Effective Marketing Strategies Course Notes

Contents of Module Notes
Section 1 The role and responsibility of the board in determining marketing strategy.......... 1 Learning objectives ..................................................................................................................... 2 Introduction ................................................................................................................................. 3 1.1 Marketing strategy ................................................................................................................. 5 1.1.1 The director’s perspective ............................................................................................... 5 1.1.2 Outcomes of a value-based relationship ......................................................................... 6 1.2 Marketing planning ................................................................................................................ 7 1.2.1 Marketing planning within corporate planning.................................................................. 7 1.2.2 A framework for marketing planning................................................................................ 8 1.2.3 A simple marketing outline plan..................................................................................... 10 1.2.4 Benefits of marketing planning ...................................................................................... 10 1.3 Financial implications of marketing strategy......................................................................... 13 1.4 Implications of a customer-focused approach for how the business is managed ................. 15 1.5 Key legal and regulatory references .................................................................................... 16 Section 2 Situation Appraisal.................................................................................................... 18 Learning objectives ................................................................................................................... 19 2.1 Understanding the organisation’s markets and segments.................................................... 20 2.1.1 The marketing audit ...................................................................................................... 20 The internal audit.................................................................................................... 20 The external audit................................................................................................... 22 The nature of competition ....................................................................................... 22 2.1.2 Market segmentation and Targeting.............................................................................. 28 Identifying market segments ................................................................................... 28 Market segmentation criteria.................................................................................. 29 Segmentation in consumer markets........................................................................ 29 Segmentation in industrial markets ........................................................................ 31 Targeting ................................................................................................................ 32 2.2 Customers’ needs, problems and behaviour........................................................................ 34 2.2.1 Customers, consumers and their needs ........................................................................ 34 2.2.2 Buyer behaviour............................................................................................................ 35 2.3 Marketing capability analysis ............................................................................................... 38 2.3.1 Marketing capability ...................................................................................................... 38 2.3.2 Creating value............................................................................................................... 39 2.3.3 Sustainable Distinctive Competitive Advantage (DCA).................................................. 40

2.4 Company performance analysis .......................................................................................... 42 2.4.1 Key financial assumptions............................................................................................. 42 2.4.2 Key non-financial assumptions...................................................................................... 42 2.5 Marketing information and market sensing .......................................................................... 43 2.5.1 Sources of information .................................................................................................. 43 Internal data ........................................................................................................... 43 External primary data.............................................................................................. 44 External secondary data ......................................................................................... 44 2.5.2 Types of research ......................................................................................................... 45 2.5.3 Choosing marketing research methods ......................................................................... 46 2.5.4 Marketing information systems...................................................................................... 47 2.5.5 Other MIS issues .......................................................................................................... 48 2.5.6 Legal and ethical matters in research............................................................................ 49 Section 3 Marketing strategy formulation ................................................................................ 51 Learning objectives ................................................................................................................... 52 3.1 Determine the basis for marketing strategy.......................................................................... 53 3.2 Fundamental marketing strategy options ............................................................................. 55 3.2.1 Market and product life cycles....................................................................................... 55 3.2.2. Company competitive position ..................................................................................... 56 3.2.3 Strategic balance .......................................................................................................... 56 3.3 Strategy for exploiting the opportunities – differentiation, positioning and branding ............. 58 3.3.1 Competitive strategy ..................................................................................................... 58 3.3.2 Positioning strategies .................................................................................................... 60 3.3.3 Branding ....................................................................................................................... 62 Branding decisions ................................................................................................. 63 Levels of branding .................................................................................................. 64 Functions of the brand ............................................................................................ 64 Business-to-business branding............................................................................... 65 Managing brands over the product life cycle........................................................... 66 3.4 The product/ market matrix.................................................................................................. 69 3.5 Market entry ........................................................................................................................ 71 3.5.1 Markets to enter ............................................................................................................ 71 3.5.2 Methods of entry ........................................................................................................... 72 3.5.3 Marketing programme ................................................................................................... 73 3.5.4 Organising for international marketing........................................................................... 74 Section 4 Marketing tactics ....................................................................................................... 75 Learning Objectives................................................................................................................... 76 4.1 Overview of tactics and impact of IT .................................................................................... 77

............ 87 4....................................................4....................................monitoring and control ..............................................................................................3.............................................1 A customer-centred outlook ...........4........................................2 Service and product marketing ...........................2 Achieving ownership of the marketing strategy ..............3..........................3........................................ 100 References .............................. 96 Appendix 1 Typical sources of external information................. 95 4.................................................. 100 Useful books and articles ........................................ 87 4.........................3..............4 Resources .................... 83 4................................ 91 4.................................3 A customer-focused organisation ...........................................................................................................2 Strategic evaluation.......... 99 References and Useful Information ....................................1 IT and the marketing mix ..1...................3 Organisational implications .........................................3................... 89 4.... 91 4..............................................3 The marketing and sales budget.......1.........2 The impact of IT .................................................................................... 95 4............................................1....................................1 Evaluating marketing strategy ....... 86 4...............................................2... 92 4........................................ 84 4.......1....................................................................... 93 4.......1 Customer Relationship Management (CRM) ................1............................................................................................................................ 101 ...4................1........................................................................................................................................................... 100 Useful organisations and web sites.. 77 4...............1 The marketing mix.............................................................................2 Direct marketing .....3.............

................................1 Business and marketing strategies............................................................................. 27 Table 2.......1 Marketing Information System...........Tables and Figures Figure 1........................................................................6 Women's clothing market segmentation criteria summary .................................................. 21 Table 2................. 13 Table 2.....................................................3 Typical PESTLE factors ..........................................1 Perceptual map........... 82 Table 4...........7 Segmentation variables used in consumer markets...............................................2 Typical external marketing audit issues ................................................................................................................................................................ 26 Table 2........................ 31 Table 2..........................5 Typical external factors identified in SWOT analysis .............2 Sources of differentiation.................................... 67 Table 3............ 86 ...........................................................................................1 Marketing mix – tactical and strategic issues....................... 48 Table 3. 9 Table 1..... 30 Table 2.................................... 7 Figure 1........4 Typical internal factors identified in SWOT analysis ........................1 Financial effect of changes in marketing activity.............9 Market segmentation by sector and size ..................2 Product Life Cycle .......................................... 61 Figure 3........... 32 Figure 2.......................................................................8 Social grading system .........................................................1 The corporate planning process..................................................... 29 Table 2................................................. 27 Table 2............. 54 Table 3....3 Product/market Matrix ....................2 Service issues and implications......................................................... 69 Table 4................................................................. 59 Figure 3......................2 Key components of the strategic marketing and planning processes ....................................... 24 Table 2...............................................................1 Capabilities subject to internal audit .......................................................

Section 1 The role and responsibility of the board in determining marketing strategy Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 1 .

The role and responsibility of the board in determining marketing strategy This section provides you with the knowledge to be able to: • • • • • • Demonstrate what marketing strategy is and explain why it is important in delivering strategic objectives. Produce an outline marketing plan and show how it is linked to business strategy Identify the outcomes of a well-managed value-based relationship for buyer and seller Describe the relationship between marketing strategy and financial performance Appreciate the implications of a customer-focused approach for how the business is managed Identify and locate the source of key legal and regulatory references Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 2 .Learning objectives Section 1 .

employees. Company directors have to: • Understand their company’s market position and capability. this involves maximising use of production capacity and staff time. cost-efficient and apparently thriving. Marketing-orientated thinking is absolutely vital for success in this business environment. The board must give strong commitment and support to strategic marketing. Customer-oriented organisations make what they can sell. a philosophy and a culture which must permeate the organisation at all levels and in all functions. streamlining operations and improving product quality. They have knowledgeable and highly critical customers and demanding shareholders.Introduction Sales. This implies an understanding of both the changes that are taking place and their causes. A marketing-led company Marketing is an attitude of mind. and their customers’ real needs and the influences on themUse this knowledge effectively to establish and maintain the company’s place in its chosen markets. and the directors must personally ensure that marketing attitudes prevail at all levels of the company. The marketing function's primary task is to deliver the marketing strategy as a starting point for the determination of the company's corporate strategy. The marketing function within an organisation is the primary means by which customer value is created and delivered. The essential element in marketing is to view the exchange process from the perspective of the customer. Directors have to create value in global markets and against global competition. structure and culture on achieving value for customers as the key to achieving its own objectives. It may be highly time-efficient. customers. A production-led company A production-led company focuses on optimising the use of its own production facilities. a company must retain its customer focus at all times. The marketing approach is sometimes contrasted with the approaches of production-led and salesled companies. develop new products and move into new markets at the right moment. To achieve this. It can be thought of as the process by which an organisation focuses its resources. Typically. change with its customers. An organisation cannot create value for any of them unless it can create value for customers. However. Anon The purpose of business is the creation of value for key stakeholders. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 3 . The company must be prepared to adapt in line with market changes. even identifying competitors has become a complex issue in its own right. systems. and other collaborators in the process. as customers have an ever-wider choice of ways in which to satisfy their needs. Directors will only be able to maximise their company’s potential if they have a good understanding of marketing strategy and are prepared to apply marketing principles throughout the organisation.or production-oriented organisations sell what they can make. shareholders. The board must also be able to change in the right direction in order to keep ahead of both current and potential competitors.

so any success is likely to be short lived. They have no defence against competitors who can match their product to the needs of their target customers and offer a more attractive proposition. without a clear idea of whether there is a demand for them. The tendency is to use pressure-selling techniques to chase turnover at almost any cost. lower margins or even selling below cost. The sales force may then be blamed for loss of business. They see resistance by potential customers as a problem that can be overcome by stronger selling techniques and more active promotion. At best they react to market changes but are often too late to take advantage of new opportunities. Salespeople who are judged on meeting sales targets are tempted to offer lower prices in order to win business. The result is a de-motivated and vulnerable sales force who cannot rectify the problems.The problem with such companies is that they can lose touch with market needs and sometimes even develop products to fill production capacity. Goals tend to be short-term and general. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 4 . A sales-led company A sales-led company might have problems that arise from the focus on maximising sales.

The board has to be aware of the different strategic responses required to create value through changing market conditions. goods and services to create exchanges that satisfy individual and organisational objectives’ American Marketing Association (2003) ‘Marketing is selling goods that don’t come back to people who do. Once the board has signed up to the company’s strategic marketing perspective the directors will support the marketing planning process. 2. co-ordinate their activities and monitor the results. anticipating and satisfying customer requirements profitably.1 The director’s perspective The term ‘marketing’ is used in two quite different ways: 1.’ Anon Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 5 . ensure that the capabilities and competencies are available. Marketing is a philosophy that places customers at the centre of the organisation’s approach to its strategy.’ Chartered Institute of Marketing (2003) Marketing is the process of planning and executing the conception.1.1.1 Marketing strategy This section provides an overview of marketing from the director’s perspective. This means. The board should require the marketing function to contribute to the delivery of the company's objectives. a willingness to invest in the systems. The marketing director’s role is to develop the strategy. Some of the issues will be picked up in more detail in later sections. Marketing is a set of management tools and techniques. keep the planners involved and motivated. It is a sophisticated methodology designed to instil a disciplined approach into the organisation. to bring it about and sustain it over time. It must be led by the directors and senior managers. in particular. promotion and distribution of ideas. and ensure that the marketing strategy adheres to the broader vision and values of the company at all times. The responsibility of ensuring the board’s commitment and support for the marketing strategy rests with the marketing director. and the analytical tools and techniques available to assist in the process. So. obtain the funding from the board by justifying the budget and produce timely reports that explain to all the directors whether the expenditure is proving to be cost-effective. The board should support the marketing planning process. 1. The board has to understand that success in marketing derives from the effectiveness with which the organisation can focus the attention of all its members on the creation of customer value. and permeate the organisation at all levels. what is marketing? Consider the following definitions: ‘Marketing is the management process responsible for identifying. processes. training etc. pricing. emphasise its importance and ensure that it is effectively integrated with the other functions of the business.

In some circumstance there may be a need for some persuasion (promotion or marketing communications). value from customers is achieved from the revenues generated by their willingness to pay for the value they have received. IoD Consultant (2006) The creation of value Value for customers is created through the manipulation of the ‘Marketing Mix’ . Outcomes for the customer include: • • • • Improvements in efficiency and therefore costs More effective problem-solving Proactive value creation Early access to innovation Benefits to the seller include: • • • • • Greater customer loyalty Purchase decisions less influenced by price Marketing programmes generally more effective (greater return on investment) More focused product/ service development More flexible response to change with respect to customers.2 Outcomes of a value-based relationship An organisation that focuses on creating value will generate benefits for itself and its customers. Central to the mix is the product or service. However in order for the functionality to be effective it must be made available in the right place at the right time (place). Successful delivery involves the effective management of people. In return. The price is usually but by no means always financial. processes and physical evidence. both now and into the future. There is a need for information about the product and how it can be obtained to be conveyed to the target audience. There is always a price to be paid to participate in or benefit from the goods or services on offer.Marketing is about creating value for customers and extracting value from them. that enable customers to gain access to its products and services. It is important to understand how customers perceive price and the implications for their ability to pay it.1. This customer value is turned into profit by the organisation’s ability to capture and manage the associated costs. This may require investment in distribution. The company must ensure that there are processes and networks in place. 1. the element which has the basic functionality sought by the customer. John Lines.a set of tools available to the organisation to deliver the intended solution to the target audience. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 6 .

1.1 The corporate planning process Figure 1. This denotes the need for continuous communication between the different functions involved. It shows that all stages of the cycle interrelate both horizontally and vertically. To justify the decisions. The corporate plan should answer three questions: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 7 . its position in the marketplace and the wider environment. the plan should analyse the company in the context of its competitive environment and quantify its conclusions. profitable growth Marketing strategy ID Target markets Positioning/Brands NPD Business strategy PESTLE e. diversification Marketing Tactics Promotion Pricing Marketing Audit Segments Customer needs Position Competition Value partners Measurement & control Distribution Other functional strategies People Processes Physical evidence Figure 1. the company with strategic marketing plans reduces its risk of failure and increases its chance of success at the expense of its rivals with less well devised or no plans. and to create a workable plan to achieve the objectives. Each stage of planning is dependent upon information gained during other stages of the cycle.g.1 Marketing planning within corporate planning Marketing planning should be a central element of the corporate planning cycle. The most effective approach to strategic planning is to start by gaining a clear picture of the company. its strengths and weaknesses. develop the brand. Since this is unlikely in any market. 1.g. Vision Capability Strengths & weaknesses Forecast Business Objectives e.2. This makes it easier to set realistic objectives based on sound market information. The marketing plan identifies what the company sees as the optimum combination of products and markets to achieve its corporate objectives. and preferably similar to the past.2 Marketing planning It is only safe not to plan if the future is going to be similar to the present. and all the options open to it.1 illustrates the place of marketing planning within corporate planning.

timings and responsibilities to the first year of the strategy. It will usually determine the marketing mix.1.2.2 illustrates the key components of the strategic marketing planning process. it is actually blinkered because it is not taking into account any changes in the marketing environment. and within which of the markets accessible to it. Where is the company now? 2.2 A framework for marketing planning Figure 1. Where does the company want to be? 3. It may detail when new recruitment will take place and when market research will be undertaken. This order of events forces management into the discipline of completing the necessary analytical and longer-term planning work before making short-term decisions. 1. While this may appear to produce an effective plan. shows the meaning of the marketing terms and indicates the key benefits to the company. including costs and expected returns wherever possible. This approach is likely to be much more effective than that of a company that simply projects targets forward from its current position. for example. It may show costs and timings of activities such as investment in capital goods. It also helps to ensure that these decisions are based on a thorough analysis of the environment in which the company operates. A tactical marketing plan simply adds detail. How does it propose to get there? The strategic marketing plan answers the same three questions in terms of the company’s products/ services and markets: • • • What is the current competitive position of the company’s products/services within its chosen markets? With which products/services. It should contain plans for advertising and promotion. is the company best able to meet its objectives over an agreed period (usually three to five years)? Which activities with which products/services and in which markets will enable it to meet those objectives? Only once the strategy has been decided should the tactical plan be prepared. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 8 .

purpose. measurable objectives • Marketing audit Where is the company now? • Detailed analysis using company information and market trends Establishes a starting point – without this any plan is of limited use Marketing information • • Systems provide marketing information in usable form Structures to ensure that data feeds back into the system for future use Ensure accessible data to meet marketing needs at all times and at all levels of the company Marketing objectives Where does the company want to be? How can the company best achieve its corporate objectives? Clarifies company goals in a marketing context. i. etc Clear. philosophy. customers.2 Key components of the strategic marketing and planning processes Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 9 . timings and a ‘plan for planning’ Control systems Monitoring and checking systems to ensure that: • • Opportunities are not missed Potential problems are foreseen Increase sales/profit opportunities and allows ‘proactive not reactive’ response to problems Figure 1.The Strategic Marketing Plan Stages of planning Company mission and objectives • What they mean Benefits to the company Answers key questions: • • Why does the company exist? What business is it in? The company. pledge to staff.e. in terms of products and markets Marketing strategy How will the company get there? • Examining all options and creating a workable strategy Creating strategy based on marketing analysis increases potential for achieving company objectives Shows ‘who does what and when’ to achieve the first year of the marketing strategy Tactical action plan • • Costed action plan for the first year of strategy Actions. responsibilities.

Positioning & branding 5. marketing performance b. For example.What do we want? a. Marketing strategy . the final measurement stage leads to a review of the situation. Pricing strategy c. Market trends. penetration. Müller pre-empted it with an aggressive campaign of advertising and promotions that gave the company a dominant and largely unassailable share Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 10 . 2.Total marketing investment. Implementation – What must we do for each market or customer? a. profit g.Market size. sales. Measure cost of marketing effort (above) by market/customer b. broad-scale influences 3. CRM strategy (internal & external) d. Product strategy d.4 Benefits of marketing planning Companies with effective marketing planning gain a number of advantages over less well-planned competitors: • They can predict and sometimes influence the pace and direction of market change to their own advantage. training etc. Review budget 6. Competitive stance e. share. Forecast outcomes – market share. Business/ market objectives/ budget . profit. structure. Overall allocation of funds for marketing effort 4. Communications strategy e. Target markets & objectives b. a new beginning and a revision of the plans. the German dairy company Müller anticipated the higher level of competition in the twin pot market in the early 1990s. Strategic Marketing Audit . Measure results by market/customer. Forecasts – what is going to happen? a. compared with forecast & budget 1. f. Allocate budget to markets c.2.1.How will we get it? a. customer satisfaction b. In other words. Internal . Distribution strategy b. Capability strategy – systems.Where are we now? a. External . 1. Sales.3 A simple marketing outline plan This simple plan must be regarded as comprising six stages that are iterative. having established its ‘twin pot’ yoghurts and desserts in the UK during the 1980s. Control – How can we make sure we succeed? a.2.

