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Level 7 Diploma in Management Studies

Strategic Marketing Management

Resource Development International Consultants Ltd (RDI) All rights reserved. Except as permitted under current legislation, no part of this workbook may be photocopied, stored in a retrieval system, published, adapted, transmitted, recorded or reproduced in any form or by any means, without the prior consent of one of the copyright owners. Initial enquiries should be addressed to RDI Consultants Ltd. The right of RDI as the authors of this workbook has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

First published in 2008 for RDI Consultants Ltd

RDI Midland Management Centre 1A Brandon Lane Coventry CV3 3RD

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Strategic Marketing Management

Contents
How to use this workbook Introduction
Module Objectives Introductory note 0.1 0.1

Unit 1 Planning Principles and Range of Tools and Techniques


Principles Marketing Planning Processes Strategic Marketing Marketing Strategy Tools and Techniques Portfolio analysis techniques Summary 1.1 1.10 1.19 1.24 1.68 1.91 1.99

Unit 2 Marketing Strategy Options


Options Summary 2.1 2.39

Unit 3 Implications of Change in the Marketing Environment


Changes in the Marketing Environment Implications Summary 3.1 3.13 3.18

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How to use this workbook
This workbook has been designed to provide you with the course material necessary to complete the module, Strategic Marketing Management by distance learning. At various stages throughout the module you will encounter icons as outlined below which indicate what you are required to do to help you learn. This Activity icon refers to an activity where you are required to undertake a specific task. These could include reading, questioning, writing, research, analysing, evaluating, etc.

How to use this workbook

This Activity Feedback icon is used to provide you with the information required to confirm and reinforce the learning outcomes of the activity.

This Key Point icon is included to stress the importance of a particular piece of information.

This icon shows where the Virtual Campus could be useful as a medium for discussion on the relevant topic.

It is important that you utilise these icons as together they will provide you with the underpinning knowledge required to understand concepts and theories and apply them to the business and management environment. Try to use your own background knowledge when completing the activities and draw the best ideas and solutions you can from your work experience. If possible, discuss your ideas with other students or your colleagues; this will make learning much more stimulating. Remember, if in doubt, or you need answers to any questions about this workbook or how to study, ask your tutor.

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Strategic Marketing Management

Introduction

Introduction
Module Objectives
Effective management of marketing is an essential part of any organisations operations. In this module, the principles of marketing strategy are introduced. The aim is to provide an understanding of the formulation, implementation and control of a marketing strategy which has been developed by the marketing function of an organisation. The use of a range of tools and techniques is examined in detail to show the value of available information to the marketing department. However, it is stressed that this is only useful to the organisation if the techniques are correctly applied and their findings interpreted objectively. This module introduces the principles of strategic marketing management, allowing students to gain a knowledge and understanding of a marketing plan, the current marketing environment and how to contribute to the achievement of marketing objectives. Theoretical concepts are introduced, along with appropriate tools and techniques, with examples to explain their use.

Introductory note
Many of the activities included within this module require the student to call upon personal experiences within their own organisation. In a number of cases it would be useful if the student was able to arrange an opportunity to speak to members of the marketing department to establish how some of these techniques are put into practice within a familiar context. Throughout the module, reference is made to the text, Management; An Introduction by D. Boddy. It is strongly recommended that the student gain access to a copy of this publication.

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Unit 1

Unit 1

Planning Principles and Range of Tools and Techniques


Unit Objectives
In this unit, the principles and processes of planning are explained in order to provide a clear understanding of the development of a marketing strategy. Examples of definitions are included to show the wide range of thought about the subject. These include both formal descriptions from bodies such as the Chartered Institute of Marketing as well as a variety of different authors. The activities involved in the process of developing a marketing strategy are outlined from the setting of objectives through to the integration of the various activities. The production of a strategic marketing plan requires a considerable amount of information to be gathered. This may be both quantitative and qualitative. This information must then be processed and evaluated in such a way so that it can provide a useful and purposeful view of the organisation, its competitors and the market environment. A number of tools and techniques are described in this unit, providing the student with valuable skills for developing the strategic marketing approach. Most important is the ability to act upon the available evidence and, ultimately, to ensure the effectiveness of the organisations operations in the future.

Principles
Basic concepts

KEY POINT
A market consists of people buyers and sellers who are trading in a product. The price is normally set by the supply of, or the demand for, the product. The market for any business consists of its actual and its potential

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customers. This market may be local (e.g. a street market), national (e.g. the mass market) or international. Markets may be classified as:

Consumer markets goods and services bought by the general


public.

Industrial markets machinery and equipment used in


business, and business-related services (e.g. delivery, security).

Marketing is needed because people, businesses and advanced economies specialise. The various goods and services supplied need to be sold. This takes place in a competitive environment. As a result, a business needs to discover:

What to make and sell. How many to make and sell. Who to sell to. How to encourage these people to buy. How much to charge for what is sold.

ACTIVITY
Imagine you are a manager of a company marketing the following three items. Answer the five key questions for each item. 1. 2. 3. A pocket diary. Sandwiches sold from a mobile van. A mobile beautician service.

ACTIVITY FEEDBACK
1. A pocket diary

Small but with enough space for details of appointments,


notes, expenses, etc

Probably in the thousands General business environment Attractive/fashionable design, advertising connections

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Modest price, but not too cheap!
2. Sandwiches sold from a mobile van.

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A variety of fillings, sandwiches, rolls, snacks, etc Only enough for todays sale Office/factory employees Quality must be good, tasty product Less than local competition
3. A mobile beautician service.

Personal fashion products Supplies sufficient for likely demand Customers with disposable income Emphasis on beauty and fashionable Prices high to represent prestige service
The role of the marketing department is to carry out marketing activities. This means it must link production to consumption. To do this, the department makes sure that the demands of its customers are met by what is being made. If the marketing department achieves this, it will meet customer wishes and help the business make a profit. The term marketing is widely used and misused, and often misunderstood. It has come to mean many different things to different people. And you may recall from previous work that trying to work out what something means by defining it has its difficulties. Often it is more fruitful to prove how it is used in practice. The activity that follows is designed to give you the opportunity to think about how you would define marketing.

ACTIVITY
How would you define marketing? Compile a brief definition of your own.

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ACTIVITY FEEDBACK
If you defined it as advertising or selling or promotion you would, in the terms of most marketing professionals, be partly, but only partly, right. You would be reflecting a typical common-sense view. But marketing as a concept and discipline as defined by marketing professionals and academics is a wider, more complex idea. Such people would argue that to approach marketing by seeing it as focused on selling what you have chosen to produce is wrong. Such an approach belongs to a past era. The breadth of the concept of marketing, as examined in this unit, is illustrated by two definitions which are well-known in the marketing world. Leading USA marketing specialist, Philip Kotler, has written: Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. The professional body of marketers in the UK, the Chartered Institute of Marketing (CIM), suggests: Marketing is the management process responsible for identifying, anticipating, and satisfying customer requirements profitably. Christopher and McDonald (1991) say: The simplest definition of marketing is that it is a process of matching the resources of a business with identified customer needs. Peter Drucker (1974), international management guru, says: The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Marketing looks outwards: it is firmly focused on what marketing usually refers to as customers and consumers. A primary focus on customers, consumers, clients, or service users is possible, and some would argue desirable, in all organisations, including those in the public and charity sectors of economies. Marketing and marketers (a term we will use to refer in general to those doing or concerned about marketing, who see it in the ways conventional twenty-first century professionals do) stress that the needs and wants of the customer (or similar) should always be paramount. It is difficult, however, in many organisations to decide who the customers are, and what they need and want. Indeed, you may want to talk of several different customers or types of customer. Note that throughout this module we want you to keep applying the ideas and activities at these three levels:

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1. 2. The organisation overall. Your unit or section (if you are not in charge of the whole organisation). Your own work (even if your job is to manage and lead others, try thinking of them as customers). 3.

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Consider the view of marketing shown in Figure 1.1.

Organisational satisfaction

Marketing as a function

What is marketing?

Marketing as a philosophy

Customer satisfaction

Figure 1.1. What is marketing?

Another comment on marketing emphasises the focus on the customer. The influential USA consultant, Peter Drucker, has said that: Every business can be defined as serving either customers or markets or end users. In summary, marketing encompasses a wide-range of ideas and tools. Whilst all definitions and approaches stress that the customer is central, there are differences between the application of the concepts and techniques in consumer, industrial and public sector settings. Some differences are ones of emphasis; some are of language. Commentators and writers on marketing differ in the way they use some words. Marketing is full of compound phrases which use nouns as adjectives to produce phrases such as product quality improvements, where everyday language would more simply speak of improvements in the quality of products! Not all organisations use the marketing concept, even in forms adapted to their special circumstances. We contend that almost all organisations and managers would benefit from such use. So the bulk of this module examines various aspects of action to put the marketing concept into practice. It looks at how we can establish relationships

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between ourselves as suppliers of goods and services, and other people or organisations whom we variously call the customer and consumer, in order to satisfy them, and at the same time pursue our organisational purposes, aims and objectives.

Systematic approach
Most definitions of marketing encapsulate what is a surprisingly wide range of activities. For example:

Marketing begins before the production process when it


researches into the design, styling and performance of the product or service that is needed and then on the potential demand that could exist and the market share the company could strive for.

Then it plays a major role in positioning the product or


service against the target segment of the market, deciding whether to aim at the whole market, or whether to aim at the top, bottom or middle of the range, or at some niche market.

Next, because it is not only a question of satisfying


demand but also of creating or directing it, a large number of promotional decisions (advertising and sales promotion) have to be made. These cover selection of media to be used, the size, frequency and content of the advertisements, the nature and duration of sales promotion activities, not to forget the cost of these and the actual expenditure budgets that will be possible.

Then there are the physical distribution aspects of


marketing, especially the depot/inventory questions and the transportation of the finished goods not only a point of manufacture but also throughout the distribution network.

In addition there are all selling possibilities to be


considered, from the appointment of agents or distributors to any franchising arrangements that may be advisable and any personal selling to be undertaken by the company itself. Often dealers and customers alike may have to be educated on the products or services involved, what they can achieve for customers, their sales and profit earning potentials for distributors and users and, for technical products, the various technological factors that should be considered, etc.

Finally, how all this will be financed. Estimates on the


return that would be achieved and the after-sales services

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needed should be considered before the marketing plans can be agreed and launched. In a systematic approach to marketing, there are eight key points to consider: 1. Marketing is a philosophy that believes that the business and its decisions should be governed by its markets or customers rather than by its production or technical facilities. It is an orderly, systematic process of business planning, execution and control. It requires an improved form of commercial organisation. It employees improved methods and systems based on economics, statistics, finance and the behavioural sciences. It involves a system of commercial intelligence (i.e. relevant information on markets, competitors, etc). It places a strong emphasis on innovation. It is a method for achieving dynamic business strategy and competitive advantage. It is a form of management by objectives.

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2. 3. 4. 5. 6. 7. 8.

All these have a common purpose - to serve the customers and meet their needs with products or services designed for that purpose. Points six and seven are important at all times but a particularly so in times of static or declining demand, or when competition is intensifying. It is only through striving to be innovative and so having a dynamic marketing strategy that a company can survive in such difficult conditions. Without these, a company can be driven to wall by more aggressive and innovative competitors. Is also true that many of these points apply to other areas of management; this helps to prove the integrative nature of management and the need for complete co-operation between the different departments.

Integration of activities
The marketing in an organisation needs to be specific to that organisation. No two businesses are the same in terms of their culture, organisational structure, management styles and strategies for the marketplace. By the same token, it would be unwise for a company to believe that it could approach a market in exactly the same way as the competition that it faces. In order to establish how to market it differently from the competition, and to win the numbers of customers needed to make target levels of sales and profits, an organisation needs to set out its marketing plans. It

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is the marketing plan that identifies where the company intends itself to be in the future. A marketing plan is essentially a process of marketing and management actions. A staged approach is taken in order that the organisation is able to meet the overall objectives set by the company for the future. As we move through this module, many more principles of marketing will be introduced to you. The key point is that marketing success depends on integrating all of the principles into one coherent customer, competitor and environment focused strategy in essence a route map for the marketing stance and the subsequent marketing actions of the company. When looking at this marketing plan or marketing process for an organisation, a stage-based model can be used. This is illustrated in Figure 1.2.

Section 1. Current marketing situation marketing audit.

Purpose

Presents relevant background data on the market,


product, competition, distribution and macro-environments.

2. Opportunity and issue analysis.

Identifies the main opportunities and threats, and


strengths and weaknesses.

Identifies the issues facing the products and services.


3. Objectives.

Defines the goals the plan wants to reach in the areas of


sales volume, market share, profits and other non-quantitative factors.

4. Marketing strategy.

Presents the broad marketing approach that will be used


to meet the plans objectives.

5. Action programmes.

Answers: - what will be done? - who will do it? - when will it be done? Outlines approaches to the marketing mix.

Figure 1.2. Marketing activities.

Resource requirements
Marketing opportunities are affected by organisational resources. These include capabilities involving production, marketing, finance, technology and employees. By evaluating these resources, organisations can pinpoint their strengths and weaknesses. Strengths to

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help organisations define their core competences, set objectives, develop plans for meeting objectives, and take advantage of marketing opportunities. For example, the Coca-Cola Company identifies as its strengths as having the worlds best-known trademark, financial soundness, an exceptional distribution system, marketing and advertising efficiency, new product innovations, and a dedicated team of managers and employees. The firms strategy involves capitalising on these strengths in addressing international marketing opportunities.

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ACTIVITY
Consider you own organisation, or one with which you are familiar. What are the key organisational resources that are advantageous to the marketing department? List the resources and briefly explain the benefit of each one.

Timescaling
With the development of any business-related plan, time is a key element. The need to carry out an organisations operations to a carefully considered time schedule is paramount to the effective working of that organisation. Therefore, just like a production process, the co-ordination of the different activities within the strategic marketing strategy must be set against a realistic timescale. The strategy and the eventual marketing plan, should make clear distinction regarding the period of time allowed for each task to be carried out. This will be shown on the marketing plan overview documents.

Monitoring and control


The marketing plan will be affected by a constantly changing environment. As a result it is imperative that the plan is monitored and controlled. This is called Marketing Control - the process by which the marketing plan can be measured, evaluated and modified accordingly with the principle aim of making sure that the stated marketing objectives are achieved. This process of control involves four distinct phases: 1. 2. Management set specific marketing goals. Performance is then measured for any disparity between what should be happening and what is actually happening.

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3. 4. Performance is then evaluated to ascertain the reasons why there are gaps if any in performance levels. Corrective action is then undertaken and appropriate strategies put into place.

