìë
î ëðð ïñ øï òïî÷
ðòéçéî íçèòêð
í íðð ïñ øï òïî÷
ðòéïïè îïíòëì
Ю»-»²¬ ª¿´«» ëèòëç
Ю±¶»½¬ Ç
ð ·ïôððð> ï ñ øï òïî÷
ï ·ïôððð>
ï íðð ïñ øï òïî÷
ðòèçîç îêéòèé
î ìðð ïñ øï òïî÷
ðòéçéî íïèòèè
í êðð ïñ øï òïî÷
ðòéïïè ìîéòðè
Ò»¬ °®»-»²¬ ª¿´«» ïíòèí
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® î Corporate, Business, and Marketing Strategy ëï
Only recently have marketing decision makers been
able to look to management accounting to provide an
additional set oI quantitative tools to aid in the decision
These tools may be reIerred to collectively as
strategic management accounting practices. Simmonds
is generally credited with originating the term strategic
management accounting, which he deIines as “the pro-
vision and analysis oI management accounting data
about a business and its competitors Ior use in develop-
ing and monitoring the business strategy.’
academic researchers may disagree about the speciIic
techniques which constitute strategic management
accounting, there are a wide selection oI management
accounting practices available Ior use in marketing
decision making. These practices are described in
Exhibit 2A.8 and include activity-based costing, attrib-
ute costing, benchmarking, brand valuation budgeting
and monitoring, competitor cost assessment, competi-
tive position monitoring, competitor perIormance
appraisal, integrated perIormance measurement, liIe
cycle costing, quality costing, strategic costing, strategic
pricing, target costing, and value-chain costing.
Exhibit 2A.8 also provides a description oI the vari-
ous marketing applications oI strategic management
accounting practices in terms oI speciIic decision-
making situations. Most oI these practices require the
marketing decision maker to gather inIormation
additional to that normally used Ior the preparation oI
external Iinancial statements. In most cases, this inIor-
mation is already available in the accounting inIorma-
tion system oI the Iirm. However, it may be necessary to
compile data Irom outside the Iirm in a more Iormalized
manner to perIorm analysis using some oI these strate-
gic management accounting practices.
Ù»±®¹» Ú±-¬»® ¿²¼ Ó¿¸»²¼®¿ Ù«°¬¿ô “Ó¿®µ»¬·²¹ô ݱ-¬
Ó¿²¿¹»³»²¬ ¿²¼ Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ô’ Ö±«®²¿´ ±º
Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ λ-»¿®½¸ ê øïççì÷ô ìí›ééò
Õò Í·³³±²¼-ô “ͬ®¿¬»¹·½ Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ô’
Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ øËÕ÷ ëçô ²±ò ì øïçèï÷ô îê›îçò
Ú±® ¿ ½±³°®»¸»²-·ª» ¼»-½®·°¬·±² ±º -¬®¿¬»¹·½ ³¿²¿¹»³»²¬
¿½½±«²¬·²¹ ¬»½¸²·¯«»- ¿²¼ ¼·ºº»®»²½»- ·² ¿¬¬·¬«¼»- ¬±©¿®¼ ¬¸»
«-» ±º ¬¸»-» ¬»½¸²·¯«»- ¾»¬©»»² ¿½½±«²¬·²¹ ¿²¼ ³¿®µ»¬·²¹
³¿²¿¹»®-ô -»» Õ¿®»² Íò Ý®¿ª»²- ¿²¼ ݸ®·- Ù«·´¼·²¹ô
“ß² Û³°·®·½¿´ ͬ«¼§ ±º ¬¸» ß°°´·½¿¬·±² ±º ͬ®¿¬»¹·½
Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ Ì»½¸²·¯«»-ô’ ß¼ª¿²½»- ·²
Ó¿²¿¹»³»²¬ ß½½±«²¬·²¹ ïð øîððï÷ô çë›ïîìò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×ò ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹ îßò ß°°»²¼·¨æ Ú·²¿²½·¿´
ß²¿´§-·- º±® Ó¿®µ»¬·²¹
д¿²²·²¹ ¿²¼ ݱ²¬®±´
ݱ³°¿²·»-ô îððë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
Ó¿®µ»¬óÚ±½«-»¼ Ю±¹®¿³ Ü»ª»´±°³»²¬æ Í«¾¬·¬´»
ݸ¿°¬»® ݸ¿°¬»®
Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼ Ý«-¬±³»® Ê¿´«»
Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª» Í°¿½»
Markets are increasingly complex, turbulent, and interrelated, creating challenges Ior managers
in understanding market structure and identiIying opportunities Ior growth. Consider, Ior exam-
ple, the pervasive impact oI digital technology on computer, telecommunications, photography,
and oIIice equipment markets and competitive space. Rapid technological change, Internet
access, global competition, and the diversity oI buyers• preIerences in many markets require
continuous monitoring to identiIy promising business opportunities, determine iI new technolo-
gies are disruptive, assess the shiIting requirements oI buyers, evaluate changes in competitive
positioning, and guide managers• decisions about which buyers to target and how to position
brands to appeal to targeted buyers. A broad view oI the market is important, even when
management•s interest centers on one or a Iew market segments within a particular market.
Understanding the scope and structure oI the entire market is necessary to develop strategy and
anticipate market changes and competitive threats. Understanding markets and how they are
likely to change in the Iuture are vital inputs to market-
driven strategies.
There is perhaps no better example oI the importance
oI understanding markets and developing a vision oI how
they are likely to change in the Iuture than the market
Ior cell phones. (See accompanying Samsung Electronics
phone advertisement). This market is only 20 years old, yet
is expected to dominate U.S. communications by 2005. In
2003 in the United States there were 147 million wireless
phones compared to 187 million traditional phone lines.
The rapid changes in the market are cannibalizing the
core businesses oI local telecommunications providers,
negatively impacting their revenues and proIits. Companies
that are not oIIering wireless services are conIronted
with even more severe challenges. Also on the horizon is
the expanding threat oI Internet phone services. The value
migration Irom traditional to cell phones is also a signiIi-
cant threat to telecom-equipment producers such as Lucent
Technologies and Nortel Networks. Consolidation oI
suppliers is likely in their eIIorts to cope with the changes
in the market and competitive space. Not surprisingly,
wireless suppliers• revenues and proIits are growing
rapidly. An analysis oI expected market changes is
described in the Strategy Eeature.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
éî ﮬ Ѳ» Fixed Income securities
éî ﮬ Ì©± Markets, Segments, and Customer Jalue
The mobile phone illustration highlights several important issues concerning markets. The
changes described show how competitive threats may develop Irom new business designs
(wireless providers). Importantly, the rapid growth oI cell phones points to the importance oI
market vision in assessing the nature and scope oI new competitive threats and guiding strategic
initiatives to counter the threats.
The chapter begins with a discussion oI how markets and strategies are interrelated, Iollowed by
an approach Ior determining product-market scope and structure. Next, we look at how buyers are
described and analyzed, and then we discuss competitor analysis. Guidelines Iollow Ior developing
a strategic vision about the scope and composition oI markets in the Iuture. Einally, we consider how
to estimate market size. Additional market Iorecasting guidelines are provided in Appendix 3A.
Ó¿®µ»¬- ¿²¼ ͬ®¿¬»¹·»-
Market knowledge is essential in guiding business and marketing strategies. Eirst, we look at
how markets impact strategy. Next, we examine the concept oI value migration, and how it
aIIects market opportunities. The section is concluded with a discussion oI developing a shared
vision about how the market is expected to change in the Iuture.
Ó¿®µ»¬- ¿²¼ ͬ®¿¬»¹·»- ß®» ײ¬»®´·²µ»¼
Market changes oIten require altering business and marketing strategies. Managers that do not
understand their markets, and how they will change in the Iuture, may Iind their strategies
inadequate as buyers• value requirements change and new products become available that better
satisIy buyers• requirements. Many Iorces are causing the transIormation oI industries and are
changing the structure oI markets and nature oI competition. The drivers oI change include
deregulation, global excess capacity, global competition, mergers and acquisitions, new tech-
nologies, changing customer expectations, disintermediation, demographic shiIts, and changing
liIe and work styles.
These inIluences create both market opportunities and threats by altering
the nature and scope oI markets and competitive space. Market-driven companies proactively
alter their strategies to provide superior value to existing and new customers. Eor example,
PepsiCo shows impressive perIormance in understanding and catering to changing tastes in the
beverage and snacks market, rather than trying to change them. The company Iaces the Iacts
about market change and adapts products to them. To capitalize on the growing market Ior New
Age herbally enhanced beverages, PepsiCo acquired SoBe Beverages in 2001, and extended the
brand into an energy drink Ior the school-age marketœSoBe No Eearœand SoBe Euerte aimed
ͬ®¿¬»¹§ Ú»¿¬«®»
и±²» ݱ³°¿²·»-
ß- ¬®¿ºº·½ -¸·º¬- ¬± ©·®»´»--ô ¬®¿¼·¬·±²¿´ ½¿®®·»®- -«½¸ ¿-
Ê»®·¦±² ¿²¼ ÍÞÝ ©·´´ -»» °®±º·¬ ³¿®¹·²- º¿´´ º®±³ íçû ·²
îððï ¬± ¿² ¿ª»®¿¹» ±º íëû ¬¸·- §»¿®ò
Û¯«·°³»²¬ Ó¿µ»®-
Ю·½»- º±® ©·®»´»-- ¹»¿® ¿®» º¿´´·²¹ º¿-¬ ¾»½¿«-» °»²²§ó
°·²½¸·²¹ °¸±²» ½±³°¿²·»- ¿®» °«¬¬·²¹ ¬¸» -¯«»»¦» ±²
¹»¿® ³¿µ»®-ò ݱ²-±´·¼¿¬·±² ´±±³-ò
̸» ³±ª» º®±³ ®»¹«´¿¬»¼ °¸±²»- ¬± «²®»¹«´¿¬»¼ ©·®»ó
´»-- ³»¿²- -©»»°·²¹ ½¸¿²¹»-ò Ù±ª»®²³»²¬- »ª»®§©¸»®»
©·´´ ¸¿ª» ´»-- ·²º´«»²½» ·² ¬»´»½±³ò
Ô±©»® °®·½»-ô ¾»¬¬»® ¹¿¼¹»¬-ô ¿²¼ ¿ ©¿ª» ±º ·²²±ª¿¬·ª»
²»© -»®ª·½»- -«½¸ ¿- ¹¿³¾´·²¹ ¿²¼ ³«´¬·³»¼·¿ ³»--¿¹ó
·²¹ ©·´´ ³¿µ» ½±²-«³»®- ¬¸» ½´»¿® ©·²²»®- ·² ¬¸» ©·®»´»--
Ó±¾·´» Ò»¬ ¿½½»-- ·- ¬®¿²-º±®³·²¹ ·²¼«-¬®·»-ò
Ю±¼«½¬·ª·¬§ô º±® »¨¿³°´»ô ¹»¬- ¿ ¾±±-¬ -·²½» -¿´»-°»±°´»
¿®» ¿¾´» ¬± -°»²¼ ³±®» ¬·³» ©·¬¸ ½«-¬±³»®-ò
ͱ«®½»æ “ß É·®»´»-- ɱ®´¼ô’ Þ«-·²»--É»»µô ѽ¬±¾»® îéô îððíô ïïïò
ß É·®»´»-- ɱ®´¼
ͬ®¿¬»¹§ Ú»¿¬«®»
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space éí
at the Hispanic market. Sabritas chips were brought in Irom PepsiCo•s Mexican subsidiary
targeting the Ioreign-born segment oI the 46 million strong U.S. Hispanic market. Sabritas U.S.
sales will exceed $100 million in 2004. The company deIines its mission as serving the
consumer, not protecting its existing brands.
Digital photography has had a major impact on the market Ior cameras and Iilm. Digital tech-
nology pushed Polaroid Corp. into bankruptcy. Kodak is making major shiIts in business and
marketing strategies to cope with unexpected large declines in Iilm sales by trying to reinvent
itselI Ior the Digital Age.
Kodak•s management announced new investments oI $3 billion Ior
expanded digital initiatives in 2003. Drops oI 10 to 12 percent in Iilm sales were expected
annually through 2006. Some industry observers expected even more rapid sales declines. ProIit
margins are much lower Ior digital products. Kodak•s managers recognized the digital threat, but
their vision about the Iuture did not anticipate the speed and magnitude oI digital market entry.
Digital technology requires major changes in the business and marketing strategies oI Euji,
Kodak, and other camera and Iilm companies. The rapid growth oI camera phone sales has
Iurther compounded the scope and complexity oI the market.
Ê¿´«» Ó·¹®¿¬·±²
Value migration describes the process oI customers shiIting their purchases away Irom the
products generated by outmoded business designs to new ones that oIIer superior value.
Examples include value migration Irom conventional typewriters to word processing and
computers, reIerence books to CD-ROM Iormat, and Iull-service airlines to discount airlines.
Anticipating value migration threats is an essential aspect oI market-driven strategy.
Importantly, these threats may emerge Irom disruptive technologies that managers oI existing
products do not consider to be relevant competitive threats.
Value migration may aIIect a product category, a company, or an entire industry. Eorecasting
the exact nature, scope, and timing oI migration may be diIIicult but is, nonetheless, essential.
Eor example, Kodak•s management did not Iorecast the rapid impact oI digital photography on
the imaging market. Market knowledge is a key input to assessing migration and disruptive tech-
nology trends. Value migration points to the close relationship between strategies and markets,
and the need to deIine and understand the market and competitive arena. The value migration
concept also highlights the importance oI constant organizational learning and implementing
strategy changes to proactively respond to value migration situations.
Eor-proIit colleges are an interesting example oI value migration Irom traditional universities
to publicly traded businesses that have displayed explosive growth during the last decade.
organizations comprise a new dimension in higher education. The top ten Ior-proIit colleges
have more than halI a million students. The typical Ior-proIit tuition charges are about $11,000
a year, midway between the average private and public university. The Ior-proIits target age
20›30 working adults, and nearly one-halI are minorities. Some 10 percent oI Master oI
Business Administration students are enrolled in Ior-proIit programs. Eor-proIit students
comprise over 40 percent oI the online-degree market. Apollo Group/University oI Phoenix has
an enrollment oI 200,000 in regular programs and another 80,000 pursuing online degrees.
Ю±¼«½¬óÓ¿®µ»¬ ͽ±°» ¿²¼ ͬ®«½¬«®»
The activities involved in gaining an understanding oI markets are shown in Exhibit 3.1. The
Iirst step is to deIine the market•s boundaries and describe its structure. Markets can be deIined
in many diIIerent ways, and they are constantly changing as illustrated by the telecommunica-
tions, photography, and higher education examples. We look at how buyers• needs coupled with
product beneIits help to deIine product-markets, and we discuss several considerations in
Iorming product-markets. Steps 2›4 oI Exhibit 3.1 are discussed in Iollowing sections.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
éì ﮬ Ì©± Markets, Segments, and Customer Jalue
Ó¿¬½¸·²¹ Ò»»¼- ©·¬¸ Ю±¼«½¬ Þ»²»º·¬-
The term product-market recognizes that markets exist only when there are buyers with needs
who have the ability to purchase goods and services (products) and products are available to
satisIy the needs. There is a compelling argument that competitive strength comes Irom putting
customer needs at the center oI a company•s operations, and that this perspective should guide
management thinking about markets. Eor example, Progressive Insurance shows remarkable
sales growth and shareholder value creation by its Iocus on the most important needs oI its
customers. The Innovation Eeature describes how the company has changed its operations and
how it meets customer needs.
Intuitively, it is easy to grasp the concept oI a product-market, although there are diIIerences in
how managers deIine the term. Markets are comprised oI groups oI people who have the ability and
willingness to buy something because they have a need Ior it.
The ability to buy and willingness to
buy indicate that there is a demand Ior a particular product or service. People with needs and wants
buy the beneIits provided by a good or service to satisIy either a household or an organizational use
situation. A product-market matches people with needsœneeds that lead to a demand Ior a good or
serviceœto the product beneIits that satisIy those needs. Unless the product beneIits are available,
there is no marketœonly people with needs. Likewise, there must be people who have a use situa-
tion that can be satisIied by the product. Thus, a product-market combines the beneIits oI a product
with the needs that lead people to express a demand Ior that product. ThereIore, markets are deIined
in terms oI needs substitutability among diIIerent products and brands and by the diIIerent ways in
which people choose to satisIy their needs. “A product-market is the set oI products judged to be
substitutes within those usage situations in which similar patterns oI beneIits are sought by groups
oI customers.’
The inIluence oI competing brands becomes stronger, the closer the substitutability
and the more direct the competition. The Eord Taurus competes directly with the Toyota Camry,
whereas in a less direct yet relevant way, other major purchases (e.g., vacation travel) compete with
automobile expenditures due to the consumer•s budget constraints.
As an example, a Iinancial services product-market Ior short-term investments may include
money market accounts, mutual Iunds, U.S. Treasury bills, bank certiIicates oI deposit, and other
ÛÈØ×Þ×Ì íòï
Ù¿·²·²¹ ¿²
±º Ó¿®µ»¬-
Defining the Ícope
of the Prod«ct
M¿rket Ítr«ct«re
¿nd Compo-ition
E-tim¿ting How
the M¿rket Will
Ch¿nge in the
M¿rket Íize ¿nd
R¿te of Ch¿nge
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space éë
short-term investment alternatives. II one type oI product is a substitute Ior another, then both
should be included in the product-market.
By determining how a Iirm•s speciIic product or brand is positioned within the product-
market, management can monitor and evaluate changes in the product-market to decide whether
alternate targeting and positioning strategies and product oIIerings are needed. In mapping the
product-market, it is essential to establish boundaries that are broad enough to contain all oI the
relevant product categories that are competing Ior the same buyer needs.
Ü»¬»®³·²·²¹ Ю±¼«½¬óÓ¿®µ»¬ Þ±«²¼¿®·»- ¿²¼ ͬ®«½¬«®»
Product-market boundaries and structure provide managers with important inIormation Ior devel-
oping business and marketing strategies, and alert management to new competition. Considering
only a company•s brands and their direct competitors may mask potential competitive threats or
Ю±¼«½¬óÓ¿®µ»¬ ͬ®«½¬«®»ò A company•s brands compete with other companies• brands in
generic, product-type, and product-variant product-markets. The ¹»²»®·½ °®±¼«½¬ó³¿®µ»¬
includes a broad group oI products that satisIy a general, yet similar, need. Eor example, several
classes or types oI products can be combined to Iorm the generic product-market Ior kitchen
appliances. The starting point in product-market deIinition is to determine the particular need or
want that a group oI products satisIies, such as perIorming kitchen Iunctions. Since people with
a similar need may not satisIy it in the same manner, generic product-markets are oIten hetero-
geneous, containing diIIerent end user groups and several types oI related products (e.g., kitchen
The °®±¼«½¬ó¬§°» °®±¼«½¬ó³¿®µ»¬ includes all brands oI a particular product type or
class, such as ovens. The product-type is a product category or product classiIication that oIIers
a speciIic set oI beneIits intended to satisIy a customer•s need or want in a speciIic way.
DiIIerences in the products within a product-type (class) product-market may exist, creating
Eor example, electric, gas, and microwave ovens all provide heating Iunc-
tions but employ diIIerent technologies.
Ù«·¼»´·²»- º±® Ü»º·²·¬·±²ò In determining the scope oI the product-market, it is helpIul to
identiIy (1) the basis Ior identiIying buyers in the product-market oI interest (geographical area
and buyer characteristics such as age group), (2) the market size and characteristics, and (3) the
brand and/or product categories competing Ior the needs and wants oI the buyers included in the
ײ²±ª¿¬·±² Ú»¿¬«®»
ײ ¬¸» °»®·±¼ ïççì ¬± îððìô Ю±¹®»--·ª» ײ-«®¿²½»
·²½®»¿-»¼ -¿´»- º®±³ üïòí ¾·´´·±² ¬± üçòë ¾·´´·±²ô ¿²¼
®¿²µ- ¸·¹¸ ·² ¬¸» Þ«-·²»--É»»µ ̱° ëð ËòÍò ½±³°¿²·»-
º±® -¸¿®»¸±´¼»® ª¿´«» ½®»¿¬·±²ò
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¬± -¿ª» ½«-¬±³»®- ¬·³»ô ³±²»§ô ¿²¼ ·®®·¬¿¬·±²ô ©¸·´»
±º¬»² ´±©»®·²¹ ½±-¬- ¿¬ ¬¸» -¿³» ¬·³»ò
Ô±-- ¿¼¶«-¬»®- ¿®» -»²¬ ¬± ¬¸» ®±¿¼ ¿½½·¼»²¬- ®¿¬¸»®
¬¸¿² ©±®µ·²¹ ¿¬ ¬¸» ¸»¿¼ ±ºº·½»ô ¿²¼ ¬¸»§ ¸¿ª» ¬¸»
°±©»® ¬± ©®·¬» ½¸»½µ- ±² ¬¸» -°±¬ò
Ю±¹®»--·ª» ®»¼«½»¼ ¬¸» ¬·³» ²»»¼»¼ ¬± -»» ¿
¼¿³¿¹»¼ ¿«¬±³±¾·´» º®±³ -»ª»² ¼¿§- ¬± ²·²» ¸±«®-ò
б´·½§¸±´¼»®-• ½¿®- ¿®» ®»°¿·®»¼ ¯«·½µ»®ô ¿²¼ ¬¸» º±½«-
±² ¬¸·- ½»²¬®¿´ ½«-¬±³»® ²»»¼ ¸¿- ©±² ³«½¸ ¿«¬±ó
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̸»-» ·²·¬·¿¬·ª»- ¿´-± »²¿¾´» Ю±¹®»--·ª» ¬± ®»¼«½» ·¬-
±©² ½±-¬-œ¬¸» ½±-¬ ±º -¬±®·²¹ ¿ ¼¿³¿¹»¼ ¿«¬±³±¾·´»
º±® ¿ ¼¿§ ·- üîèô ¿¾±«¬ ¬¸» -¿³» ¿- ¬¸» °®±º·¬ º®±³ ¿
-·¨ó³±²¬¸ °±´·½§ò
ͱ«®½»æ ß¼¿°¬»¼ º®±³ ß¼®·¿² Ó·¬½¸»´´ô “Ø»¿®¬ ±º ¬¸» Ó¿¬¬»®ô’ ̸»
Ó¿®µ»¬»®ô Ö«²» ïîô îððìô ïìò
Ю±¹®»--·ª» ײ-«®¿²½»æ Ý«-¬±³»® Ò»»¼- ¿¬ ¬¸»
Ý»²¬»® ±º ͬ®¿¬»¹§
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
éê ﮬ Ì©± Markets, Segments, and Customer Jalue
The scope and structure (composition) oI a product-market can be determined by Iollowing the
steps shown in Exhibit 3.2. We consider how this process can be used to deIine the structure in
the kitchen appliance product-market. Suppose top management oI a kitchen appliance Iirm wants
to expand its mix oI products. The company•s present line oI laundry and dishwashing products
meets a generic need Ior the kitchen Iunctions oI cleaning. Other kitchen use situations include
heating and cooling oI Ioods. In this example the generic need is perIorming various kitchen Iunc-
tions. The products that provide kitchen Iunctions are ways oI satisIying the generic need. The
breakout oI products into speciIic product-markets (e.g., A, B, C, and D) would include equip-
ment Ior washing and drying clothing, appliances Ior cooling Iood, cooking appliances, and dish-
washers. The buyers in various speciIic product-markets and the diIIerent brands competing in
these product-markets can be analyzed. The process oI mapping the product-market structure
begins by identiIying the generic need (Iunction) satisIied by the product oI interest to manage-
ment. Need identiIication is the basis Ior selecting the products that Iit into the product market.
A simpliIied example oI the product-market structure that includes the Iast-Iood market is
shown in Exhibit 3.3. A Iast-Iood restaurant chain such as McDonald•s should consider more
than its regular customers and direct competitors in its market opportunity analysis. The con-
sumption need being satisIied is Iast and convenient preparation oI Iood. The buyer has several
ways oI meeting the need, such as purchasing Iast Ioods, microwave preparation in the home,
patronizing supermarket delis, buying prepared Ioods in convenience stores, and ordering take-
outs Irom traditional restaurants. The relevant competitive space includes all oI these Iast-Iood
sources. It is essential to analyze market behavior and trends in the product-markets shown in
Exhibit 3.3. Competition may come Irom any oI the alternative services.
Ú±®³·²¹ Ю±¼«½¬óÓ¿®µ»¬-
The Iactors that inIluence how product-market boundaries are determined include the purpose
Ior analyzing the product-market, the rate oI changes in market composition over time, and the
extent oI market complexity.
Ы®°±-» ±º ß²¿´§-·-ò II management is deciding whether or not to exit Irom a business, primary
emphasis may be on Iinancial perIormance and competitive position. Detailed analysis oI the prod-
uct-market may not be necessary. In contrast, iI the objective is Iinding one or more attractive mar-
ket segments to target in the product-market, a much more penetrating analysis is necessary. When
diIIerent products satisIy the same need, the product-market boundaries should contain all relevant
products and brands. Eor example, the photography product-market should include digital cameras,
ÛÈØ×Þ×Ì íòî
Ü»¬»®³·²·²¹ ¬¸»
ͬ®«½¬«®» ±º ¿
Start with the generic need satisfied by
the product category of interest to
Ìdentify the product categories (types)
that can satisfy the generic need.
Ìdentify the specific product-markets
within the generic product-market.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space éé
other equipment, and services, and conventional cameras, Iilm, and services. Product-market
boundaries should be determined in a manner that will be oI strategic value, allowing management
to capitalize on existing and potential opportunities and to avoid possible threats.
ݸ¿²¹·²¹ ݱ³°±-·¬·±² ±º Ó¿®µ»¬-ò Product-market composition may change as new
technologies become available and new competition emerges. New technologies oIIer buyers
diIIerent ways oI meeting their needs. Eor example, Iax technology gave people in need oI
overnight letter delivery an alternative way to transmit the inIormation. The entry into the market
by new competitors also alters market composition. Importantly, a Iocus by management on
existing markets may provide an incomplete strategic perspective.
Industry classiIications oIten do not clearly deIine product-market boundaries. Eor example,
people may meet their needs Ior Iood with products Irom several industries as shown in Exhibit 3.3.
Industry-based deIinitions do not include alternative ways oI meeting needs. Industry classiIications
typically have a product supply rather than a customer demand orientation. OI course, since indus-
try associations, trade publications, and government agencies generate a lot oI inIormation about
products and markets, inIormation Irom these sources should be included in market analysis.
However, market analysis activities should not be constrained by industry boundaries.
Û¨¬»²¬ ±º Ó¿®µ»¬ ݱ³°´»¨·¬§ò Three characteristics oI markets capture a large portion oI
the variation in their complexity: (1) the functions or uses oI the product required by the
customer, (2) the technology contained in the product to provide the desired Iunction, and (3) the
diIIerent customer segments using the product to perIorm a particular Iunction.
Customer function considers what the good or service does. It is the beneIit provided to the
customer. Thus, the Iunction provides the capability that satisIies the value requirements oI the
customer. Eunctions consider the types oI use situations each user encounters.
In the case oI
the personal computer, the Iunction perIormed may be entertainment Ior the household, e-mail
transmission, Internet purchasing, or various business Iunctions.
DiIIerent technologies may satisIy the use situation oI the customer. Steel and aluminum
materials meet a similar need in various use situations. The technology consists oI the materials and
designs incorporated into products. In the case oI a service, technology relates to how the service is
rendered. Voice calls can be sent via the Internet, traditional phone lines, and wireless phones.
Customer segment recognizes the diversity oI the needs oI customers in a particular product-
market such as automobiles. A speciIic brand and model won•t satisIy all buyers• needs and
wants. Two broad market segments Ior automobile use are households and organizations. These
classiIications can be Iurther divided into more speciIic customer segments, such as preIerences
Ior European-style luxury sedans, sport-utility vehicles, and sports cars.
It is helpIul to Iocus on the consumer (or organizational) end user oI the product when deIin-
ing the market, since the end user drives demand Ior the product. When the end users• needs and
wants change, the market changes. Even though a manuIacturer considers the distributor to
which its products are sold to be the customer, the market is really deIined by the consumer and
organizational end users who purchase the product Ior consumption.
ÛÈØ×Þ×Ì íòí
F¿-t food-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
éè ﮬ Ì©± Markets, Segments, and Customer Jalue
×´´«-¬®¿¬·ª» Ю±¼«½¬óÓ¿®µ»¬ ͬ®«½¬«®»
Suppose you are a brand manager Ior a cereal producer. You know that brands like LiIe, Product
19, and Special K compete Ior sales to people who want nutritional beneIits Irom cereal. None-
theless, our earlier discussion highlights the value oI looking at a more complete picture oI how
competing brands like LiIe, Product 19, and Special K also may experience competition Irom
other ways oI meeting the needs satisIied by these brands. Eor example, a person may decide to
eat a Kellogg•s Nutri-Grain cereal bar instead oI a bowl oI cereal, and the consumer may want
to vary the type oI cereal, such as eating a natural or regular type oI cereal. Because oI the
diIIerent product types and variants competing Ior the same needs and wants, the cereal brand
manager needs to develop a picture oI the product-market structure within which her/his brand
is positioned. Exhibit 3.4 describes an illustrative product-market structure Ior cereals. The
diagram can be expanded to portray other relevant product types (e.g., breakIast bars) in the
generic product-market Ior Iood and beverages.
Ü»-½®·¾·²¹ ¿²¼ ß²¿´§¦·²¹ Û²¼ Ë-»®-
AIter determining the product-market structure it is useIul to develop proIiles oI end user buyers Ior
the generic, product-type, and product-variant levels oI the product-market. Buyers are identiIied,
described, their value requirements indicated, and external environmental inIluences (e.g., interest
ÛÈØ×Þ×Ì íòì
Food ¿nd bever¿ge-
for bre¿kf¿-t me¿l
Generic prod«ct
Prod«ct type
V¿ri¿nt A
V¿ri¿nt B
Br¿nd- Prod«ct 19 Ípeci¿l K Life
N¿t«r¿l N«trition¿l Pre-weetened Reg«l¿r
Re¿dy to e¿t
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space éç
rate trends) determined. Analysis oI the buyers in the market segments within a product-market is
considered in Chapter 4.
×¼»²¬·º§·²¹ ¿²¼ Ü»-½®·¾·²¹ Þ«§»®-
Characteristics such as Iamily size, age, income, geographical location, sex, and occupation are
oIten useIul in identiIying buyers in consumer markets. Illustrative Iactors used to identiIy end
users in organizational markets include type oI industry, company size, location, and types oI
products. Many published sources oI inIormation are available Ior use in identiIying and describ-
ing customers. Examples include U.S. Census data, trade association publications, and studies
by advertising media (TV, radio, magazines). When experience and existing inIormation are not
adequate in determining buyers, research studies may be necessary to identiIy and describe
customers and prospects.
An interesting proIile oI the Russian middle class and illustrative product preIerences are
provided in the Global Eeature, divided into three income categories:
The estimates assume a
Iamily oI two parents and one child. The size oI the Russian middle class is estimated to range
Irom 8 to 20 percent oI that country•s 145 million people. This population group emerged Irom
the economic crisis Russia experienced in 1998, making size estimation diIIicult. The Russian
population inIormation is useIul in identiIying and describing buyers where income is a relevant
predictor oI purchases oI goods and services such as automobiles and vacation services.
ر© Þ«§»®- Ó¿µ» ݸ±·½»-
OIten, simply describing buyers does not provide enough inIormation to guide targeting and
positioning decisions. We also need to try to Iind out why people buy products and speciIic prod-
uct brands. In considering how customers decide what to buy, it is useIul to analyze how they
move through the sequence oI steps leading to a decision to purchase a particular brand. Buyers
normally Iollow a decision process. They begin by recognizing a need (problem recognition);
next, they seek inIormation; then, they identiIy and evaluate alternative products; and Iinally,
they purchase a brand. OI course, the length and complexity oI this process vary by product and
purchasing situation. Decisions Ior Irequently purchased products and Ior which a buyer has
past experience tend to be routine. One part oI studying buyer decision processes is Iinding out
Ù´±¾¿´ Ú»¿¬«®»
Ý´¿-- Ô±©»® Ó·¼¼´» Ó·¼¼´» Ó·¼¼´» Ë°°»® Ó·¼¼´»
Ó±²¬¸´§ Ó±-½±© üèð𠬱 üïôëðð üïôëð𠬱 üíôëðð üíôëð𠬱 üéôððð
ײ½±³» Ю±ª·²½»- üíð𠬱 üëëð üëë𠬱 üïôëðð üïôëð𠬱 üíôëðð
Ö±¾ λ½»°¬·±²·-¬ô ¼®·ª»®ô ݱ³°«¬»® °®±¹®¿³³»®ô Í»²·±® ³¿²¿¹»®ô
-»½«®·¬§ ¹«¿®¼ ¶«²·±® ³¿²¿¹»®ô -³¿´´ó¾«-·²»-- ±©²»®ô
¿½½±«²¬¿²¬ ·²ª»-¬³»²¬ ¾¿²µ»®
Ý¿® Ô¿¬»ó³±¼»´ Ϋ--·¿²ó Ò»© ̱§±¬¿ ݱ®±´´¿ Ò»© Ñ°»´ Ý¿¼»¬ ±® «-»¼
³¿¼» Ô¿¼¿ ÞÓÉ
Ü¿½¸¿ ر³»³¿¼» ©±±¼»² ݱ²¬®¿½¬±®ó½±²-¬®«½¬»¼ô ͬ±²» ¿²¼ ¾®·½µ ©¿´´-ô
½±¬¬¿¹»ô ±«¬¼±±® -¿«²¿ ·²¼±±® °´«³¾·²¹ ¿²¼ ¬»®®¿½»ô ·²¼±±® ¹¿®¿¹»
Í«³³»® Ê¿½¿¬·±² λ-±®¬ ¬±©²- ±² Þ´¿½µ Ì«®µ·-¸ -»¿-¸±®» Ó¿¶±®½¿ ±² Í°¿²·-¸ ηª·»®¿
Í»¿ô ·² ͱª·»¬ó ®»-±®¬ ±º ß²¬¿´·¿
-¬§´» ¸±¬»´
ͱ«®½»æ “Ϋ--·¿•- Ó·¼¼´» Ý´¿--ô’ Þ«-·²»--É»»µô ѽ¬±¾»® ïêô îðððô éçò
Ю±º·´» ±º ¬¸» Ϋ--·¿² Ó·¼¼´» Ý´¿--
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
èð ﮬ Ì©± Markets, Segments, and Customer Jalue
what criteria people use in making decisions. Eor example, how important is the brand name oI
a product in the purchase decision?
Illustrations oI the buying decision process stages Ior a consumer purchase and an organizational
purchase are shown in Exhibit 3.5. The consumer purchase involves a CD player, whereas the
organizational purchase is Ior a CD player component Irom an outside supplier. Both processes move
through the major process stages, but the issues and activities are quite diIIerent.
Û²ª·®±²³»²¬¿´ ײº´«»²½»-
The Iinal step in building customer proIiles is to identiIy the external Iactors that inIluence buyers
and thus impact the size and composition oI the market over time. These inIluences include gov-
ernment actions (e.g., tax cut), social change, economic shiIts, technology, and other Iactors that
may alter buyers• needs and wants. Typically, these Iactors are not controlled by the buyer or the
ÛÈØ×Þ×Ì íòë
ݱ³°¿®·²¹ ¬¸»
ͬ¿¹»- ·²
ݱ²-«³»® ¿²¼
Source: Eric N. Berkowitz,
Roger A. Kerin, Steven W.
Hartley, and William
Rudelius, Marketing, 5th
ed. (Chicago: Richard D.
Irwin, 1997), 192.
Copyright © The
McGraw-Hill Companies.
Used with permission.
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ß´¬»®²¿¬·ª» »ª¿´«¿¬·±² ß´¬»®²¿¬·ª» ÝÜ °´¿§»®- ¿®» Ы®½¸¿-·²¹ ¿²¼ »²¹·²»»®·²¹
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·² ¿ ÝÜ °´¿§»®ò øí÷ ¯«¿´·¬§ ½±²¬®±´ô ¿²¼
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Ы®½¸¿-» ¼»½·-·±² ß -°»½·º·½ ¾®¿²¼ ±º ÝÜ °´¿§»® ̸»§ «-» øï÷ ¯«¿´·¬§ô øî÷ °®·½»ô
·- -»´»½¬»¼ô ¬¸» °®·½» ·- °¿·¼ô øí÷ ¼»´·ª»®§ô ¿²¼ øì÷ ¬»½¸²·½¿´
¿²¼ ·¬ ·- ·²-¬¿´´»¼ ·² ¬¸» ½¿°¿¾·´·¬§ ¿- µ»§ ¾«§·²¹ ½®·¬»®·¿ ¬±
-¬«¼»²¬•- ®±±³ò -»´»½¬ ¿ -«°°´·»®ò ̸»² ¬¸»§ ²»¹±ó
¬·¿¬» ¬»®³- ¿²¼ ¿©¿®¼ ¿ ½±²¬®¿½¬ò
б-¬°«®½¸¿-» ¾»¸¿ª·±® ͬ«¼»²¬ ®»»ª¿´«¿¬»- ¬¸» ̸»§ »ª¿´«¿¬» -«°°´·»®- ¾§
°«®½¸¿-» ¼»½·-·±²ô ³¿§ ®»¬«®² «-·²¹ ¿ º±®³¿´ ª»²¼±® ®¿¬·²¹
¬¸» ÝÜ °´¿§»® ¬± ¬¸» -¬±®» ·º -§-¬»³ ¿²¼ ²±¬·º§ -«°°´·»® ·º
·¬ ·- «²-¿¬·-º¿½¬±®§ô ¿²¼ ´±±µ- °¸±²»- ¼± ²±¬ ³»»¬ ·¬- ¯«¿´·¬§
º±® -«°°±®¬·ª» ·²º±®³¿¬·±² -¬¿²¼¿®¼ò ׺ °®±¾´»³ ·- ²±¬
¬± ¶«-¬·º§ ¬¸» °«®½¸¿-»ò ½±®®»½¬»¼ô ¬¸»§ ¼®±° ¬¸» º·®³
¿- ¿ º«¬«®» -«°°´·»®ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space èï
Iirms that market the product, and substantial changes in environmental inIluences can have a
major impact on customers• purchasing activities. ThereIore, it is important to identiIy the
relevant external inIluences on a product-market and to estimate their Iuture impact. During the
past decade various changes in market opportunities occurred as a result oI uncontrollable
environmental Iactors. Illustrations include the shiIts in population age-group composition,
changes in tax laws aIIecting investments, and variations in interest rates. Consider, Ior example,
the population trends Ior the 50 states in the United States Irom 1995 to 2025. Note that some
states (Exhibit 3.6) display high growth rates while others are declining in size.
Þ«·´¼·²¹ Ý«-¬±³»® Ю±º·´»-
Describing customers starts with the generic product-market. At this level customer proIiles
describe the size and general composition oI the customer base. Eor example, the commercial air
travel customer proIile Ior a speciIied geographical area (e.g., South America) would include
market size, growth rates, mix oI business and pleasure travelers, and other general characteristics.
The product-type and variant proIiles are more speciIic about customer characteristics (needs and
wants, use situations, activities and interests, opinions, purchase processes and choice criteria, and
environmental inIluences on buying decisions). Normally, product-type analysis considers the
organization•s product and closely related product types.
In developing marketing strategy, management is concerned with deciding which buyers to
target within the product-market oI interest, and how to position to each target. The customer
proIiles help to guide these decisions. The proIiles are also useIul in deciding how to segment
the market. More comprehensive customer analyses are undertaken in market segmentation
analysis, which we discuss in Chapter 4.
ß²¿´§¦·²¹ ݱ³°»¬·¬·±²
Competitor analysis considers the companies and brands that compete in the product-market oI
interest. Analyzing the competition Iollows the Iive steps shown in Exhibit 3.7. We begin
by determining the competitive arena in which an organization competes and describing the
characteristics oI the competitive space. Steps 2 and 3 identiIy, describe, and evaluate the
organization•s key competitors. Steps 4 and 5 anticipate competitors• Iuture actions and identiIy
potential new competitors that may enter the market.
ÛÈØ×Þ×Ì íòê
Ì®»²¼- º±® ¬¸»
ëð ͬ¿¬»- ·² ¬¸»
˲·¬»¼ ͬ¿¬»-æ
Source: U.S. Bureau oI the
Census, Population
Division, PPL-47.





›2.9 to 1.4
1.5 to 2.4
2.5 to 3.4
3.5 to 4.5
4.6 to 14.1
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
èî ﮬ Ì©± Markets, Segments, and Customer Jalue
Ü»º·²·²¹ ¬¸» ݱ³°»¬·¬·ª» ß®»²¿
Competition oIten includes more than the Iirms that are considered to be direct competitors, like
Coke and Pepsi. Eor example, the diIIerent levels oI competition Ior diet colas are shown in Exhibit
3.8. The product-variant is the most direct type oI competition. Nevertheless, other product cate-
gories oI soIt drinks also compete Ior buyers, as do other beverages. A complete understanding oI
the competitive arena helps to guide strategy design and implementation. Since competition oIten
occurs within speciIic industries, an examination oI industry structure is useIul in deIining the
competitive arena, recognizing that more than one industry may be competing in the same product-
market, depending on the complexity oI the product-market structure. Eor example, digital camera
competitors include traditional camera and Iilm producers and electronics Iirms like Hewlett-
Packard, Samsung, and Sony.
ÛÈØ×Þ×Ì íòé
Evaluate key competitors. 3
4 Anticipate actions by competitors.
Identify potential competitors.
1 Define the competitive arena for the generic, specific, and variant product-markets.
Identify and describe key competitors. 2
ÛÈØ×Þ×Ì íòè
Û¨¿³°´» ±º
Ô»ª»´- ±º
Source: Donald R.
Lehmann and Russell S.
Winer, Analysis for
Marketing Planning, 4th ed.
(Burr Ridge, IL: Richard D.
Irwin, 1997), 22. Copyright
© The McGraw-Hill
Companies. Used with
food ¿nd
Prod«ct form
diet col¿-
-oft drink-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space èí
ײ¼«-¬®§ ß²¿´§-·-ò Competitor analysis is conducted Irom the point oI view oI a particular
Iirm. Eor example, a soIt drink Iirm such as Coca-Cola should include other beverage brands in
its industry analysis. This analysis looks at two kinds oI inIormation: (1) a descriptive proIile oI
the industry, and (2) an analysis oI the value-chain (distribution) channels that link together the
various organizations in the value-added system Irom suppliers to end users. Thus, the industry
analysis is horizontal and covers similar types oI Iirms (e.g., soIt drink producers), whereas the
value-chain analysis considers the vertical network oI Iirms that supply materials and/or parts,
produce products (and services), and distribute the products to end users.
The industry analysis includes: (1) industry characteristics and trends, such as sales, number oI
Iirms, and growth rates; and (2) operating practices oI the Iirms in the industry, including product
mix, service provided, barriers to entry, and geographical scope. An interesting example oI analy-
sis oI business magazine competitors in Erance is included in the Capital case (6-7) in Exhibits 6
through 11. The Capital case considers the possible launch oI a new business magazine.
Eirst, we need to identiIy the companies that comprise the industry and develop descriptive
inIormation on the industry and its members. It is important to examine industry structure
beyond domestic market boundaries, since international industry developments oIten aIIect
regional, national, and international markets. Eor example, comparison oI U.S. market shares
Irom 1984 to 1999 Ior personal computer (PC) manuIacturers is shown in Exhibit 3.9. Included
are the Home, Business, and Education markets.
U.S. and global PC producers are shown and
global producers are included in the “others’ category. In 2001, global industry sales growth oI
PCs began to slow down, whereas handheld devices were experiencing rapid growth.
The industry identiIication is based on product similarity, location at the same level in the
value chain (e.g., manuIacturer, distributor, retailer), and geographical scope. The industry
analysis considers:
· Industry size, growth, and composition.
· Typical marketing practices.
· Industry changes that are anticipated (e.g., consolidation trends).
· Industry strengths and weaknesses.
· Strategic alliances among competitors.
ß²¿´§-·- ±º ¬¸» Ê¿´«»óß¼¼»¼ ݸ¿·²ò The study oI supplier and distribution channels is
important in understanding and serving product-markets. While producers may go directly to
their end users, many work with other organizations through distribution channels. The extent oI
vertical integration by competitor backward (supply) and Iorward toward end users is also use-
Iul inIormation. The types oI relationships (collaborative or transactional) in the distribution
channel should be identiIied and evaluated. The extent oI outsourcing activities in the value
chain is also oI interest. DiIIerent channels that access end user customers should be included in
the channel analysis. Eor example, the electronic distribution channel initiatives taken by
Charles Schwab & Co. to achieve the No. 1 online broker position are described in the Internet
Eeature. Case 1-2 describes Schwab•s strategic challenges in 2002. By looking at the distribu-
tion approaches oI industry members, we can identiIy important patterns and trends in serving
end users. Value-chain analysis may also uncover new market opportunities that are not served
by present channels oI distribution. Einally, inIormation Irom various value-chain levels can
help in Iorecasting end user sales.
The use oI outsourcing oI manuIacturing and other business Iunctions expanded rapidly in the
United States and Europe during the last decade. By outsourcing, an organization may gain
strategic advantage by Iocusing on its core competencies, while outsourcing other necessary
business Iunctions to independent partners. Thus, analysis oI outsourcing activities may be an
important aspect oI competitor analysis.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
èì ﮬ Ì©± Markets, Segments, and Customer Jalue
ݱ³°»¬·¬·ª» Ú±®½»-ò DiIIerent competitive Iorces are present in the value-added chain. The
traditional view oI competition is expanded by recognizing Michael Porter•s Iive competitive
Iorces that impact industry perIormance:
1. Rivalry among existing Iirms.
2. Threat oI new entrants.
3. Threat oI substitute products.
4. Bargaining power oI suppliers.
5. Bargaining power oI buyers.
The Iirst Iorce recognizes that active competition among industry members helps determine
industry perIormance, and it is the most direct and intense Iorm oI competition. The aggressive
competition between Coke and Pepsi is illustrative. Rivalry may occur within a market segment
or across an entire product-market. The nature and scope oI competition may vary according to
the type oI industry structure. Eor example, competition in an emerging industry consists oI the
market pioneer and a Iew other early entrants. A mature industry like personal computers
includes many Iirms (Exhibit 3.9).
The second Iorce highlights the possibility oI new competitors entering the market. Existing
Iirms may try to discourage new competition by aggressive expansion and other types oI market
ÛÈØ×Þ×Ì íòç
Ó¿®µ»¬ ͸¿®»-
·² ¬¸» ˲·¬»¼
ͬ¿¬»- º±® ïçèìô
ïçèéô ¿²¼ ïççç
ø¾¿-»¼ ±² «²·¬
Source: Peter Burrows,
“Apple,’ BusinessWeek,
July 31, 2000, 108.
ر³» Ó¿®µ»¬
Ó¿µ»® ïçèì Ó¿µ»® ïçèé Ó¿µ»® ïççç
п½µ¿®¼ Þ»´´ íîòìû п½µ¿®¼ Þ»´´ ÒÛÝ îíòíû ݱ³°¿¯ ïçòðû
ß°°´» ïìòé ݱ³°¿¯ ïèòè ØóÐ ïêòï
ݱ³°¿¯ ïïòë Ù¿¬»©¿§ ïïòï Ù¿¬»©¿§ ïëòí
×ÞÓ êòï ×ÞÓ éòð Û³¿½¸·²»- ïïòð
Ù¿¬»©¿§ ëòë ß½»® ëòç п½µ¿®¼ Þ»´´ ÒÛÝ éòí
ß°°´» ëòð ß°°´» éòï
Ѭ¸»®- îçòè Ѭ¸»®- îèòç Ѭ¸»®- îìòî
Þ«-·²»-- Ó¿®µ»¬
Ó¿µ»® ïçèì Ó¿µ»® ïçèé Ó¿µ»® ïççç
ݱ³°¿¯ ïìòîû ݱ³°¿¯ ïëòéû Ü»´´ îîòìû
×ÞÓ ïðòï Ü»´´ ïîòè ݱ³°¿¯ ïëòð
ß°°´» êòì ×ÞÓ çòë ×ÞÓ çòî
Ü»´´ ëòç ØóÐ èòð ØóÐ êòð
Ù¿¬»©¿§ ëòí ̱-¸·¾¿ ëòê ̱-¸·¾¿ ìòé
ß°°´» ïòì ß°°´» ïòí
Ѭ¸»®- ëèòï Ѭ¸»®- ìéòð Ѭ¸»®- ìïòì
Û¼«½¿¬·±² Ó¿®µ»¬
Ó¿µ»® ïçèì Ó¿µ»® ïçèé Ó¿µ»® ïççç
ß°°´» ìéòðû ß°°´» îéòîû Ü»´´ îïòìû
×ÞÓ èòë ݱ³°¿¯ ïíòî ß°°´» ïêòë
Ü»´´ ìòí Ü»´´ ïðòé Ù¿¬»©¿§ ïíòê
Ù¿¬»©¿§ íòí Ù¿¬»©¿§ éòè ݱ³°¿¯ çòî
ݱ³°¿¯ íòî ×ÞÓ êòç ×ÞÓ íòè
Ѭ¸»®- ííòð Ѭ¸»®- íìòî Ѭ¸»®- íëòë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space èë
entry barriers. The entry oI Wal-Mart into the supermarket business has substantially expanded
and intensiIied the competitive arena in this market.
The third Iorce considers the potential impact oI substitutes. New technologies that satisIy the
same customer need are important sources oI competition. Including alternative technologies in the
deIinition oI product-market structure identiIies substitute Iorms oI competition. This type oI analy-
sis is very important in assessing the impact oI disruptive technologies like digital photography.
The Iourth Iorce is the power that suppliers may be able to exert on the producers in an industry.
Eor example, the high costs oI labor exert major pressures on the commercial airline industry.
Companies may pursue vertical integration strategies to reduce the bargaining power oI suppliers.
Alternatively, collaborative relationships are useIul to respond to the needs oI both partners.
Einally, buyers may use their purchasing power to inIluence their suppliers. Wal-Mart, Ior
example, has a strong inIluence on the suppliers oI its many products. Understanding which
organizations have power and inIluence in the value chain provides important insights into the
structure oI competition. Power may be centered at any level in the channel, though producers
and retailers oIten display strong buying power. However, major component suppliers like Intel
may exert substantial inIluence on value-chain members.
A major consequence oI Michael Porter•s view oI competition is that the competitive arena
may be altered as a result oI the impact oI the Iive Iorces on the industry. The Iive competitive
Iorces also highlight the existence oI vertical and horizontal Iorms oI competition. The intensity
oI vertical competition is related, in part, to the bargaining power oI suppliers and buyers. The
location (level) oI an organization in its value chain and the extent oI its control over the channel
may have a major inIluence on the organization•s marketing strategy. Indeed, a strategic
imperative may be to take action to change the impact oI competitive Iorces on a company, Ior
example through collaboration and alliance, rather than accepting the existing situation.
ײ¬»®²»¬ Ú»¿¬«®»
׬•- ¿ ²± ¾®¿·²»®ò É» ¿´´ µ²±© ¬¸¿¬ ݸ¿®´»- ͽ¸©¿¾ ú ݱò
¹»¬- ¬¸» É»¾ò ׬•- ¬¸» Ò±ò ï ±²´·²» ¾®±µ»® ¿²¼ ¿ ´»¿¼»® ·²
¼»ª»´±°·²¹ °®±¼«½¬- ¿²¼ -»®ª·½»- º±® ©·®»¼ ·²ª»-¬±®-ò
É·¬¸ ìòï ³·´´·±² ±²´·²» ¿½½±«²¬- ¿²¼ ¿ îï °»®½»²¬ -¸¿®»
±º ¿´´ É»¾ ¬®¿¼»-ô ¬¸» ¹¿³» ·- ͽ¸©¿¾•- ¬± ´±-»ò
ͱ ¸±© ¼±»- ·¬ ·²¬»²¼ ¬± -¬¿§ ¿¸»¿¼á Þ§ »²-«®·²¹ ¬¸¿¬
½«-¬±³»®- ¹»¬ ©¸¿¬ ¬¸»§ ©¿²¬ô ©¸»² ¬¸»§ ©¿²¬ô ¿²¼ ¸±©
¬¸»§ ©¿²¬ ·¬ò ײ ®»½»²¬ ³±²¬¸-ô ͽ¸©¿¾ ¸¿- ´¿«²½¸»¼ ¿
©·®»´»-- ¬®¿¼·²¹ -»®ª·½» ¿²¼ ²»© ±²´·²» ®»-»¿®½¸ ¬±±´- ¬¸¿¬
´»¬ ½«-¬±³»®- ¬¿µ» ·²ª»-¬³»²¬ ½±«®-»- ¿²¼ ¸»¿® ´·ª» ¿«¼·±
º»»¼- ±º ´»½¬«®»-ò ׬•- ¿´-± ¾«·´¼·²¹ ³±®» ¾®¿²½¸ ±ºº·½»-
¿²¼ °¸±²» ½»²¬»®- ¬± ½±³°´»³»²¬ ·¬- ±²´·²» -»®ª·½»-ò Þ§
·²¬»¹®¿¬·²¹ ¬¸» ±²´·²» ¿²¼ ±ºº´·²» ©±®´¼-ô -¿§- »ó½±³ó
³»®½» »¨°»®¬ Ü¿ª·¼ Õò л½¿«¬ô °®»-·¼»²¬ ±º ¬¸» ¾«-·²»--
¼»ª»´±°³»²¬ º·®³ ·Ú±®³¿¬·±² Ù®±«°ô “ͽ¸©¿¾ ¸¿-
¾»½±³» ¬¸» ¾»²½¸³¿®µ º±® ±¬¸»®- ¹±·²¹ ±²´·²»ò’
ß²¼ ¸±©ò ͱ³» èï °»®½»²¬ ±º ·¬- ¬®¿¼»- ¿®» ²±© ¼±²»
±²´·²»ô ª-ò íê °»®½»²¬ ¬¸®»» §»¿®- ¿¹±ò ̸¿¬•- ¹®»¿¬ º±®
ͽ¸©¿¾ô -·²½» °®±½»--·²¹ ±²´·²» ¬®¿¼»- ½±-¬- èð °»®½»²¬
´»-- ¬¸¿² ±ºº´·²» ±²»-ò Þ«¬ ¬¸» -¿ª·²¹- ¹± º«®¬¸»® ¬¸¿² ¬¸¿¬ò
É·¬¸ ½«-¬±³»®- ¼±·²¹ ¬¸»·® ±©² ¬®¿¼»- ¿²¼ ®»-»¿®½¸ô
¾®¿²½¸ »³°´±§»»- ¿®» º®»»® ¬± °®±³±¬» ¸·¹¸»®ó³¿®¹·² -»®ªó
·½»-ò ײ Ö«²»ô ͽ¸©¿¾ ·²¬®±¼«½»¼ ᮬº±´·± ݱ²-«´¬¿¬·±²ô
©¸·½¸ ´»¬- ½«-¬±³»®- ³»»¬ ©·¬¸ ¿ ͽ¸©¿¾ ¿¼ª·-»® º±® üìððò
ß²¼ ¿ ²»© ©·®»´»-- ¬®¿¼·²¹ -»®ª·½» ©»²¬ ´·ª» ·² Ö«´§ò
ͽ¸©¿¾ ¸¿- ¹·ª»² ±ºº´·²» ·²ª»-¬±®- ³±®» ½¸±·½»-ô ¬±±ò
׬ ¸¿- ¿¼¼»¼ îí ¾®¿²½¸»- ¬¸·- §»¿®ô ¾®·²¹·²¹ ¬¸» ¬±¬¿´ ¬±
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ͱ«®½»æ Ô±«·-» Ô»»ô “ɸ»² DZ«•®» Ò±ò ïô DZ« Ì®§ Ø¿®¼»®ô’
Þ«-·²»--É»»µ ÛòÞ·¦ô Í»°¬»³¾»® ïèô îðððô ÛÞèèò
ر© ݸ¿®´»- ͽ¸©¿¾ ú ݱò
Ô»ª»®¿¹»- Ê¿´«»óݸ¿·² ײ·¬·¿¬·ª»-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
èê ﮬ Ì©± Markets, Segments, and Customer Jalue
Õ»§ ݱ³°»¬·¬±® ß²¿´§-·-
Competitor analysis is conducted Ior the Iirms directly competing with each other (e.g., Nike and
Reebok) and other companies that management may consider important in strategy analysis
(e.g., potential market entrants). The rapid expansion oI competitor intelligence activities by
many companies in the last decade highlights the high priority executives place on monitoring
competitors• activities.
Many companies around the world have developed very eIIective
intelligence units. The Eutures Group (business intelligence consultants) rates MicrosoIt as
having the most eIIective corporate intelligence capabilities. Motorola, IBM, P&G, and General
Electric also receive high ratings.
We now look at two major aspects oI competitor analysis: (1) preparing a descriptive proIile
Ior each competitor, and (2) evaluating the competitor•s strengths and weaknesses (Steps 2 and
3 oI Exhibit 3.7).
Ü»-½®·¾·²¹ ¿²¼ Ûª¿´«¿¬·²¹ ¬¸» ݱ³°»¬·¬±®ò A key competitor is any organization going
aIter the same market target as the Iirm conducting the analysis. American, Delta, and United
Airlines are key competitors on many U.S. routes and certain international routes. Key
competitors are oIten brands that compete in the same product-market or segment(s) within the
market (Coke and Pepsi). DiIIerent product types that satisIy the same need or want may also
actively compete against each other. Thus, microwave Ioods may compete with Iast-Iood
InIormation which is typically included in the competitor proIile is shown in Exhibit 3.10.
Sources oI inIormation include annual reports, industry studies by government and private
organizations, business magazines and newspapers, trade publications, reports by Iinancial
analysts (e.g., Jalue Line Investment Survey), government reports, standardized data services
(e.g., InIormation Resources, Inc., and Nielsen), databases, suppliers, customers, company
personnel, and salespeople. Industry trade publications (e.g., Aviation Week & Space
1echnology) are useIul in tracking industry trends, examining current issues, and obtaining
special research studies. Direct contact with the research directors oI trade publications is an
important source oI inIormation about the industry and key competitors.
It is important to gain as much knowledge as possible about the background, experience,
qualiIications, and tenure oI key executives Ior each major competitor. This inIormation
includes the executives• perIormance records, their particular areas oI expertise, and the Iirms
where they were previously employed. These analyses may suggest the Iuture strategic initia-
tives oI a key competitor.
Market coverage analysis centers on the market segments targeted by the competitor and the
competitor•s actual and relative market-share position. Relative market position is measured by
comparing the share oI the Iirm against the competitor with the highest market share in the
segment. All segments in the product-market that could be targeted by the Iirm should be
included in the competitor evaluation.
The competitor•s past perIormance oIIers a useIul basis Ior comparing competitors. The
customer value proposition oIIered by the competitor Ior each segment is important inIormation.
This may indicate competitive opportunities as well as a possible threat. The competitor•s
distinctive capabilities need to be identiIied and evaluated.
Perceptual maps are useIul in analyzing the competitive positioning oI competing brands. A
perceptual map Ior the brands competing in the analgesics product-market is shown in Exhibit
3.11. Note the area oI vulnerability in the upper-right quadrant. Tylenol dominates the market,
but there may be opportunities Ior new competitor brands. The map indicates how competitors
are positioned relative to each other and alerts management to potential competitive threats.
An analysis oI each competitor•s past sales and Iinancial perIormance indicates how well the
competitor has perIormed on a historical basis. Competitor ratings are also useIul in the comparisons
(e.g., Consumer Reports). A typical period oI analysis is three to Iive years or longer depending
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space èé
on the rate oI change in the market. PerIormance inIormation may include sales, market share,
net proIit, net proIit margin, cash Ilow, and debt. Additionally, Ior speciIic types oI businesses
other perIormance inIormation may be useIul. Eor example, sales-per-square-Ioot is oIten used to
compare the perIormance oI retail stores. Operating cost per passenger mile is a popular measure Ior
airline perIormance comparisons.
Assessing how well competitors meet customer value requirements requires Iinding out what
criteria buyers use to rate each supplier. Customer-Iocused assessments are more useIul than rely-
ing only on management judgments oI value delivery. Measurement methods include customer
comparisons oI value attributes oI the Iirm versus its competitors, customer surveys, loyalty
measures, and the relative market share oI end use segments.
PreIerence maps like the one
shown in Exhibit 3.11 are useIul in comparing the competing brands Ior attributes that are impor-
tant determinants oI customer satisIaction.
Using the competitor inIormation, we can develop an overall evaluation oI the key competitor•s
current strengths and weaknesses. Additionally, the summary assessment oI distinctive capabilities
includes inIormation on the competitor•s management capabilities and limitations, technical and
ÛÈØ×Þ×Ì íòïð
Ü»-½®·¾·²¹ ¿²¼
Ûª¿´«¿¬·²¹ Õ»§
Þ«-·²»-- -½±°» ¿²¼ ±¾¶»½¬·ª»-
Ó¿²¿¹»³»²¬ »¨°»®·»²½»ô ½¿°¿¾·´·¬·»-ô ¿²¼ ©»¿µ²»--»-
Ó¿®µ»¬ °±-·¬·±² ¿²¼ ¬®»²¼-
ͽ±°» ±º ³¿®µ»¬ ½±ª»®¿¹»
Ó¿®µ»¬ ¬¿®¹»¬ø-÷ ¿²¼ ½«-¬±³»® ¾¿-»
б-·¬·±²·²¹ -¬®¿¬»¹§ º±® »¿½¸ ¬¿®¹»¬
Ü·-¬·²½¬·ª» ½¿°¿¾·´·¬·»-
Ú·²¿²½·¿´ °»®º±®³¿²½» ø½«®®»²¬ ¿²¼ ¸·-¬±®·½¿´÷
ÛÈØ×Þ×Ì íòïï
л®½»°¬«¿´ Ó¿°
±º ß²¿´¹»-·½-
Source: William R. Dillon,
Thomas J. Madden, and
Neil H. Eirtle, Marketing
Research in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL: Richard D.
Irwin, 1994), 36. Copyright
© The McGraw-Hill
Companies. Used with
A-pirin Free
Extr¿-Ítrength B¿yer
Extr¿-Ítrength An¿cin
Are¿ of
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
èè ﮬ Ì©± Markets, Segments, and Customer Jalue
operating advantages and weaknesses, marketing strategy, and other key strengths and limitations.
Since competitors oIten display diIIerent capabilities, it is important to highlight these diIIerences.
ß²¬·½·°¿¬·²¹ ݱ³°»¬·¬±®-• ß½¬·±²-
Steps 4 and 5 in competitor analysis (Exhibit 3.7) consider what each key competitor may do in
the Iuture, and identiIy potential competitors. The inIormation obtained in the previous steps oI
the analysis should be helpIul in estimating Iuture trends, although possible strategy shiIts by
competitors may occur.
Û-¬·³¿¬·²¹ ݱ³°»¬·¬±®-• Ú«¬«®» ͬ®¿¬»¹·»-ò Competitors• Iuture strategies may continue
the directions that they have established in the past, particularly iI no major external inIluences
require changing their strategies. Nevertheless, assuming an existing strategy will continue is not
wise. Competitors• current actions may signal probable Iuture threats.
An interesting development in the telecommunication market is the rapid growth in the use
oI Internet calling. The technology is called voice over Internet protocol (VOIP).
introduced in 1995, VOIP experienced start-up problems but by 2003, the technology was a
rapidly growing share oI home and business markets. Accounting Ior nearly 3 percent oI global
phone calls, VOIP has so Iar had a small impact on the phone market. Nonetheless, industry
authorities expect the technology to become a signiIicant competitive threat. VOIP subscribers
in the U.S. are estimated to increase to eight times the 2003 level by 2004. Global Internet phone
subscribers are expected to exceed 17 million by 2008.
×¼»²¬·º§·²¹ Ò»© ݱ³°»¬·¬±®-ò New competitors may come Irom Iour major sources:
(1) companies competing in a related product-market; (2) companies with related technologies;
(3) companies already targeting similar customer groups with other products; and/or (4) compa-
nies competing in other geographical regions with similar products. Market entry by a new
competitor is more likely under these conditions:
· High proIit margins are being achieved by market incumbents.
· Euture growth opportunities in the market are attractive.
· No major market-entry barriers are present.
· Competition is limited to one or a Iew competitors.
· Gaining an equivalent (or better) competitive advantage over the existing Iirm(s) serving the
market is Ieasible.
II one or more oI these conditions are present in a competitive situation, new competition will
probably appear.
Ü»ª»´±°·²¹ ¿ ͬ®¿¬»¹·½ Ê·-·±² ¿¾±«¬ ¬¸» Ú«¬«®»
Market development and competitive space may not Iollow clearly deIined and predictable
paths. Nonetheless, signals can be identiIied that are useIul in pointing to possible market
changes. Answers to the Iollowing questions may indicate the possibility oI a market changing
signiIicantly in the Iuture:
1. Are industry boundaries clear and static? Are customers and competitors identiIiable? Or are
industry boundaries blurring and evolving?
2. Do Iirms compete as “distinct entities’ or as Iamilies oI suppliers and end product Iirms?
3. Is there competition Ior managing migration paths?
4. Is competition taking place at product line, business, and corporate levels? Do these levels oI
competition inIluence each other?
5. Can there be competition between clusters oI Iirms to inIluence standards and industry
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space èç
и¿-»- ±º ݱ³°»¬·¬·±²
It is useIul to distinguish between diIIerent phases in the development oI competition. In the initial
stage, companies compete in identiIying product concepts, technology choices, and building com-
This phase involves experimentation with ideas, and the path to market leadership is
not clearly deIined. The digital photography market moved through this stage in the early 2000s.
Phase 2 may involve partnering oI companies with the objective oI controlling industry standards,
though these Iirms eventually become competitors. Einally, as the market becomes clearly deIined
and the competitive space established, the competition concentrates on market share Ior end prod-
ucts and proIits. The personal computer market is currently in this stage.