By maximising cost efficiencies. In 2006. however. however. to sell lenses online. Contact lenses are no longer made individually for each customer and soft lenses come off production lines. leading to potential price or profit advantage over competitors. this market had diminished but they had moved strongly into the single pot health food market with Mullerlight. The latter is vital when price competition becomes severe. as they are at least as strong as their competitors to withstand a price war. thus reducing waste. an important source of boron. and a good source of potassium). In 2004 they became the leading US PC supplier. Dell has always focused its production on building custom PCs against direct telephone and internet orders which set the specifications of each package required. Postoptics. a market penetration low price strategy. a well-planned manufacturing company might decide on a factory extension to meet anticipated growth within one of their key markets. the growth exceeded their expectations and the factory extension was still needed. • • • • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 11 . especially when they have contributed to setting them. understand and accept the objectives. and are more motivated as a result. By 2002. My First Müller Corner (yogurt for young children). In 2003 the company was increasing turnover by 30 . By 2004 they had added Müller Corner. This gives them a ‘margin cushion’. • Easily accessible marketing information gives them tight cost control. Their pricing is strategic and based on solid market information. or even to pre-empt them.and longer-term goals for sound commercial reasons. albeit in a tightly regulated market. they might have installed higher capacity production lines within the existing factory. One potential rival was taken to court by the General Optical Council for failing to verify prescriptions. Had they only planned short term. But now because of changing market and competitive conditions Dell are reassessing their strategy looking at new products.of the twin pot market by 1995. Müllerlight yogurt with blackcurrant. By 2006 there were also Müller Little Stars with 100% natural ingredients matched by a new direction for yoghurt with Müller Amoré to “treat your tastebuds to some Continental indulgence” and Cadbury Chocolate Bliss. or perhaps a two-stage combination of the two. They are also more ready to be measured against clear goals. For example. Focused monitoring of external markets helps them to anticipate developments. to help maintain healthy bones. Managers have better direction and focus. take ownership and feel commitment to the strategy. For example. Fromage Frais and Vitality Probiotic Yoghurt. having the right attitudes and culture in place throughout the organisation. they can match or better the margins of their competitors. Market information helps the company to identify the optimum price in either case. Then they might have found in the longer term that these were inadequate. 3M's declared business policy is to have at least 50% of income derived from products less than five years old. new suppliers and improving service levels – nothing is forever.and short-term decisions on such issues as whether to adopt a market skimming high price strategy. and Müller Vitality with prunes (promoted as being a powerful antioxidant. A qualified optician set up a company. They can allocate resources to meet short. The system flags up changing needs. By 2004 Postoptics had increased its online and mail order market share by using Google.40% a year and had 90% of an online market expected to grow to 15% of the total market. Müllerice Banana with added Glucose. They are a commodity. new markets. They accept the need for continuous change and are better prepared for it. and they can use it either to enjoy the benefits of high margins or perhaps to adopt an aggressive stance. They can make both long. the Association of Optometrists claimed there was no evidence of the forecast rise of internet sales. Key managers have contributed to the plan. They are ready to react to market developments.

and may even change at different stages of the company’s life cycle. When it works well. planning must have strong support from the board. Board level support is essential to maintaining momentum and keeping the planning process on track. The idea of a plan for planning is simply to ensure a mechanism exists through which to update the marketing plan on a regular basis. and that input is sought from as broad a range of management and staff as is practical and relevant. staff are less threatened by the perceived change. Planning should specify sales activity to meet expectations based on sound marketing information and customer targeting. and must be built into the company’s total activities. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 12 .Marketing strategy and planning are now company-wide activities. The results of a quarterly review can be analysed and adjustments made to improve the accuracy of the plan’s remaining years. To be effective. not a task to be left to the marketing department. and often become more marketing-orientated as a result. Broad-ranging input does more than just ensure a wide range of valuable ideas. It is more important that the process is supported and guided strongly and visibly by the board. If it is well handled. it also means that all employees: • • • know what is going on feel that they are contributing to the plan gain a sense of responsibility for making it succeed. Inter-functional relations are improved by shared goals and clear objectives. Well-defined direction for all and clear responsibilities for each function in achieving the shared goals tend to iron out perennial differences between the functions. and add a further quarter to the strategy. The communication process during consultation for marketing planning should be two-way: management gain valuable input for the marketing plan. and plan production capacity needs accordingly. Strategy may be reviewed quarterly. It can also take into account any changes in the external environment which alter previous estimates. Good planning processes feed off existing strategy and feed into future planning and make it both easier and more accurate. and tactics weekly or even daily. The people who are involved in planning vary with company size and culture. and those being consulted gain an insight into the reasons for marketing planning.

000 400.020.05 = = = = 80.) and discounted for a reasonably accurate time period. Profit Margin Net profit Net Sales 80. Although the company may be able to increase profit by raising the price of its product or service.000 2. The simple examples in Table 1.000 500.000 5 X X X X 2.000 16% 100. The cost of this investment must not outweigh the expected benefits of higher prices.000 500.000 2. Such investment can only be justified by the returns forecast for the market selected.1 Financial effect of changes in marketing activity The marketing function can play an important in both elements.000 25. training for the front line people and promotion. interest rate. lowering input prices or reducing variable costs produces: Changing the turnover of assets by improving productivity and improving working capital utilisation (reduce stock.3 Financial implications of marketing strategy The board must be aware of the financial implications of its marketing activities to ensure they generate revenue and produce a profit.020. longer credit terms.000.000 20% 100. The company can only implement this strategy if it invests in all the stages of a marketing plan and the marketing mix. which may lead to higher sales volume and higher prices.000 4 100.000 500.04 = = = = = Return on Assets ROA 80.000 20. An attempt to increase the size of the business may involve entry into new markets.1 illustrate the changes that can be influenced by marketing activity.000 400.000 4 2.000.000 4.020.000 5 2.000 400. it may also have to demonstrate improvements in value for the customer. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 13 .000 2.25% If making both changes at the same time is possible the impact is: Table 1.000 5 X X X X X Asset Turnover Net Sales Assets employed 2.1.000 4 100. assuming the objective of the firm is to achieve a good return on assets. substitution etc. The same information can assist in the more accurate (and cost effective) tailoring of customer service and ensure better control over input prices as procurement becomes more accurate. This process may require investment in the product or service itself. shorter payment terms etc. adjusted for anticipated risk (competition.020.000.000 2.000 400.000 5. Customer value can be improved by a better understanding of customer needs and consequent improvements to the offering.000.) produces: 80.2% Changing the rate of profit by raising the price.000 500. distribution (place).

and training. Their success will largely be determined by the combination of attractive markets and appropriate offerings. The profit and cash generation will be determined by the cost drivers associated with the revenue generation. marketing campaigns. and financing costs. The functional implications for the strategy will affect the cost and value drivers. Financing costs – the mix of funding between debt and equity. needs to be evaluated in terms of the impact it will have on these three issues. systems. recruitment and training. Funds from operations – sales revenue and direct and indirect costs 2. branding. The implications of (2) above for the capital structure of the company and for key ratios such as return on capital. equity) 3. Shareholder value creation is determined by three main issues: 1. For example a differentiation strategy may require investment in new products. New strategies will almost certainly alter the means by which the company creates value for its customers by introducing a new value chain and a new value system. While short-term support for particular promotional campaigns or limited discounts is important. debt. gearing. if some of the cost and revenue drivers are outside the company there are implications for the management of relationships with key collaborators. capital efficiency. distribution systems. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 14 . The sources of finance (internal. disposal and efficiency of assets and working capital 3. therefore. Alternative marketing strategies must always be considered and compared in the light of their ability to generate value for shareholders in keeping with the long term objectives of the organisation’s key stakeholders. The board will have to assess: 1. asset turnover. The implications for all of the cost drivers – direct and indirect. These include the capital expenditure and outlay on working capital. customer relationship management and so on. 2. Marketing strategy. long term investment in the marketing infrastructure is critical. This establishes the long term positioning. capital expenditure. In addition.The board’s investment in the marketing function is required for both the short and long term. Investment in assets – the acquisition.

costs • Invest in high quality information about customers’ real needs in terms of the benefits they seek from the company’s offering. and their psychological and environmental wants that determine and determine their needs • Collect similar information about competitors • Benchmark the company’s performance • Maintain systematic approaches to the delivery. profitability. customers do. its values. beliefs. relationships. structure and systems.1. ways of doing things. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 15 . shareholder value. investment. external value partners and employees • Use the structure and governance of the organisation to facilitate the focus and co-operation of the different functions on value creation • Implement measurement and reward systems that connect the individuals’ daily activities with the pursuit of this philosophy • Deliver focused training and development to enhance capability • Demonstrate the financial implications of customer focus – customer lifetime value. The customer focus must become an integral. The directors should show leadership and commitment to the philosophy to ensure it is embedded in what is popularly called the organisation’s DNA. and the prime source of business success. is to create value for customers. shareholders. image and brand both inside and outside the organisation • Encourage the belief in the company’s global opportunity. Anonymous A customer-focused approach has significant implications for the board. continuous and longterm feature of the corporate culture. management and the structure of the organisation.4 Implications of a customer-focused approach for how the business is managed products don’t make profits. Management can then: • Identify suitable target markets and concentrate resources on them to achieve the overall business goals • Ensure everyone in the organisation understands that their clear purpose. monitoring and control of marketing strategies and resources • Support the company’s position.

relevant and not excessive for the purpose for which data is obtained before data can be processed either the Data Subject must consent to the processing or it must be necessary for certain specified purposes if the data is “Sensitive Personal Data” explicit consent is required appropriate technical and organisational measures have to be taken to prevent unauthorised or unlawful processing and against accidental loss destruction or damage to the Personal Data Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 16 . which is taken to be over 25% of a market. The effect on trade has to be appreciable. Those involved in processing data must register with the Data Protection Registrar. commission or alleged commission of an offence and proceedings relating to the committed offence and the sentence imposed). The act prohibits anti-competitive agreements designed to prevent. principles of good conduct set out in the act. are that: • • • • data held should be accurate. In 2004 the Information Commissioner issued a statement to help organisations get it right.5 Key legal and regulatory references Numerous acts and regulations exist to protect consumers through open competition in defined markets. physical or mental health/condition. political or religious beliefs. trade union membership. There is a bar on the transfer of data outside the European Economic Area (subject to exceptions). The act gives rights to individuals to access personal data from which the living individual can be identified. The Competition Act 1998 set out the basis for competition and the Enterprise Act 2002 established the Office of Fair Trading and strengthened the Competition Commission to implement a tougher regime.1. restrict or distort competition within the UK. The Data Protection Act 1998 repealed all previous law in relation to data protection. up to date. The Competition Act 1998 regulates the competitive conduct of businesses in the UK. Abuse of a dominant position is also unlawful. The rationale behind the act is: • • • to bring about a better deal for consumers by preventing and remedying anti-competitive behaviour more effectively to avoid placing unnecessary burdens on businesses to bring UK competition law into line with EC competition law. Special protection is given to sensitive personal data (relating to race or ethnic origin. sexual life. The OFT can define a relevant market because market shares can be calculated only after the boundaries of a market have been defined. The Data Protection Principles. Data is defined as any information which: • • • is processed automatically by means of equipment or is recorded with the intention that it should be processed or is or is intended to be recorded as part of a relevant filing system or forms part of an accessible record.

Subject to some exceptions the Data Subject can require a Data Controller to cease or refrain from commencing processing on the grounds that it will cause substantial damage or distress. These are issued as required by regulatory and advisory authorities such as the Direct Marketing Authority.org. and the Broadcast Committee of Advertising Practice (BCAP) The ASA is here to make sure all advertising. In addition. the Advertising Standards Authority. meets the high standards laid down in advertising codes. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 17 .uk (2006) Further information on relevant legislation can be found in the module reference notes for The Director and the Law.asa. address. the Committee of Advertising Practice (CAP). wherever it appears. the telephone. www. For marketing purposes an organisation is only allowed to use any of these media for a registered person if they have a previous or existing relationship with the individual. telephone and fax numbers to prevent unauthorised approaches via these media from organisations. The marketing industry is further regulated by a series of industry codes of practice.An individual has the right to be told if his personal data are being processed by the Data Controller. mailing and fax preference services enable an individual to register a name. The Data Subject can prevent the use of his personal data for direct marketing purposes.

Section 2 Situation Appraisal Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 18 .

Situation appraisal: the position of the company with respect to its strategy for current markets.Learning objectives Section 2 . performance and value creation. Analyse customers’ needs/ problems. and how they are influenced Demonstrate how customer value is created and its contribution to competitive advantage Demonstrate the means by which marketing information can be successfully obtained and managed. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 19 . This section provides you with the knowledge to be able to: • • • • Carry out an internal and external situation appraisal to underpin the creation of marketing strategy.

1 The marketing audit The marketing audit is one of the primary methods by which the organisation identifies its current position with respect to its external and internal environment. It is also concerned with forecasting the development of key internal and external elements. that is how well the investment in marketing effort (the mix variables) has succeeded in producing the appropriate output in terms of results (sales. Culture – everyone has a customer focus and will exhibit appropriate behaviour. the success of the current plan before the company makes adjustments or enters the next planning phase. and wider issues such as political and economic trends.1. Systems – capable of delivering value to customers (sales. market trends. To be of value. The discipline of undertaking a marketing audit using proven methods forces management to examine a wide range of issues. and take account of how its competitors perform against the same criteria. and about the external environment in which it proposes to operate.2. quality and appropriateness for marketing. 2. logistics communication etc. It should allow the company to evaluate its performance in marketing. innovations. The marketing audit analyses the company’s performance in terms of products and customers. The internal audit analyses the ability of the organisation to meet the needs of current and potential customers.). Structure – provides for appropriate accountability and authority to deliver customer value. Capability is based on four fundamental elements: 1. 2. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 20 . customer satisfaction etc).1. and reduces the dangers of tunnel vision. service. It acts as a checking system for the marketing planning systems already in place. Resources – quantity. profit. It should measure regularly. 3.1 The internal audit All the issues examined during the internal marketing audit and the planning which follows have implications for the capability of the organisation. An essential input to the marketing planning process. this information must be set against the company’s environment. described in the previous section.1 Understanding the organisation’s markets and segments Marketing decisions are concerned with the application of organisational capability to the creation of customer satisfaction in a constantly changing environment. 2. usually annually. is good information about the organisation’s capability with respect to marketing.1. 4.

their sources and uses. Organisational resources . inventory. short. Industry/market segment • Pricing Non-financial Results: • Discounts and credits • customer satisfaction.IT facilities and processes. liabilities.and long-term facilities. The purpose of the marketing information on the firm's resource strengths and competitive weaknesses is to determine the best strategic fit between the firm and its environment. product. including production. Human resources . plant.Current. key suppliers and customers.Talents and abilities of managers and all other human resources. Physical resources . Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 21 . It is important to align internal information collected for marketing purposes with the information collected for the board when preparing or updating corporate strategy. loyalty • Stockholding policy Market share by: • Unit of sale • total market • Distribution • Industry/market segment • Sales channels Marketing organisation: • Sales support: • Organisation structure • Advertising and promotion • Marketing control systems and data • Point of sale Marketing procedures: • Public relations • Current marketing planning system • Packaging • Marketing information systems • Sampling • Measurement and control procedures • Exhibitions • Marketing data analysis • Training and development • Action planning and results feedback • • Marketing HR responsibilities Inter-functional responsibilities Table 2. level of risk. The main areas are: • • • • • Financial resources . systems. financial ratios for comparison with industry ratios. and procedures that support implementation of the strategic plan. equipment. such as property.1 Capabilities subject to internal audit To put this internal audit analysis in context the organisation should benchmark itself where possible against each major competitor. basic sales and cost analyses. including outside specialists.Present assets.Financial Results – sales (value/volume) & profit Marketing mix variables: by: • Product range/quality/development • customer.Firm's structure. Technological resources . databases and intellectual property.

PC market Few of the many players who entered the PC markets in the 1980s and 1990s have survived. To protect its position as a successful organisation every company must identify new opportunities. Once supply exceeds demand. The external audit should give a clearer view of the markets as a precursor to identifying where the best opportunities lie and where the most likely threats to the company’s market position might lie. develops a product and launches it at a price that will generate a net profit. competition tends to increase. a market begins life as a monopoly. in supplying the benefits sought by the target customers. When a market reaches relative equilibrium of supply and demand.2. prices tend to fall.1. the directors should put it into the context of the wider environment.2 The external audit To see the company’s internal audit in perspective. The broader picture covering all the social. The story of the Sony Walkman portable music player in its cassette-tape. economies of scale and the cost savings resulting from experience play a significant part in determining which suppliers continue to compete. political. The external audit. 2. often until saturation is reached. it does not remain static.1.1. Even Compaq and Hewlett-Packard. Underlying any analysis of competition is the economic concept of supply and demand. and the trends in these things. Tight cost controls. competition comes from an increasingly wide range of sources. there is a shakeout of weaker suppliers and only the stronger and most differentiated competitors remain in the market. When HP and Compaq were at their height. and predict the activities where possible. 2. With obvious rewards to be gained and without too many barriers to entry. with one supplier. A company identifies a need.3 The nature of competition One of the key issues in the narrow external environment is competition. The operating or narrow external picture covering elements such as the total size of each of the markets or segments. These include: 1. environmental and cultural factors which can have an impact upon the company. In simple terms. This information should help determine the strength of the company’s position compared with that of the competitors. In global markets. looks at factors in the external market that the company may be able to influence but cannot control.1. competitors will probably be quick to enter the market. The internal audit examines factors over which the company has some control. His vision of the PC market and enormous success were based on ‘build to order. The remaining players then develop competitive strategies based on: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 22 . however. competition. had to merge to avoid collapse. huge companies in their own areas. Michael Dell was a college drop-out building PCs in his bedroom to his friends’ specifications. economic. While rewards are still considered to be worthwhile. legal. As supply increases to meet demand. Their merger has still failed to ensure their future as PC suppliers against the domination of Dell. paths to market. understand and recognise the types and sources of competition. mini-disk and solid state MP3 and video formats is an example. compact disk. often with improved products.

integrated the operational systems and become a national provider. A similar polarisation occurred in price positioning. The OFT had reversed its decision and was investigating the role of supermarkets in the small store sector. The Executive Chairman.• • • • • price high volume low cost product and service differentiation market niche domination. Morrisons were allowed by the Competition Commission to take over Safeway in 2004 as this acquisition did not give a monopolistic advantage to any one player. family-run corner shops with long opening hours survived. Companies in the middle such as Gateway suffered badly and were taken over. and mid-priced outlets suffered if they could not offer differentiated benefits. Sainsbury’s struggled to deliver top-quality along with low prices. This creates an interdependency which can benefit both supplying and buying companies. Concentration in the hands of buyers and suppliers is a growing trend that represents a threat to many smaller companies. a finance director and deputy chairman had been appointed and Morrisons had retrained 90.000 Safeway staff. Large companies may reduce the number of their suppliers to improve efficiency. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 23 . The major store groups moved either towards the quality or discounted price ends of the spectrum. It often results from mergers and take-overs. four non-executive directors. At the other end of the scale. Sir Ken Morrison. all of whom entered the battle for Safeway in 2003. large supermarkets became concentrated in the hands of Tesco. The retail food market continued to change in 2005. Sainsbury’s recovered its profitability. The major supermarkets bought into the corner shop sector as the OFT put this into a different class of provision. By 2006. Markets may become polarised and those suppliers caught in the middle find it increasingly difficult to remain profitable. It also leaves smaller companies to find niches in which to survive. managed to avoid being forced to step down by taking a non-executive role and appointing a separate CEO. mainly by focusing on quality. Morrisons failed to turn the Safeways branches outside its more northern patch into profitable outlets quickly enough for its shareholders. Supermarkets In UK food retailing. Sainsbury's and Asda/Wal-Mart.

closest) competition by relevant measurements from internal audit Number. Both situations represent a threat to stability by intensifying competition. From a market perspective. hierarchy and characteristics of companies in the industry Their capacity to produce. Competitor analysis helps to identify the behaviour patterns competitors might adopt in response to marketing tactics such as price-cutting or promotion.2 Typical external marketing audit issues Competitor analysis can be applied to an industry or market. origins. In this sense. Kotler (1991) describes the most common competitor reaction profiles as: • the laid back competitor. From a still broader perspective. a competitor includes any alternative use for the same portion of the customer’s spending power. This may be because it is confident of customer loyalty.Total and individual market segments: • • • • • • • • • • • • • • Size (value/volume) Growth trends (value/volume) Buying patterns Geographical trends Demographic trends Communications: • • • Principal methods used Sales methods and structures Levels of advertising and promotion Products and industry segments: Innovation trends Quality expectation Product usage Product sourcing Packaging Legal requirements Industry structure: • • • • • • • Major (i. because its strategy is to ‘milk’ the business. market and deliver Their ownership. Where demand exceeds supply. When supply exceeds demand. The competitive position within an industry is also affected by the bargaining power of buyers and suppliers. or because it is ill-informed. In its narrowest definition a firm’s competitors are other firms in the same industry supplying similar products. which does not react quickly or strongly to a competitive move. but do not currently produce them. level of investment and likely diversification Trends in new entrants International links Levels of concentration Prices: Level and range Credit terms Discounting practices Table 2.e. for example. From a broader perspective. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 24 . a function of supply and demand. or preferably both. DIY products compete with holidays. So suppliers of these substitutes could be regarded as competitors. there are latent competitors that could supply similar products if they chose to do so. suppliers exert their bargaining power by raising the price of raw materials. Kotler adds that the reasons for laid back behaviour should be assessed. Video or DVD movie rentals and downloads compete with cinemas. buyers increase their demands or force prices down. substitute products could fulfil the same needs for the same customers.