KEY POINT
To control the marketing function, organisations need to review their on-going performance on an annual basis to make sure that the organisation achieves the marketing objectives that it has set for itself.

Marketing Planning Processes


To meet the needs of customers efficiently involves: 1. 2. 3. Implementation of the marketing mix. Investment of money and resources. Co-ordination of all organisational departments.

This is usually facilitated by the production of a Marketing Plan as part of the strategic planning process. Formal strategic planning is essential if organisations are to adopt a co-ordinated and focused approach. The strategic plan defines the total organisational mission and objectives. Marketing plays a crucial role in the execution of the strategic plan and, therefore, it is against the backdrop of the strategic plan that the marketing plan is derived. To be able to plan effectively means that marketing objectives must be formulated and stated. This process, however, must be carried out in the context of how the organisation operates in the market place and is referred to as the Marketing Audit. This audit involves the process discussed in Unit 2 namely carrying out an audit of the macro environment and relevant aspects of the internal functioning of the organisation to include such items as:

Market (size, segmentation, customer needs, customer


purchasing factors, etc.).

Product/service performance (sales, prices, etc.). Competition (market share, competitors strategies for
quality, pricing, promotion and distribution, etc.).

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Distribution (sales trends, etc.)
A SWOT analysis is formulated from the data derived from the external and internal audit and relates to: Strengths internal factors that enhance performance. Weaknesses internal factors that inhibit performance. Opportunities external factors that favour the organisation. Threats external factors that are likely to have a negative impact on the organisation. The main aim of the SWOT analysis from an organisational perspective is to:

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Develop the strengths to match the opportunities. Attend to the weaknesses to match the threats posed.
This valuable marketing technique will be explored in more detail in a later unit.

Strategic marketing analysis

ACTIVITY
To find out more, you might wish to refer to the text, Management; An Introduction by D. Boddy. Sections 6.1 to 6.4 remind you about the general planning and strategy processes within organisations.

The terms used to describe the processes of setting organisational goals and achieving them have changed considerably in recent years. For our purposes we can define to terms of immediate importance:

Strategy is concerned with meeting the objectives of an


organisation, or of some part of it. Thus we have Corporate Strategy concerned with the overall aims and objectives, but we have Marketing Strategy concerned with the more specific objectives of the marketing department. At the corporate level the objective may be to secure a return on capital employed of x per cent, and the strategy chosen to meet this objective may be to concentrate activity on the organisations core activities. The marketing strategy following from this may then be to expand use of existing products in existing markets. In

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all these cases there is a definition of the broad approach at each level, but no detail of how the objectives to be achieved.

Planning is concerned with detail of implementing the


agreed strategy. At each level a plan will cover of the resources needed and the means to be used to implement strategy. The plan will include forecasts of the expected results, and where these do not fit the objectives, either the objectives, the strategy or the plan will need to be changed. Corporate objectives and strategy will be determined at board level. Departmental objectives of strategy will be determined at director level. Planning will be at senior or middle management levels, under the overall control of the directors. Detailed marketing plans for products or services will then be developed by those responsible for day-to-day marketing of each product or brand, whatever their specific titles may be. Strategy establishes the long-term intentions (objectives and targets), while planning specifies the short-term action programmes to be followed to achieve the strategy. Plans will be altered to counter changes in market factors (economic, competitive, technological, political and such like) but strategy is usually only alters when some minor change has occurred in the business environment or the company is changing course (i.e. moving into a new technology and markets, and diversifying strongly to insure the companys survival). Marketing strategy is primarily concerned with optimising profit and return on investment, not maximising sales. If there is any conflict with the first two objectives and the third, the first two should normally take precedence. In so doing, the critical factor of market shares will come right, as well as sales volume. In practice, the marketing plans followed, and hence the marketing mix selected, will be a compromise between what is ideal and what is practical. The latter is determined by the constraints of minimum costs and the talents of assets available to the company, of which most critical is usually money (funds). In arriving at the best strategy and plans possible, executives must use thorough scientifically-based assessments and judgements of their present and forecasted future. The planning is research-based, not the consequence solely of intuition or guesswork, though these two should not be spurned completely. When information and data are scarce or non-existent, intelligent use of intuition and hunches, based on experience, knowledge and past performance in related areas may be the only methods available. In all cases, however, executives must not be too introspective. They must think through their own situations and those of customer and competitor. They must appreciate the marketing strategies and mixes of the major competitors and the managerial concepts and criteria - motivate customers and competitors.

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It is important to appreciate that many variables influence the decisions taken on marketing strategy and planning. They may, however, be classified under five headings or groupings: 1. Product strategy and planning: involves decisions on product range and mix, and rationalisation, modification and a new product development. These in turn require consideration of product life-cycles, warranties and guarantees and, especially for consumer goods, packaging design, branding and trade marks. Market strategy and planning: involves decisions on all aspects of the market mix, market segmentation, new market development and the relationship between product strategy and policy. Pricing strategy and planning: involves one of the most difficult decision areas for executives and covers the prices and discounts to be operated, trade terms, etc. These are themselves conditioned by cost aspects; the prices that are justified for the specification, performance and other properties of the products or services and selling methods that will be used. The overall aim here is to ensure that the company achieves its profit targets and objectives. Promotional strategy and planning: involves decisions on the personal selling, advertising, sales promotions and PR activities to be followed. While these must be so co-ordinated as to optimise the companys communication with the selected markets and customers, they must also be integrated with all the other marketing activities and, hence, strategies and policies. Physical distribution strategy and planning: involves all the decisions to do with the distribution of the product or service, especially the selection and the marketing channels and methods of distribution to be used.

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2.

3.

4.

5.

All five of these headings lead towards the marketing mix, which we will discuss further later in the module.

Marketing strategy objective setting


Marketing executives have a number of strategies they can choose, but it is essential that choices are related back to the organisations corporate strategy. In some major conglomerates the overall corporate strategy may be set in financial terms, but at some stage this is brought to the level of the operating unit or business. Hence the term Strategic Business Unit (SBU). At the level of the SBU, strategies will be decided which will apply to all its products and three options are generally recognised. These have been described by Michael Porter, who has suggested that the company can achieve success through aiming to:

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1. 2. 3. Provide basic goods or services at low-cost. Incur higher costs where differentiated or unique products are selling at premium prices. Focus on a small specialised niche in a market. Examples all three strategies are common, but in the computer market Amstrad has provided an example of the first kind, which caused a major shift in demand. In the car market there are examples all three strategies run concurrently by different companies. In many food markets some companies follow the first strategy and concentrate on Own Label products; some produce distinctive branded products at higher prices; some supply specialised diet or health products to meet the special needs of small sectors of little interest to the other groups. Within each corporate strategy there is still a choice of specific marketing strategies, described by Igor Ansoff. The first of these is market retention, concentrating on marketing a companys existing products in their current markets, using existing expertise and knowledge to gain a competitive age. Normally product development is vital, but it is low risk evolutionary development, or Old Product Development, simply to keep abreast of changes within an existing market. The second option is for expansion by taking existing products into new markets. This may mean exporting to other countries, a method of increasing importance within the European Community since 1992. Here the company has the assurance that it knows and understands it products, but it is venturing into new markets, with some degree of risk. However it may only mean marketing existing products to new segments in the home market, such as selling office equipment to domestic users, or all rooms in holiday hotels to conference organisers. Here the new segments need to be studied as some product modifications may be needed for success, but the company is still handling a familiar product. The third option is similar, providing for expansion within a companys existing market by introducing new products. Here risks are again kept low as the company continues to work in familiar markets, but by introducing products with which it is not familiar. The fourth option is the diversification strategy, in which a firm launches new products into unfamiliar markets. This is a high risk strategy as both product and market elements are new, and there are also risks but so much effort will be allocated to the new venture that existing products and existing markets suffer.

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Option evaluation
Once a firm has moved beyond a single product in a single market it will have a portfolio or a range of products - market operations. Some of these may be at early stages used in the life-cycle; others may be in decline. Some may be earning good returns; some may still be costing more in development and promotion than they are achieving in revenue. It is vital for the long-term health of the company but there is a balance, within the portfolio, of old and new products or markets. A review or screening process must be regularly undertaken covering all areas in which the firm is interested. Too few new or emerging products may mean that there is nothing to replace the current earners as they become obsolete. Too many new products in the range may place a heavy burden on management, on cash flows and resources generally which may drag the firm down. Too much concentration in declining markets spells risks of one kind. Too much commitment to new markets may be equally risky but in a different way. A balance needs to be struck, and be maintained by a careful review of current earnings, forecasts and potential returns. Products or markets with no future need to be closed down. Current earners need to be managed for maximum results. Those with growth potential need to be fostered. Research and development need to be focused. Securing a balance between all these factors in the market is one of the most critical activities in marketing management. Before the market and product-market screening take place, market opportunities and characteristics must be defined. The work needed here is summarised in Figure 1.3.

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Choice
In addressing the question of the marketing direction and having evaluated the options, the next simple step is to choose which of the options is the best for the organisation. However, the choice is often far from straightforward. How can you actually define what is best? How will your concept of what is the best option match with the views of the other stakeholders in the company? To consider this dilemma, the aspect of measurement under the banner of financial and non-financial criteria should be considered, leading to a framework for a decision-making process. The following areas should be considered:

The short versus the long-term. The nature of financial and non financial measures. The significance of multiple decision criteria.

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Identifying markets and discrete market segments estimating total demand or market size identifying significant segments of total market measuring the coverage of the market by existing products or services (to deduce the new or revised/modified activities the company could consider) Identifying markets and market segments Market projections projections into the future (for 5, 10 or more years) to evaluate growth or decline of existing markets changes in customer requirements, preferences, etc changes in economic, social, political, technological, ethical and other environmental factors which affect the market conditions or the services being offered Characteristics of market services required by customers function or usage of service or products essential features which the service or product must have methods used by customers in searching for services/products competitive position, including share of markets, costs/slash prices, etc range of services to be offered functions critical to the success of operations offering services to selected markets commercial conditions and terms expected by customers cost/price relationship, price sensitivity, pricing policy Available market share estimate of market shares available projections of market shares company and competitors strengths and weaknesses and how these may affect market shares how to modify marketing operations to improve profitability and gain increased market shares Marketing strategy and market selection selection of strategy and operations (tactics) to be followed selection of markets and market segments to be attacked possible mix to be offered deciding resulting marketing plans to be implemented implementation and control of marketing operations, including analysis of results being obtained, feeding new information and data into marketing planning activities and assessments

Determining characteristics

Selecting market strategy; markets and marketing operations; control and information feedback

Figure 1.3. Identifying options within markets.

The basis for the best criteria. The importance of critical success factors. The characteristics of good marketing company.
It is also possible to overlay on to this decision-making process aspects of logical, mathematical modelling, looking at factors such as cost-volume-profit analysis or break-even analysis.

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ACTIVITY
On what basis does your organisation decide between the various marketing alternatives that it faces? How explicit of these criteria? What additional factors might usefully be taken into account?

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Formulation, implementation and control


With the benefit of having assembled all of the data identified in the earlier stages of the strategic marketing planning process, a company will now be in a position where it can consider ways in which can formulate its overall marketing strategy. There are various approaches to planning and often the formulation of a strategy is considered as a two-stage activity. To begin with, there is the argument that says it is necessary to consider the strengths and weaknesses of a product portfolio in order to provide a focus against which the overall direction of the organisation may be constructed. Understandably, perhaps, the models and techniques discussed have both their limitations and their critics, but this does not negate the importance of trying to understand how a product portfolio is constructed and what its potential is. The student is asked to consider why this area receives little attention from managers involved in strategic planning but it is also important to consider at the same time how useful a tool portfolio analysis can be provided it is undertaken with the full appreciation of its limitations. This second stage of the strategy formulation process is to examine the principal factors that can influence strategic direction and then consider the strategic options available once an organisations market position has been established.

ACTIVITY
Research the Boston Consulting Group Matrix or the General Electric multi-factor portfolio model. Using these, plot the position of organisations strategic business units. How are these likely to move over the next few years? What does the analysis tell you about the health of your organisation? Taking two of your principal competitors, conductor a similar portfolio exercise.

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Among the most useful contributions to understanding of marketing strategy over the past few years has been Michael Porters idea of generic Competitive Strategies. Using these as a starting point for thinking about strategy it is possible to focus upon particular dimensions such as issues of competitive advantage, and the influence of market position and strategy.

ACTIVITY
How would you categorise your own organisations marketing strategy? What are its strong and weak points?

Having reached the point of selecting the appropriate strategy, it is now necessary to consider its effective delivery. However, it must be recognised that throughout strategic planning process, aspects surrounding the ability to deliver the ultimate strategy direction taken will need to have been a fundamental consideration in the selection of the ultimate direction. Clearly, it would be inappropriate to set goals far beyond the organisations capability to deliver to them. Once again this illustrates the interrelation between the various aspects of the strategic process. The implementation of any strategic plan can immediately create a potential conflict within organisations between the need to integrate functions and the desire to segment responsibilities. To begin with, therefore, it is crucial that:

The component elements of the plan are communicated


clearly and there is an absolute understanding of what the plan actually says.

All of those involved in the implementation of the plan


are fully aware of the extent and requirement of the respective roles.

There is consensus of the wisdom of the plan and


commitment to its accomplishment. Taking this forward, there are pressures, both internal to the organisation and externally in the environment, that create barriers to the successful implementation of the strategic plan. Some of these issues include:

The external barriers or factors outside the organisation


which create difficulties. These include the various PEST elements, to which we will refer later on in the module.

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The internal barriers including the type of leadership and
the organisational culture.

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The strategic drivers for implementation. Control systems.


Organisations must also monitor their performance and take corrective action in order to overcome strategic drift and strategic wear-out.

ACTIVITY
What particular problems of implementation are encountered within your own organisation? How significant are these and what are their consequences? What are the causes of the problems? How might these be overcome?

Putting an implementation programme into effect is one thing, ensuring it eventually delivers the desired results is another. The importance of effective management control, therefore, cannot be understated. Just as there is a high level of interrelationship between the various stages of the strategic market planning process, if the ability does not exist to follow the chosen should strategy through then no matter how good that strategy may be, it will never achieve the desired results.

Strategic Marketing
Key definitions
There is a wide range of definitions of strategic marketing, some of which have been mentioned earlier in this unit. Most have certain basic features in common, especially the notion of looking at the organisation from the point of view of the customer or striving to ensure mutual profitability from the marketing exchange. Other definitions place their emphasis on the essentially managerial nature of marketing. Kotler (1987) provides one of the widest definitions; Marketing is a human activity directed at satisfying needs and wants through exchange processes.