ß²¬·½·°¿¬·²¹ ¬¸» Ú«¬«®»
Increasingly, we Iind that change and turbulence, rather than stability, characterize many
product-markets. Moreover, as discussed above, it is oIten possible to identiIy the Iorces under
way that will alter industry structure. Though, these inIluences are not easily identiIied and
analyzed, the organizations that choose to invest substantial time and eIIort in anticipating the
Iuture create an opportunity Ior competitive advantage. Euji appears to have done a better job oI
anticipating the Iuture oI digital photography than has Kodak. Executives in market-driven
companies recognize the importance oI developing these capabilities.
Hamel and Prahalad oIIer a compelling blueprint Ior analyzing the Iorces oI change. While
the details oI their process cannot be captured in a Iew pages oI discussion; the Iollowing ques-
tions are illustrative oI the inIormation needed to anticipate the Iuture:
· What are the inIluences (discontinuities) present in the product-market that have the poten-
tial to proIoundly transIorm market/competitor structure?
· Investigate each discontinuity in substantial depth.
How will the trend impact customers?
What is the likely economic impact?
How Iast is the trend developing?
Who is exploiting this trend?
Who has the most to gain/lose?
What new product opportunities will be created by this discontinuity?
How can we learn more about this trend?
Eollowing the blueprint requires looking in depth at the relevant Iorces oI change in a
product-market and other markets that are interrelated. Anticipating the Iuture requires search-
ing beyond the existing competitive arena, Ior inIluences that promise to impact product-market
boundaries. The process requires the involvement oI the entire organization, and it demands a
substantial amount oI time. A company with a market orientation and cross-Iunctional processes
should be able to utilize these processes Ior anticipating the Iuture. Also, it is apparent that
developing a vision about the Iuture needs to be an ongoing process.
The Iorces oI change span across many markets, industries, and products. Illustrative situa-
tions that call Ior developing a process Ior anticipating the Iuture include understanding the
interlinkages oI traditional telecommunications with wireless phones, cable television, and the
Internet. The Iollowing observation is illustrative oI these challenges:
It is well accepted that the traditional television and PC will, in the not too distant Iuture, be one
product, capable oI multiple Iunctionsœentertainment, education, or work. Sony, Philips, and
Matsushita would like to inIluence this migration Irom the consumer electronics perspective.
Silicon Graphics, Compaq, and Apple would like this migration to be inIluenced by the PC
industry. MicrosoIt would like the soItware producers to be in the driver•s seat. Groups oI Iirms
starting Irom diIIerent vantage points have diIIerent preIerred routes toward the same goal, thus,
there is competition to inIluence the migration paths.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
çð ﮬ Ì©± Markets, Segments, and Customer Jalue
Ó¿®µ»¬ Í·¦» Û-¬·³¿¬·±²
An important part oI market opportunity analysis is estimating the present and potential size oI
the market. Market size is usually measured by dollar sales and/or unit sales Ior a deIined
product-market and speciIied time period. Other size measures include the number oI buyers,
average purchase quantity, and Irequency oI purchase. Three key measures oI market size are:
market potential, sales forecast, and market share.
Ó¿®µ»¬ ᬻ²¬·¿´
Market potential is the maximum amount oI product sales that can be obtained Irom a deIined
product-market during a speciIied time period. It includes the total opportunity Ior sales by all
Iirms serving the product-market. Market potential is the upper limit oI sales that can be
achieved by all Iirms Ior a speciIied product-market. OIten, actual industry sales Iall somewhat
below market potential because the production and distribution systems are unable to completely
meet the needs oI all buyers who are both willing and able to purchase the product during the
period oI interest.
Í¿´»- Ú±®»½¿-¬
The sales Iorecast indicates the expected sales Ior a deIined product-market during a speciIied time
period. The industry sales Iorecast is the total volume oI sales expected by all Iirms serving the
product market. The sales Iorecast can be no greater than market potential and typically Ialls short
oI potential as discussed above. A Iorecast can be made Ior total sales at any product-market level
(generic, product type, variant) and Ior speciIic subsets oI the product-market (e.g., market
segments). A company sales Iorecast can also be made Ior sales expected by a particular Iirm.
An interesting Iorecasting application is estimating the market Ior commercial aircraIt. The
lead-time in developing and producing these expensive products requires Iorecasts several years
into the Iuture. Moreover, passenger travel Iorecasts are needed to guide the aircraIt Iorecasts. The
Boeing Commercial Airplanes Group prepares an annual world Iorecast that includes 20-year air
travel and aircraIt sales projections. Boeing•s 20-year aircraIt Iorecast is shown in Exhibit 3.12.
The Boeing Current Market Outlook is a very complete analysis oI demand Ior commercial
airplanes and aviation support services. It is a useIul basic Iorecasting guide Ior the various
companies serving the commercial aviation market.
Ó¿®µ»¬ ͸¿®»
Company sales divided by the total sales oI all Iirms Ior a speciIied product-market determines
the market share oI a particular Iirm. Market share may be calculated on the basis oI actual sales
or Iorecasted sales. Market share can be used to Iorecast Iuture company sales and to compare
actual market position among competing brands oI a product. Market share may vary depending
on the use oI dollar sales or unit sales due to price diIIerences across competitors.
It is essential in preparing Iorecasts to speciIy exactly what is being Iorecasted (deIined
product-market), the time period involved, and the geographical area. Otherwise, comparisons
oI sales and market share with those oI competing Iirms will not be meaningIul. Additional
Iorecasting guidelines are provided in the Appendix to Chapter 3.
Ûª¿´«¿¬·²¹ Ó¿®µ»¬ Ñ°°±®¬«²·¬§
Since a company•s sales depend, in part, on its marketing plans, Iorecasts and marketing strategy are
closely interrelated. Alternative positioning strategies (product, distribution, price, and promotion)
should be evaluated Ior their estimated eIIects on sales. Because oI the marketing eIIort/sales
relationship, it is important to consider both market potential (opportunity) and planned marketing
expenditures in determining the Iorecast. The impact oI diIIerent sales Iorecasts must be evaluated
Irom a total business perspective, since these Iorecasts aIIect production planning, human resource
needs, and Iinancial requirements.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space çï
Eorecasting Internet purchasing usage is an interesting Iorecasting challenge. It was estimated
that by 2004 the 200 million Americans who had Web access would spend more than $120 billion.
Estimates Ior business-to-business Web purchases were in excess oI $1 trillion a year. The Internet
has also become an essential inIormation source Ior consumers beIore purchasing Irom retail stores.
Sales Iorecasts oI target markets are needed so that management can estimate the Iinancial
attractiveness oI both new and existing market opportunities. The market potential and growth
estimates gauge the overall attractiveness oI the market. The sales Iorecast Ior the company•s
brand in combination with cost estimates provides a basis Ior proIit projections. The decision
to enter a new market or to exit Irom an existing market depends heavily on Iinancial analyses
and projections. Alternate market targets under consideration can be compared using sales
and proIit projections. Similar projections oI key competitors are also useIul in evaluating market
ÛÈØ×Þ×Ì íòïî
ß·®½®¿º¬ îðóÇ»¿®
Source: Excerpt Irom
Current Market Outlook
2004 (Seattle: Boeing
Commercial Airplanes
Group, June 2004), 3, 5.
̸» ³¿®µ»¬ º±® ¿·®°´¿²»- ·- üîò𠬮·´´·±² ±ª»® î𠧻¿®-ò ɱ®´¼ ¿·® ¬®¿ª»´ ·- °®±¶»½¬»¼ ¬± ¹®±©
¿²²«¿´´§ ¿¬ ëòîû ¿²¼ ¿·® ½¿®¹± ¿¬ ¿°°®±¨·³¿¬»´§ êòîû ¼«®·²¹ ¬¸» ´±²¹ó®«² º±®»½¿-¬ °»®·±¼ò
̸» ©±®´¼ º´»»¬ ·- »¨°»½¬»¼ ¬± ³±®» ¬¸¿² ¼±«¾´»ô ©·¬¸ ¬±¬¿´ º´»»¬ -·¦» ¹®±©·²¹ ¬± íëôðð𠾧
îðîíò ß¾±«¬ êðû ±º ¬¸» º´»»¬ ±°»®¿¬·²¹ ¬±¼¿§ ·- °®±¶»½¬»¼ ¬± -¬·´´ ¾» ·² ±°»®¿¬·±² î𠧻¿®-
º®±³ ²±©ò ײ ¬¸» ¬©± ¼»½¿¼»-ô ïèôêðð ²»© ¿·®°´¿²»- ©·´´ ¾» ²»»¼»¼ ¬± º·´´ ½¿°¿½·¬§ ¼»³¿²¼
¿²¼ êôìð𠬱 ®»°´¿½» ¿½¬·ª» ½±³³»®½·¿´ ¿·®°´¿²»-ò
̧°» ±º ß·®½®¿º¬ îððí›îðîîö
ͳ¿´´»® λ¹·±²¿´ Ö»¬- ïéû
Í·²¹´»óß·-´» ëè
Ì©·²óß·-´» îï
éìé ¿²¼ Ô¿®¹»® ì
̱¬¿´ Ü»´·ª»®·»- îððì›îðîí îëôððð ß·®°´¿²»-
Analyzing markets and competition is essential to making sound
business and marketing decisions. The uses oI product-market
analyses are many and varied. An important aspect oI market
deIinition and analysis is moving beyond a product Iocus by
incorporating market needs into the analysts• viewpoint.
Business strategies and markets are interrelated, and
companies that do not understand their markets and how they
are likely to change in the Iuture are at a competitive
disadvantage. EIIective market sensing is essential in guiding
business and marketing strategies. Value migration, the
process oI customers shiIting their purchases to new products
that better meet their needs, should be anticipated and counter
strategies developed. An essential part oI becoming market-
oriented is identiIying Iuture directions oI market change.
This chapter examines the nature and scope oI deIining
product-market structure. By the use oI diIIerent levels oI aggre-
gation (generic, product-type, and product-variant), products and
brands are positioned within more aggregate categories, thus
helping to better understand customers, product interrela-
tionships, industry structure, distribution approaches, and key
competitors. This approach to product-market analysis oIIers a
consistent guide to needed inIormation, regardless oI the type oI
product-market being analyzed. Analyzing market opportunity
includes (1) deIining product-market boundaries and structure,
(2) describing and analyzing end users, (3) conducting industry
and value-chain analyses (4) evaluating key competitors, and
(5) estimating market size and growth rates.
AIter the product-market boundaries and structure are deter-
mined inIormation on various aspects oI the market is collected
and examined. Eirst, it is useIul to study the people or organiza-
tions who are the end users in the product-market at each level
(generic, product type, and variant). These market proIiles oI cus-
tomers help to evaluate opportunities and guide market targeting
and positioning strategies. Next, we identiIy and analyze the Iirms
that market products and services at each product-market level to
aid strategy development. Industry and key competitor analysis
considers the Iirms that compete with the company perIorming
the market opportunity analysis. Thus, industry analysis Ior a
personal computer producer would include the producers that
make up the industry. The analysis should also include Iirms
*Percent oI total
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
çî ﮬ Ì©± Markets, Segments, and Customer Jalue
operating at all stages (levels) in the value-added system, such as
suppliers, manuIacturers, distributors, and retailers.
The next step in analyzing market opportunity is a compre-
hensive assessment oI the major competitors. The key com-
petitor analysis should include both actual and potential
competitors that management considers important. Competitor
analysis includes: (1) describing the company, (2) evaluating
the competitor, and (3) anticipating the Iuture actions oI
competitors. It is also important to identiIy possible new
competitors. Competitor analysis is an ongoing activity and
requires coordinated inIormation collection and analysis.
Developing a strategic vision about the Iuture and
how markets are expected to change is an important part oI
market opportunity analysis. The mounting evidence about
markets points to the critical importance oI understanding and
anticipating changes in markets. In gaining these insights, it is
useIul to view competition as a three-stage process oI experi-
mentation, partnering to set industry standards, and then pur-
suing market share and proIits. Analyzing the Iorces oI change
provides a basis Ior anticipating the Iuture.
The Iinal step in product-market analysis is estimating market
potential and Iorecasting sales. The Iorecasts oIten used in product-
market analysis include estimates oI market potential, sales Iore-
casts oI total sales by Iirms competing in the product-market, and
the sales Iorecast Ior the Iirm oI interest. This inIormation is
needed Ior various purposes and is prepared Ior diIIerent units oI
analysis, such as product category, brands, and geographical areas.
The Iorecasting approach and techniques should be matched to the
organization•s needs. Eorecasting methods are discussed in the
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Airbus and Boeing are the primary competitors in the large
commercial aircraIt market. Discuss how the inIormation
available at Web sites (www.boeing.com and www.airbus.
com) may be useIul in competitive analysis. Market size
inIormation is available at: www.boeing.com/commercial/
B. Visit Hoover•s Web site (www.hoovers.com). Investigate
the diIIerent options Ior competitive and market analysis
provided. How can these online tools best be utilized?
What limitations apply?
C. Johnson & Johnson is currently competitive in the surgical
stent market (a device inserted surgically as an artery to
enable blood Ilow). The device is described in Case 2.4.
PerIorm an Internet analysis oI the stent market indicating
past and current unit sales levels and Iorecasts Ior
D. Samsung Electronics is one oI the top producers oI cell
phones. Draw Irom Internet sources to prepare an analysis
oI the global cell phone market.
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Review the Strategy Eeature, “A Wireless World,’ and
describe this industry in terms oI the competitive Iorces
we have discussed. Consider the issues to be examined by
telecom providers in building a strategic vision Ior the
B. Examine the material in the Internet Eeature, “How Charles
Schwab & Co. Leverages Value-Chain Initiatives.’ How
does the growth oI online trading services change the ways
in which a company like Schwab should deIine its market
boundaries and competitive arena?
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Discuss the important issues that should be considered in
deIining the product-market Ior a totally new product.
2. Under what product and market conditions is the end user
customer more likely to make an important contribution to
product-market deIinition?
3. What recommendations can you make to the management
oI a company competing in a rapid growth market to help
it identiIy new competitive threats early enough so that
counterstrategies can be developed?
4. There are some dangers in concentrating product-market
analysis only on a Iirm•s speciIic brand and those brands
that compete directly with a Iirm•s brand. Discuss.
5. Using the approach to product-market deIinition and analy-
sis discussed in the chapter, select a brand and describe the
generic, product type, and brand product-markets oI which
the brand is a part.
6. Eor the brand you selected in Question 5, indicate the kinds
oI inIormation needed to conduct a complete product-
market analysis. Also suggest sources Ior obtaining each
type oI inIormation.
7. Select an industry and describe its characteristics, partici-
pants, and structure.
8. A competitor analysis oI the 7 UP soIt drink brand is being
conducted. Management plans to position the brand
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íò Ó¿®µ»¬- ¿²¼ ݱ³°»¬·¬·ª»
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space çí
against its key competitors. Should the competitors consist
oI only other noncola drinks?
9. Outline an approach to competitor evaluation, assuming
you are preparing the analysis Ior a regional bank holding
10. Discuss how a small company (less than $1 million in
sales) should analyze its competition.
11. Many popular Iorecasting techniques draw Irom past expe-
rience and historical data. Discuss some oI the more impor-
tant problems that may occur in using these methods.
12. What are the relevant issues a cross-Iunctional team
should consider in developing a strategic vision about the
Iuture Ior the organization•s product-market(s)?
1. This illustration is based on “A Wireless World,’ Busi-
nessWeek, October 27, 2003, 110›111, 114, and 116.
2. C. K. Prahalad and Gary Hamel, “Strategy as a Eield oI
Study and Why Search Ior a New Paradigm?’ Strategic
Management Journal, Summer 1994, 5›16.
3. Diane Brady, “A Thousand and One Noshes,’ Business-
Week, June 14, 2004, 44.
4. “No Excuse Not to Succeed,’ BusinessWeek, May 10, 2004,
96 and 98; William C. Symonds, “The Kodak Revolt Is
Short-Sighted,’ BusinessWeek, November 3, 2003, 38.
5. Adrian J. Slywotzky, Jalue Migration (Boston: Harvard
Business School Press, 1996).
6. “Cash-Low Universities,’ BusinessWeek, November 17,
2003, 71, 72, and 74.
7. This discussion is based upon suggestions provided
by ProIessor Robert B. WoodruII oI the University oI
Tennessee, Knoxville.
8. Rajendra K. Srivastava, Mark I. Alpert, and Allan D.
Shocker, “A Customer-Oriented Approach Ior Determining
Market Structures,’ Journal of Marketing, Spring 1984, 32.
9. George S. Day, Strategic Marketing Planning. 1he Pursuit
of Competitive Advantage (St. Paul, MN: West Publishing,
1984), 72.
10. C. K. Prahalad, “Weak Signals versus Strong Paradigms,’
Journal of Marketing Research, August 1995, iii›vi.
11. Derek E. Abell, Defining the Business. 1he Starting Point
of Strategic Planning (Englewood CliIIs, NV: Prentice
Hall, 1980).
12. George S. Day, “Strategic Market Analysis: A Contingency
Perspective,’ Working Paper, University oI Toronto, July
13. “Russia•s Middle Class,’ BusinessWeek, October 16,
2000, 79.
14. Peter Burrows, “Apple,’ BusinessWeek, July 31, 2000, 108.
15. Michael E. Porter, Competitive Advantage (New York:
Eree Press, 1985), 5.
16. William Green, “I Spy,’ Forbes, April 20, 1998, 91, 94,
96, 100.
17. George S. Day and Robin Wensley, “Assessing Advantage:
A Eramework Ior Diagnosing Competitive Superiority,’
Journal of Marketing, April 1998, 12›16.
18. Peter Grant and Almar Latour, “Circuit Breaker,’ 1he Wall
Street Journal, October 9, 2003, A1 and A9; “Net Phones
Start Ringing Up Customers,’ BusinessWeek, December 29,
2003, 45›46; Ken Brown and Almar Latour, “Phone
Industry Eaces Upheaval As Ways oI Calling Change East,’
1he Wall Street Journal, August 25, 2004, A1 and A8.
19. The Iollowing discussion is based on Prahalad, “Weak
Signals,’ vi.
20. Ibid., 101›102.
21. Gary Hamel and C. K. Prahalad, Competing for the Future
(Boston: Harvard Business School Press, 1994), 101.
22. Prahalad, “Weak Signals,’ v.
23. “E-Commerce Takes OII,’ 1he Economist, May 15, 2004, 9.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íßò ß°°»²¼·¨æ Ú±®»½¿-¬·²¹
ݱ³°¿²·»-ô îððë
çì ﮬ Ì©± Markets, Segments, and Customer Jalue
Ú±®»½¿-¬·²¹ Ù«·¼»´·²»-
ß°°»²¼·¨ íß
The steps in developing sales Iorecasts consist oI
(1) deIining the Iorecasting problem, (2) identiIying
appropriate Iorecasting techniques, (3) evaluating and
choosing a technique, and (4) implementing the Iore-
casting system. A brieI review oI each step indicates
important issues and considerations.
Ü»º·²·²¹ ¬¸» Ú±®»½¿-¬·²¹ Ю±¾´»³
The requirements the Iorecasting method should satisIy,
and the output required must be decided. Illustrative re-
quirements include the time horizon, the level oI accuracy
desired, the uses to be made oI the Iorecast results, and the
degree oI disaggregation (nation, state, local), including
product/market detail, units oI measurement, and time
increments to be covered.
×¼»²¬·º§ô Ûª¿´«¿¬»ô ¿²¼ Í»´»½¬ Ú±®»½¿-¬·²¹
Since several Iorecasting methods are available, each with
certain Ieatures and limitations, the user•s needs,
resources, and available data should be matched with the
appropriate techniques. Companies may incorporate two
or more techniques into the Iorecasting process.
Typically, one technique is used as the primary basis oI
Iorecasting, whereas the other technique is used to check
the validity oI the primary Iorecasting method. Also, tech-
niques oIIer diIIerent outputs. Some are eIIective in
obtaining aggregate Iorecasts, and others are used to
estimate sales Ior disaggregated units oI analysis (e.g.,
products). An overview oI the major Iorecasting tech-
niques is provided here in “Eorecasting Techniques.’
Many Iirms begin with very inIormal Iorecasting
approaches based on projections oI past experience cou-
pled with a subjective assessment oI the Iuture market
environment. As the Iorecasting needs increase, more
Iormalized methods are developed. Eactors that oIten
aIIect the choice oI a Iorecasting system include the type
oI corporate planning process used, the volatility and
complexity oI markets, the number oI products and mar-
kets, and the organizational units that have Iorecasting
Ú±®»½¿-¬·²¹ Ì»½¸²·¯«»-
The major approaches used to prepare Iorecasts are
described brieIly. Eorecasting techniques generally
Iollow two basic avenues. The Iirst involves making
direct estimates oI brand sales. The second Iorecasts
brand sales as a product oI several components (e.g.,
industry sales and market share).
Several methods used
Ior Iorecasting sales are described below:
Ö«¼¹³»²¬¿´ Ú±®»½¿-¬·²¹ò A common approach
relies on a jury oI executive opinion to obtain
sounder Iorecasts than might be made by a single
estimator. To put the results in better perspective,
the jury members are usually given background
inIormation on past sales, and their estimates are
sometimes weighted in proportion to their
convictions about the likelihood oI speciIic sales
levels being realized.
Í¿´»- Ú±®½» Û-¬·³¿¬»-ò The sales personnel oI some
IirmsœIield representatives, managers, or
distributorsœare considered better positioned than
anyone else to estimate the short-term outlook Ior
sales in their assigned areas.
Ë-»®•- Û¨°»½¬¿¬·±²-ò Although the dispersion oI
product users in many markets (or the cost oI
reaching them) would make such an approach
impractical, some manuIacturers serving industrial
markets Iind it possible to poll product users about
their Iuture plans and then use that inIormation in
developing their own Iorecasts.
Ì®¿¼·¬·±²¿´ Ì·³»óÍ»®·»- ß²¿´§-·-ò In a Iamiliar
approach, the historical sales series may be broken
down into its componentsœtrends and cyclical and
seasonal variations, including irregular variationsœ
which are then projected. Time-series analysis has the
advantage oI being easy to understand and apply.
However, there is a danger in relying on strictly mech-
anized projections oI previously identiIied patterns.
ß¼ª¿²½»¼ Ì·³»óÍ»®·»- ß²¿´§-·-ò Eor short-term
Iorecasting purposes, several advanced time-series
̸» º±´´±©·²¹ ¼·-½«--·±² ·- ¾¿-»¼ ±² Ô¿©®»²½» Îò ͳ¿´´ô
Í¿´»- Ú±®»½¿-¬·²¹ ·² Ý¿²¿¼¿ øѬ¬¿©¿æ ̸» ݱ²º»®»²½» Þ±¿®¼ ±º
Ý¿²¿¼¿ô ïçèð÷ô í›éò
Ê·¬¸¿´¿ Îò ο± ¿²¼ Ö¿³»- Ûò ݱ¨ô Ö®òô Í¿´»- Ú±®»½¿-¬·²¹
Ó»¬¸±¼-æ ß Í«®ª»§ ±º λ½»²¬ Ü»ª»´±°³»²¬- øÝ¿³¾®·¼¹»ô Óßæ
Ó¿®µ»¬·²¹ ͽ·»²½» ײ-¬·¬«¬»ô ïçèé÷ô ïéò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
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íßò ß°°»²¼·¨æ Ú±®»½¿-¬·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® í Markets and Competitive Space çë
methods have been generating new interest and
acceptance. Most rely on a moving average oI the
data series as their starting point, and requisite
computer soItware Iacilitates their use. The methods
include variants oI exponential smoothing, adaptive
Iiltering, Box Jenkins models, and the state-space
technique. All assume that Iuture movements oI a
sales series can be determined solely Irom the study
oI its past movements. However, certain oI these
methods have the alternative advantage oI being
able to take into account external variables as well.
Û½±²±³»¬®·½ Ó»¬¸±¼-ò The econometric approach
provides a mathematical simpliIication, or “model,’
oI measurable relationships between changes in the
series being Iorecast and changes in other related
Iactors. Such models are employed most oIten in the
prediction oI overall market demand, thus requiring
a separate estimate oI a company•s own share.
Increased interest in this approach reIlects a
growing concern with macroeconomic events as
well as a preIerence Ior spelling out assumptions
that underlie Iorecasts.
ײ°«¬óÑ«¬°«¬ ß²¿´§-·-ò When developing Iorecasts
Ior intermediate or commodity products, some Iirms
are Iinding it advantageous to employ input-output
measures within comprehensive Iorecasting systems
that begin with macroeconomic considerations and
end with estimates oI industry sales. Still other
methodologies must be employed in such systems,
and specialists are required Ior the correct applica-
tion and interpretation oI input-output analysis.
Ò»©óЮ±¼«½¬ Ú±®»½¿-¬·²¹ò New products pose
special problems that are hard Ior the Iorecaster to
circumvent. A sales Iorecast Ior a new product may
rest upon any oI several bases, including results oI
marketing research investigations, assumptions
about analogous situations in the past, or assump-
tions about the rate at which users oI such products
or services will substitute the new item Ior ones
they are currently buying.
Several advantages and limitations oI the various
Iorecasting techniques are highlighted in Exhibit 3A.1.
A more comprehensive discussion oI Iorecasting
techniques is provided by David M. GeorgoII and
Robert Murdick, “Managers• Guide to Eorecasting,’
Harvard Business Review, January›Eebruary 1986,
Ü¿ª·¼ Ôò Ø«®©±±¼ô Û´´·±¬¬ Íò Ù®±--³¿²ô ¿²¼ Û¿®´ Ôò Þ¿·´»§ô
Í¿´»- Ú±®»½¿-¬·²¹ øÒ»© DZ®µæ ̸» ݱ²º»®»²½» Þ±¿®¼ô ïçéè÷ô ·›··ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
íßò ß°°»²¼·¨æ Ú±®»½¿-¬·²¹
ݱ³°¿²·»-ô îððë
çê ﮬ Ì©± Markets, Segments, and Customer Jalue
ÛÈØ×Þ×Ì íßòï Í«³³¿®§ ±º ß¼ª¿²¬¿¹»- ¿²¼ Ü·-¿¼ª¿²¬¿¹»- ±º Ê¿®·±«- Ú±®»½¿-¬·²¹ Ì»½¸²·¯«»-
Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 7
ed. (New York: McGraw-Hill/Irwin, 2003), 131.
Í¿´»- Ú±®»½¿-¬·²¹
Ó»¬¸±¼ ß¼ª¿²¬¿¹»- Ü·-¿¼ª¿²¬¿¹»-
Ë-»® »¨°»½¬¿¬·±²- ïò Ú±®»½¿-¬ »-¬·³¿¬»- ±¾¬¿·²»¼ ¼·®»½¬´§ ïò ᬻ²¬·¿´ ½«-¬±³»®- ³«-¬ ¾» º»©
º®±³ ¾«§»®- ¿²¼ ©»´´ ¼»º·²»¼
îò Ю±¶»½¬»¼ °®±¼«½¬ «-¿¹» ·²º±®³¿¬·±² îò ܱ»- ²±¬ ©±®µ ©»´´ º±® ½±²-«³»®
½¿² ¾» ¸·¹¸´§ ¼»¬¿·´»¼ ¹±±¼-
íò ײ-·¹¸¬º«´ ³»¬¸±¼ ¿·¼- °´¿²²·²¹ íò Ü»°»²¼- ±² ¬¸» ¿½½«®¿½§ ±º «-»®•-
³¿®µ»¬·²¹ -¬®¿¬»¹§ »-¬·³¿¬»-
ìò Ë-»º«´ º±® ²»© °®±¼«½¬ º±®»½¿-¬·²¹ ìò Û¨°»²-·ª»ô ¬·³»ó½±²-«³·²¹ô
Í¿´»- º±®½» ïò ײª±´ª»- ¬¸» °»±°´» ø-¿´»- ïò Û-¬·³¿¬±®- ø-¿´»- °»®-±²²»´÷ ¸¿ª» ¿
½±³°±-·¬» °»®-±²²»´÷ ©¸± ©·´´ ¾» ¸»´¼ ª»-¬»¼ ·²¬»®»-¬ ¿²¼ ¬¸»®»º±®» ³¿§ ¾»
®»-°±²-·¾´» º±® ¬¸» ®»-«´¬- ¾·¿-»¼
îò ×- º¿·®´§ ¿½½«®¿¬» îò Û´¿¾±®¿¬» -½¸»³»- -±³»¬·³»- ¿®»
íò ß·¼- ·² ½±²¬®±´´·²¹ ¿²¼ ¼·®»½¬·²¹ ²»½»--¿®§ ¬± ½±«²¬»®¿½¬ ¾·¿-
-¿´»- »ºº±®¬ íò ׺ »-¬·³¿¬»- ¿®» ¾·¿-»¼ô °®±½»-- ¬± ½±®®»½¬
ìò Ú±®»½¿-¬ ·- ¿ª¿·´¿¾´» º±® ¬¸» ¼¿¬¿ ½¿² ¾» »¨°»²-·ª»
·²¼·ª·¼«¿´ -¿´»- ¬»®®·¬±®·»-
Ö«®§ ±º »¨»½«¬·ª» ïò Û¿-·´§ ¼±²»ô ª»®§ ¯«·½µ ïò Ю±¼«½»- ¿¹¹®»¹¿¬» º±®»½¿-¬-
±°·²·±² îò ܱ»- ²±¬ ®»¯«·®» »´¿¾±®¿¬» -¬¿¬·-¬·½- îò Û¨°»²-·ª»
íò ˬ·´·¦»- “½±´´»½¬»¼ ©·-¼±³’ ±º ¬¸» íò Ü·-°»®-»- ®»-°±²-·¾·´·¬§ º±® ¬¸» º±®»½¿-¬
¬±° °»±°´» ìò Ù®±«° ¼§²¿³·½- ±°»®¿¬»
ìò Ë-»º«´ º±® ²»© ±® ·²²±ª¿¬·ª» °®±¼«½¬-
Ü»´°¸· ¬»½¸²·¯«» ïò Ó·²·³·¦»- »ºº»½¬- ±º ¹®±«° ¼§²¿³·½- ïò Ý¿² ¾» »¨°»²-·ª» ¿²¼ ¬·³»ó½±²-«³·²¹
Ó¿®µ»¬ ¬»-¬ ïò Ю±ª·¼»- «´¬·³¿¬» ¬»-¬ ±º ½±²-«³»®-• ïò Ô»¬- ½±³°»¬·¬±®- µ²±© ©¸¿¬ º·®³ ·- ¼±·²¹
®»¿½¬·±²- ¬± ¬¸» °®±¼«½¬ îò ײª·¬»- ½±³°»¬·¬·ª» ®»¿½¬·±²
îò ß´´±©- ¿--»--³»²¬ ±º ¬¸» íò Û¨°»²-·ª» ¿²¼ ¬·³»ó½±²-«³·²¹
»ºº»½¬·ª»²»-- ±º ¬¸» ¬±¬¿´ ¬± -»¬ «°
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°®±¼«½¬ ´·º»ó½§½´» °¸¿-» ³«-¬ ¾» ¿½½«®¿¬»´§
¿--»--»¼ ¿²¼ ·²½´«¼»¼
íò Ì»½¸²·½¿´ -µ·´´ ¿²¼ ¹±±¼ ¶«¼¹³»²¬ ®»¯«·®»¼
ͬ¿¬·-¬·½¿´ ¼»³¿²¼ ïò Ù®»¿¬ ·²¬«·¬·ª» ¿°°»¿´ ïò Ú¿½¬±®- ¿ºº»½¬·²¹ -¿´»- ³«-¬ ®»³¿·²
¿²¿´§-·- îò λ¯«·®»- ¯«¿²¬·º·½¿¬·±² ±º ¿--«³°¬·±²- ½±²-¬¿²¬ ¿²¼ ¾» ·¼»²¬·º·»¼ ¿½½«®¿¬»´§ ¬±
«²¼»®´§·²¹ ¬¸» »-¬·³¿¬»- °®±¼«½» ¿² ¿½½«®¿¬» »-¬·³¿¬»
íò ß´´±©- ³¿²¿¹»³»²¬ ¬± ½¸»½µ ®»-«´¬- îò λ¯«·®»- ¬»½¸²·½¿´ -µ·´´ ¿²¼ »¨°»®¬·-»
ìò ˲½±ª»®- ¸·¼¼»² º¿½¬±®- ¿ºº»½¬·²¹ -¿´»- íò ͱ³» ³¿²¿¹»®- ®»´«½¬¿²¬ ¬± «-» ³»¬¸±¼
ëò Ó»¬¸±¼ ·- ±¾¶»½¬·ª» ¼«» ¬± ¬¸» -±°¸·-¬·½¿¬·±²
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
Ó¿®µ»¬óÚ±½«-»¼ Ю±¹®¿³ Ü»ª»´±°³»²¬æ Í«¾¬·¬´»
ݸ¿°¬»® ݸ¿°¬»®
Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼ Ý«-¬±³»® Ê¿´«»
ͬ®¿¬»¹·½ Ó¿®µ»¬ Í»¹³»²¬¿¬·±²
Segmenting markets is a Ioundation Ior superior perIormance. Understanding how buyers• needs
and wants vary is essential in designing eIIective marketing strategies. Segmenting markets may
be critical to developing and implementing market-driven strategy.
Eor example, in the early 1990s, traditional mainIrame computer manuIacturer IBM Iaced
sluggish sales and proIits. IBM was organized around product groups and powerIul geographi-
cally organized sales divisions. In 1991 the company restructured, driven by a new segmentation
approach to its markets. The company abandoned geographic sales regions as market segments,
because they did not provide a way to group customers with similar needs and were a poor basis
Ior target marketing. The Iocus Ior marketing strategy and eIIorts to stimulate market demand
became Industry Solution Units (ISUs), Iocusing on major industrial sectors: banking, insurance,
retail, government, utilities. The ISU organization at IBM helped to improve revenue perIorm-
ance by sharpening its market Iocus and providing clearer sales targets and positioning messages.
By 1994 IBM had moved back into proIitability. Much oI the market-driven culture change at
IBM has been linked to its move Irom a sales-led structure to one based on customer segments.
Moreover, the need to improve an organization•s understanding oI buyers is escalating
because oI buyers• demands Ior uniqueness and an array oI technology available to generate
products to satisIy these demands. Companies are responding to the opportunities to provide
unique customer value with products ranging Irom customized phone pagers Ior business users
to selI-designed greeting cards Ior consumers, and even postage stamps with customers• own
photographs incorporated.
Buyers vary according to how they use products, the needs and preIerences that the products
satisIy, and their consumption patterns. These diIIerences create market segments. Market
segmentation is the process oI identiIying and analyzing subgroups oI buyers in a product-market
with similar response characteristics (e.g., Irequency oI purchase). Recognizing diIIerences
between market segments, and how they change, better and Iaster than competitors is an increas-
ingly important source oI competitive advantage.
Indeed, Ior companies producing consumer goods and services, the concept oI a “one-size-Iits-all
mass market’ is no longer relevant. Many consumer markets show signs oI Iragmentation into
“microsegments’ driven by diverse product preIerences and media usage and demanding “right Ior
me’ in products purchased.
This is why Nike oIIers more than 300 varieties oI sport shoe, not just
one. Exhibit 4.1 illustrates some oI the pressures on consumer goods companies to Iocus on buyer
diIIerences in developing market-led strategy.
The most speciIic Iorm oI market segmentation is to consider each buyer as a market segment.
This is the basis Ior “one-to-one marketing.’
Such Iine-tuned segmentation is possible Ior an
expanding array oI goods and services due to mass customization techniques. It oIIers an excit-
ing new approach to serving the unique needs and wants oI individual buyers. Custom-designed
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
çè ﮬ Ì©± Markets, Segments, and Customer Jalue
products satisIy individual buyer•s needs and wants at prices comparable to mass-produced
products. The growing adoption oI Customer Relationship Management systems that integrate
all inIormation about each individual customer into a single location provides unprecedented
opportunities to learn about customer needs Irom their actual behavior.
Eor example, BMW collects and integrates customer data Irom a variety oI sources: new and
used car buying records, warranty and service records, BMW Iinancial services records, direct
mail and Internet sources, and external inIormation such as competitive sales data. The database
is used Ior several purposes. OIten it is used to predict when individual customers are likely to
change their cars. Response rates to BMW advertising have tripled because the marketing data-
base allows the company to segment and target customers accurately and to Iocus on those most
likely to respond.
Indeed, by coupling inIormation technology and production eIIiciencies, products are
designed to meet a customer•s needs at prices that are competitive with mass-produced products.
Eor example, a woman can walk into an Original Levi Store in New York, be measured by a
salesperson, and try on a Iew pairs oI jeans selected by computer Irom over 400 pairs to match
her speciIic measurements. II one does not provide a perIect Iit, the inIormation is put into the
computer to reIine the speciIications. The Iinal match is a perIect Iit at a price only $10 more
than the mass-produced jeans. Since stocking a supply oI each oI the 400 jeans in every store
would be very costly, the buyer•s pair oI jeans is shipped to the store or the buyer Irom the
distribution center. Similarly, Japanese bicycle manuIacturer Panasonic pioneered “made to
measure’ bicycles, where the retail customer is measured as iI Ior a suit oI clothes and the
custom-made bicycle delivered to the store within a Iew days.
Decision makers Iace renewed dilemmas in making segmentation choices, driven by
escalating market complexity and turbulence. Many traditional assumptions about markets are
becoming obsolete. Consider the contrast in Exhibit 4.2 between the possible characteristics oI
complex and simple, and turbulent and stable markets. Clinging to erroneous assumptions that
markets are simple and stable is likely to critically undermine the ability oI an organization to
develop and implement eIIective market-driven strategy.
We begin the chapter with a discussion oI the role oI market segmentation in marketing
strategy, Iollowed by a discussion oI the variables used to identiIy segments. Next, we look at
the methods Ior Iorming segments, Iollowed by a review oI high-variety strategies. Einally, we
consider the issues and guidelines involved in selecting the segmentation strategy and in its
ÛÈØ×Þ×Ì ìòï
Ú®±³ Ó¿--
Ó¿®µ»¬- ¬±
Ó·½®± Ó¿®µ»¬-
Source: Adapted Irom
Anthony Bianco, “The
Vanishing Mass Market,’
BusinessWeek, July 12,
2004, 68.
Ñ´¼ Ò»©
ݱ²-«³»®- п--·ª»´§ ®»½»·ª» ©¸¿¬»ª»® ¬¸» Û³°±©»®»¼ ³»¼·¿ «-»®- ½±²¬®±´
ÌÊ ²»¬©±®µ- ¾®±¿¼½¿-¬ò ¿²¼ -¸¿°» ½±²¬»²¬ ¬¸¿²µ- ¬± ̷ʱô
·Ð±¼ô ¿²¼ ¬¸» ײ¬»®²»¬ò
ß-°·®¿¬·±²- ̱ µ»»° «° ©·¬¸ ¬¸» ½®±©¼ò ̱ -¬¿²¼ ±«¬ º®±³ ¬¸» ½®±©¼ò
ÌÊ Ý¸±·½» ̸®»» ²»¬©±®µ- °´«- ³¿§¾» ¿ Ø«²¼®»¼- ±º ½¸¿²²»´- °´«- ª·¼»±
ÐÞÍ -¬¿¬·±²ò ±² ¼»³¿²¼ò
Ó¿¹¿¦·²»- ß¹» ±º ¬¸» ¾·¹ ¹´±--·»-æ Ì·³»ô ß¹» ±º ¬¸» -°»½·¿´ ·²¬»®»-¬æ ¿
Ô·º»ô Ô±±µô ¿²¼ Ò»©-©»»µò ³¿¹¿¦·²» º±® »ª»®§ ¿¹» ¿²¼
¿ºº·²·¬§ ¹®±«°ò
ß¼- Ûª»®§±²» ¸«³- ¬¸» ß´µ¿óÍ»´¬¦»® Ì¿´µ·²¹ ¬± ¿ ¹®±«° ±º ±²»ô
¶·²¹´» ¿¼- ¹± »ª»® ²¿®®±©»®ò
Þ®¿²¼- η-» ±º ¬¸» ¾·¹ô «¾·¯«·¬±«- ¾®¿²¼-ô Ò·½¸» ¾®¿²¼-ô °®±¼«½¬ »¨¬»²-·±²-ô
º®±³ ݱ½¿óݱ´¿ ¬± Ì·¼»ò ¿²¼ ³¿-- ½«-¬±³·¦¿¬·±² ³»¿²
³¿²§ °®±¼«½¬ ª¿®·¿¬·±²-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation çç
Í»¹³»²¬¿¬·±² ¿²¼ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹§
Market segmentation needs to be considered early in the development oI market-driven strategy.
Segments are determined, customer value opportunities explored in each segment, organiza-
tional capabilities matched to promising segment opportunities, market target(s) selected Irom
the segment(s) oI interest, and a positioning strategy developed and implemented Ior each
market target (Exhibit 4.3). We examine each oI these activities to indicate the role oI segmen-
tation in the marketing strategy process.
Ó¿®µ»¬ Í»¹³»²¬¿¬·±² ¿²¼ Ê¿´«» Ñ°°±®¬«²·¬·»-
Market segmentation is the process oI placing the buyers in a product-market into subgroups so
that the members oI each segment display similar responsiveness to a particular positioning
strategy. Buyer similarities are indicated by the amount and Irequency oI purchase, loyalty to a
particular brand, how the product is used, and other measures oI responsiveness. So segmentation
is an identiIication process aimed at Iinding subgroups oI buyers within a total market. The oppor-
tunity Ior segmentation occurs when diIIerences in buyers• demand (response) Iunctions allow
market demand to be divided into segments, each with a distinct demand Iunction.
The term
“market niche’ is sometimes used to reIer to a market segment that represents a relatively small
portion oI the buyers in the total market. We consider a niche and a segment to be the same.
Segmentation identiIies customer groups within a product-market, each containing buyers
with similar value requirements concerning speciIic product/brand attributes. A segment is a
possible market target Ior an organization competing in the market. Segmentation oIIers a com-
pany an opportunity to better match its products and capabilities to buyers• value requirements.
Customer satisIaction can be improved by providing a value oIIering that matches the value
proposition considered important by the buyer in a segment.
ÛÈØ×Þ×Ì ìòî
¿²¼ Ó¿®µ»¬
Source: Adapted Irom
Brian Smith, “Made to
Measure,’ 1he Marketer,
June 2004, 8.
Ó¿®µ»¬ ݱ³°´»¨·¬§
ݱ³°´»¨ Ó¿®µ»¬- Í·³°´» Ó¿®µ»¬-
Ø¿ª» ³¿²§ -»¹³»²¬-ò Ø¿ª» ±²´§ ±²» ±® ¬©± -»¹³»²¬-ò
Ø¿ª» ³¿²§ -±«®½»- ±º ½±³°»¬·¬·±²ò Ø¿ª» ®»´¿¬·ª»´§ º»© -±«®½»- ±º ½±³°»¬·¬·±²ò
Ø¿ª» ³«´¬·°´» ¼·-¬®·¾«¬·±² ½¸¿²²»´-ò Ø¿ª» ±²» ³¿·² ¼·-¬®·¾«¬·±² ½¸¿²²»´ò
Ø¿ª» ½±³°´»¨ ª¿´«» °®±°±-·¬·±²- Ø¿ª» -·³°´» ª¿´«» °®±°±-·¬·±²- ¿®±«²¼ ¬¸»
¿®±«²¼ ¿ ³·¨ ±º °®±¼«½¬ô -»®ª·½»ô ½±®» °®±¼«½¬ ±® -»®ª·½»ò
¿²¼ ¾®¿²¼ ¿¬¬®·¾«¬»-ò
Ý«-¬±³»® ¼»½·-·±²ó³¿µ·²¹ °®±½»-- Ý«-¬±³»® ¼»½·-·±²ó³¿µ·²¹ °®±½»-- ·- -·³°´»
³¿§ ¾» ½±³°´·½¿¬»¼ ¿²¼ ·²ª±´ª» ¿²¼ ·²ª±´ª»- ±²´§ ¿ º»© °»±°´»ò
³¿²§ °»±°´»ò
Ó¿®µ»¬ Ì«®¾«´»²½»
Ì«®¾«´»²¬ Ó¿®µ»¬- ͬ¿¾´» Ó¿®µ»¬-
Ó¿®µ»¬ -»¹³»²¬¿¬·±² ½¸¿²¹»- ®¿°·¼´§ Ó¿®µ»¬ -»¹³»²¬¿¬·±² ½¸¿²¹»- ®¿®»´§
¿²¼ º®»¯«»²¬´§ò ¿²¼ -´±©´§ò
̸» ²¿¬«®» ±º ¬¸» ½±³°»¬·¬·±² ̸» ²¿¬«®» ±º ¬¸» ½±³°»¬·¬·±² ½¸¿²¹»- ®¿®»´§
½¸¿²¹»- ®¿°·¼´§ ¿²¼ º®»¯«»²¬´§ò ¿²¼ -´±©´§ò
̸» ²«³¾»® ¿²¼ ¬§°» ±º ¼·-¬®·¾«¬·±² ̸» ²«³¾»® ¿²¼ ¬§°» ±º ¼·-¬®·¾«¬·±² ½¸¿²²»´-
½¸¿²²»´- ½¸¿²¹» ®¿°·¼´§ò ¿®» ²±¬ ½¸¿²¹·²¹ -·¹²·º·½¿²¬´§ò
Ê¿´«» °®±°±-·¬·±²- ½¸¿²¹» ±º¬»² Ê¿´«» °®±°±-·¬·±²- ¼± ²±¬ ½¸¿²¹» -·¹²·º·½¿²¬´§
¿²¼ ®¿°·¼´§ò ±ª»® ¬·³»ò
̸» ½«-¬±³»® ¼»½·-·±²ó³¿µ·²¹ °®±½»-- ̸» ½«-¬±³»® ¼»½·-·±²ó³¿µ·²¹ °®±½»-- ·-
³¿§ ½¸¿²¹» º®»¯«»²¬´§ò ¹»²»®¿´´§ -¬¿¾´»ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïðð ﮬ Ì©± Markets, Segments, and Customer Jalue
Ý®»¿¬·²¹ Ò»© Ó¿®µ»¬ Í°¿½»
Importantly, market analysis may identiIy segments not recognized or served eIIectively by com-
petitors. There may be opportunities to tap into new areas oI value and create a unique space in the
market. Eor example, in Erance Accor has established the highly successIul Eormula 1 hotel chain
by building a new market segment in between the traditional strategic groups in the hotel market.
Traditional one-star hotels oIIer low prices, while two-star hotels oIIer more amenities and charge
higher prices. Accor•s analysis oI customer needs Iound that customers choose the one-star hotel
because it is cheap, but trade up Irom the one-star hotel to the two-star hotel Ior the “sleeping envi-
ronment’œclean, quiet rooms with more comIortable bedsœnot all the other amenities that are
oIIered. Eormula 1 provides the superior “sleeping environment’ oI the two-star hotel, but not the
other Iacilities, which allows it to oIIer this at the price oI the one-star hotel. By 1999, Eormula 1
had built a market share larger than the sum oI those oI the next Iive largest competitors.
Ó¿¬½¸·²¹ Ê¿´«» Ñ°°±®¬«²·¬·»- ¿²¼ Ý¿°¿¾·´·¬·»-
While broad competitive comparisons can be made Ior an entire product-market, more penetrat-
ing insights about competitive advantage and market opportunity result Irom market segment
analyses. Examining speciIic market segments helps to identiIy how to (1) attain a closer match
between buyers• value preIerences and the organization•s capabilities, and (2) compare the
organization•s strengths (and weaknesses) to the key competitors in each segment.
Customer value requirements can oIten be better satisIied within a segment, compared to
the total market. Consider, Ior example, Atlas Air Inc., a transportation company that oIIers
outsourcing Ireight services Ior global air carriers. Launched in 1992, the Iounder identiIied
an emerging customer need because carriers were replacing older aircraIt with Iuel eIIicient
planes having halI the cargo space oI those being replaced.
Atlas customers include British
Airways, China Airlines, KLM, LuIthansa, Swissair, and SAS, all attracted by low cost and reli-
able services. Atlas carries Ilowers and shoes Irom Amsterdam to Singapore Ior KLM and Iish,
cattle, and horses Irom Taipei to Europe Ior China Air.
Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼ ͬ®¿¬»¹·½ б-·¬·±²·²¹
Market targeting consists oI evaluating and selecting one or more segments whose value require-
ments provide a good match with the organization•s capabilities. Companies typically appeal to
only a portion oI the people or organizations in a product-market, regardless oI how many seg-
ments are targeted. Management may decide to target one, a Iew, or several segments to gain the
ÛÈØ×Þ×Ì ìòí
¿²¼ ¬¸» Ó¿®µ»¬ó
Ü®·ª»² ͬ®¿¬»¹§
Value opportunities
Capabilities/segment match
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïðï
ͬ®¿¬»¹§ Ú»¿¬«®»
strength and advantage oI specialization. Alternatively, while a speciIic segment strategy is not
used, the marketing program selected by management is likely to appeal to a particular subgroup
oI buyers within the market. Segment identiIication and targeting are obviously preIerred.
Einding a segment by chance does not give management the opportunity oI evaluating diIIerent
segments in terms oI the Iinancial and competitive advantage implications oI each segment.
When segmentation is employed, it should be by design, and the underlying analyses should lead
to the selection oI one or more promising segments to target.
Recall the Chapter 2 description oI positioning strategy as the combination oI organizational
actions management takes to meet the needs and wants oI each market target. The strategy
consists oI product(s) and supporting services, distribution, pricing, and promotion components.
Management•s choices about how to inIluence target buyers to Iavorably position the product in
their eyes and minds help in designing the positioning strategy.
The Strategy Eeature describes the segmentation and positioning challenges at Banana
Republic in the retail Iashion marketplace. A special problem at Banana Republic, owned by
Gap Inc., is to successIully position in a target market that does not lead to cannibalizing the
sales oI The Gap or Old Navyœboth owned by Gap Inc.
Market segmentation lays the groundwork Ior market targeting and positioning strategies.
The skills and insights used in segmenting a product-market may give a company important
competitive advantages by identiIying buyer groups that will respond Iavorably to the Iirm•s
marketing eIIorts. The previous Atlas Air example is illustrative.
OI course, Iaulty segmentation reduces the eIIectiveness oI targeting and positioning decisions.
Eor example, in 2000 General Motors made the decision to axe the Oldsmobile brandœthe oldest
auto brand in the United States. Although sometimes a symbol oI innovation and style, Oldsmobile
Iailed to establish a strong position in a long-term market niche or segmentœit did not deliver the
“class’ oI Cadillac and Buick nor the wider market appeal oI Chevrolet.
É·¬¸ ìíë -¬±®»- ¿²¼ ¿½½±«²¬·²¹ º±® ¿¾±«¬ ïí °»®½»²¬ ±º
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³¿¶±® -¸·º¬ ·² -¬®¿¬»¹§ò
Þ¿²¿²¿ λ°«¾´·½ ·- »-¬¿¾´·-¸»¼ ¿- ¿ -»´´»® ±º ½¸·½
¾¿-·½-œ½¿-«¿´ ±ºº·½» ©»¿® ·² ¾´¿½µ- ¿²¼ ¾»·¹»œ½´±¬¸»- º±®
¬¸» ¼®»--»¼ó¼±©² ©±®µ°´¿½»ò ׬ ·- ²±© °±-·¬·±²·²¹ ·² ¬¸»
¸·¹¸ º¿-¸·±² ³¿®µ»¬ô ½±³°»¬·²¹ ©·¬¸ ¾®¿²¼- ´·µ» б´±
ο´°¸ Ô¿«®»²ô Ý¿´ª·² Õ´»·²ô ß²² Ì¿§´±®ô ¿²¼ Û´´»² Ì®¿½§ò
̸» ³±ª» º®±³ º¿-¸·±² ¾¿-·½- ¬± üïîè -¬®¿°´»-- ¼®»--»-
¿²¼ ׬¿´·¿² -·´µ -¸·®¬- ®»º´»½¬- -»ª»®¿´ -¬®¿¬»¹·½ ·³°»®¿¬·ª»-æ
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¾¿-·½- ³¿®µ»¬ -»¹³»²¬ ©¸»®» ̸» Ù¿° ½±³°»¬»-ò
Ù¿° ײ½ò ©»²¬ ·²¬± ¿ ¬¸®»»ó§»¿® ¼±©²¬«®² ·² ´¿¬» ïçççô
°¿®¬´§ ¾»½¿«-» ¬¸» ±ª»®´¿° ¾»¬©»»² ̸» Ù¿° ¿²¼ Ñ´¼
Ò¿ª§ -¬±®»- ´»¼ Ù¿° -¸±°°»®- ¬± ¸»¿¼ º±® ¬¸» ´±©»®
°®·½»- ¿¬ Ñ´¼ Ò¿ª§ò
̸» Ù¿° ®»½±ª»®»¼ ¾§ ®»¬«®²·²¹ ¬± ¾¿-·½- ´·µ» ½®±°°»¼
°¿²¬-ô ¶»¿²-ô ¿²¼ µ¸¿µ·-ò
Ù¿° ²± ´±²¹»® ´±±µ»¼ ´·µ» Ñ´¼ Ò¿ª§œ²±© ·¬ ´±±µ»¼
´·µ» Þ¿²¿²¿ λ°«¾´·½ò
̸» -±´«¬·±² ·- ¬± -¸·º¬ Þ¿²¿²¿ ¿©¿§ º®±³ -¬¿°´»
¿°°¿®»´ ¬±©¿®¼- º¿-¸·±² ¬®»²¼-ò
̸» °®±¾´»³ ©·¬¸ ¬¸» -¬®¿¬»¹§ ·- ¬¸¿¬ ½±²-«³»®- ¼±
²±¬ ¬¸·²µ ±º Þ¿²¿²¿ º±® º¿-¸·±²ô ½±´±®ô ¿²¼ ²»© -¬§´»-ò
̸» ¬®¿²-º±®³¿¬·±² ±º Þ¿²¿²¿ λ°«¾´·½ ¾§ -¸·º¬·²¹
-¬®¿¬»¹·½ °±-·¬·±² ·- «²¼»®°·²²»¼ ¾§ º±«® ·²²±ª¿¬·ª»
¿°°®±¿½¸»- ¬± ¾«·´¼ -¬®»²¹¬¸ ·² ¬¸» ¸·¹¸ º¿-¸·±² -»¹³»²¬æ
Ó»®½¸¿²¼·-»æ »³°¸¿-·¦·²¹ ¬®»²¼·²»-- ¿²¼ ½±´±® ±ª»®
¾¿-·½- ¿²¼ ²»«¬®¿´-ò
Ü7½±®æ ³¿µ·²¹ -¬±®»- º»»´ ³±®» «°-½¿´» ¾§ ¿¼¼·²¹
¬±«½¸»- -«½¸ ¿- °±¬¬»¼ °´¿²¬- ¿²¼ º´±©»®-ò
Ю±³±¬·±²æ °»®-«¿¼·²¹ º¿-¸·±² »¼·¬±®- ¬± «-» ¬¸»
-¬±®»•- ½´±¬¸»- ·² ¬¸»·® »¼·¬±®·¿´ °¿¹»-ò
׳¿¹»æ ¼»°·½¬·²¹ ±®¼·²¿®§ô ®»¿´ó©±®´¼ -»¬¬·²¹- ·² ¿¼-
-± ¬¸» ½´±¬¸»- ¿°°»¿® ¿½½»--·¾´» ¿²¼ ©»¿®¿¾´»ò
ͱ«®½»æ Ô±«·-» Ô»»ô “Ç»-ô É» Ø¿ª» ¿ Ò»© Þ¿²¿²¿ô’ Þ«-·²»--É»»µô
Ó¿§ íïô îððìô éì›éëò
Í»¹³»²¬¿¬·±² ¿²¼ б-·¬·±²·²¹ ݸ¿´´»²¹»- º±®
Þ¿²¿²¿ λ°«¾´·½
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïðî ﮬ Ì©± Markets, Segments, and Customer Jalue
Í»´»½¬·²¹ ¬¸» Ó¿®µ»¬ ¬± Þ» Í»¹³»²¬»¼
Market segmentation may occur at any oI the product-market levels shown in Exhibit 4.4.
Generic-level segmentation is illustrated by segmenting supermarket buyers based on shopper
types (e.g., limited shopping time). Product-type segmentation is shown by the diIIerences in
price, quality, and Ieatures oI shaving equipment. Product-variant segmentation considers the
segments within a category such as electric razors.
An important consideration in deIining the market to be segmented is estimating the variation in
buyers• needs and requirements at the diIIerent product-market levels and identiIying the types oI
buyers included in the market. In the Atlas Air example, management deIined the product-market
to be segmented as air Ireight services Ior business organizations between major global airports.
Segmenting the generic product-market Ior air Ireight services was too broad in scope. The market
deIinition selected by Atlas Air excluded buyers (e.g., consumers) that were not oI primary interest
to management while including companies with diIIerent Ireight service needs.
In contemporary markets, boundaries and deIinitions can change rapidly, underlining the
strategic importance oI market deIinition and selection, and the need Ior Irequent reevaluation.
Ó¿®µ»¬ Í»¹³»²¬¿¬·±² ß½¬·ª·¬·»- ¿²¼ Ü»½·-·±²-
The process oI segmenting a market involves several interrelated activities and decisions begin-
ning with deIining the market to be segmented (Exhibit 4.5). It is necessary to decide how to
segment the market, which involves selecting the variable(s) to use as the basis Ior identiIying
segments. Eor example, Irequency oI use oI a product (e.g., Irequent, moderate, and occasional)
may be a possible basis Ior segmentation. Next, the method oI Iorming segments is decided. This
may consist oI managers using judgment and experience to divide the market into segments as
illustrated by the Atlas Air example. Alternatively, segments may be Iormed using statistical
analysis. The availability oI customer purchase behavior inIormation in CRM systems, Ior
example, provides a growing base Ior this analysis. Part oI Iorming segments is deciding
whether Iiner (smaller) segments should be used. Einally, strategic analysis is conducted on each
segment to assist management in deciding which segment(s) to target.
×¼»²¬·º§·²¹ Ó¿®µ»¬ Í»¹³»²¬-
AIter the market to be segmented is deIined, one or more variables are selected to identiIy
segments. Eor example, the United States Automobile Association (USAA) segments by type oI
employment. Although unknown to many people, USAA has built a successIul business serving
the automobile insurance needs oI U.S. military personnel located throughout the world. USAA
has close relationships with its 2.6 million members using powerIul inIormation technology. The
USAA service representative has immediate access to the client•s consolidated Iile, and the
one-to-one service encounter is highly personalized. USAA achieves a 98 percent retention rate
in its market chosen segment.
Eirst, we discuss the purpose oI segmentation variables, Iollowed by a review oI the variables
that are used in segmentation analyses.
ÛÈØ×Þ×Ì ìòì
¬¸» Ø»¿´¬¸
¿²¼ Þ»¿«¬§
Í«°°´·»- Ó¿®µ»¬
Ô»ª»´ ±º Ю±¼«½¬ ×´´«-¬®¿¬·ª» Ò»»¼ñÉ¿²¬
ݱ³°»¬·¬·±² Ü»º·²·¬·±² ݱ³°»¬·¬±®- Í¿¬·-º·»¼
Ù»²»®·½ Ø»¿´¬¸ ¿²¼ ݱ²-«³»® °®±¼«½¬- Û²¸¿²½»³»²¬ ±º
¾»¿«¬§ ¿·¼- ½±³°¿²·»- ¸»¿´¬¸ ¿²¼ ¾»¿«¬§
Ю±¼«½¬ ¬§°» ͸¿ª·²¹ »¯«·°³»²¬ Ù·´´»¬¬»ô λ³·²¹¬±²ô Þ·½ ͸¿ª·²¹
Ю±¼«½¬ ª¿®·¿²¬ Û´»½¬®·½ ®¿¦±®- Þ®¿«²ô Ò±®»´½±ô Û´»½¬®·½ -¸¿ª·²¹
λ³·²¹¬±²ô п²¿-±²·½
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïðí
Ы®°±-» ±º Í»¹³»²¬¿¬·±² Ê¿®·¿¾´»-
One or more variables (e.g., Irequency oI use) may be used to divide the product-market into
segments. Demographic and psychographic (liIestyle and personality) characteristics oI buyers
are oI interest, since this inIormation is available Irom the U.S. Census reports and many other
sources including electronic databases. The use situation variables consider how the buyer uses
the product, such as purchasing a meal away Irom home Ior the purpose oI entertainment.
Variables measuring buyers• needs and preferences include attitudes, brand awareness, and
brand preIerence. Purchase-behavior variables describe brand use and consumption (e.g., size
and Irequency oI purchase). We examine these variables to highlight their uses, Ieatures, and
other considerations important in segmenting markets.
ݸ¿®¿½¬»®·-¬·½- ±º л±°´» ¿²¼ Ñ®¹¿²·¦¿¬·±²-
ݱ²-«³»® Ó¿®µ»¬-ò The characteristics oI people Iall into two major categories: (1) geographic
and demographic, and (2) psychographic (liIestyle and personality). Demographics are oIten more
useIul to describe consumer segments aIter they have been Iormed rather than to identiIy them.
Nonetheless, these variables are popular because available data oIten relate demographics to the
other segmentation variables. Geographic location may be useIul Ior segmenting product-markets.
Eor example, there are regional diIIerences in the popularity oI transportation vehicles. In several
U.S. states the most popular vehicle is a pickup truck. The “truck belt’ runs Irom the upper Midwest
south through Texas and the GulI coast states. The Eord brand is dominant in the northern halI oI
the truck belt while Chevrolet leads in the southern halI.
Demographic variables describe buyers according to their age, income, education, occupation,
and many other characteristics. Demographic inIormation helps to describe groups oI buyers such
as heavy users oI a product or brand. Demographics used in combination with buyer behavior
inIormation are useIul in segmenting markets, selecting distribution channels, designing promotion
strategies, and other decisions on marketing strategy.
LiIestyle variables indicate what people do (activities), their interests, their opinions, and their
buying behavior. LiIestyle characteristics extend beyond demographics and oIIer a more
penetrating description oI the consumer.
ProIiles can be developed using liIestyle characteristics.
ÛÈØ×Þ×Ì ìòë
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Market to be
Decide how
to segment
Form segments
Finer segmentation
analysis of
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
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ïðì ﮬ Ѳ» Fixed Income securities
ïðì ﮬ Ì©± Markets, Segments, and Customer Jalue
This inIormation is used to segment markets, help position products, and guide the design oI
advertising messages.
An array oI specialty magazines enables companies to identiIy and access very speciIic
liIestyle segments. Eor example, Peterson Publishing Co. publishes 23 monthlies, 9 bimonthlies,
and 45 annuals.
The company•s magazine portIolio includes Motor 1rend, M1B (mountain
bikes), Circle 1rack, and 1een magazine. Specialty magazines match buyers• liIestyle interests
with articles that correspond to the interests. Subscriber proIiles help companies match their
market target proIiles with the right magazine(s). Many oI the specialty magazines conduct
subscriber research studies that are useIul to companies targeting liIestyle segments. The avail-
ability oI new technologies also enables more general publications to create themed sections or
demographically targeted editions. Eor example, 1ime magazine can produce customized versions
oI its national editionœat the extreme as many as 20,000 diIIerent versions oI a single issue.
The Global Eeature describes the success oI BMW in positioning its MINI as a liIestyle
vehicle, promoted through unconventional routes that Iit with buyer characteristics in this niche
oI the automobile market.
Ñ®¹¿²·¦¿¬·±²¿´ Ó¿®µ»¬-ò Several characteristics help in segmenting business markets. The
type oI industry (sometimes called a vertical market) is related to purchase behavior Ior certain
types oI products. Eor example, automobile producers purchase steel, paint, and other raw
materials. Since automobile Iirms• needs may vary Irom companies in other industries, this Iorm
oI segmentation enables suppliers to specialize their eIIorts and satisIy customer needs. Other
variables Ior segmenting organizational markets include size oI the company, the stage oI
industry development, and the stage oI the value-added system (e.g., producer, distribution,
retailer). Dell, Ior example, targets the Iollowing organizational segments: global enterprises,
large companies, midsize companies, government agencies, education, and small companies.
Organizational segmentation is aided by Iirst examining (1) the extent oI market concentration,
and (2) the degree oI product customization.
Concentration considers the number oI customers
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Ù»¬¬·²¹ Ó·¹¸¬·»®ô’ Þ«-·²»--É»»µô ß°®·´ ëô îððìô îêò
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
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ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
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ݸ¿°¬»® ì Strategic Market Segmentation ïðë
and their relative buying power. Product customization determines the extent to which the
supplier must tailor the product to each organizational buyer. II one or both oI these Iactors
indicate quite a bit oI diversity, segmentation opportunities may exist.
Boeing caters to the speciIic needs oI each air carrier purchasing commercial aircraIt. Eor
example, an airline ordering a 747 has a choice oI Iour conIigurations Ior the interior wall at the
Iront oI the rear cargo compartment.
This decision impacts how 2,550 parts are installed. While
Boeing•s eIIorts to provide customized designs are preIerred by its customers, the costs are high
and Boeing has had to evaluate the value/cost relationships oI its attempts to satisIy the needs oI
single airline segments.
Ю±¼«½¬ Ë-» Í·¬«¿¬·±² Í»¹³»²¬¿¬·±²
Markets can be segmented based on how the product is used. As an illustration, Nikon, the
Japanese camera company, oIIers a line oI high perIormance sunglasses designed Ior activities
and light conditions when skiing, driving, hiking, Ilying, shooting, and participating in water
sports. Nikon competes in the premium portion oI the market with prices somewhat higher than
Ray-Ban, the market leader. Timex uses a similar basis oI segmentation Ior its watches.