These are factors that the company cannot control. The types of industry where competitor analysis is most important are those that show the least growth and the least potential. Undifferentiated commodity markets. Markets with many similar competitors tend to be unstable and in a state of perpetual conflict. which does not have any predictable reaction pattern. tend to have price wars as a result of the overcapacity.• • • the selective competitor. Directors need an overview of the whole business environment in order to gauge the influences on their industry. since market share can only be increased by taking it away from competitors. reduces the risk of anti-trust legislation. which will react only to certain types of attack such as price cuts but not to advertising. Bad competitors are those who take risks to win share for themselves. their company and their actual and potential customers. make reasonable assumptions about the industry’s growth potential. and will fight to the last. Other reasons for examining the strengths and weaknesses of competitors are: • • the strongest competitors may act as a benchmark or industry standard the failure of a weaker competitor may not be beneficial to a strong company. but that can have a significant impact on the company. set sensible prices in relation to costs. A particular competitive pattern may permeate a whole industry. Strong competitors may be moving ahead and setting industry standards but they too have weaknesses. and upset the equilibrium of the industry to their own advantage. A weak competitor in a highly valued segment may lose customers to others with relatively few resources. limit themselves to a certain market share and cooperate to some extent with others to encourage lower costs or differentiation. Competition increases total awareness and demand. promotion and advertising spend. Some idea of each competitor’s strategy helps define the best market opportunities and the likely outcome of particular actions such as price changes or new product launches. Kotler adds that it is always better to attack a sheep than a tiger. This type of analysis is often called PESTLE for the relevant headings from Political factors. The wider point made by the good and bad competitor example is that an industry and its participants benefit from having competitors. Analysing competitor information reveals which competitors are weak and open to attack. PESTLE and SWOT analyses The company should look beyond market and industry boundaries at the wider external environment and its impact on the company’s position. and parts of their business may be vulnerable. Economic Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 25 . which reacts quickly and strongly to anything it sees as an attack. their markets. shares development and technology costs and increases total market coverage by serving different segments. and it is in the interests of the industry as a whole to support the good and attack the bad. Porter (1985) makes the point that there are good and bad competitors. the tiger competitor. Porter defines as good those competitors who play by the rules. for example. Analysing an industry’s competitive pattern can help directors and marketing managers make strategic and tactical marketing decisions such as pricing changes. the stochastic competitor. The information gathered can be used to create a map of the likely actions and reactions of particular competitors in different situations.

Table 2.3 Typical PESTLE factors Directors should have regular discussions on the areas of PESTLE analysis. It should concentrate on eliciting the Critical Success Factors (CSF) and analysing the key issues surrounding them. Technological developments. quality. Legal issues and Environmental issues. and complete a SWOT analysis for each one. The factors will help determine the most appropriate areas of marketing research. Socio-cultural trends. weaknesses. Having explored the relevant PESTLE factors marketing planners can use this information to examine trends and identify the likely impact of each factor on the business over the planning period. labour mobility Energy prices Unemployment Party political stance on particular issues Legal issues National and international legislation Import and export regulations Environmental issues Popular attitudes to aspects of the environment Pressure group activity Media coverage Social issues: Lifestyle changes Consumer attitudes Demographic factors: age. threats) is a useful marketing tool because it can be used to crystallise the key issues that arise from the marketing audit.conditions. geographical distribution Table 2. The SWOT analysis should not simply be a repetition of the audit. wealth. Political issues: • • • • • • • • • • • Regulations: safety. it may be necessary to split the business by market sector. A SWOT analysis (strengths. opportunities. labelling Government policies Taxation Technology issues: • • • • • • • • • New materials New manufacturing processes Information technology New inventions Economic issues: Inflation. The SWOT combines well with brainstorming sessions with a group of managers to produce a creative result. labour costs House prices. With complex and diverse markets. as they are the main sources of the changes that influence longer-term strategy. A company operating in a single market may need to complete one SWOT analysis.3 shows some typical areas of influence that the company may need to investigate in order to find out whether the factors will affect the business either positively or negatively. It can act as a stepping stone between the audit and the later stages of marketing planning. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 26 .

Internal factors Strengths Company serves high growth markets Well known company name 20% share of market with main product Higher gross margins than main competitors Low staff turnover Highly qualified management team Products perceived as high quality High tech/efficient production facility Weaknesses Low penetration in export markets Main products easy to copy High level of company borrowing Distribution – location of production facility No succession plan for managers retiring soon Resistance to planning/change Inflexibility in production facility High fixed costs Table 2. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 27 . However. usually in the area of external threats. Assumptions fill the gaps left by the audit and the SWOT analysis. the real world is unpredictable and perfect information is unobtainable. An assumption has to be made for each unanswered question which may impact upon the successful implementation of the plan. Some typical assumptions might be: • • • the interest rate will rise by 1% over the next two years average fuel prices will remain static over the period of the plan cheap imports will account for 20% of the market in four years’ time.5 Typical external factors identified in SWOT analysis Assumptions and risk analysis Assumptions are dangerous and would be avoided in an ideal world.4 Typical internal factors identified in SWOT analysis External factors Opportunities Investigate/penetrate key export markets Merge with/take over main competitor Relocate production/distribution facility Invest more in new product development Threats Cheap imported copies of products Increase in fuel costs Aggressive competitor pricing policies eroding margins Bad publicity for products Advertise main product to defend/increase Interest rate increases market share Launch secondary products into new market Technology changes – product obsolescence sectors Raise company branding profile through stronger Recession – reduction in customer buying power Exchange rates increasing raw material price Poach key managers from competitors Table 2.

To qualify as a market segment. Another reason is the preparation of contingency plans to allow for the range of possibilities between best outcome and worst outcome. given the existence and activities of competitors and limited resources. and making a ‘best guess’. customers’ expectations have changed. It has then to determine which customers and/or customer groups might make up this proportion. This is almost always better than failing to consider the question at all. if any. The purpose of segmentation and targeting therefore is to identify the groups of customers within a market that the company is best able to supply. a group of customers must have similar needs or seek similar benefits. however.2 Market segmentation and Targeting Market segmentation is a key prerequisite in the development of marketing strategy. Philip Kotler 2. These must be distinct from other customer groups within their market and be identifiable according to relevant criteria such as age. Since such a market does not exist. an organisation cannot hope to serve all potential customers with the same offering. sex.One reason for making assumptions is to force the discipline of considering such questions. Market segmentation has been defined as: The subdividing of the total market into groups that represent distinct marketing opportunities and have to be reached with a distinct marketing package. and the best way to satisfy their needs. family life cycle stage. markets can be thought of as consisting of customers all having identical needs which they satisfy in similar ways. although in a public sector context the objectives might include obtaining maximum value for money. social class. A situation such as this could truly be described as a mass market.2.1 Identifying market segments Very few. It may be useful to use formal risk analysis techniques to quantify the likelihood of the assumptions being correct. Mass production for mass markets was favoured in the past because it delivered economies of scale. Now. probably following consultation. Companies are more likely to succeed if they can identify and meet the needs of particular groups of customers rather than try to please all customers with an undifferentiated offer.1.1. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 28 . or making best use of the resources available to serve the largest need). and geographical location. The company is better able to identify market opportunities and maximise the value of the overall market. When the segments have been defined it is possible to identify the needs of the customers within them and any critical success factors that will be critical in the creation of the strategy for that market. The segments – large or small – are the arenas in which the organisation will seek to generate value both for itself and its customers. It must decide what proportion of a market it must capture and hold if it is to meet its business objectives (normally profit an/or shareholder value. what is distinctive about them (requirements and purchasing behaviour). This enables the directors to allocate the company’s resources more effectively than by taking a mass market or ‘scatter-gun’ approach. 2. The benefits of market segmentation can be summed up as follows: 1.

Alcohol consumption habits or weekend leisure pursuits would be more difficult to isolate Segments must be large enough to provide a Women of 18-25 in full time education might be worthwhile return too small a segment to be worthwhile. are all clear characteristics. 3.2. shorter life expectancy of clothes. The specific examples are from a business to consumer market. Demographic and geographic variables are generally quantitative. more fashion conscious Measurement criteria must exist and be relevant Segmenting the women’s clothing market by alcohol consumption habits or leisure pursuits would be less relevant than factors such as age.3 Segmentation in consumer markets The most common variables used in consumer markets are shown in Table 2. this type of information is generally the result of market research and therefore commercially confidential to the Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 29 .6. and they are widely used in published sources to describe customer profiles. and would also be likely to have a limited level of disposable income Segments must be accessible Even if the alcohol consumption of women was relevant to their choice of clothing. Market segmentation criteria If the segments resulting from the segmentation process are to be of some use to the company they must conform to the criteria set out in Table 2.6 Women's clothing market segmentation criteria summary 2. it would be much more difficult to reach them as a target than if they were segmented according to age. housing type characteristics etc.2.7.2. Segments provide the basis for a strategy that differentiates between one group of customers and another marketing.1. sex. perceptions etc. geographical location.2. as well as lifestyle factors such as magazine readership Table 2. It is possible to allocate resources to the areas of the market where they can be most effective and therefore obtain a better return for the investment in marketing effort. 4. social class or income Segments must have distinct and recognisable Age. It is also possible to tailor the marketing mix more precisely to the specific needs. Benefit segmentation is also largely amenable to quantitative analysis although the amount of publicly available information will be less. 2. Segmentation criteria Examples Customer needs or benefits sought should be Professional women aged 25-45 with no similar within a segment children could be an attractive segment for an upmarket clothing brand to target There should be identifiable differences Women of 18-25 would have clearly different between segments in terms of benefits sought needs from the example above – generally greater price sensitivity.1. of the customers in the target segment. readership etc.

Districts were then analysed according to the number of postcodes allocated to each type. which linked demographic and geographic data.companies that commission it. the insights they provide may be of great value. This created a grouping system based on the assumption that people living in similar neighbourhoods behave in broadly similar ways. Birds of a feather flock together ACORN divided the population into 17 main groups. Psychographic variables are generally assessed qualitatively and although their reliability may not be so easy to verify as their quantitative counterparts. These were then subdivided into 54 neighbourhood types matched to corresponding social grades. The initial product was ACORN (A Classification of Residential Neighbourhoods).7 Segmentation variables used in consumer markets Geodemographic segmentation was developed in the late 1970s by CACI Ltd. Geodemographic segmentation Demographic variables Sex Age marital status family size and background race/ethnic group Education Occupation Income Religion home ownership socio-economic class Geographic variables region urban/suburban/rural population density city or county size market density residential location housing type climate terrain Behavioural segmentation Benefit variables usage rate and volume product benefits consumer need satisfied technical aspects price sensitivity brand loyalty End use benefit expectations Hutchings (1995) Psychographic variables lifestyles personality self image value perceptions social aspirations psychological aspirations motives Table 2. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 30 .

clerical. Experian’s Mosaic UK is an award winning people classification system that combines over 400 separate data sources and divides the UK adult population into 61 different types and eleven groups.4. Social grading system Social grade A B C1 C2 D E Social status upper middle class middle class lower middle class skilled working class Working class Low subsistence levels Occupation of chief income earner higher managerial. grocery and financial classifications.8 Social grading system 2. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 31 . junior managerial. administrative or professional supervisory. automotive. global. daytime. A simpler approach has been to classify consumers into groups. They are generally segmented according to criteria such as: • • • • • • • • • industry type product specification purchase quantity and/or frequency delivery speed and/or frequency method of purchase application for product geographical location customer size after-sales service required. MOSAIC is also available in specialist versions covering international. casual or low-grade earners Table 2.1. covering the full spectrum of British and Northern Ireland society. assuming similar buying and spending habits.8. It is shown in Table 2. London. Segmentation in industrial markets Industrial markets tend to have fewer buying and selling points than consumer markets. developed by CCN (now Experian) as a database.2. administrative or professional intermediate managerial. administrative or professional skilled manual workers semi-skilled and unskilled manual workers state pensioners. and are by definition less personal in nature. Northern Ireland. This method resulted in the ‘Social Grading System’ used as a basis of analysis for many years.A similar system is MOSAIC. widows. Experian website November 2006 MOSAIC is also available in specialist versions covering Scotland. financial and business to business classifications.

location type. A means must be found of identifying the priority segments. especially if it is relatively easy for others to enter the market with similar or substitute products Ease of entry: a market segment that is easy to enter may offer rapid returns with low risks. manufacturing. and access to linked databases holding European business data.5 Targeting Markets are segmented in a number of ways and the variables are generally used in combination to create useful profiles. but not for a company seeking high margin business over the longer-term Competition and ease of product/service substitution: substitution and obsolescence are dangers sometimes ignored by companies entering new market segments Financial services Manufacturing Distribution Telecoms Entertainment • • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 32 . The end user is either the business itself or. finance and insurance. You can profile any part or the whole of your customer base against any part or the whole of the D&B Marketing Universe at any time from any web browser. They list companies by line of business (Standard Industrial Classification code). wholesale trade. and services. D&B Market Insight holds the whole D&B Marketing Universe with your customer data overlayed. Database companies also offer financial classifications.dnbmi. Criteria for the assessment of the attractiveness of a market segment include: • Size and growth trends of segment: larger companies can target large market segments to achieve higher volume. Business customers are usually trained professional buyers though many small businesses carry out the activity without any specialist training 2. also they may not have the resources to exploit them.2.1. information about companies and their subsidiaries. transportation. This type of segment may be attractive for a short-term venture. This score can then be used to prioritise the data you chose to purchase.9 Market segmentation by sector and size Clearly a company may not find all the segments equally attractive. retail trade. www. but a smaller company might be wary of the high investment of resources required to serve such a large market segment. at the ultimate end of the distribution chain. The table below is a simple combination of sector and size producing eighteen segments: Retail Small Medium Large Table 2. those which if successfully exploited will enable the company to achieve its objectives. economic regions. sales turnover. a personal consumer. UK postcodes and named executives.com (2006) Business markets exist for agricultural services. number of employees. You can then score the entire D&B Marketing Universe by how well each record fits the profile you have established. Potential profitability and ROI Number of strong competitors: a segment with a number of aggressive competitors already active in it may be unattractive. but this means it is also easy for competitors to enter. mining. construction.Information is available from companies such as D&B that guarantee a speedy service with a high level of accuracy.

it can affect the attractiveness of the segment as a target Matching with the company objectives and capability: the company’s longer-term objectives affect the way it views such issues as the investment required to enter a market segment. the risks involved. the scope is restricted to the areas where there is the ability and willingness to buy those products and services offered by company that can be sustained.• Balance of supply and demand: as the balance of supply and demand determines the bargaining power of buyers and suppliers. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 33 . and the likely long-term sales and profit potential of the segment. communications etc.). geographical & cultural proximity (including language). however. The potential market for any company is the entire world. • Where the company seeks access to global markets it must consider carefully the current commercial infrastructure in the target area (distribution. and political and currency risk. In practice.

The consumer may also put pressure on the customer . Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 34 . The needs of the consumer may differ from those of the customer in a variety of ways such as basic motivation. 4x4 off-roader. need.or long-term objectives are clearly understood and built into the processes by which suppliers attempt to achieve customer satisfaction. people buy a car because they need transport. The internal customer 'buys' the output of another part of the organisation. the directors understand simple adages such as "people don't buy drills. or end-user. consumers and their needs In marketing terms.children's pester power. customers are the people and/or organisations that engage in an economic exchange process to obtain something they want or need either for themselves or for another customer. second-hand white van . medium. for example The reason for the purchase by the final customer and/or consumer is the belief that using the product will assist them in achieving their own particular objectives or in satisfying a need. For example.luxury saloon. motivation. old banger. Words such as reward. The final customer buys and consumes the product without adding value and is the most important element of the distribution chain.1 Customers. makes a value adding contribution and 'sells' the product on. Complete satisfaction of all the parties will only be achieved where these issues are understood and acted upon by the supplier. The organisation needs to be well informed about their purchase behaviour and the factors such as economic circumstances that affect it. The ideal relationship between the companies involved in creating value for the final customer should be co-operative and mutually supportive. Another player at the end of the marketing chain is the consumer. They exist in both for-profit and not-for-profit markets.2. The final customer may actually be the consumer but that is often not the case. suppliers have to ensure the satisfaction of both customers and consumers. In simple terms. Although they may take no direct part in the exchange processes as buyers. The type of vehicle they buy . In other words. The application of basic marketing principles to these exchanges increases the effectiveness and efficiency with which they are carried out. There are three broad classes of customer of increasing importance: 1. 3. sports car. company car fleet managers may use objective criteria when setting their purchasing policy for vehicles but they are significantly influenced by pressure from the company car users.2. It is important that the real short-.depends on many other factors. The organisation should also be ready to respond quickly to any change. The ultimate purpose of the customer and consumer is the critical factor in the purchase. they consume the results so their interests are often of vital importance. The external intermediary customer adds further value to the product and sells it on to the next stage in the distribution chain. At all the exchange points along the supply chain. and particularly in business-to-business (B2B) markets. The first essential requirement is that the product or service fulfils the actual need of the customer and consumer. 2. they buy holes". problems and behaviour 2. want and value are all used to describe the rationale of purchase and consumption.2 Customers’ needs. perceptions of supplier and attitudes towards the process.

• Solution Identification where the buyer examines the alternative methods available to solve the problem. and the likely future performance of the supplier. The need may be stimulated from within.2. • Supplier Selection Criteria where the buyer identifies the criteria which will guide the choice of supplier. The supplier has to satisfy the elements that the customer has a right to take for granted from the supplier. advertising for example. service. Obviously the opportunity for external influence is considerable. It may not be enough that the drill makes holes. Typical steps are: • Problem Recognition where the buyer becomes aware of a need. process. The opportunity to influence events at this point is considerable through the use of proactive vendor rating scales for example. but to be really successful they have to surprise and delight the customer with excellent service – cleaning up afterwards would be wonderful! An example of a customer-led organisation is the Disney Corporation. again using established choice criteria. as there may also be a need for advice and instructions to facilitate the correct hole. and offers cope for the seller to influence the buyer. and second there may also be a need to select a particular supplier or outlet. and thus fulfil the real need.The second essential requirement is that the customer is satisfied in ways that are consistent with their circumstances. In either case there is still the possibility of external influence. items wearing out. This may be the result of obsolescence. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 35 . • Purchase Process where the buyer undertakes the act of purchase and will almost certainly be further influenced by the circumstances surrounding the process. First. This may involve the buyer in specific quality assurance programmes. • Supplier Selection where the buyer decides the source of the solution. the level of service etc. It is possible that this process is also influenced by external forces. There will almost certainly be a need to minimise the post purchase concerns of the recent buyer. To make good purchase decisions the customer requires a systematic approach and adequate information. The Disney Institute is used by many other companies for training in this approach to customers. This process may have at least two dimensions. on the other hand it may be an impulse decision. the buyer may choose a particular make of brand. a desire to expand etc. • Problem Specification where the buyer identifies the real problem that must be solved and sets some criteria for the identification of a solution. plumbers must be able to bend pipes and fix taps. The seller must understand the whole process by which value is created for the customer. 2. • Performance Assessment where the buyer considers the entire process including functionality.2 Buyer behaviour Buying process Success in creating value depends on an understanding of the means by which customers make decisions to purchase. To influence a purchase decision the seller requires understanding of the process. or by the activities of the external environment. This may involve a careful evaluation using established criteria. The buying process consists of a series of steps that lead to the act of purchase. For example. They train their cleaners more thoroughly than any other staff because they come into most frequent contact with the customers and therefore have a very significant effect on the value that is created for the customer. Merely meeting the customer’s apparent needs may not be enough to guarantee success.

technological. economic. The marketing implication for the seller is to reduce the perceived consequences of error by offering simple compensation and rapid response for example. there are obvious similarities. The major components of risk are. 2. guarantees.formal. life cycle stage etc. reward system. Influences on buyer behaviour The behaviour of buyers is influenced by a variety of factors. membership groups. The seller needs to be aware of the form and consequences of risk and to be able to convince the potential customer that it is minimal. associated with the society in which customers live • Environmental factors . ecological. Additional influences on organisational buyers include: • Interpersonal influences . sex.reference groups. • Social . 1. beliefs. The probability of error i. informal. In these circumstances the seller will probably need to embark on an extensive communications campaign aimed at changing attitudes. age. • Organisational variables .position/status. reputation. culture. service. Risk may also be in the form of psychosocial elements i. support etc. information management etc. social class etc. Organisational buyer behaviour differs from that of consumers for a number of reasons. The consequences of error i. the seller may fear losing face or prestige as a result of purchasing in a particular category or particular brand. political • Source characteristics . The marketing implication for the seller is to reduce perceived likelihood of error by creating and maintaining a reputation for quality and reliability for example. that the product or service will not perform its function.Perceived risk Potential buyers are sensitive to the perceived risk in the buying decision process. purchase process. previous experience etc. role in the decision-making unit (influencers).social. motivation. • Personal . sex.e. norms etc. Professional purchasing managers: • • • • • are specialised in the types of goods and services they purchase function as a member of a team or decision-making unit purchase goods and services for use in providing goods and services for their own customers are professional and trained buy in large quantities Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 36 .age.values. price. that the customer will suffer loss as result of the error or lack of performance. Although the pressures on purchasing managers or others buying for an organisation are different from those on a personal buyer.e. Influences on individuals making personal or organisational buying decisions are: • Psychological .e.perception. attitude. life cycle stage etc.quality. risk profile. • Cultural .