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McDonald, in an article in the Journal of Marketing Management (1989) entitled Ten Barriers to Marketing Planning, states that successful implementation of strategic marketing plans means overcoming the many stumbling blocks that may exist within the organisation. These can range from senior management inertia to determined resistance by vested interests. He summarises these as: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Confusion between tactics and planning. Isolating the marketing function from operations. Confusion between the marketing function and marketing concept. Organisational barriers. Lack of in-depth analysis. Confusion between prices and output. Lack of knowledge and skills. Lack of systematic approach to marketing planning. Failure to prioritise objectives. Hostile corporate culture.

Successful implementation of marketing plans calls for these barriers to be overcome by committed senior management backed by effective and well-integrated marketing systems. Doyle highlighted the strength of Japanese and German marketing in a study of British and Japanese marketing, indicating the importance of integration into a powerful customer orientation: The findings confirm the Japanese astuteness in marketing. Strategies were clearly defined, decisive and aggressive. Not losing sight of new opportunities in the market, they timed their opportunities in the market, and timed their entry well. Their products had significant advantages and their marketing efforts were more efficiently targeted at well-defined sectors of the market. The British were woefully weak and defensive, driven much less by market opportunities but more by survival needs.

Nature of strategic and marketing links to corporate strategy


Marketing strategy is a crucial part of corporate strategy at the level of the SBU and the portfolio of products it manages forms part of the process. The techniques for portfolio analysis are fundamental to the allocation of resources which form a key part of strategy implementation. The specific strategies adopted, especially towards

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competitors are dependent on the stage of market product life-cycle which those who have studied corporate strategy, or business planning will recognise. In fact, they are also used in corporate strategy. Recalling Druckers statement that there are only two unique activities in business, innovation and marketing, it is possible to see why this should be so. Of course, corporate strategy tends to be wider than marketing strategy in that it includes issues such as financing, capital structure, ownership, as well as issues to do with the environmental movement, TQM, BPR the Management of Change and the Learning Organisation which are discussed elsewhere.

Unit 1

Role and importance of strategic marketing in an organisation


Key strategic concepts are dealt with more fully later on in this unit, but it is useful at this stage to take an overview of their nature and the usefulness to corporate strategy. We shall consider the four key concepts that form the techniques necessary to aid strategic planning:

Segmentation. Positioning. Marketing mix. Value chain.

ACTIVITY
Summarise the purpose of these key techniques in the process of strategic planning.

ACTIVITY FEEDBACK
These techniques support decisions about the allocation of resources to achieve a sustainable competitive advantage in selected product markets.

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Most markets are segmented in one way or another. Any activity classified as a market can embrace numerous groups of customers, the needs of any one group being significantly different from the others. A group of customers with broadly similar needs constitutes a market segment. Asking how a market is segmented can provide valuable insights into customer requirements and help focus on specific market segments. Even within these broad definitions of the market, however, further segments can be identified. An evaluation of the current and potential segmentation of the market should reveal untapped or under-tapped opportunities in the market.

ACTIVITY
Using the tourist and travel market as an example, list how the market might be segmented for the development of a marketing strategy.

ACTIVITY FEEDBACK
You might have considered some form of segmentation like this: Segment Holiday tourist Sub-segment Fully inclusive package Partly inclusive package Independent traveller booked via an agency Independent traveller booked privately Booked via agency Booked by employers travel department Hobby Cultural Religious Archaeological or ancient history Ethnic or anthropological Flora and fauna Sports enthusiast

Business traveller

Special or common Interest traveller

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When various elements of the marketing mix are considered independently, we understood that it is neither practical nor appropriate to focus initially upon the first element - product - and then move systematically through all other variables without appreciating that each factor hasnt interdependence with the others. Take as an example of this any variation in the product that involves some cost implications which may, in turn, be reflected in price. Taking this further, a different pricing strategy may have a revised promotional mix or lead to making the product available to the market in a different way.
Demand for a product or service is influenced by

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Uncontrollable factors The economy Legislation The political environment Socio-cultural factors Competitors Technology Ecological issues

Controllable factors (the marketing mix) The hard elements Product Price Place (distribution) Promotion The soft elements People Physical evidence Process management

Figure 1.4. Influences on demand.

The true nature of the marketing mix variables, therefore, lies in a set of interdependent variables which need to be managed both tactically and strategically within the constraints imposed by the organisations environment. This is demonstrated in Figure 1.4. In order to help build up an understanding of how they interact and, both these are considered separately in the following sections.

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Marketing Strategy
Strategies for product/service
It is the consumers or customers perception of the product which should be the cornerstone of all product policy. That perception will not only be influenced by the products physical properties (text, texture, colour, smell, etc.) but also by an individuals perception of any associated services. The package, the brand name and the generalised image might also be important, as could a whole range of social and cultural associations which have become attached to the product. If there are so many aspects of what at first might have seemed a simple notion the product or service it is worth thinking whether there are any further ways to distinguish between the different dimensions. Kotler distinguishes between the core benefits, the tangible product and the augmented product (or service) which although involving terms particularly relevant to goods (e.g. installation) can be applied to goods or services. We should look at some useful definitions: The core product service This is the product or service on offer, e.g. a washing machine, a bottle of shampoo, a dry-cleaning service, a photography service. Benefits These are the benefits the customer will enjoy as a result of buying and using the product or service, e.g. cleaner, fresher washing; a safe driving experience; a warmer home and cost savings on fuel bills. The tangible product service Brand name, packaging, features, quality and styling are all the elements which customers can see, touch, experience and appreciate for themselves. They are tangible and real. The augmented product service Installation, after-sales service, delivery, credit options and warranty/guarantee are all elements which augment the product or service, and which add to the customers buying and using experience.

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ACTIVITY
Identify a key product or service which your organisation produces or provides. Identify the:

Unit 1

core product or service tangible product or service augmented product or service


An essential vehicle for the generation of customer satisfaction is the product or service which the organisation offers in the market-place or the arena in which it operates. All other decisions about the marketing mix need to be integrated with those on product policy, since they are about how to promote, price and distribute the product or service itself. See Figure 1.5.

External environment Consumers needs perceptions Competitors product mix product positioning Product life cycle

Internal environment Resources and competences in: manufacturing/operations finance marketing knowledge skills reputation channels/relationships R&D - technical and marketing

Product strategies product/marketing mix product development product positioning branding and packaging

Figure 1.5. Environment and product strategies.

Key decisions which managers must make are about the productmarket mix, the positioning of the product and branding. These decisions result from the simultaneous analysis and interpretation of the external and internal environments. As has been

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stressed, crucial aspects of the external environment which affect decisions about the product aspect of the marketing mix relate to consumers, competitors and the product life cycle. Internally, strengths and weaknesses in such functions as manufacturing and operations, personnel, finance, marketing, and research and development all relate to and affect decisions about the product. For existing products or services the starting point is to decide exactly what you have. The main purpose of what marketers call a product (or service) audit is to look at the products or services in terms of how the customer sees them. Some of the questions for such a review or audit might be:

What is the market segment which this brand


addresses?

Who are the existing customers? Who are the prospective customers? What benefits are these customers and prospective
customers seeking?

How does the product or service match up to these


customers needs and wants?

How does it compare with competitive products?

ACTIVITY
For this activity, select just one of your organisations main products or services. Complete the following statements about your chosen product or service:

The product or service I have selected: The important features of the product or service I have
selected:

The market segment which this product or service addresses


is:

The existing customers for this product or service are:

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The prospective customers for this product or service are: The benefits these existing and prospective customers are seeking
are:

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The way in which this product or service matches up to these


customers needs and wants:

The way in which this product or service compares with a


competitive product or service:

ACTIVITY FEEDBACK
When an organisation is carrying out a product audit a number of important questions have to be addressed. The core product or service Are customers still keen to buy our product or service? Is our product or service still relevant to customers needs? The tangible product or service Brand name Is the name of the product or service still relevant and appropriate? Or might customers perceive the name as out-of-date or just plain boring? Packaging Is the packaging appropriate and likely to appeal to our target market? Or does the packaging need to be updated or changed in some way? Features Does our product or service have enough of the right kind of features? (For example: safety locks, economy timer, extra zip pockets, automatic ice dispenser, velcro fastenings, range of extra-large sizes, range of seven different colours, etc.) Or do we need to add extra features to make the product or service more desirable to customers? Quality Is the quality of the product or service as good as it should be? Does the quality compare favourably with similar products/services offered by our competitors? Or do we need to improve on the quality? If so, how? Styling Is the styling appearance, design, materials used etc. of the product sufficiently modern and up-to-date so that it appeals to our target market? Or do we need to improve the styling in some way?

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The augmented product or service Installation Is it possible for customers to have this product installed in their home, car, office, shop or factory swiftly and easily with a minimum of fuss? Or are customers complaining about installation problems? Do we need to make changes to the way in which the product is installed? After-sales service Do customers receive an effective after-sales service? Are problems dealt with smoothly and efficiently? Or are we receiving complaints from customers that problems and difficulties are occurring with the product or service? And, maybe, these problems and difficulties are not being resolved satisfactorily? If so, what can we do to improve after-sales service for customers? Delivery Is the product or service delivered on time, according to promises and agreements that have been made with customers? Is the product arriving undamaged and in good condition? If not, how can we put these issues right? Credit options Are there a range of credit options available so that customers find it easy to buy our product or service? Is it, perhaps, easier for customers to buy our competitors products or services on credit? If so, what can we do to make it easier for people to buy from us? Warranty/guarantee Do we provide a good guarantee/ warranty with our product or service? How does our guarantee compare with the guarantees that our competitors offer? Do we need to improve some aspects of the guarantee we offer? In reality, at the organisational level, the list of customer benefits must be very carefully compiled, preferably using sophisticated marketing research, to see them accurately from the customers viewpoint.

ACTIVITY
Note down four problems which could possibly arise if an organisation did not carry out product/service audits on a regular basis.

ACTIVITY FEEDBACK
Any organisation which does not take the time or trouble to perform regular product or service audits may have to deal with some, or all, of the following problems: Products and/or services which:

Are old-fashioned and out-of-date. Customers perceive as no longer useful or relevant.

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Have been overtaken by the competition who have improved on
packaging, features and styling.

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Are no longer of good enough quality to satisfy sophisticated and


discerning buyers.

Because of poor after-sales service, customers perceive as not being


good value for money.

Due to problems with installation or delivery have acquired a bad


reputation with customers.

Do not have a guarantee or warranty which is equivalent to the


guarantee or warranty offered by competitors.

Generally are perceived by customers as poor quality products or


services which are no longer desirable.

KEY POINT
The people in the marketing department of any organisation need to make sure that they:

Constantly audit the goods or services which their organisation is


currently offering.

Constantly look for new ideas for products and services (research
and development) which will enable the organisation to stay ahead of the competition in the future.

The product life cycle (PLC)


You may recall the idea that an organisation has a life cycle. This notion was based on the metaphor of an organisation as an organism that was born, grew and matured and then, perhaps, died. The similar notion of a life cycle of a product or service, or the product life cycle (PLC), is a very important element of marketing theory. The concept of the PLC suggests that any product or service moves through identifiable stages introduction, growth, maturity, decline each of which is related to the passage of time as the product or service grows older, and each of which has different characteristics. See Figure 1.6. Associated with each stage is said to be a profit level. It is likely that this will in fact be negative (representing not profit, but loss!) at the beginning, when there is high initial investment. Hopefully, however, profits will become positive by the maturity stage.

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Everything, in marketing terms, occupies a place in the product life cycle, which covers four stages:

Introduction. Growth. Maturity. Decline.


Revenue from sales & profit Growth Decline

Maturity

Introduction

Sales

+ -

Profits Time

Figure 1.6. The four stages of the product life style.

Introduction The company launches a new product or service. Usually the product launch is achieved by way of an expensive marketing campaign which can include newspaper, magazine and television advertising; high profile promotions such as competitions and special offers, etc. The main aim at this stage, is to introduce the produce or service to potential customers and this usually costs a considerable amount of money. At this stage nothing is certain. The organisation may have invested considerable resources in product research and development; new equipment, advertising, promotions and so on. Customers may decide that they love the product or service or they may decide that it is not something they want to buy.

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Growth This is stage two of the product life cycle and here, hopefully, sales rise as more and more customers decide that they like the product and are prepared to purchase it. Although the organisation will be keen to recoup its original investment in research and development costs, they will still have to spend money on advertising and marketing in order to continually increase customer awareness so that customers who have already bought buy again; and new customers are persuaded to buy for the first time. Maturity During stage three of the product life cycle the product or service becomes well established in the hearts and minds of customers. Sales continue to grow, but not at the same rate as they did during the Growth Stage. The marketing focus is now on keeping customer loyalty because, of course, other new products and services are now being made available by competitors. During this stage the marketing campaign may include price cuts in an attempt to retain market share which will, in turn, affect profitability. Decline This is the final stage of the product life cycle. Sales' growth tails off and then begins to fall. Price reductions and special offers are no longer enough to persuade customers to buy. Once loyal customers are now choosing newer, more exciting products and services. Eventually the organisation, with the aid of the specialists in the marketing department, decide that it is time to abandon the product. Production ceases and the item is no longer available. The wise, well-prepared organisation then moves into stage one of the product life cycle Introduction by launching a new product or service. The product life cycle will be revisited in the next unit.

Unit 1

ACTIVITY
Select one of your organisations products or services. Decide where this product or service is in relation to the four stages of the product life cycle. Find out which product or service is intended to follow on from this one.

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Most companies and organisations offer more than one product or service. Managers must understand the relationships among all the products of their organisation if they are to co-ordinate the marketing of the total group of products. The following terms are often used to help describe the relationships between an organisations products (and services):

Product item: a single product. Product line: a number of products which are related. Product group: all product lines which form a group of
products which are related.

Product mix: all the products offered by an organisation.


The notion of product width represents the number of product lines; and product depth represents the number of single products which are offered in each product line. At this point we should also consider the branding of a product. By doing so, the business guarantees to the consumer that the next one bought will be virtually the same as the last one. This encourages repeat purchases through brand loyalty. Branding also helps a business differentiate its products from those of its competitors. A business is able to use the brand's unique selling point (USP) to increase sales. Mass advertising also becomes a more realistic activity with branding .