Needs and preIerences vary according to diIIerent use situations. Consider, Ior example,
segmenting the market Ior prescription drugs. Astra/Merck identiIies the Iollowing segments
based on the type oI physician/patient drug use situation:
· Ø»¿´¬¸ ½¿®» ¿- ¿ ¾«-·²»--œcustomers such as managed care administrators who consider
economic Iactors oI drug use Ioremost.
· Ì®¿¼·¬·±²¿´œphysicians with standard patient needs centered around the treatment oI disease.
· ݱ-¬ -»²-·¬·ª»œphysicians Ior whom cost is paramount, such as those with a sizable number
oI indigent patients.
· Ó»¼·½¿´ ¬¸±«¹¸¬ ´»¿¼»®-œpeople on the leading edge, oIten at teaching hospitals, who
champion the newest therapies.
A sales representative provides the medical thought leader with cutting-edge clinical studies,
whereas the cost-sensitive doctor is provided inIormation related to costs oI treatments.
Mass customization oIIers a promising means oI responding to diIIerent use situations at
competitive prices. Eor example, Lutron Electronics gives its buyers customized light dimmer
switches by programming desired Ieatures using computer chips built into the switchesœthe
company holds 80 percent oI all dimmer patents, and has achieved a 75 percent market share,
with a product catalog including several thousand product variations in dozens oI colors.
Þ«§»®-• Ò»»¼- ¿²¼ Ю»º»®»²½»-
Needs and preIerences that are speciIic to products and brands can be used as segmentation bases
and segment descriptors. Examples include brand loyalty status, beneIits sought, and proneness to
make a deal. Buyers may be attracted to diIIerent brands because oI the beneIits they oIIer. Eor
example, seeking to generate additional revenues in the mid-1990s, Credit Lyonnaise, Erance•s
largest commercial bank, segmented and began targeting customers with annual incomes in excess
oI 500,000 Irancs ($100,000 at the time) that wanted quality service, Iinancial advice, and upscale
Several new branch oIIices were designed to appeal to Credit Lyonnaise•s wealthy
clients. One oIIice in Bordeaux, called Club Tourney, had an elegant townhouse with salons where
clients met with advisors to discuss Iinancial needs. The branch served 100 wealthy clients.
ݱ²-«³»® Ò»»¼-ò Needs motivate people to act. Understanding how buyers satisIy their needs
provides guidelines Ior marketing actions. Consumers attempt to match their needs with the
products that satisIy their needs. People have a variety oI needs, including basic physiological needs
(Iood, rest, and sex); the need Ior saIety; the need Ior relationships with other people (Iriendship);
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïðê ﮬ Ì©± Markets, Segments, and Customer Jalue
and personal satisIaction needs.
Understanding the nature and intensity oI these needs is important
in (1) determining how well a particular brand may satisIy the need, and/or (2) indicating what
change(s) in the brand may be necessary to provide a better solution to the buyer•s needs.
߬¬·¬«¼»-ò Buyer•s attitudes toward brands are important because experience and research
Iindings indicate that attitudes inIluence behavior. Attitudes are enduring systems oI Iavorable
or unIavorable evaluations about brands.
They reIlect the buyer•s overall liking or preIerence
Ior a brand. Attitudes may develop Irom personal experience, interactions with other buyers, or
by marketing eIIorts, such as advertising and personal selling.
Attitude inIormation is useIul in marketing strategy development. A strategy may be designed
either to respond to established attitudes or, instead, to attempt to change an attitude. In a given
situation, relevant attitudes should be identiIied and measured to indicate how brands compare.
II important attitude inIluences on buyer behavior are identiIied and a Iirm•s brand is measured
against these attitudes, management may be able to improve the brand•s position by using this
inIormation. Attitudes are oIten diIIicult to change, but Iirms may be able to do so iI buyers•
perceptions about the brand are incorrect. Eor example, iI the trade-in value oI an automobile is
important to buyers in a targeted segment and a company learns through market research that its
brand (which actually has a high trade-in value) is perceived as having a low trade-in value,
advertising can communicate this inIormation to buyers.
л®½»°¬·±²-ò Perception is deIined as “the process by which an individual selects, organizes,
and interprets inIormation inputs to create a meaningIul picture oI the world.’
Perceptions are
how buyers select, organize, and interpret marketing stimuli, such as advertising, personal sell-
ing, price, and the product. Perceptions Iorm attitudes. Buyers are selective in the inIormation
they process. As an illustration oI selective perception, some advertising messages may not be
received by viewers because oI the large number oI messages vying Ior their attention. Eor
example, Exhibit 4.6 lists products where substantial proportions oI TV advertisements are
actively ignored or skipped using a personal video recorder. Negative attitudes and perception
may be a major barrier to communicating with consumers. Or, more simply, Ior example, a
salesperson•s conversation may be misunderstood or not understood because the buyer is trying
to decide iI the purchase is necessary while the salesperson is talking.
People oIten perceive things diIIerently. Business executives are interested in how their
products, salespeople, stores, and companies are perceived. Perception is important strategically
in helping management to evaluate the current positioning strategy and in making changes in this
ÛÈØ×Þ×Ì ìòê
Ê·»©»®- É¿¬½¸
Ú»©»® ß¼-
Source: Survey oI the
15 largest U.S. television
markets in 2003 by CNW
Marketing Research Inc.
reported in Anthony
Bianco, “The Vanishing
Mass Market,’
BusinessWeek, July 12,
2004, 65.
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±² Ì»´»ª·-·±² л®-±²¿´ Ê·¼»± λ½±®¼»®
Þ»»® ìòèû íïòçû
Ó±ª·» ¬®¿·´»®- ïïòê ììòï
ͱº¬ ¼®·²µ- îïòê èîòé
Ü®«¹ íîòí ìëòê
Í°»½·¿´¬§ ½´±¬¸·²¹ ííòì êîòì
ر³» °®±¼«½¬- ìïòê çðòí
Ú¿-¬ º±±¼ ìëòï çëòé
Ý¿®- ø²¿¬·±²¿´÷ ëîòè êèòè
л¬ó®»´¿¬»¼ ëëòë èïòë
Ý®»¼·¬ ½¿®¼- êîòé çìòî
Ó±®¬¹¿¹» º·²¿²½·²¹ éìòï çìòé
Ë°½±³·²¹ °®±¹®¿³ éëòí çìòì
˲©»·¹¸¬»¼ ¿ª»®¿¹» ìíòï éïòê
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïðé
positioning strategy. Perception mapping is a useIul research technique Ior showing how brands
are perceived by buyers according to various criteria. We discuss how preIerence mapping is
used to Iorm segments later in the chapter.
Ы®½¸¿-» Þ»¸¿ª·±®
Consumption variables such as the size and Irequency oI a purchase are useIul in segmenting
consumer and business markets. Marketers oI industrial products oIten classiIy customers and
prospects into categories on the basis oI the volume oI the purchase. Eor example, a specialty
chemical producer concentrates its marketing eIIorts on chemical users that purchase at least
$100,000 oI chemicals each year. The Iirm Iurther segments the market on the basis oI how the
customer uses the chemical.
The development oI CRM systems oIIers Iast access to records oI actual customer purchase
behavior and characteristics. CRM and loyalty programs are generating insights into customer
behavior and segment diIIerences, and providing the ability to respond more precisely to the
needs oI customers in diIIerent segments. Eor example, Consodata is a CRM company working
Ior the Jigsaw consortium oI some oI the largest Iast-moving consumer goods companies in the
world. Unilever, Kimberley-Clark, and Cadbury Schweppes are sharing the costs oI a giant data-
base that can divide countries into any size segment and determine exactly who lives there,
where they shop, what they buy, their liIestyles, and attitude data. Initial applications are in the
precise merchandising oI supermarket shelves to reIlect local segment characteristics.
Similarly, Accor, the Erench-based hotel group, has adopted sophisticated business intelligence
systems Ior its SoIitel and Novotel hotels in the United States. (See accompanying SoIitel adver-
tisement). The potential beneIit is to identiIy diIIerent customers• preIerences, to diIIerentiate and
to customize. Using survey data, records oI guests• visits
and preIerences or problems, the data are mined to draw
up “golden nugget maps’ to identiIy which customer
segments have major potential, which already have been
heavily exploited, and which have limited potential.
details about CRM as a source oI market understanding are
given in the Appendix to Chapter 7.
Since buying decisions vary in importance and com-
plexity, it is useIul to classiIy them to better understand
their characteristics, the products to which they apply, and
the marketing strategy implications oI each type oI
purchase behavior. Buyer decisions can be classiIied
according to the extent to which the buyer is involved in the
A high-involvement decision may be an expen-
sive purchase, have important personal consequences, and
impact the consumer•s ego and social needs. The decision
situation may consist oI extended problem solving (high
involvement), limited problem solving, or routine problem
solving (low involvement). The characteristics oI these sit-
uations are illustrated in Exhibit 4.7.
These categories are very broad since the range
oI involvement covers various buying situations. Even
so, the classiIications provide a useIul way to compare
and contrast buying situations. Also, involvement may
vary Irom individual to individual. Eor example, a high-
involvement purchase Ior one person may not be such Ior
another person, since perceptions oI expense, personal con-
sequences, and social impact may vary across individuals.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïðè ﮬ Ì©± Markets, Segments, and Customer Jalue
Exhibit 4.8 summarizes the various segmentation variables and shows examples oI segmentation
bases and descriptors Ior consumer and organizational markets. As we examine the methods used
to Iorm segments, the role oI these variables in segment determination and analysis is illustrated.
Ú±®³·²¹ Í»¹³»²¬-
The credit card division oI American Express (AMEX) identiIies market segments based
on purchase behavior. One group oI cardholders pays the annual Iee Ior the card but rarely
(or never) uses it.
This group oI zero spenders is made up oI (1) those who cannot aIIord much
discretionary spending, and (2) those who use cash or competitors• cards. AMEX•s objective is
to identiIy the second group oI potential buyers because they oIIer card usage opportunities and
may potentially give up their card. AMEX uses selI-selecting incentive oIIers (e.g., two Iree
airline tickets Ior heavy card use over six months) to identiIy the valuable nonuser cardholders.
While this segmentation approach is expensive, it costs less than obtaining a new customer to
ÛÈØ×Þ×Ì ìòè
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Ë-» -·¬«¿¬·±² ѽ½¿-·±² ß°°´·½¿¬·±²
׳°±®¬¿²½» ±º °«®½¸¿-» Ы®½¸¿-·²¹ °®±½»¼«®»
Ю·±® »¨°»®·»²½» ©·¬¸ Ò»© ¬¿-µô ³±¼·º·»¼ ®»¾«§ô
°®±¼«½¬ -¬®¿·¹¸¬ ®»¾«§
Ë-»® -¬¿¬«-
Þ«§»®-• ²»»¼-ñ°®»º»®»²½»- Þ®¿²¼ ´±§¿´¬§ -¬¿¬«- л®º±®³¿²½» ®»¯«·®»³»²¬-
Þ®¿²¼ °®»º»®»²½» Þ®¿²¼ °®»º»®»²½»-
Þ»²»º·¬- -±«¹¸¬ Ü»-·®»¼ º»¿¬«®»-
Ï«¿´·¬§ Í»®ª·½» ®»¯«·®»³»²¬-
Ю±²»²»-- ¬± ³¿µ» ¿ ¼»¿´
Ы®½¸¿-» ¾»¸¿ª·±® Í·¦» ±º °«®½¸¿-» ʱ´«³»
Ú®»¯«»²½§ ±º °«®½¸¿-» Ú®»¯«»²½§ ±º °«®½¸¿-»
ÛÈØ×Þ×Ì ìòé
ײª±´ª»³»²¬ ·²
Source: Eric N. Berkowitz,
Roger A. Kerin, Steven W.
Hartley, and William
Rudelius, Marketing, 5th
ed. (Chicago: Richard D.
Irwin, 1997), 156.
Copyright © The
McGraw-Hill Companies.
Used with permission.
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïðç
replace one who leaves AMEX. It also does not require using expensive marketing research to
identiIy cardholders with the ability (Iinancial) to use their cards.
The requirements Ior segmentation are discussed Iirst, and then the methods oI segment
Iormation are described and illustrated.
λ¯«·®»³»²¬- º±® Í»¹³»²¬¿¬·±²
An important question is deciding iI it is worthwhile to segment a product-market. Eor example,
Gillette has successIully adopted a “one product Ior all’ strategy in the razor market. While in
many instances segmentation is a sound strategy, its Ieasibility and value need to be evaluated.
Nonetheless, the growing Iragmentation oI mature mass markets into segments with diIIerent
needs and responsiveness to marketing actions may mandate segmentation strategy. Corres-
pondingly, the growth oI narrowcast mediaœcable television and radio; specialized magazines;
cell-phone and personal digital assistant screens; and the Internetœmakes major changes in the
costs oI reaching market segments. Segment targets that could not traditionally be reached with
communications and product variants to match their needs at reasonable costs to the seller may
now be accessible targets.
Eor example, the Internet Eeature describes how Monster.com has reinvented the recruitment
agency business by its use oI the Internet to match jobseekers with relevant employment oppor-
tunities in a way which no traditional business model can rival. Jobseekers can be categorized
by type oI job sought (e.g., sales, accountancy) and level, and these groups can be matched with
employers in 20 diIIerent countries at great speed and with absolute precision.
It is important to decide iI it is worthwhile to segment a product-market. Eive criteria are
useIul Ior evaluating a potential segmentation strategy.
λ-°±²-» Ü·ºº»®»²½»-ò Determining diIIerences in the responsiveness oI the buyers in the
product-market to positioning strategies is a key segment identiIication requirement. Suppose
the customers in a product-market are placed into Iour groups, each a potential segment, using
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Ó±²-¬®±«- ß°°»¬·¬» º±® Ý¿-¸ô’ Þ«-·²»--É»»µô Ó¿§ ïéô îððìô ïíèå
Ý¿·¬´·² Ó±´´·²-±²ô “̸» ײ¬»®ª·»©ô’ ײ¬»®²»¬É±®´¼ô Ó¿§ ïô îððïò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïïð ﮬ Ì©± Markets, Segments, and Customer Jalue
a variable such as income (aIIluent, high, medium, and low). II each group responds (e.g.,
amount oI purchase) in the same way as all other groups to a marketing mix strategy, then the
Iour groups are not market segments. II segments actually exist in this illustration, there must be
diIIerences in the responsiveness oI the groups to marketing actions, such as pricing, product
Ieatures, and promotion. The presence oI real segments requires actual response diIIerences.
Simply Iinding diIIerences in buyers• characteristics such as income is not enough.
Eor example, income is useIul in Iinding response diIIerences in India. A study conducted by a
New Delhi think tank identiIies a premium segment in the Indian consumer market.
Eamilies with
an annual income in excess oI 1 million rupees ($29,200 at the time oI the study) have as much
buying power as a U.S. Iamily with three times the same income. Living costs Ior the Indian Iam-
ily are very low (e.g., two-bedroom apartment Ior $130 a month). The premium segment is a prom-
ising target Ior luxury goods brands like Mercedes-Benz, Cartier, and Christian Dior. There are
600,000 Indian households in the premium segment, including 200,000 in Bombay (now Mumbai).
Several Japanese, U.S. and European auto manuIacturers plan to produce luxury cars in India.
×¼»²¬·º·¿¾´» Í»¹³»²¬-ò It must be possible to identiIy the customer groups that exhibit
response diIIerences, and sometimes Iinding the correct groups may be diIIicult. Eor example,
even though variations in the amount oI purchase by customers occur in a market, it may not be
possible to identiIy which people correspond to the diIIerent response groups in the market. While
it is usually Ieasible to Iind descriptive diIIerences among the buyers in a product-market, these
variations must be matched to response diIIerences. Recall AMEX•s approach to identiIying
cardholders with buying power who use the card inIrequently. Incentives are used to attract
nonuser cardholders with buying power.
ß½¬·±²¿¾´» Í»¹³»²¬-ò A business must be able to aim a marketing program strategy at each
segment selected as a market target. As discussed earlier, specialty magazines oIIer one means oI
selective targeting. Ideally, the marketing eIIort should Iocus on the segment oI interest and not be
wasted on nonsegment buyers. Cable television, magazine, and radio media are able to provide cov-
erage oI narrowly deIined market segments. The Internet oIIers great potential Ior direct marketing
channels to reach specialized segments. Similarly, databases oIIer very Iocused access to buyers.
ݱ-¬ñÞ»²»º·¬- ±º Í»¹³»²¬¿¬·±²ò Segmentation must be Iinancially attractive in terms oI
revenues generated and costs incurred. It is important to evaluate the beneIits oI segmentation.
While segmentation may cost more in terms oI research and added marketing expenses, it should
also generate more sales and higher margins. The objective is to use a segmentation approach
that oIIers a Iavorable revenue and cost combination.
Eor example, British-based ICI Eertilisers experienced substantial losses in the late 1980s, but
rebuilt its business around an innovative market segmentation strategy. Research showed that
Iarmers• priorities in Iertilizer purchasing were dominated by price only in 10 percent oI cases;
instead, Iarmers were more inIluenced by advanced technology, loyalty to traditional merchants,
and loyalty to brands. ICI created new product ranges around these needs, restructured the business
around these ranges, and built impressive proIitability.
ͬ¿¾·´·¬§ ±ª»® Ì·³»ò Einally, the segments must show adequate stability over time so that
the Iirm•s marketing eIIorts will have enough time to produce Iavorable results. II buyers• needs
change too Iast, a group with similar response patterns at one point may display quite diIIerent
patterns several months later. The time period may be too short to justiIy using a segmentation
strategy. However, this question is also one where the impact oI narrowcast media and advanced
production technology may drastically reduce the time over which a segment target needs to be
stable Ior it to be an attractive target.
Ю±¼«½¬ Ü·ºº»®»²¬·¿¬·±² ¿²¼ Ó¿®µ»¬ Í»¹³»²¬¿¬·±²ò The distinction between product
diIIerentiation and market segmentation is not always clear. Product differentiation occurs when
a product oIIering is perceived by the buyer as diIIerent Irom the competition on any physical or
nonphysical product characteristic, including price.
Using a product diIIerentiation strategy, a
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïïï
Iirm may target an entire market or one (or more) segments. Competing Iirms may diIIerentiate
their product oIIerings in trying to gain competitive advantage with the same group oI targeted
buyers. Market targeting using a diIIerentiation strategy is considered Iurther in Chapter 6.
ß°°®±¿½¸»- ¬± Í»¹³»²¬ ×¼»²¬·º·½¿¬·±²
Segments are Iormed by: (A) grouping customers using descriptive characteristics and then
comparing response diIIerences across the groups, or (B) Iorming groups based on response
diIIerences (e.g., Irequency oI purchase) and determining iI the groups can be identiIied based
on diIIerences in their characteristics.
Exhibit 4.9 illustrates the two approaches. Approach A
uses a characteristic such as income or Iamily size believed to be related to buyer response. AIter
Iorming the groups, they are examined to see iI response varies across groups. Approach B
places buyers with similar response patterns into groups and then develops buyer proIiles using
buyer characteristics. We describe each approach to show how it is used to identiIy segments.
Ý«-¬±³»® Ù®±«° ×¼»²¬·º·½¿¬·±²
AIter the product-market oI interest is deIined, promising segments may be identiIied, using
management judgment in combination with analysis oI available inIormation and/or marketing
research studies. Consider, Ior example, hotel lodging services. Exhibit 4.10 illustrates ways
to segment the hotel lodging product-market. An additional breakdown can be made
according to business and household travelers. These categories may be Iurther distinguished
by individual customer and group customer segments. Groups may include conventions, corpo-
rate meetings, and tour groups. Several possible segments can be distinguished. Consider, Ior
example, Marriott•s Courtyard hotel chain. These hotels Iall into the midpriced category and are
targeted primarily to Irequent business travelers who Ily to destinations, are in the 40-plus age
range, and have relatively high incomes.
When using the customer group identiIication approach, it is necessary to select one or more
oI the characteristics oI people or organizations as the basis oI segmentation. Using these
variables, segments are Iormed by (1) management judgment and experience, or (2) supporting
statistical analyses. The objective is to Iind diIIerences in responsiveness among the customer
groups. We look at some oI the customer grouping methods to show how segments are Iormed.
Û¨°»®·»²½» ¿²¼ ߪ¿·´¿¾´» ײº±®³¿¬·±²ò Management•s knowledge oI customer needs is
oIten a useIul guide to segmentation. Eor example, both experience and analysis oI published
inIormation are oIten helpIul in segmenting business markets. Business segment variables include
ÛÈØ×Þ×Ì ìòç
ß°°®±¿½¸»- ¬±
of people and
Use situation
Buyers• needs
and preferences
behavior and
A. Start with
identifiers of
customer groups
B. Start with
customer response
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïïî ﮬ Ì©± Markets, Segments, and Customer Jalue
type oI industry, size oI purchase, and product application. Company records oIten contain inIor-
mation Ior analyzing the existing customer base. Published data such as industry mailing lists can
be used to identiIy potential market segments. These groups are then analyzed to determine iI they
display diIIerent levels oI response.
Segmenting using management judgment and experience, the Italian Iashion producer and retailer
Prada markets an expensive array oI dresses, handbags, hats, shoes, and other women•s apparel.
best-selling $450 backpacks are designed to appeal to aIIluent women that do not want to Ilaunt their
status. Each knapsack has a small triangular logo. Prada•s products oIIer an antistatus (liIestyle)
appeal to a segment oI aIIluent women. The luxury retailer has 47 stores including 20 in Japan and
two in the United States. Prada•s goods are also sold in department stores.
Ý®±-- Ý´¿--·º·½¿¬·±² ß²¿´§-»-ò Another method oI Iorming segments is to identiIy customer
groups using descriptive characteristics and compare response rates (e.g., sales) by placing the
inIormation in a table. Customer groups Iorm the rows and response categories Iorm the columns.
Review oI industry publications and other published inIormation may identiIy ways to break up a
product-market into segments. Standardized inIormation services such as InIormation Resources
Inc. collect and publish consumer panel data on a regular basis. These data provide a wide range
oI consumer characteristics, advertising media usage, and other inIormation that are analyzed by
product and brand sales and market share. The data are obtained Irom a large sample oI households
through the United States. Similar statistical data are available in many overseas countries.
InIormation is available Ior use in Iorming population subgroups within product-markets. The
analyst can use many sources, as well as management•s insights and hunches regarding the
market. The essential concern is whether a segmentation scheme identiIies customer groups that
display diIIerent product and brand responsiveness. The more evidence oI meaningIul diIIer-
ences, the better chance that useIul segments exist. Cross-classiIication has some real advantages
in terms oI cost and ease oI use. There may be a strong basis Ior choosing a segmenting scheme
that uses this approach. This occurs more oIten in business and organizational markets, where
management has a good knowledge oI user needs, because there are Iewer users than there are
in consumer product-markets. Alternatively, this approach may be a Iirst step leading to a more
comprehensive type oI analysis.
ÛÈØ×Þ×Ì ìòïð
Ü·³»²-·±²- º±®
ر¬»´ Ô±¼¹·²¹
Extended stay
Overnight lodging
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïïí
Ü¿¬¿¾¿-» Í»¹³»²¬¿¬·±²ò The availability oI computerized databases oIIers a wide range oI
segmentation analysis capabilities. This type oI analysis is particularly useIul in consumer market
segmentation. Databases are organized by geography and buyers• descriptive characteristics.
They may also contain customer response inIormation as shown in the AMEX cardholder
illustration. Databases can be used to identiIy customer groups, design eIIective marketing
programs, and improve the eIIectiveness oI existing programs. The number oI available databases
is rapidly expanding, the costs are declining, and the inIormation systems are becoming user
Iriendly. Several marketing research and direct mail Iirms oIIer database services.
Í»¹³»²¬¿¬·±² ×´´«-¬®¿¬·±²-ò Mobil Corporation studies buyers in the gasoline market to
identiIy segments. The Iindings, including inIormation obtained Irom over 2,000 motorists, are
summarized in Exhibit 4.11. The research identiIied Iive primary purchasing groups.
Interestingly, Mobil Iound that the Price Shopper spends an average oI $700 annually, compared
to $1,200 Ior the Road Warriors and True Blues. Mobil•s marketing strategy is to oIIer gasoline
buyers a quality buying experience, including upgraded Iacilities, more lighting Ior saIety,
responsive attendants, and quality convenience products. The target segments are Road Warriors
and Generation E3, involving a major eIIort in convenience stores and reduced time at the gas
pump based on the Mobil Speed Pass. The test results Irom the new strategy raised revenues by
25 percent over previous sales Ior the same retail sites.
As shown by the proIiles described in Exhibit 4.11, needs and preIerences vary quite a bit
within a market. Trying to satisIy all oI the buyers in the market with the same marketing
approach is diIIicult. Analyzing both the customer and the competition is important. SpeciIic
competitors may be better (or worse) at meeting the needs oI speciIic customer groups
(e.g., Mobil•s Road Warriors). Einding gaps between buyers• needs and competitors• oIIerings
provides opportunities Ior improving customer satisIaction. Also, companies study competitors•
products to identiIy ways to improve their own.
By identiIying customer groups using descriptive characteristics and comparing them to a
measure oI customer responsiveness to a marketing mix such as product usage rate (e.g., number
oI Iax ink cartridges per year), potential segments can be identiIied. II the response rates are
ÛÈØ×Þ×Ì ìòïï
Ü·ª»®-·¬§ ±º Ù¿-±´·²» Þ«§»®-
Source: Alanna Sullivan, “Mobil Bets Drivers Pick Cappuccino over Low Prices,’ 1he Wall Street Journal, January 30, 1995, B1. Wall Street Journal. Central Edition |StaII Produced
Copy Only| by Alanna Sullivan. Copyright 1995 by Dow Jones & Co Inc. Reproduced with permission oI Dow Jones & Co Inc. in the Iormat Textbook via Copyright Clearance Center.
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïïì ﮬ Ì©± Markets, Segments, and Customer Jalue
similar within a segment, and diIIerences in response exist between segments, then promising
segments are identiIied. Segments do not always emerge Irom these analyses, because in some
product-markets distinct segments may not exist, or the segment interrelationships may be so
complex that an analysis oI these predetermined groupings will not identiIy useIul segments.
Product diIIerentiation strategies may be used in these situations.
In an era oI increased globalization, it is also important to recognize that segmentation has an
international dimension in many markets. This is not simply country diIIerences, Ior example,
diIIerences in sizes oI products like apparel and household Iurniture based on ethnic identity in
overseas countries. Roper Starch Worldwide, based on interviews about core values with 1,000
people in each oI 35 countries, identiIy six global consumer segments, existing to varying degrees
in each country:
· Strivers: Place more emphasis on material and proIessional goals than do the other groups.
· Devouts: Tradition and duty are very important.
· Altruists: Interested in social issues and social welIare.
· Intimates: Value close personal and Iamily relationships.
· Fun seekers: High consumption oI restaurants, bars, movies.
· Creatives: Strong interest in education, knowledge, and technology.
The global study Iound that people in diIIerent segments generally pursued diIIerent activities,
purchased diIIerent products, and used diIIerent media.
Ú±®³·²¹ Ù®±«°- Þ¿-»¼ ±² λ-°±²-» Ü·ºº»®»²½»-
The alternative to selecting customer groups based on descriptive characteristics is to identiIy
groups oI buyers by using response diIIerences to Iorm the segments. A look at a segmentation
analysis Ior the packaging division oI Signode Corporation illustrates how this method is used.
The products consist oI steel strappings Ior various packaging applications. An analysis oI the
customer base identiIied the Iollowing segments: programmed buyers (limited service needs),
relationship buyers, transaction buyers, and bargain hunters (low price, high service). Statistical
(cluster) analysis Iormed the segments using 12 variables concerning price and service trade-oIIs
and buying power. The study included 161 oI Signode•s national accounts. Measures oI the vari-
ables were obtained Irom sales records, sales managers, and sales representatives. The segments
vary in responsiveness based on relative price and relative service.
The widespread adoption oI CRM systems oIIers greater opportunity Ior timely and detailed
analysis oI response diIIerences between customers. The “data warehouse,’ by integrating trans-
actional data around customer types, makes possible complex analyses to understand diIIerences
in the behavior oI diIIerent customers groups, observe customer liIe cycles, and predict behavior.
We discuss CRM in the Appendix to Chapter 7.
Response diIIerence approaches draw more extensively Irom buyer behavior inIormation
than the customer group identiIication methods discussed earlier. Note, Ior example, the inIor-
mation on Signode•s customer responsiveness to price and service. We now look at additional
applications to more Iully explore the potential oI the customer response approaches.
Ý´«-¬»® ß²¿´§-·-ò Cluster analysis (a statistical technique) groups people according to the
similarity oI their answers to questions such as brand preIerences or product attributes. This
method was useIul to Iorm segments Ior Signode Corporation. The objective oI cluster analysis
is to identiIy groupings in which the similarity within a group is high and the variation between
groups is as great as possible. Each cluster is a potential segment.
л®½»°¬«¿´ Ó¿°-ò Another promising segmentation method uses consumer research data to
construct maps oI buyers• perceptions oI products and brands. The inIormation helps select market-
target strategies, and decide how to position a product Ior a market target.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
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ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïïë
While the end result oI perceptual mapping is simple to understand, its execution is demand-
ing in terms oI research skills. Although there are variations in approach, the Iollowing steps are
1. Select the product-market area to be segmented.
2. Decide which brands compete in the product-market.
3. Collect buyers• perceptions about attributes Ior the available brands (and an ideal brand)
obtained Irom a sample oI people.
4. Analyze the data to Iorm one, two, or more composite attribute dimensions, each independ-
ent oI the other.
5. Prepare a map (two-dimensional X and Y grid) oI attributes on which are positioned con-
sumer perceptions oI competing brands.
6. Plot consumers with similar ideal preIerences to see iI subgroups (potential segments) will Iorm.
7. Evaluate how well the solution corresponds to the data that are analyzed.
8. Interpret the results as to market-target and product-positioning strategies.
An example oI a perception map is shown in Exhibit 4.12. Each Group (I›V) contains people
Irom a survey sample with similar preIerences concerning expensiveness and quality Ior the
product category. The Brands (A›E) are positioned using the preIerence data obtained Irom the
survey participants. Assuming you are product manager Ior Brand C, what does the inIormation
indicate concerning possible targeting? Group V is a logical market target and III may represent
a secondary market target. To appeal most eIIectively to Group V, we will probably need to
change somewhat Group V consumers• price perceptions oI Brand C. OIIering a second brand
less expensive than C to appeal to Group IV is another possible action. OI course, it is necessary
to study the research results in much greater depth than this brieI examination oI Exhibit 4.12.
Our intent is to illustrate the method oI segmenting and show how the results might be used.
ÛÈØ×Þ×Ì ìòïî
ß² ×´´«-¬®¿¬·ª»
л®½»°¬·±² Ó¿°
Brand E
Brand B
Brand A
Brand C
Brand D
Brand E
Brand B
Brand A
Brand C
Brand D
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïïê ﮬ Ì©± Markets, Segments, and Customer Jalue
Perceptual mapping, like many oI the research methods used Ior segment identiIication, is
expensive and represents a technical challenge. When used and interpreted properly, these
methods are useIul tools Ior analyzing product-market structure to identiIy possible market
targets and positioning concepts. OI course, there are many issues to be considered in speciIic
applications such as choosing the attributes, identiIying relevant products and brands, selecting
the sample, and evaluating the strength oI results.
Ú·²»® Í»¹³»²¬¿¬·±² ͬ®¿¬»¹·»-
A combination oI Iactors may help a company utilize Iiner segmentation strategies. Technology
may be available to produce customized product oIIerings. Eurthermore, highly sophisticated
databases Ior accessing buyers can be used, and buyers• escalating preIerences Ior unique
products encourage consideration oI increasingly smaller segments. In some situations, an
individual buyer may comprise a market segment. Thus, an important segmentation issue is
deciding how small segments should be.
We consider the logic oI Iiner segments Iollowed by a discussion oI the available Iiner
segmentation strategies.
Ô±¹·½ ±º Ú·²»® Í»¹³»²¬-
Several Iactors working together point to the beneIits oI considering very small segmentsœin some
cases, segments oI one. These include (1) the capabilities oI companies to oIIer cost-eIIective,
customized oIIerings; (2) the desires oI buyers Ior highly customized products; and (3) the organi-
zational advantages oI close customer relationships.
Ý«-¬±³·¦»¼ Ѻº»®·²¹-ò OIIering customized products may be Ieasible because oI extensive
inIormation Ilow and comprehensive databases, computerized manuIacturing systems, and inte-
grated value chains.
At the center oI these capabilities to provide buyers with customized oIIerings
is inIormation technology. Database knowledge, computer-aided product design and manuIacturing,
and distribution technology (e.g., just-in-time inventory) oIIer promising opportunities Ior serving
the needs and preIerences oI very small market segments. This technology combined with the
Internet has led to the emergence oI “sliver’ companies or “micromultinationals’œsmall, Ilexible
organizations selling highly specialized products across the world.
Ü·ª»®-» Ý«-¬±³»® Þ¿-»ò The requirements oI an increasingly diverse customer base Ior
many products are apparent. Buyers seek uniqueness and companies such as Lutron Electronics
try to respond to unique preIerences. Global competitors seek to oIIer more attractive value in
their goods and services.
Ý´±-» Ý«-¬±³»® λ´¿¬·±²-¸·°-ò Companies recognize the beneIits oI close relationships
with their customers. By identiIying customer value opportunities and developing cost-eIIective
customized oIIerings, relationships can be proIitable and eIIective in creating competitive
Ú·²»® Í»¹³»²¬¿¬·±² ͬ®¿¬»¹·»-
We examine three approaches Ior Iiner segmentation opportunities: microsegmentation, mass
customization, and variety seeking.
Ó·½®±-»¹³»²¬¿¬·±²ò This Iorm oI segmentation seeks to identiIy narrowly deIined segments
using one or more oI the previously discussed segmentation variables (Exhibit 4.8). It diIIers Irom
more aggregate segment Iormation in that microsegmentation results in a large number oI very
small segments. Each segment oI interest to the organization receives a marketing mix designed
to meet the value requirements oI the segment.
Ó¿-- Ý«-¬±³·¦¿¬·±²ò Providing customized products at prices not much higher than
mass-produced items is Ieasible using mass customization concepts and methods. Achieving
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïïé
mass customization objectives is possible through computer-aided design and manuIacturing
soItware, Ilexible manuIacturing techniques, and Ilexible supply systems.
There are two Iorms oI mass customization. One employs standardized components but
conIiguring the components to achieve customized product oIIerings.
Eor example, using
standardized paint components, retail stores are able to create customized color shades by
mixing the components. The other mass customization approach employs a Ilexible process.
Through eIIective system design, variety can be created at very low costs. Eor example, Casio•s
customization approach enables the company to oIIer 5,000 diIIerent watches.
Ê¿®·»¬§óÍ»»µ·²¹ ͬ®¿¬»¹§ò This product strategy is intended to oIIer buyers opportunities
to vary their choices in contrast to making unique choices.
The logic is that buyers who are
oIIered alternatives may increase their total purchases oI a brand. Mass customization methods
also enable companies to oIIer an extensive variety at relatively low prices, thus gaining the
advantages oI customized and variety oIIerings.
Ú·²»® Í»¹³»²¬¿¬·±² ×--«»-ò While the beneIits oI customization are apparent, there are
several issues that need to be examined when considering Iiner segmentation strategies:
1. How much variety should be oIIered to buyers? What attributes are important in buyers
choices and to what extent do they need to be varied? Boeing is considering this issue Ior its
customized aircraIt designs.
2. Will too much variety have negative eIIects on buyers? Is it possible that buyers will become
conIused and Irustrated when oIIered too many choices?
3. Is it possible to increase buyers• desire Ior variety, creating a competitive advantage?
4. What processes should be used to learn about customer preIerences? This may entail indirect
methods (e.g., database analysis) or involving buyers in the process.
High variety strategies, properly conceived and executed, oIIer powerIul opportunities Ior
competitive advantage by providing superior value to customers. As highlighted by the above
issues, pursuing these Iiner segmentation strategies involves major decisions including which
strategy to pursue and how to implement the strategy. Important in deciding how Iine the
segmentation should be is estimating the value and cost trade-oIIs oI the relevant alternatives.
Í»´»½¬·²¹ ¬¸» Í»¹³»²¬¿¬·±² ͬ®¿¬»¹§
We have considered several approaches to market segmentation, ranging Irom Iorming segments
via experience and judgment to Iiner segmentation strategies. We now discuss deciding how to
segment the market, and strategic analysis oI the segments that have been identiIied.
Ü»½·¼·²¹ ر© ¬± Í»¹³»²¬
The choice oI a segmentation method depends on such Iactors as the maturity oI market, the
competitive structure, and the organization•s experience in the market. The more comprehensive
the segmentation process, the higher the costs oI segment identiIication will be, reaching the
highest level when Iield research studies are involved and Iiner segmentation strategies are
considered. It is important to maximize the available knowledge about the product-market. An
essential Iirst step in segmentation is analyzing the existing customer base to identiIy groups oI
buyers with diIIerent response behavior (e.g., Irequent purchase versus occasional purchase).
Developing a view oI how to segment the market by managers may be helpIul. In some instances
this inIormation will provide a suIIicient basis Ior segment Iormation. II not, experience and
existing inIormation are oIten helpIul in guiding the design oI customer research studies.
The Iive segmentation criteria discussed earlier help to evaluate potential segments. Deciding
iI the criteria are satisIied rests with management aIter examining response diIIerences among
the segments. The segmentation plan should satisIy the responsiveness criterion plus the other
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïïè ﮬ Ì©± Markets, Segments, and Customer Jalue
criteria (end users are identiIiable, they are accessible via marketing program, the segment|s| is
economically viable, and the segment is stable over time). The latter criterion may be less oI an
issue with mass customization since changes can be accommodated.
It is useIul to consider the trade-oII between the costs oI developing a better segmentation
scheme and the beneIits gained. Eor example, instead oI one variable being used to segment, a com-
bination oI two or three variables might be used. The costs oI a more insightIul segmentation scheme
include the analysis time and the complexity oI strategy development. The potential beneIits include
better determination oI response diIIerences, which enable the design oI more eIIective marketing
mix strategies. Importantly, segmentation should not be viewed as static, but as dynamicœas Dell
learned more about the PC market, the segmentation approach evolved and developed.
The competitive advantage gained by Iinding (or developing) a new market segment can be
very important. Segment strategies are used by a wide range oI small companies with excellent per-
Iormance records. Consider, Ior example, segmenting the market Ior paper. One way to segment
is according to the use situation. The uses oI paper include newspapers, magazines, books,
announcements, letters, and other applications. Crane & Company, a Iirm competing in this
market, is the primary supplier oI paper Ior printing money.
This segment oI the high-quality
paper market consists oI a single customerœthe U.S. Treasury. The company•s commitment to
making quality products has sustained its competitive advantage in this segment since 1879. In the
early 1990s Crane introduced a new currency paper, designed to identiIy counterIeit bills by
placing a polyester thread in the paper. The other three-quarters oI Crane•s sales includes Iine
writing papers and high-quality paper products.
ͬ®¿¬»¹·½ ß²¿´§-·- ±º Ó¿®µ»¬ Í»¹³»²¬-
Each market segment oI interest needs to be studied to determine its potential attractiveness
as a market target. The major areas oI analysis include customers, competitors, positioning
strategy, and Iinancial and market attractiveness.
Ý«-¬±³»® ß²¿´§-·-ò When Iorming segments, it is useIul to Iind out as much as possible
about the customers in each segment. Variables such as those used in dividing product-markets
into segments are also helpIul in describing the people in the same segments. The discussion oI
customer proIiles in Chapter 3 includes inIormation needed to proIile a product-market. Similar
inIormation is needed Ior the segment proIile, although the segment-level analysis is more
comprehensive than the product-market proIile.
The objective is to Iind descriptive characteristics that are highly correlated to the variables
used to Iorm the segments. Standardized inIormation services are available Ior some product-
markets including Ioods, health and beauty aids, and pharmaceuticals. Large markets involving
many competitors make it proIitable Ior research Iirms to collect and analyze data that are useIul
to the Iirms serving the market.
InIormation Resources Inc., a Chicago-based research supplier, has combined computerized
inIormation processing with customer research methods to generate inIormation Ior market
segmentation. Its Behavior Scan system electronically tracks total grocery store sales and indi-
vidual household purchase behavior through complete universal product code (UPC) scanner
coverage. People in the 2,500 household samples in each oI several metropolitan markets
covered by the service carry special identiIication cards and are individually tracked via scanner
in grocery stores and drugstores. IRI publishes 1he Marketing Fact Book, which has consumer
purchase data on all product categories. An example is shown in Exhibit 4.13. The database can
be used Ior Iollow-up, in-depth analyses to meet the needs oI speciIic companies.
An essential part oI customer analysis is determining how well the buyers in the segment are
satisIied. We know that customer satisIaction is measured by comparing customer expectations
about the product and supporting services with the performance oI the product and supporting
Some researchers indicate the prior experience may be a better basis oI comparison
than expectations.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïïç
Customer satisIaction depends on the perceived perIormance oI a product and supporting
services and the standards that customers use to evaluate that perIormance.
The customer•s
standards complicate the relationship between organizational product speciIications (e.g., product
attribute tolerances) and satisIaction. Standards may involve something other than prepurchase
expectations such as the perceived perIormance oI competing products. Importantly, the
standards are likely to vary across market segments.
ݱ³°»¬·¬±® ß²¿´§-·-ò Market segment analysis considers the set oI key competitors
currently active in the market in which the segment is located plus any potential segment entrants.
In complex market structures, mapping the competitive arena requires detailed analysis. The com-
peting Iirms are described and evaluated to highlight their strengths and weaknesses. InIormation
useIul in the competitor analysis includes business scope and objectives; market position; market
target(s) and customer base; positioning strategy; Iinancial, technical, and operating strengths;
management experience and capabilities; and special competitive advantages (e.g., patents). It is
also important to anticipate the Iuture strategies oI key competitors.
Value-chain analysis can be used to examine competitive advantage at the segment level. A
complete assessment oI the nature and intensity oI competition in the segment is important in
ÛÈØ×Þ×Ì ìòïí
ß²¿´§-·- ±º ß¹»
±º ͱ¿°
Source: Erom 1he
Marketing Fact Book®
(Chicago: InIormation
Resources, 1986), 10.
Reprinted with permission.
Ïò É·¬¸·² ©¸·½¸ ¼»³±¹®¿°¸·½ -»¹³»²¬- ·- ת±®§ Ô·¯«·¼ -¸¿®» -¬®±²¹»-¬á É»¿µ»-¬á ر© ¼± ×
¹± ¿¾±«¬ ¾«·´¼·²¹ ¬¸» ©»¿µ»® -»¹³»²¬-á
ßò É·¬¸ ®»-°»½¬ ¬± ¿¹» ±º º»³¿´» ¸±«-»¸±´¼ ¸»¿¼ô ת±®§ Ô·¯«·¼ °»®º±®³¿²½» ¼·ºº»®-
̸» ®»´¿¬·ª»´§ ©»¿µ»® °»®º±®³¿²½» ¿³±²¹ §±«²¹»® ¸±«-»¸±´¼- ¬®¿½»- ¬± º»©»® ¾«§»®-ò
ß³±²¹ ¬¸±-» ©¸± ¼·¼ ¾«§ô ´±§¿´¬§ ©¿- -·³·´¿® ·² ¿´´ -»¹³»²¬-ò
̱ ¾«·´¼ ¿ -¸¿®»ô °®±³±¬·±²- ø°»®¸¿°- ¸·¹¸óª¿´«» ½±«°±²-÷ ¿²¼ñ±® ¿¼ª»®¬·-·²¹ ¿·³»¼ ¿¬
¬®·¿´ ¹»²»®¿¬·±² ¿³±²¹ §±«²¹»® º»³¿´» ¸±«-»¸±´¼ ¸»¿¼- -¸±«´¼ ¾» ½±²-·¼»®»¼ò
̸·- ¿²¿´§-·- ½¿²ô ±º ½±«®-»ô ·²½´«¼» ¿ º«´´ ®¿²¹» ±º ¿¼¼·¬·±²¿´ ¼»³±¹®¿°¸·½ ª¿®·¿¾´»-ò
Ò±¬»æ ̸» ¿¾±ª» ¼¿¬¿ ¿®» »²¬·®»´§ º·½¬·±²¿´ò Þ®¿²¼ ²¿³»- ¿®» «-»¼ ±²´§ ¬± ¿¼¼ ¿² »´»³»²¬ ±º
®»¿´·¬§ò ß²§ -·³·´¿®·¬§ ¬± ¿½¬«¿´ ¾®¿²¼ ¼¿¬¿ ·- »²¬·®»´§ ½±·²½·¼»²¬¿´ò
Age of female head
Ìvory Liquid share
Percent of households buying with segment
Loyalty to Ìvory among buyers
<30 30›39 40›49 50+
21.6% 24.9%
49.7% 48.2%
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
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ݱ³°¿²·»-ô îððë
ïîð ﮬ Ì©± Markets, Segments, and Customer Jalue
determining whether to enter (or exit Irom) the segment and how to compete in the segment.
Examining the Iive Iorces suggested by Porter (Chapter 3) is useIul to determine segment
б-·¬·±²·²¹ ß²¿´§-·-ò We consider positioning strategy in Chapter 6. Segment analysis
involves some preliminary choices about positioning strategy. One objective oI segment analysis
is to obtain guidelines Ior developing a positioning strategy. Elexibility exists in selecting how to
position the Iirm (or brand) with its customers and against its competition in a segment. Positioning
analysis shows how to combine product, distribution, pricing, and promotion strategies to Iavor-
ably position the brand with buyers in the segment. InIormation Irom positioning maps like Exhibit
4.12 is useIul in guiding positioning strategy. The positioning strategy should meet the needs and
requirements oI the targeted buyers at a cost that yields a proIitable margin Ior the organization.
Û-¬·³¿¬·²¹ Í»¹³»²¬ ߬¬®¿½¬·ª»²»--ò The Iinancial and market attractiveness oI each
segment needs to be evaluated. Included are speciIic estimates oI revenue, cost, and segment
proIit contribution over the planning horizon. Market attractiveness can be measured by market
growth rate projections and attractiveness assessments made by management.
Einancial analysis obtains sales, cost, and proIit contribution estimates Ior each segment oI
interest. Since accurate Iorecasting is diIIicult iI the projections are too Iar into the Iuture, detailed
projections typically extend two to Iive years ahead. Both the segment•s competitive position eval-
uation and the Iinancial Iorecasts are used in comparing segments. In all instances the risks and
returns associated with serving a particular segment need to be considered. Elows oI revenues and
costs can be weighted to take into account risks and the time value oI revenues and expenditures.
It should be recognized that as inIormation availability grows, Ior example, through the data
warehouses associated with CRM systems, the evaluation oI segment attractiveness also has the
potential Ior identiIying unattractive market segments and even individual customers, which
may be candidates Ior deletion.
Í»¹³»²¬¿¬·±² “Ú·¬’ ¿²¼ ׳°´»³»²¬¿¬·±²ò One important aspect oI evaluating segment
attractiveness is how well the segments match company capabilities and the ability to implement
marketing strategies around those segments.
There are many organizational barriers to the
eIIective use oI segmentation strategies. New segment targets that do not Iit into conventional
inIormation reporting, planning processes, and budget systems in the company may be ignored
or not adequately resourced. Innovative models oI customer segments and market opportunities
may be rejected by managers or the culture oI the organization.
There are dangers that managers may preIer to retain traditional views oI the market and struc-
ture inIormation in that way, or that segmentation strategy will be driven by existing organizational
structures and competitive norms.
It is important to be realistic in balancing the attractiveness oI
segments against the ability oI the organization to implement appropriate marketing strategies to
take advantage oI the opportunities identiIied. Building eIIective marketing strategy around market
segmentation mandates an emphasis on actionability as well as technique and analysis.
Many oI the issues we consider in later chapters impact on the operational capabilities oI a
company to implement segmentation strategies: Ior example, strength in cross-Iunctional
relationships may be a prerequisite to deliver value to new segments; the ability to work with
partners may be needed to develop new products and services to build a strong position in a key
market segment. The existence oI these capabilities, or the ability to develop them, should be
considered in making segmentation decisions.
Í»¹³»²¬ ß²¿´§-·- ×´´«-¬®¿¬·±²ò An illustrative market segment analysis is shown in
Exhibit 4.14. A two-year period is used Ior estimating sales, costs, contribution margin, and
market share. Depending on the Iorecasting diIIiculty, estimates Ior a longer time period can be
used. When appropriate, estimates can be expressed as present values oI Iuture revenues and
costs. Business strength in Exhibit 4.13 reIers to the present position oI the Iirm relative to the
competition in the segment. Alternatively, it can be expressed as the present position and an
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïîï
estimated Iuture position, based upon plans Ior increasing business strength. Attractiveness is
typically evaluated Ior some Iuture time period. In the illustration a Iive-year projection is used.
The example shows how segment opportunities are ranked according to their overall
attractiveness. The analysis can be expanded to include additional inIormation such as proIiles oI
key competitors. The rankings are admittedly subjective since decision makers will vary in their
weighing oI estimated Iinancial position, business strength, and segment attractiveness. Place
yourselI in the role oI a manager evaluating the segments. Using the inIormation in Exhibit 4.14,
rank segments X, Y, and Z as to their overall importance as market targets. Unless management
is ready to allocate a major portion oI resources to segment Z to build business strength, it is a
candidate Ior the last-place position. Yet Z has some attractive characteristics. The segment has
the most Iavorable market attractiveness oI the three, and its estimated total sales are nearly equal
to Y•s Ior the next two years. The big problem with Z is its business strength. The key question
is whether Z•s market share can be increased. II not, X looks like a good prospect Ior top rating,
Iollowed by Y, and by Z. OI course, management may decide to go aIter all three segments.
ÛÈØ×Þ×Ì ìòïì
¿²¼ Ó¿®µ»¬
Û-¬·³¿¬»¼ øü ³·´´·±²-÷ È Ç Æ
Í¿´»-ö ïð ïê ë
Ê¿®·¿¾´» ½±-¬-ö ì ç í
ݱ²¬®·¾«¬·±² ³¿®¹·²ö ê é î
Ó¿®µ»¬ -¸¿®»Ÿ êðû íðû ïðû
̱¬¿´ -»¹³»²¬ -¿´»- ïé ëí ëð
Í»¹³»²¬ °±-·¬·±²æ
Þ«-·²»-- -¬®»²¹¬¸ Ø·¹¸ Ó»¼·«³ Ô±©
߬¬®¿½¬·ª»²»--ž Ó»¼·«³ Ô±© Ø·¹¸
*Eor a two-year period.
žPercent oI total sales in the segment.
žBased on a Iive-year projection.
Market segmentation is oIten a requirement Ior competing in
many product-markets because buyers diIIer in their
preIerences Ior products and services. Einding out what these
preIerences are and grouping buyers with similar needs is an
essential part oI business and marketing strategy development.
Market segmentation is an opportunity Ior a small Iirm to Iocus
on buyers where its competitive advantages are most Iavorable.
Large Iirms seeking to establish or protect a dominant market
position can oIten do so by targeting multiple segments.
Segmentation oI a product-market requires that response
diIIerences exist between segments, and that the segments are
identiIiable and stable over time. Also, the beneIits oI seg-
mentation should exceed the costs. Segmenting a market
involves identiIying the basis oI segmentation, Iorming seg-
ments, describing each segment, and analyzing and evaluating
the segment(s) oI interest. The variables useIul as bases Ior
Iorming and describing segments include the characteristics oI
people and organizations, use situation, buyers• needs and
preIerences, and purchase behavior.
Segments can be Iormed by identiIying customer groups
using the characteristics oI people or organizations. The groups
are analyzed to determine iI the response proIiles are diIIerent
across the candidate segments. Alternatively, customer response
inIormation can be used to Iorm customer groupings and then
the descriptive characteristics oI the groups analyzed to Iind out
iI segments can be identiIied. Several examples oI segment
Iormation are discussed to illustrate the methods that are
available Ior this purpose.
Einer segmenting strategies present attractive options Ior
moving toward small segments and responding to buyers•
unique value requirements. Technology, buyer diversity, and
relationship opportunities are the drivers oI Iiner segmentation
strategies. These strategies include microsegmentation, mass
customization, and variety seeking. While potentially attrac-
tive, Iiner segmentation strategies are more complex than other
Iorms oI segmentation and require comprehensive beneIit and
cost evaluations.
Segment analysis and evaluation consider the strengths and
limitations oI each segment as a potential market target Ior the
organization. Segment analysis includes customer descriptions
and satisIaction analysis, evaluating existing and potential
competitors and competitive advantage, marketing program
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ïîî ﮬ Ì©± Markets, Segments, and Customer Jalue
positioning analysis, and Iinancial and market attractiveness.
Segment analysis is important in evaluating customer satisIac-
tion, Iinding new-product opportunities, selecting market
targets, and designing positioning strategies. Nonetheless, it is
also important to understand the organizational barriers to
implementing segmentation strategy which may exist in a
company, and to evaluate the “Iit’ oI segmentation with com-
pany capabilities. EIIectively implemented, a good segmenta-
tion strategy creates an important competitive edge Ior an
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Review the material in the Strategy Eeature, “Segmentation
and Positioning Challenges Ior Banana Republic.’
Examine the product ranges at Gap•s three branded store
chains (The Gap, Banana Republic, and Old Navy) by
visiting the Gap Inc. Web page (www.gapinc.com) and the
pages Ior each type oI store. Consider whether the
company has succeeded in positioning its three brands in
diIIerent segments and the challenges in maintaining this
B. Review the BMW MINI case in the Global Eeature, “The
BMW MINI.’ Do you believe that BMW has built a robust
niche or segment strategy, or is the car a Iashion item with
limited lasting appeal to car buyers, like other “retro’
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Competing in the uniIied European market raises some
interesting market segment questions. Discuss the seg-
mentation issues regarding this multiple-country market.
2. Why are there marketing strategy advantages in using
demographic characteristics to break out product-markets
into segments?
3. The real test oI a segment Iormation scheme occurs aIter it
has been tried and the results evaluated. Are there ways to
evaluate alternative segmenting schemes without actually
trying them?
4. Suggest ways oI obtaining the inIormation needed to
conduct a market segment analysis.
5. Why may it become necessary Ior companies to change
their market segmentation identiIication over time?
6. Is considering segments oI one buyer a reality or a myth?
7. Is it necessary to use a unique positioning strategy Ior each
market segment targeted by an organization?
8. Under what circumstances may it not be possible to break
up a product-market into segments? What are the dangers
oI using an incorrect segment Iormation scheme?
9. What are some oI the advantages in using mass cus-
tomization technology to satisIy the needs oI buyers?
10. Does the use oI mass customization eliminate the need to
segment a market?
1. Adapted Irom case material compiled by Neil A. Morgan
and Garry Veale, originally published in Nigel E. Piercy,
Market-Led Strategic Change. 1ransforming the Process
of Going to Market (OxIord: Butterworth-Heinemann,
1997), 303›311.
2. Anthony Bianco, “The Vanishing Mass Market,’
BusinessWeek, July 12, 2004, 62›68.
3. Don Peppers and Martha Rogers, Enterprise One-to-One
(New York: Doubleday, 1997).
4. Don Shultz and Heidi Schultz, “Individual Matters,’
Marketing Business, March 2004, 12›15.
5. Peter R. Dickson and James L. Ginter, “Market Segment-
ation, Product DiIIerentiation, and Marketing Strategy,’
Journal of Marketing, April 1987, 1›10.
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Explore several oI the Iollowing Web sites:
www.adquest.com www.americanet.com
www.autosite.com www.mlm2000.com
www.sidewalk.com www.monster.com
How does the inIormation Irom these sites aIIect our
traditional concept oI market segmentation? How is the
segmentation process altered by such Internet providers?
B. Evaluate the Iollowing site Ior additional ideas and
material concerned with market segmentation and the types
oI support that can be provided Ior companies:
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ìò ͬ®¿¬»¹·½ Ó¿®µ»¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ì Strategic Market Segmentation ïîí
6. W. Chan Kim and Renee Mauborgne, “Einding Rooms Ior
Manoeuvre,’ Financial 1imes, May 27, 1999.
7. James Samuelson, “Elying High,’ Forbes, August 2, 1996,
8. Nikki Tait, “Mixed Emotions as Olds Guard Bows Out,’
Financial 1imes, December 20, 2000, 27.
9. Leonard L. Berry, “Relationship Marketing oI Servicesœ
Growing Interest, Emerging Perspectives,’ Journal of the
Academy of Marketing Science, Eall 1995, 238›240.
10. Henry Assael, Consumer Behavior and Marketing Action,
2nd ed. (Boston: PWS-Kent Publishing, 1984), 225.
11. Jerry Elint, “The Magazine Eactory,’ Forbes, May 22,
1995, 160›162.
12. Anthony Bianco, “The Vanishing Mass Market.’
13. Jay L. Laughlin and Charles R. Taylor, “An Approach to
Industrial Market Segmentation,’ Industrial Marketing
Management 20 (1991), 127›136.
14. Ronald HenkoII, “Boeing•s Big Problem,’ Fortune,
January 12, 1998, 96›99, 102›103.
15. Daniel S. Levine, “Justice Served,’ Sales & Marketing
Management, May 1995, 53›61.
16. Michael Malone, “Pennsylvania Guys Mass Customize,’
Forbes ASAP, April 10, 1995, 82›85.
17. Nicholas Bray, “Credit Lyonnaise Targets Wealthy Clients,’
1he Wall Street Journal, July 24, 1994.
18. A. H. Maslow, “Theory oI Human Motivation,’ Psychology
Review, July 1943, 43›45.
19. Assael, Consumer Behavior and Marketing Action, 650.
20. Bernard Berelson and Gary A. Steiner, Human Behavior.
An Inventory of Scientific Findings (New York: Harcourt
Brace Jovanovich, 1964), 88.
21. Christopher Eield, “Loyalty Cards Are Unlikely to Carry
All the Answers,’ Financial 1imes, May 3, 2000, IV;
Marian Edwards, “Your Wish Is on My Database,’
Financial 1imes, Eebruary 28, 2000, 20.
22. Eric N. Berkowitz, Roger A. Kerin, Steven W. Hartley, and
William Rudelius, Marketing, 5th ed. (Chicago: Richard D.
Irwin, 1997), 155›156.
23. Louise O•Brien and Charles Jones, “Do Rewards Really
Create Loyalty?’ Harvard Business Review, May›June
1995, 78.
24. Anthony Bianco, “The Vanishing Mass Market.’
25. Miriam Jordan, “In India, Luxury Is within Reach oI
Many,’ 1he Wall Street Journal, October 17, 1995, A15.
26. Malcolm McDonald, “A Slice oI the Action,’ Marketing
Business, July/August 1998, 47.
27. Dickson and Ginter, “Market Segmentation,’ 4.
28. George S. Day, Market Driven Strategy (New York: The
Eree Press), 1990, 101›104.
29. Nancy Rotenier, “Antistatus Backpacks, $450 a Copy,’
Forbes, June 19, 1995, 118›120.
30. Allanna Sullivan, “Mobil Bets Drivers Pick Cappuccino
over Low Prices,’ 1he Wall Street Journal, January 30,
1995, B1 and B4.
31. Marketing News, July 20, 1998.
32. V. Kasturi Ranga, Rowland T. Moriarity, and Gordon S.
Swartz, “Segmenting Customers in Mature Industrial
Markets,’ Journal of Marketing, October 1992, 72›82.
33. Financial 1imes, Understanding Customer Relationship
Management, London. Financial 1imes, Spring 2000.
34. Ali Kara and Erdener Kaynak, “Markets oI a Single
Customer: Exploiting Conceptual Developments in Market
Segmentation,’ European Journal of Marketing, no. 11/12,
1997, 873›895.
35. Barbara E. Kahn, “Dynamic Relationships with Customers:
High-Variety Strategies,’ Journal of the Academy of
Marketing Science, Winter 1998, 45›53.
36. Kahn, “Dynamic Relationships’; Joseph B. Pine II, Mass
Customi:ation. 1he New Frontier in Business Competition
(Boston: Harvard Business School Press, 1993).
37. Kahn, “Dynamic Relationships.’
38. Kahn, “Dynamic Relationships.’
39. Linda Killian, “Crane•s Progress,’ Forbes, August 19, 1991,
40. A. Parasuraman, Valarie A. Zeithaml, and Leonard L.
Berry, “A Conceptual Model oI Service Quality and Its
Implications Ior Euture Research,’ Journal of Marketing,
Eall 1985, 41›50.
41. Robert B. WoodruII, Ernest R. Cadotte, and Roger L.
Jenkins, “Modeling Consumer SatisIaction Processes
Using Experienced-Based Norms,’ Journal of Marketing
Research, August 1983, 296›304.
42. The Iollowing discussion oI customer satisIaction is based
on discussions with Robert B. WoodruII, The University
oI Tennessee, Knoxville.
43. Nigel E. Piercy and Neil A. Morgan, “Strategic and
Operational Segmentation,’ Journal of Strategic Marketing
1, no. 2, 1993, 123›140.
44. Noel Capon and James M. Hulbert, Marketing Management
in the 21st Century (Upper Saddle River, NJ: Prentice-Hall,
2001), 185›186.
45. D. Young, “The Politics behind Market Segmentation,’
Marketing News, October 21, 1996, 17.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼ Ý«-¬±³»® Ê¿´«»
Ý¿°¿¾·´·¬·»- º±® ݱ²¬·²«±«-
Ô»¿®²·²¹ ¿¾±«¬ Ó¿®µ»¬-
Understanding markets and competition is critical to achieving market orientation. “Every
discussion oI market orientation emphasizes the ability oI the Iirm to learn about customers,
competitors, and channel members in order to continually sense and act on events and trends
in present and prospective markets.’
Market-driven companies display superior skills
in gathering, interpreting, and using inIormation to guide their business and marketing
Increasingly, learning about markets is more about interpreting inIormation rather than
Iinding it. With resources like online Internet searches, in-company inIormation and intelligence
systems, marketing research agency reports and surveys, and burgeoning technical literature
in most Iields, executives may be in danger oI being overwhelmed by inIormation. Research
suggests that how accurate executives are about the competitive environment may be less
important Ior strategy and the organizational changes that Iollow strategy than the way they
interpret inIormation about their environments. This suggests that investments in enhancing and
shaping those interpretations may create a more durable competitive advantage than investments
in obtaining more inIormation.
The imperative in market-led strategy is the quest Ior superior
interpretation and market understanding.
Consider the case oI the personal computer market leader Dell Inc. Erom the outset, Dell•s
business model exploited the advantages oI selling direct to customers and building products
to order instead oI estimating demand and building to stock. The direct business model
was ideally placed to use the Internet to Iull advantage. However, underpinning the success oI
Dell•s direct business model are processes oI learning and responsiveness to customers,
utilizing the company•s technology and the Internet, but also the human processes oI listening
to customers and learning Irom them. Dell and suppliers share inIormation and plans Ireelyœ
external suppliers are treated as iI they were internal to Dell•s organization. Internet and
direct selling relationships with customers also provide Dell with unique insights into their
needs, preIerences, and changing requirements. Sales account managers work with customers to
develop plans to meet Iuture IT needs. Dell works with customers to save them money by
standardizing their global PC purchasing (providing the company with inIormation about its own
global PC purchasing patterns). Major customers have their own Dell Premier Pages on
the Internet, providing an interactive product catalog, but also access to Dell support tools and
technical resources. Dell•s market sensing and learning capabilities have created a new compe-
titive advantage, which is uniquely diIIicult Ior competitors to equal.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïîë
A theme linking companies in many sectors is their capabilities in superior market sensing
and their abilities to develop competitive advantage Irom their learning processes. The Cayenne
sports utility vehicle Irom Porsche in Germany has been highly successIul with U.S. consumers,
liIting Porsche•s sales by 15 percent and proIits by 22 percent in 2004. The Cayenne product
concept was based on painstaking intelligence gathering to establish that the consumer would
pay a premium Ior the speed, Ior which Porsche is Iamous, in the shape oI a sports-utility
vehicle. Similarly, the British retailer Tesco is highly skilled in mining data Irom its loyalty
card scheme, supplemented by customer Ieedback Irom telephone and written surveys, to iden-
tiIy and exploit new market opportunities. Eor example, in 2003 Tesco detected early signs that
Iood consumers wanted more nutritional inIormation, allowing a swiIt marketing response with
a new labeling system providing shoppers with more detailed inIormation on the Iat, salt, and
sugar content oI hundreds oI products ahead oI the competition.
The challenge is increasingly one oI knowledge management to build companywide under-
standing oI the marketplace and responsiveness, rather than simply collecting inIormation.
In this chapter we examine how continuous learning about markets improves competitive
advantage. Eirst, we look at the relationship between market orientation and organizational learn-
ing. Next, we discuss several sources oI inIormation. Then we overview inIormation methods and
capabilities, including marketing research, standardized inIormation services, management inIor-
mation systems, database systems, and decision support systems. Einally, several important issues
are highlighted concerning the collection and use oI inIormation in the organization and the
growing importance oI knowledge management to eIIective market-driven strategy.
Ó¿®µ»¬ Ñ®·»²¬¿¬·±² ¿²¼ Ñ®¹¿²·¦¿¬·±²¿´ Ô»¿®²·²¹
The ability to learn Irom customers underpins the management decision making at companies
like Autodeskœwhich holds roughly 80 percent oI the world market Ior PC computer-aided
design (CAD) soItware. Autodesk•s successIul spin-oII Buzzsaw.com originated with discus-
sions with customers about how they used the company•s soItware in designing buildings and
what they wanted in new soItware. The surprise was that customer priorities were not CAD
sophistication but managing complex collaborative construction projects. The challenge was to
create a better way Ior dozens oI participants in a construction project to share drawings elec-
tronically and manage projects Irom beginning to end. AIter extensive research into how the var-
ious participants in a construction project worked, the solution was a well-designed Internet
work space, with online tools Ior customers to manage their own work space. Within a year oI
the launch oI Buzzsaw.com there were around 150,000 users oI the Internet work space, com-
municating and sharing drawings across the world.