and otherwise complete details of purchase Gatekeepers – individuals in a position to control information flows to those involved in purchase decisions Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 37 . Influencers . etc. are dealing with derived rather than direct demand often involve technical specialists in the buying process. Approvers . Buyers – have responsibility and authority to select suppliers.individuals who make a go/no go decision about proceeding with the purchase process. The key players in the decision-making unit may include: • • • • • • User or initiator .person(s) who will benefit the most.• • • • • • • • • • • purchase from a few sellers use short distribution channels buy from manufacturers and distributors who are centrally located negotiate prices and other terms of sale form long-term relationships with key suppliers require at least some level of customisation in their purchases emphasise specifications and performance are concerned with technology and rate of change require specific services with their purchases. negotiate terms of sale. or recognises the benefits of the acquisition. often expect reciprocity • There is also an important difference between the first purchase and the repeat purchase in terms of the behaviour of the customer Business buyers are often working as a purchasing agent and are subject to a decision-making unit. the more influencers that are involved who can affect the final purchase decision in some way. Deciders .individuals who can approve/disapprove of the proposed purchase. including product specifications and terms of sale. and the appropriateness of purchase activities.the greater the complexity and cost.

they might collect information about the how the restaurant uses and presents them.1 Marketing capability Successful and sustainable value creation can only be achieved if the organisation is prepared to invest in information that provides a continuous picture of their customers and of their own operations. The final customer buys and consumes the product without adding value. i. The organisation needs to pinpoint the basis for the creation and maintenance of value for final customers and the implications for the marketing capability of the value chain. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 38 . 1. acquisitions or mergers to develop the capability if it is lacking and the opportunity is significant. Value that is easy to create is also easy to duplicate.e.3 Marketing capability analysis 2. the organisation supplies high quality organic ingredients to a smart restaurant. Changing the customer's perception of the value they can expect from a distributor or stockist. systems. How does our customer fulfil this role i. support etc. Every aspect of the organisation will be called upon to contribute to the value creating process. Any internal and intermediary customers need to demonstrate how they contribute to the value creation processes. resources of the business must be leveraged to this end. What is the role of our customer in creating value for their customers and for themselves? 2.2. what the atmosphere is like and whether it adds value in other ways such as offering valet parking or a taxi booking service for customers. Creating a gap between the company's offering and that of its competitors. what processes and procedures do they undertake? 3. However. For example: • • • The need to review the capability (competence x capacity) of the organisation and the potential that this capability has to create value. Low value attracts 'me-too' competition.3. The ideas. 3. win market share and generate profit It may be necessary to re-position the organisation’s offering (product. levels of distribution service.e. price. structure. The organisation must be prepared constantly to take action on the basis of the findings and make modifications to existing marketing strategies where necessary. How do they use our product/service in the value creating process? 4. for example. knowledge and other resources is far more difficult for a competitor to duplicate. distribution) to create a better fit between its capability and the value required by the customer There may be a need to create new processes and alliances. Changing how value is delivered. The organisation has to ask itself questions such as: 1. high value arising from investment in information. promotion. 4. Competitive advantage will be achieved if the action taken succeeds in: 2. If. How can we improve our own organisation’s contribution to the process? The answers to these questions have significant implications.

de-specifying can also create value. He argues that companies should examine each activity in their value chain to find ways of improving it in terms of both costs and performance. does not necessarily mean adding a large number of features and delivering them all at a very high level. but each element is of good quality. customers and end users. to the factory and right through the manufacturer's supply chain to the suppliers of materials such as sheet metal and paint. As a result paperwork was handled by fewer people or eradicated altogether. In the longer term. The whole chain should work together so that. A good example of co-operation between companies and their suppliers is in retail ‘category management’. It should also include an analysis of the value chains of its competitors so as to use these as benchmarks against which to measure their own performance. companies need a continuous picture of the changing needs of their customers so that they can match them with changes to their products or strategies. The Formula One hotel chain. Marks & Spencer’s stock control for gloves was linked by electronic point of sale (EPOS) to the supplier’s factory. at every stage of the chain. where a panel of suppliers work with a buyer to find the optimum selection and layout for a category of products within a store. A customer-led organisation analyses all its activities to identify the part each plays in the value creation process. and examining the value chains of suppliers.3. 2. A manufacturer might offer also merchandising training and support to its retail outlets. 2. This is their competitive advantage. for example. This involves looking beyond the company boundary. The end result has two dimensions: 1. they must create and maintain their customers’ perception of a gap between their offering and that of their competitors. A person's judgement of what is important in life 2. Further development of this approach exists in the automobile industry where a customer's purchase order of a new vehicle in an independent dealership transmits information to the distributor. it may be a lower price or a better offering. However advanced the value offering it will be copied if it stands still. Investment in innovation can be demonstrated to have a measurable impact on customer growth and value. In simple terms. One approach to the analysis is that of Michael Porter (1985) who uses the term ‘Value Chain’ to describe the process of linking all the areas within the company where competitive advantage could be achieved. To maintain successful value creation. For example. the company maximises its potential for creating customer satisfaction and loyalty as well as gaining competitive advantage. In order to compete successfully in the long term. organisations must attempt to innovate. The practical results of involving all the parties might be an integrated order administration and invoicing system set up jointly by the company and a supplier.2 Creating value Value can be said to have three dimensions: 1. The ability of a thing to serve a purpose or cause an effect Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 39 . It does not attempt to match the competition in areas of service not considered important by its target customers. and to determine how improve it. offers a very restricted service. The company manages the process of merging the competencies of everyone involved in the product from concept to end-user. therefore. So. distributors.Creating value.

services. and promised only ethical investment of their funds. Understand the customer value chain or experience cycle from the search and purchase steps right through to the use and ultimate disposal 3. At the same time. systems and processes. The ratio of customers who would advocate the company to others to those who would not. is a significant indicator of its strength and potential. Understand how customers create value for themselves or for their own customers or consumers. 2. remaining well-informed about competitor activity. the company needs to nurture and maintain it.3. However. For example. 4. At its best. and will eventually become the expected minimum standard. distinctive competitive advantage (DCA). and alter it as customer needs or perceptions change. in the 1990s National Westminster Bank put all their management through specific training to help them target the small business market and claim to be the most expert of the high street banks in this area. Customer advocates are the key to maximising customer lifetime value and increasing market share.3. As it is a very valuable commodity. If a particular competitive advantage proves to be attractive to customers it is likely to be equalled or bettered by competitors. and loyalty may become advocacy. often rather intangible and perishable. Be capable of producing and delivering a significant positive impact on these elements through the effective use of products. but were relatively easy for other banks to copy. it is uncopiable. Customer satisfaction becomes customer retention or loyalty. This means keeping close to the customer at all times. The ability of the organisation to create customer value more effectively than its competitors often results from the company’s possession of sustainable.3 Sustainable Distinctive Competitive Advantage (DCA) The main purpose in identifying the key benefits sought by target customers and those provided by the company and by its competitors is to use the information to create Distinctive Competitive Advantage (DCA). These initiatives differentiated the two companies from each other and from other banks in the short term. In other words directors must ensure that their company is part of the customer’s solution not part of their problem. distribution. that is not provided by the competitors. information etc. 2. and being Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 40 . the Co-operative Bank offered a preferential charging rate for businesses. A DCA is a benefit perceived by the customer to be relevant and unique. Customer value is achieved when the company's offering provides the customer with greater value than their perception of the total cost to them of the offering. The amount buyers are prepared to pay for what a company provides them. companies should provide relevant benefits to customers and maintain a competitive advantage by changing the benefits provided as customer needs change. Marketing experts argue at length about whether a competitive advantage is sustainable at all. including resources. Have a well enough informed system to avoid making a negative impact on the process. If the company is successful in creating value for customers over time the relationship will develop to its advantage. This involves the company being able to: 1. and identify all the elements involved.

Critical Success Factors (CSF) Distinctive competitive advantage is only relevant if it is instrumental in creating value for customers. This helps in further analysis. It is a similar concept to that of the Critical Success Factor (CSF). CSFs are those elements which can contribute most to the success of the company if they are right. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 41 . when comparing the company’s performance against that of its closest competitors. Examples of internal CSFs are: • • • • proof of successful track record speedy delivery knowledgeable and professional sales staff quality. together with the company types to which they might apply. are: • • • • low interest rates – mortgage lender favourable exchange rates – exporters or importers low oil prices – charter holiday operator hot summer – ice cream manufacturer The CSFs might also be prioritised and given weightings according to their relative importance. Five to ten CSFs would normally be identified as having the greatest potential impact on the company’s prospects. Examples of external CSFs. Regular and effective marketing audits should help to ensure that this is achieved.aware of changes in the market and the wider environment. and to its underperformance if they are wrong. for example. These may be internal factors that directors can wholly or partly control or external factors beyond their control.

Radically improve the cost structure of a competitor. Marketing budgets will continue to be allocated in the usual way. the organisation should take into account the full implications of any new market ventures upon its performance in those markets in which it currently operates.2 Key non-financial assumptions The key non-financial assumptions include: 1. There will be no changes in the elements that determine entry conditions to the market for new customers (price rises for example) and that may change the profile of customers. 5. c. economic. No significant change is expected in any of the elements in the broad-scale business environment (political. social. Change the means by which the product/service is delivered to the customer 8. 6. 3. environmental) nor in the relationships between them. 2. The basic competitive parameters or critical success factors.1 Key financial assumptions The key financial assumptions include: 1. innovation etc. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 42 . 4. The organisation is not seeking new markets.4 Company performance analysis The marketing performance of the company will be strongly influenced by the financial and nonfinancial assumptions and forecasts that are made about the future.) remains similar. All customers continue to trade at current levels. No significant developments in technology are expected that would: a. These assumptions must be understood and challenged on a rigorous and regular basis. there are no significant changes in the elements which determine the level of usage. i. The identity and relationship with value partners (intermediaries. 2.e. Although this is a controllable element. Competitors continue to trade in line with previous trends and no fundamental shift in the balance of marketing effort in the market is expected. (quality. If there are significant changes to any of them then there will be changes to the forecast and almost certainly to any strategies that flow from it. Shareholders or owners continue to be satisfied with the current return they receive. technological. by customers for the products/services the organisation provides.4. and therefore demand. collaborators etc.) remain the same for the majority of customers. 2. The business strategy will not require any financial restructuring that will impact the marketing strategy.2. 3. 9.4. price. b. Render the product/service obsolete (substitution). No new competitors enter the market offering similar products and services and change the competitive balance. 7. suppliers. 2.

which is generated by the organisation as a result of trading. which is published already.). Appropriate quantitative and qualitative techniques will produce information inputs that can be integrated to enable the organisation to “sense” what is happening in the market place. competitor actions etc.1 Internal data Information technology captures real time data at every stage of trading and most organisations have access to large quantities of marketing data. However. up to date and appropriate information.) and customers (needs. 2. 2. External secondary data. Directors should ensure that analysis of the data is well done so that the interpretation will be of high value.) both actual and potential. Marketing decisions are concerned with the application of organisational capability to the creation of customer satisfaction in a constantly changing environment.2. The system must be capable of delivering information about the organisation (strengths and weaknesses).1 Sources of information There are three major sources of data: 1. Internal data. 3.5.1. they may not be able to use it if their IT systems are specified to facilitate the business transactions but not to gather or analyse the data.5 Marketing information and market sensing The two elements of collecting and using information are: • Marketing information – effective marketing decision-making is impossible without the availability of reliable. Sources of data generated within the company include: • • • • • • • • Sales reports Opportunity and prospect monitoring EPOS customer purchase records Customer complaints Charge and loyalty card accounts Employee surveys Inventory records Accounting and finance reports Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 43 . the market (structure competition etc. the things that influence it (economic forces. which is gathered directly by or for the organisation. Careful specification of information needs can help to ensure that the best use is made of the data available. External primary data. 2. profiles etc. Directors should devote resources to creating a system which will provide such information in the most cost effective and timely fashion • Market sensing – the emphasis in the area of marketing information should be on interpretation.5.

Original marketing research may be commissioned to provide information about customers in the following areas: • • • • • • • • • • • Usage behaviour i.3 External secondary data There are many market research topics for which secondary data offer valuable information.Information gathered in this way can be used to assess customer profitability.5. sales conversion rates for example. Levels of satisfaction and comparisons with competitors Customer behaviour and decision processes Sources of information used Attitudes to prices Reaction to new product ideas Pre-testing promotions Measuring the performance of front line staff. Sources of external data include: • • • • • • • • • Census data Government publications Trade publications Professional journals Published industry data Customer surveys Test markets Commercial research companies Competitors. spending patterns. to measure the productivity of marketing effort.2 External primary data Primary data is gathered specifically for the organisation and analysed for the first time. Desk research may provide all the necessary data at a modest cost or help to determine the scope of any primary research projects The topics include broad scale issues. geographical effects. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 44 . market definition.1. search activity etc.1. competitor analysis. and to identify customer buying patterns and customer payment profiles. market size estimation. 2. 2. Primary research can be carried out in a variety of ways and it is important to select the appropriate methodology.e.5. How the products are used Motivation and attitudes Responses to company initiatives Process requirements in terms of purchase. initial segmentation.

customer satisfaction surveys etc. Experimentation Experimentation is more than mere data gathering. business-to-business interviews. The survey can be used to gather both quantitative and qualitative data. advertising treatments etc. It is used. they rely on collecting data from a sample of the population under investigation and using the results obtained to draw inferences about the population as a whole. The internet is also now available. 2. experimentation and surveys. The sampling process produces a sample that is representative and of the correct size.Since the data is already available. it is important to confirm its relevance and reliability. and may be continuous. perception. Traditionally the survey could be carried out using three communications vehicles . (collecting data from the same respondent over time using a panel). Quantitative research provides data that can be analysed statistically and provide results that can be expressed numerically.5. It is useful for the analysis of shopping behaviours. 2. they are normally unaware of the process. Surveys Surveys are the most frequently used data collection technique. Checks should be made on the original source of the data to ensure that it is totally objective.is representative of the total population. alternative pack designs or store layout. 1. mystery shopper surveys. store layout design. Observation can also be used to gain a greater understanding of product-in-use behaviour. for example. or ad hoc (one-off) surveys. motivation etc. traffic flow monitoring etc. The sampling frame – the listing from which the sample is drawn . it involves the attempt to measure the effects of controlled change significant variables.2 Types of research There are two basic types of research. on the data collection and analysis techniques and on its age. although it may not be possible to achieve this without the subject being aware of the process. Observation Observation can be carried out mechanically using cameras or by eye. 2. Qualitative research provides data on subjects that do not lend themselves to simple quantitative analysis such as attitudes. does not involve the respondent. to measure the effects of alternative pricing policies. telephone. Particular applications may include on-street interviews. The three principal methods of primary data collection are observation.post. If the survey is to generate inferences about the population that are statistically valid it is most important to ensure that: 1. Some examples of sources are given at Appendix 1. The characteristics of the three traditional vehicles are as follows: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 45 . or face-to-face.

face-to-face Offers the greatest flexibility and opportunity to deal with complex issues. The budget available for total marketing research and the proportion assigned to solving the particular problem 4. use observation etc. 5. given the perceived risk of the proposed activity 2. The accuracy level of information required. Care has to be taken to control interviewer bias. This enables the research programmes to be better co-ordinated and their cost more accurately budgeted and justified. Similar problems may occur with the internet. Telephone Offers more flexibility than postal surveys. In a cost/benefit exercise. and can also be cost effective in the appropriate circumstances i. 2. Personal.5. The potential value of success and the potential loss in failure. there is an adequate sampling frame . The factors to take into account when determining the method of marketing research and the amount to spend to solve a particular problem include: 1. The most notable is the focus group interview or group discussion. their effectiveness. use visual aids. It is also possible to control the identity of the respondent.Postal While the postal survey can offer advantages in terms of speed and cost in the correct circumstances it is limited to the collection of fairly simple information.e. Benefits may be expressed in terms of: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 46 . Occasionally companies have to conduct marketing research as a piecemeal response to a particular marketing problem or crisis. It is normally used as an exploratory activity prior to a survey to complement the data gathered by the survey.3 Choosing marketing research methods Marketing research should be conducted as part of the marketing planning process. It is difficult to control the identity of the respondent and to be confident of obtaining sufficient replies to be confident that the response is representative of the population under investigation. and their compatibility with the options suitable for this occasion. well targeted business-to-business. Care has to taken to control interviewer bias. The methods used in the past. Other techniques Other research techniques do not fall strictly into any of the categories above. Budgeting for marketing research is not easy. The nature of the problem and the information coverage it warrants in terms of sample size and depth of detailed data 3.telephone directory. It is possible to control the identity of the respondent and. The timetable for the research to be completed 6. the costs are much easier to identify than the benefits. This is in effect a group interview designed to provide a richer flow of data than would be possible using a structured survey or questionnaire.

it is important that the method of market or marketing research is chosen because it is the most appropriate method to solve the particular problem. The information is generated in four main areas: • • • • company information systems . A sample size that provides a level of accuracy (plus /minus 5%) may be affordable but it may not be ideal.directors must have a broad view of how it could support the company’s activities.solving marketing problems. A long-term view of information . Many marketing organisations now manage databases that provide the information companies require for their marketing intelligence. collect. interpretation of results. or an individual problem or need. To increase the level above this level will normally require the sample size to grow rapidly and make the project difficult to justify.sales. stocks. Companies may create an in-house Marketing Information System (MIS) or outsource the process.directors need to be aware of the cost of all the elements of marketing research so that they can evaluate the research itself and not just react • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 47 . For a company to use marketing research to its full potential the board must have: • A clear understanding of the scope of marketing information . information sources.• • • • likely additional profit through identification of market opportunities avoidance of loss through costly mistakes estimates of the probability and the cost of failure of a project or product maximum loss expectation as a budget ceiling for marketing research. 2.rather than commissioning marketing research in response to a crisis. The question of outsourcing customer data raises fundamental policy issues as this may be considered to be the heart of the business and the real source of competitive advantage. so that they can give full and well-thought out direction on the brief for the researcher. Overall. The type.marketing information. and not because of the relative costs of the different types of research (see above postal research). costs. profit. wider environment marketing research systems . However. all businesses need a marketing information strategy if they are to make regular and consistent sense of the information they generate.5. and quality of data vary to meet each company's particular needs.4 Marketing information systems Advances in IT mean that companies can access. the board can gain much greater value from research that is ongoing and planned to contribute to achievement of the company’s objectives. the less a manager knows about a marketing situation and the greater the risk attached to a wrong decision. then the more valuable the information becomes. data collection marketing analysis systems . An appreciation of the value of information . store and analyse vast amounts of data. scope. Those undertaking primary market research normally must recognise that there is a trade-off between accuracy and budget. Market research agencies should be able to give advice about this trade off and indicate where the sample size make the reliability of the information suspect.competitors. orders marketing intelligence systems . external markets. In general terms.

The important feature of the MIS is the interactive nature of the factors. 2.1.to a raw cost figure – a long-term approach and an excellent brief for a thorough piece of work are more likely to produce valuable results than a short-term.5. Marketing Analysis Planning Assessing Information Needs Internal Records Marketing Intelligence Environment Target Markets Channels Implemen - Competitors Distributing Information Marketing Decision Support Systems Marketing Research Publics Macro - tation Control environment Marketing Information System Figure 2.1 Marketing Information System Marketing information is so valuable that a marketing research plan should be made in parallel with the marketing mix plans. 3. processed and distributed for the benefit of the organisation as a whole.5 Other MIS issues The major issues for directors in determining how to acquire and use marketing information are: 1. plus the advantages and disadvantages of obtaining information from internal or external information providers. Otherwise information is unlikely to be collated. In-house or outsourced research tasks. It is more likely to remain in individual islands or simply never be collected at all. Whether outsourced or in-house an MIS should have the components shown in Figure 2. ill-conceived project. Organisational resources: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 48 . Scope of research focused on the information needed to solve the research problem. 2.they need to be well versed in the research objectives and techniques so that they can give a clear briefing at the outset and ensure that the end result is a coherent report which answers the questions asked and can be presented to the board as a basis for action. • An ability to handle complex research . All systems and information should be monitored and kept up-to-date.