Market segmentation, targeting and positioning


Market Segmentation Market segmentation is a way for an organisation to distinguish major segments of homogeneous consumers in a market and, in doing so, develop products and marketing programmes that are tailored to each market segment. Instead of scattering your marketing effort through a shotgun approach, with segmentation you can focus on the buyers in the marketplace who you have the greatest chance of satisfying using the rifle approach. Market segmentation represents a trend away from mass marketing approaches, and the third in line of market-based approaches. Prior to the segmentation approach, companies approached their marketing efforts through:

Mass marketing mass production, mass distribution


and mass promotion of one product for all buyers as epitomised by the legendary Ford Model T.

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Product variety marketing a seller produces several
products that exhibit different features, styles, qualities and sizes designed to account for customer needs for change and variety. The trend away from mass marketing occurs for a number of reasons, as illustrated in Figure 1.7.

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Technology: Reducing unit costs Capacity increasing Communications

Competition: New players Systems-driven products Relative media costs

Trends away from mass marketing

Consumers: More discerning More aware Bombarded with messages Require service convenience Individualism

Figure 1.7 The reasons for the trend away from mass marketing.

The danger of thinking in terms of single, mass homogenous markets has been recognised. Market segmentation, as an approach, emerged from the recognition of this danger. Kotler et al (1999) Segmentation allows for:

More precise market definition. Better analysis of competition. Rapid response to changing market needs. Efficient resource allocation. Effective strategic planning.
Market segmentation is the first step in the segmentation targeting positioning (STP) approach to marketing.

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Market segmentation 1. 2. Identify segmentation variables and segment the market. Develop profiles of resulting segments. Target marketing 3. 4. Evaluate the attractiveness of each segment. Select target segments.

Market position 5. 6. Identify a differential advantage for each segment. Formulate the marketing mix to be used in the marketing plan for each segment.

The benefits of the segmentation approach can be summarised as:

Better matching of customer needs. Enhanced profits. Enhanced opportunities for growth. To retain customers as their buying behaviour patterns
change.

To enable more accurate targeting of communications.


For market segment share it is generally market share rather than market size which determines profitability. The purpose of segmentation is to classify groups of customers with similar needs and wants. There are certain requirements for identifying useable market segments:

Definable key characteristics of the segment show a


degree of homogeneity. The market size and market boundaries can be determined.

Profitable the segment must give required turnover and


profit figures. The segment must further match the resources and the objectives of the organisation.

Reachable the organisation needs to determine whether


the market segment can be reached efficiently and effectively, and whether effective communications with the target segment can be made.

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Bases for segmenting markets
There are generally two bases used for segmenting a market: The characteristics of the buyer

Unit 1

Demographics. Geographics. Psychographics (e.g. sociability or personality traits). Lifestyle.


Benefits sought

Benefit segmentation. Behavioural segmentation.

KEY POINT
Although different characteristics are used to segment a market, generally two or more of the segmentation variables will be combined in the segmentation process.

Segmentation is becoming more sophisticated in the 1980s we looked for the customer in each individual. In the 1990s (and beyond) we must look for the individual in each customer. We can now look at these bases for segmentation in more detail:

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Demographics: Gender. Age. Marital status. Occupation. Socio-economic classification. Family type/size. Income levels. Ethnic origin. Education levels. Life-cycle stage. Geographic: Rural versus urban. North versus South. Numbers of customers within certain distances. Postcode penetration. Psychographic: Sociability. Self reliance. Assertiveness. Other personality traits. Lifestyle: Attitudes. Interest. Opinions. Social influences. Activities.

Buyer characteristics

Benefits sought

Benefit segmentation: On the basis of benefit received. Service level delivered. Behavioural segmentation: The brand-loyal customer. Light, medium and heavy users. Occasional users and non-users. Purchase occasion. User status. Readiness status.

Figure 1.8 The bases for segmentation.

ACTIVITY
Making reference to examples, discuss how lifestyle and demographic approaches to market segmentation might be used by a marketing manager to develop a detailed understanding of a market.

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ACTIVITY FEEDBACK
You can draw examples from consumer markets, including fast moving consumer goods markets (FMCG), covering food products, services (e.g. restaurants) or consumer variables (e.g. cars). With regard to lifestyle, you could consider a lifestyle approach to cars and identify the various life stages associated with buying the different sizes and models of cars. Consider the type of people who buy estate cars, sports cars, small cars and luxury cars. How are these able to be classified according to a persons lifestyle?

Unit 1

Once you have segmented the marketplace that your organisation is in, you then need to evaluate the segments and decide how many and which ones to serve.

Evaluating market segments


There are a number of ways to evaluate the potential attractiveness of market segments:

Segment size and growth is the segment growing or


declining?

Is the segment changing? Porters five forces model of


current and potential competition referred to in the earlier section:

- Threat of intense segment rivalry. - Threat of new entrants. - Threat of substitute products. - Threat of growing bargaining power of buyers. - Threat of growing bargaining power of suppliers. Organisation objectives does the segment fit with the
objectives of the organisation?

The capabilities and resources of the organisation does


the organisation have the necessary resources and know-how to compete in the identified segment?

Profitability of the segment taking account of the other


criteria given above.

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Selecting Target Segments
Target marketing involves the analysis and understanding of some of the factors that can affect organisations as they serve the interests of their markets and individual consumers. In this unit we will look at the many facets of the environment that have a profound effect on the way in which organisations are able to operate. Any organisation is subject to influences within their immediate environment influences over which they can exert some control. Organisations are also subject to influences in the external environment; for example, the economic conditions and political policies of the country in which they operate. These environment factors cannot be controlled by a company, but they do need to be approached in an effective way. In essence, target marketing is an approach whereby a company markets its products and/or services to selected customers in a marketplace. Target marketing helps a company to identify the important environmental factors that will influence its effectiveness and overall success in its chosen markets. In this unit we will examine those aspects of the business environment that will affect an organisation. In developing a target market strategy, there are several strategic choices open to an organisation. These can be classified as: undifferentiated marketing, differentiated marketing and focused marketing. The key components of these are outlined below:

Undifferentiated marketing
Ignore actual or potential differences amongst segments, and target an offer to the entire market. Many companies including BA, BT and Coca Cola used this strategic option in the past, although recently even these companies have begun to differentiate their products for different consumer groups.

Differentiated marketing
This strategy is similar to undifferentiated marketing in that the organisation seeks to compete across the majority of the market. In contrast to undifferentiated marketing though, this approach involves delivering different offers for different market segments. Differentiated marketing further involves developing different product and marketing programmes for each segment of the market.

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Focused marketing
With focused marketing the aim is not to compete in the majority of a market but to specialise in one or a small number of segments. A business is able to build a strong reputation from its expertise in understanding specific requirements of buyers in a segment.

Unit 1

KEY POINT
Market segments are not fixed. Marketplace developments must be continually monitored in order to identify potential target markets. Market changes throw up continual opportunities for organisations to create and develop new profitable segments.

ACTIVITY
Think about recent changes in the business environment. Consider the emergence of new market segments that have arisen because of changes to the environment. As an example, mobile telephone technology continues to offer new segmentation opportunities text messaging, picture telephone, business e-commerce, etc. Write down five examples of emerging segments associated with changes to the business environment.

ACTIVITY FEEDBACK
Some examples of business environment changes can be seen in the section below.

Rising incomes. Demographic changes. Fashion. New environmental concerns. Digital technology. Telecommunications. Multi-media developments.

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In order to deliver new market products and services that meet these market changes, organisations need to adopt an innovative approach. Examples of innovation leading to the emergence of new market segments include:

Virgin Airlines moved on from economy, business and


first-class segmentation into further segmentation of the economy class. It created a new mid-class aimed at full-fare economy passengers.

Haagen Dazs developed a premium segment for ice


cream in the UK and other countries across the world.

British Airports Authority recognising the emerging


different needs of customer segments has segmented its long-term car parking into tourist (6 per day) and executive (12 per day) (1997 prices). Opportunities for segmentation and targeting tend to increase as a market evolves. For example, personal computer sales grew by 55% per annum in the UK in the 1990s, whilst cigarette sales declined by 3% per annum over the same period.

Market positioning
Winning in the marketplace means creating some kind of sustainable competitive advantage. Whilst the choice of target market segments determines where a particular business will compete, it is the competition within segments that will allow customers a choice. Positioning is the way that an organisation can create a sustainable differential advantage over the competition and, whereby, a perceived difference means that customers in a target segment will prefer one companys offer to the offers being made by others. There are certain criteria required to create a differential advantage:

Customer benefit a benefit is offered that customers


consider important.

Unique not obtainable in a similar way from other


companies.

Sustainable. Difficult to copy. Barriers to entry.

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1. Product drivers Performance speed , accuracy Features added to primary function Reliability Conformance design specification Durability working life of product Operating costs lifetime costs Serviceability product repairs Aesthetics how product looks and feels to the buyer 2. Service drivers - have become more important as competition narrows product differences: Credit and finance Delivery speed and effectiveness Installation

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Ordering facilities ease/efficiency of ordering

Training and consultancy customer help and support After-sales service maintenance and back up Guarantees to eliminate perceived purchase risks Operational support

3. Personal drivers - especially valuable in service-oriented markets: Professional training for skills and knowledge Courtesy Trustworthy Reliable accurate and consistent service Positive staff can overcome difficulties Responsive to customer requests Initiative in solving problems Communication skills

4. Image drivers - a strong image gives a customer confidence in the product, service or brand: Socio-psychological confidence a personal or social statement, e.g. Levi jeans and Nike Economic confidence

Figure 1.9 Drivers of customer value used in market positioning.

Difficult-to-acquire skills. Scale economies. Branding. Patents. Profitable.


In searching for a differential advantage, a company must develop an understanding of what customers value where value is equal to customer satisfaction, minus price. There are numerous drivers of customer satisfaction that will affect total customer value. This value is considered to be the perceived satisfaction offered by consumption or ownership of a product or service. This value of a product or service is always a combination of rational, economic factors and subjective image dimensions. The factors that can drive up the value of an offer can be grouped into specific driver classifications. These are summarised in Figure 1.9.

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The key to winning long-term customers is to understand what the customers value and their buying behaviour better than the competition does. Buyers will buy from the firm that offers the highest delivered value the difference between total customer value and total customer price. The total customer value is comprised of:

Product value. Services value. Personal value. Image value.


Total customer price is compromised of:

Monetary price. Time cost. Energy cost. Psychic cost.


In order to deliver enhanced value and to compete, a customer offer can be improved in three ways:

Augment total customer value by improving product,


services, personal and/or image benefits.

Reduce the buyers non-monetary costs by simplifying


the buyers time, energy and psychic costs.

Reduce the monetary price to the buyer.


In addition to these strategies that add value or reduce costs, a business can also enhance competitiveness through more effective positioning. There are a series of steps that can be taken to ensure effective
1. Define the segments of the market. 2. Decide which segment(s) to target. 3. Assess the utility drivers and hence what customers value. 4. Develop the product or service to cater specifically for customer needs and expectations. 5. Evaluate the positioning and images as perceived by target customers of competing products and services in the selected market segment(s). 6. Select an image that sets your products and services apart from those of competitors, matching the images with the aspirations of target customers. 7. Develop a marketing mix which matches your desired market positioning.

Figure 1.10 Step-by-step positioning of a product or service.

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positioning of an organisations product or service. These are included in Figure 1.10. Positioning relies on customer perceptions. The key steps involved in developing a perceptual map are outlined in Figure 1.11.

Unit 1

1. 2. 3. 4.

Identify a set of competing brands. Identify important attributes that consumers use when choosing between brands using qualitative research (e.g. focus groups, group discussions). Conduct qualitative marketing research where consumers score each brand on all key attributes. Plot brands on a two-dimensional map.

Figure 1.11 The key steps in developing a perceptual map.

An example perceptual map is included again below.


High quality High price

M&S X

Waitrose X Asda X

Tesco X

J Sainsbury X

Low choice Limited range Safeway X Lidl X Kwik Save X

High choice Extensive range

Aldi X

Lower quality Low price


Figure 1.12 Perceptual mapping: supermarkets.

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Pricing
It is sometimes assumed that, compared with decisions about the other elements of the marketing mix product, promotion, place, pricing decisions are relatively simple. For example, it might be argued that if we know the costs of producing and marketing a product, and have also decided on a specified percentage amount which is to be added to these costs to generate surplus or profit, we can easily calculate the selling price required. However, an important principle for pricing is that the strategy, objectives and plans for pricing must be consistent with, and related to, overall organisation and marketing aims and objectives. From this point of view it becomes important to realise that many factors should be seen as affecting decisions about price, including:

The product life cycle. Introduction of new products. The product portfolio. Pricing of the product line. Segmentation and positioning. Branding.
The activity that follows will give you the opportunity to think about how each of these factors might have an impact on pricing strategy.

ACTIVITY
For each of the following statements note down how each of these factors might affect your organisations pricing strategy:

Product life cycle. Introduction of new products. The product portfolio. Pricing of the product line. Segmentation and positioning. Branding.

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There is no one right price to charge for a given product or service. You must determine what you are trying to accomplish, relating, for example, to:

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The rate of return on investment which you seek. The market share which you seek. A particular image you wish to convey. A desire to be a price leader. The wish to discourage entry into the market by new
competitors.

Intention to treat something as a loss leader.


There are broadly two types of approach to decisions about prices: cost-based approaches and demand-based approaches.

KEY POINT
Cost-based pricing Accountants can calculate the full cost of making a product. Many businesses take this full-cost figure, and then include a mark-up so that a profit will be made.

The main limitation of using this cost-based pricing is that it ignores


the competition.

Most businesses are price takers, not price leaders. Price takers set
prices close to others in the market.

If the business uses cost-based pricing only, it may find competitors


prices are lower. In such cases, it will not be able to compete successfully on price. Demand-based pricing The basic law of supply and demand is that demand falls as price increases and demand increases as price falls. Price is, therefore, a major influence on the level of demand for the products of a business. Other influences on a products demand include:

The availability of substitutes for the businesss products the more


substitutes there are available, the more sensitive the product will be to changes in its price (customers will switch to the substitutes).

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The level of consumer income in general, demand for a
product increase as income levels increase.

Changes in consumer tastes demand will change as tastes


change.

How sensitive customers are to price they balance the price


against other aspects, e.g. the products status, quality, design and performance.

ACTIVITY
What approach does your organisation use to determine the prices of its products or services? To determine this information you may need to speak to managers within your organisation.

Businesses use different strategies to price their new products. Incorrect pricing strategies mean the business will not find customers and, therefore, will lose income. Two main strategies exist for new products:

Penetration pricing - for a low-price set in the hope of


gaining a high market share. The business will gain economies of scale, which help it keep the price low, and the low price set may stop competitors from entering this market.