Companies like Dell, Tesco, Porsche, and Autodesk illustrate the close relationship between
a market-oriented culture and organizational learning. We review the characteristics oI market
orientation and look at the role oI organizational learning in creating superior customer value.
Next, the process oI learning about markets is described, Iollowed by a discussion oI how learn-
ing helps to create superior customer value. Einally, we examine and illustrate the available
methods oI obtaining inIormation.
Ó¿®µ»¬ Ñ®·»²¬¿¬·±²
Market orientation is both a culture and also a process committed to achieving superior customer
value (Chapter 1). The process consists oI inIormation acquisition, broad inIormation dissemi-
nation, and shared diagnosis and coordinated action.
Market orientation provides the Ioundation
Ior organizational learning, although some cautions need to be considered in achieving the
potential oI learning:
1. Market intelligence may be so Iocused that opportunities or threats outside the current
product-market are ignored.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïîê ﮬ Ì©± Markets, Segments, and Customer Jalue
2. Prevailing views oI market orientation consider current customers and competitors, whereas
other learning sources including suppliers, noncompeting businesses, consultants, and
government may provide important inIormation.
The market orientation perspective needs to extend beyond traditional market boundaries to
include all oI the relevant sources oI knowledge and ideas. A key issue is deciding how broad
this orientation should be. The section on learning about markets oIIers several guidelines
concerning this issue.
ݸ¿®¿½¬»®·-¬·½- ±º ¬¸» Ô»¿®²·²¹ Ñ®¹¿²·¦¿¬·±²ò Our understanding oI the learning
organization continues to unIold as the processes used by successIul organizations are studied
and interpreted. These organizations share several common characteristics:
Learning organizations are guided by a shared vision that Iocuses the energies oI organizational
members on creating superior value Ior customers. These organizations continuously acquire,
process, and disseminate throughout the organization knowledge about markets, products,
technologies, and business processes. They do not hesitate to question long held assumptions and
belieIs regarding their business. Their knowledge is based on experience, experimentation, and
inIormation Irom customers, suppliers, competitors, and other sources. Through complex
communication, coordination, and conIlict resolution processes, these organizations reach a shared
interpretation oI the inIormation, which enables them to act swiItly and decisively to exploit
opportunities and deIuse problems. Learning organizations are exceptional in their ability to
anticipate and act on opportunities in turbulent and Iragmenting markets.
Additional research promises to Iurther expand our knowledge about these complex organiza-
tional processes.
Ô»¿®²·²¹ ¿²¼ ݱ³°»¬·¬·ª» ß¼ª¿²¬¿¹»ò The advantage gained Irom learning is that
the organization is able to quickly and eIIectively respond to opportunities and threats, and to
satisIy customers• needs with new products and improved services.
Learning reduces the time
necessary to accomplish projects such as new product development. Eor example, Manco is a
distributor oI duct tape, mailer envelopes, shelI liners, and related products. AIter listening to a
customer, Manco developed its nonadhesive shelI liner, which is similar to rubber mesh and can
be easily cut and Iitted in and out oI shelves. In 1997 the product had sales oI $30 million,
accounting Ior nearly one-IiIth oI Manco•s annual sales.
Superior learning capabilities and
speed oI learning create a new competitive advantage, which may be extremely diIIicult Ior
competitors to imitate or equal.
Ô»¿®²·²¹ ¿¾±«¬ Ó¿®µ»¬-
Learning about markets requires developing processes throughout the organization Ior obtain-
ing, interpreting, and acting on inIormation Irom sensing activities. The learning processes oI
market-oriented companies include a sequence oI activities beginning with open-minded
In some cases, learning Irom the market may be a critical element oI rebuilding perIormance
by aligning company capabilities better with market characteristics. Consider the recovery
program under way at The Bombay Company which is described in the Strategy Eeature.
Specialty retailer Bombay saw a steady decline in its perIormance through the late 1990s. A
change oI management team and enhanced market Iocus has driven a recovery in the early
2000s. The basis oI this recovery has been extensive customer research and systematic manage-
ment response to the lessons learned.
Ѿ¶»½¬·ª» ײ¯«·®§ò One danger to be avoided is not exploring new views about markets
and competition, because they are not taken seriously. Searching Ior inIormation is oI little value
iI management already has a Iixed view on which new inIormation will have no inIluence
whatever it indicates.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
As discussed in Chapter 1, the members oI market-oriented organizations recognize the
importance oI market sensing and coordinated interpretation oI market intelligence to guide
strategies. Nonetheless, not all companies see the value in continuous learning about markets.
Managers who are not part oI market-driven cultures may be unwilling to invest in inIormation
to improve their decision-making results. The same companies oIten encounter problems
because oI Iaulty or incomplete market sensing.
A Iramework oI the type shown in Exhibit 5.1 can be used as a participative, cross-Iunctional
structure Ior market sensing. This challenges managers to identiIy the most signiIicant events
impacting their business and its markets over a three- to Iive-year horizon, and to position
the events in the matrix according to estimated probability and the eIIect oI the event on the
business. Importantly, by including external views, such as suppliers, technology experts, dis-
tributors, and customers, it is possible to build a view oI the world that breaks Iree oI traditional
company belieIs, challenges management assumptions, and identiIies the highest priorities Ior
inIormation collection and use in making strategic decisions.
Developing processes Ior continuous learning allows Iirms to capture more inIormation about
customers, suppliers, and competitors. This capability provides the potential Ior growth based on
inIormed decisions and a more complete mapping and analysis oI the competitive environment.
Also, Iirms can respond much more quickly to competitors• actions and take advantage oI situ-
ations in the marketplace. Open-minded inquiry also helps to anticipate value migration threats,
which are Irequently initiated by competitors Irom outside the traditional market or industry.
Eor example, monitoring potential competitors such as electronic imaging companies by
conventional Iilm producers is essential in designing strategies Ior coping with the competitive
threats Irom electronic technology.
ײº±®³¿¬·±² Ü·-¬®·¾«¬·±² º±® ͧ²»®¹§ò This step encourages the widespread distribution
oI inIormation in the organization. The objective is to leverage the value oI the inIormation
ͬ®¿¬»¹§ Ú»¿¬«®»
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ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïîé
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïîè ﮬ Ì©± Markets, Segments, and Customer Jalue
ÛÈØ×Þ×Ì ëòï
ß Ú®¿³»©±®µ
º±® Ó¿®µ»¬
Field of
Things to
High Medium Low
Effect of the
Event on the
* 1 = Disaster, 2 = Very bad, 3 = Bad, 4 = Neutral, 5 = Good, 6 = Very good, 7 = Ìdeal.
Probability of the Event Occurring
by cutting across business Iunctions to share inIormation on customers, value-chain channels,
suppliers, and competitors. Traditional inIormation processing in organizations allocates rele-
vant inIormation to each business Iunction, and inIormation possession becomes a source oI
internal power. Synergistic distribution works to remove Iunctional hurdles and practices. Cross-
Iunctional teams are useIul to encourage transIer oI inIormation across Iunctions.
The explosion in inIormation connectivity (access) resulting Irom electronic communication
Iacilitates widespread inIormation distribution.
Unbundling inIormation Irom its physical
carrier such as salespeople will provide access as well as speed in organizations. This will help
cross-Iunctional teams and alter hierarchical structures and proprietary inIormation systems.
Expanded inIormation connectivity promises to encourage cooperation among Iunctions, reduce
the power oI inIormation possession, and enhance organizational learning.
Ó«¬«¿´´§ ײº±®³»¼ ײ¬»®°®»¬¿¬·±²-ò The mental model oI the market guides managers•
interpretation oI inIormation. The intent is to reach a shared vision about the market and about
the impact that new inIormation has on this vision. The market-oriented culture encourages
market sensing. But the process requires more than gathering and studying inIormation. “This
interpretation is Iacilitated by the mental models oI managers, which contain decision rules Ior
deciding how to act on the inIormation in light oI anticipated outcomes.’
The model reIlects
the executives• vision about the Iorces inIluencing the market and likely Iuture directions oI
change. Learning occurs as members oI the organization evaluate the results oI their decisions
based on their vision at the time the decisions were made. The market sensing Iramework in
Exhibit 5.1 may support addressing these issues.
Deciding to take the high risk oI cutting-edge ventures requires managers to reach a shared
vision about uncertain Iuture market opportunities. Eor example, the British supermarket company
Tesco operates an outstanding and successIul Internet grocery channel alongside its store network.
The planning Ior this venture started in the mid-1990s, long beIore the much-publicized “dot-com
revolution’ was under way, leading to a national rollout in 2000, at a time when other Internet
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ventures were crashing in ruins. The Iive-year gestation period involved close study oI what con-
sumers wanted Irom Internet grocery shopping and a developing understanding that shoppers
wanted the Internet channel to provide a complement store-based shopping, not a substitute. The
management team has sustained its vision that an Internet channel would become a proIitable part
oI the core business over a seven-year period beIore reaching operating proIitability.
ß½½»--·¾´» Ó»³±®§ò This part in the learning process emphasizes the importance oI keep-
ing and gaining access to prior learning. The objective is not to lose valuable inIormation that
can continue to be used. Doing this involves integrating the inIormation into the organizational
memory, and not losing inIormation when people leave the organization. Hewlett-Packard•s
(H-P) vision about computer printer technology was that inkjet technology would replace dot
matrix printers, providing an excellent growth opportunity. H-P beat Japanese companies to the
market even though Canon had the technology. Hewlett-Packard•s inkjet product design team
continued to learn how to improve the product and develop strategies based on monitoring
competitors• actions. Eor example, prices were lowered when the team sensed that Japanese
competitors were about to enter the market.
Urban OutIitters Inc. is a successIul specialty retailer that is guided by management•s
shared and constantly renewed vision about the market based on an eIIective learning process.
The company targets style-conscious young adults. Sales in 2000 ran at $210 million, but this
has grown at an average annual rate oI 21 percent, reaching $548 million in 2004. The
retailer•s products include Iashion apparel, accessories, household items, and giIts. Urban
OutIitters• unique value proposition is the shopping environment it provides to the 18›30
targeted age group. To stay ahead oI its unpredictable buyers with whimsical tastes, manage-
ment employs over 75 Iashion spies who sense what is happening in Iashion in neighborhoods
in New York, CaliIornia, London, and Paris.
Salaries and expenses oI this market sensing
team total several million dollars annually. Market Ieedback guides new-product decisions
and signals when buyer interest is slowing down. Stores are located near colleges and places
where youths gather. Catalogs and the Web site reIlect this identity. Management•s close
understanding oI the Iashion market has led to new retail concepts in its 50 Anthropologie
stores, designed to appeal to its buyers when they move to an older age group in the liIe cycle.
The target is women aged 30 to 45, Iocused on Iashion, career, and home. The Eree People
operation is the company•s more general branded wholesaler oI casual clothes, sold through
department and specialty stores.
ײº±®³¿¬·±²ô ß²¿´§-·-ô ¿²¼ ß½¬·±²
Deciding what inIormation is needed is the starting point in planning Ior and acquiring inIor-
mation. Because oI the costs oI acquiring, processing, and analyzing inIormation, the potential
beneIits oI needed inIormation need to be compared to costs. Normally, inIormation Ialls into
two categories: (1) inIormation regularly supplied Irom internal and external sources, and
(2) inIormation obtained as needed Ior a particular problem or situation. Examples oI the Iormer
are sales costs analyses, inIormation Irom 800 number calls, market share measurements, and
customer satisIaction surveys. InIormation Irom the latter category includes new-product
concept tests, brand preIerence studies, and studies oI advertising eIIectiveness.
Several types oI marketing inIormation are available. A description oI each type oI inIorma-
tion Iollows:
Ó¿®µ»¬·²¹ λ-»¿®½¸ ͬ«¼·»-ò These studies consist oI customized inIormation collected
and analyzed Ior a particular research problem. A study oI customers• reactions to a new-product
concept is an example. The inIormation may be obtained through Iield surveys, online responses,
and/or published sources.
ͬ¿²¼¿®¼·¦»¼ ײº±®³¿¬·±² Í»®ª·½»-ò This inIormation is available Irom outside vendors
on a subscription or single-purchase basis. The services collect and analyze inIormation that is
sold to several customers such as prescription sales Ior drugs marketed to pharmaceutical Iirms.
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïîç
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïíð ﮬ Ì©± Markets, Segments, and Customer Jalue
Ó¿²¿¹»³»²¬ ײº±®³¿¬·±² ͧ-¬»³- øÓ×Í÷ò Computerized systems supply inIormation
Ior a variety oI purposes such as order processing, invoicing, customer analysis, and product
perIormance. The inIormation in these systems may include both internal and external data.
Ü¿¬¿¾¿-» ͧ-¬»³-ò This special Iorm oI MIS includes inIormation Irom internal and
external sources that is computerized and used Ior customer and product analyses, mailing lists,
identiIying sales prospects, and other marketing applications.
Ü»½·-·±² Í«°°±®¬ ͧ-¬»³-ò These computerized systems provide decision-making assis-
tance to managers and staII. Their capabilities are more advanced than a MIS. American
Airlines• revenue (pricing and yield) management system Ior aircraIt seat utilization includes
eIIective decision support techniques to assist analysts in obtaining maximum revenue Ior each
Ý«-¬±³»® λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬ øÝÎÓ÷ ͧ-¬»³-ò Designed to manage the
relationship with a customer more eIIectively, by integrating all needed inIormation sources and
systems to provide seamlessness at the point oI contact with the customer, CRM systems also
provide rich inIormation sources relating to customers• actual purchase behavior. Erequently
associated are “data warehouses,’ which are capable oI being “mined’ Ior customer inIormation,
CRM systems are providing a Iormidable new type oI marketing inIormation. (See the Appendix
to Chapter 7.)
ݱ³°»¬·¬±® ײ¬»´´·¹»²½» ͧ-¬»³-ò Companies are using competitor intelligence systems
to help monitor existing and potential competitors. Intelligence activities include searching
databases, conducting customer surveys, interviewing suppliers and other channel members,
Iorming strategic alliances with competitors, hiring competitors• employees, and evaluating
competitors• products.
The Iirm•s complete inIormation needs should be considered beIore deciding what types oI
inIormation to use. Most Iirms beneIit Irom a routine and complete evaluation oI their inIorma-
tion situation. Cooperation among departments can save the Iirm countless employee-hours and
dollars. Ear too oIten a department launches an expensive inIormation-gathering project only to
discover later that another department already had the type oI inIormation sought. Synergistic
inIormation distribution encourages sharing.
In the remainder oI the chapter, we examine the various methods oI acquiring and processing
inIormation Ior use in marketing decision making. The objective is to show how the various
inIormation capabilities assist decision makers in strategic and operating decisions. A good
marketing inIormation management strategy takes into account the interrelationship oI these
Ó¿®µ»¬·²¹ λ-»¿®½¸ ײº±®³¿¬·±²
The starting point in obtaining marketing research inIormation is deIining the problem to be
studied, indicating speciIic objectives, and determining what inIormation is needed to help solve
the problem. Problem deIinition examples Ior a new candy product and the quality oI Iast-Iood
services are shown in Parts A and B oI Exhibit 5.2.
Marketing research inIormation is obtained Irom internal records, trade contacts, published
inIormation, surveys, and many other sources. An example oI a research study is shown in
Exhibit 5.3. It is a proposed test oI the eIIectiveness oI an advertising commercial. Marketing
research studies range in cost Irom less than $10,000 to over $100,000.
Marketing research is “the systematic gathering, recording, processing, and analyzing oI
marketing data, whichœwhen interpretedœwill help the marketing executive to uncover oppor-
tunities and to reduce risks in decision making.’
Strategies Ior obtaining marketing research
inIormation include collecting existing inIormation, using standardized research services, and
conducting special research studies.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïíï
ݱ´´»½¬·²¹ Û¨·-¬·²¹ ײº±®³¿¬·±²
The internal inIormation system oI the Iirm aIIects the extent and ease oI the collection oI exist-
ing inIormation. The nature and scope oI the inIormation and the inIormation system network
will vary greatly Irom Iirm to Iirm and among industries. Many Iirms have extensive internal
inIormation systems, or at least the capability to implement such systems. Recall the new
customer inIormation resources being created by CRM systems.
ÛÈØ×Þ×Ì ëòî
Source: William R. Dillon,
Thomas J. Madden, and
Nell H. Eirtle, Marketing
Research in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL: Richard D.
Irwin, 1994), 34.
Copyright © The
McGraw-Hill Companies.
Used with permission.
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¬¸¿¬ ²»»¼ ¿¬¬»²¬·±²ò
б--·¾´» λ-»¿®½¸ Ï«»-¬·±²-æ ïò ɸ¿¬ ·- ¬¸» ®»´»ª¿²¬ -»¬ ±º -»®ª·½» º»¿¬«®»- ±² ©¸·½¸
º®¿²½¸·-»- -¸±«´¼ ¾» »ª¿´«¿¬»¼á
îò ɸ¿¬ ·- ¬¸» °»®½»·ª»¼ ª¿´«» ±º »¿½¸ -»®ª·½»
íò ܱ °»®½»°¬·±²- ±º -»®ª·½»- ª¿®§ ¾§ ³»¿´á
ìò ܱ»- ¬¸» ª¿´«» ±º ¿ -»®ª·½» º»¿¬«®» ª¿®§ ¾§ ³»¿´á
ëò ß®» ¬¸»®» ®»¹·±²¿´ ¼·ºº»®»²½»- ¿½®±-- º®¿²½¸·-»- ·²
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êò ɸ¿¬ º¿½¬±®- ½±²¬®·¾«¬» ¬± ¿²§ ¼·ºº»®»²½»- ¬¸¿¬ ¿®»
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïíî ﮬ Ì©± Markets, Segments, and Customer Jalue
There is considerable value and potential in using the inIormation in the organization•s
current system. This is essential Ior the strategic mission oI the Iirm, as well as Ior eIIicient
utilization oI assets. InIormation is a resource that needs to be consciously managed.
Management should structure the inIormation system to capture this resource and control its use.
InIormation is not a by-product oI activities oI the Iirm. It is a scarce, valuable resource that aIIects
the Iuture success or Iailure oI the Iirm. Management may not have control over the actions oI com-
petitors or consumers, but an eIIective inIormation system provides a way to anticipate and react.
The product mix and the nature oI business operations inIluence what type oI internal
marketing inIormation system is appropriate in a particular Iirm. Nonetheless, electronic inIor-
mation systems are necessary in all kinds oI companies. The system needs to be designed to meet
the inIormation needs oI the organization. ManuIacturers have diIIerent inIormation require-
ments Irom retailers or wholesalers. The size and complexity oI the Iirm also inIluence the
composition oI the inIormation system.
The costs and beneIits oI the inIormation must be evaluated Ior both short-term and long-term
planning. Incremental eIIorts and expenditures in the early stages oI creating an internal inIor-
mation system may avoid Iuture costly modiIications. Achieving long-term perIormance may
ÛÈØ×Þ×Ì ëòí
Ѻºóß·® Ì»-¬
Source: William R. Dillon,
Thomas J. Madden, and
Neil H. Eirtle, Marketing
Research in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL; Richard D.
Irwin, 1994), 611.
Copyright © The
McGraw-Hill Companies.
Used with permission.
Þ®¿²¼æ ݱ´¹¿¬»ò
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ݱ-¬ ¿²¼ ¬·³·²¹æ ̸» ½±-¬ º±® ±²» ½±³³»®½·¿´ ©·´´ ¾» üêôëðð ïðûò ̸»
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Í«°°´·»®æ Ô»¹¹»¬ Ô«-¬·¹ Ú·®¬´»ô ײ½ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïíí
require temporary losses to Iinance a system. It is critical to consider a long-term perspective in
evaluating inIormation system decisions.
Harrah•s Entertainment is an example oI a company developing market-led strategy on the
basis oI existing inIormation. Harrah•s operates 26 casinos in 13 states and in 2002 had more
than $4 billion in revenue. In a sector known Ior Iickle customers, Harrah•s has built a strategy
based on customer loyalty. Harrah•s has used the data in its customer loyalty programœthe Total
Gold cardœto uncover consumer preIerences based on tracking the millions oI individual trans-
actions conducted. Harrah•s Iound that 26 percent oI its customers generated 82 percent oI their
revenues. These were not the high-rollers targeted by competitors, they were Iormer teachers,
doctors, bankers, and machinistsœmiddle-aged and senior adults with discretionary time and
income. They typically do not stay in casino hotels, but visit a casino on the way home Irom
work or on a weekend night out. They respond diIIerently to marketing and promotions because
they enjoy the anticipation and excitement oI gambling itselI. Harrah•s strategy is one oI pro-
viding visibly higher levels oI service to the customers with greatest value to the company. The
transactional data can even be used to see which particular customers are playing which slot
machines and to identiIy what it was about the particular machine that appealed to them.
Harrah•s successIul strategy is driven by leveraging an existing inIormation source to build com-
petitive diIIerentiation.
ͬ¿²¼¿®¼·¦»¼ ײº±®³¿¬·±² Í»®ª·½»-
A wide variety oI marketing inIormation is available Ior purchase in special publications and on
a subscription basis. In some instances, the inIormation may be Iree, Ior example, in online
statistical databases. Sources include government agencies, universities, private research Iirms,
industry and trade organizations, and consultants. A key advantage to standardized inIormation
is that the costs oI collection and analysis are shared by many users. The major limitation is
that the inIormation may not correspond well with the user•s individual needs. These services
oIIer substantial cost advantages, and many are quite inexpensive (Ior example, data distributed
Irom the U.S. Census oI Population and most governmental statistical services in developed
countries). Many services allow online access to data, enabling subscribers to automatically
input external inIormation into their own inIormation systems.
Many standardized inIormation services are available to meet a wide range oI decision-
making needs. Some examples Iollow:
Nielsen Media Research (www.nielsenmedia.com) collects inIormation on television audience
measurement, with measurement meters in 5,100 homes assessing the viewing habits oI
14,000 individuals. Decisions to continue or drop shows oIten depend on these ratings.
The Petroleum InIormation Corporation unit (now part oI IHS Energy) supplies inIormation
on drilling and production Ior Iirms interested in oil and gas exploration activities around
the world (www.ihsenergy.com).
VNU in 2004 launched Homescan Online, a new service to measure how Internet use aIIects
oIIline purchase behavior among 14,000 Homescan panel households (www.vnu.com).
InIormation Resources Inc.•s InIoScan retail tracking service and ConsumerNetwork panel
services provide weekly sales, price, and store condition inIormation Ior a sample oI Iood,
drug, and mass merchandise stores (www.infores.com).
ACNielsen Corp. (www.acnielsen.com) oIIers product movement data Ior Iood, drug, and
other retail stores in more than 80 countries. Its ScanTrack service captures data through
checkout scanners or in-store audits and provides weekly data on packaged goods in the
United States.
IMS International (imshealth.com) provides inIormation such as pharmaceutical audits oI
sales to the pharmaceutical and health care industries worldwide. Audits are available in
over 100 countries.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïíì ﮬ Ì©± Markets, Segments, and Customer Jalue
Using the large data banks collected and organized by these services, many diIIerent analy-
ses can be made, depending on a company•s inIormation needs. The cost oI the inIormation Ior
use by one company would be prohibitive. By sharing the database, a wide range oI company
inIormation needs can be met.
InIormation Resources Inc. (IRI) uses electronic retail store scanning systems to record
purchases by people participating on consumer panels. Scanning systems in stores automatically
record consumers• purchases, eliminating the need Ior diaries and providing accurate data. The
InIoScan panel data are obtained Irom a sample oI 60,000 households. IRI installs a complete
electronic monitoring system in each city where it has a consumer panel. IRI can also monitor
the television programs watched by participants and insert test commercials into programming.
Advertisements can be targeted to households with speciIic demographic characteristics since
these data are recorded Ior all participants. Subsequent purchases measure the eIIect oI the com-
mercial. The use oI coupons can be monitored to test products and the strength oI competitors.
With this network, IRI can respond to various queries Irom clients such as Campbell Soup
Company, P&G, Johnson & Johnson, and General Eoods Corporation. IRI monitors consumer
reactions and preIerences without alerting them to which products are being tested. Eirms can
introduce advertising campaigns and determine optimal marketing strategies.
Í°»½·¿´ λ-»¿®½¸ ͬ«¼·»-
Research studies are initiated in response to problems or special inIormation needs. Examples
include market segmentation, new-product concept tests, product use tests, brand-name research,
and advertising recall tests. Studies may range in scope Irom exploratory research based prima-
rily on analysis oI published inIormation to Iield surveys involving personal, phone, or mail
interviews with respondents who represent target populations. Considerable recent attention has
been given to qualitative research using Iocus groups, rather than broader more representative
Recent developments include online market research services, oIIering less expensive and
more rapidly available market research surveys. Eor example, launched in 1999, InsightExpress
provides clients with a survey template to build an online questionnaire, allowing them to
sample Irom a panel oI 700,000 respondents, pay by credit card, and download results within a
Iew days. A research project costing perhaps $25,000 using traditional services is estimated to
cost only $1,000 online.
Reservations exist regarding the quality oI the data produced by online
services, but they provide a cheap route to sensing the market quickly.
Research studies Iollow a step-by-step process beginning with deIining the problem to be
investigated and the objectives oI the research. An example oI a project proposal Ior a study oI
customers• usage oI low-salt/unsalted crackers is shown in Exhibit 5.4. The proposal indicated the
objectives, research method, sampling plan, method oI analysis, and cost. The project illustrates
the steps involved in the research process (problem deIinition, inIormation required, research
method, sampling plan, questionnaire design, data collection, analysis, and research report).
In deciding whether to employ marketing research and when interpreting the results, several
considerations are important.
Ü»º·²·²¹ ¬¸» Ю±¾´»³ò Care must be exercised in Iormulating the research problem. It is
essential to spell out exactly what inIormation is needed to solve the problem. II this cannot be
done, exploratory research should be conducted to help deIine the research problem and deter-
mine the objectives oI the project. Caution should be exercised to avoid deIining a symptom
rather than the underlying problemœdo Ialling sales reIlect declining market size, new compe-
titive activity, or ineIIective promotion?
It is useIul to prepare a written statement oI the research problem, speciIic objectives, the
inIormation that is needed, inIormation sources, and when the inIormation is needed. Many com-
panies contract with research Iirms to do the research. It is important that the supplier be as
Iamiliar as possible with the problem to be studied. Management needs to clearly deIine the
intended project and may choose to involve the research supplier in deIining the problem.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïíë
ÛÈØ×Þ×Ì ëòì
Source: William R. Dillon
Thomas J. Madden, and
Neil H. Eirtle. Marketing
Research in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL: Richard
D. Irwin, 1994). 49.
Copyright © The
McGraw-Hill Companies.
Used with permission.
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïíê ﮬ Ì©± Markets, Segments, and Customer Jalue
˲¼»®-¬¿²¼·²¹ ¬¸» Ô·³·¬¿¬·±²- ±º ¬¸» λ-»¿®½¸ò Most studies are unable to do every-
thing that the user wishes to accomplish and also stay within the available budget. Priorities Ior
the inIormation that is needed should be indicated. Also, obtaining certain inIormation may not
be Ieasible. Eor example, measuring the impact oI advertising on proIits may not be possible due
to the inIluence oI many other Iactors on proIits.
Research suppliers should be able to indicate the limitations that may exist Ior a particular
project. Discussions with a potential supplier are advisable beIore making a Iinal commitment
to the project. This will be useIul in Iinalizing inIormation need priorities.
Ï«¿´·¬§ ±º ¬¸» λ-»¿®½¸ò There are many challenges to obtaining sound research results.
The available evidence indicates that some studies are not well designed and implemented and
may contain misleading results. Eactors that aIIect the quality oI study results include the expe-
rience oI the research personnel, skills in careIully managing and controlling the data collection
process, the size oI the sample, the wording oI questions, and how the data are analyzed. This
classic example highlights the diIIiculties in achieving reliable results:
A Gallup poll sponsored by the disposable diaper industry asked: “It is estimated that disposable
diapers account Ior less than 2 percent oI the trash in today•s landIills. In contrast, beverage
containers, third-class mail and yard waste are estimated to account Ior about 21 percent oI trash
in landIills. Given this, in your opinion, would it be Iair to ban disposable diapers?’
Not surprisingly, because oI the wording oI the question, 84 percent oI the respondents answered
“no’ to the question.
Ûª¿´«¿¬·²¹ ¿²¼ Í»´»½¬·²¹ Í«°°´·»®-ò Typically, research studies are not conducted by
the user. When selecting a supplier, it is important to talk with two or three prior clients to
determine their satisIaction with the research Iirm. It is also important to identiIy consultants
who are experienced in conducting the particular type oI research needed by the user. Eamiliarity
with the industry may also be important.
Spending some time in evaluating a potential research supplier is very worthwhile.
Experience and qualiIications are important in selecting the supplier. Several useIul screening
questions are shown in Exhibit 5.5. These could be used to evaluate possible suppliers beIore
asking Ior a detailed research proposal Irom the supplier.
ݱ-¬-ò Customized research studies are expensive. The Iactors that aIIect study costs include
sample size, the length oI the questionnaire, and how the inIormation will be obtained. The
complexity oI the study objectives and the analysis methods also increases the proIessional
capabilities oI research personnel. Study costs may range Irom less than $10,000 (Exhibit 5.3)
to over $100,000 (Exhibit 5.4).
Standardized subscription services (e.g., IRI•s InIoScan) are also expensive, but Ior compa-
nies with various product types the annual cost is reasonable compared to the beneIits and con-
siderably below the cost oI a company collecting and analyzing its own data in traditional ways.
Ï«¿´·¬¿¬·ª» λ-»¿®½¸ò It is important to recognize that research problems to be addressed
may indicate the appropriateness oI qualitative research methods, rather than surveys and other
quantitative approaches. The use oI Iocus groups is a typical way oI collecting rich qualitative
data, as compared to the more representative inIormation Irom a survey or market test. Eor
example, companies like Nokia use customer Iocus groups Ior several purposes. Testing a new
messaging product Ior the U.S. market involved small groups giving individual Ieedback on
product Ieatures that were changed beIore the product launch. The global positioning statement
Ior the Nokia 3390 phoneœ“You Make It You’œwas created Irom unIavorable Iocus group
reactions to company attempts to describe positioning.
̸» Ó¿®µ»¬·²¹ λ-»¿®½¸ ײ¼«-¬®§ò Suppliers oI quantitative and qualitative research are
likely to be marketing research Iirms. In 2003, the top 50 U.S. marketing research Iirms had
revenues oI $11.6 billion.
Nearly halI these revenues were Irom outside the United States.
Exhibit 5.6 shows the top 10 companies in 2003. Interestingly, six oI the ten largest research
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïíé
organizations are owned by organizations based outside the United States. Agency research is
predominantly market measurement studies, media audience research, and customer satisIaction
measurement. Research into the impact oI the Internet on markets is growing rapidly.
With the increasing globalization oI brands and international competition, growing emphasis
is being placed on a global perspective on marketing research. Particular interest is being shown
in research in China and India, but also Latin America and parts oI AIrica, as well as eastern
Europe and Russia. Particular problems in global research are cross-cultural diIIerences that
impact on inIormation quality and characteristics. Eor example, an industry rule oI thumb is that
ÛÈØ×Þ×Ì ëòë
Ì»² Ï«»-¬·±²-
º±® ͽ®»»²·²¹ ¿
Ò»© Í«°°´·»®
Source: Seymour Sudman
and Edward Blair,
Marketing Research. A
Problem-Solving Approach
(Burr Ridge, IL:
Irwin/McGraw-Hill, 1998),
67. Copyright © The
McGraw-Hill Companies.
Used with permission.
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«²¼»®-¬¿²¼- ¬¸» ·--«» ¿²¼ ¸¿- °®±½»¼«®»- ·² °´¿½»ò
ìò ׺ ¬¸» ®»-»¿®½¸ ·²ª±´ª»- -«®ª»§ ·²¬»®ª·»©-ô ¿-µ ¬¸» -«°°´·»®æ Ó¿§ × -»» §±«® ·²¬»®ª·»©»®•-
³¿²«¿´ ¿²¼ ¼¿¬¿ »²¬®§ ³¿²«¿´á DZ« ¼±²•¬ ¸¿ª» ¬± ®»¿¼ ¬¸»-» ³¿²«¿´- ¾«¬ ¬¸»§ -¸±«´¼
¾» ®»¿¼·´§ ¿ª¿·´¿¾´» ¿²¼ -¸±«´¼ ¿°°»¿® ©»´´ «-»¼ò ̸» «-» ±º ³¿²«¿´- -«¹¹»-¬- ¬¸¿¬ º±®ó
³¿´ ³¿²¿¹»³»²¬ °®±½»¼«®»- ¿®» ·² °´¿½»ò
ëò ß´-± ¿-µæ ر© ¼± §±« ¬®¿·² ¿²¼ -«°»®ª·-» ·²¬»®ª·»©»®-á Í«°»®ª·-·±² ¿²¼ ¬®¿·²·²¹ ½±-¬
³±²»§ ¿²¼ ¿®» ²±¬ ª·-·¾´» ¬± ½´·»²¬-ô -± -±³» -«°°´·»®- ½«¬ ½±®²»®- ·² ¬¸»-» ¿®»¿-ò ̸»
¾»-¬ -«°°´·»®- ¼± ¿ ¹±±¼ ¶±¾ ±º -«°»®ª·-·±² ¿²¼ ¬®¿·²·²¹ ¿- ¿ ³¿¬¬»® ±º °®±º»--·±²¿´
-¬¿²¼¿®¼- ¿²¼ ©»´½±³» ¬¸» ½¸¿²½» ¬± -¸±© ±ºº ¬¸»-» -¬¿²¼¿®¼-ò
êò ß´-± ¿-µæ ɸ¿¬ °»®½»²¬¿¹» ±º ·²¬»®ª·»©- ¿®» ª¿´·¼¿¬»¼á ر© ³¿²§ ·²ª¿´·¼ ¯«»-¬·±²²¿·®»-
¿®» ²»»¼»¼ º±® §±« ¬± ¼± ¿ ïðð °»®½»²¬ ½¸»½µ ±² ¿² ·²¬»®ª·»©»®•- ©±®µá ׺ ¬¸» ¿²-©»® ·-
“ɸ¿¬ ²«³¾»®- ¼± §±« ©¿²¬á’ ¿-µ “ɸ¿¬ ¿®» §±«® «-«¿´ -¬¿²¼¿®¼-ᒠײ¬»®ª·»©»®
½¸»¿¬·²¹ ·- ³±-¬ ´·µ»´§ ¬± ±½½«® ·² ±°»®¿¬·±²- ¬¸¿¬ ¼± ²±¬ ¸¿ª» -¬¿²¼¿®¼- º±® º·²¼·²¹ ¿²¼
½±®®»½¬·²¹ ·¬ò DZ« ¿®» ´±±µ·²¹ º±® ¬¸±-» -¬¿²¼¿®¼-ô ¿²¼ §±« ©¿²¬ ¬¸»³ ¬± ¾» ¿- ¸·¹¸ ±®
¸·¹¸»® ¬¸¿² §±«® ±©²ò
éò ׺ ¬¸» ®»-»¿®½¸ ·²ª±´ª»- -«®ª»§ ·²¬»®ª·»©-ô ¿-µ ¬¸» -«°°´·»®æ Ó¿§ × -»» ¿ ¬§°·½¿´ ¯«»-¬·±²ó
²¿·®»á ׺ ¬¸» -«°°´·»® -¸±©- §±« ¿ ¯«»-¬·±²²¿·®» ©®·¬¬»² º±® ±²» ±º §±«® ½±³°»¬·¬±®-ô
´»¿ª» ·³³»¼·¿¬»´§ô ¾»½¿«-» ¬¸·- ·- ¿ ª·±´¿¬·±² ±º ½±²º·¼»²¬·¿´·¬§ ¿²¼ ·- «²¿½½»°¬¿¾´»ò
ݸ»½µ ©¸»¬¸»® ¬¸» ¯«»-¬·±²²¿·®» ©·´´ ¾» »¿-§ º±® ¬¸» ®»-°±²¼»²¬ô ¬¸» ·²¬»®ª·»©»®ô ¿²¼
¼¿¬¿ »²¬®§ °»±°´» ¬± «-»ò
èò ׺ ¬¸» ®»-»¿®½¸ ·²ª±´ª»- ¿²§ ¬§°» ±º -¿³°´·²¹ô ¿-µ ¬¸» -«°°´·»®æ ɸ± ¼®¿©- §±«® -¿³°´»-á
Í¿³°´·²¹ ·- ¿ ¬»½¸²·½¿´ ¿-°»½¬ ±º ®»-»¿®½¸ ·² ©¸·½¸ ²±ª·½»- ½¿² »¿-·´§ ³¿µ» ³·-¬¿µ»-ò
çò ׺ ¬¸» ®»-»¿®½¸ ·²ª±´ª»- ¿²§ ¼¿¬¿ ¾»·²¹ »²¬»®»¼ ·²¬± ¬¸» ½±³°«¬»®ô ¿-µ ¬¸» -«°°´·»®æ
ɸ¿¬ °»®½»²¬¿¹» ±º §±«® ¼¿¬¿ ·- ª»®·º·»¼á ß¹¿·²ô §±« ¿®» ´±±µ·²¹ º±® -¬¿²¼¿®¼-ô ¿²¼ ¬¸»
-¬¿²¼¿®¼ º±® ¼¿¬¿ »²¬®§ ·- ïðð °»®½»²¬ ª»®·º·½¿¬·±²ò
ïðò ß-µ §±«® ³¿²¿¹»®-æ ɸ¿¬ ¼± §±« ¬¸·²µ ¿¾±«¬ ¬¸·- -«°°´·»®á ܱ²•¬ ´·³·¬ ¬¸» ª¿´«» ±º
®»-»¿®½¸ ¾§ «-·²¹ ¿ -«°°´·»® ¬¸¿¬ §±«® ³¿²¿¹»®- ¸¿ª» ¼±«¾¬- ¿¾±«¬ò ß´-±ô ¬¸» ³±-¬
«-»º«´ ®»-»¿®½¸ ·- ®»-»¿®½¸ ¬¸¿¬ °®±¼«½»- ²»©ô »ª»² ½±«²¬»®·²¬«·¬·ª» ·²º±®³¿¬·±²ô ¿²¼
³¿²¿¹»®- ±º¬»² ®»-·-¬ ²»© ·²º±®³¿¬·±² ¾§ ®¿·-·²¹ ¬¸» °±--·¾·´·¬§ ¬¸¿¬ ¬¸» -«°°´·»® “¼·¼
·¬ ©®±²¹’ ±® “¼·¼²•¬ «²¼»®-¬¿²¼ ¬¸» ·--«»-ò’ Ó¿µ» ¬¸»³ ®¿·-» ¿²§ ¼±«¾¬- ¿¬ ¬¸» -¬¿®¬ ±º
¬¸» °®±¶»½¬ô ¿²¼ -¿ª» ½®»¼·¾·´·¬§ ¯«»-¬·±²- º±® ±¬¸»® °®±¾´»³-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïíè ﮬ Ì©± Markets, Segments, and Customer Jalue
ËòÍò ®»-»¿®½¸ л®½»²¬
ο²µ ®»ª»²«»- ²±²óËòÍò
îððí Ñ®¹¿²·¦¿¬·±² Ø»¿¼¯«¿®¬»®- É»¾ -·¬» øü ³·´´·±²-÷ ®»ª»²«»-
ï ÊÒË ×²½ò Ò»© DZ®µ ©©©òª²«ò½±³ íôðìëòð ìéòî
î ×ÓÍ Ø»¿´¬¸ ײ½ò Ú¿·®º·»´¼ô ݱ²²ò ·³-¸»¿¬¸ò½±³ ïôíèïòè êïòï
í ײº±®³¿¬·±² λ-±«®½»- ײ½ò ݸ·½¿¹± ©©©ò·²º±®»-ò½±³ ëëìòí íðòð
ì É»-¬¿¬ ײ½ò α½µª·´´»ô Ó¼ò ©©©ò©»-¬¿¬ò½±³ íèïòê œ
ë ÌÒÍ ËÍß Ô±²¼±² ©©©ò¬²-ó¹´±¾¿´ò½±³ ïôîçðòï éïòê
œ ÌÒÍ Ô±²¼±² ©©©ò¬²-ó·ò½±³ îïéòì èòï
œ ÌÒÍ ÒÚÑ Ù®»»²©·½¸ô ݱ²²ò ©©©ò²º±©ò½±³ ïéïòê îòç
ê ̸» Õ¿²¬¿® Ù®±«° Ú¿·®º·»´¼ô ݱ²²ò ©©©òµ¿²¬¿®¹®±«°ò½±³ ïôððîòï êêòï
é ß®¾·¬®±² ײ½ò Ò»© DZ®µ ¿®¾·¬®±²ò½±³ îéíòê îòç
è ÒÑРɱ®´¼ ËÍ Ò»© DZ®µ ©©©ò²±°©±®¼ò½±³ ííêòí íèòç
ç ×°-±- Ò»© DZ®µ ©©©ò·°-±-ó²¿ò½±³ êììòî éîòé
ïð ͧ²±ª¿¬» ݸ·½¿¹± ©©©ò-§²±ª¿¬»ò½±³ íëéòé ëëòð
ÛÈØ×Þ×Ì ëòê
̱° Ì»² ËòÍò Ó¿®µ»¬·²¹ λ-»¿®½¸ Ú·®³- ·² îððí
Source: Table Irom “Honomichi Top 50’ Special Section oI the Marketing News, June 15, 2004, p. H4. Reprinted with permission oI the American Marketing Association.
in the Americas the Iurther north you go, the more reserved consumers are in what they express.
The same consumer perception oI the quality oI a product might receive high scores in Latin
America, average marks in the United States, and less Iavorable reviews in Canada, because
oI cultural diIIerences. Eor companies in international markets, making allowances Ior such
cultural diIIerences in examining global marketing research is an important challenge.
̸» ׳°¿½¬ ±º ¬¸» ײ¬»®²»¬ ±² Ó¿®µ»¬·²¹ ײº±®³¿¬·±² ݱ-¬- ¿²¼ ߪ¿·´¿¾·´·¬§
It is important to consider the impact oI the Internet on both the way in which inIormation can
be collected and the type oI inIormation available. Many traditional guidelines to the availabil-
ity and use oI existing inIormation, standardized services, and special studies are challenged by
the major impact oI the Internet. The Web oIIers greatly enhanced access to online inIormation
resources as diverse as the World Bank statistics on overseas countries, and individual company
Web sites. The costs oI using these resources are limited to the time it takes to access them. In
addition, new and speedy ways oI conducting survey studies using electronic questionnaires and
panels are expanding rapidly. The Internet Eeature summarizes some oI the Iundamental impacts
oI the Internet on marketing inIormation collection.
ײº±®³¿¬·±² ͧ-¬»³-
There are many types oI inIormation systems within the organization. Manual systems are also
used and may provide crucial inIormation. Yet, Ior purposes oI this chapter, attention is Iocused
on computer-based inIormation systems. “Strategic systems are those that change the goals,
products, services, or environmental relationships oI organizations.’
These inIormation sys-
tems alter how a Iirm does business with competitors, suppliers, and customers. Since the scope
oI strategic planning is so broad, inIormation generated by the system is invaluable in strategic
marketing planning. The system may provide inIormation to assist decision makers with strate-
gic planning, or may actually prepare a plan and Iormulate decisions. We brieIly describe
management inIormation systems, database systems, and decision-support systems as possible
ways to enhance the quality oI inIormation available to marketing decision makers.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ײ¬»®²»¬ Ú»¿¬«®»
Ѳ´·²» Í«®ª»§-
Í«®ª»§- ¾¿-»¼ ±² ¬¸» ײ¬»®²»¬ ¿®» ¿ º¿-¬ ¿²¼ ·²»¨°»²ó
-·ª» ©¿§ ¬± ¹»²»®¿¬» º»»¼¾¿½µ ±² °®±¼«½¬- ¿²¼
³¿®µ»¬·²¹ ½±³³«²·½¿¬·±²-ò Ô·³·¬¿¬·±²- ¿®» ¬¸¿¬ ±²´§
±²´·²» ½«-¬±³»®- ½¿² °¿®¬·½·°¿¬» ¿²¼ ¬¸»®» ·- ¹®±©·²¹
®»-·-¬¿²½» ¬± «²-±´·½·¬»¼ ³¿®µ»¬·²¹ ³»--¿¹»- ¿²¼
-°¿³ ¿³±²¹ É»¾ «-»®-ò
̸»§ ³¿§ «-» ¬±±´- ½±³°¿²·»- ¿´®»¿¼§ ¸¿ª» ¿¬ ¸¿²¼œ
¬¸» É»¾ -·¬»ô ¬¿®¹»¬»¼ »ó³¿·´-ô »ó³¿·´ ¾´¿-¬-ô ±® ±¬¸»®
º±®³¿¬- ´·µ» л®-±²¿´ Ü·¹·¬¿´ ß--·-¬¿²¬-ò
̸» ±²´§ ½±-¬ º±® ¬¸» ®»-»¿®½¸ ³¿§ ¾» »³°´±§»»
¬·³» ·² ©®·¬·²¹ ¬¸» -«®ª»§ ¿²¼ °±-¬·²¹ ·¬ò ݸ»¿°´§
¿ª¿·´¿¾´» -»´ºó-»®ª·½» É»¾ ¬±±´- ´·µ» Ʊ±³»®¿²¹ ±®
Í«®ª»§Ó±²µ»§ ¿´´±© «-»®- ¬± ¬§°» ·² ¯«»-¬·±²- ¿²¼
½´·½µ ±² ¬¸» -«®ª»§ ®»°±®¬ò
ݱ³°¿²·»- «²¿¾´» ¬± º«²¼ ¬®¿¼·¬·±²¿´ ³¿®µ»¬·²¹
®»-»¿®½¸ ½¿² ²±© ¿ºº±®¼ ¬± -«®ª»§ ½«-¬±³»®- ¿²¼
«²½±ª»® ²»© ¾«-·²»-- ±°°±®¬«²·¬·»- ¿¬ ´±© ½±-¬ò
Ý«-¬±³»® Ú»»¼¾¿½µ ¿²¼ л»®ó¬±óл»® É»¾
ͱ³» ½±³°¿²·»- ¸¿ª» ¼»-·¹²»¼ ±²´·²» -§-¬»³-
¬± ¿´´±© ½±²-«³»®- ¬± ª±·½» ±°·²·±²- ¿²¼ ¼»-½®·¾»
»¨°»®·»²½»- ¿²¼ »ª¿´«¿¬·±²- ±º °®±¼«½¬- ¿²¼
Ѳ´·²» ½«-¬±³»® º»»¼¾¿½µ ·- ¿ º±®³ ±º ¼·¹·¬·¦»¼ ©±®¼ó
±ºó³±«¬¸ ½±³³«²·½¿¬·±²ò
ݸ¿²²»´- º±® ±²´·²» º»»¼¾¿½µ ·²½´«¼» ³»--¿¹» ¾±¿®¼-ô
¼·-½«--·±² º±®«³-ô ±°·²·±² º±®«³-ô ²»©-¹®±«°-ô ¿²¼
½¸¿¬ ®±±³-ò
̸»®» ¿®» ¿ ¹®±©·²¹ ²«³¾»® ±º ·²¼»°»²¼»²¬ ±²´·²»
¹±±¼- ¿²¼ -»®ª·½» ®»ª·»© º±®«³-ô -«½¸ ¿-
Û°·²·±²-ò½±³ ¿²¼ כּ·¬¿´´ò½±³ô ©¸»®» ¾«§»®- °±±´
°®±¼«½¬ ¿--»--³»²¬- ±² ¿ °»»®ó¬±ó°»»® ¾¿-·-ò
Ó±²·¬±®·²¹ Ý«-¬±³»® É»¾ Þ»¸¿ª·±®
ݱ²¬®±ª»®-·¿´´§ô ¬¸»®» ¸¿- ¾»»² ¿ ³¿¶±® ·²½®»¿-» ·²
¬¸» «-» ±º -°§©¿®» ¿²¼ ¿¼©¿®» ¿³±²¹ ײ¬»®²»¬
½±³°¿²·»-ò Ó¿²§ ¸¿ª» »¬¸·½¿´ ®»-»®ª¿¬·±²- ¿¾±«¬ ¬¸·-
¬»½¸²±´±¹§ ¿²¼ -±³» «-»® ®»¿½¬·±²- ¿®» ¸±-¬·´»ò
Í°§©¿®» ¿²¼ ¿¼©¿®» ¿®» ½±±µ·»- ¬¸¿¬ «-»®- ¼±©²´±¿¼
º®±³ ¬¸» ײ¬»®²»¬œ-±³» -¿§ ±º¬»² «²©·¬¬·²¹´§ ¿²¼
©·¬¸±«¬ ·²¬»²¬·±²œ¬¸¿¬ ¸·¼» ¬¸»³-»´ª»- ±² ¬¸» «-»®•-
¸¿®¼ ¼®·ª»ò
Í°§©¿®» ½±´´»½¬- °»®-±²¿´ ¼¿¬¿ ¿²¼ ¬®¿½µ- ¬¸» «-»®•-
É»¾ -·¬» «-»ô ©¸·´» ¿¼©¿®» ±¾-»®ª»- É»¾ ª·-·¬- ¿²¼
°®±ª·¼»- ®»´»ª¿²¬ °±°ó«° ¿¼- ¾¿-»¼ ±² ¬¸» «-»®•-
ײ¬»®²»¬ «-»ò
ͱ«®½»-æ Þ»² Û´¹·²ô “Ù«»-- ɸ¿¬œÇ±« ß-µ»¼ º±® ̸±-» б°óË°
ß¼-ô’ Þ«-·²»--É»»µô Ö«²» îèô îððìô èè›çðå Ý¿¬¸»®·²» ß®²±´¼ô “Ý¿-¬
DZ«® Ò»¬ô’ Ó¿®µ»¬·²¹ Ò»©-ô Ò±ªò îìô îððíô ïë›ïçå α¾·² Ìò
묻®-±² ¿²¼ Ƹ·´·² Ç¿²¹ô “É»¾ Ю±¼«½¬ λª·»©- Ø»´° ͬ®¿¬»¹§ô’
Ó¿®µ»¬·²¹ Ò»©-ô ß°®·´ ïô îððìô ïè›îðò
̸» É»¾ ¿²¼ Ó¿®µ»¬·²¹ ײº±®³¿¬·±²
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïíç
Ó¿²¿¹»³»²¬ ײº±®³¿¬·±² ͧ-¬»³-
Management inIormation systems (MIS) provide raw data to decision makers within a
Iirm. The system collects data on the transactions oI the Iirm and may include competitor
and environmental inIormation. The decision makers (and systems analysts) are responsible
Ior extracting the data relevant Ior a decision and in the appropriate Iormat to Iacilitate the
process. The system can provide inIormation Ior decisions at all levels oI the organization.
Lower and middle-level managers are likely to use the system most oIten Ior operating
decisions. The system may generate routine reports Ior Irequent operating decisions, such as
weekly sales by product, or may be queried Ior special analyses on an as-needed basis.
Nonroutine decisions may consist oI tracking the sales perIormance oI a sales district over
several months, determining the number oI customer returns Ior a particular good, or listing
all customers or suppliers within a given geographic area. The basic MIS collects data and
allows Ior retrieval and manipulation oI Iormat in an organized manner. Typically, the MIS
does not interact in the decision-making process. More advanced MIS capabilities provide
important decision analysis capabilities.
Consider this MIS application. A sophisticated marketing inIormation system enables a major
airline to Iocus on the needs oI speciIic market segments.
The system determines mileage
awards Ior Irequent Ilyers and provides a reservation support database, organized by market
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïìð ﮬ Ì©± Markets, Segments, and Customer Jalue
segments. The company•s top 3 percent oI customers accounts Ior 50 percent oI sales. These key
accounts are highlighted on all service screens and reports. Reservations agents are alerted that
a person is an important customer. The Irequent Ilyers receive a variety oI special services
including boarding priority and Iirst-class upgrades.
Ü¿¬¿¾¿-» ͧ-¬»³-
Database systems comprise an important inIormation resource in many companies. Eor exam-
ple, the Target Corporation uses an eIIective database system to respond to customer diversity
in its stores. Management•s model oI the market takes into account diIIerences in product needs
and preIerences by store location, to tailor store oIIerings to customer diIIerences.
in its European retail operation, supermarket Tesco uses its loyalty club data to indicate demo-
graphic, income, and housing characteristics oI consumers in the catchment area oI a store
to design appropriate product assortmentsœstores near large universities may concentrate on
high-value ready-meal replacements Irom pizzas to take-away, precooked curries, while stores
in Iamily residential areas emphasize extensive Iood choices, cooking ingredients, and products
Ior babies and children.
Databases are a Iorm oI MIS. Some database systems oIIer capabilities similar to decision-
support systems. Computerized databases are indispensable Ior companies pursuing direct
marketing strategies. Discussion oI database marketing as a Iorm oI promotional strategy is
included in Chapter 13.
The components oI database systems include relational databases, personal computers, electronic
publishing media, and voice systems.
The intent oI database marketing is eIIectively using a com-
puterized customer database to Iacilitate a signiIicant and proIitable communication with customers.
One oI the challenges in the use oI databases is identiIying what patterns are present in the
huge accumulations oI inIormation. Data mining soItware technology is being developed to
assist in diagnosing patterns in databases.
Computer power enables analysis oI as many as
10,000 customer attributes to help identiIy key patterns such as how to keep the best customers.
Eor example, MCI Communications Corp. through data mining soItware has developed a highly
secret set oI 22 statistical proIiles to monitor on a regular basis. While companies are only
beginning to consider data mining technology, it promises to become an increasingly important
database capability.
Recall earlier comments regarding the growing role oI Customer Relationship Management
(CRM) technology in building new databasesœor data warehousesœIrom the company•s
own customer contacts. These new data sources are likely to be the Iocus oI many data mining
exercises and create new insights into customer behavior. Eor example, Wal-Mart•s discovery oI
a correlation between Eriday evening purchases oI disposable diapers and beer is associated with
the identiIication oI a new product category comprising leisure and Iamily products Ior Iamilies
with small children.
Ü»½·-·±²óÍ«°°±®¬ ͧ-¬»³-
A decision-support system (DSS) assists in the decision-making process using the inIormation
captured by the MIS. A marketing decision-support system (MDSS) integrates data that are not
easily Iound, assimilated, Iormatted, or readily manipulated with soItware and hardware into a
decision-making process that provides the marketing decision maker with assistance when
The MDSS allows the user Ilexibility in applications and in Iormat. A MDSS can be
used Ior various levels oI decision making ranging Irom determining reorder points Ior inven-
tory to launching a new product.
The components oI the MDSS consist oI the database, the display, the models, and the analy-
sis capabilities.
Ü¿¬¿¾¿-»ò Various kinds oI inIormation are included in the database such as standardized
marketing inIormation produced by Nielsen and other research suppliers, sales and cost
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïìï
data, and internal inIormation such as product sales, advertising data, and price inIormation.
The design and updating oI the database are vital to the eIIectiveness oI MDSS. The inIor-
mation should be relevant and organized to correspond to the units oI analysis used in the
Ü·-°´¿§ò This component oI the MDSS enables the user to communicate with the database.
Managers and staII proIessionals need to interact with the database:
They must be able to extract, manipulate, and display data easily and quickly. Required capabili-
ties range Irom simple ad hoc retrieval to more Iormal reports that track market status and product
perIormance. Also needed are exception reports that Ilag problem areas. Many presentations
should have graphics integrated with other materials.
Ó±¼»´-ò This component oI the MDSS provides mathematical and computational representa-
tions oI variables and their interrelationships. Eor example, a sales Iorce deployment model
would include an eIIort-to-sales response Iunction model and a deployment algorithm Ior use in
analyzing selling eIIort allocation alternatives. The decision-support models are useIul in analy-
sis, planning, and control.
ß²¿´§-·-ò This capability consists oI various analysis methods such as regression analysis,
Iactor analysis, time series, and preIerence mapping. SoItware capabilities may be included in
the system. Analysis may be perIormed on a data set to study relationships, identiIy trends,
prepare Iorecasts, and examine the impact oI alternative decision rules.
MDSSs may operate autonomously or instead may require interaction with the decision
maker during the process. There may be several stages beIore a recommendation is Iormed
where the decision maker responds to queries to reIine the scenario. Thus, an interactive MDSS
requires more assistance Irom the decision maker and has more room Ior variation than an
autonomous MDSS. The system is dependent on the quality and accuracy oI the inIormation and
assumptions that are used in designing the system. The process should be viewed as a tool to
assist in decision making, and is not a Iinal product in itselI.
Ideally, the experience and shared vision oI management are built into the model. But oIten
inIormation is missing, and the decision maker has the best grasp oI the entire situation. The
most complete decisions incorporate the recommendation oI the MDSS, but do not solely rely
upon them. However, a DSS oIten serves to create or support a consensus, and evidence exists
that a DSS does yield Iavorable decision-making perIormance when it is properly designed and
applied to appropriate decision situations. Evaluations oI DSS eIIectiveness show some positive
Using controlled laboratory tests oI senior undergraduate students enrolled in a
business policy course, researchers Iound that groups using the DSS made signiIicantly better
decisions than their non-DSS counterparts. Nevertheless, Iurther evaluation is needed to better
deIine the conditions and applications where success is likely to occur.
The concept oI the MDSS as a tool is most apparent when considering strategic decisions
rather than operating decisions. Clear, concise answers may not always be possible, yet the
system is a very valuable tool in the process. Consider the Iollowing:
A DSS developed by William Luther analyzes key success Iactors in the marketplace and makes
comparisons with competitors. This system is called a Strategic Planning Model, and is most
useIul Ior smaller companies. Managers input their deIinition oI key success Iactors by means oI a
standardized questionnaire Iormat. Comparisons are made between the Iirm and competitors
Ior these Iactors. The Iactors can be weighted Ior importance, and multiple situations can be
considered. The model makes projections and recommendations oI strategies.
In using this system it is important that managers identiIy key success Iactors; otherwise the
model will lose a great deal oI credibility. When properly applied it oIIers a useIul Iramework Ior
decision makers, recognizing that it is not a complete replica oI the decision-making situation.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïìî ﮬ Ì©± Markets, Segments, and Customer Jalue
Ó¿®µ»¬·²¹ ײ¬»´´·¹»²½» ͧ-¬»³- ¿²¼ Õ²±©´»¼¹» Ó¿²¿¹»³»²¬
Importantly, the emphasis on market sensing in market-driven companies does not rely on hard
data alone. Many companies are now investing in in-company intelligence units to coordinate
and disseminate “soIt’ or qualitative data and improve shared corporate knowledge.
Intelligence may come Irom published materials in trade and scientiIic journals, salesperson
visit reports, programs oI customer visits by executives, social contacts, Ieedback Irom trade
exhibitions and personal contacts, or even rumor in the marketplace.
Eor example, when Southwestern Bell Telephone Co. heard rumors about new competi-
tors entering the market with special packages Ior home renters, they were able to counter
this rapidly by appointing apartment complex managers as Southwestern Bell sales agents.
Similarly, market Ieedback suggesting that new “micro’ phone companies appealed particu-
larly to younger telephone renters led Southwestern to move resources into product oIIers
and promotions based on colleges.
This shows a market sensing capability based on market
Conversely, there is widespread evidence that while it may take a substantial time Ior
inIormation about a company•s shortcomings to reach senior executives, they are well known
to customers and employees much earlier.
Eor example, the perIormance oI British
retailer Marks & Spencer collapsed during the late 1990s, its share value Ialling Irom
650p to 150p between 1997 and 2000. Customer surveys in 1997 and 1998 showed rapidly
declining customer satisIaction and increasing deIection. Retiring CEO Sir Richard
Greenbury said in 2000 that he simply did not know that there were customer problems
and that the decline in sales was a “surprise.’
Market inIormation that is ignored by
management, interpreted incorrectly, or poorly communicated to them cannot impact eIIec-
tively on decision making.
Õ²±©´»¼¹» Ó¿²¿¹»³»²¬
There is increasing recognition that knowledge about customers should be managed as a
strategic asset, because competitive advantage can be created not merely by possessing current
market inIormation but by knowing how to use it. Market knowledge is inextricably linked to
organizational learning and market orientation in the market-driven company.
Peter Drucker argues, Ior example, that oIten 90 percent oI the inIormation that companies
collect is internalœmarket research and management reports that only tell executives about
their own companyœwhile the real challenge is to build knowledge about new markets they do
not yet serve and new technologies they do not yet possess.
Knowledge that builds competi-
tive advantage involves major emphasis on rigorous customer perspectives and competitor
α´» ±º ¬¸» ݸ·»º Õ²±©´»¼¹» Ѻº·½»®
To meet this challenge, some companies have established positions with titles such as chieI
knowledge oIIicer. While the titles and the job responsibilities vary, all appear linked to improv-
ing an organization•s knowledge management and learning processes. This may be a staII
position with only a Iew people involved, or, instead, responsibility Ior databases, a technical
inIrastructure, and related knowledge Iunctions.
The position may report to chieI executive
oIIicer, inIormation oIIicer, or other high-level executive. Companies that have these positions
include Ernst & Young, IBM, and the World Bank.
While there appear to be diIIerences between the role and Iunctions oI knowledge and learning
oIIicers, both positions do not occur in the same company.
Knowledge management is concerned
with knowledge (inIormation) collection and linking inIormation within the organization. While
the Iuture oI the position is not clear, as it develops there is likely to be a relationship between
knowledge management and the discussion in this chapter oI continuous learning about markets.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ײ²±ª¿¬·±² Ú»¿¬«®»
Ю»-·¼»²¬ ±º Ó¿²·-¬·¯«» п°»®- ײ½òô Ô»·º ݸ®·-¬»²-»²ô
©¿- ½±²½»®²»¼ ©·¬¸ ¬¸» »ºº»½¬·ª»²»-- ±º ¬¸» °»®±¨·¼»
«-»¼ ·² ¸·- ²»© ®»½§½´·²¹ °´¿²¬ ¬± ®»³±ª» ·²µ º®±³ ±´¼
³¿¹¿¦·²»-œ¬¸» °¿°»® °®±¼«½»¼ ©¿- ¶«-¬ ²±¬ ©¸·¬»
ݸ®·-¬»²-»² ¬±´¼ Þ«½µ³¿² Ô¿¾- -¿´»- ®»°®»-»²¬¿¬·ª»-
¿¾±«¬ ¸·- ©¸·¬»²»-- °®±¾´»³ò
̸» -¿´»-°»±°´» ·³³»¼·¿¬»´§ °±-¬»¼ ¿ ³»--¿¹» ±²
Þ«½µ³¿²•- ײ¬»®²»¬ ¼·-½«--·±² ¹®±«°ò Þ«½µ³¿²
¸¿- ëì ײ¬»®²»¬ ¼·-½«--·±² ¹®±«°- º±½«-»¼ ±² ·¬-
³¿·² °®±¼«½¬-ò ̧°·½¿´´§ô »³°´±§»»- °±-¬ ë𠬱 ïðð
³»--¿¹»- ¿ ¼¿§ò
̸» ½±³°¿²§ ¸¿- ¿³¿--»¼ ¿² »¿-·´§ -»¿®½¸¿¾´» ¼¿¬¿ó
¾¿-» ±º ·²ó¸±«-» »¨°»®¬·-» ¿²¼ °¿-¬ ´»--±²- ´»¿®²»¼œ
¿´´ ¿½½»--·¾´» ¬± »³°´±§»»- ¿²¼ ½«-¬±³»®- ª·¿ ¿ É»¾
É·¬¸·² ¸±«®- ±º ݸ®·-¬»²-»²•- ©¸·¬» °¿°»® °®±¾´»³
¾»·²¹ °±-¬»¼ô ±¬¸»® Þ«½µ³¿² °»®-±²²»´ ·² Ú·²´¿²¼
¿²¼ Þ»´¹·«³ ¸»´°»¼ »¨°´¿·² ¬¸» °®±¾´»³œ¿ ®¿®»
¾¿½¬»®·¿ ¬¸¿¬ ¾®»¿µ- ¼±©² ¬¸» °»®±¨·¼»ò
ݸ®·-¬»²-»² ©¿- ²±¬·º·»¼ ·³³»¼·¿¬»´§ ©·¬¸ ¬¸» ·²º±®ó
³¿¬·±² ¿²¼ ¬¸» ¿²¬·¼±¬»ò ̸» ¬±¬¿´ ¬·³» »´¿°-»¼
¾»¬©»»² Þ«½µ³¿²•- ´»¿®²·²¹ ¿¾±«¬ ¬¸» °®±¾´»³ ¿²¼
¼»´·ª»®·²¹ ¬¸» -±´«¬·±² ¬± ¬¸» ½«-¬±³»® ©¿- ¿®±«²¼ ìè
¸±«®-ò ײ ¬¸» °¿-¬ ¬¸·- µ·²¼ ±º °®±¾´»³ -±´ª·²¹ ©±«´¼
¸¿ª» ¬¿µ»² ©»»µ-ô ·º ·¬ ¸¿¼ ¸¿°°»²»¼ ¿¬ ¿´´ò
Ø¿®²»--·²¹ ¬¸» ¾®¿·²°±©»® ±º ¿² »²¬·®» ¹´±¾¿´
-°»½·¿´¬§ ½¸»³·½¿´- ½±³°¿²§ ¬± ¿--»-- ¿²¼ -±´ª» ±²»
½«-¬±³»®•- °®±¾´»³ º¿-¬ô «²¼»®´·²»- ¬¸» °±©»® ±º
µ²±©´»¼¹» -¸¿®·²¹ ¿²¼ ¬¸» ײ¬»®²»¬ò
̸» ½«-¬±³»®•- ½±³³»²¬æ “× ¼±²•¬ ¬¸·²µ Þ«½µ³¿²•-
½±³°»¬·¬±®- ½¿² °±±´ ¬¸» ©¸±´» ¾®¿·²°±©»® ±º ¬¸»
±®¹¿²·¦¿¬·±² ´·µ» Þ«½µ³¿² ½¿² ò ò ò’
ͱ«®½»æ Ó¿®½·¿ ͬ»°¿²»µô “Í°®»¿¼ ¬¸» Õ²±©¸±©ô’ Þ«-·²»--É»»µ
ÛòÞ·¦ô ѽ¬±¾»® îíô îðððô ÛÞ ëîò
Õ²±©´»¼¹» ͸¿®·²¹ ¿¬ Þ«½µ³¿² Ô¿¾-
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïìí
Eor example, Xerox claims a saving oI $200 million Irom a single project that uncovered
and shared expertise across the group. Internal benchmarking Iound its Austrian subsidiary
was unusually successIul at persuading customers to renew contracts. Sharing the Austrian
approach with other groups brought 70 percent up to the Austrian standard in three months.