5. 2. for example. It enables management to quantify and reduce the risks associated with decision-making.• • In-house expertise and ability of internal human resources to perform the research.6 Legal and ethical matters in research The board may need expert advice in particular areas before commissioning research activities: • • Regulatory issues . Job completion surveys designed to gather immediate feedback on the performance of a particular operation and specific issues known to be of concern to customers. Customer contact reports designed to monitor the effectiveness of customer contact management.problems may exist in the gathering and manipulating of marketing intelligence relative to customers and others if.government regulations. industry standards. promises of anonymity are not maintained Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 49 .5. Adequate financial resources available for quality research. Complex processes of international marketing research which is valuable in spite of cultural and language differences and higher costs. 7. Voluntary customer feedback organised via response forms. and legal guidelines provide challenges for marketing intelligence users and providers. 6. MDSS/MIS availability (and appropriateness/quality). It is important however never to rely on one source of information as a basis for decision-making In the case of customer satisfaction analysis may be base on some or all of the following: • • • • • • • General customer satisfaction surveys carried out at regular intervals to identify customers' perception of key attributes and the performance levels of the organisation and competitors. Managerial unbiased objectivity and ability to use and act on information if marketing mistakes are to be avoided. Privacy issues . Customer complaints analyses set up to record complaints and identify trends. times and comments. Focus groups or panels of customers facilitated to feed back their attitudes to or experiences of the company over a period. Ad hoc research commissioned to investigate difficult issues not explained by the other methods in use. or comment cards in hotel rooms. Marketing Information and Marketing Decisions Information is a necessary basis for decision-making. 4. Quality of research information: • • • quality of the research process quality of the data and information obtained quality of the management decision process and implications for use of resources and implementation plans 8. with dates. Adequate time available to make decisions if deadlines determine the research that can be conducted.

research ethics include honesty throughout the research process. • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 50 . fraudulent practices to achieve desired results. Bias issues . and respect for the rights of respondents and others. deception.• Ethical issues . no manipulation.all sources of potential bias related to the researcher and the research process must be eliminated.

Section 3 Marketing strategy formulation Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 51 .

Marketing strategy formulation This section provides you with the knowledge to be able to: • • • • Specify the elements that form the basis for marketing strategy Identify the fundamental marketing strategy options Create and employ a product/market matrix Recognise and exploit the key concepts of differentiation positioning and branding to define marketing strategy Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 52 .Learning objectives Section 3 .

From the market audit. They set out its purpose and drive the marketing strategy. This must be continuous not once-a year Clear middle and junior management support – managers who have contributed significantly to the marketing planning process will feel ownership and be more committed to its implementation and success. the planners will have already: • • • • • Identified the markets or segments they intend to operate in Identified the critical success factors for each one Analysed the broad-scale influences (PESTLE) for each one Analysed the needs of the customers in those segments Analysed the competitive situation in each segment. These might include limited borrowing levels.3. and which might provide the basis of competitive advantage. co-ordinate and motivate all those involved to keep a clear focus and maintain the momentum to become a marketing-led company. culture and distinctive competencies. From the marketing point of view. retention of a particular production site or selling to a limited market or in a specific geographical area.1 Determine the basis for marketing strategy The first step in developing the marketing strategy is to return to the business strategy and examine the context within which marketing planning will be carried out. commitment to a particular business. Written plans – a real strategic marketing plan is fully described and not a numerical compromise Integration of marketing planning into the total corporate planning structure – the board has to ensure that the interdependency of corporate and marketing planning is fully understood and acted upon. Essential components of the successful creation and execution of marketing strategy include: • Strong support by the board – directors have to direct. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 53 . the directors should have listed the marketing assumptions and should refer to them in considering the strategic options. • • • The components of the business strategy are derived from the organisation’s values. Based on the internal audit. The company should have a clear picture of where its own strengths lie and where resources are needed to rectify weaknesses. The directors should also have identified any constraints embedded in the vision and mission statements or corporate strategy. the board should have assessed which of the company strengths are most relevant to its customers and potential customers.

Business strategy Vision – its highest level of aspiration. Mission – the functional aspect of the desired • achievement. how it sees itself and wishes to be seen Marketing strategy Marketing objectives – based on the business strategy: sales revenue profit market share sales volume customer satisfaction some combination of the above. The overall sales objective for example will be the aggregate of sales in each individual market. its role and business. Establish the competitive stance e. • for example. Develop a positioning or branding strategy 4. Assess capability and resources required to achieve objectives 7. distinctive • competencies and future direction Goal – the general statement of aim or purpose. profitability for example. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 54 . sales area. work with suppliers to increase raw 2. actionable marketing plans. So. 1. Each overall objective above will be achieved by through success in each market or segment the company competes in. achieve a 10% growth in pre-tax • profit level in the next financial year Strategy – the flexible long-term route the organisation needs to take in order to deliver the Target market or segment strategies – for the vision and objectives targets identified in the business strategy: Tactics – actions that implement the strategy. • for example. cost material supply chain efficiency leadership 3.1 Business and marketing strategies Corporate targets are the aggregate of marketing targets. become more profitable • Objective – a quantified goal for the business. Set specific objectives e. and for each sales person. Install control mechanisms Table 3.g.g. detailed marketing objectives are essential in developing the link between the corporate strategic plan and specific. Develop a detailed product or service strategyDevelop the marketing mix to implement the strategy 6.

3. Start-up. persuade and sustain quality. assemble capabilities and develop products and services. which vary with the market and product life cycles. create awareness.a rapid increase in sales is accompanied by increasing brand competition and static or falling prices. the company can use a strategy such as skimming with a high price to take short-term advantage of the new product or penetration with a low price to gain a foothold on which to build market share. Introduction . 4. 2. Product life cycle The market life cycle has a parallel in the product life cycle.the task is to gather information. cull products that contribute less to the company’s results and determine an exit route. Maturity. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 55 . price and promote competitively and manage distribution effectively. 4. Decline . 1. Each of the five stages has certain strategy implications. a market with developed customer needs and fewer market entrants . a new market with only innovative customers buying and new entrants supplying the task is to set an entry strategy. a reducing market superseded by new products .2 Fundamental marketing strategy options The marketing strategy must fit the circumstances. Embryonic. an established market with unchanging customer needs and a few large suppliers the task is to differentiate the offering. Maturity . A successful product and/or service is thought to pass through four stages in its life cycle: 1. so the company distributes the product to wider markets and develops more variants. Growth. consolidate distribution channels. 3. 5.the task is to determine market coverage.a gradual or perhaps even sudden fall in sales to a steady lower level may be turned back up with facelifts. identify major opportunities. improve cost management.1 Market and product life cycles Market life cycle Strategy needs to vary according to the stage of development the market or market segment has reached as revealed by the research. inform.2. Growth . Decline.sales reach a stable peak but with tighter margins in a long mature phase marked by expensive battles for market share and new market segments. 2. anticipate changing customer needs. 3.the task is to reduce support. where strategy is adjusted according to the relative newness of the product or service. and decide price policy. but the strategy is generally to harvest or maximise profit. the attitude of potential customers to innovation and the company competitive position.as sales of the product grow with increased awareness and wider distribution. inform. a potential market not yet identified .3.

• • • The marketing strategy needs to vary according to the propensity of customers to accept innovation. loyalty or key account programme. Market challenger . attack target's weakness. Nicher .identify most attractive targets. Companies are increasingly concerned with maintaining long term customer contact and viewing the customer as a strategic asset to be invested in to generate returns. find new users or expand market share to increase volume of business. Other reasons include changing circumstances and ineffective company communication or poor customer relationship management (CRM). Market follower . differentiate product perhaps with premium price. distribution coverage and price leadership to defend position. 2. Equally there will be circumstances (rapid market growth for example) when it makes sense to recruit new customers.2. Sources of revenue 1. 34% late majority and 16% laggards. 3.2.3.offer equivalent levels of service and quality to market leader with minor differences to facilitate customer choice. and resources allocated. A clear strategy should be developed for each source of business. The most common reason for them not increasing the level of business with a particular firm is their lack of knowledge of what it has to offer.3 Strategic balance Most businesses have three major sources of revenue and four sources of profit. 13% early adopters. Retained business from current customers . The Pareto Rule indicates that about 20% of customers are found to deliver 80% of the company’s turnover and profits. 34% early majority. Rogers (2003) estimated the proportions as follows in decreasing likelihood of adopting an innovation from its initial launch . identify new uses.3% innovators.2. a powerful challenger may attack the leader at the point of greatest strength and attempt to defeat them in their major market by offering greater value to the customer.maintain innovation. unique offerings and satisfy requirements major competitors cannot. avoid direct confrontation.be the sole supplier of a specific market need. expand usage levels. maintain high value. use strength to develop new markets. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 56 . or will not. have realistic goals. Incremental business from current customers – customer development The company focuses on current customers who have unsatisfied needs or buy competitor products. promotional intensity.customer retention The company identifies the most valuable current customers and provides the resources required to maintain their business. The current customer base should be rigorously analysed but only those representing real opportunity should be targeted. This reveals the need for an ongoing relationship between buyer and seller that adds value for both parties. Company competitive position The competitive position of the organisation also has strategy implications depending on whether it is a: • Market leader . copy or adapt innovations. Research shows that this is the most cost-effective source of business so it may warrant running a customer retention.

the opportunity for acquiring new customers will demand appropriate capability. The clearing banks are struggling to maintain a branch based banking service throughout the country. The sources might be: • Market expansion resulting from increasing levels of affluence. 4. but may not necessarily be the right customer. If 20% of customers are lost each year. and establishes an appropriate communication strategy for each group. increases in usage rates . probably through superb customer service. Where. Sources of profit The four sources of profit include the three above. The challenge is to identify the marketing and sales tactics. Many villages and housing estates have no banks or post offices because the customers are the so-called “wrong” customers. it would result in a very positive effect on net profit and cash flow. distribution coverage and competitive pricing. In an area of rapid market growth. 3. a company already has a large share of the market. There is an emotional engagement with the concept of the ‘local bank’ but in practice fewer customers use their local branches. Customer divestment The customer may always be right. If a particular strategy increased the retention rate to 90%. customer acquisition will be difficult and costly. • • These three sources are not equally important in every circumstance. plus customer divestment. These are customers whom the company can only satisfy at greater cost than the profit they generate. may be focused on the retention and development of current customers. the retention factor is 80%.strategy focus will be improving supply and distribution coverage and the extension of awareness through promotion. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 57 . Entering new markets .strategy focus will be competitive pricing (cost leadership) and/or differentiation. or the search for new markets. Taking customers from competitors .Another analysis is to assess the average customer life of existing customers. Resources therefore. changes in customer priorities.strategy focus will be awareness creation. for example. New business from new customers . Whichever approach is used success will depend upon the ability of the firm to offer and maintain a level of perceived value higher than any actual or potential competitor.customer acquisition The company identifies those non-customer groups who might be persuaded to buy from the company.

1 Competitive strategy The company must choose a competitive stance that will overcome. It must. or both. Porter (1985) describes three generic strategies for companies. the cost leader should be in a stronger position to weather it using the cushion provided by its higher margin on the same selling price. be able to compete on price in a price sensitive market. where quality is the key customer concern. However. or to take an aggressive stance by dropping to a price it knows they cannot sustain. Differentiation Differentiation is the process by which the supplier creates a position in the perception of the target customer that their product is more highly valued than that of competitors. The purpose of differentiation is to increase either sales or margin. Higher margins provide revenue with which to defend the product’s position. (See Strategic Business Direction Section 3. for example.) These should not be seen as mutually exclusive for a particular business because it is possible and sometimes necessary to pursue a combination of strategies to compete in different markets. positioning and branding 3. the competition. however customers perceive it.3 Strategy for exploiting the opportunities – differentiation. To achieve differentiation the company must concentrate on being seen to be exclusive so as to gain customer loyalty to the brand or company and make the product less price sensitive.3. simply that the cost leader is in a better position to defend itself against the competition. and on quality. Overall cost leadership Cost leadership is used to increase market share. Even if competitors force a price war. It involves optimising production for scale efficiencies and minimising direct costs and prices.3. This strategy does not imply poor quality or service. each difference created in the perception of the customer has the potential to create costs as well as customer benefits and has to be managed carefully Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 58 . or at least match. The marketing issues Porter raises are summarised here.

Point of purchase premises. or delivery. Risks of generic strategies The concept of generic strategies in their pure form may not always be practical for the whole of a company’s portfolio. they redefined what air travel means. This should provide a defensible position. Some companies have responded by attempting to innovate in ways that change parameters in the market or change the market completely. Effective competitors will attempt to duplicate the means by which the company achieves its position. confront the customer with new needs. Price Lower price Better value. This strategy can achieve the aims of one or both of the other two generic strategies. training. but only for a smaller and more clearly defined market sector. stock HR – recruitment. Focusing on a narrow market means a company can achieve a high share and create cost efficiencies that allow either lower prices or higher margins than the less focused competitors. transport. It may not be possible. Instead of competing for a share in a market that seems doomed to ever more damaging price competition they effectively start a new one where price is not the only.Differentiation applies to the company’s total offer.2 Sources of differentiation Focus With a focus strategy the company concentrates on meeting the needs of a narrow market rather than trying to appeal to a broad range of customers. accessibility. In so doing they created a new market with new expectations. Markets are dynamic. or even the most important. Image Symbols – logo. they were different. As an extension of differentiation. Budget airlines were neither better nor merely cheaper than their traditional rivals. competitive tool. practical or sensible to shift from one generic strategy to another if the first is no longer sustainable due to market changes. including packaging. serving markets which may be growing or declining. A company’s product portfolio is a shifting mix of products at different stages of their life cycles. Their actions. Table 3. it is now necessary to consider the idea of redefining the value proposition. during. though only for the narrow market in which it operates. after-sales Customer support consultancy – advice. letterhead Communications – advertising. The company will have to invest further in the basis of its competitive strategy in order to maintain the gap. Incentives to purchase. speed Installation Before. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 59 . in developing radically innovative products or services. training level. and can come from a number of sources: Product or service Features in addition to basic function Performance Durability Reliability Style. Customer service Delivery – availability.

The position a company commands in the perception of the customer is important in forming the likely response of that customer because it is the means by which one offering is compared to another. and marketing efforts. The perceived differences between one offering and another are the basis upon which the customer makes choices. benefits desired Analyse attributes and perceived images of present and potential competitors Compare the product's position and that of competitors on each dimension valued by customers (perceptual mapping) Identify a unique position that offers desired benefits to the target market that are not offered by competitors Design a marketing programme to communicate these benefits and persuade customers Continue to assess present and potential target markets. needs. positions itself on quality and support by guaranteeing an engine replacement within 24 hours anywhere in Europe. Position exists in the minds of customers . with prestige and high status. For example.the strategy most likely to succeed. decides how much to pay and how much trouble to go to.2 Positioning strategies Who are we and how do they know it’s us? Positioning is a critical element in marketing strategy. 3.not in the minds of the supplier's. in the UK Volvo Cars positions itself as associated with family safety and reliability and. Position is about product image rather than the features of a product. Heinz. The most successful companies will be those that are perceived by the customer to create the most value and to be most aligned with their needs. A number of approaches to positioning by market status have been demonstrated: • Be the first . 2. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 60 . A company needs to differentiate a product's position from that of competitors otherwise it will sell on price alone.3. Volvo Trucks. Kellogg. Positioning is regarded as a natural extension of segmentation as it adds a direct comparison with competitors. to a lesser extent. managers or marketers. The positioning process requires the supplier to: • • • • • • • Identify the target market Determine specific customer wants.3. This enables Volvo to appeal to specific market segments and to command a premium price. Positioning is: How an offering is perceived by the target customer & the perceived relationship with competitors. John Lines (IoD Consultant) There are three key factors in this definition: 1. however. The positioning statement then becomes the value proposition. competitors. Coca-Cola were first and remained so.

use or application. In 2003 both Skoda and Jaguar held their prices but shifted significantly upwards by raising quality. 3.” Search for an unoccupied position . problem solutions. We try harder. C is the economy supplier with lower quality and price. For a marketing strategist there are three basic alternative positioning strategies: 1. Seek unfilled positions (perhaps with different combinations of attributes). One TV campaign showed a trainee in a car plant carefully aligning and sticking Skoda badges on bonnets of small cars. The production line was then stopped and the cars backed up to get their Skoda badges. A is a smaller volume product with a high quality. 2. or basic needs. price and quality. ‘first direct’ did this with telephone banking. Reposition. P e r c e p tu a l M a p p in g H ig h Q u a lity A L o w P r ic e B H ig h P r ic e ? C D N e w e n tr a n t L o w Q u a lity Figure 3. The products have been mapped onto the diagram with the area of the circle representing the volume of sales. benefits. B is the market leader with the largest share and a middle of the road position. product class. In the 1990s UK car market A could have been Mercedes. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 61 . product user. high price position.find a gap. the Wendy hamburger chain showed TV ads with a customer looking at a named competitor’s burger and asking “Where’s the beef?” Other commonly used positioning strategies are based on product attributes. Customers normally use a range of criteria but those shown are price and quality. Depose or reposition your competition . When some luxury saloons came down the line he stopped work to let them pass. Both ran into perception difficulties and Skoda took this problem head-on by focusing its advertising on it.a risky head-on assault on a competitor.• • • Strengthen your own position . B Ford. Avis was number two to Hertz in the US car rental market and adopted the slogan “We’re number 2. competitors. alter the emphasis of the offering in terms of the attributes or create new attributes. D’s position of low quality and high price is untenable in the long run. This is a common combination. C Skoda and D Jaguar.promote a particular factor. Defend and strengthen strong attributes.1 Perceptual map A perceptual map illustrates the way customers view a brand against competitors’ brands relative to the main criteria they use to choose between products.

One example is the domino effect if the reputation of the brand suffers and the damage spreads throughout the range. The potential risks lie in failing to achieve the consistent high quality performance required for longterm success. its success results from being able to sustain these added values in the face of competition. 3. Management complacency may arise where the power of the brand is taken for granted and insufficient investment is made in maintenance and improvement. particularly in the context of the umbrella brand. it also has great importance inside the organisation. Benefits and risks The benefits associated with successful branding include: • • • • • • Simpler customer decision-making. people. Brand equity can lead to a price premium. together with extra volume.3 Branding Branding is a particular marketing strategy designed to increase the value of the offer in a way that will endure in the perception of the customer. service. person or place augmented in such a way that the buyer or user perceives relevant unique added values which match their needs most closely. distinctive and communicable name that suggests the product qualities and benefits.Positioning is not only significant in the external market. product/service quality. To achieve these advantages the company must commit itself to rigorous quality control and invest long-term in appropriate updating and repositioning as required. This ability to sustain the position of the brand is often referred as the brand equity. Furthermore. It will form the basis upon which the marketing strategy is implemented and will largely determine promotional strategy. processes. The positioning strategy has to be understood and supported by those responsible for delivering customer value if it is to be effectively communicated to customers.3.” de Chernatony (1996) Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 62 . The success of the brand results from its being able to sustain the perceived added values in the face of competition and over an extended period of time. and distribution. The successful brand is: an identifiable product. pricing. and an increase in the amount a company is worth over book value. The brand should have an identity that appeals to the customer and a simple. The value of brands is increasingly recognised and companies are making every effort to exploit this valuable asset. lower transaction costs. The success of internet trading has made brands even more valuable as they facilitate a reduced-risk purchase by the customer. or power in the market place. A brand is an identifiable product or service presented in such a way that the buyer perceives relevant unique added value. higher levels of loyalty Increased profits from the added margin over generic alternatives Protection from competitors Enhanced corporate image and value Legal brand protection against copying Greater control over the marketing mix.