Skimming (or creaming) - the business brings out a new,


a unique product, which is the early market leader. This enables it to set a high price because there is no competition. The price will then fall when competitors with similar products enter into the market. There is also a middle path where pricing is set in the context of building long-term relationships with customers. So-called relationship marketing involves a co-operative of mutually beneficial approach to trading between supplier and customer, rather than the older confrontational approach. While this applies largely in industrial transactions, it also applies to dealings between manufacturers and wholesalers and major retail chains. Prices and margins are set at levels acceptable to both sides in the expectation of long-term relationships. Purchasers prefer stable prices which will not drive suppliers out of business. Suppliers prefer stable relationships at reasonable rates, rather than constantly seeking new customers or renegotiating with the old.

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In these situations the extremes of skimming or penetration pricing determined by the producer will give way to market-based pricing strategies aimed at securing and retaining a stable customer base. Relationship marketing does not preclude careful negotiation. It does, however, imply negotiating to obtain maximum mutual long-term benefit which can then be divided, rather than each side seeking its own maximum short-term benefits which may not endure.

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Distribution
Today, most producers of goods and some providers of services do not sell directly to the final users. Instead, the goods and services move to the user from producers via a series of intermediaries or people in the middle, who also themselves fulfil a variety of functions. Decisions about channel are those which are reflected in the place element of the marketing mix. The task, in relation to distribution, is to ensure that the products or services are available at the right time, in the right place and in the right quantities. People in an organisation must decide on the type of channel they will use to reach their target markets. They must select, recruit and organise intermediaries within that channel, and decide on stock levels, forms of delivery and timing of delivery. Marketing managers must also understand the various dimensions of the channels and, in particular, the variety of types of channel these dimensions give rise to. They should also be familiar with the different sorts of channel intermediaries, their roles and the relative advantages and disadvantages of each. Some basic alternative forms of channels of distribution for both consumer and industrial markets are illustrated in Figures 1.13 and 1.14.

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A Producer Producer B Producer C Producer D Producer Agent or broker Agent or broker

Wholesaler

Wholesaler

Wholesaler

Retailer

Retailer

Retailer

Retailer

Customer

Customer

Customer

Customer

Customer

Figure 1.13 Marketing channels for consumer products.

A Producer Producer

B Producer

C Producer

D Producer

Agent

Agent

Agent

Industrial distributor Industrial buyer Industrial buyer

Industrial distributor Industrial buyer Industrial buyer

Industrial distributor Industrial buyer

Figure 1.14 Marketing channels for industrial products.

The marketing manager must also understand and appreciate the implications of the dynamic and changing nature of marketing channels. Channels of distribution represents one of the most rapidly evolving and dynamic areas of marketing. This is especially the case in retailing in the UK. Not only have these changes led to the growth of new types of intermediary and the subsequent decline of more traditional ones,

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they have also led to the growth of completely new channels for distributing products and services. Wholesalers are not as commonly used as they once were. A major reason for this is the growth of large-scale retailing. Major retailers such as Tesco and Sainsbury have their own warehousing and distribution systems. The fall in the number of small-scale retailers has also affected wholesalers but they have adapted, e.g. by setting up voluntary chains and supplying those linked to retailers with their goods. Traditional wholesalers could still offer valuable services to both producers and retailers:

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Services to producers: - Buying and storing in bulk - this cuts the producers
distribution costs.

- Advice and promotion - feedback on the product


popularity can be given , and a wholesaler may help promote the manufacturers product.

- Taking on risk - a wholesaler bears the risk of not


selling the products.

Services to retailers: - Breaking bulk - the wholesaler buys big and sells
small.

- Information and choice - product information may


be given on a variety of goods.

- Delivery and credit - many wholesalers still offer a


delivery service for the smaller retailer, and their credit facilities help retailers finance their purchases. Accompanying these changes in overall structure of distribution, there have been equally important changes in the relationships between retailers and manufacturers, policy-makers and providers, and in particular in the focus of power.

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KEY POINT
Key distribution considerations include: Costs What are the transport costs for: organisations own fleet; rail freight: road transport ; air freight; sea/water transport; postal charges; forwarding agents fees; etc? What are a warehousing costs for: inventories; handling goods received; locating, retrieving and order picking: insurance, heating; etc? What are materials handling costs? What other packaging and packing costs? What other distribution costs are involved? Are distribution costs broken down for home and export markets? Service requirements What level of service is expected by the customers? How will this affect inventory levels? What delivery service is being offered by competitors? What are the distribution and marketing implications of the proposed services? Organisation Who is responsible for laying down policies and making decisions on: forecasts of customer needs ; inventory levels; production programmes; number, location and size of depots; selecting modes of transport; order processing procedures; mechanical handling systems; packing and packaging requirements? Does the organisations structure permit close co-ordination of distribution with marketing and manufacturing operations? What revision of the structure will improve this co-ordination and integration?

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ACTIVITY
Who are the intermediaries which your organisation uses to service its end-users? What functions do each of these intermediaries serve? How does your organisation influence and manage these intermediaries? Complete the chart.
Who are the intermediaries which your organisation uses to service its end users? 1.

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What functions do these intermediaries serve?

2.

3.

4.

How does your organisation influence and manage these intermediaries? You may need to talk to senior managers to answer this question.

Electronic commerce (e-commerce) is a popular development, now used by many businesses to sell their products. E-commerce options include selling over the Internet, or using electronic shopping malls available through interactive television.

ACTIVITY
Describe the advantages and disadvantages to business of e-commerce.

ACTIVITY FEEDBACK
Advantages to businesses of using e-commerce include:

Consumers can buy products 24 hours a day, seven-days-a-week. It can be inexpensive to set up and operate.

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Since the Internet is international, the business can sell in new
markets. Disadvantages include:

Many consumers lack technology or expertise. A lack of trust may exist in buying over the Internet. Customers may simply be unaware of the e-commerce site.
To explore some of the many shopping sites that exist on the Internet. Some of these include www.buyguide.co.uk www.ukshoppingzone.co.uk www.shop.co.uk www.first-e.co.uk www.smile.co.uk

Promotion
Organisations continuously promote themselves to their customers, clients and stakeholders for a variety of purposes, which include:

To inform prospective customers about their products,


services and terms of sale.

To persuade people to prefer particular products and


brands, shop in certain stores, attend particular entertainment events and perform a variety of other behaviours.

To induce particular actions from customers and users.


Such purposes are pursued by many different means: advertisements, salespeople, store signs, point-of-purchase displays, product packages, direct mail literature, free samples, coupons, publicity releases and other communication and promotional devices. Taken as a whole, marketing specialists refer to these as marketing communications and/or promotion management. Promotion embraces a variety of methods: advertising, publicity, personal selling, sales promotion, and point-of-sale communications. Figure 1.15 lists a wide range of promotional activities.

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Advertising. Air miles. Audio-visual sales aids. Banded packs. Brochures. Catalogues. Company visits. Competitions. Coupons. Design . Direct Mail. Directories. Financial incentives. Free gifts. Free mail-ins. Guarantees. Incentive schemes. Leaflets. Loyalty cards. Merchandising. Off-permises displays. Packaging. Point-of-sale displays. Premiums. Public and press relations. Price reductions and pricing strategy. Self-liquidators. Special offers. Telephone selling. Vehicle livery. Yearbooks.

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Figure 1.15 Popular promotional activities.

Advertising involves either mass communication (via newspapers, magazines, radio, television and other media) or direct communication with consumers (via direct mail). A sponsor the advertiser pays for both forms of advertising, but they are said to be non-personal. They involve communicating with many people, perhaps millions of them, rather than talking with a specific person or small group. Figure 1.16 shows how advertisements can be categorised. Publicity, like advertising, involves communication to a mass audience, but unlike advertising, publicity is not paid for by the organisation. Publicity usually comes in the form of news items or editorial comments about an organisations products or services. Personal selling denotes person-to-person communication in which a seller attempts to persuade prospective buyers to purchase the organisations products or services. At one time personal selling mainly involved face-to-face interactions but, increasingly in developed economies, the telephone and other forms of electronic communication such as the fax machine are being used. Sales promotion consists of all those marketing activities which attempt to stimulate quick action by buyers or, in other words, which attempt to promote immediate sales of a product (hence the term sales promotion). Advertising and publicity are designed to accomplish other aims such as creating awareness of a particular brand and influencing the attitudes of customers. Sales promotions are directed both at the trade (wholesalers and retailers) and at consumers. Sales promotion which is aimed at the trade involves the use of various types of allowances for the display of goods, discounts for quantity, and help

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with merchandising. Consumer-orientated sales promotion includes the use of coupons, premiums, free samples, contests and rebates. Point-of-sale communications include displays, posters, signs and a variety of other materials which are designed to influence buying decisions at the point of purchase.

By appeal

factual emotional

By content

product advertising institutional advertising

By demand influence

primary product level selective brand level

By geographical spread By intended effect By sponsor

national regional local direct action delayed action manufacturer distributor manufacturer-distributor co-operative advertising joint by two manufacturers retail outlet

By target market

consumer industry trade government agencies

Figure 1.16 Classification of advertisements.

Marketers would urge that promotional management or the management of promotion is the practice of co-ordinating the various elements of the promotional mix , determining aims and objectives which the elements are intended to accomplish, establishing budgets which are sufficient to support the objectives, designing specific programmes (e.g. advertising campaigns) to accomplish objectives, evaluating performance, and taking corrective action when results are not in accordance with objectives. Advertising is perhaps the most visible manifestation of marketing, even if, at least on a large scale, it is the province of a minority of organisations. This may explain why so many people associate marketing with promotion, and promotion with advertising, and thus think that marketing is simply about advertising products and services.

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Whether on a large or small scale, advertising can consume a vast amount of resources. So it is important for managers to be clear what they are trying to achieve by advertising, and whether advertising is the appropriate promotional method to use. Major areas of decision in deciding upon and executing an advertising campaign include:

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Determination of the aims and objectives. Identification of the amount of money to be spent on
advertising.

Formulation of the creative strategy which is to be


employed.

Selection of the mix of different media which will be used


(e.g. print, radio, TV, etc.).

Scheduling of the advertisements. Evaluation of the campaigns effectiveness.

ACTIVITY
How does your organisation carry out each stage of an advertising campaign? By completing the following responses, assess the pluses and minuses of your organisations advertising activities and identify the key strengths and key weaknesses: My organisation determines advertising aims and objectives by:

My organisation identifies the amount of money to be spent on advertising by:

My organisation formulates a creative strategy by:

My organisation selects a mix of different media (print, radio, TV, etc.) by:

My organisation schedules advertisements by:

My organisation evaluates the campaigns effectiveness by:

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The key strengths of my organisations advertising activities are: The key weaknesses of my organisations advertising activities are:

Be sure to check your responses to this activity either with your own line manager, or with a manager from your organisations marketing department.

ACTIVITY
The organisation Interbrand annually produces a chart of the most valuable brands. Factors they consider in arriving at their top ten are the brand weight (market share), band breadth (appeal across age, gender and national barriers), brand depth (loyalty of its customers) and brand length (actual or potential stretch beyond its original category). The top ten brands for 1990 are shown in the table. Consider how the table may have changed by the year 2001. Compile your own expected top ten for 2001. 1990 Top Ten 1 2 3 4 5 6 7 8 9 10 Coca-cola Kelloggs McDonalds Kodak Marlboro IBM American Express Sony Mercedes-Benz Nescafe

ACTIVITY FEEDBACK
The top ten for 2001 was: 1 Coca-cola 2 Microsoft 3 IBM 4 General Electrics 5 Nokia 6 Intel 7 Disney 8 Ford 9 McDonalds 10 AT&T

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VIRTUAL CAMPUS
By access to the Virtual Campus, or by discussion with colleagues, attempt to name six brands that you think have made the biggest attack on the top ten in the last five years. Compare your thoughts on the subject and then try to agree on a current top ten.

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Face-to-face selling, advertising and sales promotion can all be described as primary types of communication. They are under your direct control and you pay for them. But there are also secondary sources of communication which are not under your direct control and for which you do not pay, including word-of-mouth, editorial comment, personal recommendation and so on. These secondary sources may still be influenced by your promotional activities. In turn, because of their supposed important nature, they may carry considerable weight with your consumers (possibly even more so than direct primary sources). A key secondary source of communication for an organisation is the press (meaning newspapers, TV and radio). It can be a very effective (and inexpensive) part of the promotional mix, and thus of the marketing mix. Investment in press relations can be many times more productive than that spent on other types of promotion (including advertising). This is just as true of a small company or organisation, which may find such PR the most effective vehicle for promoting its products, where it simply cannot afford large advertising budgets. However, PR, like many areas of organisational life, is an area where a great deal of professional expertise has been developed: organisations often choose to contract the specialist expertise of a PR agency if they do not have the internal expertise which is required. There are a variety of means or vehicles for publicity and PR which include:

Contacts with the media. Issuing news stories. Creating special events which may appeal to the media. Having a dedicated press office.

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ACTIVITY
To what extent does your organisation use the PR methods listed above? Contacts with the media:

Issuing news stories:

Creating special events which may appeal to the media:

Having a dedicated press office:

In your opinion, how effective is your organisations PR function?

In your opinion, would you say that your organisations PR function is reactive or proactive? Explain your answer.

Sales promotion is normally an adjunct to personal selling or advertising. The key characteristics of sales promotion are that it is:

A short-term activity. Directed towards the sales force, distribution channels or


consumers, or some combination of these groups.

Used in order to stimulate some specific action.


In recent years spending on sales promotions in both the USA and Europe has repeatedly overtaken that on advertising. Sales promotion covers a wide range of activities. A standard definition of it is as an activity or material (or both) directed at re-sellers, salespersons, or consumers that acts as a direct inducement to buy, because it offers additional or added value. Sales promotion, even if defined as above, is a very flexible activity. Many aims and objectives can be achieved by it. For example, sales promotional activity can:

Identify and attract new customers. Introduce a new product and encourage greater use.

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Bring more customers into stores or service delivery
points.

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Combat or offset the marketing efforts of competitors.


Selling involves the presentation of tangible products or intangible services and ideas in person to potential customers. It receives, or should receive, back-up from advertising, sales promotions and public relations. All four should be integrated. Personal selling has significant advantages over other methods of promotion including advertising, publicity and sales promotion. These derive from its face-to-face nature. However, it is frequently the most expensive communications tool that is used by an organisation, so it must be used carefully.

ACTIVITY
Review the nature and effectiveness of your organisations sales force. Identify any areas of operation or management of the sales force where you think your organisation could improve, and consider what may be the forces working towards and away from such improvements.