The Innovation Eeature illustrates the potential power oI innovative uses oI Internet-based
technology at Buckman Labs to enhance this Iorm oI knowledge sharing to solve customer prob-
lems in market-driven companies.
Ô»ª»®¿¹·²¹ Ý«-¬±³»® Õ²±©´»¼¹»
Several methods are being employed by companies to improve the availability and use oI cus-
tomer knowledge in impacting strategic decisions.
A discussion Iollows:
Ý®»¿¬·²¹ “Ý«-¬±³»® Õ²±©´»¼¹» Ü»ª»´±°³»²¬ Ü·¿´±¹«»-ò’ Eor example,
DaimlerChrysler•s Jeep division runs customer events called “Jeep Jamborees,’ attracting
enthusiasts Ior the vehicle. Jeep employees connect with customers through inIormal conversations
and semiIormal round tables. Engineers and ethnographic researchers Iocus on the Jeep owner•s
relationship with the vehicle, driving changes to existing models and plans Ior new models.
Ñ°»®¿¬·²¹ Û²¬»®°®·-»©·¼» “Ý«-¬±³»® Õ²±©´»¼¹» ݱ³³«²·¬·»-ò’ IBM, Ior exam-
ple, uses collaborative Internet workspace called the CustomerRoomwith major accounts, where
individuals throughout its divisions and Iunctions can exchange knowledge with each other and
with the customer.
Ý¿°¬«®·²¹ Ý«-¬±³»® Õ²±©´»¼¹» ¿¬ ¬¸» б·²¬ ±º Ý«-¬±³»® ݱ²¬¿½¬ò Customer
Relationship Management systems capture customer behavior and response inIormation which
oIIers rich potential Ior better insights into issues like customer deIection and competitors•
strengths, as well as emerging customer needs and perceptions.
Ó¿²¿¹»³»²¬ ݱ³³·¬³»²¬ ¬± Ý«-¬±³»® Õ²±©´»¼¹»ò Management responsibility
includes investing resources, time, and attention in maintaining customer dialogues and commu-
nities as a commitment to enhanced organizational understanding oI the customer. Eor example,
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïìì ﮬ Ì©± Markets, Segments, and Customer Jalue
the vice president oI marketing at Eord•s LincolnMercury division actively participates in
customer-related chat rooms on the Internet, and encourages other employees to Iollow his lead.
Other approaches include planned programs oI customer visits by cross-Iunctional teams oI
executives as a systematic way oI acquiring customer inIormation, but also building superior
understanding oI and responsiveness to customer perspectives.
Û¬¸·½¿´ ×--«»- ·² ݱ´´»½¬·²¹ ¿²¼ Ë-·²¹ ײº±®³¿¬·±²
Lastly, important privacy and ethical issues concerning the role oI inIormation in the organiza-
tion need to be assessed by managers and proIessionals. Questions regarding ethical and socially
responsible behavior are escalating in importance Ior individual executives and organizations.
These questions may particularly impact approaches to collecting customer inIormation, and the
uses made oI that inIormation.
ײª¿-·±² ±º Ý«-¬±³»® Ю·ª¿½§
The dramatic increase in use oI databases has generated concerns about the invasion oI privacy
oI individuals. Companies have responded to the issue by asking customers to indicate their
preIerences concerning mailing lists and other uses oI the inIormation. Nonetheless, concerns
about this issue will undoubtedly continue as the sophistication oI communications technology
and soItware continues to develop.
Consider, Ior example, the use oI patient inIormation in the drug industry. Database marketing
by pharmaceutical companies is guided by inIormation obtained Irom toll-Iree number calls,
subscriptions to magazines, and pharmacy questionnaires.
This inIormation can be used to guide
database marketing programs, targeting people with speciIic health concerns such as depression,
arthritis, and other problems. Some patients are objecting about the use oI their prescription data to
guide direct mail and other promotional eIIorts. Yet Iurther objections relate to the possible sharing
oI medical inIormation databases oI this kind with other parties, such as insurance companies who
may want to determine premiums on the basis oI health data Ior existing patients and their children.
ײº±®³¿¬·±² ¿²¼ Û¬¸·½-
Related to the issue oI invasion oI privacy is the issue oI how companies and research suppliers
should respond to ethical issues. Eor example, should a prospective client share a supplier•s
detailed project proposal with a competing supplier? A central issue concerns which organiza-
tion pays Ior the cost oI preparing the proposal. II the proposal is prepared at the expense oI
the supplier, then the proposal is the property oI the supplier.
Sharing the proposal with its
competition would be an issue oI questionable ethics.
Other issues relate to the ways in which inIormation is collected and Irom whom it is
collected. There are major proIessional restrictions, Ior example, on collecting marketing inIor-
mation Irom children. In terms oI the dilemmas that may emerge in how inIormation is collected,
consider the use oI medical brain scanning technology to capture clues as to consumer product
preIerences and reactions to marketing messages described in the Ethics Eeature. Executives
Iace diIIicult issues in deciding iI “neuromarketing’ is an acceptable use oI medical technology
or whether it breaches the individual•s right to privacy.
InIormation sharing with research suppliers, other external contractors, strategic alliance partners,
and acquisition/merger prospects oIten involves highly conIidential inIormation. There are many
possible situations that present ethical questions and concerns. Companies normally sign conIiden-
tiality agreements. Nonetheless, revealing trade secrets is a risk that relies primarily on the ethical
behavior oI the participants. Moreover, these situations oIIer excellent opportunities Ior learning.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
Û¬¸·½- Ú»¿¬«®»
Ó»¼·½¿´ ®»-»¿®½¸ ¸¿- ½®»¿¬»¼ ¬¸» ³¿¹²»¬·½ ®»-±²¿²½»
·³¿¹·²¹ øÓÎ×÷ -½¿²²»® ¬± ¼»¬»½¬ ·²¶«®§ ¿²¼ ¼·-»¿-»
¿--±½·¿¬»¼ ©·¬¸ ¬¸» ¾®¿·²ò
Ó±®» ®»½»²¬ ÓÎ× ¬»½¸²±´±¹§ ¿²¼ -±º¬©¿®» ¿´´±©- ¬¸»
³¿½¸·²» ¬± °·½¬«®» ¬¸» º´±© ±º ¾´±±¼ ·² ¬¸» ¾®¿·² ·²
®»-°±²-» ¬± ª·-«¿´ -¬·³«´·œ¿´³±-¬ ¿ °·½¬«®» ±º ¬¸±«¹¸¬-
°·²°±·²¬·²¹ ©¸¿¬ °¿®¬ ±º ¬¸» ¾®¿·² ®»½±¹²·¦»- ¬¸·²¹-ô
»²¿¾´·²¹ ®»-»¿®½¸»®- ¬± «²¼»®-¬¿²¼ ¾»¬¬»® ¬¸» ª»®§
»--»²½» ±º ¬¸» ³·²¼ ¿²¼ ¸±© ·¬ ¬¸·²µ-ô ¼»½·¼»-ô ¿²¼
º»»´-ò ̸·- ·- “º«²½¬·±²¿´’ ÓÎ× ¬»½¸²±´±¹§ øºÓÎ×÷ò
ß ½±²¬®±ª»®-·¿´ «-» ±º ºÓÎ× ·- °®±¾·²¹ ½«-¬±³»®
°®»º»®»²½»-œ-±³»¬·³»- ½¿´´»¼ “²»«®±³¿®µ»¬·²¹ò’
λ-»¿®½¸»®- ¿¬ Ø¿®ª¿®¼ô Û³±®§ô Ý¿´¬»½¸ ¿²¼ Þ¿§´±®
¿®» -¬«¼§·²¹ ¸±© ½±²-«³»® °®»º»®»²½»- º±® ¼·ºº»®»²¬
µ·²¼- ±º °®±¼«½¬- ¬®¿½µ ©·¬¸ ¿½¬·ª·¬§ ·² ¼·ºº»®»²¬
°¿®¬- ±º ¬¸» ¾®¿·²ô ¿- ©»´´ ¿- ®»¿½¬·±²- ¬± ³¿®µ»¬·²¹
ß ²»© ½±³°¿²§ ·² Ý¿´·º±®²·¿ ±ºº»®- ¿ -»®ª·½» ¬±
ر´´§©±±¼ -¬«¼·±- ¬± ¬»-¬ ¿«¼·»²½»- ¿- ¬¸»§ ©¿¬½¸
³±ª·» ¬®¿·´»®- ¬± -»» ©¸·½¸ ¹»²»®¿¬» ¬¸» ³±-¬ “¾®¿·²
ݱ²-«³»® ©¿¬½¸¼±¹ Ù¿®§ Ϋ-µ·² ½±³°´¿·²-ô “׬•-
©®±²¹ ¬± «-» ¿ ³»¼·½¿´ ¬»½¸²±´±¹§ º±® ³¿®µ»¬·²¹ô ²±¬
Ѭ¸»® »¬¸·½¿´ ½±²½»®²- ·²½´«¼» ¬¸» ·--«» ±º °®·ª¿½§ò
Ю±³·²»²¬ ²»«®±¾·±´±¹·-¬ ܱ²¿´¼ Õ»²²»¼§ô º±®³»®
¸»¿¼ ±º ¬¸» ËòÍò Ú±±¼ ¿²¼ Ü®«¹ ß¼³·²·-¬®¿¬·±²ô «®¹»-
½¿«¬·±² ·² ½±´´»½¬·²¹ ¾®¿·² ¼¿¬¿æ “Ñ«® ¾®¿·²- ¿®» «-ô
³¿®µ·²¹ ±«¬ ¬¸» -°»½·¿´ ½¸¿®¿½¬»® ±º ±«® °»®-±²¿´
½¿°¿½·¬·»-ô »³±¬·±²-ô ¿²¼ ½±²ª·½¬·±²- ò ò ò ß- ¬± ³§
¾®¿·²±³»ô × ¼±²•¬ ©¿²¬ ¿²§±²» ¬± µ²±© ·¬ º±® ¿²§
°«®°±-» ©¸¿¬-±»ª»®ò’
ß º«®¬¸»® ·--«» ·- ©¸»¬¸»® ¾®¿·² -½¿² ¼¿¬¿ -¸±«´¼ ¾»
³¿¼» ¿ª¿·´¿¾´» ¬± ·²-«®»®-ô »³°´±§»®-ô ¿²¼ »ª»² ´¿©
»²º±®½»³»²¬ ¿¹»²½·»-ò
ͱ«®½»æ Ö±¿² Ñ•Ýò Ø¿³·´¬±²ô “Ö±«®²»§ ¬± ¬¸» Ý»²¬»® ±º ¬¸» Ó·²¼ô’
Þ«-·²»--É»»µô ß°®·´ ïçô îððìô êê›êéò
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïìë
InIormation perIorms a vital strategic role in an organization.
InIormation capability creates a sustainable competitive
advantage by improving the speed oI decision making, reduc-
ing the costs oI repetitive operations, and improving decision-
making results. Market sensing is vital to the eIIectiveness
oI the market-oriented company. Managers• models oI their
markets guide the interpretation oI inIormation and resulting
strategies designed to keep the Iirm ahead oI its competition.
Learning about markets necessitates open-minded inquiry,
widespread distribution oI inIormation within the organiza-
tion, mutually inIormed interpretation, and developing a mem-
ory to provide access to prior learning.
Marketing inIormation capabilities include marketing
research, marketing inIormation systems, database systems,
decision-support systems, and expert systems. Research inIor-
mation supports marketing analysis and decision making. This
inIormation may be obtained Irom internal sources, standard-
ized inIormation services, and special research studies. The
inIormation may be used to solve existing problems, evaluate
potential actions such as new-product introductions, and as
inputs to computerized data banks.
Computerized inIormation systems include management
inIormation systems, database systems, CRM technology, and
decision-support systems. These systems include capabilities Ior
inIormation processing, analysis oI routine decision making, and
decision recommendations Ior complex decision situations. The
vast array oI inIormation processing and telecommunications
technology that is available oIIers many opportunities to enhance
the competitive advantage oI companies.
The development oI useIul inIormation systems is a key
success requirement Ior competing in the rapidly changing and
shrinking global business environment. Marketing decision-
making results are improved by the use oI eIIective inIorma-
tion systems. Importantly, gaining inIormation advantage
requires more than technology. The systems demand creative
(and cost-eIIective) design that Iocuses on decision-making
inIormation needs.
In addition, we recognize the growing importance oI
knowledge management in strategic marketing as a vital
source oI competitive advantage, the role oI the chieI
knowledge oIIicer, and several approaches to enhancing the
development oI customer knowledge.
Einally we consider some important issues in collecting
and using inIormation. These include invasion oI customer
privacy, and inIormation and ethics.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
ïìê ﮬ Ì©± Markets, Segments, and Customer Jalue
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Revisit the list oI major marketing research agencies in
Exhibit 5.6. Visit several oI the Web sites listed. Examine
the major types oI inIormation provided both as standard-
ized services and special study capabilities. List these and
identiIy the ways in which such resources can impact on
marketing decisions.
B. Select a well-known company or brand and use a search
engine to Iind Web pages that include its name. Review the
content oI Web pages Irom diIIerent sources. Discuss the
impact oI Internet-based inIormation on traditional ideas
about conIidentiality and privacy.
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Discuss how an organization•s marketing inIormation
skills and resources contribute to its distinctive capabilities.
2. How would you explain to a group oI top-level executives
the relationship between market orientation and conti-
nuous learning about markets?
3. Outline an approach to developing an eIIective market
sensing capability Ior a regional Iull-service bank.
4. Compare and contrast the use oI standardized inIorma-
tion services as an alternative to special research studies
Ior tracking the perIormance oI a new packaged Iood
5. Discuss the probable impact oI cable television on
marketing research methods during the next decade as this
medium penetrates an increasing number oI U.S. house-
holds and closer relationships are developed with telecom-
munications companies.
6. Comment on the useIulness and limitations oI test-market
data as a source oI marketing inIormation.
7. Suppose the management oI a retail Iloor covering (carpet,
tile, wood) chain is considering a research study to
measure household awareness oI the retail chain, reactions
to various aspects oI wallpaper purchase and use, and
identiIication oI competing Iirms. How could management
estimate the beneIits oI such a study in order to determine
iI the study should be conducted?
8. Are there similarities between marketing strategic intelli-
gence and the operations oI the U.S. Central Intelligence
Agency? Do companies ever employ business spies?
9. Discuss how manuIacturers oI U.S. and Swiss watches
could have used market sensing to help avoid the problems
that several Iirms in the industry encountered as Seiko and
other Japanese companies entered the watch market.
10. Examine the strategic implications Ior small independent
retailers and regional chains concerning the expanding
strategic use oI inIormation technology by large retailers
like Wal-Mart.
11. Data mining Irom databases is receiving increased atten-
tion in many companies. Discuss the underlying logic oI
data mining.
12. What are the relevant issues that need to be considered
when obtaining the services oI an outside supplier Ior a
marketing research project?
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Revisit the Internet Eeature “The Web and Marketing
InIormation.’ What are the major advantages oI the Web
in developing marketing inIormation resources, but what
are the potential disadvantages? How do these two lists bal-
ance against each other?
B. Examine the marketing inIormation example described in
the Ethics Eeature “Neuromarketing.’ Should limits be
placed on the ability oI commercial organizations to cap-
ture and exploit inIormation about individuals Ior reasons
oI privacy? Why should such issues concern marketing
1. George S. Day, “The Capabilities oI Market-Driven
Organizations,’ Journal of Marketing, October 1994, 43.
2. Kathleen M. SutcliIIe and Klaus Weber, “The High Cost
oI Accurate Knowledge,’ Harvard Business Review, May
2003, 74›82.
3. Adapted Irom Nigel E. Piercy, Market-Led Strategic
Change. A Guide to 1ransforming the Process of Going
to Market (OxIord: Butterworth-Heinemann, 2002), 202›204.
4. David Eairlamb, Gail Edmondson, Laura Cohn, Kerry
Capell, and Stanley Reed, “The Best European
PerIormers,’ BusinessWeek, June 28, 2004, 48›53.
5. Patricia B. Seybould, “Get inside the Lives oI Your
Customers,’ Harvard Business Review, May 2001, 81›89.
6. Stanley E. Slater and John C. Narver, “Market Orientation,
Customer Value, and Superior PerIormance,’ Business
Hori:ons, March/April 1994, 22›27.
7. Stanley E. Slater and John C. Narver, “Market Orientation
and the Learning Organization,’ Journal of Marketing,
July 1995, 63›74 at 71. Reprinted with permission oI the
American Marketing Association.
8. Ibid., 71.
9. Ibid.
10. Roger D. Blackwell, From Mind to Market (New York:
HarperBusiness, 1997), 9.
11. The Iollowing discussion is based on Day, “The Capabilities
oI Market-Driven Organizations.’ See also Stanley E. Slater
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
××ò Ó¿®µ»¬-ô Í»¹³»²¬-ô ¿²¼
Ý«-¬±³»® Ê¿´«»
ëò Ý¿°¿¾·´·¬·»- º±®
ݱ²¬·²«±«- Ô»¿®²·²¹ ¿¾±«¬
ݱ³°¿²·»-ô îððë
and John C. Narver, “Market-Oriented Isn•t Enough: Build a
Learning Organization,’ Report No. 94-103 (Cambridge,
MA: Marketing Science Institute, 1994).
12. Nigel E. Piercy and Nikala Lane, “Marketing
Implementation: Building and Sustaining a Real Market
Understanding,’ Journal of Marketing Practice. Applied
Marketing Science 2, no. 3, 1996, 15›28.
13. Adrian J. Slywotzky, Jalue Migration (Boston: Harvard
Business School Press, 1996).
14. Philip B. Evans and Thomas S. Wuster, “Strategy and the
New Economics oI InIormation,’ Harvard Business
Review, September›October 1997, 70›82. See also Philip
Evans and Thomas S. Wurster, Blown to Bits. How the
New Economics of Information 1ransforms Strategy
(Boston, MA.: Harvard Business School Press, 2000).
15. Day, “The Capabilities oI Market-Driven Organizations,’ 43.
16. Robert La Eranco, “It•s All about Visuals,’ Forbes, May
22, 1995, 108, 110, and 112.
17. William R. Dillon, Thomas J. Madden, and Neil H. Eirtle,
Marketing Research in a Marketing Environment, 3rd ed.
(Burr Ridge, IL: Richard D. Irwin, 1994), 737.
18. Kenneth C. Laudon and Jane Price Laudon, Management
Information Systems (New York: Macmillan, 1988), 235.
19. Gary Loveman, “Diamonds in the Data Mine,’ Harvard
Business Review, May 2003, 109›113.
20. A description oI the top 50 companies in the marketing
research industry can be Iound in the “Honomichl 50’ Special
Section oI the Marketing News, June 15, 2004. Reprinted with
permission oI the American Marketing Association.
21. Valerie Marchant, “Eirst E-Marketing, Now E-Research,’
1ime.com, January 24, 2000.
22. Cynthia Crossen, “Margin oI Error,’ 1he Wall Street
Journal, November 11, 1991, A1. Wall Street Journal.
Central Edition (staII produced copy only) by Cynthia
Crossen. Copyright 1991 by Dow Jones & Co Inc.
Reproduced with permission oI Dow Jones & Co Inc. in
the Iormat Textbook via Copyright Clearance Center.
23. Deborah L. Vence, “Turned on a Dime,’ Marketing News,
March 15, 2004.
24. Jack Honomichl, “Gradual Gains,’ Marketing News, June
15, 2004, H1›H53.
25. Catherine Arnold, “Global Perspective,’ Marketing News,
May 15, 2004, 43.
26. Laudon and Laudon, Management Information Systems, 62.
27. Michael Miron, John Cecil, Kevin Bradicich, and
Gene Hall, “The Myths and Realities oI Competitive
Advantage,’ DA1AMA1ION, October 1, 1988, 76.
28. Gregory A. Patterson, “DiIIerent Strokes: Target
‘Micromarkets• Its Way to Success; No Two Stores Are
Alike,’ 1he Wall Street Journal, May 31, 1995, A1 and A9.
29. Bob Shaw and Merlin Stone, “Competitive Superiority
through Database Marketing,’ Long Range Planning,
October 1988, 24›40.
30. “Coaxing the Meaning out oI Raw Data,’ BusinessWeek,
Eebruary 3, 1997, 134, 136›138.
31. John D. C. Little and Michael Cassettari, Decision Support
Systems for Marketing Managers, New York: AMA,
1984, 7.
32. Ibid., 12›15.
33. Ibid., 14.
34. A discussion oI DSS eIIectiveness is provided in Ramesh
Sharda, Steve H. Barr, and James C. McDonnell,
“Decision Support System EIIectiveness: A Review and
an Empirical Test,’ Management Science 34, no. 2
(Eebruary 1988), 139›159.
35. Reprinted Irom Business Hori:ons, May-June 1987,
Robert J. Mockler, “Computer InIormation Systems and
Strategic Corporate Planning,’ Copyright 1987, with per-
mission Irom Elsevier.
36. Thomas A. Stewart, “Getting Real about Brainpower,’
Fortune, November 27, 1995.
37. Pat Long, “Turning Intelligence into Smart Marketing,’
Marketing News, March 27, 1995.
38. Michael Skapinker, “How to Bow Out without Egg on
Your Eace,’ Financial 1imes, March 8, 2000, 21.
39. Kate Rankine, “Marks Ignored Shoppers Eall in Eaith,’
Daily 1elegraph, October 30, 2000, 21.
40. Rohit Deshpande, “Erom Market Research Use to Market
Knowledge Management,’ in Rohit Deshpande (ed.),
Using Market Knowledge, Thousand Oaks, CA.: Sage,
2001, 1›8.
41. Peter Drucker, Peter Drucker on the Profession of
Management (Boston, MA.: Harvard Business School
Press, 1998).
42. George S. Day, “Learning about Markets,’ in Rohit
Deshpande (ed.), Using Market Knowledge (Thousand
Oaks, CA: Sage, 2001), 9›30.
43. Thomas A. Stewart, “Is This Job Really Necessary?’
Fortune, January 12, 1998, 154›155.
44. Ibid.
45. Vanessa Houlder, “Xerox Makes Copies,’ Financial
1imes, July 14, 1997, 10.
46. Eric Lesser, David Mundel and Charles Wiecha,
“Managing Customer Knowledge,’ Journal of Business
Strategy, November/December 2000, 35›37.
47. Edward E. McQuarrie and Shelby H. McIntyre,
“Implementing the Marketing Concept through a Program
oI Customer Visits,’ in Rohit Deshpande (ed.), Using
Market Knowledge, Thousand Oaks, CA: Sage, 2001,
48. William M. Bulkeley, “Prescriptions, Toll-Eree Numbers
Yield a Gold Mine Ior Marketers,’ 1he Wall Street
Journal, April 17, 1998, B1 and B3.
49. Dillon, Madden, and Eirtle, Marketing Research in a
Marketing Environment, 48. Elizabeth MacDonald and
Joanne S. Lublin, “In the Debris oI a Eailed Merger: Trade
Secrets,’ 1he Wall Street Journal, March 10, 1998, B1 and
ݸ¿°¬»® ë Capabilities for Continuous Learning about Markets ïìé
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
Ü»-·¹²·²¹ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹·»-
Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
Deciding which buyers to target and how to position the Iirm•s products Ior each market target
are the core components oI market-driven strategy, guiding the entire organization in its eIIorts
to provide superior customer value. EIIective targeting and positioning strategies are essential in
gaining and sustaining superior organizational perIormance. Eaulty decisions negatively aIIect
Through eIIective targeting and positioning Costco Wholesale has gained a strong position
against Wal-Mart•s Sam•s Club in the U.S. warehouse club market. Costco targets more aIIluent and
sophisticated urban dwellers whereas Sam•s concentrates on the mass middle-market located in
smaller cities.
Costco•s value oIIering enables buyers to trade up Ior branded luxury items and trade
down Ior private label products such as paper towels, detergent, and vitamins. Markups are set at 14
percent, resulting in very attractive prices. Costco•s sales Ior 2005 should exceed $52 billion.
Costco•s annual sales have been greater than Sam•s sales with Iewer warehouses but nearly double
the average sales per Costco outlet. Costco has a strong ethics-driven corporate culture. Sam•s has
been reducing prices to gain market share, and has also adjusted its merchandise mix to oIIer more
upscale items. Industry experts indicate that the growth oI the warehouse club market segments
(households and businesses) is likely to slow down in the Iuture.
In the analysis oI the successIul marketing strategies oI companies like Costco, one Ieature
stands out. Each has a market target and positioning strategy that is a positive contributor to
gaining a strong market and Iinancial position Ior the Iirm. Examples oI eIIective targeting and
positioning strategies are Iound in all kinds and sizes oI businesses, including companies mar-
keting industrial and consumer goods and services.
We begin the chapter by examining market targeting strategy and discussing how targets are
selected. Next, we consider strategic positioning and look at what is involved in developing a
positioning strategy Ior each market target. We conclude with a discussion oI how positioning
eIIectiveness is evaluated.
Ó¿®µ»¬ Ì¿®¹»¬·²¹ ͬ®¿¬»¹§
The market targeting decision identiIies the people or organizations in a product-market toward
which an organization directs its positioning strategy. Selecting good market targets is one oI
management•s most demanding challenges. Eor example, should the organization attempt to serve
all buyers who are willing and able to buy a particular good or service, or instead selectively Iocus
on one or more subgroups? Study oI the product-market, its buyers, the organization•s capabilities
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïêç
ïêç ﮬ Ѳ» Fixed Income securities
and resources, and the competition is necessary in order to make this
decision. The chapters in Part II provide important inIormation Ior the tar-
geting decision.
Consider, Ior example, the development oI Intel•s marketing strategy
oI progressively adding new product-markets to the existing core
business. (See Intel advertisement.) Intel•s product strategy is described
in the Strategy Eeature.
Targeting and positioning strategies consist oI: (1) identiIying
and analyzing the segments in a product-market, (2) deciding which
segment(s) to target, and (3) designing and implementing a positioning
strategy Ior each target.
Many companies use some Iorm oI market segmentation, since buyers
have become increasingly diIIerentiated as to their value requirements.
Microsegmentation (Iiner segmentation) is becoming popular, aided by
eIIective segmentation and targeting methods such as database marketing
and mass customization. Moreover, the Internet oIIers an opportunity Ior
direct access to individual customers. In the Iollowing discussion we
assume that the product-market is segmented on some basis. Emerging
markets may require rather broad macrosegmentation, resulting in a Iew
segments, whereas more mature markets can be divided into several
micro segments. A new market may need to advance to the growth stage beIore meaningIul
segmentation is Ieasible.
Ì¿®¹»¬·²¹ ß´¬»®²¿¬·ª»-
The targeting decision determines which customer group(s) the organization will serve.
Management may select one or a Iew segments or go aIter more complete coverage oI the
product-market by targeting most oI the segments. A speciIic marketing eIIort (positioning
strategy) is directed toward each target that management decides to serve. Eor example, PIizer•s
targeting strategy Ior the 2003 launch oI its new drug Relpax is as Iollows:
PIizer Ior the Iirst time launched a new productœRelpaxœwithout any TV advertising at all. Relpax
is a prescription medicine Ior migraine headache relieI. PIizer identiIied ¿½¬·ª» §±«²¹ ³±¬¸»®- ¿-
ͬ®¿¬»¹§ Ú»¿¬«®»
ﮬ ±º ÝÛÑ Ý®¿·¹ Îò Þ¿®®»¬¬•- -¬®¿¬»¹§ ¿¬ ײ¬»´ ¸¿- ¾»»² ¬±
·²ª»-¬ üîè ¾·´´·±² ·² ½«¬¬·²¹ó»¼¹» °´¿²¬- ¿²¼ ²»© ¬»½¸ó
²±´±¹·»-ô ²±¬©·¬¸-¬¿²¼·²¹ ¬¸» ´±²¹»-¬ ¼±©²¬«®² ·² ¬¸»
½±³°«¬»® ½¸·° ·²¼«-¬®§•- ¸·-¬±®§ò
Ø·- ¹±¿´ ·- ¬± ¸¿ª» ײ¬»´ ½¸·°- ¿¬ ¬¸» ¸»¿®¬ ±º °®±¼«½¬- ·²
-»ª»®¿´ ²»© ³¿®µ»¬- ·² ¿¼¼·¬·±² ¬± °»®-±²¿´ ½±³°«¬»®- ¿²¼
-»®ª»®-ò ײ¬»´ ·- ¾®¿²½¸·²¹ ±«¬ º®±³ ½±³°«¬»® ½¸·°- ¬± -»³·ó
½±²¼«½¬±®- º±® ¿ ®¿²¹» ±º ²»© °®±¼«½¬-ô ©¸·½¸ ©·´´ ·² ¬«®²
¾±±-¬ ײ¬»´•- ½±®» °»®-±²¿´ ½±³°«¬»® ¿²¼ -»®ª»® ¾«-·²»--ò
ײ¬»´•- °®·³¿®§ °®±¼«½¬ó³¿®µ»¬- ¿®»æ
ÐÝ- ¿²¼ Í»®ª»®-ò ̸» ½±®» ¾«-·²»--ô ©¸»®» ײ¬»´ ¸¿-
¿² èí °»®½»²¬ ³¿®µ»¬ -¸¿®» ±º ¿ üîé ¾·´´·±² ³¿®µ»¬ò
Ú´¿¬óп²»´ Ì»´»ª·-·±²-ò ß üïð ¾·´´·±² ³¿®µ»¬ ©¸»®»
ײ¬»´•- °®±½»--±®- º±® ¼»½±¼·²¹ ÌÊ -·¹²¿´- ½±«´¼ ¸¿´ª»
¬¸» ½±-¬ ±º º´¿¬ó°¿²»´ -½®»»²-ò
Ø¿²¼¸»´¼-ò ײ¬»´•- ½¸·°- °±©»® ¸¿´º ±º ¿´´ ¸¿²¼¸»´¼
½±³°«¬»®- ·² ¿ ³¿®µ»¬ ©±®¬¸ üî ¾·´´·±²ò
л®-±²¿´ Ó»¼·¿ д¿§»®-ò ײ¬»´ ·- °±-·¬·±²»¼ ¬± ¾»½±³»
¿ ´»¿¼·²¹ °®±¼«½»® ±º °®±½»--±®- ¿²¼ ³»³±®§ ½¸·°- ·²
¬¸» »³»®¹·²¹ ³¿®µ»¬ º±® °±®¬¿¾´» ª·¼»± °´¿§»®-ò
É·Ó¿¨ò ײ¬»´•- ²»© ¬»½¸²±´±¹§ -¸±«´¼ ¼»´·ª»®
¸·¹¸ó-°»»¼ Ò»¬ ¿½½»-- ¬± ¿ ÐÝ ©·¬¸·² íð ³·´»- ±º ¿
¬®¿²-³·--·±² °±·²¬ò
Ý»´´«´¿® и±²»-ò ײ¬»´ ½«®®»²¬´§ ¸±´¼- îð °»®½»²¬ ±º ¿
üç ¾·´´·±² ³¿®µ»¬ º±® ³»³±®§ ½¸·°- ¿²¼ ¼·¹·¬¿´ -·¹²¿´
ͱ«®½»æ Ý´·ºº Û¼©¿®¼-ô “ײ¬»´ô’ Þ«-·²»--É»»µô Ó¿®½¸ èô îððìô
ײ¬»´•- Ó¿®µ»¬ ײ·¬·¿¬·ª»-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïéð ﮬ ̸®»» Designing Market-Driven Strategies
ÛÈØ×Þ×Ì êòï
Segments clearly defined
Segments not clearly defined
¬¸» °®·³» ¬¿®¹»¬ ¹®±«° Ior Relpax and adjusted its media mix accordingly. “They are listening to
the radio in the car, |going| on the Internet late at night, or reading a magazine in a quiet moment,’
says Dorothy L. Weitzer, a PIizer marketing vice-president. “They are not watching TV.’
PIizer•s market target strategy is guided by market segmentation based on buyers• characteris-
tics (active mothers).
Market targeting approaches Iall into two major categories: segment targeting and targeting
through product diIIerentiation. As shown by Exhibit 6.1, segment targeting ranges Irom a single
segment to targeting all or most oI the segments in the market. American Airlines uses extensive
targeting in air travel services, as does General Motors with its diIIerent brands and styles oI
automobiles. An example oI selective targeting is Autodesk•s targeting oI architects with its line
oI computer-aided design soItware.
When segments are diIIicult to identiIy, even though diversity in preIerences may exist,
companies may appeal to buyers through product specialization or product variety. While
diIIerences may exist in needs and wants, buyers• preIerences are diIIused, making it diIIicult to
deIine segments.
Specialization involves oIIering buyers a product diIIerentiated Irom competitor•s
products and designed to appeal to customer needs and wants not satisIied by competitors. The
Vanguard Group oIIers a wide variety oI mutual Iunds to investors, which are not targeted to
particular investor segments. Vanguard•s variety-based positioning is intended to appeal to a wide
array oI customers, but in most cases meeting a subset oI their investment needs.
Ú¿½¬±®- ײº´«»²½·²¹ Ì¿®¹»¬·²¹ Ü»½·-·±²-
Market segment analysis discussed in Chapter 4 helps to evaluate and rank the overall
attractiveness oI the segments under consideration by management as market targets. These
evaluations include customer inIormation, competitor positioning, and the Iinancial and market
attractiveness oI the segments. An important Iactor in targeting is determining the value
requirements oI the buyers in each segment. Market segment analysis is used to evaluate both
existing and potential market targets.
Management needs to decide iI it will target a single segment, selectively target a Iew
segments, or target all or most oI the segments in the product-market. Several Iactors inIluence
the choice oI the targeting strategy:
· Stage oI product-market maturity
· Extent oI diversity in buyer preIerences
· Industry structure
· Organizational capabilities and resources
· Opportunities Ior gaining competitive advantage
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïéï
Since these inIluences may vary according to stage oI product-market maturity, we use
maturity as the basis Ior considering diIIerent targeting situations. The objective is to look at
how each Iactor aIIects the market target strategy.
Ì¿®¹»¬·²¹ ·² Ü·ºº»®»²¬ Ó¿®µ»¬ Û²ª·®±²³»²¬-
The industry environment is inIluenced by the extent oI concentration oI its Iirms, the stage oI
its maturity, and its exposure to international competition. Eive generic environments portray the
range oI industry structures:
Û³»®¹·²¹ò Industries newly Iormed or reIormed are categorized as emerging, created by
Iactors such as a new technology, the changing needs oI buyers, and the identiIication oI
unmet needs by suppliers. The satellite radio service industry is illustrative.
Ú®¿¹³»²¬»¼ò Typically, a large number oI relatively small Iirms make up the Iragmented
industry. No company has a strong position regarding market share or inIluence in this
industry structure. Industrial chemical distribution and home security services are examples
oI Iragmented industries.
Ì®¿²-·¬·±²¿´ò These industries are shiIting Irom rapid growth to maturity, as indicated by the
maturing product liIe cycles oI the products in the industry. Growing rapidly until reaching
high levels oI household penetration, microwave ovens are now in the maturity stage.
Ü»½´·²·²¹ò A declining industry is actually Iading away instead oI experiencing a temporary
decline or cyclical changes. Camera and Iilm products are moving into the declining stage
as digital photography gains momentum.
Ù´±¾¿´ò Eirms in this category compete on a global basis. Examples include automobiles,
consumer electronics, and telecommunications. This classiIication may include transitional
or declining industry market situations.
The Iive industry categories are neither exhaustive nor mutually exclusive. Moreover, chang-
ing environmental and industry conditions may alter an industry classiIication. Also, rapid
growth may occur in some countries while industry growth is mature or declining in other
countries or regions.
The stages oI the liIe cycles oI the products in the industry oIIer useIul insights about the
industry environment. The market environments discussed above are closely related to the
product liIe cycle (PLC) stages. Looking at competition during the stages oI the product liIe
cycle and at diIIerent product-market levels (generic, product type, and variant) provides
insights into diIIerent types and intensities oI competition. We know that products, like people,
move through liIe cycles, and products• liIe cycles are increasingly shorter due to the rapid pace
oI technological change in the 21st century.
The liIe cycle oI a typical product is shown in Exhibit 6.2. Sales begin at the time oI intro-
duction and increase over the pattern shown. ProIits initially lag sales, since expenses oIten
exceed sales during the initial stage oI the product liIe cycle as a result oI heavy introductory
expenses. Industry sales and proIits decline aIter the product reaches the maturity stage. OIten
proIits Iall oII beIore sales.
Since an industry may contain more than one product-market and diIIerent industries may
compete in a given market, it is useIul to consider the market environment as the basis oI
discussion. Emerging, growth, mature, declining, and global market environments are discussed
to illustrate diIIerent targeting situations.
Û³»®¹·²¹ Ó¿®µ»¬-
“The most pervasive Ieature oI emerging markets is uncertainty about customer acceptance and
the eventual size oI the market, which process and product technology will be dominant, whether
cost declines will be realized, and the identity, structure, and actions oI competitors.’
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïéî ﮬ ̸®»» Designing Market-Driven Strategies
telecommunications is an example oI an emerging market. Market deIinition and analysis are
rather general in the early stages oI product-market development. Buyers• needs and wants are
not highly diIIerentiated because they do not have experience with the product. Determining the
Iuture scope and direction oI growth oI product-market development may be diIIicult, as will
Iorecasting the size oI market growth.
There are two types oI emerging markets: (1) the development oI a totally new product-market,
and (2) a new product entry into an existing market. In the Iirst situation, the emerging market is
Iormed by people/organizations whose needs and wants have not been satisIied by available products.
A cure Ior the AIDS virus is an example. In the second situation, the market entry is a new product
that provides an alternative value proposition to buyers in an existing market. The entry oI digital pho-
tography into the traditional camera and Iilm market is an example oI entry into an existing market.
Þ«§»® Ü·ª»®-·¬§ò The similarity oI buyers• preIerences in a new product-market oIten limits
segmentation eIIorts. It may be possible to identiIy a Iew broad segments. Eor example, heavy,
medium, and low product usage can be used to segment a new product-market where usage
varies across buyers. II segmentation is not Ieasible, an alternative is to deIine and describe an
average or typical user, directing marketing eIIorts toward these potential users.
ײ¼«-¬®§ ͬ®«½¬«®»ò Study oI the characteristics oI market pioneers indicates that new
enterprises are more likely to enter a new product-market than are the large, well-established
companies. The exception is a breakthrough innovation in a large company coupled with strong
entry barriers. The pioneers that develop a new product-market “are typically small new
organizations set up speciIically to exploit Iirst-mover advantages in the new resource space.’
These entrepreneurs oIten have limited access to resources and must pursue product-market
opportunities that require low levels oI investment.
Industry development is inIluenced by various Iactors, including the rate oI acceptance oI the
product by buyers, entry barriers, perIormance oI Iirms serving the market, and Iuture expecta-
tions. The pioneer•s proprietary technology may delay entry by others until the potential entrants
can gain access to the technology. Major change in market composition and competition during
the initial years is a common Ieature oI emerging industries.
Ý¿°¿¾·´·¬·»- ¿²¼ λ-±«®½»-ò A Iirm entering an existing product-market with a new pro-
duct is more likely to achieve a competitive edge by oIIering buyers unique beneIits rather than
lower prices Ior equivalent beneIits, though cost may be the basis oI superior value when the
new product is a lower-cost alternate technology to an existing product. Eor example, Iax
transmission oI letters and brieI reports is both Iaster and less expensive than overnight delivery
services. Similarly, the development oI e-mail capabilities gave e-mail transmission an advan-
tage over Iax transmissions.
ÛÈØ×Þ×Ì êòî
Ô·º» ݧ½´» ±º ¿
̧°·½¿´ Ю±¼«½¬
Growth Maturity Decline
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïéí
ïéí ﮬ Ѳ» Fixed Income securities
Entry oI disruptive technologies into existing product-markets may present competitive
threats to incumbents.
The threat is that the value proposition oI the new technology (e.g.,
digital photography) may eventually attract buyers away Irom incumbent Iirms. Disruptive
technology is discussed in Chapter 8.
Ì¿®¹»¬·²¹ ͬ®¿¬»¹§ò Despite the uncertainties in an emerging industry, there is evidence
which indicates “that more successIul or longer-living Iirms engage in less change than Iirms
which Iail.’
Instead these experienced Iirms select and Iollow a consistent strategy on a
continuing basis. II this behavior is characteristic oI a broad range oI successIul new ventures,
then choosing the entry strategy is very important.
Satellite radio service is an interesting example oI an emerging market. This market situation
displays many oI the characteristics we have been discussing. The Innovation Eeature describes
the opportunities, challenges, and risks conIronting XM Satellite Radio in early 2004.
Ù®±©¬¸ Ó¿®µ»¬
Segments are likely to be Iound in the growth stage oI the market. IdentiIying customer groups
with similar value requirements improves targeting, and “experience with the product, process,
and materials technologies leads to greater eIIiciency and increased standardization.’
During the
growth stage the market environment moves Irom highly uncertain to moderately uncertain.
Eurther change in the market is likely, but at this stage there is a level oI awareness about the
Iorces that inIluence the size and composition oI the product-market.
Patterns oI use can be identiIied and the characteristics oI buyers and their use patterns can be
determined. Segmentation by type oI industry may be Ieasible in industrial markets. Demographic
characteristics such as age, income, and Iamily size may identiIy broad macrosegments Ior
consumer products such as Iood and drugs. Analysis oI the characteristics and preIerences oI
existing buyers yields useIul guidelines Ior estimating market potential.
ײ²±ª¿¬·±² Ú»¿¬«®»
Í¿¬»´´·¬» ο¼·± б©»®- Ë°
Í¿¬»´´·¬» ®¿¼·± ·- ½¿¬½¸·²¹ ±²ô ©·¬¸ -±³» éððôððð -«¾ó
-½®·¾»®- ¬±¼¿§ ¿²¼ º±®»½¿-¬- º±® ïòë ³·´´·±² ¾§ §»¿®»²¼ò
ɸ¿¬ ×- Í¿¬»´´·¬» ο¼·±á ̸»-» -§-¬»³- ¾»¿³
ÝÜ󯫿´·¬§ -·¹²¿´- º®±³ -°¿½» ¬± -°»½·¿´ ®¿¼·±-ô ³±-¬
±º ©¸·½¸ ¿®» ·²-¬¿´´»¼ ·² ½¿®-ò Ý«-¬±³»®- ½¿² ¿´-±
´·-¬»² ¿¬ ¸±³» ±® ±² ¬¸» ¹±ò
ɸ»®» ×- ׬ ߪ¿·´¿¾´»á Ì©± ½¿®®·»®- ±ºº»® ²¿¬·±²©·¼»
½±ª»®¿¹»ò ÈÓô ¾¿-»¼ ·² É¿-¸·²¹¬±²ô ÜÝô ·- üçòçç ¿
³±²¬¸å Í·®·«-ô ¾¿-»¼ ·² Ò»© DZ®µô ·- üïîòçëò
ɸ¿¬ ܱ DZ« Ù»¬á ̸» -»®ª·½»- ±ºº»® ¿¾±«¬ ïðð
½¸¿²²»´-ò Í·®·«- ·- ½±³³»®½·¿´óº®»»ô ©¸·´» ÈÓ ¾®±¿¼ó
½¿-¬- ¿ ´·³·¬»¼ ²«³¾»® ±º ¿¼-ò Ю±¹®¿³- ®¿²¹» º®±³
³«-·½ ¬± ²»©- ¿²¼ ½±³»¼§ò
ɸ± ×- Þ¿½µ·²¹ Í¿¬»´´·¬» ο¼·±á Ý¿®³¿µ»®-ô ©¸±
¿®» »¿¹»® º±® ¿ -¬¿µ» ·² ¿ ²»©ô º¿-¬ó¹®±©·²¹ ¾«-·²»--ò
ÙÓ º«²¼»¼ ÈÓô ¿²¼ Ü¿·³´»®Ý¸®§-´»® ·- ¾¿½µ·²¹
Í·®·«-ò Ѭ¸»®- ¿®» °·½µ·²¹ ±²» ±º ¬¸» ¬©± ¬»½¸²±´±ó
¹·»-ô ©¸·½¸ ¿®» ²±¬ ½«®®»²¬´§ ½±³°¿¬·¾´»ò
ܱ Ó±-¬ Ý¿®- Ø¿ª» Í¿¬»´´·¬» ο¼·±á ̸» -§-¬»³- ¿®»
¿ª¿·´¿¾´» ±² ³¿²§ ²»© ³±¼»´- º±® ¿¾±«¬ üíððò É·¬¸·²
¬©± §»¿®-ô -¿¬»´´·¬» ®¿¼·± ·- »¨°»½¬»¼ ¬± ¾» ¿ª¿·´¿¾´» ±²
³¿²§ ²»© ½¿®-ò
ɸ¿¬ ¿¾±«¬ ر³» ¿²¼ ᮬ¿¾´» ͧ-¬»³-á DZ« ½¿²
¾«§ ¿ °¿´³ó-·¦» ®»½»·ª»® º®±³ Í·®·«- ±® ÈÓò ̸»§ ¿®»
¿ª¿·´¿¾´» º®±³ ®»¬¿·´»®- ´·µ» Ý·®½«·¬ Ý·¬§ ¿²¼ É¿´óÓ¿®¬
º±® ¿¾±«¬ üîððô ·²½´«¼·²¹ ¿¼¿°¬»®-ò DZ« ½¿² ½¿®®§
¬¸»-»ô «-·²¹ ¬¸»³ ¿¬ ¸±³» ±® ·² ¬¸» ½¿®ò Ú±® ¿² ¿¼¼·ó
¬·±²¿´ üççô ÈÓ•- ½¿² ¾» «-»¼ ©·¬¸ ¿ -°»½·¿´ °±®¬¿¾´»
¾±±³ ¾±¨ò
ÈÓ ¸¿- ¬¸» ´»¿¼ °±-·¬·±² ·² ¬¸» ³¿®µ»¬ ¾«¬ º¿½»- ³¿¶±®
º·²¿²½·¿´ ½¸¿´´»²¹»-ô ¿²¼ ·- -°»²¼·²¹ üîð ³·´´·±² ·² ½¿-¸
»¿½¸ ³±²¬¸ò É·¬¸ ´»-- ¬¸¿² ï ³·´´·±² -«¾-½®·¾»®-ô ÈÓ ²»»¼-
éòë ³·´´·±² ¿²¼ üï ¾·´´·±² ·² ®»ª»²«»- ¬± ½±ª»® ½¿°·¬¿´ ¿²¼
·²¬»®»-¬ ½±-¬-ò
ͱ«®½»æ “̸·- ×- ¬¸» Ü¿©²·²¹ ±º ¬¸» ß¹»œÈÓá’ Þ«-·²»--É»»µô
Ö«´§ éô îððíô çð›çîò
ß² Û³»®¹·²¹ Ó¿®µ»¬ º±® Í¿¬»´´·¬» ο¼·± Í»®ª·½»-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïéì ﮬ ̸®»» Designing Market-Driven Strategies
ײ¼«-¬®§ ͬ®«½¬«®»ò We oIten assume that high-growth markets are very attractive, and that
early entry oIIers important competitive advantages. Nevertheless, there are some warnings Ior
industry participants:
Eirst, a visible growth market can attract too many competitorsœthe market and its distribution
channel cannot support them. The intensity oI competition is accentuated when growth Iails to match
expectations or eventually slows. Second, the early entrant is unable to cope when key success
Iactors or technologies change, in part because it lacks the Iinancial skills or organizational skills.
Eor example, the Iiber-optic cable network market in the United States attracted Iar too many
competitors (some 1,500). Most oI the networks were not being used in the early 2000s due to
signiIicant overbuilding.
Generalizations about industry structure in growth markets are diIIicult. There is some
evidence that large, established Iirms are more likely to enter growth markets rather than
entering emerging markets. This is because the companies may not be able to move as quickly
as small specialist Iirms in exploiting the opportunities in the emerging product-market.
established companies have skills and resource advantages Ior achieving market leadership.
These powerIul Iirms can overcome the timing advantage oI the market pioneers. Later entrants
also have the advantage oI evaluating the attractiveness oI the product-market during its initial
Ý¿°¿¾·´·¬·»- ¿²¼ λ-±«®½»-ò Survival analysis oI Iirms in the minicomputer industry high-
lights two perIormance characteristics in the rapid growth stage oI the product-market: (1) survival
rates are much higher Ior aggressive Iirms competing on a broad market scope compared to con-
servative Iirms competing on the same basis, and (2) survival rates are high (about three-quarters)
Ior both aggressive and conservative specialists.
This research suggests that survival requires
aggressive action by Iirms that seek large market positions in the total market. These Iirms must
possess the capabilities and resources necessary to achieve market position. Other competitors are
likely to be more successIul by selectively targeting one or a Iew market segments.
Ì¿®¹»¬·²¹ ͬ®¿¬»¹§ò There are at least three possible targeting strategies in growth market
situations: (1) extensive market coverage by Iirms with established businesses in related markets,
(2) selective targeting by Iirms with diversiIied product portIolios, and (3) very Iocused targeting
strategies by small organizations serving one or a Iew market segments.
A selective targeting strategy is Ieasible when buyers• needs are diIIerentiated or when
products are diIIerentiated. The segments that are not served by large competitors provide an
opportunity Ior the small Iirm to gain competitive advantage. The market leader(s) may not Iind
small segments attractive enough to seek a position in the segment. II the buyers in the market
have similar needs, a small organization may gain advantage through product specialization.
This strategy would concentrate on a speciIic product or component.
The objective oI the targeting strategy is to match the organization•s distinctive capabilities
to value opportunities in the product-market. The number oI speciIic targets to pursue depends
on management•s objectives and the available segments in the market.
ͬ®¿¬»¹·»- º±® Ó¿¬«®» Ó¿®µ»¬-
Not all Iirms that enter the emerging and growth stages oI the market survive in the maturity
stage. The needs and characteristics oI buyers also change over time. Market entry at the
maturity stage is less likely than in previous liIe cycle stages.
Þ«§»® Ü·ª»®-·¬§ò Segmentation is oIten essential at the maturity stage oI the liIe cycle. At this
stage, the product-market is clearly deIined, indicating buyers• preIerences and the competitive
structure. The Iactors that drive market growth are oIten apparent. The market is not likely to
expand or decline rapidly. Nonetheless, eventual decline may occur unless actions are taken to
extend the product liIe cycle through product innovation and new applications oI existing products.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïéë
IdentiIication and evaluation oI market segments are necessary to select targets that oIIer each
Iirm a competitive advantage. Since the mature market has a history, experience should be
available concerning how buyers respond to the marketing eIIorts oI the Iirms competing in the
product-market. Knowledge oI the competitive and environmental inIluences on the segments in
the market helps to obtain accurate Iorecasts, and select positioning strategies.
The maturity oI the product-market may reduce its attractiveness to the companies serving the
market, so the market-driven organization may beneIit Irom (1) scanning the external environ-
ment Ior new opportunities that are consistent with the organization•s skills and resources (core
competencies); (2) identiIying potential disruptive technology threats/opportunities to the
current technologies in meeting customer needs, and selecting strategies Ior responding to the
opportunities; and/or (3) identiIying opportunities within speciIic segments Ior new and
improved products.
Buyers in mature markets are experienced and increasingly demanding. They are Iamiliar
with competing brands and display preIerences Ior particular brands. The key marketing issue is
developing and sustaining brand preIerence, since buyers are aware oI the product type and its
Ieatures. Many top brands like Coca-Cola, Gillette, and Wrigley•s have held their leading posi-
tions Ior more than halI a century. This highlights the importance oI obtaining and protecting a
lead position at an early stage in the development oI a market.
ײ¼«-¬®§ ͬ®«½¬«®»ò The characteristics oI mature industries include intense competition Ior
market share, emphasis on cost and service, slowdown in new-product Ilows, international
competition, pressures on proIits, and increases in the power oI channel oI distribution
organizations that link suppliers and producers with end users.
Deciding how to compete suc-
cessIully in a mature product-market is inIluenced by the composition oI competitive space and
the extent oI diIIerentiation in buyers• value requirements.
The typical mature industry structure consists oI a Iew companies that dominate the industry
and several other Iirms that pursue market selectivity strategies. The larger Iirms may include a
market leader and two or three competitors with relatively large market positions compared to
the remaining competitors. Entry into the mature product-market is oIten diIIicult because oI
major barriers and intense competition Ior sales and proIits. Those that enter normally Iollow
market or product selectivity strategies. Acquisition may be the best way oI market entry rather
than trying to develop products and marketing capabilities. Mature industries are increasingly
experiencing pressures Ior global consolidation. Examples include automobiles, banking, Ioods,
household appliances, prescription drugs, telecommunications, and consumer electronics.
Ý¿°¿¾·´·¬·»- ¿²¼ λ-±«®½»-ò Depending on the Iirm•s position in the mature market,
management•s objective may be cost reduction, selective targeting, or product diIIerentiation.
Poor perIormance may lead to restructuring the corporation to try to improve Iinancial
perIormance. II improvement is not Ieasible, the decision may be to exit Irom the business.
Audi AG implemented a major turnaround strategy in the mid-1990s designed to appeal to
more automobile buyers with an exciting image. The midrange Audi A4 introduced in 1995
attracted new buyers and was part oI a major new product strategy to increase sales and proIits.
Leveraging Audi•s capabilities and resources, the A4•s initial entry was very successIul.
Supported by a major advertising campaign, the new model attracted younger buyers. Appealing
to this target was a major objective oI the new marketing strategy. Audi•s A6 and A8 models
were targeted to additional market segments.
Ì¿®¹»¬·²¹ò Both targeting and positioning strategies may change in moving Irom the growth
to maturity stages oI the product-market. Targeting may be altered to reIlect changes in priorities
among market targets. Positioning within a targeted market may be adjusted to improve
customer satisIaction and operating perIormance. Nonetheless, consistency in positioning
over time is important. During the maturity stage management is likely to place heavy emphasis
on eIIiciency.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïéê ﮬ Ѳ» Fixed Income securities
ïéê ﮬ ̸®»» Designing Market-Driven Strategies
Targeting segments is appropriate Ior all Iirms competing in a mature product-market. The
strategic issue is deciding which segments to serve. Market maturity may create new opportuni-
ties and threats in a company•s market target(s). The Strategy Eeature describes Levi Strauss•
challenges in the mature jeans market.
Eirms pursuing extensive targeting strategies may decide to exit Irom certain segments. The tar-
gets that are retained in the portIolio can be prioritized to help guide product research and develop-
ment, channel management, pricing strategy, advertising expenditures, and selling eIIort allocations.
Ù´±¾¿´ Ó¿®µ»¬-
Understanding global markets is important regardless oI where an organization decides to
compete, since domestic markets oIten attract international competitors. The increasingly
smaller world linked by instant communications, global supply networks, and international
Iinance markets mandates evaluating global opportunities and threats. In selecting strategies Ior
global markets, there are two primary options Ior consideration: (1) the advantages oI global
reach and standardization; and (2) the advantages oI local adaptation.
Ù´±¾¿´ λ¿½¸ ¿²¼ ͬ¿²¼¿®¼·¦¿¬·±²ò This strategy considers the extent to which
standardization oI products and other strategy elements can be used to compete on a global basis.
The world is the market arena and buyers are targeted without regard to national boundaries and
regional preIerences. Global standardized products are not commodities. They are diIIerentiated,
but standardized across national boundaries. The objective is to identiIy market segments that
span global markets and to serve these opportunities with global positioning strategies. Eor
example, Gap, McDonald•s and Rolex employ standardization strategies.
Ô±½¿´ ß¼¿°¬·±²ò In some international markets, domestic customers are targeted and positioning
strategies are designed to consider the value requirements oI domestic buyers. A wide variety oI
social, political, cultural, economic, and language diIIerences among countries aIIects buyers• needs
and preIerences. These variations need to be accounted Ior in targeting and positioning strategies.
Eor example, Iood and beverage preIerences vary across national and regional boundaries. Instant
coIIee is popular in Britain but not in Erance. Responding to national diIIerences, Nestle employs
domestic and regional strategies Ior several oI its Iood products.
ײ¼«-¬®§ ͬ®«½¬«®»ò Industry structure and competition are changing throughout the world
as companies seek to improve their competitive advantage in the rapidly shrinking global
marketplace. Corporate actions include restructuring, acquisitions, mergers, and strategic alliances.
ͬ®¿¬»¹§ Ú»¿¬«®»
Ô»ª· ͬ®¿«-- ¸¿- »¨°»®·»²½»¼ ³¿¶±® -¿´»- ¿²¼ °®±º·¬ ¼»½´·²»-
-·²½» ¬¸» ³·¼óïççð-ò 못²«»- º»´´ º®±³ üéòï ¾·´´·±² ·² ïççê
¬± üì ¾·´´·±² ·² º·-½¿´ îððíò
Ú±® §»¿®- ¬¸» Ô»ª· ¾®¿²¼ ¬¿®¹»¬»¼ ¬¸» ³·¼¼´» °®·½» ¿²¼
¯«¿´·¬§ ³¿®µ»¬ô ¿ª±·¼·²¹ ¼·-½±«²¬»®- ´·µ» É¿´óÓ¿®¬ô
Ì¿®¹»¬ô ¿²¼ Õ±¸´•-ò Ó¿²¿¹»³»²¬ ¿´-± º¿·´»¼ ¬± ®»½±¹²·¦»
¬¸» -·¹²·º·½¿²½» ±º ¬¸» ¾±±³ ·² ¸·¹¸óº¿-¸·±² ¼»²·³ò ײ ¿
-«®°®·-·²¹ ¬«®²¿®±«²¼ ·²·¬·¿¬·ª» Ô»ª· ¸¿- »¨°¿²¼»¼ ·¬-
¶»¿²- ³¿®µ»¬ ½±ª»®¿¹» ¬± ¬¿®¹»¬ ¾±¬¸ °®·½»ó ¿²¼ º¿-¸·±²ó
½±²-½·±«- ¾«§»®-ò
̸» ²»© Ô»ª· Í·¹²¿¬«®» ¾®¿²¼ ·- ¿ª¿·´¿¾´» º®±³ Ì¿®¹»¬ô
É¿´óÓ¿®¬ ¿²¼ ±¬¸»® ¼·-½±«²¬»®-ò ̸» ³±®» »¨°»²-·ª»
Ю»³·«³ λ¼ Ì¿¾ ·- ¬¿®¹»¬»¼ ¬± «°-½¿´» ½«-¬±³»®- ±º
®»¬¿·´»®- ´·µ» Ò±®¼-¬®±³ ¿²¼ Ò»·³¿²óÓ¿®½«-ò
߬¬»³°¬·²¹ ¬± ¿°°»¿´ ¬± ¿ ©·¼» ®¿²¹» ±º ³¿®µ»¬
¬¿®¹»¬- ©·¬¸ ¿ ª¿®·»¬§ ±º °±±®´§ ¼·ºº»®»²¬·¿¬»¼ Ô»ª· ¶»¿²-
¾®¿²¼- ·- ®·-µ§ò ß °±¬»²¬·¿´ ½±²-»¯«»²½» ·- ¼¿³¿¹» ¬± ¬¸»
Ô»ª· ¾®¿²¼ô ¿²¼ ¬¸» ¾®¿²¼ -¬®¿¬»¹§ ³¿§ ²±¬ ¸¿ª» ¿ ³¿¶±®
·³°¿½¬ ±² Ô»ª·•- -¿´»- ¿²¼ °®±º·¬-ò
Ô»ª· ͬ®¿«--• º¿·´«®» ¬± ®»-°±²¼ ¬± ½¸¿²¹»- ·² ·¬- ½±®»
¶»¿²- ³¿®µ»¬ ·- ·´´«-¬®¿¬·ª» ±º ¬¸» ½¸¿´´»²¹»- ±º ½±³°»¬·²¹
·² ¸·¹¸´§ ½±³°»¬·¬·ª» ³¿¬«®» ³¿®µ»¬-ò λ½±¹²·¦·²¹ ¬¸»
-»®·±«-²»-- ±º ¬¸» °®±¾´»³ô ³¿²¿¹»³»²¬ ®»¬¿·²»¼ ¿
¬«®²¿®±«²¼ ½±²-«´¬·²¹ º·®³ ·² ´¿¬» îððíò
ͱ«®½»æ É»²¼§ Æ»´´²»®ô “Ô»--±²- º®±³ ¿ Ú¿¼»¼ Ô»ª· ͬ®¿«--ô’
Þ«-·²»--É»»µô Ü»½»³¾»® ïëô îððíô ììò
Ô»ª· ͬ®¿«-- Û¨°¿²¼- ׬- Ô»ª· Ö»¿²- Þ®¿²¼- Ë°
¿²¼ ܱ©²
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïéé
Eor example, General Mills has a strategic alliance with Nestle to market General Mills• products
in Europe, oIIering a major opportunity Ior General Mills to increase sales oI cereal products.
Nestle has the experience and distribution network needed to tap the global cereal market.
Ì¿®¹»¬·²¹ò Strategies Ior competing in international markets range Irom targeting a single
country, regional (multinational) targeting, or targeting on a global basis. The strategic issue is
deciding whether to compete internationally, and, iI so, how to compete. Also, the choice oI a
domestic Iocus requires an understanding oI relevant global inIluences on the domestic strategy.
Cateora and Graham discuss three strategies Ior competing in international markets:
1. Selling domestic products in Ioreign markets with little or no adaption oI the domestic
marketing program.
2. Multidomestic market strategy utilizing distinct marketing programs Ior each country.
3. Global strategy targeting an entire set oI country markets using a standardized marketing program.
The domestic market extension strategy targets markets where there is a good match with the
domestic market. The multidomestic strategy is decentralized, with strategy operating relatively
independently. The global strategy seeks to pursue a similar strategy in all international markets.
Airbus and Boeing use this strategy Ior commercial aircraIt.
One market entry option is establishing a strategic alliance with one or more companies that
provide market access and other global distinctive capabilities (see Chapter 7). The Global
Eeature demonstrates how local Iilmmaking in IndiaœBollywoodœhas become more success-
Iul internationally.
U.S. distributors and studios are responding with collaborative eIIorts.
б-·¬·±²·²¹ ͬ®¿¬»¹§
Positioning strategy is discussed in the rest oI the chapter. Eirst, we provide an overview oI
what is involved in strategic positioning and consider the selection oI the positioning concept.
Next, we examine the composition oI the positioning strategy and how the positioning components
Ù´±¾¿´ Ú»¿¬«®»
̸» º·´³ ·²¼«-¬®§ ·² ײ¼·¿œ²·½µ²¿³»¼ Þ±´´§©±±¼œ
°®±¼«½»- ±ª»® ïôððð º·´³- ¿ §»¿®ô -«¾-¬¿²¬·¿´´§ ³±®»
¬¸¿² °®±¼«½»¼ ·² ر´´§©±±¼ -¬«¼·±- ·² ¬¸» ˲·¬»¼ ͬ¿¬»-ô
¬¸±«¹¸ ©±®´¼©·¼» ®»ª»²«»- ¿®» ±²´§ üïòí ¾·´´·±² ½±³ó
°¿®»¼ ¬± ر´´§©±±¼•- üëï ¾·´´·±²ò
É·¬¸ ´±© ¾«¼¹»¬-ô ½¸¿±¬·½ ±®¹¿²·¦¿¬·±²ô «²-±°¸·-¬·ó
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ª»²¬«®» ¾»¬©»»² ر´´§©±±¼ ¿²¼ Þ±´´§©±±¼ò
ײ ¬¸» ˲·¬»¼ ͬ¿¬»-ô ͱ²§•- ݱ´«³¾·¿ Ì®·Í¬¿® Ó±¬·±²
з½¬«®» Ù®±«° ¼·-¬®·¾«¬»¼ Ô¿¿¹¿² ¿²¼ Ó·--·±² Õ¿-¸³·®
¿²¼ ¸¿- ¿ ¼±¦»² ³±®» Þ±´´§©±±¼ ³±ª·»- ´·²»¼ «°ò
Ì©»²¬·»¬¸ Ý»²¬«®§ Ú±¨ ¸¿- -·¹²»¼ ¿ ¼»¿´ ©·¬¸ °±°«´¿®
Þ±´´§©±±¼ °®±¼«½»® ο³ Ù±°¿´ Ê»®³¿ ¬± ³¿®µ»¬ ¿²¼
¼·-¬®·¾«¬» ¸·- ²»¨¬ ¬¸®»» º·´³- ·² ײ¼·¿ô ¿²¼ °±¬»²¬·¿´´§
ͱ«®½»æ Ó¿²¶»»¬ Õ®·°¿´¿²· ¿²¼ α² Ù®±ª»®ô “Þ±´´§©±±¼ô’
Þ«-·²»--É»»µô Ü»½»³¾»® îô îððîô ìî›ìêò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
are combined into an integrated strategy. Einally, we look at how positioning eIIectiveness is
Positioning may Iocus on an entire company, a mix oI products, a speciIic line oI products,
or a particular brand, although positioning is oIten centered on the brand. Importantly,
positioning is closely linked to business strategy. The major initiatives necessary in strategic
positioning are described in Exhibit 6.3. The buyers in the market target are the Iocus oI the posi-
tioning strategy. The positioning concept indicates management•s desired positioning oI the
product (brand) in the eyes and minds oI the targeted buyers. It is a statement oI what the product
(brand) means guided by the value requirements oI the buyers in the market target.
is intended to deliver the value proposition appropriate Ior each market target pursued by the
organization. Eor example, Gatorade is targeted to active people experiencing hot and thirsty use
situations. The drink is positioned as the best thirst quencher and replenisher, backed by
scientiIic tests. Selecting the desired positioning requires an understanding oI buyers• value
requirements and their perceptions oI competing brands.