Bonaqua. Virgin Megastores (UK).com and Virgin. a very good indication of the financial value a brand can represent. www. Swiffer Shaving Care – Braun. Virgin Atlantic. Virgin Atlantic Cargo. Virgin Limited Edition. Virgin Cosmetics. Procter and Gamble has a multibranding strategy and has created a different brand for each of its products. Frutonic. Pantene.pg. Burn. For example: Baby Care – Charmin. In 2003 Coca-Cola was widely regarded as a joint company-product brand but its top five brands were Coca-Cola.com (2003) In 2006 Coca-Cola listed on its website 372 different worldwide brands but only 13 were Coca-Cola drinks. Head & Shoulders. Virgin Credit Card. Gillette Satin Care www. Virgin Drinks. Luvs. Mr. Minute Maid juices and juice drinks. Of its 29 other products on sale in Europe. Dreft. caffeine free Coke light. Virgin Comics. Cherry Coke. created the company itself as the brand and has the following subsidiaries: Virgin Active. Children's Pepto. Dr Pepper and diet Dr Pepper.3.net. so the company changed its marketing strategy again in 2006: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 63 . only five carried a Coke-related brand name: Alive. Coca-Cola Light with Lemon. Virgin Holidays. Virgin Jewellery. a substantial amount of which was for the use of the brand over the next 25 years. Virgin Galactic. Canada Dry. caffeine free Coca-Cola.coca-cola. Virgin Mobile. Physique Household Cleaners – Bounty.1 Branding decisions The first branding decision a board has to make is whether to brand the products. Kinley. diet Coke. Kia-Ora. In 2003 Coca-Cola was reported to be investigating the production of a milk beverage to add to its range. Virgin Unite. Five Alive. Virgin Blue. Schweppes and Sprite. Virgin. Infusium 23. Virgin Wines. In July 2006 NTL acquired Virgin Mobile and paid £926 million. Virgin Experience Days. even those in the same product category. Clean AutoDry Carwash. Sprite light www. diet Fanta. Pampers. Oasis. Scentstories by Febreze. Virgin Books. Fanta light.virgin. Virgin Balloon Flights.3. Lilt and diet Lilt. Herbal Essences. Mr. Roses. The brand value continued to grow.3. Dell traded on its brand for many years but changed its marketing strategy by entering the white box market to increase production efficiency.com (2006) By contrast Virgin has taken the umbrella branding route. The cable operator re-launched itself and Telewest as Virgin Media. In 2005 it had become a supplier of flavoured milk drinks by making a distribution deal with Bravo! Foods that included the opportunity to take a minority shareholding in the producer. Virgin Radio. Pampers Kandoo Hair Care – Aussie.com (2006) There are also eight unbranded companies in the Virgin UK stable but these are charities or small specialist firms for which the brand has no value. or nothing. Fanta. diet Sprite. Virgin Limobike. Virgin Digital UK. Aquana. Cresta. Hawaii. Virgin Brides. Aquarius. Virgin Express. Virgin Games. Virgin Ware (UK). caffeine free diet Coke. diet Coke with Lemon. Virgin Trains. the company. Gillette Fusion. Clean. Malvern. Gillette M3 Power. POWERade. Virgin Money. both.

Dell boxes
Dell built its PC business by creating a brand of the surname of the owner, Michael Dell, that was synonymous with service, quality and the cost advantage of direct marketing, initially by mail and telephone order and subsequently via the internet. In 2002, it began to supply unbranded PCs to IT consultancies that worked with SMEs in an effort to capture part of the so-called 'white box' PC market previously dominated by IBM and HP. Dell's initial target was 1% of its turnover but worldwide 58% of all PCs sold in 2001 were white boxes. Dell's unbranded strategy is designed to enable the company to increase volume and, thus, production efficiency. In 2004 it became the leading US PC supplier and in 2006 abandoned the white box market as its brand equity had risen strongly and become a major sales element. Levels of branding
Branding applies to both consumer and business products and the successful brand satisfies both the rational and the non-rational, or emotional, needs of its target. The balance of these needs favours the emotional in consumer branding and the rational in industrial branding, but the difference is not as clear-cut as it might seem. Purchasing decisions in industrial markets are made by people. Their individual motivation in choosing one brand of, say, office furniture may be strongly driven by their personal need for credibility amongst their peer group, or career advancement. These needs make them susceptible to the emotional appeal of one brand over another. Just as happens with many products, a brand can operate at four levels: 1. Tangible product with the expected minimum purchase conditions. 2. Basic brand with the expected features, design, quality and pack associated with the brand name. 3. Augmented brand with its unique values for the target customer and associated service, credit, terms and guarantees. 4. Potential brand with the extra benefits offered to differentiate them from their competitors.

The potential level often comes when competition is fierce and brand leaders are forced to offer these extra benefits. Kitchen suppliers offer a design service. Food manufacturers offer a shelf space planning service to their retailers. Sometimes this can be used positively to win high market penetration. Mars offered retailers Mars-branded freezers to display their newly launched ice cream and secured a huge share of the market before competitors had time to react. Companies may progress through the levels over time as competition increases. A safer and more professional approach, however, is to predict a brand’s life cycle and plan the actions accordingly over a longer period. This becomes strategic brand planning. Functions of the brand
At the generic level, it is very easy for competitors to copy a company’s offer. When the offer is more sophisticated, it is more difficult for competitors to copy it effectively and to steal market share. As the added value attached to the brand increases, the importance of price as a buying decision factor decreases. Branding can, therefore, become an effective protector both of market share and of margin.

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The brand can differentiate a product or service from other, similar ones. A well-supported brand will be able to communicate in its name a set of values that would otherwise take too long to explain to the potential buyer. In this sense brands are risk-reducers: customers will buy a well-known brand because they feel that their money is unlikely to be wasted on a sub-standard product. One example is IBM computers in the business-to-business market: other computers offer better facilities at a lower price, but the phrase ‘nobody ever got fired for buying an IBM’ seems to have proved an effective promotional tool. IBM maintained brand leadership over many years but has sold its PC interests to Lenovo, a Chinese company. Brands can represent functional messages such as ‘technically advanced’, ‘reliable’ or ‘value for money’ which would otherwise be cumbersome to repeat. They can also provide a badge value, enhancing their image in the customers’ eyes, for example as: • • • Fashion-conscious – brand names on clothes Independent-thinking – choice of newspaper Fun-loving – particular drinks, perfumes

In markets where there is little difference between products, the brand can become a symbolic device, communicating strongly the emotional aspects of the products to establish consumer preferences. Clearly, this is a more effective tool in consumer markets than in industrial markets, where a higher proportion of the influences on decision-making are rational. Finally, the brand can be a legal device, protecting the company through effective trademark registration. All these brand functions are, however, only useful if the brand is seen as a central factor in the company’s strategy. The successful company will carry out brand planning alongside marketing planning and brand building to ensure that their resources are used in the most cost-effective way to achieve well-defined objectives. To be effective, brand planning should receive input from all levels of the organisation. There should be clear and quantifiable objectives for each brand and actions defined to achieve those objectives. Clear responsibilities and timings must be added, so that results can be monitored. Business-to-business branding
Although the emphasis is different, it is important for brands in this type of market to establish their own personality and to communicate these effectively. Messages may be more concerned with corporate identity than in consumer markets and the brand will often be the selling company’s name. The principles of branding remain the same. However, effective B2B branding is very important because it is about communicating the benefits and value a business, service or product provides to customers. It has to become a company-wide management strategy, not merely part of the marketing effort. It should be supported by research among clients on their perceptions of the brand and by brand building activities within the company. The research may produce unexpected results. For example, it is often assumed that purchasing managers have a detailed technical knowledge of the products they buy and can think in reference numbers. IBM created the 'eServers' and 'eSolutions' brands to make it easier for their business clients to understand the products and services. Although the rebranding effort cost $75m it helped IBM to beat Sun Microsystems in 2000 to the top place for worldwide server revenue and to outsell Hewlett-Packard for the first time in the UNIX server market.
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Companies need to develop strong relationships with partners, customers and suppliers in order to gain trust, relevance and value within a category. An example of collaboration as a feature of a B2B brand is Sun Microsystems' establishment of Java as an essential element of internet technology. Sun has excellent relationships with developers. It offers training and programming advice, gives easy access to developments in the language and works very closely with all parties involved with its technology, including hardware engineers, chip designers, and software developers. The brand power of Java is so embedded in the web industry, that it is almost inconceivable that the programming language could ever be displaced as the de facto standard for Internet application development. Technical innovation is another feature of a B2B brand. In the late 1990s the airline industry saw a major shift away from the Boeing 747 derivatives towards the Airbus series designed and built by a European consortium. A critical factor for airlines is fuel efficiency which the Airbus delivers as a result of the innovative use of strong but lightweight materials. In 2006 a two year delay in delivery of the 600+ seater A380 caused enormous damage. Underlying all B2B brand qualities, and closely associated with them, must be consistency of the personal relationship and a strong partnership between supplier and purchaser. Researchers at Cornell University found that trust and effective communication were particularly important to foodservice purchasing agents. Turnover in supplier representatives was one of the most troublesome challenges facing purchasers. Managing brands over the product life cycle
Products, markets and brands all have life cycles. The management of a brand and the expected returns vary over its life cycle. The stage of the market’s life cycle will also be a deciding factor in the type of marketing activity needed. A brand may have a different lifecycle from a product even if branding is at the product level e.g. the Mini or the Ford Focus. 40 years after its launch as a cheap runabout, BMW has moved the Mini upmarket and strengthened the brand. All products and services tend to go through a life cycle, even though the length of this cycle varies from one product to another. The shape of the classic life cycle is illustrated in Figure 3.2. This shape can be determined and thus altered by a company's strategy or by the conditions in the market that are driven by the strategy of stronger players. However, the cycle is dependent on investment in marketing by organisations and their respective industries.

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Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 67 . as the cost of delays in launching products can be very high. On the other hand. An established company name or related brands may provide an umbrella. there is a risk. The company reaps the benefits of economies of scale. The brand lifecycle may actually be significantly longer than the product lifecycle. this difference will probably be even greater in monetary value than in percentage terms. the product life cycle is very short and competitors are extremely quick to launch me-too products. where GPs tend to prescribe branded drugs rather than the generic equivalents. it becomes easier to achieve and maintain brand leadership. as buyers see the brand name almost as a generic term for the product. The speed with which the company can achieve this acceptance will depend on a number of factors in an effective and well-planned marketing strategy. with the percentage return for late entrants being even lower. Apple computers dominate the graphics business even though the same software is now available as a cheaper total offering on IBM-compatibles. advertising campaigns that may seem vastly expensive can often be justified by their role in establishing. as well as the experience effect (where each doubling of output produces a finite saving in costs). Frigidaire or 'le frigo' are now generic terms and have lost their associations with the brand. the brand will need to rely increasingly on its symbolic advantages to appeal to the non-rational side of the customer’s decision-making process.2 Product Life Cycle At its launch a brand has no personality of its own. Hoover and. The pioneer of a product can expect to gain a higher percentage return on investment than early followers. In modern and especially in high-tech markets. A new brand in a young market will need to focus on its practical or functional advantages over the competition. but the brand will still need to establish its own identity to achieve customer acceptance.SALES In t r o d u c t io n G r o w th M a t u r it y / S a tu ra tio n T IM E D e c li n e Figure 3. As the market matures and functional differences between brands become fewer. So. a brand that gains an early competitive advantage may be hard to displace. In addition. strengthening or maintaining the brand. Examples of this are common in the pharmaceuticals market. Being first with a successful brand can carry a high premium in profit potential. As the relative investment needed tends to decrease over the life of the product. in France. Effective brand support is essential. Jeep. With effective marketing support.

During the growth phase of a market, an established brand will need to reinforce its positioning with communications reaching both target and non-target groups. Distribution networks and sales channels can also be used to present the brand to its target audience and to discourage nontargets in such a way that the target is less likely to switch to incoming me-too brands. For example, a designer clothes range may be limited in distribution to a few carefully chosen designer shops, with both supplier and stockist agreeing to a degree of exclusivity. The supplier could agree not to offer the range to any other outlets within a certain geographical range; the shop could agree not to stock certain rival labels. As the market reaches its mature phase, the brand will be under considerable pressure from competitors. There are a number of options, including: • • extending the brand name to related products; ICI added wall coverings to its Dulux paint range reinforcing promotional messages to focus on one aspect of the brand; Black & Decker made DIY easier with high-powered tools and Gucci focused on the chic sophistication of their clothes.

Once the decline begins, it may be best to remove a brand if it is likely to damage the rest of the company’s portfolio. It may die slowly if it can provide a worthwhile return on a low investment. On the other hand, it may be possible to recycle a brand, as achieved with Guinness being relaunched to appeal to a younger market. Such a re-launch is only possible if the core values of the brand have been maintained and the consumer response to the brand name has not been irretrievably damaged. Repositioning may be possible even if the brand is tarnished or old fashioned, but it is expensive. Lucozade, for example, was removed from its hospital pick-me-up context and re-launched as a sports and energy drink.

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3.4 The product/ market matrix
A simple Ansoff matrix is a useful tool for choosing, summarising and presenting marketing options in terms of products and markets. It summarises the options in a visual way and can help in the assessment of the risks and costs inherent in a particular course of action. It can be particularly helpful when converting the results of the SWOT and DCA analyses into marketing strategies. Ansoff shows the four possible marketing options open to the company: 1. Market penetration - selling existing products to existing markets. 2. Product development - selling new products to existing markets. 3. Market development - selling existing products to new markets. 4. Diversification - selling new products to new markets. The key to successful marketing (and business) strategy is an understanding of the relationship between products/services and markets. Having determined the target markets, it is important to identify which products and/or services will be offered to each. One useful outcome of this exercise is a matrix bringing together market segments on one axis, and product/service offerings on the other. Each cell represents a particular contribution to the overall operation. Each one may have a distinct positioning statement and marketing strategy in terms of price, promotion and distribution. Segment one Product/service Product/service Product/service Product/service Segment contribution Table 3.3 Product/market Matrix As a planning tool the matrix facilitates the process by which the organisation can identify the relationship between markets and offerings and understand the contributions each will make to the achievement of business unit objectives. It will therefore allow for a modification of these relationships in a systematic and organised fashion, and an appreciation of the marketing strategy implications involved. It is also useful as the basis for a wider strategic analysis designed to include: 1. The marketing strategy inputs (product management, pricing, promotion and delivery/distribution). 2. The capability (resources, systems, structure and culture) required to implement them. 3. The implications for information. The outcomes (sales, market share etc.) and the inputs (see above) are normally expressed in financial terms. This allows the decision-maker to understand the basis of financial performance and the most appropriate destination for investment in capability, information and strategy. Segment two Segment three Product Contribution


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The approach also has uses for the longer term. The future for most organisations will be defined by the combination of products and markets they manage and how successfully they manage the changes therein. The fundamental matrix above can be used to 1. Attempt to forecast the product/market configurations most likely to occur. 2. The performance necessary from the organisation if it is to achieve its objectives. 3. The level and direction of investment needed to achieve the performance.

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political and interest rate risks involved in international operations. It should be aware of the nature of the additional currency. The following issues should be addressed. and all the information is locally available. d. positioning and branding strategy. the identification of target markets. capacity i. ability to adopt an international stance 3.e. the same pattern can be used for both In international markets basic market research can avoid the long-term cost of simple mistakes. appropriate organisation to manage a global operation f. Every country has its own methods of doing business and carrying out business procedures. or a joint venture with a local business. budget e. either directly through a local office staffed by employees or a local limited liability company. established as a subsidiary. offering i. resources and systems c. which may be a distributor. information. The fundamental strategic format will remain the same.e. energy etc. and political and economic issues. marketing i. Business capability a. International marketing objectives a. Alternatively.5. the use of the mix to implement the strategy.e.3. trading arrangements etc. products and services b. 2. structure i. culture i. a sales agent. supply of raw materials. so nothing should be taken for granted. When determining to enter international markets the company has to make four sets of decisions: • Markets to enter • Method of entry • Marketing programme • Organising for international marketing. the capability of the business and the possibilities available in the global market. Many businesses benefit from a presence in the market. 3. Number of markets to enter Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 71 . Trade missions or local agents may provide information on regulatory issues. However the means by which these things may be undertaken in practice will be influenced by the available infrastructure.1 Markets to enter As with domestic markets the decision concerns the objectives of the business.5 Market entry Entering domestic markets requires detailed analysis of the particular market that the company’s products or services are designed for. although the details vary.e. a product/market strategy. 1. components. the business may benefit from a link with a local partner. experience. competitiveness. proportion of domestic to foreign sales. and profit.e. costs. In taking the decision the company should ensure in broad terms that it has the capability and the support of its stakeholders prior to any action. The underlying requirements are the same for international markets and.

or taking part in trade exhibitions. and they may vary in their level of importance. This might be advertising in foreign journals. developing c. They are different in the sense Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 72 . As the cost of licensing tends to be low. Licensing A company can make a licence agreement with an organisation in another country to manufacture and supply its product or service. to active exporting where the firm seeks opportunities to extend sales by offering its goods in non-domestic markets. which has a similar effect. Export houses and merchants might purchase goods from domestic manufacturers and sell them in foreign markets. Export intermediaries might bring together buyers and sellers from different countries and take a commission for arranging the transaction.5. It is particularly useful for developing a well known brand globally. Country attractiveness is influenced by many factors. depending on the circumstances of the business. Ease of entry and ability to service customer requirements will be high on the list of priorities. and can also provide legitimacy for the local customer base and valuable knowledge and experience of the local market.4. There is a risk that the licensee may become a competitor. Types of market to enter a. control is often a problem and the partners do not always have the same goals and expectations from the relationship. which involves little or no specific planning or changes to current activities. They are similar to joint ventures in that they seek to pool resources and know-how in pursuit of a mutually beneficial goal. The joint venture can be difficult to manage. Direct sale to foreign buyers involves the firm in some form of communications activity in order to make the potential customer aware of their existence.2 Methods of entry Exporting The lowest level of commitment to international marketing ranges from casual or accidental exporting. particularly where technology transfer has occurred and there is little brand recognition. Strategic alliances are the latest form of co-operation between companies. developed b. Franchising. The use of intermediaries and merchants obviates the need for this direct presence. fees and commissions can be a significant addition to profitability. is widely used by companies such as McDonalds. and these will be influenced by considerations of geographical and cultural proximity (including language). under developed. Joint ventures A partnership between a domestic firm and a foreign firm or government may be used to spread the risk where a significant investment is required. They suffer from the same problems of control and management. The approaches vary. Joint ventures are often politically necessary. 3. It is an attractive alternative to direct investment and/or overseas operations as a means of gaining market entry.

5. For example. inward investment incentives.that they are normally entered into voluntarily and they are not restricted to one partner always being the representative of the local market. It may sometimes be necessary to use earlier forms of technology or earlier versions of the product/service. particularly the combination of personal and non-personal formats.3 Marketing programme Before determining how to adapt the traditional marketing mix to international operations the organisation has to develop an appropriate level of knowledge and understanding about the target markets. a better relationship with the local market and greater knowledge of business drivers. improved control. They take title to the product and are responsible for all physical transfers. guaranteed price packages etc. The last category may take two directions technologically – forward or backward. These features enhance the competitive advantage through more effective adaptation to local conditions. grain. Direct ownership The ultimate commitment to international operations is direct ownership brings major advantages.g. truly global alliances. or to combine old and new technologies (e. market research. legal assistance. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 73 . Trading companies A trading company provides a link between buyer and seller. advertising. e. In whatever way the firm decides to become involved in an international operation the best tenets of marketing still apply in terms of the need to understand customers and the issues that determine their needs and behaviour. They are. They must also take into account the communications infrastructure. Even where language is not a barrier. The availability of media and other services cannot be taken for granted in some parts of the world. and in others there are differences of approach. 3. they need information on the competitive situation. R&D. agricultural products etc. Product / Service The three fundamental alternatives available to the company are: • Offer the same products/ services as there is no need to change • Adapt products/ services to meet specific local conditions • Invent new products/ services specifically for the new market. clockwork radio). culture may be. in order to meet local expectations. customer perspective and marketing infrastructure for distribution and communications. They may also provide a wide range of ancillary services. job creation.) and often operate a quality control mechanism on behalf of the buyer which assists the seller to produce the appropriate offering. The use of the various alternative promotional techniques must be carefully planned. They normally deal in commodities (e. Promotion The organisation will almost always need to adapt the communication programme in some way to take account of different cultures and languages. perhaps only in relatively minor ways. enhanced image in local market through investment. insurance. therefore. consultancy.g.g.

the perceived value of the brand. It is important to be aware of the impact of political instability on distribution infrastructure and to make appropriate provision to avoid loss. the risk factors. may only need a modest team to deal with the intermediaries acting on the company's behalf if they enter a limited number of markets. which are concerned with managing intermediaries. logistics. it is vital to consider the policies of the national governments on price controls and levels of taxation.5. Distribution infrastructure varies considerably in terms of the level and complexity of the process. A full-scale international marketing operation with overseas subsidiaries and so on will require extensive and specific resources. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 74 . It is. Control or influence over distribution is often thought of as a critical success factor in international operations. 2. the response of competitors and the cost implications of selling in the particular market when setting the price. They should also be aware of the quality and expectations of the distribution method or channel they have selected and of the influence it might have over the final price charged. however. which are concerned with managing the process by which the goods are distributed from point of entry to the customer. finance and risk. Channels between nations. Many organisations. Channels within nations.Price Price is a particularly sensitive area for the international operator due to fluctuating currency values and interest rates. In addition. It is not sufficient to assume that the methods and values that work in the domestic operation can easily be transferred. structures and systems to deliver the marketing strategy. through insurance etc. 3. Distribution The distribution element has two major facets: 1. however. a key element in determining the customer satisfaction and obtaining payment. There will also be cultural issues that the organisation must take into account when deciding how best to manage such an international operation. Generally the company must take account of local market rates.4 Organising for international marketing The level of dedicated resource the organisation requires will depend on the nature and extent of the involvement in international markets.