ACTIVITY
What do you think are the essential areas for a marketing manager to consider in order to produce and project the desired message in advertising?

ACTIVITY FEEDBACK
You may have looked at some of following points: The language of advertising.

How real examples of advertising construct meaning in a variety of


media forms.

How images, sound, copy and editing contribute to meaning in print


radio and TV advertising. How advertisers target products at specific audiences/markets.

How audiences are categorised and researched by advertisers. How advertising is positioned to reach audiences.

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How audiences respond to advertising.
How advertising has been produced by the advertising industry.

How campaign has developed from initial brief to final product. The roles and production processes within an advertising
agency.

The role of advertising in underpinning other media products.


The regulation and control of advertising. The messages and values represented in advertising.

The use of different gender, age, social, cultural, ethnic and


lifestyle groups in advertising.

The values and lifestyle choices associated with product


advertising. Selected debates in contemporary advertising.

Controversial advertising techniques. Use of celebrities and characters in advertising. Use of premiums in advertising. Food and drink advertising aimed at children. Toy advertising aimed at children. Animation.

Gap analysis
Gap analysis is a valuable tool for identifying customer expectations and assessing how well an organisation is performing in its task to fulfil those expectations. The purpose is to compare these expectations with not only what your organisation provides, but also with the performance of your competitors. The steps to create a gap analysis are: 1 Identify the factors that customers expect when they purchase a product.

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2 Allocate them a score indicating the importance that customers place on each factor from 1 for non-critical to 10 for critical factors. Give your own organisation and its competitor(s) a score for each factor. Map the results on a chart as shown. Having identified what factors are valued by your customers, and how you perform in these areas you may wish to review your strategy! 3 4 5

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Consider the example given for a garage supply company:

No. 1 2 3 4 5 6 7

Critical success factor (in descending order for importance) Quality Delivery reliability Price Enquiry response time Delivery lead time Technical back-up Company reputation

Market expectation 9 9 7 6 6 5 4

Company A 6 8 6 8 9 6 5

Company B 7 3 4 2 5 9 7

Gap Analysis

Significance of factor

10 8 6 4 2 0

Market Company A Company B

Quality

Critical success factors

Company reputation
7

Delivery reliability

Delivery lead time

Enquiry response

Price

Technical back-up

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ACTIVITY
Try a gap analysis for an organisation with which you are familiar. Choose a single product or service and analyse the expectations. Produce a critical success factor table, and then draw a gap analysis chart. (Use Excels Chart Wizard to help you.) Comment on your findings.

People
The ideal promotional mix will be specific to an individual product or service, and to the marketing aims and objectives which have been set in specific circumstances. A number of general factors may need to be taken into account when deciding on the mix:

The available budget. The actual message. Complexity of the product or service. The size and location of the market. Distribution. Product life cycle. Competition.
The nature of communications is undergoing rapid change due to new ideas and technology. One significant area of development is that of direct mail or direct marketing.

Processes and physical evidence


The presentation and appearance of all physical aspects of the business require care and thought as they serve collectively to provide an impression of the professionalism of the business. These include:

The outward appearance of the business. Vehicles. Staff uniforms. Internal dcor and furnishings.

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KEY POINT
It is crucial that the image projected through these physical aspects is consistent with the image that the business wants to project.

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ACTIVITY
Consider the physical setting of your business and answer the following questions: What impression is the physical setting likely to give to the customer? If this is not the impression that you want to project, what else needs to be done in order to get the physical setting right?

E-marketing strategy
With the advent of the Internet in the early 1990s as a major business tool, a new age of information technology and communication dawned. It was now possible to communicate in real time and have access to an ever-increasing source of information. In terms of marketing, this meant that strategy needed to move with the new times and use this exciting new development to its full capacity, not only for marketing but for all aspects of business. Partnerships and joint ventures could be much more easily undertaken as it was possible to make decisions and disseminate information instantly. Projects took a new element of monitoring and evaluation to ensure progress to plan. We will return to this subject and discuss it in more detail in Unit 3.

Customer relationship management


Customer relationship management (CRM) systems collect and integrate information about customers such as their buying patterns, personal characteristics, income bracket, demographics and lifestyle. Companies use such data to strengthen the ties with their more profitable customers and to attract other customers by special offers or promotions carefully targeted to suit their individual circumstances. For example, when a customer calls their insurer to ask about their car insurance renewal, the agent gets an immediate overview on the computer of all the policies that customer has or has made enquiries about in the past. The system also suggests some questions. So when the agent has answered the car insurance question they can then refer to

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other policies that may soon also be due for renewal, thus offering a greater service to the customer. CRM offers a great deal more than just a single product; it is a complete information package of its own, co-ordinating information from a range of sources. It can be used, for example, in:

Marketing campaign management. Sales force automation. Customer care. Contact management. Task management and scheduling.

ACTIVITY
Find out how CRM is used in your organisation. What are its key benefits?

Resource requirements
Many service sector businesses such as supermarkets, banks and cinemas have put a considerable amount of time and effort, into improving the process by which the customer is served. This has been aided by the introduction of new technology, increased personnel, new facilities, etc. Any improvements of this nature help to create a good impression of the business to the customer and may help you maintain a competitive advantage.

ACTIVITY
Critically evaluate the process through which the customer must go in order to obtain your product/service. How can this be improved for the benefit of the customer and for the development of the business for the future?

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Consideration must be given to the interface between the customer and employees of the business, particularly front line staff who have a great deal of contact with the customer. Trained and professional staff who understand the importance of customer care and deliver it are essential. A satisfied customer:

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Buys again. Talks favourably to other people about the business. Pays less attention to competitors products. Buys other products from you.
Most organisations should strive to exceed expectations, customer care and after-sales service play a major role in achieving a high degree of customer satisfaction. Monitoring of customer satisfaction is important. Research shows that 96% of unhappy customers never inform the organisation. Of those customers who register a complaint, between 54% and 70% will return to the business as a customer if their complaint is resolved, and 95% if they feel their complaint is resolved quickly.

KEY POINT
Ensure that when recruiting people for roles, which include a regular interface with customers, hey have good interpersonal skills, and they get the necessary training to provide professional customer care.

ACTIVITY
Consider the customer/staff interface in your business. How well trained are your staff in customer care? How is customer care monitored? Are there ways in which customer care could be improved? If so, how?

Integration of marketing activities


However good a product is, it will not sell itself. There has to be a careful decision over pricing in order for the product to make profit. The organisation will need to decide when and how to sell it, i.e. what

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distribution method or methods it will use. It will have to ensure that the product is promoted so that there is consumer awareness of it. Staff will need training in product knowledge, sales techniques and customer care/quality of service. Setting up a distribution network (even if using an existing network) incurs costs, as does any promotional campaign and staff training. The physical evidence must match the customers expectations and processes must provide the product as and when specified. All this impacts upon the cost of the product to the organisation, and hence on the ultimate price charged for product. Changes in any of the seven elements of the marketing mix can affect profitability. For example, increased costs in product production and management; changes in the distribution network; advertising campaigns or new training courses will affect the pricing for a product. The organisation must identify these changes and then decide whether to alter the price or absorb the increased costs. Other factors also have a direct impact on the inter-relationship of the marketing mix. Changes in consumer buying behaviour can lead to development of new products and new delivery systems. Economic changes such as a recession can result in the financial services sector in reduction in the sale of lending products and an increase in the sale of savings products as consumers become wary of debt and the inability to repay loans if they lose their jobs. The increasing demand for telephone banking, for example, has resulted in most banks and insurance companies either bringing in new services or redesigning existing telephone services. Heavy costs are involved, not only in developing the services, but also in promoting them, providing the physical evidence, and very importantly getting the processes right, thus the organisation must ensure that the pricing of such services contributes to profits, or is priced as a loss leader to prevent losing valuable customers to competitors.

ACTIVITY
Choose a product (or service) that your organisation produces, or one about which you have a detailed knowledge, and develop a full marketing plan by addressing the elements of Product, Pricing, Place and Promotion. How might other elements be incorporated into your plan. Prepare a report to management detailing your proposals.

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Summary
Market analysis is a prerequisite to effective market strategy implementation enabling scarce resources to be focused on homogenous consumer groups. A number of criteria may be employed to segment markets and in recent years measures derived from the assessment of personality variables have attracted growing interest. Organisations can more readily meet the needs of customers if they understand how customers spend their time and money and what they value. The essence of this type of information is lifestyle analysis. Since the early 1980s managers in many countries have been able to target their offerings to narrow groups of customers defined in terms of demographics. Techniques are now widely available to allow the firm to reach key segments and household types. But many components of the marketing mix maybe manipulated so that the firm fits the desired position in the target customers perceptions. A number of techniques are available to reduce the uncertainty associated with the positioning process and effective position in strategies are now being successfully pursued by many firms. The task of marketing management is the process of identifying target markets, researching the needs of customers in these markets and developing the product, price, promotion and distribution to create exchanges that satisfy the objectives of the organisation stakeholders. Product offerings are differentiated by branding - a high degree of brand loyalty is one of the greatest assets of marketer can possess. This is because strongly favourable attitudes resist change, thus making competitive inroads both difficult and expensive. Pricing policy is an exercise in reconciling the market forces acting on the firm in order to provide a consistent offer to the customer. As with most forms of organisational operation, marketing benefits from a co-ordinated approach to its activities. The integration of all the different aspects of marketing allows a organisation to pull in the same direction and, hence, maximise its efforts. There are three forms of operational integration:

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Horizontal - between departments in the same company,


or companies in the same industry, and at the same stage. Here, integration increases market share and power, and leads to economies of scale.

Vertical - between departments in the same company, or


companies in the same industry, but at different stages. This form of integration strengthens control of the supply and sales of products. (Vertical backwards is when the

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organisation controls business back down the chain of production. Vertical forwards is when the organisation controls business closer to the final customer.)

Lateral - between departments in different companies, or


between companies in different industries. This integration helps the organisation diversify into different markets, which reduces risk. If one market fails, reorganisation can continue trading in its other market(s). Promotion is an exercise in communication. The communication model sets out to answer the following questions: (1)who (2) says what (3) how (4) to whom and (5) with what effect? It is widely accepted that measures of recall provide the marketer with the best available gauge of advertising effectiveness. Place refers to distribution, whose objectives include:

Outlet penetration by type of distribution. Inventory range and levels to be held. Distributor sales and sales promotion activities. Other specific customer development programmes, e.g.
incentives for distributors.

Tools and Techniques


The basic goals, or objectives, of the organisation are the starting points for marketing planning. These goals serve as signposts from which marketing plans are established. Goals will vary amongst organisations, but will generally focus on market shares, profitability, sales and shareholder value. In most cases the objectives will be quantifiable; for example, achieve an 8% profits increase over last year, attain a 15% increase in market share by 2004. Non-quantifiable objectives can be included, but only if such objectives are in fact difficult to quantify. As an example, attaining the best image in the marketplace could be considered to be an objective. It would be better though if this could be measured in some way, perhaps through customer research, so that it can be clearly seen as a quantifiable objective.

ACTIVITY
List the objectives of your own organisation.

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Discuss your list with a member of your management. Does your list cover all angles of the organisations operations? If not, re-draft your list to include as many objectives as you can.

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Strategic business units

KEY POINT
A Strategic Business Unit (SBU), according to Ansoff; is a unit of a firm which has the responsibility for developing the firms strategic position in one or more strategic business areas.

The SBUs focus managers attention on the areas for development without imposing the types of operational constraints typically associated with brand and product management. The market could be developed as an integrated totality rather than in a piecemeal way through specific offerings. At the same time, management is forced to look at markets in terms of benefits and costs. Attention is redirected towards the returns being earned. Simultaneously, senior corporate management has the freedom rigorously to appraise the different areas of activity within an internally consistent framework. Despite these claims it is clear that SBUs have not lived up to their early promise. It would appear that simply devising alternative organisational structures cannot compensate for lack of strategic insight. There is increasing criticism of the approach of modern writers on marketing strategy. This criticism centres on the emphasis on analysis, and the priority given to positioning of action and implementation. Popular failings of current approaches are:

Too much emphasis on where to compete and not


enough on how to compete.

Too little focus on uniqueness and adaptability. Inadequate emphasis on when to compete. Too much attention to firms as competitors rather than
individuals as competitors.

Too much use of the wrong measures of success.


These observations fit into a more general comment that the development and implementation of marketing strategies are inseparable. Success turns on the ability of marketing managers to identify areas of strategic advantage which meet customer needs in ways which build on the organisations strengths and overcome

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weaknesses. This is done in a competitive environment in which skill rivals are seeking to achieve the same results. Some consider that the focus for competitive strategy must be the business or business unit in a single competitive market. This does not necessarily match the traditional notion of the SBU as it excludes multi-product, multi-market administrative units and re emphasises the fit between the offering and the market. The practical possibilities of SBUs are demonstrated in Figure 1.17.

CASE STUDY
Strategic planning at 3M The Minnesota Mining and Manufacturing Company (3M) began making sandpaper about 90 years ago. Today it has more than 50,000 different products, a turnover of $13 billion and a return of investment of 24 per cent. 3M is organised into 44 SBUs grouped into four sectors: the Industrial and Electronics Sector, making such things as tapes, abrasives, adhesives and electronic connectors, the Life Science Sector, comprising pharmaceutical and healthcare products, the Information and Imaging Technologies Sector, concerned with the area of commercial graphics, audio visuals, magnetic media and imaging systems, and the Commercial and Consumer Sector which makes such things as Post-It notes and Scotch tape. Formal objectives are assigned to each business unit; for example, research and development objectives (to obtain 25 per cent of sales from products introduced within the last five years), growth objectives and return on investment objectives. The industrial tape business unit operates in an industry where both the basic technologies and customer segments are mature and relatively stable. Growth in this SBU results from seeking new applications for the adhesive technology, product extensions and expansion into global markets. In contrast, the medical products unit is at the forefront of emerging technologies. Most of this units growth, therefore, comes from developing innovative products for new markets. Differences in customer needs, product life-cycle stage and competitive considerations lead the various business units to pursue their corporate strategies and different ways.

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1. The SBU concept underlying principles segment with a clearly defined strategy.

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Manage the diversified firm as a portfolio of businesses. Each to serve a clearly defined product/market The strategy of each SBU is discrete but consistent with overall objectives. Design and manage the SBU portfolio to achieve corporate strategic objectives.
2. Traditional planning

Define overall corporate objectives. Disseminate as targets to various divisions. Divisions negotiate targets bottom-up/top-down consensus. Approved plan is a result of this negotiation. Advantages:

- Forced managers to set explicit targets. - Corporate entity could total component targets in advance, therefore pinpoint shortfalls. - Allowed development of sophisticated control systems.
3. The SBU alternative

Identify the SBU. Strategic analysis for each SBU for competitive advantage and market attractiveness. Strategic management of each SBU. Follow-up and appraisal.