The positioning strategy is the combination oI marketing program (mix) strategies used to
portray the desired positioning oI management to targeted buyers. This strategy includes the
product, supporting services, distribution channels, price, and promotion actions taken by the
organization. Positioning effectiveness considers how well management•s positioning objectives
are being achieved in the market target.
As shown in Exhibit 6.4 the positioning objective is to have each targeted customer perceive
the brand distinctly Irom other competing brands and Iavorably compared to the other brands.
OI course, the actual positioning oI the brand is determined by the buyer•s perceptions oI the
Iirm•s positioning strategy (and perceptions oI competitors• strategies). The intent is to gain a
relevant, distinct, and enduring position that is considered important by the buyers that are
targeted. Management must design and implement the positioning strategy to achieve this result.
A company•s positioning strategy (marketing program) works to persuade buyers to Iavorably
position the brand.
Achieving a distinct and valued position with targeted buyers is a pivotal initiative in
Hyundai•s plan to gain market position in the U.S. automobile market. The Korean carmaker is
using new models, attractive prices, and a generous warranty to attract buyers oI U.S. automo-
biles as described in Exhibit 6.5. A key component oI the plan was the new 2001 XG 300, which
oIIers Iull-size luxury at prices substantially below Japanese brands. Hyundai•s market position
has shown major growth since 1998. Hyundai•s competitive threat is likely to impact U.S. car
brands rather than European or Japanese companies.
ÛÈØ×Þ×Ì êòí
Positioning Concept
The extent to which
management•s positioning
objectives are achieved for the
market target
Management•s desired
positioning of the product
(brand) by buyers in the
market target
The combination of marketing
actions used to communicate
the positioning concept to
targeted buyers
ïéè ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïéç
Í»´»½¬·²¹ ¬¸» б-·¬·±²·²¹ ݱ²½»°¬
The positioning concept indicates the perception or association that management wants buyers
to have concerning the company•s brand. Aaker and Shansby comment on the importance oI this
The position can be central to customers• perception and choice decisions. Eurther, since all
elements oI the marketing program can potentially aIIect the position, it is usually necessary to use
a positioning strategy as a Iocus Ior the development oI the marketing program. A clear positioning
strategy can insure that the elements oI the marketing program are consistent and supportive.
Choosing the positioning concept is an important Iirst step in designing the positioning
strategy. The positioning concept oI the product (brand) is “the general meaning that is under-
stood by customers in terms oI its relevance to their needs and preIerences.’
The positioning
strategy is the combination oI marketing mix actions that are intended to implement the product
(brand) concept to achieve a speciIic position with targeted buyers.
б-·¬·±²·²¹ ݱ²½»°¬-ò
The positioning concept should be linked to buyers• value preIerences
(value proposition). The concept may be functional, symbolic, or experiential. The functional
concept applies to products that solve consumption-related problems Ior externally generated con-
sumption needs. Examples oI brands using this basis oI positioning include Crest toothpaste (cavity
prevention), Clorox liquid cleaner (eIIective cleaning), and a checking account with ABC Bank
(convenient services). Symbolic positioning relates to the buyer•s internally generated need Ior
selI-enhancement, role position, group membership, or ego-identiIication. Examples oI symbolic
positioning are Rolex watches and Louis Vuitton luxury goods. Einally, the experiential concept is
used to position products that provide sensory pleasure, variety, and/or cognitive stimulation.
BMW•s automobile brands are positioned using an experiential concept that emphasizes the driving
ÛÈØ×Þ×Ì êòë
ا«²¼¿·ô ¬¸»
б-·¬·±²- ׬-
Ò»© Ô«¨«®§
Source: “And Now, A
Luxury Hyundai,’
BusinessWeek, Eebruary
26, 2001, 33.
̸» îððï ÈÙ íð𠺫´´ó-·¦» -»¼¿² ·- °®·½»¼ üïðôððð ¿¾±ª» ¬¸» °®»ª·±«- ¸·¹¸ó»²¼
»²¬®§ô ¬¸» ͱ²¿¬¿ò
̸» ²»© »²¬®§ ·- ¿¬¬®¿½¬·²¹ ¿ ´±¬ ±º ¾«§»®-ô »ª»² ¬¸±«¹¸ ا«²¼¿· »¨°»®·»²½»¼
¯«¿´·¬§ °®±¾´»³- ¼«®·²¹ ¬¸» ïççð-ò
̸» ÈÙ ·- °®·½»¼ üïðôððð ¾»´±© ¬¸» ̱§±¬¿ ߪ¿´±² ¿²¼ ײº·²·¬· ×óíðò
ا«²¼¿· -±´¼ çðôðð𠽿®- ·² ïççè ·² ¬¸» ˲·¬»¼ ͬ¿¬»- ¾«¬ ®»½»·ª»¼ ª»®§ ´±©
¯«¿´·¬§ ®¿²µ·²¹-ò
ا«²¼¿· ±ºº»®- ¿ ¹»²»®±«- ïð󧻿® ©¿®®¿²¬§ ±² »²¹·²»- ¿²¼ ¬®¿²-³·--·±²-ò
Ó¿²¿¹»³»²¬•- îððï -¿´»- »-¬·³¿¬»- »¨½»»¼ íððôðð𠽿®-ò
Ý»²¬®¿´ ¬± ا«²¼¿·•- °´¿² ·- ·¬- ½«-¬±³»® ª¿´«»ó¼®·ª»² °±-·¬·±²·²¹ -¬®¿¬»¹§ò
Ý«®®»²¬ ¾«§»®- ±º ËòÍò ¿«¬±³±¾·´» ¾®¿²¼- ¿®» ¬¸» °®·³¿®§ ¬¿®¹»¬- º±® ا«²¼¿·•-
ÛÈØ×Þ×Ì êòì
б-·¬·±²·²¹ ·²
Ѿ¶»½¬·ª»æ Ó¿¬½¸ ¬¸» ±®¹¿²·¦¿¬·±²•- ¼·-¬·²½¬·ª» ½¿°¿¾·´·¬·»- ©·¬¸ ¬¸» ½«-¬±³»®
ª¿´«» ®»¯«·®»³»²¬- ·² »¿½¸ ³¿®µ»¬ ¬¿®¹»¬ò øر© ¼± ©» ©¿²¬ ¬± ¾»
°»®½»·ª»¼ ¾§ ¬¿®¹»¬»¼ ¾«§»®-á÷
Ü»-·®»¼ λ-«´¬ Ù¿·² ¿ ®»´»ª¿²¬ô ¼·-¬·²½¬ô ¿²¼ »²¼«®·²¹ °±-·¬·±² ¬¸¿¬ ·- ½±²-·¼»®»¼
·³°±®¬¿²¬ ¾§ ¬¸» ¾«§»®- ·² ¬¸» ¬¿®¹»¬ ³¿®µ»¬ò
ß½¬·±² ¾§ ¬¸» Ü»-·¹² ¿²¼ ·³°´»³»²¬ ¬¸» °±-·¬·±²·²¹ -¬®¿¬»¹§ ø³¿®µ»¬·²¹
Ñ®¹¿²·¦¿¬·±²- °®±¹®¿³÷ º±® ¬¸» ³¿®µ»¬ ¬¿®¹»¬ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèð ﮬ ̸®»» Designing Market-Driven Strategies
Three aspects oI positioning concept selection are important.
Eirst, the positioning concept
applies to a speciIic brand rather than all oI the competing brands in a product classiIication such
as toothpaste. Second, the concept is used to guide positioning decisions over the liIe oI the brand,
recognizing that the brand•s speciIic position may change over time. However, consistency is
important. Third, iI two or more positioning concepts, Ior example, Iunctional and experiential,
are used to guide positioning strategy, the multiple concepts are likely to conIuse buyers and
perhaps weaken the eIIectiveness oI positioning actions. OI course, the speciIic concept selected
may not Iall clearly into one oI the three classiIications.
̸» б-·¬·±²·²¹ Ü»½·-·±²ò In deciding how to position, it is useIul to study the positioning
oI competing brands using attributes that are important to existing and potential buyers oI the
competing brands. The objective is to try to determine the preIerred (ideal) position oI the buyers
in each market segment oI interest and to compare this preIerred position with the actual
positions oI competing brands. Marketing research may be necessary in identiIying customers•
ideal positioning. Management then seeks a distinct position that corresponds with the buyers•
preIerred position Ior the target oI interest.
Determining the existing positioning oI a brand by targeted buyers and deciding whether the
position satisIies management•s objectives are considered later in the chapter. We discuss devel-
oping the positioning strategy, and examine resource allocation guidelines Ior integrating the
positioning components.
Ü»ª»´±°·²¹ ¬¸» б-·¬·±²·²¹ ͬ®¿¬»¹§
The positioning strategy places the marketing program (mix) components into a coordinated set
oI actions designed to achieve the positioning objective(s). Developing the positioning strategy
includes determining the activities and results Ior which each marketing program component
(product, distribution, price, promotion) will be responsible, choosing the amount to spend on
each program component, and deciding how much to spend on the entire program.
Selecting the positioning strategy may be guided by a combination oI management judgment
and experience, analysis oI prior activities and results, experimentation (e.g., test marketing),
and Iield research. We look at several considerations regarding targeting and supporting activi-
ties, Iollowed by deciding how to develop the positioning strategy.
ͽ±°» ±º б-·¬·±²·²¹ ͬ®¿¬»¹§
The positioning strategy is usually centered on a single brand (Total toothpaste) or a line oI related
products (kitchen appliances) Ior a speciIic market target. Whether the strategy is brand-speciIic or
greater in scope depends on such Iactors as the size oI the product-market, characteristics oI the good
or service, the number oI products involved, and product interrelationships in the consumer•s use
situation. Eor example, the marketing programs oI Johnson & Johnson, P&G, and Sara Lee Iocus
on positioning each oI their various brands, whereas Iirms such as General Electric Company,
Caterpillar, IBM, and Nike use the corporate name to position the product-line or product-portIolio.
When serving several market targets, an umbrella strategy covering multiple targets may be used Ior
some oI the marketing program components. Eor example, advertising may be designed to appeal
to more than a single target, or the same product (coach airline seats) may be targeted to diIIerent
buyers through diIIerent distribution channels, pricing, and promotion activities.
Ó¿®µ»¬·²¹ Ю±¹®¿³ Ü»½·-·±²-
A look at Pier 1 Imports• positioning strategy illustrates how the specialty retailer combines
marketing mix components into a coordinated strategy.
The company competes in the United
States, Canada, England, and Mexico. Pier 1•s 2004 sales should exceed $2 billion, double 1996
sales. ProIits have grown at an even Iaster rate. Pier 1•s positioning strategy includes unique
merchandise, national and local advertising, strategically located stores, attractive store
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïèï
environments, outstanding customer service, and modern retail systems. Most oI the retailer•s
goods are imported Irom China and India.
Ю±¼«½¬ ͬ®¿¬»¹§ò Pier 1•s array oI merchandise includes decorative home Iurnishings, Iurni-
ture, housewares, and bed and bath products. The merchandise is unique and ever-changing,
imported Irom 1,500 suppliers. Management•s objective is to create a casual, sensory store envi-
ronment. The merchandise oIIers customers an opportunity to satisIy their desire Ior diversity.
Ê¿´«»óݸ¿·² ͬ®¿¬»¹§ò The retailer manages the value chain Irom supplier to end user,
integrating its global supply network with its retail stores. Pier 1 has over 1,000 stores in 48 states.
It uses Ireestanding and strip retail sites that can be quickly and conveniently accessed by
customers. Store layouts and exteriors are attractively designed. InIormation systems are installed
throughout company operations to provide real-time inIormation to manage the business.
Regional distribution centers supply merchandise to the retail store networks.
Ю·½·²¹ ͬ®¿¬»¹§ò Pier 1•s global supply network and purchasing know-how result in
merchandise costs that enable the company to oIIer quality merchandise at attractive prices.
InIormation systems target slow-moving merchandise Ior possible pricing actions. The pricing
strategy emphasizes the value and uniqueness oI the merchandise.
Ю±³±¬·±² ͬ®¿¬»¹§ò The retailer uses an eIIective combination oI advertising, sales promo-
tion, personal selling, and public relations to communicate with customers. Its aggressive national
television advertising strategy positions Pier 1 as “The Place to Discover.’ Television advertising
and store enhancements have helped to generate impressive sales growth. Attractive color cata-
logs encourage people to visit the stores. Experienced store managers and sales associates convey
the corporate culture oI a customer-driven company. The customer service policy states, “The
customer is always right.’
ݱ³°»¬·¬·ª» ß¼ª¿²¬¿¹»ò Pier 1 Imports• distinctive capability is a combination oI value and
uniqueness oI merchandise that is competitively priced and deployed in a strong retail network.
The specialty retailer has been very eIIective in building brand image and customer loyalty. The
slowdown in household relocation during the 1990s encouraged spending on accent pieces and
decorative home Iurnishings. These pressures Iorced many small retailers to close, strengthening
Pier 1•s market position. Management•s continual investment in market research studies keeps the
retailer•s strategy Iocused on customers• needs and wants.
An overview oI the various decisions that are made in developing a positioning strategy is
shown in Exhibit 6.6. Several oI these actions are described in the Pier 1 illustration. We exam-
ine each positioning strategy component in detail in Chapters 9›13. The present objective is to
show how the components Iit into the positioning strategy. The positioning concept is the core
Iocus Ior designing the integrated strategy. The positioning strategy indicates how (and why) the
product mix, line, or brand is to be positioned Ior each market target. This strategy includes:
· The product strategy, including how the product(s) will be positioned against the competition
in the product-market.
· The value-chain (distribution) strategy to be used.
· The pricing strategy, including the role and positioning oI price relative to competition.
· The advertising and sales promotion strategy and the objectives these promotion components
are expected to achieve.
· The sales Iorce strategy, direct marketing strategy, and Internet strategy, indicating how they
are used in the positioning strategy.
Ü»-·¹²·²¹ ¬¸» б-·¬·±²·²¹ ͬ®¿¬»¹§ò Eirst, it is necessary to set the major strategy
guidelines Ior each marketing program component. Eor example, will more than one channel oI
distribution be utilized? Second, management strategies Ior each oI the program components are
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèî ﮬ ̸®»» Designing Market-Driven Strategies
implemented. Eor example, Pier 1•s retail management strategy involves inIorming store
managers about new merchandise, providing logistical support to the stores, and making neces-
sary changes in the strategy over time.
Ý®±--óÚ«²½¬·±²¿´ λ´¿¬·±²-¸·°-ò Responsibilities Ior the positioning strategy components
(product, distribution, price, and promotion) are oIten assigned to various Iunctional units within
a company or business unit. This separation oI responsibilities (and budgets) highlights the
importance oI coordinating the positioning strategy. Responsibility should be assigned Ior
coordinating and managing all aspects oI the positioning strategy. Some companies use strategy
teams Ior this purpose. Product and brand managers may be given responsibility Ior coordinating
the positioning strategy across Iunctional units.
Ü»¬»®³·²·²¹ б-·¬·±²·²¹ Ûºº»½¬·ª»²»--
Estimating how the market target will respond to a proposed marketing program, and, aIter imple-
mentation, determining how the target is responding to the program that has been implemented
are essential in selecting and managing positioning strategies. Positioning evaluation should
include customer analysis, competitor analysis, and internal analysis.
Importantly, these analy-
ses need to be conducted on a continuing basis to determine how well the positioning strategy is
perIorming. “Positioning helps customers know the real diIIerences among competing products
so that they can choose the one that is oI most value to them.’
Positioning shows how a com-
pany or brand is diIIerentiated Irom its competitors. Buyers position companies or brands using
ÛÈØ×Þ×Ì êòê
Type of
How active
will price be
Price strategy
Sales force
Price management
Role and objectives of
sales force
Size and deployment
Sales force manage-
ment strategy
Channel of
Price position
relative to
Advertising and
sales promotion
promotion role
and objectives
Media and
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïèí
speciIic attributes or dimensions about products or corporate values. Management•s objective is
to gain (or sustain) a distinct position that corresponds to target customers• value preIerences Ior
the brand or company being positioned.
Several methods are available Ior analyzing positioning alternatives and determining
positioning eIIectiveness. These include customer and competitor research, market testing oI
proposed strategies, and the use oI analytical models (Exhibit 6.7).
Ý«-¬±³»® ¿²¼ ݱ³°»¬·¬±® λ-»¿®½¸
Research studies provide customer and competitor inIormation which may be useIul in designing
positioning strategy and evaluating strategy results. Several oI the research methods discussed in
Part II help to determine the position oI a brand. Eor example, preIerence maps are useIul in
determining a marketing program strategy by mapping customer preIerences Ior various competing
Methods are available Ior considering the eIIects on sales oI several marketing program
components. Eor example, using multivariate testing (MVT), a screening experiment can be
conducted to identiIy important causal Iactors aIIecting market response.
The advantage oI MVT
is testing the eIIects oI several Iactors at the same time. Eor example, a medical equipment producer
identiIied seven Iactors as possible inIluences on the sales oI a new product Ior use by surgeons in
the operating room. The Iactors include: (1) special product training Ior salespeople; (2) monetary
incentives Ior salespeople; (3) vacation incentives Ior salespeople; (4) distributing product
inIormation to physicians; (5) mailing product inIormation to operating room supervisors; (6) a
letter Irom the president oI the Iirm describing the product; and (7) oIIering a customized surgical
product (in contrast to a standardized product). The eIIect oI each Iactor can be measured using Iield
tests to vary the amount oI the Iactor exposed to targeted buyers. Eor example, the high level oI Iac-
tor 1 consisted oI training whereas the low-level treatment was no training. A Iractional Iactorial
experimental design was used to evaluate the eIIects oI the seven Iactors. DiIIerent Iactor combina-
tions were tested. One Iactor combination included no training, a monetary incentive, no vacation
incentive, no mailing to physicians, mailing to operating room supervisors, letter Irom the president,
and the standard product. A sample oI 64 salespeople was randomly selected, and groups oI eight
were randomly assigned to each oI the eight treatment combinations. The eight treatment combina-
tions were designed to enable testing the eIIects oI each Iactor plus the inIluence oI various
combinations oI Iactors.
One useIul Iinding oI the screening experiment was that several oI the Iactors had no impact
on sales. Eor example, the customized product did not sell as well as the standard product. This
inIormation saved the Iirm an estimated $1 million in expenses by eliminating the need to oIIer
customized product designs. BeIore conducting the experiment, management had planned to
customize the product Ior surgeons• use. The other results oI the screening experiment were
ÛÈØ×Þ×Ì êòé
Methods for
Customer and
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèì ﮬ ̸®»» Designing Market-Driven Strategies
useIul in designing the positioning strategy Ior the product. Interestingly, the vacation incentive
had the largest eIIect on sales oI all oI the Iactors, surpassing even the money incentive.
Ì»-¬ Ó¿®µ»¬·²¹
Test marketing generates inIormation about the commercial Ieasibility oI a promising new
product or about new positioning strategies Ior new products. The research method can also be
used to test possible changes in the marketing program components (e.g., diIIerent amounts oI
advertising expenditures). The decision to test market is inIluenced by the Iollowing Iactors:
1. How much risk and investment are associated with the venture? When both are low, launch-
ing the product without a test market may be appropriate.
2. How much oI a diIIerence is there between the manuIacturing investment required Ior the test
versus the national launch? A large diIIerence would Iavor a test market.
3. What are the likelihood and speed oI the competitive response to the product oIIering?
4. How do the marketing costs and risks vary with the scale oI the launch?
While usually costing less than a national introduction, test marketing is nevertheless expensive.
Market tests oI packaged consumer products oIten cost $2 million or more depending on the scope
oI the tests and locations involved.
The competitive risks oI revealing one•s plans must also be
weighed against the value oI test market inIormation. The major beneIits oI testing are risk reduc-
tion through better demand Iorecasts and the opportunity to Iine-tune a marketing program strategy.
Test marketing provides market (sales) Iorecasts and inIormation on the eIIectiveness oI
alternative marketing program strategies. Eorecasts and other inIormation are highly dependent
on how well results Irom one or a Iew test markets provide accurate projections oI how
the national market or regional market will respond to the marketing program being tested.
Model-based analysis helps overcome problems associated with idiosyncrasies oI test cities.
A detailed behavioral model oI the consumer is used to analyze test market inIormation and
develop Iorecasts that can be made Ior the eIIect oI modiIied marketing strategies. We continue
the discussion oI test marketing oI new products in Chapter 8.
Virtual shopping is a potentially powerIul computer-simulated environment Ior testing buyers•
reactions to new products and developing positioning strategies.
A virtual retail store can be cre-
ated as a marketing laboratory Ior testing new-product concepts beIore commercial introduction.
In addition to evaluating new-product concepts, the virtual shopping laboratory can test alternative
retail display Iormats and other marketing program components such as product styles and sizes.
б-·¬·±²·²¹ Ó±¼»´-
Obtaining inIormation about customers and prospects, analyzing it, and then developing strate-
gies based on the inIormation coupled with management judgment is the crux oI positioning
analysis. Some promising results have been achieved by incorporating research data into Iormal
models Ior decision analysis. These models are developed using historical sales and marketing
program data. A wide range oI soItware is available Ior marketing model applications (e.g.,
advertising media allocation models).
Comprehensive discussion oI marketing model applica-
tions is available Irom various sources.
Ü»¬»®³·²·²¹ б-·¬·±²·²¹ Ûºº»½¬·ª»²»--
How do we know iI we have a good positioning strategy? Does the strategy yield the results that are
expected concerning sales, market share, proIit contribution, growth rates, customer satisIaction, and
other competitive advantage outcomes? Gauging the eIIectiveness oI a marketing program strategy
using speciIic criteria such as market share and proIitability is more straightIorward than evaluating
competitive advantage. Yet developing a positioning strategy that cannot be easily copied is an
essential consideration. Eor example, a competitor would need considerable resourcesœnot to
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèë ﮬ Ѳ» Fixed Income securities
mention a long time periodœto duplicate the powerIul Revenue Management decision support
system developed by American Airlines. In contrast, an airline can respond immediately with a price
cut to meet the price oIIered by a competitor.
Companies do not alter their positioning strategies on a Irequent basis, although adjustments
are made at diIIerent stages oI product-market maturity and in response to environmental,
market, and competitive Iorces. Eor example, Pier 1 began national television advertising in
1995, and the expenditures generated very Iavorable sales response. Even though Irequent
changes are not made, a successIul positioning strategy should be evaluated on a regular basis
to identiIy shiIting buyer preIerences and changes in competitors• strategies.
The importance oI clear, strong positioning is undermined by Iaulty positioning, which can
subvert a company•s marketing strategy. Positioning errors include:
· Underpositioningœwhen customers have only vague ideas about the company and its
products and do not perceive anything distinctive about them.
· Overpositioningœwhen customers have too narrow an understanding oI the company,
product, or brand. Eor example, Mont Blanc sells pens Ior several thousand dollars, but it is
important to the company that the consumer is aware that Mont Blanc pens are available in
much cheaper models.
· Confused positioningœwhen Irequent changes and contradictory messages conIuse
customers regarding the positioning oI the brand.
· Doubtful positioningœwhen the claims made Ior the product or brand are not regarded as
credible by the customer.
б-·¬·±²·²¹ ¿²¼ Ì¿®¹»¬·²¹ ͬ®¿¬»¹·»-
Positioning strategies become particularly challenging when management decides to target
several segments. The objective is to develop an eIIective positioning strategy Ior each segment.
The use oI a diIIerent brand Ior each targeted segment is one way oI Iocusing a positioning
strategy. The Gap employs this strategy with its Gap, Banana Republic, and Old Navy brands.
It is a challenge Ior a company with a clear positioning and segment choice in place to target
additional segments which may undermine the strength oI positioning in the existing segment.
This may be particularly important to maintaining growth in mature markets. The Strategy
Eeature describing the positioning and targeting dilemma Ior Harley-Davidson is illustrative.
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ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïèë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèê ﮬ ̸®»» Designing Market-Driven Strategies
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Procter & Gamble (P&G) competes in the United States
and many other countries. Consider how P&G may utilize
maps in analyzing and selecting market targets (see
tiger.census.gov and www.nationalgeographic.com).
B. Go to www.fnf.com and click on “Background’ and then on
“East Eacts.’ Describe the diIIerent business segments and
units oI Johnson & Johnson.
C. Go to www.mcdonalds.com and analyze McDonald•s revi-
talization plan and discuss possible marketing strategies
Ior McDonald•s.
D. Based on inIormation available at www.cisco.com describe
Cisco Systems• positioning strategy.
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Review the Global Eeature “Bollywood,’ and consider what
market targeting and strategic positioning choices are Iaced
by a Bollywood studio targeting the U.S. marketplace.
B. Examine the issues described in the Strategy Eeature
“Harley-Davidson,’ and identiIy the problem Harley Iaces
concerning positioning in its core market segment while
trying to gain business Irom new segments with diIIerent
needs. How can the company resolve this dilemma?
Choosing the right market target strategy can aIIect the
perIormance oI the enterprise. The targeting decision is critical
to guiding the positioning oI a brand or company in the
marketplace. Sometimes a single target cannot be selected
because the business competes in several market segments.
Moreover, locating the Iirm•s best match between its distinc-
tive capabilities and a market segment•s value requirements
may Iirst require a detailed analysis oI several segments.
Targeting decisions establish key guidelines Ior business and
marketing strategies.
The market targeting options include a single segment,
selective segments, or extensive segments. Choosing among
these options involves consideration oI the stage oI product-
market maturity, buyer diversity, industry structure, and the
organization•s distinctive capabilities. When segments cannot
be clearly deIined, product specialization or product variety
strategies may be used.
Market targeting decisions need to take into account the
product-market liIe cycle stage. Risk and uncertainty are high in
the emerging market stage because oI the lack oI experience in
the new market. Targeting in the growth stage beneIits Irom
prior experience, although competition is likely to be more
intense than in the emerging market stage. Targeting approaches
may be narrow or broad in scope based on the Iirm•s resources
and competitive advantage. Targeting in mature markets oIten
involves multiple targeting (or product variety) strategies by a
Iew major competitors and single/selective (or product special-
ization) strategies by Iirms with small market shares. Global tar-
geting ranges Irom local adaptation to global reach.
The positioning concept describes how management wants
buyers to position the brand. The concept used to position the
brand may be based on the Iunctions provided by the product,
the experience it oIIers, or the symbol it conveys. Importantly,
buyers position brands whereas companies seek to inIluence
how buyers position brands. Success depends on how well the
organization•s distinctive capabilities correspond to the value
requirements oI each targeted segment.
Developing the positioning strategy requires integrating the
product, value-chain, price, and promotion strategies to Iocus
them on the market target. The result is an integrated strategy
designed to achieve management•s positioning objectives
while gaining the largest possible competitive advantage.
Shaping this bundle oI strategies is a major challenge to
marketing decision makers. Since the strategies span diIIerent
Iunctional areas and responsibilities, close cross-Iunctional
coordination is essential.
Building on an understanding oI the market target and the
objectives to be accomplished by the marketing program, the
positioning strategy matches the Iirm•s capabilities to buyers•
value preIerences. These programming decisions include select-
ing the amount oI expenditure, deciding how to allocate these
resources to the marketing program components, and making
the most eIIective use oI resources within each mix component.
The Iactors that aIIect marketing program strategy include the
market target, competition, resource constraints, management•s
priorities, and the product liIe cycle. The positioning strategy
describes the desired positioning relative to the competition.
Central to the positioning decision is examining the rela-
tionship between the marketing eIIort and the market response.
Positioning analysis is useIul in estimating the market response
as well as in evaluating competition and buyer preIerences.
The analysis methods include customer/competitor research,
market testing, and positioning models. Analysis inIormation,
combined with management judgment and experience, are the
basis Ior selecting a positioning strategy.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® ê Market 1argeting and Strategic Positioning ïèé
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Discuss why it may be necessary Ior an organization to
alter its targeting strategy over time.
2. What Iactors are important in selecting a market target?
3. Discuss the considerations that should be evaluated in
targeting a macromarket segment whose buyers• needs
vary versus targeting three microsegments within the
4. How might a medium-sized bank determine the major
market targets served by the bank?
5. Select a product and discuss how the size and composition
oI the marketing program might require adjustment as the
product moves through its liIe cycle.
6. Suggest an approach that can be used by a regional Iamily
restaurant chain to determine the Iirm•s strengths over its
7. Describe a positioning concept Ior three diIIerent brands/
products that corresponds to Iunctional, experiential, and
symbolic positioning.
8. Discuss some oI the more important reasons why test
market results may not be a good gauge oI how well a new
product will perIorm when it is launched in the national
9. “Evaluating marketing perIormance by using return-on-
investment (ROI) measures is not appropriate because
marketing is only one oI several inIluences upon ROI.’
Develop an argument against this statement.
10. Two Iactors complicate the problem oI making Iuture
projections as to the Iinancial perIormance oI marketing
programs. Eirst, the Ilow oI revenues and costs is likely to
be uneven over the planning horizon. Second, sales may
not develop as Iorecasted. How should we handle these
Iactors in Iinancial projections?
11. Discuss the relationship between the positioning concept
and positioning strategy.
12. Select a product type product-market (e.g., ice cream).
Discuss the use oI Iunctional, symbolic, and experiential
positioning concepts in this product category.
13. Discuss the conditions that might enable a new competitor
to enter a mature product-market.
14. Competing in the mature market Ior air travel promises to
be a demanding challenge in the 21st century. Discuss the
marketing strategy issues Iacing Delta Airlines during the
next decade.
15. Assume you are assisting Motorola in determining inIor-
mation needs Ior monitoring its cell phone targeting and
positioning strategies. What are your recommendations?
1. Based in part on John Helyar, “The Only Company
Wal-Mart Eears,’ Fortune, November 2, 2003, 158›166:
Ratings and Reports, 1he Jalue Line Investment Survey,
November 12, 2004, 1677.
2. Anthony Bianco, “The Vanishing Mass Market,’
BusinessWeek, July 12, 2004, 63.
3. Ravi S. Achrol, “Evolution oI the Marketing Organization:
New Eorms Ior Turbulent Environments,’ Journal of
Marketing, October 1991, 82›83.
4. Michael E. Porter, “What Is Strategy?’ Harvard Business
Review, November›December 1996, 66.
5. Michael E. Porter, Competitive Strategy (New York: Eree
Press, 1980), Chapter 9.
6. Mary Lambkin and George S. Day, “Evolutionary Processes
in Competitive Markets: Beyond the Product LiIe Cycle,’
Journal of Marketing, July 1989, 4.
7. Ibid., 13.
8. Clayton M. Christensen and Michael E. Raynor, 1he
Innovator•s Solution (Boston: Harvard Business School
Press, 2003), Chapter 1.
9. Elaine Romanelli, “New Venture Strategies in the Mini-
computer Industry,’ California Management Review, Eall
1987, 161.
10. Lambkin and Day, “Evolutionary Processes in Competitive
Markets,’ 14.
11. Romanelli, “New Venture Strategies in the Minicomputer
Industry,’ 161.
12. Lambkin and Day, “Evolutionary Processes in Competitive
Markets,’ 11.
13. Romanelli, “New Venture Strategies in the Minicomputer
Industry,’ 170›172.
14. Lambkin and Day, “Evolutionary Processes in Competitive
Markets,’ 12.
15. Porter, Competitive Strategy, 238›240.
16. George S. Day, Market-Driven Strategy (New York: The
Eree Press, 1990), 266›270.
17. Philip R. Cateora and John L. Graham, International
Marketing, 12th ed. (New York: McGraw-Hill/Irwin, 2005),
18. Manjeet Kripalani and Ron Grover, “Bollywood,’
BusinessWeek, December 2, 2002, 42›46.
19. C. Whan Park, Bernard J. Jaworski, and Deborah J. Macinnis,
“Strategic Brand Concept-Image Management,’ Journal of
Marketing, October 1986, 135›145.
20. Reprinted Irom Business Hori:ons, May-June 1982, David
A. Aaker and J. Gary Shansby, “Positioning Your
Product,’ Copyright 1982, with permission Irom Elsevier.
21. C. W. Park and Gerald Zaltman, Marketing Management
(Chicago: The Dryden Press, 1987), 248.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ êò Ó¿®µ»¬ Ì¿®¹»¬·²¹ ¿²¼
ͬ®¿¬»¹·½ б-·¬·±²·²¹
ݱ³°¿²·»-ô îððë
ïèè ﮬ ̸®»» Designing Market-Driven Strategies
22. This discussion is based on Park, Jaworski, and Macinnis,
“Strategic Brand Concept-Image Management,’ 136›137,
and David A. Aaker, Building Strong Brands (New York:
The Eree Press, 1996), 95›101.
23. Ibid.
24. This illustration is drawn Irom discussions with Pier 1
executives, Annual Reports, and published inIormation.
25. Aaker, Building Strong Brands, Chapter 6.
26. Edward D. Mingo, “The Eine Art oI Positioning,’ 1he
Journal of Business Strategy, March/April 1988, 34.
27. Rita Koselka, “The New Mantra: MVT,’ Forbes, March
11, 1996, 114›116; David W. Cravens, Charles H.
Holland, Charles W. Lamb Jr., and William C. MoncrieI
III, “Marketing•s Role in Product and Service Quality,’
Industrial Marketing Management, November 1988, 301.
28. N. D. Cadbury, “When, Where, and How to Test Market,’
Harvard Business Review, May›June 1975, 97›98.
29. Glen L. Urban and John R. Hauser, Design and Marketing
of New Products, 2nd ed. (Englewood CliIIs, NJ: Prentice-
Hall, 1993), 495.
30. Ibid.; See Chapter 17 Ior a discussion oI alternative meth-
ods Ior analyzing test markets.
31. Raymond R. Burke, “Virtual Shopping: Breakthrough
in Marketing Research,’ Harvard Business Review,
March›April 1996, 120›131.
32. Gary L. Lilien and Arvind Rangaswamy, Marketing Engi-
neering. Computer Assisted Marketing Analysis and
Planning (Reading, MA: Addison-Wesley, 1998).
33. See, Ior example, Gary L. Lillien, Phillip Kotler, and
K. Sridhar Moorthy, Marketing Models (Englewood
CliIIs, NJ: Prentice-Hall, 1992).
34. Graham J. Hooley, John A. Saunders, and Nigel E. Piercy,
Marketing Strategy and Competitive Positioning, 3rd ed.
(London: Prentice-Hall Europe, 2003), 269.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Ü»-·¹²·²¹ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹·»-
ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
Strategic relationships among suppliers, producers, distribution channel organizations, and
customers (end users oI goods and services) occur Ior several reasons. The objective may be to
gain access to markets, enhance value oIIerings, reduce the risks generated by rapid environ-
mental change, share complementary skills to acquire new knowledge, or obtain resources
beyond those available to a single enterprise. These relationships are not recent innovations, but
they are escalating in importance because oI the environmental complexity and risks oI a global
economy, and the skill and resource limitations oI a single organization.
Strategic alliances,
joint ventures, and supplier-producer collaborations are examples oI cooperative relationships
between independent Iirms.
An interesting example oI an evolving relationship strategy is the Business Development
Initiative launched by RadioShack in 2004. As part oI its mission to demystiIy new technology
Ior the consumerœ“You•ve Got Questions. We•ve Got Answers.’œRadioShack relies on
strategic alliances to bring technology to its 7,000 stores and the one million consumers who
visit one oI them every day. Through the late 1990s RadioShack pioneered cobranding alliances
with leading brands in the electronics and computer industry to pursue “stores within a store’œ
Ior example, “The Sprint Store at RadioShack’ brought wireless phone and other telephone serv-
ices to RadioShack stores, while “The RadioShack Cool Things’ gave Radioshack a bridge Irom
consumer electronics into the home entertainment industry.
The alliance approach continues to underpin RadioShack•s strategy. In 2003 RadioShack
announced a strategic alliance with GlobeSecNine in Washington, DC, to identiIy declassiIied
military and security technology that could provide consumer products (such as “smart’ cameras
and tracking systems). A major move in 2004 also saw a RadioShack alliance with Motorola to
leverage joint development, sourcing, and licensing power (e.g., in Bluetooth wireless technol-
ogy accessories and broadband networking products). The same year saw another alliance Ior
RadioShack with EchoStar Communications Corp. and SIRIUS satellite radio to position
EchoStar•s DISH network and SIRIUS as the only satellite entertainment brands oIIered in
Marketing relationships are important avenues to building strong bonds with customers.
The RadioShack illustration indicates how essential it is to consider all oI the participating
organizations involved in linking buyers with sellers in the relationship strategy. The objec-
tive is to oIIer end user customers superior value through collaboration oI the organizations
involved in the process. However, it is also important to recognize that collaborative relation-
ship strategies may radically transIorm traditional buyer-seller and competitor structures in
unexpected ways.
Increasingly, business and marketing strategies involve more than a single organization.
In this chapter we examine the nature and scope oI the strategic relationships among various
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Alliances Internal
ïçð ﮬ ̸®»» Designing Market-Driven Strategies
partners. We consider the Iull range oI strategic relationships shown in Exhibit 7.1. Eirst, we
consider the rationale Ior interorganizational relationships and discuss the logic underlying col-
laborative relationships. Next, we look at diIIerent kinds oI relationships among organizations,
Iollowed by a discussion oI several considerations that are important in developing eIIective
interorganizational relationships. We emphasize the risks and strategic vulnerabilities that new
types oI business relationship strategies may create. Einally, we discuss several issues that are
important concerning global relationships.
̸» ο¬·±²¿´» º±® ײ¬»®±®¹¿²·¦¿¬·±²¿´ λ´¿¬·±²-¸·°-
In the past, companies Irequently established relationships to achieve tactical objectives such as
selling in smaller overseas markets.
Today strategic relationships among organizations consider
the elements oI overall competitive strengthœtechnology, costs, and marketing. Unlike tactical
relationships, the eIIectiveness oI these strategic agreements among companies can aIIect their
long-term perIormance and even survival.
Several Iactors create a need to establish cooperative strategic relationships with other
organizations. These inIluences include the opportunities to enhance value oIIerings to cus-
tomers; the diversity, turbulence, and riskiness oI the global business environment; the escalat-
ing complexity oI technology; the existence oI large resource requirements; the need to gain
access to global markets; and the availability oI an impressive array oI inIormation technology
Ior coordinating intercompany operations. As shown in Exhibit 7.2, the various drivers oI rela-
tionships Iall into three broad categories: (1) value-enhancing opportunities by combining the
competencies oI two or more organizations, (2) environmental turbulence and diversity, and
(3) skill and resource gaps.
Ê¿´«»óÛ²¸¿²½·²¹ Ñ°°±®¬«²·¬·»-
The opportunity present in many markets today is that organizations can couple their competen-
cies to oIIer superior customer value. Even when partnering is not required, a relationship strat-
egy may result in a much more attractive value oIIering.
RadioShack•s “Store-within-a-Store’ concepts give customers the combined advantages oI
strong producer/service supplier and retail brands. Customers work with experienced electron-
ics retailers and also gain access to strong product brands. Similar logic underpins the deal
between Amazon and The Bombay Company. Amazon will sell Iurniture by Bombay Company
and Bombay Kids onlineœAmazon leverages its database expertise to promote Bombay through
ÛÈØ×Þ×Ì éòï
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
The Rationale
Skill and
resource gaps
and diversity
ݸ¿°¬»® é Strategic Relationships ïçï
targeted e-mails and other Iorms oI personalized marketing, using technology not otherwise
available to Bombay.
Modularity in product and process design oIIers a promising basis Ior leveraging interorga-
nizational capabilities to create superior customer value. It consists oI “building a complex prod-
uct or process Irom smaller subsystems that can be designed independently yet Iunction together
as a whole.’
A key Ieature oI modularity is the Ilexibility gained by designers, producers, and
product users. Companies are able to partner with others in design and production oI modules or
subsystems. The computer industry has perIormed a leadership role in advancing the use oI mod-
ularity. Chip designers, computer manuIacturers, component specialists, and soItware Iirms are
able to make unique contributions to product design, manuIacture, and use by working within
the Iramework oI an integrated architecture, which indicates how the modules Iit together and
the Iunctions each will perIorm.
A similar logic underpins the strategy developed at TiVo Inc., the pioneering producer oI dig-
ital video recorders that allow TV viewers to pause live television, zip through commercials, and
automatically record their Iavorite programs. Eaced with lower price competition Irom cable TV
companies oIIering similar services, and new competitors entering the market, TiVo is striking
alliances to have its soItware incorporated into Iast-selling consumer electronics like DVD play-
ers and laptop computers, aiming to build business Irom the premium services it can then oIIer
consumers. The challenge is to make “TiVo Inside’ successIul across several sectors.
Û²ª·®±²³»²¬¿´ Ì«®¾«´»²½» ¿²¼ Ü·ª»®-·¬§
Since the changing and turbulent global business environment is examined in several chapters,
the present discussion is brieI. Diversity reIers to diIIerences between the elements in the envi-
ronment, including people, organizations, and social Iorces aIIecting resources.
global markets create important challenges Ior companies.
Coping with diversity involves both the internal organization and its relationships with other
organizations. Environmental diversity reduces the capacity oI an organization to respond
quickly to customer needs and new product development.
Organizations meet this challenge by
(1) altering their internal organization structures, and (2) establishing strategic relationships with
other organizations.
Environmental diversity makes it diIIicult to link buyers and the goods and services that
meet buyers• needs and wants in the marketplace. Because oI this, companies are teaming up to
meet the requirements oI Iragmented markets and complex technologies. These strategies may
involve supplier and producer collaboration, strategic alliances between competitors, joint ven-
tures between industry members, and network organizations that coordinate partnerships and
alliances with many other organizations.
Examples oI these organization Iorms are discussed
later in the chapter.
Exhibit 7.3 illustrates growth trends in strategic relationships. Major organizations through-
out the world display escalating dependence on alliances to build business, and this trend appears
set to continue.
ÛÈØ×Þ×Ì éòî
Ü®·ª»®- ±º
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ïçî ﮬ ̸®»» Designing Market-Driven Strategies
͵·´´ ¿²¼ λ-±«®½» Ù¿°-
The skill and resource requirements oI technologies in many industries oIten surpass the capabil-
ities oI a single organization. Even those companies that can develop the capabilities may do
so Iaster via partnering. Thus, the sharing oI complementary technologies and risks are important
drivers Ior strategic partnerships. In addition to technology, Iinancial constraints, access to
markets, and availability oI inIormation systems encourage establishing relationships among
independent organizations. Eor example, airIrame manuIacturer Boeing, seeking to provide air-
line passengers with live television and Internet access, joined Iorces with units oI Loral Space
and Communications Ltd., Italy•s Einmeccanica SpA, and Japan•s Mitsubishi group to create
an inIlight-communications venture, which also includes CNN and CNBC to provide news
An interesting and unusual illustration is provided by the Anglo-German alliance between
Warren Kade, a small British clothing company, and Siemens, the German engineering and elec-
tronics conglomerate. The alliance helps position Siemens• mobile phones as Iashion accessories
associated with designer clothing on the Paris catwalk, but with the potentials Ior new design
concepts to be incorporated in the phones, and advanced electronics to be designed into Iashion
clothing. The alliance unusually brings Iashion and technology closer together.
ײ½®»¿-·²¹ ݱ³°´»¨·¬§ ±º Ì»½¸²±´±¹§ò Technology constraints impact industry giants as
well as smaller Iirms. Small companies with specialized competitive strengths are able to
achieve impressive bargaining power with larger Iirms because oI their high levels oI compe-
tence in specialized technology areas, and their ability to substantially compress development
time. The partnerships between large and small pharmaceutical companies are illustrative. The
small Iirm gains Iinancial support, while the large Iirm gets access to specialized technology.
ÛÈØ×Þ×Ì éòí
Ù®±©¬¸ ·²
Sources: Loren Gary,
“A Growing Reliance on
Alliance,’ Harvard
Management Update, April
2004, 3›4. Matthew
SchiIrin, “Partner or
Perish,’ Forbes, May 21,
2001, 26›28. Maria
Gonzalez, “Strategic
Alliances,’ Ivey Business
Journal, September/
October 2001, 47›51.
J. R. Harbison and
P. Pekar, Smart Alliances.
A Practical Guide to
Repeatable Success (San
Erancisco: Jossey-Bass,
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«° º®±³ ïï °»®½»²¬ º·ª»® §»¿®- »¿®´·»®ò
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ª¿´«» ©·¬¸·² º·ª» §»¿®-ò
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ß Ê¿²¬¿¹» ﮬ²»®- -«®ª»§ ±º ¬¸» ¬±° ïôððð ËòÍò ½±³°¿²·»- º±«²¼ ·² îððí ²»¿®´§ îð °»®ó
½»²¬ ±º ¬¸»·® ®»ª»²«» ®»-«´¬»¼ º®±³ ¿´´·¿²½»-ô ©·¬¸ º±®»½¿-¬- ¬¸·- ©±«´¼ ®»¿½¸ íð °»®½»²¬ ·²
îððìò λ´·¿²½» ±² ¿´´·¿²½»- ©¿- »ª»² ¸·¹¸»® ·² Û«®±°»¿² ½±³°¿²·»-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Similarly, in 2001 IBM Iormed 59 strategic soItware alliances to bring “the hot, the cool, the
Iast, where IBM needs it.’
Access to technology and other skills, specialization advantages, and the opportunity
to enhance product value are important motivations Ior establishing relationships among
organizations. These relationships may be vertical between suppliers and producers or horizon-
tal across industry members.
The global aerospace and deIense industry provides a compelling illustration oI the risks
driven by technology complexity and the importance oI managing alliances eIIectively. The
Strategy Eeature describes the problematic relationships between U.S. and European producers,
and the danger that Iailure to collaborate eIIectively and share risks may increase risk by turn-
ing potential partners into powerIul competitors.
Ú·²¿²½·¿´ ݱ²-¬®¿·²¬-ò The Iinancial needs Ior competing in global markets are oIten
greater than the capacity oI a single organization. As a result, many companies must seek part-
ners in order to obtain the resources essential Ior competing in many industries, or to spread the
risks oI Iinancial loss with another Iirm.
The development oI large commercial aircraIt described in the Strategy Eeature illustrates the
limitations oI one company trying to compete in this global market. Boeing and Airbus Industrie,
the industry leaders, are conIronting the challenge oI developing strategies Ior competing
eIIectively in the 21st century. The two companies display intensive rivalry and are Iiercely
competitive Ior market share in the depressed airliner market. However, the two companies
ͬ®¿¬»¹§ Ú»¿¬«®»
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½±³°¿®»¼ ¬± ß·®¾«-• üíé ¾·´´·±²ô ¾§ îððì ÛßÜÍ ©¿-
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ͱ«®½»æ ο½¸»´ Ì·°´¿¼§ô “ÛßÜÍæ Û«®±°»•- Ù·¿²¬ Õ»»°- Ý´·³¾·²¹ô’
¿²¼ “ß»®±-°¿½» ú ߪ·¿¬·±²ô’ Þ«-·²»--É»»µô Ö«´§ îêô îððìò
ß»®±-°¿½» ײ¼«-¬®§ Ô»¿¼»®-¸·°
ݸ¿°¬»® é Strategic Relationships ïçí
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ïçì ﮬ ̸®»» Designing Market-Driven Strategies
are launching new aircraIt in diIIerent markets instead oI going head-to-head Ior the same
The Airbus vision is that airport congestion will be relieved by reducing the number oI air-
craIt Ilying Irom them, and has invested $10.7 billion in the development oI the A380 super-
jumbo carrying 555 passengers. Airbus can spread its risk over its consortium members (Iour
companies Irom England, Erance, Germany, and Spain Iorm Airbus). Boeing will invest $6
billion in developing its new 200›300-seat 7E7 Dreamliner, because it believes that major airport
congestion will be countered by more point-to-point Ilying between smaller cities. Importantly,
both companies have risk-sharing partners. Collaborators are investing $3.1 billion in new tech-
nologies Ior the double-decker A380, including 18 Japanese technology partners. Airbus claims
the A380 is the Iirst oI its models with more than 50 percent U.S. content (excluding engines).
Boeing•s 7E7 will be the least American oI any Boeing model with Ioreign companies supply-
ing up to 70 percent oI some versions. Thirty-Iive percent oI the 7E7œthe wings and Iorward
Iuselage sectionœwill come Irom Mitsubishi, Kawasaki, and Euji in Japan in a $2.26 billion deal
to develop these parts Irom carbon Iiber reinIorced plastic supplied by Toray Corp. in Japan.
This is the Iirst time in its history that Boeing has outsourced the design and development oI its
critical wing and center Iuselage.
ß½½»-- ¬± Ó¿®µ»¬-ò Organizational relationships are also important in gaining access to
markets. Products have traditionally been distributed through marketing intermediaries such as
wholesalers and retailers in order to access end user markets. These vertical channels oI distri-
bution are important in linking supply and demand. Horizontal relationships have oIten been
established between competing Iirms to access global markets and domestic market segments
not served by the cooperating Iirms. These cooperative marketing agreements expand the tradi-
tional channel oI distribution coverage and gain the advantage oI market knowledge in interna-
tional markets.
International strategic alliances are used by many companies competing throughout the
world. Commercial air travel is one oI the more active industries involving overseas partners and
competing through strategic alliances. The Global Eeature demonstrates how essential these
strategic relationships have become to competing in this industry. In eIIect competition is
between alliances rather than between individual organizations.
ײº±®³¿¬·±² Ì»½¸²±´±¹§ò InIormation technology makes establishing organizational rela-
tionships Ieasible in terms oI time, cost, and eIIectiveness. Advances in inIormation technology
provide an important resource Ior improving the eIIectiveness oI both internal and interorgani-
zational communications:
Advances in inIormation technology and telecommunications have removed many oI the commu-
nications barriers that prevented companies Irom drawing on overseas technical resources. Indeed,
the ability to transmit documents and even complex design drawings instantaneously Irom one part
oI the globe to another by electronic mail means that it is oIten more eIIicient to collaborate
globally in product development.
InIormation systems enable organizations to eIIectively communicate even though the col-
laborating Iirms are widely dispersed geographically. In particular, the Internet provides a pow-
erIul means, Ior example, to reduce product development times by sharing designs Ior
components and subassemblies with suppliers, customers, and collaborators throughout the
Electronic mail, Iile-sharing, and Web-based conIerencing and collaboration tools do
much to support working across traditional corporate boundaries.
An interesting example oI a new business model based on the Internet that reshapes relation-
ships between buyers and sellers is described in the Internet Eeature. Swedish-based ABB Group
is a leader in power and automation technologies. ABB uses the Internet to provide an integra-
tion platIormœIT Industrialœthat allows industrial customers to manage installations better and
to have real-time access to their own customers and suppliers.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Ù´±¾¿´ Ú»¿¬«®»
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¿·®´·²»- -©·¬½¸·²¹ ¿´´·¿²½»- ¿²¼ ¬¸» Ï«¿´·º´§»® ¿´´·¿²½» ¸¿- ¾»»² ¼·-¾¿²¼»¼ ©¸·´» ¬¸» É·²¹- ¿®®¿²¹»³»²¬ ¾»¬©»»²
ÕÔÓ ¿²¼ Ò±®¬¸©»-¬ -¬±°°»¼ ±°»®¿¬·²¹ ¿º¬»® ÕÔÓ ©¿- ¾±«¹¸¬ ¾§ ß·® Ú®¿²½» ·² îððìò
Ó¿¶±® ײ¬»®²¿¬·±²¿´ ß·®´·²» ß´´·¿²½»-
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º´§ ¬¸» ©±®´¼’ ß²-»¬¬ ß«-¬®¿´·¿ øïççç÷ ß²-»¬¬ ½±´´¿°-»¼ îððïò
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ݸ¿°¬»® é Strategic Relationships ïçë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Û¨¿³·²·²¹ ¬¸» ᬻ²¬·¿´ º±® ݱ´´¿¾±®¿¬·ª» λ´¿¬·±²-¸·°-
Collaborative relations include shared activities such as product and process design, cooperative
marketing programs, applications assistance, long-term supply contracts, and just-in-time inven-
tory programs.
The amount oI collaboration may vary substantially across industries and indi-
vidual companies. Moreover, in a given competitive situation a Iirm may pursue diIIerent
degrees oI collaboration across its customer base. Eor example, some supplier-customer rela-
tionships are transactional, but the same supplier may seek collaborative relationships with other
There are several Iactors that need to be evaluated when considering possible collaborative
relationships with other organizations. We examine each Iactor, indicating important issues con-
cerning how the Iactor may impact a strategic relationship.
ɸ¿¬ ×- ¬¸» ͬ®¿¬»¹·½ Ô±¹·½á Partnering is the result oI two organizations working together
toward a common objective such as sharing technologies, market access, or compressing new
product development time. Eor example, a supplier may beneIit Irom a customer•s leading-edge
application oI the supplier•s product.
When Wal-Mart wanted to expand in Mexico in anticipation oI NAETA, it established a joint
venture with Mexico•s CiIra, providing Wal-Mart with a Iirm base and greatly reducing its
learning time in a new market. CiIra/Wal-Mart is now Mexico•s leading retailer under the name
Wal-Mart de Mexico. Interestingly, Wal-Mart has taken that experience and applied it to Brazil
and other parts oI Latin America.
ïçê ﮬ ̸®»» Designing Market-Driven Strategies
Ó¿¶±® ײ¬»®²¿¬·±²¿´ ß·®´·²» ß´´·¿²½»- ø½±²¬·²«»¼÷
ß´´·¿²½» Í´±¹¿² Ú±«²¼»¼ ͸¿®»ö Ó»³¾»®- ݱ³³»²¬-
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-·²½» ïççí Ò±®¬¸©»-¬ îððì »ºº»½¬·ª»´§
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Ï«¿´·º´§»® “Ú´§·²¹ Ó¿®½¸ › Ú±®³»¼ º®±³ ïî Û«®±°»¿² Ü·-¾¿²¼»¼ ·² îððî
Û«®±°»¿² ïççè ¿·®´·²»-ô ¼»º»½¬·±²- ¬± ͬ¿® ¾§ ¬¸» -»ª»²
-¬§´»’ ¿²¼ Ѳ»©±®´¼ ©»¿µ»²»¼ ®»³¿·²·²¹
¬¸» ¿´´·¿²½» ³»³¾»®-ô ©¸± ¿®»
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ͱ«®½»æ ̱«®·-³ Ú«¬«®»- ײ¬»®²¿¬·±²¿´ô ©©©ò¬±«®·-³º«¬«®»-·²¬´ò½±³ô Ö«´§ îððìò λ°®·²¬»¼ ©·¬¸ °»®³·--·±²ò
ö ×ßÌß »-¬·³¿¬»- º±® îððîò
öö ײ½´«¼»- Ô¿«¼¿ ß·® ¿²¼ ̧®±´»¿²ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ͬ®¿¬»¹§ Ú»¿¬«®»
Ù·´»¬¬» Ë-»-ñß¼ª»®¬·-·²¹ ¬± б-·¬·±² ׬- Ô·²» ±º
Research by Accenture on alliance issues and trends in 2003 Iinds that Ior nearly halI the
companies involved in strategic alliances, learning was seen as the critical goal. Achieving learn-
ing goals through alliances is highly associated with successIul alliances.
The key issue is that there should be a strong underlying logic Ior collaboration. The align-
ment between alliance strategy and business strategy is crucial to success in partnering.
×- ﮬ²»®·²¹ ¿ Ю±³·-·²¹ ͬ®¿¬»¹§á This Iactor considers the costs as well as the beneIits
oI partnering with customers, suppliers, and competitors. Strategic relationships are demanding
in terms oI both time and resources. The relationship may require substantial investments by the
partners, and oIten cannot be transIerred to other business relationships.
Because oI this, the
beneIits need to be candidly assessed and compared to the costs. This requires careIul planning
oI the relationship to spell out activities, participants, and costs.
ر© Û--»²¬·¿´ ×- ¬¸» λ´¿¬·±²-¸·° ͬ®¿¬»¹§á Normally, relationships are Iormed because the
partners believe that combining their eIIorts is essential, and that pursuing the project alone is
not Ieasible. However, experience indicates that strategic relationships are more likely to suc-
ceed when dependence is important and equivalent between the collaborating organizations.
ß®» Ù±±¼ Ý¿²¼·¼¿¬»- ߪ¿·´¿¾´»á Promising partners may be unwilling to collaborate or
already involved with other organizations. Eor example, many oI the desirable global airline
alliance partners have established relationships (see the Global Eeature on Airline Strategic
Alliances), and partnering with weaker companies is increasingly undesirable in this sector.
ܱ λ´¿¬·±²-¸·°- Ú·¬ Ñ«® Ý«´¬«®»á The corporate cultures oI the partners should be adapt-
able to the partnership.
This issue is particularly important Ior partners Irom countries with
substantial national cultural diIIerences. The partners• approach to business activities and prior-
ities should be compatible.
Eor example, the global alliance between British Telecom (BT) and AT&T aimed to combine
resources around “Concert’œa product to provide multinational corporations with a single,
global telecoms source based on “virtual private networks,’ with target sales oI $10 billion. BT
had a history oI Iailed partnerships in its globalization initiatives. AT&T lacked experience in
collaborative situations, and its earlier global allianceœUnisourceœhad broken down over
AT&T•s reluctance to cooperate with Ioreign partners or commit to common investment with
ײ¬»®²»¬ Ú»¿¬«®»
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¾·´´·±² ·- ±²» ±º ¬¸» ¬¸®»» ´¿®¹»-¬ »´»½¬®·½¿´ »²¹·²»»®·²¹
½±³°¿²·»- ·² ¬¸» ©±®´¼ò Í»ª»®¿´ »ª»²¬- «²¼»®´·²» ¬¸» ´·²µ
¾»¬©»»² ¬¸» ײ¬»®²»¬ ¿²¼ ®»´¿¬·±²-¸·° -¬®¿¬»¹§æ
ײ îðððô ÝÛÑ Ù®¿² Ô·²¼¿¸´ ®»-·¹²»¼ ¾»½¿«-» ¸» ©¿-
½±²ª·²½»¼ ¬¸¿¬ ßÞÞ•- ´»¿¼»®-¸·° ®»¯«·®»¼ ¿² ·²º±®³¿ó
¬·±² ¬»½¸²±´±¹§ ¾¿½µ¹®±«²¼ô ²±¬ ¬®¿¼·¬·±²¿´ »²¹·²»»®ó
·²¹ -µ·´´-ò
ײ-¬»¿¼ ±º «-·²¹ ¬¸» É»¾ ¶«-¬ ¬± -«°°±®¬ ¾«§·²¹ ¿²¼
-»´´·²¹ ±º ¹±±¼- ¿²¼ -»®ª·½»-ô ßÞÞ•- »ó¾«-·²»-- ³±¼»´
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º»»¼ ·¬- ¬»½¸²±´±¹§ »¨°»®¬·-» ¿²¼ µ²±©´»¼¹» ±º ·²¼«-ó
¬®§ ¬®»²¼- ¬± ½«-¬±³»®-ò
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©·¬¸ »¿½¸ ±¬¸»® ¿- ©»´´ ¿- ©·¬¸ ßÞÞò
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µ²±©´»¼¹» ±º ·¬- »³°´±§»»-œ¬¸» ײ¬»®²»¬ °®±ª·¼»-
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¿²¼ ©·¬¸ ½«-¬±³»®-ò
ײº±®³¿¬·±² -¸¿®·²¹ ·- ¾»¬©»»² ½«-¬±³»®- ¿- ©»´´œ
Ô·²¼¬ô ¬¸» Í©·-- ½¸±½±´¿¬» ½±³°¿²§ ½¿² «-» ·¬- ßÞÞ
É»¾ °¿¹» ¬± -»» ¸±© ±¬¸»® ½«-¬±³»®- «-» “°®»ª»²¬¿ó
¬·ª» ³¿·²¬»²¿²½»’ ¬± ±°»®¿¬» º¿½¬±®·»- »ºº·½·»²¬´§ò
̸» ³±¼»´ ¾®·²¹- ßÞÞ•- ÎúÜ ½´±-»® ¬± ½«-¬±³»®- ¿²¼
¬± ¾«-·²»-- ¼»½·-·±²-ô -°»»¼·²¹ «° ¬¸» ½±³³»®½·¿´·¦¿ó
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®»-»¿®½¸ °®±¶»½¬-ô ©·¬¸ -¿ª·²¹- »-¬·³¿¬»¼ ¿- ¬»²- ±º
³·´´·±²- ±º ¼±´´¿®-ò
ͱ«®½»æ Û¨½»®°¬ º®±³ 묻® Ó¿®-¸ô “É»´¼·²¹ Ó»¬¿´ ¬± ¬¸»
ײ¬»®²»¬ô’ Ú·²¿²½·¿´ Ì·³»-ô ѽ¬±¾»® íðô îðððò λ°®·²¬»¼ ©·¬¸
ßÞÞ•- ײ¬»®²»¬ Ó±¼»´
ݸ¿°¬»® é Strategic Relationships ïçé
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Buyer partnerships
Supplier partnerships
ïçè ﮬ ̸®»» Designing Market-Driven Strategies
them. AIter a relationship oI persistent squabbling between BT and AT&T, the Concert alliance
collapsed aIter only two years. Costs to BT oI unwinding Irom the alliance are estimated at $2.1
billion, with charges oI $5.5 billion to AT&T Irom Concert•s demise.
We will discuss shortly the related question oI partnering capabilities. It is becoming clear
that the ability to operate eIIective relationship strategies between organizations relies on skills
and capabilities which vary considerably between organizations.
̧°»- ±º Ñ®¹¿²·¦¿¬·±²¿´ λ´¿¬·±²-¸·°-
The types oI relationships that may be Iormed by a Iirm are shown in Exhibit 7.4. Included are
supplier and buyer (vertical), lateral (horizontal), and internal relationships. A useIul way to
examine organizational relationships is to consider whether the tie between Iirms is vertical or
horizontal. The Iocal Iirm may participate in both vertical and horizontal relationships. We Iirst
look at vertical relationships among organizations, and, then, strategic alliances and joint ven-
tures, Iollowed by internal relationships. Evolving global, relationships among organizations are
examined in a subsequent section.
Ý«-¬±³»®óÍ«°°´·»® λ´¿¬·±²-¸·°-
Moving products through various stages in the value-added process oIten involves linking sup-
pliers, manuIacturers, distributors, and consumer and business end users oI goods and services
into vertical channels. Eunctional specialization and eIIiciency create the need Ior diIIerent types
oI organizations. Eor example, wholesalers stock products in inventory and deploy them when
needed to retailers, thus reducing the delays oI ordering direct Irom manuIacturers.
Over recent years the use oI supplier/manuIacturer collaborative relationships has expanded
in many industries. While problems such as industrial secrets, labor objections, and loss oI con-
trol occurred, the beneIits oI leveraging oI distinctive capabilities oI partners are substantial in
developing new products and manuIacturing processes. These relationships are extensively used
in the automotive and computer industries.
A related development is the outsourcing oI activities such as transportation, repair and main-
tenance services, inIormation systems, and human resources. It has been suggested that out-
sourcing parts oI the value-chain process to partners is a Iorm oI leveraged growthœit allows a
company to expand sales without capital investment in all stages oI the value chain.
ÛÈØ×Þ×Ì éòì
̧°»- ±º
Source: Eigure Irom
Robert M. Morgan and
Shelby D. Hunt, “The
Commitment›Trust Theory
oI Relationship Marketing’
Journal of Marketing, July
1994, 21. Reprinted with
permission oI the
American Marketing
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships ïçç
The suppliers and buyers oI a vast array oI raw materials, parts and components, equipment,
and services (e.g., consulting, maintenance) are linked together in vertical channels oI distribu-
tion. The relationships between the supplier and customer range Irom transactional to collabo-
rative. A provocative example is provided in the Innovation Eeature. Eor the Iirst time in its
history, luxury automobile manuIacturer BMW is outsourcing production oI its vehicles. The
new manuIacturing model oIIers major beneIits, but also carries substantial risks.
Ü·-¬®·¾«¬·±² ݸ¿²²»´ λ´¿¬·±²-¸·°-
Vertical relationships also occur between producers and marketing intermediaries (e.g., whole-
salers and retailers). These value-chain relationships provide the producer access to consumer
and organizational end users. Interorganizational relationships vary Irom highly collaborative to
transactional ties. A strong collaborative relationship exists in a vertical marketing system
These systems are managed by one oI the channel members such as a retailer, distrib-
utor, or producer. The VMS may be owned by a channel Iirm, linked together contractually (e.g.,
a Iranchise system), or the relationship held together by the power and inIluence oI the Iirm
administering the channel relationships.
Eor example, the American Eamily LiIe Assurance Company (AELAC) is increasingly
well known in the United States Irom its advertising Ieaturing the “AELAC duck’, (see photo on
the Iollowing page). In Iact, three-quarters oI AELAC•s $12 billion revenues come Irom Japan,
where it is the largest Ioreign liIe insurance company. AELAC operates in Japan in the niche
category oI supplemental insurance (cancer, medical, and other liIe insurance products that
supplement the national health-care system). While traditional Japanese liIe insurers employ sales
employees who call on customers at their home to sell policies and collect premiums, AELAC
established a broad-based distribution network oI corporate partners. The corporate partners
are aIIiliated with companies and reach those companies• employees, suppliers, and customers.