Section 4 Marketing tactics Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 75 .

Marketing Tactics This section provides you with the knowledge to be able to: • • • • Compare and contrast service and product marketing and specify the role of the seven mix elements Specify the essential ingredients of a customer focused organisation Show how Information Technology changes how marketing strategy can be created implemented Use an objective and systematic approach to monitoring and controlling the marketing effort.Learning Objectives Section 4 . Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 76 .

together with the anticipated changes in these areas Organisation objectives. regulation. The mix is determined by: • • • • • Customer and market needs and opportunities. particularly technological or service innovation.4. • Sensitivity to time related variables such as seasonality. technology. access to supplies and distribution Actual and anticipated competitor activity. as marketing concepts changed. growth. The Product mix The product mix is the set of all product lines and items offered for sale to buyers. Continuous emphasis on creativity. generally thought to consist of the elements below. The function of the product mix is to satisfy the needs of targeted customers and segments at a profit. Marketing tactics are normally described as the ‘marketing mix’. They were originally known as the ‘4Ps’ but. The justification for adding or deleting products from the mix depends on changes in: • The profit contribution of a product or line to the overall profit target • The extent to which the organisation can vary its strategy to maximise the opportunities offered by different segments. The objectives are to maintain the effectiveness of the current mix and extend it by developing new products to satisfy customer needs in the future. • Anticipated changes in customer requirements. innovation and new product development depend on the effective management of six fundamental steps: 1.1 Overview of tactics and impact of IT 4. In recent years an eighth element has been proposed that might lead to a marketing mix of ‘8Ps’. It includes the basic product lines and variations that provide depth of coverage. Idea generation using a variety of in-house and external sources and techniques Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 77 .1. including innovatory skills. 1. profitability Current organisation capability. Directors must ensure that each of the elements is satisfied. • The level of marketing support available for the product • The interdependency of sales between products in the mix • The impact of competitors on product decisions and of product decisions on competitors • The performance of a modified or improved product. Broad-scale issues such as economy.1 The marketing mix The role of the board is to manage the relationship between the strategic requirements of the firm and investment in its long term marketing capability. three further elements were added making ‘7Ps’ in the mix.

satisfaction. price has been defined as: The monetary summation of the conditions that give value to a product or service W M Lazer (1983) "The conditions that give value" are different for the seller (profit. As they vary also for different customers and consumers of the organisation’s offering. To reflect the notion of value. Although it may not be the primary purchase driver. reinforces consistent differentiation and contributes to a viable competitive position. the company must pay close attention to the customer in the price setting process. profits and cash flows 4. physical and psychological effort that the customer must expend to obtain the product. Potential customers who have the money may fail to buy because they do not feel they have the physical or psychological access they need. A systematic and continuous approach to NPD helps to ensure a constant supply of new offerings. cost coverage etc. Product testing to discover the level of acceptability of the product to the target customer and test marketing of reactions to the anticipated marketing programme. When an organisation offers several products in a variety of markets their pricing strategy will vary according to the conditions prevailing in each market. Screening to eliminate the unlikely ideas 3.from new improved versions to extensive technological breakthroughs. Price is not defined entirely in financial terms. revenues. The company’s revenue from a product is a function of price times volume. Each product/market combination will have a different configuration of price and cost and will make a different contribution to the profitability of the organisation. Its profit is the result of revenue minus the costs associated with producing and marketing the product. the price has to be right.). survival. 2. The organisation has to manage the mix of contributions to achieve its overall strategic objective. Pricing policies Pricing policies reflect the joint requirement to provide competitive value for customers and an appropriate return for the shareholder. The ‘whole price’ is the financial. This protects the organisation from pressure on margins. Product development of the physical product or tangible service 6. Concept testing among the likely target customers 5. The pricing process has to acknowledge this factor. Business analysis to estimate the likely future costs. uniqueness etc.) and the buyer (value for money. The process of setting it has to take into account • • • The company’s objectives in setting a specific price The basic cost structure Overall level of demand in the market Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 78 . This may involve broader decisions about investment in cost management and/or the withdrawal from markets where the balance between customer value and shareholder value cannot be maintained. Developments to products vary from minor modifications to major changes . The overall pricing strategy must be consistent with both the generation of revenue and the recovery of the costs involved.2.

just-in-time delivery and materials handling is often the determinant in the purchase decision. delivery or distribution systems aim to achieve an appropriate level of customer service at an acceptable cost. Place.target return price = unit cost + desired return x investment capital unit sales return • Break-even pricing . collectively called the ‘marketing channel’. • order processing • bulk breaking and reassembly Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 79 . fast service. The board must decide whether to undertake or outsource the distribution processes that may include: • transportation • traffic management • storage • materials handling.• • • • • • • Competitive environment (number. position and respective power) The average market price The relationship between price and benefits The opportunity for differentiation The perceived use value of the product to the customer Role and power of channels of distribution The marketing activities. Alternative pricing policies include: • Promotional pricing .a medium term move starting with a low price to attract business and the longer-term aim to raise the price once a significant market share has been established • Penetration pricing .the reduction of prices by a sizeable amount for a pre-agreed period in support of promotional activity • Target return pricing . 3. The marketing channel The supplier may deliver the product directly but it is more common to use independent distributors. Place Place is concerned with the means by which customers gain access to the product or service offered by the seller.breakeven volume = fixed cost price – variable cost • Perceived value pricing – the reflection of the real value to the customer with price premiums linked to tangible benefits • Sealed bid or competitive pricing – the response to a detailed specification so the price incorporates the notion of ‘expected value’ and real value • Market skimming pricing – the premium commanded by a high price for a new product when it is first in the market and there is no immediate competition. The ability to offer availability.

offer simple response systems. is directed at the final customer and aims to increase demand and pull the product through the distribution channel. Others. communications package. or promote a particular product. real time. for example direct mail and POS. can be used to create and maintain a corporate image. Traditional communications media have different qualities. or create an internal climate for success.• inventory management • packaging & labelling • pricing • promotion • production scheduling • information management • overall channel management. interest and action over the long term. and a continuous search for innovation. A distinction is still drawn between ‘above the line’ promotion that involves the purchase of space or time in the media and ‘below the line’ does not. ‘Pull’ promotional activity. 4. Because distribution is expensive. Most promotional activities use a combination of advertising. such as price cutting. interactive. can only send messages one way even though they may be complex and creatively rich. or marketing communications. Web enabled marketing channels are re-shaping the way businesses communicate and trade with their customers: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 80 . Only face-to-face personal selling offers the complete. a willingness to improve systems and collaborate with channel partners. although it may involve expenditure on incentives and/or attention seeking devices. efficiency is an important competitive element. Worldwide web IT and the internet have produced a radical shift in the traditional assumptions about promotion and communication. for example broadcast media advertising. Efficient channel management depends on a detailed understanding of the means by which all members of the channel create value for their customers. sales promotion. Modern IT systems enable more sophisticated responses. Their effectiveness is extremely difficult to measure. ‘Push’ promotions are aimed at the intermediary to persuade middlemen to carry and push the product to the final or next customer in the supply chain. The funding for communication and promotion of the product has to be sufficient to support the strategic promotional campaigns to achieve the necessary levels of awareness. The board has to review its use of established communication media to determine how to create and use a presence on the web. Some. The company can target small and detailed segments of customers and send them messages precisely tailored to their interests and check that the message arrived. Promotion Promotion. twoway. Channel power such as that exercised by supermarket buyers must also be managed. So-called 24/7 worldwide access enables the company to promote itself to potential customers and enable them to buy directly. personal selling and public relations.

This evidence is the literature. The board needs to ensure that three further elements essential to a marketing strategy. particularly where the outcome is time sensitive. Effective and efficient process management is vital for both products and services. premises. In addition. uniforms etc. digital media channels enable sharper targeting. 5. No one is certain what the ultimate evolution of marketing will be as a result of the use of information and communications technology.• Viral marketing (where customers do the work and pass on the message on the organisation’s behalf to their contacts) becomes dramatically more effective via the internet • Blogs create a new route for ‘honest and authentic’ opinions of products. People are generally confident that it will involve fundamental business re-modelling and not just traditional marketing processes being made quicker. especially for services. services and situations • On-line trading has created entire new enterprises as well as new income streams for established firms • ‘Cost per click’ changes the way that advertisers can use a more results oriented arrangement to pay for customer exposure. Directors may find a fourth on the horizon. 7. it is important to note however that process failure in the pure service context may mean failure of the service itself. Processes There are processes that support and enable the implementation of the marketing strategy. are in place. innovation and so on. that are associated with the offering of the company in all its forms. Physical evidence The physical evidence supports both the internal and external positioning strategy. ‘Personalisation’ ‘Personalisation’. Direct response marketing mechanisms work in parallel with direct delivery of products. The company creates value for its customers through excellent customer service. A service cannot be stored. Some companies are basing their relationships with customers on customising or tailoring goods and services to the individual needs and wants of Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 81 . The board in every company needs up-to-date knowledge and skills in judging which of these might be appropriate for their business. Other elements These four elements combine to satisfy customer needs for physical products and for services. 8. ‘individualisation’ or ‘mass-customisation’ have been variously proposed as the eighth element in the marketing mix. efficiency. 6. and more often than not a critical factor in the creation of quality. People People strategies enable the staff to make significant contributions to the success of the organisation’s marketing strategy. and people are sometimes the only tangible element of the service transaction. Their auto responders suggest other possible purchases to customers based on automated analyses of their profiles.

and the activity of competitors. Customers expressing a dominant preference for availability and convenience are likely to respond favourably to improved distribution and access. common to the market. Implications The mix has both strategic and tactical implications. efficiency etc. (quality must be defined in terms that the customer can understand. want a combination of all the qualities mentioned above. In the short term the elements will be used to respond to detailed movements in the market such as changing customer needs. For example: Mix Element Product/service Price Promotion Distribution People Processes Physical evidence Tactical Issues Detailed modifications Minor adjustments Positioning/branding Channel management Day to day management Process management Attention to detail. In practical terms.each consumer. Customers concerned primarily with image may respond investment in to sophisticated and well managed promotional activity. The motor and clothing industries are taking the same route. 4. e. Decision makers must analyse the requirements of customers. and to gain tactical advantage. 1. below which the seller cannot fall. cleanliness Strategic Issues New product development Shareholder value Brand building Logistics and channel strategy Recruitment and training Systems development Design and control of overall physical appearance Table 4. Other customers may express a preference for price competitiveness and therefore investment in cost management. customers may. These examples are not intended to be definitive. 2. and often do. this is difficult to calculate. Nor would they be necessarily mutually exclusive in the case of a single product or service. Each element of the mix can be judged in terms of its performance against its own objectives (for example advertising may have an output in terms of the creation of awareness and a budget to Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 82 . this may not be the same definition as that used by the maker. One-size-fits-all is no longer the offer. competitor activities etc. Every Dell PC is made from standard components to a customer’s specification. in the longer term the organisation is attempting to create advantageous positions in its various markets taking into account the need to generate returns for stakeholders. The examples below illustrate the point. is likely to pay dividends in the market. Customers concerned for quality will respond favourably to investment in good quality products and services rather than discounts. Even though they may prioritise them differently there are minimum performance standards.1 Marketing mix – tactical and strategic issues The allocation of resources to the mix elements should be determined by the contribution that each element is expected to make to the achievement of marketing objectives. the impact of broad-scale elements as well as the strategic intentions of competitors. their propensity to respond to different mix elements. Investment in this area is likely to reap greater returns than if it were used for promotion for example.g.) 3.

publishing.taking advantage of transparent charging in e-sales to link prices directly to the value offered. It is important that the contribution of the elements. Creating new value .using research information to create added or new value at premium prices. The objectives for each element should have been set in terms of the role of that element in achieving the overall plan. Additionally. It is also creating possible pitfalls for the unwary. New promotional methods and media such as text messages promoting specific restaurants in the local vicinity and information to a user's WAP phone while passing through the cell area. These include: • • • • New products and services such as online selling. Co-operating with new partners – contracting out the security of the transaction function to ‘infomediaries’ or gaining rapid access to new markets through complementary partners. New pricing mechanisms such as online auctions. Charging . and developing the correct mix of people skills in the organisation to deliver these new options. 4. The features they should consider include: • • • • • • • • Serving customers . New methods of distribution such as software and music downloads over the internet and socalled 'clicks-and-mortar' purchase online for pick-up at a local store. procurement and distribution (place).integrating traditional channels with e-business options. acting in concert. Cost . Control should be exercised in terms of the balance of investment between the different mix elements. New competition . and click-through commission payments. Culture . Through the use of IT and the internet. sales and customer service functions is providing opportunities to increase marketing efficiency and effectiveness. Directors need to develop their knowledge of how the combined power of computing and electronic communication can contribute to their business.adopting new tools to help better understand customers and new ways to work with customers.2 The impact of IT Information technology (IT) and the internet are having a profound effect on businesses and the way marketing is implemented.1.increasing efficiency in all internal procedures.building into the business model a response to lower costs of market entry allowing competitors with a powerful existing brand to target a slice of the action. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 83 . The internet can be used as a tool for research. real time stock and foreign exchange pricing. is assessed. selling. Delivering on commitments . changes are taking place in a number of aspects of trading.ensuring back office systems and delivery networks integrate well with the new e-sales front office.achieve this). promotion. the increasing availability of Customer Relationship Management (CRM) software to help automate marketing. discounted last minute sales for travel and entertainment services.

improvements in cash flow. The availability of more robust customer information improves both media efficiency and copy effectiveness. banner advertising. Channels . Brand protection . • • • 4.taking orders and/or distributing products.2. • • One feature of the internet is that all the facilities available to businesses are also available in a variety of ways to consumers.using communication channels such as web sites. Customer information . The price. The information needs to be presented so that it is attractive and useful to potential users and so that the site users can easily navigate to the information they want. As a result the knowledge they bring to any possible purchase and the demands they make on any supplier are increasing. This impacts on the design and functions of corporate websites. e-mailshots.1 IT and the marketing mix The basic marketing mix is composed of the product or service.a tool containing information for current and prospective customers. bulletin boards. employees. price. Product .E-marketing Every business needs now to compile an e-plan for marketing. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 84 • • . investors and other stakeholders. Web sites can fulfil a number of marketing related functions for an organisation including: • Electronic promotion . IT has also enabled the efficient outsourcing of channels to market. shareholders. Profitability . interactive digital TV. ownership).gathering information explicitly through surveys or implicitly through an analysis of web statistics to understand how customers interact with the web site. together with service delivery conduits through the web. All of these elements have been and will continue to be influenced by the developments in information technology: • • The product can be more accurately tailored to the precise requirements of the customer and brought to market in a shorter time frame than hitherto. Distribution has been improved significantly by the use of electronic data interchange (EDI) systems and satellite tracking which improve the efficiency of channel flows (information. can be reduced and controlled more effectively with the assistance of information technology. or at least the costs that form one of the inputs to its calculation.gaining a real understanding of what rivals are doing and applying this knowledge to devise the e-advantage.applying technology to accelerate new product development and improvement. promotion and distribution (place). efficient partnerships and collaboration. Promotion is made more effective by the improvements facilitated by the internet that make it possible to achieve both richness and reach in communication. value. E-commerce . logistics management. Particular contributions come from supplier exchanges. Many software and market research companies provide means for users to place orders and download applications and publications from their web sites.developing management information on the profitability of individual customers and products.1.making new alliances aimed at accelerating access to the market to enhance brand value. which would include: • • Competitive advantage . cash. e-newsletters.

order tracking etc. Where the intermediary cannot add value to the activities of the manufacturer for example their survival must be in question. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 85 . Extranet access – providing secure information to business partners and passing leads to channel partners or distributors. • Before making significant investments it is important to establish realistic expectations of the value a web site can bring and define the purpose and objectives for the site. Commercial exchange – buying-supplying exchanges set up by industries like the car manufacturers to ensure they get the best possible prices from their suppliers. frequently asked questions (FAQs).• • Customer service – dealing with technical problems. It is also a potentially powerful means (as demonstrated by Dell) of by-passing certain elements of the supply chain and dealing directly with customers.

A product is bought for what it does. premises. for many passengers. These products are high in credence qualities.4.2 Service and product marketing Generally speaking.g. so it may be hard to control the standard. communications material. measurement and reward systems geared to consistent performance within clear boundaries (variability is controlled and matched to customer requirements) stored Perishability: service cannot be Encourage off peak usage & customer participation. With some products and services it is difficult for customers to evaluate their quality even after experiencing them. is difficult to evaluate before and after purchase Inseparability: offering experienced Manage people to ensure right first-time outcomes. that is. facilities. response and consumption are simultaneous tendencies of customers and contact staff.2 Service issues and implications Directors of service organisations need to identify what has been described as the essential evidence. A train journey's attributes include punctuality. symbols. alternative methods at peak times Ownership: customer has access to Create a memorable experience to own and provide service but cannot own it physical evidence of the experience where possible e. clear during the transaction. if they can identify all aspects relating to physical evidence that convey a positive and distinctive impression. services in general are characterised by the following issues and implications: Issue Implications Tangibility: no physical Create effective physical evidence – people. an area free from mobile phones. Constant monitoring and analysis of customer behaviour and satisfaction. effective training and supervision. a glossy theatre programme Table 4. Few people possess the skills and knowledge to evaluate a hip replacement or legal conveyancing. The customer cannot know about these qualities until they have purchased and used them. The situation is further confused by the immense variety of services on offer. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 86 . comfort. not what it is. Ideally. difficult to manage variability Careful people recruitment. so often comes with a package of guarantees and service agreements. physical products are high in ‘search qualities’. they will have a better chance of securing business from that customer or groups of customers. In other words customers buy them on the basis that they trust the supplier sufficiently to buy. attitudes. production understanding of perceptions. Pure services in contrast are high in qualities that can only be sampled through experience. However. manifestation therefore the service equipment. refreshments and. most services contain tangible elements. The distinction between a ‘pure’ product or a ‘pure’ service is somewhat artificial. Ensure that the processes associated with the creation and delivery of service are effective and efficient Heterogeneity: the nature of a service depends on who is providing it and when it is being provided. Significant qualitative elements. something fundamental to the service offer. cleanliness. Equally. they have attributes that the customer can determine prior to a purchase when comparing the offerings on the market.