Figure 1.17 SBUs a do-it-yourself guide.

Porters Five Forces model


Michael Porter was an innovator in structural analysis of markets, which previously tended to focus largely on direct competition in the industry, without looking systematically but the context in other stages of the industry value chain, referred to earlier.

KEY POINT
Porters five forces to analyse are:

Threat from potential new entrants. Threat from substitutes used in different technology. Bargaining power of customers. Bargaining power of suppliers. Competition among existing suppliers.

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Potential entrants Threat of new entrants Bargaining power of suppliers Suppliers Rivalry among existing firms Threat of substitute products or services Substitutes Industry competitors Bargaining power of buyers Buyers

Figure 1.18 Porters Five Forces model.

The interactions between the five forces are shown in Figure 1.18. From this quarter builds a useful model of industry attractiveness about how this might change over time, both because of the rejected economic changes and also because of the ambitions of the players themselves.

ACTIVITY
Using your own organisation, or one with which you are familiar, consider how the Five Forces model could be applied in an analysis. To use the model well, the following advice is worth noting:

Take time over it while a first pass will give you a good
intuitive response, reflection will greatly enhance the value it provides.

Concentrate on each of the five areas individually, thinking


hard about them to get into the mindset or perspective each would have.

Seek advice, input, collaboration; talk to suppliers, customers,


people in related industries or companies who might enter the market.

Assemble as much research as you can about your known or


existing competitors.

- How important is the market to them?

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- How profitable are they? - How good are they? - What emotional commitment might they have in the market? - What would you be doing in their shoes? Think globally about each of the five areas. If the market is
intrinsically profitable, predators may be anywhere.

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Think of the impact of technology in each of the five areas.


As you form a picture of the likely competitive environment in which you will be operating, reflect on the consequences of what the model reveals. You will be hatching a strategy to deal with your findings, and it is important that this strategy is imaginative and subsumes the possibilities of partnerships and collaboration as well as competition.

ACTIVITY FEEDBACK
Your results might look something like Figure 1.19:

New entrants Cost of entry Inherent profitability Fixed/variable cost Global operations

Substitute products Cheaper Better Different

Existing players Competition within the industry

Suppliers Supplier concentration Bargaining power Supplier extension Fixed/variable cost


Figure 1.19 An example Five Forces framework.

Customers Buyer concentration Customer loyalty Switching costs Buyer motives

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STEEPLE analysis
Marketing information and intelligence have to suggest possible answers to a number of questions. In trying to cover a wide spectrum of study, it is necessary to recognise the value of internal and external information. Internal information is obtained from a firm's own records of its activities, past results and forecasts. Every department has a useful contribution to make here. Given a good reporting system, information is easily available on sales, sales costs and profits; production capacity, volumes; inventories; distribution and delivery; pricing; promotional expenditure; cash flows and other financial matters (e.g. cost control exercises, credit control); manpower and personnel matters including labour availability, turnover and utilisation. The general availability of computers should be no barrier to effective use of this information. It provides not only the historical-based information for forecasting but is useful in achieving more effective control of ongoing operations. For example, airlines are able to discover what the seat availability is for specific flights at any time. Manufacturers can get instant status reports on sales to date, inventory positions, current market shares and even estimates on the profit being earned. Banks can get instant print-outs on the status of deposits and withdrawals at each branch, the amount and type of loans made, and so on. External information is collected from a wide variety of sources and can range from hard facts to rumours. It allows a company to analyse and assess the competition it is facing, and changes in the technological and economic conditions affecting its business situation. Social, environmental, legal and political information is increasingly important as wider issues may affect the firm too. Any of this information may show whether there are opportunities or threats for the market. Because of the wide range of data potentially available, it is useful to have some formal structure within which to collect and analyse information. One format, known as STEEP analysis social, technological economic, environmental and political factors - and is particularly valuable when considering entering an export market. Some of the main factors under four headings are: Social forces include:

Demographic change - age: people are living longer - the family: people marrying later and having fewer
children

- education: rising number or educated people - increasing diversity: European integration

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- mobility: people living/moving to new areas Changes in lifestyle (faster pace of life leading to a
demand for products/services which enables people to do things more quickly and conveniently).

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Fashion and trends


Technological forces include:

Fast pace of technological change Research and development (a need for increased budgets
to keep step with the pace of technological change)

Opportunities for innovation The cost of technology (reducing/increasing) Increased regulation (health and safety aspects of new
products/services) Economic forces include:

The state of the economy in terms of economic


growth/decline

Interest rates Exchange rates Taxation Inflation Customers disposable income and attitude to spending
Environmental forces include:

Shortages of raw materials Increased energy costs Environmental protection controls Increased pollution
Political forces include:

Government policies and legislation Political stability Public interest groups (consumer watchdogs)

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Ethics and social responsibility Increased pollution
Each of these forces can impact on the organisation in some way and need to be monitored carefully in order to anticipate possible developments. In so doing we can endeavour to put strategies in place to seize any opportunities and minimise the impact of any threats. (In addition, some authorities include the extra factors of legal and ethical, giving the acronym, STEEPLE. In some texts, this same method of analysis is referred to as a PESTLE or PESTLIED analysis, if an international dimension is included.)

ACTIVITY
Using the grid provided, conduct a STEEP analysis for your own organisation. Using the macro-environmental forces listed above as a guide, list those factors which will directly affect your organisation over the next 12 months. Note the key issues which, as a result, will need to be addressed.

Social factors to be considered: 1 2 3 4 5 6 7 8

How my organisation will address these factors?

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Technological factors: 1 2 3 4 5 6 7 8 How my organisation will address these factors?

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Economic factors: 1 2 3 4 5 6 7 8

How my organisation will address these factors?

Environmental factors: 1 2 3 4 5 6 7 8

How my organisation will address these factors?

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How my organisation will address these factors?

Political factors: 1 2 3 4 5 6 7 8

What additional considerations might you make to incorporate legal and ethical issues?

ACTIVITY FEEDBACK
There are no right or wrong responses to this activity, as the factors you have identified are specific to your organisation and the needs of your organisations market. The main benefit of working through this activity is that you should now have a good idea of the kinds of factors, which may impact, on your organisation over the next 12 months. This knowledge will now allow you to plan accordingly.

The overriding factor is that there is so much external information which might be collected but some discipline must be established on what is to be held, in what form, and so forth if an efficient system is to be developed. Then there are regular audits which should be conducted to ensure that the system evolves with the needs of the organisation, and that dead wood is cut out to make room for new growth.

VIRTUAL CAMPUS
Consider doing the STEEPLE exercise with a group preferably those people who will be responsible for delivering the plan to support the strategy. Share your conclusion using the Virtual Campus, or with colleagues who have experience of other organisations. Note similarities and differences between all the findings.

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SWOT analysis

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KEY POINT
SWOT is a mnemonic standing for Strengths Weaknesses Opportunities and Threats It is a commonly used tool, familiar to most line managers. Its primary purpose is to locate the organisation in its operating environment and try to assess its internal and external capabilities and vulnerabilities its purpose is diagnostic. Using a SWOT analysis after a STEEPLE session is a good way of organising all the data you may have gleaned into a format which makes it easier to assimilate. As SWOTs are put together there is usually no difficulty in discriminating between, on the one hand, strengths and opportunities and, on the other, weaknesses and threats. There is often confusion as to the difference between a strength and an opportunity. Strengths are internal, opportunities are environmental. Similarly, weaknesses are internal, threats are environmental. Figure 1.20 makes this clear. Grasping this distinction is more important than mere semantics. Strengths and weaknesses are usually within your control to consolidate the former and to eliminate the latter. Opportunities and threats are not within your control. They call for the organisation to adapt, to take advantage of the opportunities and to minimise the effect of the threats.

Characteristics of the organisation: Strengths For example: Skilled workforce Good systems Strong brand Inadequate resources High cost base Slow internal decisions

Weaknesses

For example:

Characteristics of the environment: Opportunities For example: Booming economy Cheap credit Fashionable product Global competition Hostile legislation Industry reputation

Threats

For example:

Figure 1.20 SWOT analysis.

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Realising that radically different organisational behaviour is called for in response to your analysis greatly assists the process of developing strategic intent. The strong advice then is to use the tool with precision. Doing a SWOT analysis is a good group activity. You can use syndicates working on strengths and weaknesses (internal) and a second syndicate working on opportunities and threats (external). This helps reinforce the basic discipline of the exercise. The result of a good SWOT analysis is usually twofold: 1. 2. It enables you to put shorter-term plans together to consolidate strengths and address weaknesses. It usually calls for more research, analysis and idea generation about the environmental factors, the threats and the opportunities

Figure 1.20 shows what a SWOT analysis might look like, on paper. This would be a relatively lean example of a SWOT analysis. Most carry a greater level of information, and most actually build over time as people think of other things to add. The tool remains a standard in the repertoire of most managers as it provides a good basis for recording a great deal of information and organising it in a way which is a good precursor to planning and strategy development.

ACTIVITY
Once again consider your own organisation. Carry out a basic SWOT analysis and determine where the strengths and weaknesses of the organisation lie. Now, repeat the activity using a large retail organisation possibly even a global corporation. Use the SWOT analysis to evaluate the position of the organisation within its market.

Marketing audit

KEY POINT
This establishes the internal position of the company in marketing terms in other words where are we now. Similar to a financial audit of a business, whereby accountants take a snapshot of the business once a year for the annual accounts, the purpose of a marketing audit is to establish the marketing position for the company.

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The details of the marketing audit can be gathered from the section below. Overall though, the marketing audit is very important for an organisation, as future strategies will take account of the information thrown up by the actual audit. The main points associated with an audit are given here:

Unit 1

The current marketing situation of a company or


department is compiled using a marketing audit. The marketing audit is the means by which information for planning is organised.

The audit is the means by which a company can


understand how it relates to the environment in which it operates.

An audit is a systematic, critical and unbiased review and


appraisal of the environment and of the companys marketing and its operations. The marketing audit, in attempting to answer the question, where are we now, must take account of the fact that:

A company is faced with two kinds of variables; those


over which the company has no direct control (environmental and market variables) and those over which it has complete control (the operational variables).

The audit is therefore split into two parts: external audit,


concerned with the uncontrollable variables, and an internal audit, concerned with the controllable variables.

ACTIVITY
What do you think are included in the internal and external audits? What are the variables? Make a list of those elements that you believe should be considered. (The external audit will be looked at in detail in the next main section of the module).

ACTIVITY FEEDBACK
A list of items that could be included in the internal audit: Marketing operation variables:

Sales - Total.

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- By location. - By customer type. - By product. Market share. Profit margins/cost profiles. Marketing procedures. Marketing organisation. Marketing information/research.
Marketing mix variables:

Product/service management. Product range and quality. Stock levels. Pricing, discounts, credits. Distribution characteristics. Sales promotion. Advertising. Packaging. Selling. Point of sale materials. Public relations. Training.

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The Marketing Objectives
The next step in the marketing planning process is to set the marketing objectives. These will mirror the corporate objectives that the organisation has set for itself as we discovered in the first part of this section. In essence, the development of a marketing plan is part of the overall corporate planning or corporate strategy process it is a way to assist in the achievement of the overall business objectives. Whilst an objective is what you want to achieve, a strategy is the way in which you will achieve the objectives set. At this stage of the marketing planning process, realistic and achievable objectives should be set for the companys major products and/or services in each of its major markets. Unless the objective setting is done well, everything else that follows in the planning process will lack focus and cohesion. The specific marketing objectives are created in order to accomplish the broad objectives. The end result of the process should be objectives that are:

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Consistent with the strategic plan. Attainable within budget limitations. Compatible with the strengths, limitations, and
economics of other functions within the organisation.

Strategic Options
Marketing planning must be directed towards establishing marketing strategies that are efficient, effective, flexible and adaptable. The marketing strategy represents the overall company strategy and action for the seven elements of the marketing mix. This marketing mix is discussed in much more detail later on in the marketing module and at this point we will merely name the 7 Ps; price, promotion, place, product, process, physical and people. In broad terms, a company will select a particular target market of customers and will then satisfy the customers in the particular segment through careful use of the elements of this marketing mix. In determining the strategy best suited to their marketplace, a company will need to fully understand the market, customers and competitors in order to come to a sound decision. This information is combined with the other audit information covering the resources of the company. The marketing audit section that was covered above outlined the key points to consider and also introduced the SWOT and PEST analysis techniques that can be used to combine the companys resources with the opportunities in the marketplace.

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m 12 10 8 6 4 2 Forecast New strategies gap Objective

Time
Figure 1.21 Gap analysis.

Having established where you are now through the marketing audit and where you are going via the establishment of corporate and marketing objectives, the next step is deciding how to get there your marketing strategy. Very often where a company wants to go (based on its objectives) and where it is actually going, do not match up. Gap analysis highlights the fact that if corporate sales and other financial objectives are greater than the current long-range forecasts, new strategies are needed to fill the gap. This is illustrated in Figure 1.21. Ansoff (1987) suggests that the strategies gap can be filled through one of the following strategies:

Improved productivity - Reducing costs. - Improving the sales mix. - Increasing prices. Market penetration. Reducing the objectives. Market extension. Product development. Diversification.

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How some of these key strategies relate to each other in practice can be seen in Figure 1.22:
existing products Market penetration strategy existing markets 1. More purchasing and usage from existing customers 2. Gain customers from competitors 3. Convert non-users to users Market development strategy new markets 1. New market segments 2. New distribution channels 3. New geographical areas new products Product development strategy 1. Product modification via new features 2. Different quality levels 3. New product

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Diversification strategies 1. Joint ventures 2. Mergers 3. Acquisition/take-over

Figure 1.22 The Ansoff strategies matrix.

ACTIVITY
Think about companies, or particular brands of companies, that have pursued the strategies given in the Ansoff matrix. Look at the descriptions given in each quadrant of the matrix and identify companies/ brands that fit the criteria.

ACTIVITY FEEDBACK
Taking each quadrant in turn, examples are given below. Dont worry if your answers are different, the primary concern is to ensure your understanding of the principles. Examples include: Market penetration

Kelloggs advertising the fact that we can eat cornflakes at any


time of the day!

BT its good to talk. Special offers through the post, in magazines attempting to get
you to buy something, e.g. take out life insurance and receive a store voucher, house insurance we will pay the switching fee.