By 2004, some 95 percent oI companies listed on the Tokyo Stock Exchange oIIer AELAC
products to their employees, and AELAC has insurance products in 25 percent oI Japanese
ײ²±ª¿¬·±² Ú»¿¬«®»
ײ îððð ÞÓÉ -¬®«½µ ¿ ¼»¿´ ©·¬¸ Ó¿¹²¿ ͬ»§® ·² ß«-¬®·¿ ¬±
±«¬-±«®½» ¬¸» »²¹·²»»®·²¹ ¿²¼ °®±¼«½¬·±² ±º ·¬- ²»© Èí
½±³°¿½¬ -°±®¬ «¬·´·¬§ ª»¸·½´»ò ̸» ëôðððó°¿¹» ¿¹®»»³»²¬
°·±²»»®»¼ ¿ ¸«¹» ¸¿²¼±ª»® ±º ·²ó¸±«-» »²¹·²»»®·²¹ ¿²¼
°®±¼«½¬·±² ¬»½¸²±´±¹§ ¾§ ¬¸» °®»³·«³ ¾®¿²¼ ³¿²«º¿½ó
Ó¿¹²¿ ¸¿¼ ¿´®»¿¼§ °®±¼«½»¼ ½¿®- º±® Ó»®½»¼»-óÞ»²¦ô
ß«¼·ô ʱ´-©¿¹»²ô Ö»»° ¿²¼ ݸ®§-´»®ô ¾«¬ ²±¬¸·²¹ ¿-
´¿®¹»ó-½¿´» ¿- ¬¸» Èíò ̸» ¿¹®»»³»²¬ ©¿- ¬± ¹»¬ º®±³
½±²½»°¬ ¬± °®±¼«½¬·±² ·² ¿ ®»½±®¼ ¾®»¿µ·²¹ îè ³±²¬¸-œ
-»ª»®¿´ ³±²¬¸- º¿-¬»® ¬¸¿² ÞÓÉ•- ²±®³¿´ ·²ó¸±«-»
̸» ¾»²»º·¬- ¿®»æ
Ë-·²¹ ¬¸» ½±²¬®¿½¬±®•- »²¹·²»»®- ´»¬- ¬¸» ½¿®³¿µ»®
µ»»° ¼±©² ¸»¿¼ ½±«²¬-ò
̸» ½¿® ½±³°¿²§ ¿ª±·¼- ¾«·´¼·²¹ ¿ ¾·´´·±² ¼±´´¿® º¿½ó
ß ½±²¬®¿½¬ ¼»¿´ ±º¬»² ³»¿²- ¬¸¿¬ ¬¸» ½¿®³¿µ»® ½¿²
°®±¼«½» ³±®» ³±¼»´- ¯«·½µ´§ò
ɱ®µ·²¹ ©·¬¸ ª¿®·±«- ½´·»²¬-ô ½±²¬®¿½¬±®- ¿½¯«·®» ²»©
-µ·´´- ¿²¼ »¨°»®¬·-»ò
̸» ®·-µ- ¿®»æ
׺ ¬¸» ¾«·´¼»® ¾±¬½¸»- ¬¸» ¯«¿´·¬§ô ¬¸» ½¿® ½±³°¿²§•-
®»°«¬¿¬·±² -«ºº»®-ò
Ü»°»²¼·²¹ ±² ¸±© ¬¸» ¼»¿´ ·- -¬®«½¬«®»¼ô ¿ ½±²¬®¿½¬±®
½¿² ¹»¬ -¬«½µ ©·¬¸ «²«-»¼ ½¿°¿½·¬§ ©¸»² -¿´»- º¿´´
¾»´±© ¿ ½»®¬¿·² ¬¸®»-¸±´¼ò
ײ ¿ º¿-¬ó³±ª·²¹ ³¿®µ»¬ô ¬¸» ²·½¸»- ¬¸»-» °¿®¬²»®-¸·°-
¬§°·½¿´´§ ¬¿®¹»¬ ½¿² ª¿²·-¸ ¾»º±®» ®»©¿®¼- ¿®» ®»¿°»¼ò
׬ ·- ¿- §»¬ «²½´»¿® ·º ±«¬-±«®½·²¹ ©·´´ ®»-¸¿°» ¬¸»
¹´±¾¿´ ¿«¬± ·²¼«-¬®§ ¾«¬ ¿ ¹®±©·²¹ ²«³¾»® ±º ³¿²«º¿½ó
¬«®»®- ¬¸®±«¹¸±«¬ ¬¸» ©±®´¼ ¿®» «-·²¹ ¬¸» ²»© ³¿²«º¿½ó
¬«®·²¹ ³±¼»´ º±® ²·½¸» ³¿®µ»¬ ª»¸·½´»-ò
ͱ«®½»æ Ù¿·´ Û¼³±²¼-±²ô “Ô±±µ ɸ±•- Þ«·´¼·²¹ Þ·³³»®-ô’
Þ«-·²»--É»»µô Ü»½»³¾»® èô îððíô ïè›ïçò
ÞÓÉ Ñ«¬-±«®½·²¹ ͬ®¿¬»¹§
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îðð ﮬ ̸®»» Designing Market-Driven Strategies
households. Marketing through collaboration with employers enables AELAC to
reach large numbers oI consumers economically to minimize the costs oI premium
collection (they are collected through payroll deductions), and avoid paying high
There is considerable evidence that the organizations in distribution channels
are becoming involved to a greater extent in collaborative relationships
compared to traditional power and dependence ties. Examples include the
Radio Shack store-within-a-store relationships with other compa-
nies, and AELAC•s ties with Japanese companies. We discuss
value-chain relationships in Chapter 10.
Û²¼ Ë-»® Ý«-¬±³»® λ´¿¬·±²-¸·°-
The driving Iorce underlying strategic relation-
ships is that a company may enhance its ability
to satisIy customers and cope with a rapidly
changing business environment through part-
nering. Several examples are shown in Exhibit
7.5. Some believe that the Iuture oI competi-
tion lies in co-creation initiatives with customersœ
only by letting individual corporate customers and
consumers shape products and service can real Iit with
customer needs be achieved.
Eor example, Sumerset Houseboats Inc. in Kentucky custom-builds boats, engaging each
individual customer in a dialogue through design and construction. Through the Internet, it also
connects to a community oI Sumerset houseboat owners so they can compare notes, which
boosts customer satisIaction but also provides Sumerset with unique design insights Ior Iuture
Although building collaborative relationships may not always be the best course oI action,
this avenue Ior gaining a competitive edge is increasing in popularity. We examine developing
a customer Iocus and assessing customer value.
Ý«-¬±³»® Ú±½«-ò Relationship marketing starts with the customerœunderstanding needs
and wants and how to satisIy requirements and preIerences:
Customers think about products and companies in relation to other products and companies. What
really matters is how existing and potential customers think about a company in relation to its
competitors. Customers set up a hierarchy oI values, wants, and needs based on empirical data,
opinions, word-oI-mouth reIerences, and previous experiences with products and services. They
use that inIormation to make purchasing decisions.
The importance oI understanding customers• needs and wants encourages developing long-
term collaborative relationships. Driving the necessity oI staying in close contact with buyers is
the reality that customers oIten have several suppliers oI the products they wish to purchase.
Customer diversity complicates the competitive challenge. Consistent with being market-
oriented, developing a customer-oriented organization includes:
· Instilling customer-oriented values and belieIs supported by top management.
· Integrating market and customer Iocus into the strategic planning process.
· Developing strong marketing managers and programs.
· Creating market-based measures oI perIormance.
· Developing customer commitment throughout the organization.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îðï
The development oI Customer Relationship Management (CRM) systems provides an
extension oI relationship marketing to customers. CRM provides structure Ior managing the
point oI customer contact by integrating inIormation technology and data around the cus-
tomer. CRM is an important development and is discussed in more detail in the Appendix to
this chapter.
Similarly, in the management oI relationships with large corporate customers, many organi-
zations have moved to the adoption oI Key Account Management structures and Global Account
Management approaches as ways oI building teams dedicated to managing the relationship with
the most valuable customers.
ß--»--·²¹ Ý«-¬±³»® Ê¿´«»ò An important issue is selecting the customers with which
to develop relationships since some may not want to partner and others may not oIIer
enough potential to justiIy partnering with them. A look at Marriott•s partnering strategy is
Building customer relationships is the core sales strategy oI Marriott International Inc.•s Business
Travel Sales Organization. The travel manager is the target Ior the selling activities oI the 2,500-
person sales organization. The key Ieatures oI the major account sales strategy are: (1) choose cus-
tomers wisely (Marriott Iollows a comprehensive customer evaluation process); (2) build customer
research into the value proposition (understanding what drives customer value and satisIaction);
(3) lead with learning by Iollowing a step-by-step sales process; (4) invest in the customer•s goal-
setting process, rather than Marriott•s; and (5) develop a relationship strategy with a sense oI
purpose, trust, open access, shared leadership, and continuous learning. Marriott•s management
recognizes that customers who regularly purchase the company•s services are valuable assets who
demand continuous attention by high-perIormance teams. Rapidly changing markets and customer
diversity add to the importance oI developing strong ties with valuable customers to stay in touch
with their changing requirements.
Relationship strategies need to recognize diIIerences in the value oI customers to the
seller as well as the speciIic requirements oI customers.
Marriott•s emphasis on careIully
selecting business customers with whom to partner illustrates the importance oI prioritizing
sales strategies by segmenting accounts Ior corporate inIluence and proIit. Relationship
building is appropriate when large diIIerences exist in the value oI customers. Valuable
customers may want close collaboration Irom their suppliers concerning product design,
inventory planning, and order processing, and they may proactively pursue collaboration.
The objective is to develop buyer and seller relationships so that both partners beneIit Irom
the relationship.
Erequent Ilyer programs have been very successIul in building long-term relationships with
customers. The Advantage program pioneered by American Airlines attracted other airlines as
well as hotel chains, credit card companies, and rental car companies. In many diIIerent business
situations, a small percent oI customers account Ior a very large percentage oI purchases. The
80/20 rule is illustrative, which states that 20 percent oI customers are the source oI 80 percent
oI sales.
ÛÈØ×Þ×Ì éòë
ﮬ²»®·²¹ ©·¬¸
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Þ±»·²¹ ø½±³³»®½·¿´ ¿·®½®¿º¬÷ ײª±´ª·²¹ ¿·®´·²»- ·² ¬¸» ¼»-·¹² ±º ¬¸» Þ±»·²¹ ééé
Ø¿®´»§óÜ¿ª·¼-±² ø³±¬±®½§½´»-÷ Ø¿®´»§ Ñ©²»®- Ù®±«° ©·¬¸ ±ª»® ïððôððð ³»³¾»®-
Ó¿®®·±¬¬ ø¸±¬»´-÷ ﮬ²»®·²¹ ©·¬¸ ½±®°±®¿¬» ½«-¬±³»®-
Ü»´´ ݱ³°«¬»® ﮬ²»®·²¹ ©·¬¸ ´¿®¹» ½±®°±®¿¬» ½«-¬±³»®-
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îðî ﮬ ̸®»» Designing Market-Driven Strategies
ͬ®¿¬»¹·½ ß´´·¿²½»-
A strategic alliance between two organizations is an agreement to cooperate to achieve
one or more common strategic objectives. The relationship is horizontal in scope, between
companies at the same level in the value chain. While the term alliance is sometimes
used to designate supplier-producer partnerships, it is used here to identiIy collaborative
relationships between companies that are competitors or in related industries. The alliance
relationship is intended to be long-term and strategically important to both parties. Several
reasons Ior Iorming strategic alliances are shown in Exhibit 7.6. The Iollowing discussion
assumes an alliance between two parties, recognizing that there may be more than two
alliance partners.
Each organization•s contribution to the alliance is intended to complement the partner•s con-
tribution. The alliance requires each participant to yield some oI its independence: “Alliances
mean sharing control.’
The rationale Ior the relationship may be to gain access to markets, uti-
lize existing distribution channels, share technology development costs, or obtain speciIic skills
or resources.
The alliance is not a merger between two independent organizations, although the termina-
tion oI an alliance may eventually lead to an acquisition oI one partner by the other partner. It is
diIIerent Irom a joint venture launched by two Iirms or a Iormal contractual relationship between
organizations. Moreover, the alliance involves more than purchasing stock in another company.
Instead, it is a commitment to actively participate on a common project or program that is strate-
gic in scope.
Weaknesses in alliances may come Irom several causes. Eor example, in 2000 as part oI its
drive to build the world•s number one car and truck company, DaimlerChrysler Iormed a part-
nership with Korean automaker Hyundaiœtaking a 10.5 percent ownership stake in Hyundai and
promising to build small cars and 100,000 trucks a year in a 50-50 joint venture. The relation-
ship was dogged by acrimonious disputes, cultural clashes, and power struggles, with an increas-
ingly selI-conIident Hyundai determined to be treated as an equal partner. By 2004, the plan to
develop small cars had gone nowhere, and the $700 million truck project was stalled. The time-
line oI the partnership is illustrative:
· September 2000œDaimler takes an initial 10 percent stake in Hyundai Ior $381 million, aim-
ing to set up a 50-50 joint venture to build 100,000 trucks a year.
· November 2001œDaimler and Hyundai break ground Ior a $260 million truck engine plant
due to start up in 2004.
· October 2003œHyundai halts the project, angry over Daimler•s new alliance with Beijing
Automotive to produce Mercedes-Benz autos in the Iast-growing Chinese marketœHyundai
already had an exclusive pact with Beijing to make autos in China.
· April 2004œInsiders say the alliance is near collapse.
Poorly structured partnerships may be extremely damaging to all concerned. Eirst, we discuss
the success record oI alliances. Next, diIIerent uses oI alliances are described. Einally, several
alliance success requirements are examined.
Í«½½»-- ±º ß´´·¿²½»-ò The competitive realities oI surviving and prospering in the complex
and rapidly changing business environment encourage companies to Iorm strategic alliances in
many diIIerent industries. Some strategic partnerships have endured Ior substantial periodsœa
Euji-Xerox partnership entered its 42nd year in 2004, and Samsung and Corning have been
working together since the 1970s.
Nonetheless, the record oI success oI alliances is not Iavorable, and success rates oI less than
50 percent have oIten been Iound by researchers.
While the alliance is a promising strategy Ior
enhancing the competitive advantage oI the partners, several Iailures have occurred due to the
complexity oI managing these relationships.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îðí
The ConIerence Board Inc. surveyed the chieI executive oIIicers (CEOs) oI 350 companies
in the United States, Europe, Canada, and Mexico concerning their experiences with strategic
alliances. The CEOs considered about halI oI their recent alliances to be successIul. Several
reasons are cited Ior those that were not successIul, which are summarized in Exhibit 7.7. The
alliance Iailures are divided into logic and process Iailures.
Õ·²¼- ±º ß´´·¿²½»-ò An alliance typically involves a marketing, research and development,
operations (manuIacturing), and/or Iinancial relationship between the partners (Exhibit 7.6).
Capabilities may be exchanged or shared. In addition to Iunctions perIormed by the partners,
other aspects oI alliances may include market coverage and eIIectively matching the speciIic
characteristics oI the partners.
The alliance helps each partner to obtain business and technical skills and experience that
are not available internally. One partner contributes unique capabilities to the other organization
in return Ior needed skills and experience. The intent oI the alliance is that both parties beneIit
Irom sharing complementary Iunctional responsibilities rather than independently perIorming
ÛÈØ×Þ×Ì éòê
Û²¬®§ ±º Ú·®³-
·²¬± ͬ®¿¬»¹·½
Source: Erom P. Rajan
Varadarajan and Margaret
H. Cunningham, “Strategic
Alliances: A Synthesis oI
Conceptual Eoundations,’
Journal of the Academy of
Marketing Science, Eall
1995, 285. Copyright ©
1995 by the Academy oI
Marketing Science.
Reprinted by permission oI
Sage Publications, Inc.
Ó¿®µ»¬ »²¬®§› ¿²¼ ³¿®µ»¬ °±-·¬·±²›®»´¿¬»¼ ³±¬·ª»-
Ù¿·² ¿½½»-- ¬± ²»© ·²¬»®²¿¬·±²¿´ ³¿®µ»¬-ò
Ý·®½«³ª»²¬ ¾¿®®·»®- ¬± »²¬»®·²¹ ·²¬»®²¿¬·±²¿´ ³¿®µ»¬- °±-»¼ ¾§ ´»¹¿´ô
®»¹«´¿¬±®§ô ¿²¼ñ±® °±´·¬·½¿´ º¿½¬±®-ò
Ü»º»²¼ ³¿®µ»¬ °±-·¬·±² ·² °®»-»²¬ ³¿®µ»¬-ò
Û²¸¿²½» ³¿®µ»¬ °±-·¬·±² ·² °®»-»²¬ ³¿®µ»¬-ò
Ю±¼«½¬ó®»´¿¬»¼ ³±¬·ª»-
Ú·´´ ¹¿°- ·² °®»-»²¬ °®±¼«½¬ ´·²»ò
Þ®±¿¼»² °®»-»²¬ °®±¼«½¬ ´·²»ò
Ü·ºº»®»²¬·¿¬» ±® ¿¼¼ ª¿´«» ¬± ¬¸» °®±¼«½¬ò
Ю±¼«½¬ñ³¿®µ»¬ó®»´¿¬»¼ ³±¬·ª»-
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λ-±«®½» »¨¬»²-·±²› ¿²¼ ®·-µ ®»¼«½¬·±²›®»´¿¬»¼ ³±¬·ª»-
б±´ ®»-±«®½»- ·² ´·¹¸¬ ±º ´¿®¹» ±«¬´¿§- ®»¯«·®»¼ò
Ô±©»® ®·-µ ·² ¬¸» º¿½» ±º ´¿®¹» ®»-±«®½» ±«¬´¿§- ®»¯«·®»¼ô ¬»½¸²±´±¹·½¿´ «²½»®¬¿·²¬·»-ô ³¿®µ»¬
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Û²¸¿²½»³»²¬ ±º °®»-»²¬ -µ·´´- ¾§ ©±®µ·²¹ ©·¬¸ ¿´´·¿²½» °¿®¬²»®-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Never developed
new product
changed drastically
Ìnsufficient information
about partner
Wrong partner
Too far removed
from core companies
Merged too
many activities
Merged too
few activities
Poor integration
too different
Logic Failures Process Failures
Note: Data show combined responses from all surveyed regions except Mexico
îðì ﮬ ̸®»» Designing Market-Driven Strategies
ß´´·¿²½» Í«½½»-- λ¯«·®»³»²¬-ò The success oI the alliance may depend heavily on eIIec-
tively matching the capabilities oI the participating organizations and on achieving the Iull com-
mitment oI each partner to the alliance. The beneIits and the trade-oIIs in the alliance must be
Iavorable Ior each oI the partners. The contribution oI one partner should Iill a gap in the other
partner•s capabilities.
One important concern in the alliance relationship is that the partner may gain access to
conIidential technology and other proprietary inIormation. While this issue is important, the
essential consideration is assessing the relationship•s risks and rewards and the integrity oI the
alliance partner. A strong bond oI trust between the partners exists in most successIul relation-
ships. The purpose oI the alliance is Ior each partner to contribute something distinctive rather
than to transIer core skills to the other partner.
It is important Ior the managers in each organi-
zation to evaluate the advisability and risks concerning the transIer oI skills and technologies to
the partner.
ß´´·¿²½» Ê«´²»®¿¾·´·¬·»-ò Relatedly, it is important to recognize that alliance relationships
may be Iragile and diIIicult to sustain eIIectively, particularly iI there is a lack oI trust or mutu-
ality oI interest between partners.
Moreover, careIul analysis is required oI the impact oI a
Iailed alliance on a company•s remaining ability to compete and survive. Eor example, in 2001,
when Motorola withdrew Irom a joint project with Psion to develop a product to rival the Palm
Pilot, Psion•s shares Iell 20 percent on the day, and the company was leIt without suIIicient
resources to complete the project alone.
The higher the level oI dependence on a partner organization, the greater the strategic
vulnerability created iI the alliance Iails. Some estimates suggest that as many as 70 percent oI
alliances Iail. It is important that every alliance agreement should include an exit strategy.
Recognizing that alliances are impermanent may maximize their useIul liIe.
Ö±·²¬ Ê»²¬«®»-
Joint ventures are agreements between two or more Iirms to establish a separate entity. These rela-
tionships may be used in several ways: to develop a new market opportunity; to access an inter-
national market; to share costs and Iinancial risks; to gain a share oI local manuIacturing proIits;
or to acquire knowledge or technology Ior the core business.
Eor example, Coca-Cola has a
long-standing 50-50 joint venture with NestleœBeverage Partners Worldwide (Iormerly Coca-
Cola and Nestle ReIreshments)œto take its tea and coIIee brands into global markets alongside
Nestle products. In some cases, joint ventures can grow valuable assetsœin 2001 Xerox was able
to sell halI its stake in Euji Xerox Co. to Euji Ior $1.3 billion, to counter liquidity problems.
While joint ventures are similar to strategic alliances, a venture results in the creation oI a new
organization. Environmental turbulence and risk set the rationale Ior the venture more so than a
major skill/resource gap, although both pressures may be present.
ÛÈØ×Þ×Ì éòé
ɸ§ ͬ®¿¬»¹·½
ß´´·¿²½»- Ú¿·´
Source: Chart Irom
Margaret Hart and Stephen
J. Garone, Making
International Strategic
Alliances Work, R-1086
(New York:
The ConIerence Board,
1994), 19. Reprinted with
permission Irom The
ConIerence Board.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
Honeywell Inc. has several joint ventures worldwide. The manuIacturer and marketer oI con-
trol systems and components Ior homes and businesses has been operating outside the United
States Ior nearly 60 years. The company•s chieI executive oIIicer, Michael R. Bonsignore,
describes one venture:
Sinopec-Honeywell involves one oI Honeywell•s customers, the Chinese National Petroleum
CompanyœSinopec. In January 1993, Honeywell entered into a joint equity company with
Sinopec Ior a number oI reasons: geographic expansion, market share, and risk diversiIication.
Orders Irom Sinopec doubled in the Iirst year and Honeywell has since attained the central govern-
ment•s acceptance. However, says Bonsignore, “we do have a number oI concerns that we monitor
constantly, such as MEN, the potential Ior Sinopec to become a competitor, and ongoing decen-
tralization oI the decision authority in the Chinese government.’
ײ¬»®²¿´ ﮬ²»®·²¹
Internal partnerships may occur between business units, Iunctional departments, and individual
employees (Exhibit 7.4). The intent is to encourage and Iacilitate cross-Iunctional cooperation
rather than specialization. Key internal processes such as new-product development beneIit Irom
cross-Iunctional cooperation in areas such as research and development, marketing, purchasing,
Iinance, and operations working together to identiIy, evaluate, develop, and commercialize new-
product concepts.
Eor example, P&G uses a corporate collaboration networkœMy Ideaœto allow employees
throughout the company to send ideas to an innovation panel. Projects selected can tap into
P&G•s entire global resource base. P&G•s Corporate New Ventures Group was established in
1997, and by the end oI 1998, 58 new products had been launchedœcompared to no new prod-
ucts launched in some years. The Swiffer cleaning product reached market in 10 months, halI the
normal P&G time.
The success oI internal relationship strategies requires developing strong internal collabora-
tion that cuts across Iunctional boundaries. As noted in earlier chapters, many companies are
using teams oI people Irom various Iunctions to manage processes such as new-product devel-
opment, customer relationships, order processing, and delivery oI products.
As we discussed in Chapter 1, a market-oriented organization is committed to delivering
superior customer value through market sensing, interIunctional cooperation, and shared deci-
sion making. Several guidelines Ior developing eIIective internal relationships Iollow:
1. Demonstrate management support.
2. Start with a pilot team.
3. Keep the teams smallœand together.
4. Link the teams to the strategy.
5. Seek complementary skills Ior the teamœand look Ior potential.
6. Educate and train.
7. Address the issue oI team leadership.
8. Motivate and reward team perIormance, not just individual perIormance.
The relationship strategy requires attention to the internal structure. The starting point is build-
ing a collaborative customer-driven internal culture.
The importance oI eIIective internal partnering to support market-driven strategy is under-
lined by the remarkable perIormance oI warehouse club Costco compared to archrival Sam•s
Club, owned by Wal-Mart. Costco combines higher compensation and more generous employ-
ment terms Ior its employees with higher productivity than Sam•s Club can achieve. The Cross-
Eunctional Eeature describes Costco•s clever marketing strategy supported by strong employee
relationships driving competitive advantage.
ݸ¿°¬»® é Strategic Relationships îðë
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îðê ﮬ ̸®»» Designing Market-Driven Strategies
Ü»ª»´±°·²¹ Ûºº»½¬·ª» λ´¿¬·±²-¸·°- ¾»¬©»»² Ñ®¹¿²·¦¿¬·±²-
We know that Iorming and managing eIIective collaborative partnerships between independent
organizations is complex, so we need to look Iurther into the process oI developing eIIective
relationships. The objective oI the relationship is Iirst considered, Iollowed by a discussion oI
several relationship management guidelines.
Ѿ¶»½¬·ª» ±º ¬¸» λ´¿¬·±²-¸·°
We look at possible strategic objectives oI relationships.
In some situations collaborative
action may be an option rather than a requirement.
×¼»²¬·º§·²¹ ¿²¼ Ѿ¬¿·²·²¹ Ò»© Ì»½¸²±´±¹·»- ¿²¼ ݱ³°»¬»²½·»-ò This objective is
a continuing challenge Ior many companies because oI the increasing complexity oI technology
and the short time span between identiIying and commercializing new technologies.
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îðé
There are several ways to locate and exploit external sources oI research and development:
· Collaboration with university departments and other research institutions.
· Precompetitive collaborative R&D to spread research resources more widely.
· Corporate venturingœmaking systematic investments in emerging companies to gain a win-
dow on the technologies and market applications oI the Iuture.
· Joint ventures and other Iorms oI strategic partnership that enable a company to acquire new
competencies by “borrowing’ Irom a company with a leadership position.
Japanese companies aggressively pursue all oI these strategies, whereas U.S. companies rely
more heavily on internal R&D. However, the Iuture trend is toward expanded use oI external
research and development collaboration by United States and other companies throughout the
world. Eor example, collaboration is extensive among component manuIacturers, personal com-
puter producers, and soItware Iirms.
The role oI the Internet in encouraging and Iacilitating technology sharing is becoming sig-
niIicant. Italian company Olivetti has pioneered multinational collaboration between companies
and research institutions in its multimedia product development project.
Ü»ª»´±°·²¹ Ò»© Ó¿®µ»¬- ¿²¼ Þ«·´¼·²¹ Ó¿®µ»¬ б-·¬·±²ò Alliances and other col-
laborative relationships may be promising alternatives Ior a single company interested in
developing a market or entering a global market. This strategy requires Iinding potential
partners that have strong marketing capabilities, and/or market position. Collaboration may be
used to enter a new product market or to geographically expand a position in a market already
Increasingly, major corporations are pursuing collaborative strategies in research and devel-
opment and in gaining market access. General Electric has a corporate objective oI globaliza-
tion, which requires participation in each major market in the world:
This requires several diIIerent Iorms oI participation: trading technology Ior market access; trading
market access Ior technology; and trading market access Ior market access. This “share to gain’
becomes a way oI liIe.
GE•s globalization objective has led to Iorming over 100 collaborative relationships.
Ó¿®µ»¬ Í»´»½¬·ª·¬§ ͬ®¿¬»¹·»-ò Competing in mature markets oIten involves either market
domination or market selectivity strategies. Competition in these markets is characterized by a
small core oI major Iirms and several smaller competitors that concentrate their eIIorts in mar-
ket segments. Eirms with small market position need to adopt strategies that enable them to com-
pete in market segments where they have unique strengths and/or the segments are not oI interest
to large competitors. Cooperative relationships may be appropriate Ior these Iirms. The possible
avenues Ior relationships include purchasing components to be processed and marketed to one
or a Iew market segments, subcontracting to industry leaders, and providing distribution services
to industry leaders.
The high entry barriers in producing semiconductors encourage the Iormation oI strategic
Partnerships are essential in developing niche markets in this industry. Alliances
exist between small U.S. Iirms that have specialized design expertise and Japanese, Korean,
Taiwanese, and European companies with large-scale electronics manuIacturing capabilities.
The alliances make possible market entry Ior the design specialists. The cost oI moving a com-
plex new chip design to commercialization is in excess oI $1 billion.
λ-¬®«½¬«®·²¹ ¿²¼ ݱ-¬óλ¼«½¬·±² ͬ®¿¬»¹·»-ò Competing in international markets
oIten requires companies to restructure and/or reduce product costs. Restructuring may result in
Iorming cooperative relationships with other organizations. Cost reduction requirements may
encourage the Iirm to locate low-cost sources oI supply. Many producers in Europe, Japan, and
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îðè ﮬ ̸®»» Designing Market-Driven Strategies
the United States establish relationships with companies in newly industrialized countries such
as Korea, Taiwan, and Singapore. These collaborative relationships enable companies to reduce
plant investment and product costs.
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬ Ù«·¼»´·²»-
While collaborative relationships are increasingly necessary, the available concepts and methods
Ior managing these partnerships are limited. Contemporary business management skills and
experience apply primarily to a single organization rather than oIIering guidelines Ior managing
interorganizational relationships. However, the experience that companies have gained in
managing distribution-channel relationships provides a useIul, although incomplete, set oI
guidelines. To expand the existing base oI management knowledge, Collins and Doorley con-
ducted a major global study oI strategic partnerships.
Companies in North America, Europe,
Japan, and Korea participated in the study. The research identiIied the eight key guidelines Ior
strategic-partnership management shown in Exhibit 7.8. A brieI discussion oI each guideline
д¿²²·²¹ò Comprehensive planning is critical when combining the skills and resources oI
two independent organizations to achieve one or more strategic objectives. The objectives must
be speciIied, alternative strategies Ior achieving the objectives evaluated, and decisions made
concerning how the relationship will be structured and managed. To determine the Ieasibility
and attractiveness oI the proposed relationship, the initiating partner may want to evaluate sev-
eral potential partners beIore selecting one.
Ì®«-¬ ¿²¼ Í»´ºóײ¬»®»-¬ò SuccessIul partnerships involve trust and respect between the part-
ners and a willingness to share with each other on various selI-interest issues. ConIrontational
relationships are not likely to be successIul. Prior inIormal experience may be useIul in showing
whether participants can cooperate on a more Iormalized strategic project.
Trust is enhanced by meaningIul communication between the partners.
The process oI
building trust leads to better communication. Thus, building and sustaining partnership relation-
ships require both communication and the accumulation oI trust between the organizations.
Trust, in turn, leads to better cooperation among the partners.
ݱ²º´·½¬-ò Realizing that conIlicts will occur is an important aspect oI the relationship. The
partners must respond when conIlicts occur and work proactively to resolve the issues:
Even Iirms in successIul partnerships would readily acknowledge that disagreements are
inevitable. Rather than allowing these conIlicts to run their course capriciously, however, adroit
partner Iirms develop mediating mechanisms to diIIuse and settle their diIIerences rapidly.
Mechanisms Ior conIlict resolution include training the personnel who are involved in rela-
tionships, establishing a council or interorganizational committee, and appointing a mutually
acceptable ombudsman to resolve problems.
Ô»¿¼»®-¸·° ͬ®«½¬«®»ò “Eailure to create an eIIective leadership structure can be Iatal; it
makes coordination diIIicult and expensive, slows down development, and can seriously erode
the decision-making process.’
Strategic leadership oI the partnership can be achieved by
ÛÈØ×Þ×Ì éòè
Ì»½¸²±´±¹§ ¬®¿²-º»®
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îðç
(1) developing an independent leadership structure, or (2) assigning the responsibility to one oI
the partners. The Iormer may involve recruiting a project director Irom outside. The latter option
is probably the more Ieasible oI the two in many instances.
Ú´»¨·¾·´·¬§ò Recognizing the interdependence oI the partners is essential in building success-
Iul relationships. Each organization has diIIerent objectives and priorities. “Management must
be predominantly by persuasion and inIluence, with a willingness to adapt as circumstances
Relationships change over time. The partnership must be Ilexible in order to adjust to
changing conditions and partnership requirements.
Ý«´¬«®¿´ Ü·ºº»®»²½»-ò Strategic relationships among companies Irom diIIerent nations are
inIluenced by cultural diIIerences. Both partners must accept these realities. II partners Iail to
respond to the cultural variations, the relationship may be adversely aIIected. These diIIerences
may be related to stage oI industrial development, political system, religion, economic issues,
and corporate culture.
Ì»½¸²±´±¹§ Ì®¿²-º»®ò When the partnership involves both developing technology and
transIerring the technology into commercial applications, special attention must be given to
implementation. Important issues include organizational problems, identiIying a commercial
sponsor, appointing a team to achieve the transIer, and building transIer mechanisms into the plan.
Planners, marketers, and production people are important participants in the transIer process.
Ô»¿®²·²¹ º®±³ ﮬ²»®•- ͬ®»²¹¬¸-ò Einally, the opportunity Ior an organization to
expand its skills and experience should be exploited. Japanese companies are particularly eIIec-
tive in taking advantage oI this opportunity. One objective oI the partnership should be to learn
the skills oI the cooperating Iirm, as well as completing a speciIic project or program.
Surprisingly, U.S. companies oIten Iail to capitalize on this opportunity in their interorganiza-
tional relationships. Japanese companies view cooperative ventures as another Iorm oI competi-
tion where they can transIer acquired skills to other parts oI the business.
ﮬ²»®-¸·° Ý¿°¿¾·´·¬·»-
In addition to establishing a sound process Ior designing and managing alliances, it is important
to consider what is necessary to build an organizational competence in strategic relationships.
The capability to manage eIIectively through partnerships does not exist in all organizations.
Recall the collapse oI the BT and AT&T strategic alliance Ior global telecommunications
described earlier. Partnering eIIectively with other organizations is a key core competence,
which may need to be developed. Eli Lilly is recognized as a company that generates value Irom
its alliances, and this company addresses the skills gap by running partnership training classes
Ior its managers and Ior its partners. Other successIul alliance strategies are operated by com-
panies like Hewlett-Packard and Oracle by establishing a dedicated strategic alliance Iunction in
the company.
ݱ²¬®±´ ¿²¼ Ûª¿´«¿¬·±²
Many conventional approaches to control and evaluation are inappropriate and ineIIective in
managing interorganizational collaborations. Alliance perIormance evaluation is a critical suc-
cess Iactor, which requires the development and implementation oI a Iormal evaluation process
that reIlects the unique diIIerences between alliances and more traditional organizational Iorms.
A “balanced scorecard’ approach allows evaluation criteria to be speciIied in Iinancial, customer
Iocus, internal business process, and learning and growth dimensions. The goal is to have
measurement metrics with both short- and long-term importance, and to incorporate not only
quantitative measures (e.g., sales, growth, costs) but also important qualitative measures that
speak to the strength and sustainability oI the alliance (e.g., trust, communications Ilows,
conIlicts, culture gaps). Importantly, particularly in the early stages oI an alliance relationship,
qualitative metrics may be the most important predictors oI success.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îïð ﮬ ̸®»» Designing Market-Driven Strategies
The challenge oI developing appropriate ways to assess alliance perIormance and strength is
considerable. It is useIul to consider measures and metrics against the Iollowing principles:
· Metrics should be comparable across alliances.
· Metrics should be deIined and discussed with alliance partners.
· There should be clarity about the implications oI alliance perIormance.
· A process Ior auditing alliance perIormance should be implemented.
· Alliance perIormance should be linked to individual perIormance review.
· A Iorum should be created Ior reviewing and acting on alliance perIormance data.
Ù´±¾¿´ λ´¿¬·±²-¸·°- ¿³±²¹ Ñ®¹¿²·¦¿¬·±²-
Several kinds oI organizations compete in global markets. One Iorm is the multinational corpo-
ration that may operate in several countries, using a separate organization in each country. The
present discussion considers organizational Iorms that involve relationships with other organi-
Examples oI joint ventures and strategic alliances competing in international markets are dis-
cussed throughout the chapter. The use oI cooperative agreements by companies in the United
States, Japan, and the European Union expanded during the 1990s and 2000s. Global relation-
ships oIIer signiIicant advantages in gaining market access and leveraging the capabilities oI
individual Iirms.
The need to develop more Ilexible organizational Iorms Ior competing in rapidly changing
global markets is illustrated by two types oI organizations: (1) the network corporation, and
(2) the Japanese Iorm oI trading company.
We also discuss the strategic role oI government
in global relationships among organizations.
̸» Ò»¬©±®µ ݱ®°±®¿¬·±²ò This kind oI organization consists oI a core corporation that
coordinates activities and Iunctions between sources oI supply and end users oI the product. The
network, or hollow corporation, has a relatively small work Iorce, relying instead on independ-
ent organizations Ior manuIacturing and distribution, oIten located at several places throughout
the world. The organizations are linked by a sophisticated inIormation system. The core com-
pany may be vertically integrated at the retail level or, instead, may utilize an independent dis-
tribution system.
One organization oI the network manages the various partnerships and alliances. This net-
work organization coordinates R&D, Iinance, global strategy, manuIacturing, inIormation sys-
tems, marketing, and the management oI relationships.
The primary organizing concept is a
small network control center that uses independent specialists to perIorm various Iunctions.
Thus, the priority is placed on “buying’ rather than “producing’ and on “partnership’ rather than
“ownership.’ The network organization must deIine the skills and resources that it will use to
develop new knowledge and skills. Eor example, a core competency oI the network organization
may be designing, managing, and controlling partnerships with customers, suppliers, distribu-
tors, and other specialists.
Ì®¿¼·²¹ ݱ³°¿²·»-ò The use oI trading companies dates Iar back into history in Asia.
Since they share certain oI the characteristics oI network organizations, a look at this organi-
zation Iorm provides additional insights into interorganizational relationships. Japanese com-
panies have been very successIul in developing and coordinating extensive global operations
and inIormation management.
These sogo shosha concentrated primarily on commodity
products, worked most directly with suppliers, and maintained a strong national (rather than
global) perspective.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îïï
The skills and experience developed by Japanese companies through the sogo shosha provide
these companies an important competitive advantage in developing other Iorms oI Ilexible
organizations, like the network company discussed above. Japan•s needs Ior natural resources
were important inIluences on the development oI trading companies. Today, these giant organ-
izations are active in helping emerging countries develop their markets such as China and
̸» ͬ®¿¬»¹·½ α´» ±º Ù±ª»®²³»²¬
While the role oI the government in the United States is largely one oI Iacilitating and regulat-
ing Iree enterprise, governments in several other countries play a proactive role with business
organizations. Eor example, the Japanese government encouraged the development oI the sogo
shosha. In considering the role oI government, we look at three types oI relationships between
government and private industry: (1) the single-nation partnership; (2) the multiple-nation part-
nership; and (3) the government corporation.
Í·²¹´»óÒ¿¬·±² ﮬ²»®-¸·°ò A country•s government may Iorm a partnership with one or a
group oI companies to develop an industry or achieve some other national objective. Japan has
successIully used this method oI creating a national competitive advantage in a targeted indus-
try in several instances.
Eor example, the Japanese Ministry oI International Trade and Industry
(MITI) perIorms a coordinating role in industry development. MITI resources and personnel
establish alliances among companies, provide planning and technical assistance, and sponsor
research. Government policy helped Japan build its competitive advantage by encouraging
demand in new industries, Iostering intraindustry competition, and identiIying and encouraging
the development oI emerging technologies.
Ó«´¬·°´»óÒ¿¬·±² ﮬ²»®-¸·°-ò Regional cooperation among nations may encourage com-
panies to Iorm consortium relationships in selected industries. Recall the Strategy Eeature
describing the Airbus Industrie consortium. Airbus Industrie members have received massive
loans Irom the governments oI the participating companies.
Boeing and McDonnell Douglas
dominated the industry until government subsidies and multinational sharing oI skills and
resources enabled Airbus to gain second place in the worldwide market Ior large commercial air-
craIt in the early 1990s. Government subsidies Ior Airbus continue in the 21st century.
International partnerships may create signiIicant market change and shiIts in international
trading patterns. Consider the relationship between Korea and China. In the 1990s Korea•s Iocus
was on the U.S. market and its Ioreign relations were centered on Washington, DC. Increasingly
in the 21st century, Korea looks at China as the regional leader in diplomacy and statecraIt. In
2003, South Korean businesses invested more in Chinaœ$4.4 billionœthan U.S. companies
who put $4.2 billion into China. Some 25,000 Korean companies manuIacture in China.
Companies like Samsung and LG are using China as a major manuIacturing base to produce
goods more cheaply and increase global market share Ior their electronics products and appli-
ances. While some Iear the eIIects oI the export oI Korean jobs and technology to China, the
relationship between the two countries has major global implications Ior the Iuture.
Ù±ª»®²³»²¬ ݱ®°±®¿¬·±²-ò Nations may operate government-owned corporations, though
in recent years a trend toward privatization oI these corporations occurred in the United
Kingdom, Australia, Mexico, and other countries. Nevertheless, government-supported corpora-
tions continue to compete in various global industries, including air transportation, chemicals,
computers, and consumer electronics. Not surprisingly, competitors oIten are critical oI govern-
ment organizations because oI their unIair advantage resulting Irom government Iinancial sup-
port. Interestingly, in the European airline industry, the privatized carriers show substantially
stronger proIit perIormance compared to state-owned carriers.
Ù±ª»®²³»²¬ Ô»¹·-´¿¬·±²ò Antitrust laws in the United States prohibit certain kinds oI coop-
eration among direct competitors in an industry. The intense global competition and loss oI
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îïî ﮬ ̸®»» Designing Market-Driven Strategies
competitiveness in many industries seem to be changing the traditional view oI lone-wolI com-
petition among companies. While the antitrust laws continue to be in place, there may be more
Ilexibility by government agencies in interpreting whether collaboration among Iirms in an
industry is an antitrust issue. Eor example, the granting oI antitrust immunity is essential in cer-
tain aspects oI the airline alliances described in the Global Eeature.
The competitive realities oI surviving and prospering in the
complex and rapidly changing business environment encour-
age teaming up with other companies, so cooperative strategic
relationships among independent companies are escalating in
importance. The major drivers oI interorganizational relation-
ships are value opportunities, environmental turbulence and
diversity, and skill and resource gaps. The increasing com-
plexity oI technology, Iinancial constraints, the need to access
markets, and the availability oI inIormation technology all
contribute to skill and resource gaps.
In examining the potential Ior collaborative relationships
several criteria need to be evaluated. Important criteria include
determining the underlying logic oI the proposed relationship,
deciding whether partnering is the best way to achieve the
strategic objective, assessing how essential is the relationship,
determining iI good candidates are available, and considering
whether collaborative relationships are compatible with the
corporate culture.
Relationships between organizations range Irom transac-
tional exchange to collaborative partnerships. These relation-
ships may be vertical in the value-added chain or horizontal
within or across industries. Vertical relationships involve col-
laboration between suppliers and producers and distribution
channel linkages among Iirms. Horizontal partnerships may
include competitors and other industry members. The horizon-
tal or lateral relationships include strategic alliances and joint
Collaborative relationships are complex, and, not surpris-
ingly, generate conIlicts. Many horizontal relationships have
not been particularly successIul, even though the number oI
these partnerships is escalating throughout the world. Trust
and commitment between the partners are critical to building a
successIul relationship. Planning helps to improve the chances
oI success. The capability to manage eIIectively through part-
nerships requires distinct skills and new approaches, not avail-
able in all organizations.
Several objectives may be achieved through strategic
relationships, including gaining access to new technologies,
developing new markets, building market position, imple-
menting market segmentation strategies, and pursuing restruc-
turing and cost-reduction strategies. The requirements Ior
successIully managing interorganizational relationships
include planning, balancing trust and selI-interest, recognizing
conIlicts, deIining leadership structure, achieving Ilexibility,
adjusting to cultural diIIerences, Iacilitating technology trans-
Iers, and learning Irom partners• strengths. The development
oI appropriate control and evaluation approaches Ior these new
business Iorms has become a priority.
Global relationships among organizations may include con-
ventional organizational Iorms, alliances, joint ventures, net-
work corporations, and trading companies. Governments in
several countries play a proactive role in organizational rela-
tionships through coordination, Iinancial support, and govern-
ment corporations.
ײ¬»®²»¬ ß°°´·½¿¬·±²-
A. Visit the Web site www.alliancestrategy.com and review
the presentations and material available at the site.
Summarize what Iactors should be considered in making
alliances between organizations eIIective.
B. Go to the investor inIormation and company history inIor-
mation on www.ama:on.com. IdentiIy the evolving net-
work oI strategic relationships with customers, suppliers,
and collaborators both on the Web and with conventional
organizations. Which oI these relationships are the most
important to Amazon?
Ú»¿¬«®» ß°°´·½¿¬·±²-
A. Review the airline alliance lists, statistics, and news in the
Global Eeature in this chapter. Examine the changes
happening and predicted in airline alliances by searching
“airline alliances’ on the Internet. What conclusions can
be drawn about the strategic vulnerabilities oI alliances?
B. Examine the material presented in the Cross-Eunctional
Eeature. How can it be possible Ior Costco to perIorm well
against competitors when it carries a burden oI higher
labor costs? Are there issues in this case, which may be
worth considering in other situations where a company
Iaces strong low-cost, low-price competition?
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îïí
Ï«»-¬·±²- º±® λª·»© ¿²¼ Ü·-½«--·±²
1. Discuss the major Iactors that encourage the Iormation oI
strategic partnerships between companies.
2. Compare and contrast vertical and horizontal strategic
relationships between independent companies.
3. Discuss the similarities and diIIerences between strategic
alliances and joint ventures.
4. A German electronics company and a Japanese electronics
company are discussing the Iormation oI a strategic
alliance to market the other Iirm•s products in their respec-
tive countries. What are the important issues in making
this relationship successIul Ior both partners?
5. Establishing successIul interorganizational relationships
is diIIicult, according to authorities. Will the success
record improve in the Iuture as more companies pursue
this strategy?
6. Are vertical relationships more likely to be successIul than
horizontal relationships? Discuss.
7. Suppose you are seeking a Japanese strategic alliance
partner to market your Erench pharmaceutical products in
Asia. What characteristics are important in selecting a
good partner?
8. Discuss how alliances may enable Ioreign companies to
reduce the negative reaction that is anticipated iI they tried
to purchase companies in other countries.
9. Discuss how government may participate in helping
domestic companies develop their competitive advantages
in an industry such as aerospace products.
10. IdentiIy and discuss important issues in deciding whether
to create internal cross-Iunctional relationships.
1. David W. Cravens, Shannon H. Shipp, and Karen S.
Cravens, “Analysis oI Cooperative Interorganizational
Relationships, Strategic Alliance Eormation, and Strategic
Alliance EIIectiveness,’ Journal of Strategic Marketing,
March 1993, 55›70.
2. InIormation collated Irom company Web site:
www.radioshack.com, July 2004.
3. Timothy M. Collins and Thomas L. Doorley, 1eaming Up
for the 90s (Homewood, IL: Business One Irwin, 1991), 5.
4. Arundhati Parmar, “Redecoration: Bombay Style,’
Marketing News, March 15, 2004, 9›10.
5. Carliss Y. Baldwin and Kim B. Clark, “Managing in an
Age oI Modularity,’ Harvard Business Review,
September›October 1997, 84›93 at 84.
6. Ibid.
7. CliII Edwards, “Will Souping Up TiVo Save It?’
BusinessWeek, May 17, 2004, 82›83.
8. Ravi S. Achrol, “Evolution oI the Marketing Organization:
New Eorms Ior the Turbulent Environments,’ Journal of
Marketing, October 1991, 78›79.
9. Ibid.
10. Erederick E. Webster Jr., “The Changing Role oI
Marketing in the Organization,’ Journal of Marketing,
October 1992, 1›17.
11. Andy Pasztor and JeII Cole, “Boeing Plans TV, Web
Alliance Ior InIlight Access,’ Wall Street Journal, April
28, 2000, 5.
12. Gill South, “Upwardly Mobile,’ 1he Business, September
2, 2000, 26›29.
13. Matthew SchiIrin, “Partner or Perish,’ Eorbes, May 21,
2001, 26›28.
14. “Aerospace & Aviation,’ BusinessWeek, July 26, 2004,
15. Collins and Doorley, 1eaming Up for the 90s, 8.
16. Andrew Baxter, “Internet Heralds New Era oI
Collaboration,’ Financial 1imes, November 1, 2000, V.
17. The Iollowing discussion is based on James C. Anderson
and James A. Narus, “Partnering as a Eocused Market
Strategy,’ California Management Review, Spring 1991,
18. Ibid., 100›103.
19. Matthew SchiIrin, “Partner or Perish,’ Forbes, May 21,
2001, 26›28.
20. Nick Palmer, “Alliances: Learning to Change,’
www.accenture.com, January 2003.
21. Salvatore Parise and John C. Henderson, “Knowledge
Resource Exchange in Strategic Alliances,’ IBM Systems
Journal 40, no. 4, 2001, 908›924.
22. Lars Hallen, Jan Johanson, and Nazeem Seyed-Mohamed,
“InterIirm Adaptation in Business Relationships,’ Journal
of Marketing, April 1991, 30.
23. Anderson and Narus, “Partnering as a Eocused Market
24. “Concertina•d,’ Financial 1imes, October 17, 2001, 28.
25. John Hagel, “Leveraged Growth: Expanding Sales without
SacriIicing ProIits,’ Harvard Business Review, October
2002, 69›77.
26. Bert C. McCammon Jr., “Perspectives Ior Distribution
Programming,’ in Jertical Marketing Systems, ed. Louis
P. Bucklin (Glenview, IL: Scott, Eoresman, 1970), 43.
27. C. K. Prahalad and Venkat Ramaswamy, 1he Future of
Competition. Co-Creating Unique Jalue with Customers
(Cambridge, MA: Harvard Business School Press, 2004).
28. Ibid.
29. Regis McKenna, Relationship Marketing (Reading, MA:
Addison-Wesley Publishing Company, 1991), 43.
30. Erederick E. Webster Jr., “The Rediscovery oI the Marketing
Concept,’ Business Hori:ons, May›June 1988, 37.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éò ͬ®¿¬»¹·½ λ´¿¬·±²-¸·°-
ݱ³°¿²·»-ô îððë
îïì ﮬ ̸®»» Designing Market-Driven Strategies
31. Noel Capon, Key Account Management and Planning
(New York: Eree Press, 2001).
32. David W. Cravens, “The Changing Role oI the SalesIorce in
the Corporation,’ Marketing Management, Eall 1995, 50.
33. Ibid.
34. Kenichi Ohmae, 1he Borderless World (New York:
Harper Business, 1990), 114.
35. Gail Edmondson and Moon Ihlwan, “Driving in DiIIerent
Directions,’ BusinessWeek, May 3, 2004, 24.
36. Loren Gary, “A Growing Reliance on Alliance,’ Harvard
Management Update, April 2004, 3›4.
37. Salvatore Parise and John C. Henderson, “Knowledge
Resource Exchange in Strategic Alliances,’ IBM Systems
Journal 40 (4), 2001, 908›924.
38. Gary Hamel, Yves L. Doz, and C. K. Prahalad,
“Collaborate with Your Competitorœand Win,’ Harvard
Business Review, January›Eebruary 1989, 135›136.
39. Douglas M. Lambert, Margaret A. Emmelhainz, and
John T. Gardner, “So You Think You Want a Partner?’
Marketing Management, Summer 1996, 25›41.
40. Caroline Daniel, “Psion Ealls 19° AIter Motorola Pulls
Out oI Project,’ Financial 1imes, January 30, 2001, 38.
41. Maria Gonzalez, “Strategic Alliances,’ Ivey Business
Journal, September/October 2001, 47›51.
42. Collins and Doorley, 1eaming Up for the 90s, 205›209.
43. Matthew SchiIrin, “Partner or Perish,’ Forbes, May 21,
2001, 26›28.
44. Margaret Hart and Stephen J. Garone, Making International
Strategic Alliances Work, R-1086 (New York: The
ConIerence Board Inc.,1994), 19.
45. BusinessWeek E.Bi:, December 18, 1999.
46. Leonard L. Berry, On Great Service (New York: Eree
Press, 1995), 139›142.
47. The Iollowing discussion is based on Collins and Doorley,
1eaming Up for the 90s, Chapter 3.
48. Ibid., 30.
49. P. Zagnoli and C. Cardini, “Patterns oI International R&R
Cooperation Ior New Product Development: The Olivetti
Multimedia Product,’ R&D Management, 24, no. 1, 1994,
50. General Electric Company, Operating Obfectives to Meet
the Challenges of the 90s (EairIield, CT: General Electric
Company), March 14, 1988.
51. George S. Day, Market Driven Strategy (New York: The
Eree Press, 1990), 275›276.
52. William B. Scott, “Global Alliances Spur Development oI
Niche Market Semiconductors,’ Aviation Week and Space
1echnology, September 9, 1991, 70›71.
53. The Iollowing discussion is drawn Irom Collins and
Doorley, 1eaming Up for the 90s, Chapter 5.
54. James C. Anderson and James A. Narus, “A Model oI
Distributor Eirm and ManuIacturer Eirm Working
Partnerships,’ Journal of Marketing, January 1990, 45.
55. Ibid., 56.
56. Collins and Doorley, 1eaming Up for the 90s, 108.
57. Ibid., 110.
58. Bernard Wysocki, Jr., “Global Reach,’ 1he Wall Street
Journal, March 26, 1990, A1 and A5.
59. JeIIrey H. Dyer, Prashant Kale, and Harbir Singh, “How to
Make Strategic Alliances Work,’ Sloan Management
Review, Summer 2001, 37›43.
60. This discussion is based on: Karen Cravens, Nigel Piercy,
and David Cravens, “Assessing the PerIormance oI
Strategic Alliances,’ European Management Journal 18,
no. 5, 2000, 529›541.
61. Jonathan Hughes, Implementing Alliance Metrics. Six
Basic Principles, Vantage Partners• White Paper,
www.vantagepartners.com/publications, 2002.
62. Achrol, “Evolution oI the Marketing Organization,’ 84›85;
and Webster, “The Changing Role oI Marketing,’ 8›9.
63. Webster, “The Changing Role oI Marketing,’ 8›9.
64. Achrol, “Evolution oI the Marketing Organization,’ 84.
65. Michael E. Porter, 1he Competitive Advantage of Nations
(New York: The Eree Press, 1990), 414›416.
66. David W. Cravens, H. Kirk Downey, and Paul Lauritano,
“Global Competition in the Commercial AircraIt Industry:
Positioning Ior Advantage by the Triad Nations,’
Columbia Journal of World Business, Winter 1992, 46›58.
67. Moon Ihlwan and Dexter Roberts, “Korea•s China Play,’
BusinessWeek, March 29, 2004, 48›52.
68. Brian Coleman, “Among European Airlines, the Privatized
Soar to the Top,’ 1he Wall Street Journal, July 19, 1995, B4.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éßò ß°°»²¼·¨æ Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îïë
Customer Relationship Management (CRM) systems have
attracted wide attention in companies because oI several
beneIits they oIIer. There are a number oI major beneIits
attainable in improving the service received by customers
but most particularly in building and leveraging powerIul
and insightIul databases oI customer inIormation.
However, Iully realizing those beneIits has proved
diIIicult Ior many companies. CRM developments have
paralleled the growth in e-business and the two areas have
several connections, leading to the emergence oI e-CRM
to describe Internet-based initiatives. It is important that
CRM strategy should be developed by marketing execu-
tives with the other business Iunctions involved in CRM.
CRM oIIers sellers the opportunity to gather cus-
tomer inIormation rapidly, to identiIy the most valu-
able customers over a time period, and to increase
customer loyalty by providing customized products
and services. It may also Iacilitate cross-selling by
attracting loyal customers to additional products and
services, and make it easier to capture similar cus-
tomers in the Iuture.
This has been described as “tying in an asset,’ when
the asset is the customer, and CRM supports a
customer-responsive strategy, which gains competitive
advantage when it:
· Delivers superior customer value by personalizing the
interaction between the customer and the company.
· Demonstrates the company•s trustworthiness and
reliability to the customer.
· Tightens connections with the customer.
· Achieves the coordination oI complex organizational
capabilities around the customer.
CRM underpins a Iocus on customer loyalty and reten-
tion, with a goal oI winning a large share oI the total
liIetime value oI each proIitable customer.
̸» Ó»¿²·²¹ ±º Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
The term CRM is somewhat open-ended because it
means very diIIerent things in diIIerent circumstances. This
reIlects the rapid evolution and development oI this
approach to managing customer relationships. We identiIy
several levels oI CRM below. The term is oIten used to
embrace anything Irom automated customer contact
systems to increase salesIorce productivity, to customer
service centers and automated call centers, to enterprisewide
systems to break down departmental barriers and integrate
inIormation about customers into a single access point.
To some, CRM reIers to little more than building
relationships with customers to match the product and
service oIIer better with customer needs. Others see CRM
as concerned with developing a uniIied and cohesive view
oI the customer, however the customer chooses to com-
municate with the organization (in person, by mail,
Internet, or telephone), and emphasizing enhanced
customer service and the use oI call centers to provide
consistency in how the company interacts with customers.
To yet others, CRM Iocuses on the creation and use oI a
customer database to support decision makers.
Importantly, Peppers and Rogers turn our attention
Irom the technology and hardware oI CRM to its strategic
importance when they deIine CRM as “making manage-
rial decisions with the end goal oI increasing the value
oI the customer base through better relationships with
customers, usually on an individual basis.’
The empha-
sis on strategy built around proIitable customers as the
primary concern oI CRM is emphasized also by Bain &
Co. In their view “CRM aligns business processes with
customer strategies to build customer loyalty and increase
proIits over time.’
Another useIul viewpoint suggests
that CRM consists oI three main elements:
· IdentiIying, satisIying, retaining, and maximizing the
value oI a Iirm•s best customers.
· Wrapping the Iirm around the customer to ensure that
each contact with the customer is appropriate and
based upon extensive knowledge oI both the cus-
tomer•s needs and proIitability.
· Creating a Iull picture oI the customer.
Ý«-¬±³»® λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬ øÝÎÓ÷
ß°°»²¼·¨ éß
Ù»±®¹» Ü¿§ô “̧·²¹ ·² ¿² ß--»¬ô’ ·² ˲¼»®-¬¿²¼·²¹ ÝÎÓ
øÔ±²¼±²æ Ú·²¿²½·¿´ Ì·³»-ô îððð÷ò
ܱ² л°°»®- ¿²¼ Ó¿®¬¸¿ α¹»®-ô Ó¿²¿¹·²¹ Ý«-¬±³»®
λ´¿¬·±²-¸·°- øر¾®±µ»²ô ÒÖæ É·´»§ô îððì÷ò
Ü¿®®»´´ Õò η¹¾§ô Ú®»¼»®·½µ Úò λ·½¸¸»´¼ô ¿²¼ и·´ ͽ¸»º¬»®ô
“ߪ±·¼ ¬¸» Ú±«® л®·´- ±º ÝÎÓô’ Ø¿®ª¿®¼ Þ«-·²»-- λª·»©ô
Ú»¾®«¿®§ îððîô ïðï›ïðçò
Ô§²»¬¬» Χ¿´-ô Í·³±² Üò Õ²±¨ô ¿²¼ ͬ¿² Ó¿µ´¿²ô Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬æ ̸» Þ«-·²»-- Ý¿-» º±® ÝÎÓò Ú·²¿²½·¿´
Ì·³»- λ°±®¬ øÔ±²¼±²æ Ю»²¬·½» Ø¿´´ô îððð÷ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éßò ß°°»²¼·¨æ Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
ݱ³°¿²·»-ô îððë
îïê ﮬ ̸®»» Designing Market-Driven Strategies
Ô»ª»´- ±º ÝÎÓ
One way oI categorizing CRM initiatives is to distin-
guish between operational, analytical, and strategic
CRM levels, as shown in Exhibit 7A.1. All levels oI
CRM have important but diIIerent implications Ior
strategic marketing.
Ñ°»®¿¬·±²¿´ ÝÎÓ
A key element oI CRM is to improve and make consis-
tent the customer•s service experience. The goal oI
CRM is to use every available source oI inIormation to
build a detailed picture oI each individual customer. It
aims to capture inIormation Irom every contact the
customer has with any part oI the organization, and
to ensure it is available whenever the customer next
interacts with the company.
One aim is to avoid ineIIiciencies Ior the customerœ
receiving mailshots Irom a bank oIIering a mortgage
to an existing mortgage customer; waiting on the tele-
phone to the utility company while Iiles are retrieved;
providing name and address details every time a book
is purchased by mail order or on an Internet site. The
integration oI customer inIormation through the CRM
system should allow more accurate mailshots; a call
center operative or help desk engineer with instant
access to up-to-date and complete customer inIorma-
tion; and Web sites that recognize a returning customer
and remember dispatch and payment requirements.
The beneIits to the customer Irom CRM initiatives
may also include: improved response times when they
request inIormation; products and services that are
better adapted to their requirements; immediate access
to order status and history inIormation; and more
responsive technical support.
Eor example, the Erance-based hotel group Accor
links CRM data to guest survey inIormation in its U.S.
SoIitel and Novatel hotels, to anticipate the preIerences
oI Irequent users. The VP Ior sales and marketing Ior
Accor North America notes “It takes us back to the time
when there were small inns and the owner knew every
customer and treated them as an individual. It should
help streamline check-in and accommodate preIerences
Ior guests who, Ior example, request the same room
every time. The group will be able to market with a
microscope instead oI a telescope.’
ß²¿´§¬·½¿´ ÝÎÓ
In addition to enhancing customer service eIIiciency
and impacting on the quality oI customer relationships,
the integration and pooling oI individual customer
inIormation by CRM systems also creates a powerIul
resource Ior analysis. Knowledge about which products
and services a speciIic customer buys, through which
channels, and at what times, oIIers unprecedented
opportunities Ior more precise direct marketing oIIers
and Ior Iocusing on the best prospects in a market, in
terms oI their proIitability and growth potential Ior
the seller. Eor example, bookseller Borders uses its
customer database to send e-mails tailored to the cus-
tomer•s reading interests to alert them to upcoming
The database created through CRM technology
should contain inIormation about the Iollowing:
· 1ransactionsœthis should include a complete pur-
chase history Ior each customer with accompanying
details (date, price paid, products purchased).
· Customer Contactsœwith multiple channels oI dis-
tribution and communication the database should
record all customer contacts with the company
and its distributors, including sales calls, service
requests, complaints, inquiries, and loyalty program
· Descriptive InformationœIor each individual cus-
tomer, relevant descriptive data that provide the basis
Ior market segmentation and targeted marketing
ÛÈØ×Þ×Ì éßòï
Ô»ª»´- ±º ÝÎÓ
Source: Adapted Irom Charlotte Mason, “Perspectives on Teaching Analytically
Oriented CRM,’ presentation at AMA CRM Eaculty Consortium, 2004.
Ó¿®·¿² Û¼³«²¼-ô “DZ«® É·-¸ ×- ±² Ó§ Ü¿¬¿¾¿-»ô’ Ú·²¿²½·¿´
Ì·³»-ô Ú»¾®«¿®§ îèô îðððô ïêò
Strategic CRM
OperationaI CRM
AnaIyticaI CRM
Ìnfrastructure for
customer knowledge
Targeted marketing
communications and
Customer service
Customer data capture
Customer database
Customer relationships
Customer value
Competitive differentiation
Market segmentation
Strategic positioning
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éßò ß°°»²¼·¨æ Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îïé
· Response to Marketing Stimuliœwhether the cus-
tomer responded to speciIic advertising, a price oIIer,
a direct marketing initiative, or a sales call, or any
other direct contact.
Increasingly sophisticated soItware is available to
undertake data mining and to model data Irom the CRM
Eor example, while traditional approaches to market
segmentation have identiIied groups oI customers by
their purchase behavior or descriptive data, CRM oIIers
the opportunity to examine individual customers or nar-
rowly deIined groups, and to calculate what each oIIers
the company in proIits. The concept oI customer lifetime
value (CLV) is illustrative. CLV calculates past proIit
produced by the customer Ior the Iirmœthe sum oI all
the margins oI all the products purchased over time, less
the cost oI reaching that customer. To this is added Iore-
casts oI margins on Iuture purchases (under diIIerent
assumptions Ior diIIerent customers), discounted back to
their present value (because proIit we expect in Iive years•
time is worth less to us than proIit we make this year).
The CLV calculation is a powerIul tool Ior Iocusing
marketing and promotional eIIorts where they will be
most productive. Other novel data analyses Iacilitated
by CRM include market basket analysisœthat is, exam-
ining what products are purchased together by diIIerent
customers, and “click analysis’ based on Web site visits
and purchases to better understand online customer
ͬ®¿¬»¹·½ ÝÎÓ
Importantly, the creation oI CRM inIormation resources
and the adoption oI appropriate soItware tools
to make
sense oI the inIormation is building an important source
oI competitive advantage Ior many companies that goes
beyond the conIines oI call centers and targeted com-
The strategic use oI CRM resources reIlects the shiIt
in Iocus by marketing executives to the customer who
delivers long-term proIits, that is, an emphasis on cus-
tomer retention rather than acquisition. Well-known
metrics suggest that as little as a 5 percent increase
in customer retention can have an impact as high as
95 percent on the net present value delivered by the
Other studies by McKinsey Iind that repeat
customers generate over twice as much gross income as
new customers.
CRM makes it much easier Ior execu-
tives to Iocus strategy on customer proIitability and the
gains Irom reducing customer “churn.’
Interestingly, as CRM evolves and oIIers executives
deeper insights into their customer base, the new inIor-
mation may challenge strategic assumptions in impor-
tant ways. Eor example, the points made above suggest
a powerIul linkage between enhanced customer loyalty
and higher customer proIitability. However, companies
are discovering through CRM database analysis that
this is not always true. Some groups oI customers may
not justiIy the costs required to retain them, because the
real Iit between their needs and the company•s products
is weak. Just because a group oI customers was proI-
itable in the past, it may be dangerous to assume this
will always be true. Eor example, many nonloyal cus-
tomers are initially proIitable, causing the company to
chase them Ior Iurther proIitsœbut once these cus-
tomers have ceased buying, they become increasingly
unproIitable iI the company continues to invest in them.