This means that all activities must be defined in terms of their ability to contribute towards the creation of customer value and the achievement of customer satisfaction.3. The service actually expected and that actually perceived by the customer. examine the discrepancies and opportunities for improvement in the process by which customer satisfaction is achieved now. organisation structure. The service delivered and the service that was promised to the customer. Understand the process Examine and make explicit all aspects of the means by which the organisation attempts to achieve customer satisfaction now. • The service actually expected by the customer and the organisation's perception of that expectation. (The service delivered is coldly efficient.1 A customer-centred outlook A customer centred outlook implies an external focus for the operation. Compare customer needs. This will involve gathering information from customers and customer facing staff. This has two fundamental dimensions: • • Getting things right first time (processes involved) Effective customer contact management (processes involved) 3.3 A customer-focused organisation 4. It will reveal both the quantity of service required and the desired quality of the service delivery. • • • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 87 . the service promised was warm and friendly). There will be implications for the utilisation of resources. systems and culture. The specification of service quality and the service that is actually delivered. (Actual expectation is for a warm friendly approach. (The specification includes the dimensions of warmth and friendliness but the delivered service is coldly efficient). It need not be completely formalised and should contain elements of both formal research and a continuous process of listening and reporting by a wide variety of employees. behaviour and expectations In the two areas above. The differences between service offered and service received can be characterised as the five service gaps (Parusaman 1985). 2. (The service expected is warm and friendly. The organisation's perception of service quality and the service quality specification. Understand the customer Identify customer needs and problem-solving behaviour and use this information to identify the operational priorities involved in meeting these needs and behavioural characteristics. (The organisation's perception of service is that it is warm and friendly but the specification makes no mention of these qualities). The service perceived by the customer is coldly efficient).4. perceived expectation is for an efficient approach). 1. The board should identify leaders in the organisation to initiate and support the changes involved and act as a focus and information co-ordinator of the following issues.

however well entrenched. Design new processes to eliminate the gaps. Inform everyone of the needs and perceptions of customers This involves sharing the customer and process information with everyone in the organisation and giving them the opportunity to comment and make suggestions. Design measurement and reward systems to reflect the satisfaction of customer needs People take notice of what the organisation takes the time and trouble to measure. 10. Much can be learned from the search for excellence. 5.leadership. Clear. Provide the appropriate training Training and development are necessary for everyone in the organisation. customers is therefore essential. There may be a need to make some adjustment to the culture of the organisation to make it consistent with a customer centred outlook and enable the commitment to be realised in operational terms.communication skills Team leaders . It should be possible to use the information gathered above to demonstrate the necessity of a changed outlook in terms that have real meaning for those involved and which offer them tangible benefits. It must be sustained and consistent. it can be encouraged. concise communication of the intentions and activities of. where the organisation monitors its own performance change and external performance vis-àvis competitors. Begin the process of benchmarking That is the identification of performance standards. Mechanisms are needed to measure and reward customer satisfaction (output) and the behaviour that generates it (input). and to trust people to get on with the job. This will almost always involve the reallocation of some responsibility and power to enable those charged with providing customer care for example to take the decisions they need to take in order to respond to customer needs quickly (structural adjustment). This may lead them to increase their focus on Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 88 . Provide clear leadership from the top of the organisation This should be demonstrated in terms of a willingness to listen to ideas.4. For example: • • All employees . communication. This principle should also be applied to competitors.e. Exhortation and gimmickry are not enough. While the business culture cannot be imposed. take action to remove obstacles. and feedback from. particularly where that involves making decisions which may exceed old authority levels in the interest of customer satisfaction. They respond to that which leads to a reward (in whatever form reward comes). process management. The comparisons should be both internal i. 8. 9. Although they have their place. supported and nurtured by the board. 6. They need to assess the related core strengths and competences of every link against globally competitive standards and benchmarks. coaching. they must be seen as evidence of real change not as a substitute for it. copied. Adjust the organisation to enable everyone to give of their best Commitment to personal performance should be sought. noted and followed up. 7. where appropriate. where particular units perform well in comparison to others their methods should be analysed and. For example. which are measured through time and compared as tangible evidence of progress or otherwise.

CRM implementations have had a notoriously low success rate. Directors should give consideration to: Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 89 . presentations. or phone.1 Customer Relationship Management (CRM) A customer focused organisation needs to have systematic processes for building and maintaining its customer relationships. Clearly. It may be face-to-face. Customer relationship management (CRM) has developed into a major set of management tools and its CRM software offshoot has almost become a separate industry. prices and status for use with automated ordering and manufacturing systems. In theory. high added-value products and technologies. It can also improve customer service and specifically targeted promotions. The main problems are not technical but human. Determine how the organisation can meet these needs 3. CRM software can be very effective in reporting customers' purchasing habits. It does not.3. Most organisations have several unrelated databases containing customer information and they use discrete applications such as: • • • • • • • • • • Sales force automation . or via a website. change the internal processes of the organisation. or alternatively the low-margin fast turnaround sector. It may include information about the customer’s past. In practice this ideal.often based on customer contact management Marketing campaign management – automation of mailing list selection Database marketing – using customer and/or prospect databases to select target audiences for mailing and direct marketing Call or contact centres Data mining – using customer and other company databases to develop business intelligence Customer profiling – identifying potential target customers from analysis of existing customers Content management and distribution . email. long-term relationships between the customer and the organisation. scope and terms and conditions. present and potential interactions with the organisation and embraces marketing. opinions and preferences and in profiling individuals and groups. however. organisational and cultural. The focus of CRM remains. In either case they must broaden the total service spectrum within which these are brought to market. 4. fax. a CRM system provides a single company view of a customer to anyone who needs to use it. often associated with service contracts Customer surveys – software to administer surveys and collate the information.1. This may be any customer-facing staff inside the organisation. or a distribution partner or outsourced call centre. however.key. Create positive. holistic approach depends on totally integrated databases and is rarely practicable. marketing letters Product encyclopaedias – product descriptions.web sites. Identify what exactly every customer wants and needs 2. sales and customer services interactions. mail. to: 1. Contract management – tools to use data regarding contract length.

Implementing CRM before creating a customer strategy Strategies for effective customer management are based on: • • • • Clear segmentation analysis which provides targets and priorities.F. Understanding how value is created for customers in practical terms which is the basis upon which the product. 3.. which forms the basis of the contact and communications strategy. CRM technology then enables the business to operate its customer focussed activities more effectively. Good results can be achieved with CRM technologies when carefully implemented in manageable chunks. CRM systems and software must be strategy led not the other way around. Having a pricing policy which is perceived by the customer to reflect value and which provides profit for the company.the need to change ways of working to accurately reflect customer and business needs commitment . Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 90 . but simply buying in more technology is wasteful at best and possibly damaging to an organisation. Stalking not wooing customers Overwhelming customers with contact is not good CRM. This means that systems and procedures. These things should be in place before the CRM technology goes live. This will have the opposite effect to that which is desired for some customers. measurement and reward are already geared to customer management. structure and culture. The Four Perils of CRM Based on an article by Rigby D.the need for board and management buy-in and tie-in to business strategy. Rolling out CRM before changing the organisation to match The organisation must be customer focused before the implementation of CRM technology. 2.Reichheld F.K. & Schefter P.• • • people . (2002) 1. . The focus must be applied not only to customer facing areas but to all aspects of the business. service and distribution is based. Some very effective customer relationships are managed using very low tech solutions. Understanding customer needs and behaviour. their ways of working and gaining their active support in using the system business processes .the practical needs of users. Key clients may demand and expect a more personal touch to contact. 4. It is easy to give the impression that the customer merely exists for the company to sell things to and no opportunity will be lost to do so. Assuming more CRM technology is better CRM is not necessarily technology intensive. The segmentation analysis may reveal different preferences for technology based relationship management within the customer base.

radio. There has been a growth in outsourcing marketing services to call centres and fulfilment houses.2 Direct marketing Direct marketing is an interactive system of marketing designed to sell directly to the end user. These include: • • • • • • • • • • Can the company break the conventional mould and market power in order to do business in a new way? Does the company have all the technical support. The result is the marketing budget. The major tools are catalogue marketing. Research suggests that an integrated campaign can increase the response from the market place and in so doing.3 The marketing and sales budget Within the marketing planning process. desire. warehouse and shipping facilities. Companies planning to enter a market often try to find out the marketing budget-to-sales ratio of their competitors. Market segmentation in both business-to-business and business-to-consumer markets is used to gain a more accurate identification of the target market. improve the productivity of marketing expenditure. Direct marketing may be used to generate leads. magazine and newspaper direct response. telemarketing. They may then set their marketing budget at a particular percentage of sales. electronic shopping. The advantages are using the most efficient providers of direct marketing skills and moving the fixed cost of non-core competency to a variable cost on a 'pay as you use it' approach. action) model with the target customers in its market to create sales? Care needs to be taken to meet the provisions of the Data Protection Act (1998) and requirements of European legislation. interest.1.1. trained staff and facilities it needs to manage direct marketing effectively? Can it access targeted market segments efficiently? Can it access all the required parts of the market segment? Can it represent the brand or intellectual property rights correctly? Does it enable accurate feedback from customers? Can it manage the direct ownership of customers? Can it manage an accurate database of customer contacts and account information? Can it benefit from e-marketing or permission marketing by using email lists of opted-in addressees? Can it use the AIDA (awareness. to sell products and services and to retain customer contact or deliver service. managers must calculate the expenditure required to fund all the actions to be carried out. When the board is considering a direct marketing strategy it has to take a range of factors into account.response marketing. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 91 . Call centres handle all customer contacts and business transactions while fulfilment houses offer logistics. television direct . kiosk shopping (customer order placing machines). direct-mail marketing. There is a close relationship between direct marketing techniques and customer relationship management techniques. 4.4.3. It uses one or more advertising medium to effect a measurable response and/or transaction at any location.3.

Account will need to be taken of the willingness of the customers . It will not differ in principle from that used in the external context. and compare their own results with those of their competitors. and any messages associated with it. Zero-based . reaches or is communicated to the customers. Just as in the external context. Activity-based . The separate elements of the internal marketing mix will need to be defined according to the nature of the market they address. • • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 92 .Promotion and distribution are the means by which the product. it is important to undertake segmentation of the audience and carry out research within the organisation to improve understanding of the different characteristics. taking into account their needs and the benefits they are likely to be seeking from it.e. Product .the traditional method of determining what to ask for next year is still to look at the current and previous years and extrapolate.this approach is rather a rule of thumb assumption of a percentage of income for identified contributory activities. confidence (ability to cope with change). the employees.The positioning or branding of the organisation must be completely understood by all the staff. or it may simply be used as a guide in budget-setting. so the budgeting process for marketing has to conform to the normal company budgeting processes. the use of a two-step communication strategy.to pay the price and the means by which they may be assisted. decision-making process.this challenging approach requires managers to cost everything they intend to carry out and bid for the finance. Promotion or distribution .here the staff .This can be the result of a strategic decision to try to win a high share of the market within a short period. motivation etc. In particular it is critical everyone understands how the strategy will be delivered and the part that they.The price the internal customer perceives they have to pay may be couched in a variety of terms. These might be: • Historic . when and how often). The process will need to take into account the twin concerns of channel/media efficiency (the means by which the message reaches the target audience. security (threat to employment). Another approach is to set a percentage of turnover for the marketing budget and benchmark this. factoring in plus or minus an amount to deal with any major differences. for example financial (threats to earning capacity).The product in this context is the marketing strategy itself. Price . and copy effectiveness (the way the message is presented so as to be meaningful to the target audience). expectations.2 Achieving ownership of the marketing strategy It is important to ensure that there is commitment to. • • 4. marketing strategy inside the organisation. In judging their success. and ownership of. • Positioning . it must be defined in internal customer terms. will play in it. aspirations.3. against relevant competitors In any case marketing is a cost that has to be allowed for in any forthcoming financial year. if they are accessible. companies often analyse the marketing input required to achieve a particular sales or profit level. It will also need to consider the use of opinion leaders in the process i. if possible. In order to communicate the essentials of the strategy it is possible to utilise a normal marketing approach.

money and personnel. Organising skills – used in creating both formal and informal organisation structures to make strategy implementation possible. Imaginative use of reward systems is the most visible aspect of a company’s recognition of the achievements of its human resources. whose input is needed to make implementation happen. and then allocate expenditure to achieve the best combination. Departmental structures that encourage territorialism and poor communications should be avoided.Just as in the external context. Marketing should be fully understood at every level of the company.3. Some cost allocation structures can have a destructive effect and cause inter-department conflict between. for example. Training programmes should be implemented to ensure that this is the case. Kotler (1991) refers to marketing implementation skills as: • • • • Allocating skills – used in budgeting resources including time. add significant value. The organisational skills required The board must ensure that managers expected to implement the strategy have: • • • the motivation to help achieve the company’s goals the skills to do so recognition and reward for their achievements when they succeed.3 Organisational implications How will the marketing strategy become and remain effective? The simple answer to this question is: ‘by ensuring that the whole company is customer-focused and that a marketing orientation permeates the organisation throughout every level and function’. Kotler (1991) It is important that company structures are designed to support a strong marketing orientation throughout. the task of the marketing strategist within the organisation is to have sufficient information about their customers to identify the mix element that will be most likely to succeed in their case. Separating sales and marketing into two departments can sometimes create conflict as their objectives are different. such as training. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 93 . Monitoring skills – used in evaluating results and exercising controls over the process. Interacting skills – used to motivate others both inside and outside the company. The board must understand marketing principles and must be visible and vocal in their support of marketing strategy creation and implementation. Others factors. and constructive ones can support marketing orientation. Reward systems can be constructive or destructive. 4. marketing and finance. Internal conflict can arise from badly thought-out structures. All functions and all levels should be involved in the marketing planning and implementation process. or production and sales.

. So. and a 1% fall in rates. Other contingencies might be required to cope with a merger between two competitors. Assumptions refer to factors that are largely out of the company’s control. For example.. It attempts to answer the ‘what if. 1% or nil rise.Contingency planning Contingency planning is designed to prepare the company for situations where events differ from their predicted course. if the strategy is based on the assumption that interest rates will rise by 2% over the planning period. contingency plans may be needed for a 3%. and these will often have been addressed by identifying the most likely course of events. the contingency plan should identify the variations to the company’s strategy that would become necessary if the true course of events did not match the assumptions. a cold winter or a change of government Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 94 .?’ questions which are most likely to affect the company. expressed as assumptions. A thorough marketing audit should highlight the key areas of uncertainty.

customer and market. It will only gain credibility in the organisation if it can demonstrate its ability to do this consistently. The systems do not take a view of the strategy itself: they just ensure the business is on track to achieve it. Process . The purpose of monitoring and controlling marketing strategy is simply to check the results regularly and to make adjustments to the activities to bring the results in line with the outcomes required by the strategy. • Sales performance in terms of volume and price. 4. they can make changes.1 Evaluating marketing strategy The evaluation of the relatively short-term marketing strategy tells directors whether the strategy is achieving its overall purpose or not.4.performance 2. If it is. Line management and staff have responsibility for monitoring. new business.4. controlling and reporting on ‘efficiency – doing it right’ factors. customer usage patterns. In order to ensure that “everything counts” it is important to monitor the use of resources very closely. channels and markets. etc The analysis will be shown in terms of products. growth. etc Market share showing the performance of the company with reference to the overall market and key competitors for all the markets in which it competes • • Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 95 . Outputs The result of marketing effort.monitoring and control Marketing is only successful if it generates more cash than it uses. the controlling actions should have increased sales effort to maintain the market share. Marketing strategy can be evaluated by carrying out marketing audits of the relevant components of three perspectives: 1. resources and R&D 3. The evaluation would then enable a judgement to be made as to whether maintaining market share was strategically important enough to justify the additional marginal cost. they can continue with the existing activities: if it is not. for example.4 Resources . If the monitoring procedure showed that sales were steady but the share was falling in a growing market. Suppose. Outputs . Effective monitoring and control systems are organisational functions and need clear lines of responsibility and reporting. In order to make sure the marketing strategy is being implemented successfully. directors must put checking systems in place. (this data will facilitate a customer sales value analysis) Profitability by product. Broadly speaking: • • The board and senior management have responsibility for systems concerned with ‘effectiveness – doing the right thing’. the strategy could be adjusted. order size. 1. If not.people.communication and commitment In general terms. channel. The data provided by the objective monitoring and controlling procedures are the raw materials for this judgemental process. evaluation is applying cost-benefit analyses to each of the factors in these three interacting areas. that market share had been set at 10%. proportion of repeat business. Inputs .

distribution investment. sales per special deal etc Distribution . Inputs The investment in marketing effort designed to achieve the outputs above and the basis of the marketing budget. leads and visits to sales. interest and desire. 4.cash flow. expenses to sales. PR. Its purpose is to enable the board to: • • • Consider how effectively the marketing strategy fits and contributes to the organisation's corporate strategy Make any changes needed to improve the strategy implementation processes Assess the effectiveness of the marketing strategy Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 96 . advertising.investment in new products: new product sales Pricing . sales promotion.) Sales processing Order processing Billing Credit control 3. Efficiency of the process The relationship between inputs and outputs has the following dimensions: • • • • • • • Sales . lost customers Contribution to group performance (for the strategic business unit) Credit performance .2 Strategic evaluation The purpose of strategic evaluation Strategic evaluation is the longer-term and corporate-wide evaluation of marketing. training etc.display costs per sale.4. average cost per sales call etc Advertising .cash flow 2. customer referrals. discounts. The elements include: • • • • • • • Sales acquisition Sales force effort Entertainment. product development investment. enquiries generated.cost per thousand impressions. service levels achieved Product management . CRM investment (systems.• • • • Target market awareness.investment in price promotions: sales Credit control .conversion of enquiries. cost per enquiry Promotion .cost per delivered item. Target market perception of and attitude to the company and its offering Customer satisfaction. leads generated.

However. complexity and geographical distribution of the organisation: • • • Regular meetings of directors or designers of the corporate strategy with representatives from marketing and other functions who are responsible for implementing the strategies. Outcome evaluation may be used at the end of a strategy period to measure the outcomes. In a group there may be other subsidiaries whose learning curves may be considerably flattened if they have access to detailed information on what was done. A second use of process evaluation is seen during the interpretation of outcome evaluation results. Formative evaluation The purpose of formative evaluation is to provide answers to the question. An important aspect of evaluation is to ensure that the functional parts continue to match each other as the strategies change. Regular electronic networking between meetings.• • Establish priority points for action in the marketing strategy Identify and answer any likely stakeholder questions. the process evaluation may reveal that the negative outcome was a result of specific. “What changes should the directors and management make to the steps taken in formulating and implementing the marketing strategy?” Process evaluation is partly formative in effect. A non-executive director as a helpful independent facilitator for this formative purpose. It can be very helpful in communicating best practice to others. corporate-functional relationships and co-ordination. The risk is that each function drifts away from the corporate path and becomes an autonomous group working to its own agenda. However. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 97 . Process evaluation The purpose of process evaluation is to provide answers to the question. so evaluation needs to take place on a continuous basis alongside it. its focus is on documenting and describing what was actually happening during the development. funding of the discrete elements of the corporate strategy. Emerging corporate strategy is approved by the board but implemented through functional management heads. a marketing strategy may not have proved successful on outcome evaluation. an intranet or email may be used for these. Just as strategies evolve in the light of continuous feedback. Trends in evaluation methods Evaluation that occurs right through the strategy lifecycle can be focused on different aspects: • • • Formative evaluation may be undertaken early in the strategy period to ensure that it is being developed and implemented in the best possible way. Process evaluation may be used to document and describe the integration of the corporate and functional elements of the strategy process. clarification of procedures. depending on the size. what problems arose and what solutions were adopted. “What can the directors and management learn from this?” The formative evaluation process may include any of the following mechanisms. Topics on the agenda should include a review of common and departmental strategic objectives. For example. This is not a one-off activity that takes place at the end of the period in question simply to measure the outcomes. the need for any supporting projects. integration and implementation of the corporate and functional elements of the strategy.

a series of desired outcomes could be set that are the milestones for eventual success. “What changes should the directors and management make to the systems in place to evaluate the outcomes of marketing strategy?” Outcome. To assess success in the much longer term. This may indicate that many elements of the strategy. or summative. All this information can be very useful for all stakeholders. A third use of process evaluation is to examine the initial context of the strategy and the decisionmaking process that led to its adoption. It should assess the outcomes and include both positive and negative results. These could be measured at the immediate. Outcome evaluation The purpose of outcome evaluation is to provide answers to the question. if implemented in another situation.unforeseen events that derailed the strategy. could be effective. Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 98 . intermediate. especially if it compares outcomes with other strategies that might have been adopted. Much of the measurement of success in achieving targets is clearly quantitative. For example. qualitative indicators are highly important. This may have led to aims being set that were easy to achieve rather than others which were 'outside the box' and more difficult to achieve but which could have been more successful for the company. evaluation looks at whether a strategy has achieved the outcomes it is seeking. shortterm and long-term stages. It may help the organisation improve its corporate strategy planning and implementation. the initial strategy may have been ill-defined in the early decision-making phase. However.

Newsline. market reports.Appendix 1 Typical sources of external information Traditionally. Brokerline. For the UK. trade and consumer publications. IDC. in the IT industry there are organisations such as Gartner (CRM specialists). Trade and professional associations (including the IoD) often provide research facilities for their members. Briefings. Governments collect and publish market data (see its British Business. go to the Department of Trade and Industry www.credit checks and risk assessment information Trade Journals Anbar UN Statistical Year Book The Economist publications for international information FT Profile FAME Mintel Keynote reports Euromonitor ICC Director Development Copyright Institute of Directors 2007 EMS reference notes 2007 Vn01FC Dec 06 Page 99 . Wireline.dti. There are also specific analysts for various industries. Guide to Government Statistics).uk and outside the UK. Forester Research and others who regularly publish industry analyses and can provide current data by subscription services of many types.a global intelligence resource which includes information under the headings of Researchline. Companyline. statistics and much more. the government of the country concerned or its embassy in the UK.uk. go to the Office for National Statistic www. For instance. Other data sources include: • • • • • • • • • • • • Profound . D&B (formerly Dun & Bradstreet) . good reference libraries provide a huge raft of directories. Countryline.gov.statistics.gov.

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