CRM data provide executives with a unique basis to
address such issues as loyalty and proIitability on the
basis oI Iact instead oI assumption, and to Iocus on indi-
vidual customers, not groups containing many dissimilar
We say more about the strategic beneIits oI
CRM below.
In short, while the “Iront-end’ oI CRM systems is
about customer service and building stronger customer
relationships, the analytical level provides a “back-end’
or inIrastructure Ior decision support, which links to the
strategic level oI CRM.
λ¯«·®»³»²¬- º±® Ûºº»½¬·ª» ÝÎÓ
Corporate expenditures on CRM technology are running
at very high levels across the world. Estimated expendi-
tures rose Irom $20 billion in 2000 to $46 billion in
2003, with signs oI continued growth. Nonetheless, the
evidence oI the perIormance oI CRM systems has been
disappointing Ior many companies. The Gartner Group
concluded in 2002 that 55 percent oI all CRM projects
Ϋ--»´´ Íò É·²»®ô “ß Ú®¿³»©±®µ º±® Ý«-¬±³»® λ´¿¬·±²-¸·°
Ó¿²¿¹»³»²¬ô’ Ý¿´·º±®²·¿ Ó¿²¿¹»³»²¬ λª·»© ìíô ²±ò ìô
Í«³³»® îððïô èç›ïðëò
Ú±® ³±®» ·²º±®³¿¬·±² ±² ¬¸» ®¿°·¼ ¼»ª»´±°³»²¬ ±º -±º¬©¿®»
¬±±´- º±® ¼¿¬¿ ³·²·²¹ ¿²¼ ·²¬»®°®»¬¿¬·±²ô -»» ¬¸» Ë-»º«´ É»¾
-·¬»- º±® ß¼¼·¬·±²¿´ ÝÎÓ Ó¿¬»®·¿´ô ´·-¬»¼ ¿¬ ¬¸» »²¼ ±º ¬¸»
Ú®»¼»®·½µ Úò λ·½¸¸»´¼ô ̸» Ô±§¿´¬§ Ûºº»½¬ øÝ¿³¾®·¼¹»ô Óßæ
Ø¿®ª¿®¼ Þ«-·²»-- ͽ¸±±´ Ю»--ô ïççê÷ò
Ϋ--»´´ Íò É·²»®ô ±°ò ½·¬ò
É»®²»® λ·²¿®¬¦ ¿²¼ Êò Õ«³¿®ô “̸» Ó·-³¿²¿¹»³»²¬ ±º
Ý«-¬±³»® Ô±§¿´¬§ô’ Ø¿®ª¿®¼ Þ«-·²»-- λª·»©ô Ö«´§ îððîô èê›çìò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éßò ß°°»²¼·¨æ Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
ݱ³°¿²·»-ô îððë
îïè ﮬ ̸®»» Designing Market-Driven Strategies
do not produce results, and the Bain & Co. 2001 survey
oI management tools ranked CRM in the bottom three
Ior satisIactionœindeed, one in Iive users in the Bain
survey reported their CRM initiatives had not only Iailed
to deliver proIitable growth, but had also damaged long-
term customer relationships.
One report suggests that the major components oI the
successIul implementation oI CRM are:
· A Iront oIIice that integrates sales, marketing, and
service Iunctions across all media (call centers, peo-
ple, retail outlets, Internet).
· A data warehouse that stores customer inIormation
and the appropriate analytical tools with which to
analyze that data and learn about customer behavior.
· Business rules developed Irom the data analysis to
ensure the Iront oIIice beneIits Irom the Iirm•s learn-
ing about its customers.
· Measures oI perIormance that enable customer rela-
tionships to continually improve.
· Integration into the Iirm•s operational and support (or
“back oIIice’) systems, ensuring the Iront oIIice•s
promises are delivered.
Indeed, there have been several suggestions that high
Iailure rates associated with CRM are caused by
managers underestimating the real organizational
changes required Ior eIIective implementation that
unlocks the beneIits oI CRM. While the Iront-end oI
CRM systems is concerned with building databases inte-
grating customer data, providing better customer serv-
ice, and establishing systems like automated call centers
Ior enhanced responsiveness, achieving the Iull potential
oI CRM requires change in companywide processes,
organization structure, and corporate culture.
Bain & Co. research suggests that there are Iour sig-
niIicant pitIalls to avoid in CRM initiatives:
1. Implementing CRM beIore creating a customer strat-
egyœsuccess relies on making strategic customer
and positioning choices, and this outweighs the
importance oI the computer systems, soItware, call
centers, and other technologies.
2. Putting CRM in place beIore changing the organiza-
tion to matchœCRM aIIects more than customer-
Iacing processes, it impacts on internal structures and
systems that may have to change.
3. Assuming that more CRM technology is necessarily
better, rather than matching the technology to the
customer strategy.
4. Investing in building relationships with disinterested
customers, instead oI those who value them.
ÝÎÓ ¿²¼ ͬ®¿¬»¹·½ Ó¿®µ»¬·²¹
Erom the perspective oI strategic marketing, there are
several reasons why CRM is important and why there
should be marketing involvement in decisions about
It is important that the adoption and implementation oI
CRM should be seen as more than technology Iocused
on eIIiciency. There are signiIicant implications Ior
the strategic positioning oI a company and its cus-
tomer relationships, where the voice oI marketing
should be heard.
Ý«-¬±³»® Ê¿´«»
Operationally it is important not to assume that the driv-
ers oI value Ior all customers are the same, or that CRM
is the key to all important customer relationships. Eor
example, there are signs that many consumers are weary
with call centers and automated responses.
л®º±®³¿²½» Ó»¬®·½-
The availability oI CRM data provide the opportunity to
update the measures used by managers to assess the suc-
cess oI products and services in the marketplace.
Traditional Iinancial and market-based indicators like
sales, proIitability, and market share will continue to be
important. However, CRM allows the development oI
measures that are customer-centric and more insightIul
into marketing strategy eIIectiveness. CRM-based
measures oI perIormance (both online and oIIline) may
include: customer acquisition costs; conversion rates
(Irom lookers to buyers); retention/churn rates; same
customer sales rates; loyalty measures; and customer
“share oI wallet.’
͸±®¬óÌ»®³ ª»®-«- Ô±²¹óÌ»®³ Ê¿´«»
It is important that when decisions are made about a
company•s customer priorities, Ior example, on the basis
oI historical customer proIitability, that long-term issues
should be considered. Customers who are currently
unproIitable may be attractive long-term prospects Ior
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Ô§²»¬¬» Χ¿´-ô Ý«-¬±³»® λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬æ л®-°»½¬·ª»-
º®±³ ¬¸» Ó¿®µ»¬°´¿½»ô Ѩº±®¼æ Þ«¬¬»®©±®¬¸óØ»·²»³¿²²ô îððíò
η¹¾§ »¬ ¿´òô ±°ò ½·¬ò
Ϋ--»´´ Íò É·²»®ô ±°ò ½·¬ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ éßò ß°°»²¼·¨æ Ý«-¬±³»®
λ´¿¬·±²-¸·° Ó¿²¿¹»³»²¬
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® é Strategic Relationships îïç
suppliers who maintain loyalty through the hard times
until the customers become proIitable, and customers
who are currently proIitable may not be the best
prospects Ior the Iuture. The simple availability oI CRM
inIormation should not be allowed to override strategic
choices oI customers to be retained where a long-term
relationship may be highly attractive. This is why the
active participation oI marketing executives in CRM
initiatives remains a priority. Customer liIetime value
is an attractive measure to Iocus on long-term customer
attractiveness. Eor example, in many countries retail
banks aggressively recruit young people as customers
when they are undergraduate and graduate students (and
likely to be unproIitable to the bank) with the goal oI
retaining the customer with a better than average chance
oI becoming a high-net-worth individual (and oIIering
proIitable opportunities to the bank).
ݱ³°»¬·¬·ª» Ü·ºº»®»²¬·¿¬·±²
II some customers are unproIitable, then rather than
“Iiring’ the customer, the competitive issue may be how
to change the route to market to make then proIitable to
the company. Eor example, when British Airways made
the decision to Iocus only on its proIitable business-class
passengers at the expense oI economy travelers, Virgin
Airways gained the economy-class passengers at BA•s
cost. CRM data may provide one oI the most powerIul
tools Ior identiIying diIIerent customers on the basis oI
their behavior and other characteristics, to locate those
whose needs have good Iit with a company•s capabili-
ties. As one-to-one marketing expert Don Peppers has
noted: “Eor every credit card company that wants to
concentrate on higher income customers, there•s another
credit card company that wants to concentrate on lower
income customers, and they do it by streamlining their
service and making it more cost-eIIicient.’
It is impor-
tant that decisions about customer choices should reIlect
strategic priorities.
Ô¿½µ ±º ݱ³°»¬·¬·ª» ß¼ª¿²¬¿¹»
Investment in CRM to build competitive advantage may
be an illusion iI a company Iocuses only on automated
call centers and customer complaint systems. The level
oI expenditure on CRM suggests that most competitors
in most markets will have similar resources, and may
be quicker to get to the real competitive strengths in
aligning resources and capabilities around customers.
Competitive advantage is likely to require more than just
investment in CRM technology, particularly iI it is
poorly implemented. Similar CRM technology is avail-
able to most companies in most markets, and the issue
Ior competitive advantage enhancement is not having
the technology but how it is used.
ײº±®³¿¬·±²óÞ¿-»¼ ݱ³°»¬·¬·ª» ß¼ª¿²¬¿¹»
One oI the most important aspects oI CRM Irom a
strategic marketing perspective is the creation oI a major
new source oI customer knowledge. Used appropriately
the databases and inIormation stores created through
CRM technology may be one oI the most valuable
resources in the company Ior uncovering new value-
creating opportunities Ior customers and Ior developing
market understanding and insights ahead oI the compe-
tition. As a Iurther resource Ior developing and
exploiting market sensing capabilities, CRM systems
have enormous potential, which some organizations
are now beginning to exploit to build competitive
Ë-»º«´ É»¾ Í·¬»- º±® ß¼¼·¬·±²¿´ ÝÎÓ
The Web site oI the Database Marketing Institute, with a
number oI articles and speeches concerning recent develop-
ments in database marketing, available to be downloaded.
A site with extensive inIormation about developments in data
mining, and articles and papers on this topic Ior download.
The Web site oI the Peppers & Rogers Group Ieatures the
work and consultancy oI Don Peppers and Martha Rogers.
White Papers are available Ior download. A Iree subscription
to the inside 1to1 newsletter is also available.
The Web site oI the Teradata Division oI NCR. It contains an
interesting technical library on data warehousing and data
mining as well as customer case studies.
η½¸¿®¼ ̱³µ·²-ô “Ù±±¼¾§» ¬± ͳ¿´´ Í°»²¼»®-ô’ Ú·²¿²½·¿´
Ì·³»-ô Ú»¾®«¿®§ ìô îðððô ïíò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
Ü»-·¹²·²¹ Ó¿®µ»¬óÜ®·ª»² ͬ®¿¬»¹·»-
д¿²²·²¹ º±® Ò»© Ю±¼«½¬-
Innovation is essential to all organizations• continuing growth and perIormance in the global
marketplace. Innovation takes many Iorms, including new goods and services, organizational
processes, and business designs. Importantly, even when the critical role oI innovation is recog-
nized by managers, deciding which innovation opportunities to pursue is a demanding challenge.
Organizations must develop a culture oI innovation and build eIIective processes to identiIy
innovation opportunities and transIorm ideas into new-product successes.
The economic pressures and market turbulence that impacted companies in a wide range oI
industries during the early years oI the 21st century shiIted many executives• strategic priorities
away Irom the development oI cutting-edge new products.
The innovation processes oI com-
panies like Boeing, Kodak, Motorola, and 3M were not meeting the challenges oI aggressive
development oI cutting-edge new products. Instead, short-term, bottom-line perIormance was
the center oI attention. These short-term cost initiatives may sometimes be necessary, but it is
essential to sustain long-term innovation strategies. Innovation creates competitive advantage
and value Ior customers and the organization.
Breakthrough innovations provide vital avenues Ior company growth. Consider, Ior example,
light-emitting diodes (LEDs). “LEDs promise to replace today•s glass encased incandescent and
Iluorescent light bulbs: LED lights use Iar less electricity than an average bulb, and they shine Ior
a Iar longer time beIore burning out.’
The market potential is exciting but there are many chal-
lenges in developing LEDs Ior broad-based lighting applications. Several companies are pursu-
ing initiatives to move LED technology into the $40 billion lighting market.
The players include
General Electric, Philips, and other electronic Iirms. Two major hurdles are cost oI the diode and
the quality oI the light. The breakthrough is at least a Iew years away and probably longer.
In this chapter we consider the planning oI new products, beginning with a discussion oI cus-
tomer needs analysis. Next, we discuss the steps in new-product planning, including generating
ideas, screening and evaluating the ideas, business analysis, product development and testing,
designing the market entry strategy, market testing, and new-product introduction. The chapter
concludes with a discussion oI variations in the generic new-product planning process.
Ò»©óЮ±¼«½¬ д¿²²·²¹ ¿- ¿ Ý«-¬±³»®óÜ®·ª»² Ю±½»--
New-product opportunities that oIIer superior value to customers range Irom totally new
products to improvements in existing products. Eirst, we consider the diIIerent types oI new
products. Next, the importance oI Iinding customer value opportunities is discussed. Einally,
important drivers oI successIul innovations are examined.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
îîî ﮬ Ѳ» Fixed Income securities
̧°»- ±º Ò»© Ю±¼«½¬-
New goods and services introductions can be classiIied according to (1) newness to the
market and (2) the extent oI customer value created, resulting in the Iollowing types oI new
· 1ransformational Innovation. Products that are radically new and the value created is
substantial. Examples include CNN News Channel, Automatic Teller Machines (ATMs), and
digital cameras.
· Substantial Innovation. Products that are signiIicantly new and create important value Ior
customers. Examples include Kimberly-Clark Huggies/Nappies and Diet Coke.
· Incremental Innovations. New products that provide improved perIormance or greater
perceived value (or lower cost). An example is a new Coca-Cola Ilavor.
A company•s new-product initiatives may include innovation in one or more oI the three
categories. The reality is that many new products are extensions oI existing product lines and
incremental improvements oI existing products rather than totally new products. These exten-
sions and improvements account Ior as much as 70 to 80 percent oI all innovations. The plan-
ning process we discuss in this chapter applies to any oI the three categories and is used in
planning new services as well as tangible products. The Innovation Eeature describes some
interesting innovation initiatives by Intel and MicrosoIt that extend outside their core business
Iocus but leverage their brand recognition and proprietary technologies. We discuss brand lever-
aging in Chapter 9.
New-product initiatives are guided by customer needs analysis. Even transIormational prod-
uct ideas should have some relationship to needs that are not being met by existing products.
However, as we discuss shortly, potential customers may not always be good sounding boards
Ior radically new innovations. Importantly, these innovations sometimes have a disruptive
impact on existing products.
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ͱ«®½»æ Þ«-·²»--É»»µô Ö¿²«¿®§ ïëô îððïô ìïò
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îîî ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® è Planning for New Products îîí
Ú·²¼·²¹ Ý«-¬±³»® Ê¿´«» Ñ°°±®¬«²·¬·»-
Customer needs yield important inIormation Ior determining where value opportunities exist
in developing new products. Market segment identiIication and analysis help identiIy which seg-
ments oIIer new-product opportunities to the organization. Extensive study oI existing and
potential customers and the competition are vital in guiding eIIective new-product planning.
We know that customer value is the combination oI beneIits provided by a product minus all
oI the costs incurred by the buyer (Chapter 1). Customer satisIaction indicates how well the
product use experience compares to the value expected by the buyer. The closer the match
between expectations and the use experience, the better the resulting value.
Ý«-¬±³»® Ê¿´«»ò The objective oI customer value analysis is to identiIy needs Ior (1) new
products, (2) improvements in existing products, (3) improvements in the processes that produce
the products, and (4) improvements in supporting services. The intent is to Iind gaps (opportu-
nities) between buyers• expectations and the extent to which they are being met (Exhibit 8.1).
Everyone in the organization needs to be involved in this process. This market-driven approach
to product planning helps to avoid a mismatch between technologies and customer needs.
A diIIerence between expectations and use experience may oIIer a new-product opportunity.
Eor example, an alert U.S. Surgical Corporation (USS) salesperson saw an opportunity to satisIy
a surgical need that was not being met with existing products. USS•s products include staplers
Ior skin closure and other surgical applications. The close working relationship oI USS sales rep-
resentatives with surgeons in operating rooms gives USS a critical competitive advantage.
salesperson identiIied the new-product opportunity by observing surgeons• early use oI selI-
developed instruments to perIorm experiments in laparoscopy. Using this procedure, the surgeon
inserts a tiny TV camera into the body with very thin surgical instruments. USS responded
quickly to this need by designing and introducing a laparoscopic stapler. The product is used in
gall bladder removal and other internal surgical applications.
Buyers• satisIaction with existing products and brands is evaluated by considering various
product/service attributes that identiIy buyers• preIerences and comparisons oI competing
brands. The comparisons may include preIerence mapping and other analyses that we discussed
in earlier chapters. The USS surgical product idea is an example oI “lead’ customer analysis.
Lead customers are those that are the Iirst to anticipate new product trends. The objective oI the
various preIerence analysis techniques is to identiIy the important preIerences Ior the buyers in
speciIic market segments.
Ó¿¬½¸·²¹ Ý¿°¿¾·´·¬·»- ¬± Ê¿´«» Ñ°°±®¬«²·¬·»-ò Each value opportunity should be con-
sidered in terms oI whether the organization has the capabilities to deliver superior customer
value. Organizations will normally have the capabilities needed Ior product line extensions and
ÛÈØ×Þ×Ì èòï
Ú·²¼·²¹ Ò»©ó
Customer Value
Product Use
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
incremental improvements. Developing products Ior a new product category requires realistic
assessment oI the organization•s capabilities concerning the new category. Partnering with a
company that has the needed capabilities is an option concerning the addition oI a new product
category. Eor example, Healthy Choice (ConAgra) Eoods Inc. partnered with Kellogg to oIIer a
new line oI breakIast cereals.
Ì®¿²-º±®³¿¬·±²¿´ ײ²±ª¿¬·±²-ò Customers may not be good guides to totally new
product ideas that may be called radical or breakthrough innovations since they create new Iam-
ilies oI products and businesses.
When such ideas are under consideration, potential customers
may not understand how the new product will replace an existing product. The problem is that
customers may not anticipate a preIerence Ior a revolutionary new product.
Eor example, initial
response Irom potential users oI optical Iibers, VCRs, Eederal Express, and CNN was not
encouraging. In these situations, management must Iorm a vision about the innovation and be
willing to make the commitment to develop the technology as Corning Inc. did with optical Iiber
technology. The risk, oI course, is that management•s vision may be Iaulty.
A study oI successIul U.S. Iirms competing against Japanese companies in electronics-
related markets points to the critical role oI both radical innovations and incremental product
These businesses built and renewed, and continue to build and renew, their competitive advantage
through radical and generational innovations. They sustained that advantage over time
through incremental product line improvements and extensionsœbut it is on the basis oI the
riskier, Iailure-laden, expensive and time-consuming eIIorts to pioneer new businesses and new
generations oI technology that their competitive advantage was and still is established.
Incremental product improvements are guided by analyzing customer value opportunities
(Exhibit 8.1), whereas conventional approaches to Iinding new-product opportunities are not
very useIul in evaluating potential transIormational innovations:
The Iamiliar admonition to be customer-driven is oI little value when it is not at all clear who the
customer isœwhen the market has never experienced the Ieatures created by the new technology.
Likewise, analytic methods Ior evaluating new product opportunities (e.g., discounted cash Ilow
and market diIIusion analyses) appear to be much more appropriate Ior incremental than Ior
discontinuous innovation.
Radical innovations have the potential oI disrupting existing (sustaining) technologies, and
creating negative impacts on the leading Iirms that pursue innovation strategies using existing
Examples oI disruptive innovations include Amazon.com, JetBlue (airline),
salesIorce.com, and steel minimills. LED lighting is a potential disruptive threat to incandescent
and Iluorescent light bulbs. These disruptive technologies are oIten not considered to be threats
by Iirms pursuing sustaining technologies. IdentiIying threats and developing viable strategies
Ior disruptive technologies is a major management challenge. Clayton Christensen and Michael
E. Raynor in 1he Innovators Solution oIIer a compelling analysis oI these threats and provide
important guidelines Ior managing disruptive innovations.
The challenge Ior companies con-
Ironted with potential disruptive opportunities and threats is recognizing that product planning
processes diIIer Ior sustaining and disruptive innovations. Executives must manage both
processes. It may be necessary to position the disruptive technology in a separate organization
independent Irom the core organization.
To avoid missing out on new technologies, IBM has changed the way it identiIies and pur-
sues promising new ideas. Because new ideas Iall between organizational boundaries and may
conIlict with existing business units, the ideas are managed separately and diIIerently:
· Hori:on One Businesses are traditional, mature businesses such as mainIrame computers.
· Hori:on 1wo Businesses are the current growth businesses.
îîì ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
· Hori:on 1hree Businesses are new, young businesses that are put in separate organizational units,
are insulated Irom traditional management methods and perIormance yardsticks, and receive per-
sonal sponsorship Irom senior managers to protect them Irom other interests in the company.
Unless these initiatives are taken, the sustaining technology is likely to dominate innovation
activities. A good market/technology match is important in being successIul with radical
technologies. Priority should be given to market niches that the traditional technology does
not serve well. Christensen and Raynor also propose that products Irom disruptive technologies
that are not currently valued by customers may match Iuture value requirements very well. The
eventual strong preIerence Ior digital photography displayed by buyers is illustrative.
The new-product planning process we discuss in this chapter is appropriate Ior planning
incremental product improvements, and it can also be used in radical innovation, as a separate
organizational initiative. We discuss variations to the generic new-product planning process at
the end oI the chapter.
ݸ¿®¿½¬»®·-¬·½- ±º Í«½½»--º«´ ײ²±ª¿¬±®-
Certain companies seem to consistently excel over others in developing successIul new products.
SuccessIul innovators oIten display similar characteristics. Importantly, the strategic initiatives
shown in Exhibit 8.2 have consistently been good predictors oI successIul innovation based on
research studies, management judgment and experience, and analysis oI speciIic companies•
innovation experience. These initiatives reIer to the organization as an innovator rather than spe-
ciIic new-product projects, which may be impacted by situation speciIic Iactors.
Creating an innovative culture is essential to generating successIul new products. Research
Iindings constantly point to the importance oI an innovative organizational climate and culture.
This requires positioning innovation as a distinct organizational priority, and communicating the
importance oI innovation to all employees. Moreover, deciding the right innovation strategy
involves deIining the product, market, and technology scope oI the organization. Corporate pur-
pose and scope set important guidelines and boundaries Ior new-product planning. High-quality
new-product planning processes are essential to implement the organization•s innovation strat-
egy. Importantly, achieving successIul new-product outcomes requires allocating adequate
resources to new-product initiatives. Einally, the extent to which the organization can leverage
its capabilities into promising new-product and market opportunities enhances innovation per-
Iormance (iI the leveraging eIIorts are successIul). Our earlier Innovation Eeature discussion oI
the Intel and MicrosoIt consumer products is an example oI leveraging.
ݸ¿°¬»® è Planning for New Products îîë
ÛÈØ×Þ×Ì èòî
±º Í«½½»--º«´
Creating an
Selecting the
Right Ìnnovation
Developing and
Effective New-
Product Processes
Making Resource
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ͬ»°- ·² Ò»©óЮ±¼«½¬ д¿²²·²¹
A new product does not have to be a high-technology breakthrough to be successIul, but it must
deliver superior customer value. Post-it Notes have been a big winner Ior 3M Company.
know that the notepaper pads come in various sizes and each page has a thin strip oI adhesive
on the back which can be attached to reports, telephones, walls, and other places. The idea came
Irom a 3M researcher. He had used slips oI paper to mark songs in his hymnbook, but the paper
kept Ialling out. To eliminate the problem, the employee applied an adhesive that had been
developed in 3M•s research laboratory that Iailed to provide the adhesive strength needed in the
original use situation. The adhesive worked Iine Ior marking songs in the book. Interestingly,
oIIice-supply vendors initially saw no market Ior the sticky-back notepaper. The 3M Company
employed extensive sampling to show the value oI the product. Over the signature oI the CEO•s
administrative assistant, samples were sent to executive assistants at all Fortune 500 companies.
AIter using the supply oI samples, the executive assistants wanted more. Today, Post-it-Notes
are indispensable in both oIIices and homes.
Creating an innovative culture is an important Ioundation Ior innovation (Exhibit 8.2). It is
also necessary to set some boundaries concerning the types oI new products to be considered Ior
possible development. We examine these issues Iollowed by a discussion oI the steps in the new-
product planning process.
Ü»ª»´±°·²¹ ¿ Ý«´¬«®» ¿²¼ ͬ®¿¬»¹§ º±® ײ²±ª¿¬·±²
Open communications throughout the organization and high levels oI employee involvement
and interest are characteristic oI innovative cultures. Recognizing the importance oI developing
a culture and innovation strategy, Intel•s CEO has pursued several actions intended to encour-
age innovation initiatives beyond the core chip business. Management also changed the
structure oI the organization to make it more Ilexible to allow new ideas to thrive (see earlier
Innovation Eeature). Evidence oI innovative cultures may be Iound in corporate mission
statements, advertising messages, presentations by top executives, and case studies in business
Creating (or strengthening) an innovation culture can be encouraged by several interrelated
management initiatives:
· Plan and implement a two-day innovation workshop oI top executives to develop an innova-
tion plan. This would involve use oI cross-Iunctional teams, resource allocations, rewards,
and innovation perIormance metrics.
· Develop an innovation declaration highlighting the company•s objectives and senior
management•s roles and responsibilities.
· Conduct innovation training programs Ior employees and managers to encourage commit-
ment and involvement.
· Communicate the priority oI innovation via articles, newsletters, and presentations to
employees, shareholders, and customers.
· Schedule innovation speakers on a regular basis to expose employees to innovation
The organization•s innovation strategy spells out management•s choice oI the organization•s
most promising opportunities Ior new products. This strategy needs to be Iormulated by taking
into account the organization•s distinctive capabilities, relevant technologies, and the market
opportunities that provide a good customer value match with the organization•s capabilities.
A major benchmarking study oI 161 business units Irom a broad range oI industries in the United
States, Germany, Denmark, and Canada indicates that a careIully Iormulated and communicated
new-product innovation strategy is one oI three cornerstones oI superior new-product perIorm-
A successIul new-product strategy includes:
îîê ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
1. Setting speciIic, written new-product objectives (sales, proIit contribution, market,
share, etc.).
2. Communicating across the organization the role oI new products in contributing to the goals
oI the business.
3. DeIining the areas oI strategic Iocus Ior the corporation in terms oI product scope, markets,
and technologies.
4. Including longer-term, transIormational projects in the portIolio along with incremental projects.
Implementing each oI these new-product strategy guidelines should assist management in
selecting the right innovation strategy.
In 2004 Philips, Europe•s consumer-electronics giant, launched new innovation strategy
· All products should conIorm to the philosophy “designed around you’œthe consumer.
· Products should be easy to use but not through low technology.
· Products should be advanced.
The strategy is intended to guide a transIormation process Ior Philips, which is clearly Iocused
on the customer (Exhibit 8.1). Interaction across business units is encouraged.
Ü»ª»´±°·²¹ Ûºº»½¬·ª» Ò»©óЮ±¼«½¬ д¿²²·²¹ Ю±½»--»-
Creating the right culture and selecting the right innovation strategy are essential but not
suIIicient initiatives in successIul innovation (Exhibit 8.2). Innovation must be achieved through
the processes put in place by the organization. The previously discussed benchmarking study
Iound that having a high-quality new-product process in place is the most important cornerstone
oI new-product planning perIormance, ahead oI both selecting the right innovation strategy and
committing necessary resources to new-product development.
Developing successIul new products requires systematic planning to coordinate the many
decisions, activities, and Iunctions necessary to move the new-product idea to commercial suc-
cess. A generic planning process can be used in planning a wide range oI new products. There
may be necessary modiIications in the process in certain situations and these issues are discussed
in the last section oI the chapter. The major stages in the planning process are shown in Exhibit
8.3. We examine each process stage to see what is involved, how the stages depend on each
other, and why cross-Iunctional coordination oI new-product planning is very important.
ݸ¿°¬»® è Planning for New Products îîé
ÛÈØ×Þ×Ì èòí
Customer needs
Ìdea generation
Screening and
Marketing strategy
Business analysis
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
SuccessIul new-product planning requires: (1) generating a continuing stream oI new-product
ideas that will satisIy the organization•s requirements Ior new products and (2) putting in place
processes and methods Ior evaluating new-product ideas as they move through each oI the
planning stages.
The Iollowing initiatives are important in eIIectively applying the planning process to
develop and introduce new products. Eirst, the process involves diIIerent business Iunctions, so
it is necessary to develop ways oI coordinating and integrating cross-Iunctional activities in the
planning process. Second, compressing the time span Ior product development creates an impor-
tant competitive advantage. Eor example, U.S. Surgical•s quick response to laparoscopy equip-
ment development enabled the company to establish Iirst position in the market. Third, the
product planning activities consume resources and must be managed so that the results deliver
high levels oI customer satisIaction at acceptable costs. Einally, the planning process is used Ior
new-service development as well as physical products. Certain diIIerences in new-service plan-
ning are highlighted as we discuss the planning stages.
λ-°±²-·¾·´·¬§ º±® Ò»©óЮ±¼«½¬ д¿²²·²¹
Since new product development involves diIIerent business Iunctions such as marketing, Iinance,
operations, human resources, and research and development (R&D), ways oI encouraging cross
Iunctional interaction and coordination are essential. Various organizational designs may be
employed to coordinate interIunctional interactions that are necessary in developing successIul
new products, including:
· Coordination oI new-product activities by a high-level business manager.
· InterIunctional coordination by a team oI new-product planning representatives.
· Creation oI a cross-Iunctional project task Iorce responsible Ior new-product planning.
· Designation oI a new-products manager to coordinate planning among departments.
· Eormation oI a matrix organizational structure Ior integrating new-product planning with
business Iunctions.
· Creation oI a design center which is similar in concept to a new-product team, except the
center is a permanent part oI the organization.
The design team and design center are more recent new-product coordination mechanisms. Though
cross-Iunctional teams are widely cited as promising new-product planning mechanisms, research
Iindings suggest that they may be most appropriate Ior planning truly new and innovative prod-
The more traditional bureaucratic structures (e.g., new-products manager) may be better in
planning line extensions and product improvements. The danger oI the traditional structure is Iail-
ing to identiIy new-product opportunities outside the scope oI existing new-product planning.
The nature and scope oI new-product projects may inIluence how the responsibilities are
allocated. Several characteristics oI various new-product development eIIorts are described in
Exhibit 8.4. Consider, Ior example, the enormous team oI people involved in developing the
Boeing 777 commercial aircraIt. The organizational design Ior such a large-scale project is likely
to be more Iormal than a small-scale project like the Stanley screwdriver. Interestingly, the
complete design and production Ior the 777 aircraIt was accomplished by computer that linked
together the various people and Iunctions involved as well as partnering companies. We discuss
organizational designs Iurther in Chapter 14.
×¼»¿ Ù»²»®¿¬·±²
Guided by the new-product innovation strategy, Iinding promising new ideas is the starting
point in the new-product development process. Idea generation ranges Irom incremental
improvements oI existing products to breakthrough products. An example oI an incremental
îîè ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
improvement is Pepsi•s vanilla Ilavor carbonated drink introduced in 2003. An example oI a
totally new product is a drug that will cure AIDS.
ͱ«®½»- ±º ×¼»¿-
New-product ideas come Irom many sources. Limiting the search Ior ideas to those generated by
internal research and development activities is Iar too narrow an approach Ior most Iirms.
Sources oI new-product ideas include R&D laboratories, employees, customers, competitors,
outside inventors, acquisition, and value-chain members. Both solicited and spontaneous ideas
may emerge Irom these sources. Some companies are developing “open-market innovation’
approaches using licensing, joint ventures, and strategic alliances. By opening their boundaries
to suppliers, customers, outside researchers, even competitors, businesses are increasing the
import and export oI new ideas to improve the speed, cost, and quality oI innovation. Eor exam-
ple, when Pitney-Bowes was challenged with protecting consumers and postal workers Irom
envelopes tainted with anthrax spores by terrorists, they had no in-house responseœtheir expert-
ise is in secure metering systems to protect postal revenues. They collected ideas Irom Iields as
diverse as Iood handling to military security, beIore working with outside inventors to introduce
new products and services to secure mail against bioterrorismœspecialized scanners and imag-
ing systems to identiIy suspicious letters and packages.
Eor many major companies, the slowdown in traditional R&D spending has mandated a broad
global search Ior new ideas Irom any source. Eor example, giant chemical companies like Dow
and BASE post research problems at a Web site run by Eli Lilly & Co.•s InnoCentive Inc., to match
scientists anywhere in the world with research problems. InnoCentive has a community oI 30,000
scientists worldwide and pays up to $100,000 Ior solutions posted to the site. Others like Intel are
locating satellite research Iacilities close to leading research universities to tap into academic
expertise. In some cases the breakthrough ideas come Irom research-based collaboration. Eor
example, Xerox has broken with its tradition to look to outsiders to help develop optical-network
ݸ¿°¬»® è Planning for New Products îîç
ÛÈØ×Þ×Ì èòì ߬¬®·¾«¬»- ±º Ú·ª» Ю±¼«½¬- ¿²¼ ̸»·® ß--±½·¿¬»¼ Ü»ª»´±°³»²¬ Ûºº±®¬- ø¿´´ º·¹«®»- ¿®»
¿°°®±¨·³¿¬»ô ¾¿-»¼ ±² °«¾´·½´§ ¿ª¿·´¿¾´» ·²º±®³¿¬·±² ¿²¼ ½±³°¿²§ -±«®½»-÷
Source: Karl T. Ulrich and Stephen D. Eppinger, Product Design and Development, 2nd ed. (Burr Ridge, IL: Irwin/McGraw-Hill, 2000), 6. Copyright © The McGraw-Hill
Companies. Used with permission.
ͬ¿²´»§ ̱±´- α´´»®¾´¿¼» п½µ¿®¼ ʱ´µ-©¿¹»²
Ö±¾³¿-¬»® ײóÔ·²» Ü»-µÖ»¬ Ò»© Þ»»¬´» Þ±»·²¹ ééé
ͽ®»©¼®·ª»® ͵¿¬» Ю·²¬»® ß«¬±³±¾·´» ß·®°´¿²»
ß²²«¿´ °®±¼«½¬·±² ïððôððð ïððôððð ì ³·´´·±² ïððôððð ëð
ª±´«³» «²·¬-ñ§»¿® «²·¬-ñ§»¿® «²·¬-ñ§»¿® «²·¬-ñ§»¿® «²·¬-ñ§»¿®
Í¿´»- ´·º»¬·³» ì𠧻¿®- í §»¿®- î §»¿®- ê §»¿®- í𠧻¿®-
Í¿´»- °®·½» üí üîðð üíðð üïéôððð üïíð ³·´´·±²
Ò«³¾»® ±º «²·¯«» í °¿®¬- íë °¿®¬- îðð °¿®¬- ïðôððð °¿®¬- ïíðôððð °¿®¬-
°¿®¬- ø°¿®¬ ²«³¾»®-÷
Ü»ª»´±°³»²¬ ¬·³» ï §»¿® î §»¿®- ïòë §»¿®- íòë §»¿®- ìòë §»¿®-
ײ¬»®²¿´ ¼»ª»´±°³»²¬ í °»±°´» ë °»±°´» ïðð °»±°´» èðð °»±°´» êôèðð °»±°´»
¬»¿³ ø°»¿µ -·¦»÷
Û¨¬»®²¿´ ¼»ª»´±°³»²¬ í °»±°´» ïð °»±°´» éë °»±°´» èðð °»±°´» ïðôððð °»±°´»
¬»¿³ ø°»¿µ -·¦»÷
Ü»ª»´±°³»²¬ ½±-¬ üïëðôððð üéëðôððð üëð ³·´´·±² üìðð ³·´´·±² üí ¾·´´·±²
Ю±¼«½¬·±² üïëðôððð üï ³·´´·±² üîë ³·´´·±² üëðð ³·´´·±² üí ¾·´´·±²
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
îíð ﮬ Ѳ» Fixed Income securities
technology. One result is the inclusion oI Xerox•s imaging technology expertise in a joint project
with Intel, to produce a new microprocessor tailored to document imaging.
In complex and rap-
idly changing markets, many companies are exploring new and Iaster ways to capture new ideas
Irom diverse sources as the basis Ior developing new products and services.
It is essential to establish a proactive idea-generation and evaluation process that meets the needs
oI the enterprise. Answering these questions is helpIul in developing the idea-generation program:
· Should idea search activities be targeted or open-ended? Should the search Ior new-product
ideas be restricted to ideas that correspond to the Iirm•s new-product strategy?
· How extensive and aggressive should new-product idea search activities be?
· What speciIic sources are best Ior generating a regular Ilow oI new-product ideas?
· How can new ideas be obtained Irom customers?
· Where will responsibility Ior new-product idea search be placed? How will new-product idea
generation activities be directed and coordinated?
· What are potential threats Irom alternative technologies that may satisIy customers better than
our products (e.g., digital rather than camera and Iilm photography)?
An important issue is deciding how Iar to expand beyond the organization•s core new-
product strategy in generating new-product ideas. These initiatives may be risky as discussed in
the Strategy Eeature, which describes Benetton•s neglect oI its core apparel business resulting
Irom venturing into sports equipment.
Eor most companies, the idea search process should be targeted within a range oI product
and market involvement that is consistent with corporate mission and objectives and business-
unit strategy. While some Iar-out new-product idea may occasionally change the Iuture oI a
company, more oIten open-ended idea search dissipates resources and misdirects eIIorts.
However, management should be proactive in monitoring potential disruptive technologies and
opportunities beyond the core product Iocus.
ͬ®¿¬»¹§ Ú»¿¬«®»
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ú Ó¿«®·¬¦ øØúÓ÷œ¸¿ª» ®¿·-»¼ ¬¸» ¾¿® º±® ¬¸» »²¬·®»
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¿²¼ ±ª»®ó¬¸»ó¬±° ¬®»²¼§ º±® ØúÓ•- ¬»»² º¿²-ò ß²¼
Þ»²»¬¬±²•- ´±±µá Þ´¿²¼ò “̸» Þ»²»¬¬±² ¾®¿²¼ ·- ±«¬ ±º
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îíð ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
IdentiIying the best idea sources depends on many Iactors including the size and type oI Iirm,
technologies involved, new-product needs, resources, management•s preIerences, and corporate
capabilities. Management should consider these issues and develop a proactive strategy Ior idea
generation that will satisIy the Iirm•s requirements. Creating an innovative culture should
encourage generating new-product ideas. The innovation strategy provides idea generation
Many new-product ideas originate Irom the users oI products and services. Lead user analy-
ses oIIer promising potential Ior the development oI new products.
The earlier U.S. Surgical
example is illustrative oI lead-user opportunities. These companies identiIy gaps between their
satisIaction with available products and users• value expectations, and lead users pursue
initiatives to meet their needs. Implementing this approach to idea generation requires major
internal and external initiatives. The beneIits can be signiIicant as described in Exhibit 8.5. The
objective is to identiIy the companies that pioneer new applications and to study their require-
ments to guide new-product development in product markets that change rapidly. The intent is
to satisIy the lead users• needs, thus accelerating new-product adoption by other companies.
Involving customers in the innovation process goes much Iurther than direct customer Ieed-
back Ior some companies in their search Ior new ideas that create customer value. These com-
panies have gone to the extent oI equipping customers with the tools to develop and design their
own productsœranging Irom minor modiIications to major innovations. Eor example, Bush
Boake Allen (BBA) is a global supplier oI specialty Ilavors to companies like Nestle. BBA has
developed a toolkit that enables customers to develop their own Ilavors, which BBA then
manuIactures. In the materials business, GE provides customers with Web tools to design better
plastic products. The trend toward customers as innovators has transIormed some industries.
In the semiconductor business it has led to a custom-chip business that has grown to more than
$15 billion.
One view is that “co-creating’ value with customers provides a model indicating the Iuture
oI competitive strategyœonly by allowing customers to design products and services will com-
panies be able to provide the added value Ior which customers will pay.
Eor example, Dow
Chemical Co. has developed what it calls “inventing to order,’ when it collects a “wish list’ oI
products or technical characteristics Irom customers, which provide input to the R&D labora-
tory. This is similar to “open market innovation’ we describe elsewhere, but aims to build in
guaranteed demand to underwrite R&D expenditure.
Ó»¬¸±¼- ±º Ù»²»®¿¬·²¹ ×¼»¿-
There are several ways oI obtaining ideas Ior new products. Typically, a company considers
multiple options in generating product ideas. Various approaches to idea generation are shown
in Exhibit 8.6. A discussion oI idea-generation methods Iollows.
Í»¿®½¸ò Tapping several inIormation sources may be helpIul in identiIying new-product
ideas. New-product idea publications are available Irom companies that wish to sell or license
ݸ¿°¬»® è Planning for New Products îíï
ÛÈØ×Þ×Ì èòë
Ý«-¬±³»®- ¬±
¬¸» Ü»-·¹²
Source: Review oI
C. K. Prahalad and Venkat
Ramaswamy, 1he Future
of Competition (Boston:
Harvard Business School
Press, 2004), in
BusinessWeek, March 1,
2004, 22.
̸·- ·-²•¬ ¿¾±«¬ ¬©»¿µ·²¹ ¿ º»© ³¿²¿¹»³»²¬ ¬»½¸²·¯«»- ¿²¼ ¾«-·²»-- °®±½»--»-ò
Ú«²¼¿³»²¬¿´ ½¸¿²¹»- ³«-¬ ¾» ³¿¼» ²±¬ ±²´§ ¬± ¬¸» ÝÛÑ•- ®±´» ¾«¬ ¿´-± »ª»®§ ½±®°±®¿¬»
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Ó±¼»´- ·²½´«¼» Þ®·¬·-¸ 묮±´»«³ô ©¸·½¸ô ¬¸®±«¹¸ ¿² ±²´·²» -§-¬»³ô °«´´- ·²
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µ²±© ¿¾±«¬ ·¬ô ¿²¼ °®±ª·¼»- º±®«³- º±® ¼·-½«--·²¹ ¿²¼ ¿½¬·²¹ ±² ·¬ò ÞÐ ·- º±®³¿´´§ ±®¹¿²ó
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·¬ ¿®±«²¼ µ²±©´»¼¹» ®¿¬¸»® ¬¸¿² ®¿²µò ̸»®»•- ¿´-± Ü»»®» ú ݱòô ©¸·½¸ ·- ¼»ª»´±°·²¹ ¿
ÙÐÍó¾¿-»¼ ¬»½¸²±´±¹§ ¬¸¿¬ ¬®¿½µ- ¸±© º¿®³»®- «-» ·¬- »¯«·°³»²¬ô ¼·¿¹²±-»- »³»®¹·²¹
°®±¾´»³-ô ¿²¼ ©¿®²- ±º °±¬»²¬·¿´ »¯«·°³»²¬ º¿·´«®»-ò
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ideas they do not wish to commercialize. New technology inIormation is available Irom
commercial and government computerized search services. News sources may also yield inIor-
mation about the new-product activities oI competitors. Many trade publications contain
new-product announcements. Companies need to identiIy the relevant search areas and assign
responsibility Ior idea search to an individual or team.
Ó¿®µ»¬·²¹ λ-»¿®½¸ò Surveys oI product users help to identiIy needs that can be satisIied
by new products. The Iocus group is a useIul technique to identiIy and evaluate new-product
concepts, and the research method can be used Ior both consumer and industrial products. The
Iocus group consists oI 8 to 12 people invited to meet with an experienced moderator to discuss
a product-use situation. Idea generation may occur in the Iocus group discussion oI user require-
ments Ior a particular product-use situation. Group members are asked to suggest new-product
ideas. Later, Iocus group sessions may be used to evaluate product concepts intended to satisIy
the needs identiIied in the initial session. More than one Iocus group can be used at each stage
in the process. Eocus groups can be conducted using value-chain members and company
personnel as well as end user customers.
Another research technique that is used to generate new-product ideas is the advisory panel.
The panel members are selected to represent the Iirm•s target market. Eor example, such a
panel Ior a producer oI mechanics• hand tools would include mechanics. Companies in vari-
ous industries, including telecommunications, Iast Ioods, and pharmaceuticals, use customer
advisory groups. These experienced users provide ideas and evaluations Ior new and existing
îíî ﮬ ̸®»» Designing Market-Driven Strategies
ÛÈØ×Þ×Ì èòê
Source: Chart Irom
C. Merle CrawIord and
C. Anthony DiBenedetto,
New Products
7th ed. (Burr Ridge,
IL: Irwin/McGraw-Hill,
2003), 96. Copyright ©
The McGraw-Hill
Companies. Used with
Determine category of interest and make thorough analysis
of that situationœcompany, customers, resellers, etc.
Team members undertake problem analysis
Marketing and
technical staffs
pool experience
Search of service
records, sales calls,
idea files, etc.
Other methods:
Role playing
Focus Groups Ìnterviews
One-on-one Many variations
Dyads and others
Pool of problems
Screen the pool to acceptable problem set
Undertake various problem-solving efforts
Technical Marketing
Brainstorming Disciplines panel
Group methods
Resolve to acceptable solution(s) and prepare concept statements
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ײ¬»®²¿´ ¿²¼ Û¨¬»®²¿´ Ü»ª»´±°³»²¬ò Companies• research and development laboratories
continue to generate many new-product ideas. The United States is the leading spender on indus-
trial research and development in the world and aIter the surge in R&D expenditure in the
late 1990s, with the exception oI countries like Japan and Korea, very Iew countries allocated a
higher percentage oI gross domestic product to R&D. However, U.S. expenditures Iell Irom
$198.8 billion between 2001 and 2002, with a small recovery in 2003. Major cut backs in R&D
expenditure by large corporations like Xerox and AT&T may even lead to a steady decline in
overall national spending.
These Iactors are driving innovative companies to explore new ways
oI matching R&D resources to value opportunitiesœthrough “open source innovation,’ strate-
gic alliances, joint ventures, and the global search Ior promising innovation prospects.
New-product ideas may originate Irom development eIIorts outside the Iirm. Sources include
inventors, government and private laboratories, and small high-technology Iirms. Strategic
alliances between companies may result in identiIying new-product ideas, as well as sharing
responsibility Ior other activities in new-product development.
Ѭ¸»® ×¼»¿óÙ»²»®¿¬·±² Ó»¬¸±¼-ò Incentives may be useIul to get new-product ideas
Irom employees, marketing middlemen, and customers. The amount oI the incentive should
be high enough to encourage submission. Management should also guard against employees
leaving the company and developing a promising idea elsewhere. Eor this reason many Iirms
require employees to sign secrecy agreements.
Einally, acquiring another Iirm oIIers a way to obtain new-product ideas. This strategy may
be more cost-eIIective than internal development and can substantially reduce the lead time
required Ior developing new products. P&G•s purchase oI the battery-powered Crest SpinBrush
Irom the inventor is an example.
Idea generation identiIies one or more new-product opportunities that are screened and eval-
uated. BeIore comprehensive evaluation, an idea Ior a new product must be transIormed into a
deIined concept, which states what the product will do (anticipated attributes) and the beneIits
that are superior to available products.
The product concept expresses the idea in operational
terms so that it can be evaluated as a potential candidate Ior development into a new product.
ͽ®»»²·²¹ô Ûª¿´«¿¬·²¹ô ¿²¼ Þ«-·²»-- ß²¿´§-·-
Management needs a screening and evaluation process that will eliminate unpromising ideas
as soon as possible while keeping the risks oI rejecting good ideas at acceptable levels. Moving
too many ideas through too many stages in the new-product planning process is expensive.
Expenditures build up Irom the idea stage to the commercialization stage, whereas the risks oI
developing a bad new product decline as inIormation accumulates about product perIormance
and market acceptance. The objective is to eliminate the least promising ideas beIore too much
time and money are invested in them. However, the tighter the screening procedure, the higher
the risk oI rejecting a good idea. On the basis oI the speciIic Iactors involved, it is necessary to
establish a level oI risk that is acceptable to management.
Evaluation occurs regularly as an idea moves through the new-product planning stages. While
the objective is to eliminate the poor risks as early as possible in the planning process, evalua-
tion is necessary at each stage in the planning process. We discuss several evaluation techniques
as the stages in new-product planning are examined. Typically, evaluation begins by screening
new-product ideas to identiIy those that are considered to be most promising. These ideas are
subjected to more comprehensive concept evaluation. Business analysis is the Iinal assessment
beIore deciding whether to develop the concept into a new product.
A new-product idea receives an initial screening to determine its strategic Iit in the company or busi-
ness unit. Two questions need to be answered: (1) Is the idea compatible with the organization•s
mission and objectives? (2) Is the product initiative commercially Ieasible? The compatibility oI the
ݸ¿°¬»® è Planning for New Products îíí
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
idea considers Iactors such as internal capabilities (e.g., development, production, and marketing),
Iinancial needs, and competitive Iactors. Commercial Ieasibility considers market attractiveness,
technical Ieasibility, Iinancial attractiveness, and social and environmental concerns. The number oI
ideas generated by an organization is likely to inIluence the approach utilized in screening the ideas.
A large number oI ideas call Ior a Iormal screening process.
Screening eliminates ideas that are not compatible or Ieasible Ior the business. Management
must establish how narrow or wide the screening boundaries should be, Eor example, managers
Irom two similar Iirms may have very diIIerent missions and objectives as well as diIIerent
propensities toward risk. An idea could be strategically compatible in one Iirm and not in
another. Also, new-product strategies and priorities may change when top management changes
as previously discussed in the Strategic Eeature concerning Benetton.
AIter identiIying relevant screening criteria, some Iirms use scoring and importance weighting
techniques to evaluate the Iactors considered in the screening process. Summing the weighted
scores obtains a score Ior each idea being screened. Management can set ranges Ior passing and
rejecting. The eIIectiveness oI these methods is highly dependent on including relevant criteria
and gaining agreement on the relative importance oI the screening Iactors Irom the managers
ݱ²½»°¬ Ûª¿´«¿¬·±²
The boundaries between idea screening, evaluation, and business analysis are oIten not clearly
drawn. These evaluation stages may be combined, particularly when only a Iew ideas are
involved. AIter completion oI initial screening, each idea that survives becomes a new-product
concept and receives a more comprehensive evaluation. Several oI the same Iactors used
in screening may be evaluated in greater depth, including buyers• reactions to the proposed
concept. A team representing diIIerent business Iunctions is oIten responsible Ior concept
׳°±®¬¿²½» ±º ݱ²½»°¬ Ûª¿´«¿¬·±²ò Extensive research on companies• new-product plan-
ning activities highlights the critical role oI extensive market and technical assessments before
beginning the development oI a new-product concept.
These “up-Iront’ evaluations should
result in a clearly deIined new-product concept indicating its market target(s), customer value
oIIering, and positioning strategy. Research concerning product Iailures strongly suggests that
many companies do not devote enough attention to “up-Iront’ evaluation oI product concepts.
The Iailure oI the handheld CueCat scanner oIIers compelling evidence oI the value and
importance oI concept evaluation. CueCat reads a bar code and, when attached to a personal
computer, provides a direct access Web page Ior the product. The Iounder oI Digital
Convergence Corp. raised $185 million Irom investors to commercially launch CueCat.
investors included Belo Corp. ($37.5 million), Radio Shack ($30 million), and Young &
Rubicam ($28 million). The business plan was to give away 50 million CueCats ($6.50 cost) and
obtain revenues Irom advertisers and licensing Iees. Eour million CueCats were distributed but
Iew were used. People did not want to carry the scanner around and could quickly access Web
sites by typing the address. CueCat did not Iill a consumer need. Importantly, this weakness
could have been identiIied at the concept stage beIore large expenditures were made to produce
and distribute the product.
ݱ²½»°¬ Ì»-¬-ò Concept tests are useIul in evaluation and reIinement oI proposed new prod-
ucts. The purpose oI concept testing is to obtain a reaction to the new-product concept Irom a
sample oI potential buyers beIore the product is developed. More than one concept test may be
used during the evaluation process. The technique supplies important inIormation Ior reshaping,
redeIining, and coalescing new-product ideas.
Concept tests help to evaluate the relative appeal
oI ideas or alternative product positionings, supply inIormation Ior developing the product and
marketing strategy, and identiIy potential market segments. A proposal to conduct a concept test
Ior evaluating alternative investment products is described in Exhibit 8.7.
îíì ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® è Planning for New Products îíë
ÛÈØ×Þ×Ì èòé
Ю±°±-¿´æ Ò»©ó
ͽ®»»²·²¹ Ì»-¬
Source: Adapted Irom
William R. Dillon, Thomas
J. Madden, and Neil H.
Eirtle, Marketing Research
in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL: Richard D.
Irwin, 1994), 562.
Copyright © The McGraw-
Hill Companies. Used with
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The concept test is a useIul way to evaluate a product idea very early in the development process.
The costs oI these tests are reasonable, given the inIormation that can be obtained. Nonetheless,
there are some important cautions. The test is not a deIinitive gauge oI commercial success. Since
the actual product and a commercial setting are not present, the evaluation is somewhat artiIicial.
The concept test is probably most useIul in identiIying very Iavorable or unIavorable product
concepts. The research method also oIIers a basis Ior comparing two or more concepts. An
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
important requirement oI concept testing is that the product (good or service) can be described
in words and visually, and the participant must have the experience and capability to evaluate
the concept. The respondent must be able to visualize the proposed product and its Ieatures based
on a verbal or written description and/or picture.
Computer technology oIIers very promising capabilities Ior visual testing oI new-product
concepts. Potential customers can be provided with multimedia virtual buying environment.
Virtual methodology was used to evaluate the potential oI new electric cars:
Respondents viewed multimedia presentations, read on-line articles about the new product, talked
with users oI the vehicle, visited a showroom, and were able to virtually get into the vehicle and
talk with salespeople.
Several concept evaluation issues are highlighted in Exhibit 8.8. Evaluation includes more
than concept tests. Eor example, the new-product team may perIorm competitor analyses,
market Iorecasts, and technical Ieasibility evaluations. The questions indicated in Exhibit 8.8 are
helpIul in deciding how to evaluate the new-product concept.
Þ«-·²»-- ß²¿´§-·-
BeIore making the decision to move the concept into the product development stage, an assess-
ment needs to be made oI the estimated revenues and costs Ior developing and commercializing
the new product. Business analysis estimates the commercial perIormance oI the new-product
concept. Obtaining an accurate Iinancial projection depends on the quality oI the revenue and
cost Iorecasts. Business analysis is normally accomplished at several stages in the new-product
planning process, beginning beIore the product concept moves into the development stage.
Einancial projections are reIined at later stages.
못²«» Ú±®»½¿-¬-ò The newness oI the product, the size oI the market, and the competing
products all inIluence the accuracy oI revenue projections. In the case oI an established market
such as breakIast cereals, potato chips, or toothpaste, estimates oI total market size are usually
available Irom industry inIormation. Industry associations oIten publish industry Iorecasts and
government agencies such as the U.S. Commerce Department Iorecast sales Ior various indus-
tries. The more diIIicult task is estimating the market share that is Ieasible Ior a new-product
entry. A range oI Ieasible share positions can be Iorecast at the concept stage and used as a basis
Ior preliminary Iinancial projections. Established markets also may have success norms based
on prior experience. When available the success norm provides a basis Ior estimating the possi-
bility oI reaching a successIul level oI sales.
Nonetheless, major diIIiculties may exist in Iorecasting the demand Ior innovations. Consider,
Ior example, the dilemma Iacing telecom companies with third-generation (3G) mobile phone
services. The European carriers have spent some $250 billion buying 3G rights and new networks.
Notwithstanding eIIicient data connections at broadband speeds, cheaper voice calls, Internet
access, photo messaging, games, streaming video clips, and videoconIerencing on 3G phones,
consumers have shown limited interest in buying mobile multimedia. There is a possible risk that
levels oI business achieved may never pay back the cost oI the 3G licenses acquired in 2001 and
AIter a very slow start the 3Q Iorecasts in 2004 became cautiously optimistic, indicating
an evolution rather than a revolution.
îíê ﮬ ̸®»» Designing Market-Driven Strategies
ÛÈØ×Þ×Ì èòè
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Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
Ю»´·³·²¿®§ Ó¿®µ»¬·²¹ д¿²ò An initial marketing strategy should be developed as a
part oI the business analysis. Included are market target(s), positioning strategy, and marketing
program plans. While this plan is preliminary, it is an early guide to strategy development and
coordination among marketing, design, operations, and other business Iunctions. The choice oI
the marketing strategy is necessary in developing the revenue Iorecast. DiIIerent approaches to
marketing and diIIerent levels oI eIIort in the marketing strategy guide estimates oI the sales,
which may be achieved in diIIerent parts oI the market.
ݱ-¬ Û-¬·³¿¬·±²ò Several diIIerent costs occur in the planning and commercialization oI
new products. One way to categorize the costs is to estimate them Ior each stage in the new-
product planning process (Exhibit 8.3). The costs increase rapidly as the product concept moves
through the development process. Expenditures Ior each planning stage can be Iurther divided
into Iunctional categories (e.g., marketing, research and development, and manuIacturing).
Ю±º·¬ Ю±¶»½¬·±²-ò Analyses appropriate Ior new-product evaluation include break-even,
cash Ilow, return on investment, and proIit contribution (see Appendix to Chapter 2). Break-even
analysis is particularly useIul to show how many units oI the new-product must be sold beIore
it begins to make a proIit. Management can use the break-even level as a basis Ior assessing the
Ieasibility oI the project. The issue is whether management considers reaching and exceeding
break-even to be Ieasible.
The appropriate time horizon Ior projecting sales, costs, and proIits should be determined. Eor
example, the product may be required to recoup all costs within a certain time period. Business
analysis estimates should take into consideration the probable Ilow oI revenues and costs over
the time span used in the analysis. Typically, new products incur heavy costs beIore they start to
generate revenues.
Ѭ¸»® ݱ²-·¼»®¿¬·±²-ò Several other issues are considered in the business analysis oI a
new-product concept. Eirst, management oIten has guidelines Ior the Iinancial perIormance oI
new products. These can be used to accept, reject, or Iurther analyze the product concept.
Another issue is assessing the amount oI risk associated with the venture. This Iactor should be
included either in the Iinancial projections or as an additional consideration beyond the Iinancial
estimates. Einally, possible cannibalization oI sales by the new-product Irom the Iirm•s existing
products needs to be considered. Cannibalization is not necessarily a negative Iactor since man-
agement•s intent may be to cannibalize its brand and competitor•s brands with the new product.
Ю±¼«½¬ ¿²¼ Ю±½»-- Ü»ª»´±°³»²¬
AIter completing the business analysis stage, management must decide either to begin product
development or abort the project. During the development stage the concept is transIormed into
one or more prototypes. The prototype is the actual product, but may be custom-produced rather
than by an established manuIacturing process. Use testing oI the product may occur during the
development stage.
Our earlier discussion oI customer-guided new-product planning emphasizes the importance oI
transIorming customer preIerences into internal product design guidelines. Product design decisions
need to be guided by customer preIerences and analysis oI competitor advantages and weaknesses.
Product development should involve the entire new-product planning team. We examine the prod-
uct development process Iollowed by a discussion oI collaborative development.
Ю±¼«½¬ Ü»ª»´±°³»²¬ Ю±½»--
The development oI the new-product includes product design, industrial design (ease-oI-use and
style), process (manuIacturing) design, packaging design, and decisions to make or outsource
various product components. Development typically consists oI various technical activities, but
also requires continuing interaction among R&D, marketing, operations, Iinance, and legal Iunc-
tions. The relative importance oI development activities diIIers according to the product
ݸ¿°¬»® è Planning for New Products îíé
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
îíè ﮬ Ѳ» Fixed Income securities
involved. Eor example, product and process design are extensive Ior complex products like large
commercial aircraIt. In contrast, line extensions (e.g., new Ilavors and package sizes) oI Iood
products do not require extensive design activities.
Ю±¼«½¬ Í°»½·º·½¿¬·±²-ò The R&D technical team needs guidelines in order to develop the
product. Product speciIications describe what the product will do rather than how it should be
designed. These guidelines indicate the product planners• expectations regarding the beneIits
provided by the product based on customer analysis, including essential physical and operating
This inIormation helps the technical team in determining the best design strat-
egy Ior delivering the beneIits. The more complete the speciIications Ior the product, the better
the designers can incorporate the requirements into the design. The speciIications also provide a
basis Ior assessing design Ieasibility. In some situations beneIit/cost assessments may require
changing the speciIications.
ײ¼«-¬®·¿´ Ü»-·¹²ò Companies are placing increasing emphasis on the ease-oI-use and style
oI products. Design consultants assist companies on various design initiatives. The design
process oI IDEO, the industry leader, is described in the Cross Eunctional Eeature.
Ю±¬±¬§°»ò The technical team uses the product speciIications to guide the design oI one or
more physical products. Similar inIormation is needed to guide soItware design and design oI
new services. At this stage the product is called a prototype since it is not ready Ior commercial
production and marketing. Many oI the parts may be custom-built, and materials, packaging, and
other details may diIIer Irom the commercial version. Nevertheless, the prototype needs to be
capable oI delivering the beneIits spelled out in the speciIications. Scale models are used in some
kinds oI products such as commercial aircraIt. Models can be tested in wind tunnels to evaluate
their perIormance characteristics. Computer technology is also used in testing and evaluation oI
new products such as automobiles and aircraIt.
Ë-» Ì»-¬-ò When use testing oI the prototype is Ieasible, designers can obtain important
Ieedback Irom users concerning how well the product meets the needs that are spelled out in the
product speciIications. A standard approach to use testing is to distribute the product to a
sample oI users, asking them to try the product. Eollow-up occurs aIter the test participant has
had suIIicient time to evaluate the product. The design oI new industrial products may include
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îíè ﮬ ̸®»» Designing Market-Driven Strategies
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
ݸ¿°¬»® è Planning for New Products îíç
the active involvement oI users in testing and evaluating the product at various stages in
the development process. The relatively small number oI users in industrial markets compared
to consumer markets makes use testing very Ieasible. Use tests are also popular Ior gaining
reactions to new consumer products such as Ioods, drinks, and health and beauty aids. Clinical
trials may also be conducted to support perIormance claims oI products such as Ioods oIIering
therapeutic beneIits.
An example oI a proposed use test Ior a new soup Ilavor is described in Exhibit 8.9.
Unlike a market test, the use test normally does not identiIy the brand name oI the product or the
company name. While the use test is less accurate in gauging market success compared to the
market test, the use test yields important inIormation such as preIerences, ratings, likes/dislikes,
advantages/limitations, unique Ieatures, usage and users, and comparisons with competing
Ю±½»-- Ü»ª»´±°³»²¬ò The process Ior producing the product in commercial quantities
must be developed. ManuIacturing the product at the desired quality level and cost is a critical
determinant oI proIitability. The new-product may be Ieasible to produce in the laboratory but
not in a manuIacturing plant, because oI costs, production rates, and other considerations. Initial
production delays can also jeopardize the success oI a new product.
The concepts oI mass customi:ation and modularity may have a major impact on product
and process design.
As we discussed in Chapter 4, mass customization enables customizing
product oIIerings at relatively low costs. Modularity involves developing and producing a
product using interrelated modules, thus Iacilitating mass customization. The system architec-
ture links the modules together, but each part can be designed and produced independently
within the organization or by suppliers. Modularity was pioneered by the computer industry, but
is applicable to many other products.
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Collaborative research and development partnerships are used to increase the distinctive capa-
bilities oI a single company and reduce the time required to develop and market new products.
These relationships may be strategic alliances or supplier-producer collaborations (Chapter 7).
Collaborative development occurs in several industries including computer hardware and
soItware, commercial aircraIt, and automobiles.
Outsourcing oI the manuIacturing oI new products to other Iirms became very popular
over the last decade. Eor example, Sara Lee Corp., the $20 billion (2004) producer oI an array
oI consumer brands Irom Ioods to apparel, announced a strategy in the late 1990s oI shiIting
production oI its products to independent producers. Previously, Sara Lee had produced many
oI its brands in-house. Pursuing similar initiatives, Tommy HilIiger has about 3,100 employees
(and $1.7 billion in sales in 2004) because oI outsourcing and licensing its clothing and acces-
sories. Coke and Pepsi outsource the bottling and distribution oI their beverage brands.
Outsourcing reduces the investment required by the product designer but requires close coordi-
nation with the producer Iirm.
Ó¿®µ»¬·²¹ ͬ®¿¬»¹§ ¿²¼ Ó¿®µ»¬ Ì»-¬·²¹
Guidelines Ior marketing strategy depend on whether the new-product being developed is an
incremental improvement or new to the company. The latter requires complete targeting and
positioning strategies (Chapter 6). An incremental product improvement may only need a
revised promotion strategy to convey to target buyers inIormation about the beneIits the
improved product oIIers. It is also important to consider how the new-product will impact the
sales oI existing products. Regardless oI the newness oI the product, reviewing the proposed
marketing strategy helps to avoid market introduction problems.
Kamran Shabbir
Preston University North Campus
Karachi, Pakistan
Ó¿®µ»¬·²¹ô Û·¹¸¬¸ Û¼·¬·±²
×××ò Ü»-·¹²·²¹ èò д¿²²·²¹ º±® Ò»©
ݱ³°¿²·»-ô îððë
îìð ﮬ ̸®»» Designing Market-Driven Strategies
ÛÈØ×Þ×Ì èòç
Ю±¼«½¬ Ì»-¬
Source: William R. Dillon,
Thomas J. Madden, and
Neil H. Eirtle, Marketing
Research in a Marketing
Environment, 3rd ed. (Burr
Ridge, IL: Richard D.
Irwin, 1994), 583.
Copyright © The McGraw-
Hill Companies. Used with
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