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Special offers on the Sky Digital box to encourage non-users
to subscribe to the monthly payment service. Product development

40-plus toothpaste. Widescreen television. CD Rewriter on a computer. TNT guaranteed overnight delivery.
Market development

Tesco home shopping. Amazon.com. Morrisons supermarkets moving from their northern base in
the UK to the midlands region.

Staples catering for the emerging home office market.


Diversification

Numerous examples of mergers and takeovers Time


Warner, BHS and Arcadian, etc.

Joint ventures include the SMART car Mercedes and


Swatch.

Constraints
When an organisation determines its corporate and marketing objectives it has to recognise the constraints under which it operates. Achieving profit objectives may seem to necessitate cutting the marketing budget, whilst achieving sales targets may appear to mean lowering the price, which in turn reduces the profitability. In addition to the trade-off between sales expansion and profitability, there may well be other constraints. Examples include, a company wishing to enter a new market may not have a good understanding of what the market dynamics are. A further example would be a company wishing to introduce a new product or service, when there are question marks over whether the company has the necessary resources and skills to actually do this.

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Other limiting factors can range from a lack of money to finance a new investment, the wrong skills amongst the workforce and a lack of understanding of a new market place. All of these constraints must be recognised and accounted for if the plan is to actually work in practice. For any audit to be worthwhile and for it to give a true reflection of the organisation's activity it must cover all aspects of the business and not simply be directed towards apparent trouble spots. Without this degree of comprehensiveness, a manager's effort would be directed towards the effect of poor performance or direction rather than the true cause of any problems.

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In order to ensure the thoroughness that is needed to


ensure a comprehensive review, a systematic approach aimed at identifying and evaluating the data is crucial. This is in order to avoid any elements being overlooked and permit effective development of future strategies and implementation. Almost inevitably, if such an audit is undertaken by personnel within an organisation our outlook is likely to be tainted by experience or pressures within that organisation. Indeed, how objective would managers be in auditing activities for which they have responsibility? As it is necessary to strive for a high level of objectivity or independence, there is often the need for external consultants to be used, despite the potentially high costs.

If the audit process is to be fully beneficial for the


company it needs to be carried out on a periodic or regular basis in order to review activities, check on progress in line with the overall strategic objectives and permit action to be taken to correct or improve on performance. An example framework is shown in Figure 1.23.
Resource auditing Value chain analysis Resource utilisation Finance Comparative measures Measures of balance Performance importance Marketing effectiveness SWOT analysis
Figure 1.23 Putting the marketing plan together.

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Step 1 Resource auditing This involves the identification and devaluation of the internal and external resources available to the organisation and looking at aspects of tangible resources, including physical, human and financial elements, as well as intangible resources such as brands. Step 2 Value chain analysis Developed by Michael Porter, the value chain analysis is used as a means of gaining and maintaining competitive advantage. It does this by categorising activities of an organisation into primary activities, those were the direct impact on the companys product, and support activities, those related to the running of the organisation as a whole. Step 3 The utilisation of resources This is concerned with examining ways in which resources are currently used and might be changed in order to increase levels of efficiency and effectiveness and, hence, the degree of competitive advantage. Step 4 Financial measures The next step involves a review of financial resources in terms of current stakeholders expectations and historic financial performance, through the evaluation of balance sheet and trading account figures. However, in undertaking any financial evaluation, it must be recognised that figures taken from a balance sheet simply reflect the position of an organisation at a single point in time. In isolation, therefore, it is unwise to draw any conclusions or make any judgments on the basis of one set of accounts only. The key to effective interpretation lies, therefore, in examining a number of consecutive sets of accounts. A minimum of three is normally needed in order to give a fuller picture and allow the comparison of the key ratios. In this way it is possible to identify trends, which will not only help to highlight strengths and weaknesses, but also identify any unusual figures in the accounts more a reflection of the day on which the accounts were made up than an indication of the overall financial performance. Step 5 Comparative measures The issue of comparative analysis forms the next step of this framework as it is necessary to establish a neutral and justifiable base against which performance can be measured so that a greater understanding might be gained of the level of success achieved and the causes of failure and success. With this in mind, it is important to remember one of the definitions of marketing - the whole business scene from the point of view of its final results, that is from the customers point of view.

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It is necessary, therefore, to understand customers perceptions both of your own and competitors' products and activities. In addition, you also need to draw comparisons between your own performance, operations and procedures with that of your competitors in order to identify areas of competitive advantage and recognise areas of comparative weakness. Step 6 Measures of balance Once an understanding of the organisations resources and their current utilisation has been developed, it is then necessary to build an understanding of how the operation can adapt to change. Recognise, however, that this refers not just to the implementation at any future strategic direction or having the flexibility to adapt through reorganisation, but also through increased efficiency or by absorbing increased demands on output. As part of this, it is also necessary to consider the strength and composition of the product portfolio, how balanced it is and the extent to which each element or product is dependent upon other products in the organisations portfolio. Step 7 Dimensions of performance importance Put together all the elements thus far in the form of a performance importance matrix, then provide the means by which the information gathered may be assembled and the overall organisational performance evaluated. Step 8 The marketing effectiveness review Building upon the evaluation of performance, this step outlines the major attributes of a marketing orientation, each of which can be measured relatively easily to build an overall picture of marketing effectiveness. It is important to recognise, however, that an organisation may be performing well as a result of circumstance rather than because of good management. The underlying purpose of this review, therefore, is to identify those areas where scope exists for improvement, regardless of the overall performance of the organisation itself. Step 9 The identification of key issues - SWOT analysis The final step involves taking all the information gathered from the previous steps and evaluating it in the form of a SWOT (strengths, weaknesses, opportunities and threats) analysis. Whilst this process has been fully described earlier in this unit, it has to be recognised that for such an exercise to be effective it must be focused and related back to the information already gathered to. The temptation to simply list every conceivable factor will achieve little more than

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creating an attractive list. What might appear at first sight to be an opportunity may not be so when examined against the organisations resources, its culture, the expectations of its stakeholders, the strategies available, or the feasibility of implementing the strategy. Having gone through the process of evaluating and assessing corporate capability, the marketing plan should have a far clearer idea not just of the real strengths of the organisation, but also of its weaknesses and areas of vulnerability and gaps. With this understanding, far more realistic objectives and strategies can then be developed. In the absence of this understanding, it is likely that sooner or later problems will be faced which stem from what is called the intent-perceived capability-reality gap. This is illustrated in Figure 1.24. In order to understand this model, think about what you organisation would really wish to achieve in the marketplace and contrast this with what it is really capable of doing. Almost inevitably there will be a gap between two which stems from a lack of resources or commitment, an absence of market understanding, an inadequate marketing mix, and so on. An important outcome, therefore, from the evaluation of corporate capability is the identification of the organisations real capabilities so that the subsequent marketing planning process can be rooted far more firmly in reality. Without this, it is likely that many of the comments made by marketing planners about what the organisation will do or is capable of doing will owe more to the richness of managerial imagination than to commercial reality.
Managerial intent

Gap in performance Performance reality


Figure 1.24 The Intent-Capability-Reality gap.

Perceived capability

ACTIVITY
Using the nine headings from Figure 1.23, compile an outline marketing plan for your organisation. Explain how you feel your organisation might benefit from such an exercise.

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Portfolio analysis techniques
The Ansoff matrix
As we saw earlier in this unit, this well known model is a classic in strategy building. We shall noe look at it in more detail.

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KEY POINT
Its primary purpose is to analyse the organisations approaches to its products and to its markets to assure that an appropriate marketing strategy is being pursued and possibly to reveal opportunities.

Tucked within the model is an assessment of the risks involved in pursuing given strategies. The model also prompts consideration of synergy which might exist on both the product or market axis. See Figure 1.25. We can unpack the model a bit and interpret some of the implications of position in each of the boxes.
Current products New products

Current markets

Market penetration

Product development

New markets

Market development

Diversification

Figure 1.25 The Ansoff matrix.

Market penetration
Current products in current markets the strategy here will be to increase the share of the market which the product or service currently enjoys. The risk level is relatively low for the organisation because it knows the markets and the products.

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Product development
New products in current markets this may mean absolutely new products or iterations of other products to make them more suitable to the known market. The benefit to the organisation is, if the new products are successful, the cost of marketing a broader range of products to the market is less in relation to the larger revenues generated. The risk involved here is that new products can have a high failure rate.

Market development
Current products to new markets here the strategy is to expand the markets beyond those in which current products are sold. The major benefit is longer product runs, hence probably cheaper production costs. The key determinant of risk here is the cost of market entry. It is also likely that the organisation knows less about the behaviour in the new market and probably less about the competitor behaviour in that market.

Diversification
New products to new markets this is the highest risk strategy of all and is usually only pursued after a great deal of market research. Sometimes it becomes the reason behind an acquisition where expertise is being bought to minimise the strategic risk. The Ansoff matrix is a very clear and easily understood model, widely known and widely used. While the benefit of the Ansoff matrix lies primarily in examining strategic product/market strategy, it also has value in:

Causing long-term evaluation of markets. Revealing the potential opportunities for product synergy
and for market synergy.

Focusing on competitor activity.

KEY POINT
Using the Ansoff matrix in conjunction with the BCG matrix (next in this unit) the organisation can conduct a useful strategic review of product/market strategy and what that implies for achieving the organisations vision.

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Boston Consulting Group (BCG) matrix
Produced by the Harvard Business School, the Boston Consulting Group (BCG) matrix is a simple model that examines the joint criteria of market growth and market share. The BCG matrix is described in Figure 1.26.
Market share High Low

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High

Star

Question mark

Market growth rate Low Cash cow Dog

Figure 1.26 The BCG matrix.

In the figure the market size is shown by the size of each circle. In addition, the companys share of the total market is represented by the size of the segment within the circle.

KEY POINT
Stars are Strategic Business Units (SBUs) with a significant market share of a high growth industry. They have good earning potential. It is likely that the product is costly to maintain early in its life cycle. This may mean that an aggressive marketing effort is needed, with the associated high advertising expenditure. Cash cows have a high market share from a slow, or zero, growth market. Usually they will have loyal customers, with the consequence that product development costs are relatively low. They are profitable and reliable products, which will allow a company to develop a strong portfolio. Stars often move into this position when the overall market has become established. Question marks occur when the potential for market growth is good, but they have a relatively low market share. The market is likely to be very competitive with the SBU having only limited impact. Considerable amounts of

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money may need to be spent on marketing or research. These are sometimes known as problem children. Dogs are characterised by low market share and low growth, these are SBUs facing possible liquidation. Often they will continue to exist because of nostalgic reasons on the part of management. They are likely to be the first to be liquidated in the event of financial difficulties. However, they may survive as part of a marketing product mix.

KEY POINT
If Ohmaes Nine Specimen Strategies (see later in this unit) and Ansoffs matrix provide a check against the organisations strategic behaviour, then BCG has great value in determining the strategic allocation of resources. As an interesting activity you might consider trying out the Ansoff matrix and BCG matrix against the products or services of your organisation. A key recommendation is that you do it product-by-product rather than trying to place the whole organisation on either matrix. If your organisation is like most others, you will find that you have products and services all over both matrices. While the plotting exercise is valuable, recognising the consequences is more instructive.

Product life cycle model


The product life cycle is one of the cornerstones of marketing and is used as an essential planning tool. It demonstrates how a product moves through certain distinct stages of development and decline during its life. Like all modelling techniques, it has its limitations. Managers must remember that there is no such thing as a perfect product, and that each one will deviate in some way from the norm. However, they must also realise that such deviations are to be expected and that these should not be cause for unnecessary alarm. Figure 1.27 shows an example of the idealised product life cycle, whilst Figure 1.28 includes some examples of actual products life cycles. In Figure 1.27 the revenue curve has been superimposed on the theoretical life cycle, showing how the product is able to recover the costs of development and launch. Once this is achieved, it is able to move towards profitability. The actual shape of the curve will vary according to the product itself, and some variations are shown in Figure 1.28. The first diagram shows a fad product, quickly entering and leaving the market. The second

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diagram shows a fashion product, where sales numbers are likely to follow cycles. In the third diagram the product passes through a number of stages, during which efforts are made to modify or rejuvenate the product to maintain market interest, thus delaying entry into the mature stage.

Unit 1

Sales

Profit Profit Loss


Development Introduction Growth Maturity Saturation Decline

Figure 1.27 Theoretical life cycle curve.

Sales

Sales

Sales

(i)
Figure 1.28 Examples of actual cycles.

(ii)

(iii)

The product life cycle can be applied to individual products or to the market as a whole. Also the time scale can be variable, ranging from a single fashion season to a period of many years. Consider the examples of soap and shoes. If we consider a product category life cycle, we would look at generic products such as soap or shoes where life cycles

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tend to be quite long. If we prefer to deal with product form life cycles, we would look at more specific products such as perfumed soap or plastic shoes with much shorter life cycles. Finally, we could consider brand life cycles, which deal with named brand products. These will have variable life spans depending upon the fashionable nature of the product a certain type of plastic shoe may only be in demand for a single season. Using the product life cycle carefully can be successful for positioning the product effectively in its market. The organisation needs to use market research and market intelligence with care. This forms a key component of an organisations strategic management, enabling predictions to be made about the long-term growth in the marketplace. A number of influences impact on the product life style at different times. These include:

The nature of the product. Changes in the competitive market. Fluctuations in consumer preferences. Behaviour of competitors.
These will each have an effect on the shape of the product life cycle curve. The following actions can be taken to improve the effectiveness of the product life cycle planning model: Development is the period of planning that precedes the launch of any new product. This also is a time where confidentiality is important. Industrial espionage is often associated with this phase as a serious threat to the early stages of new product development. Research and development are both expensive and time consuming and, as such, should be valued. Induction is the point at which a product is launched and gains acceptance by the market. Almost always there will be no competitors at this stage. However, it is also the stage of greatest risk. The new product must prove its innovative nature and overcome threats from existing products. It may well have a high price associated with it, providing another barrier for the consumer. However, the innovative nature of the product may be enough to compensate. This is often referred to as skimming. Availability is often limited as distribution may not be widespread. Growth is the time when competitors are likely to appear within the market. Other companies may have been developing parallel products but have not launched them until now. They will have the advantage of knowing your products price and have seen the degree of success that

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you have had. It is sensible to assume that they will charge less for their product. Your position as leader of the market may be under threat and management will need to assess the risk involved. This stage is sometimes referred to as an exponential growth phase as sales can rapidly take off. If this happens to a small company it might create interest from larger organisations as targets for acquisition. These would only normally occur if they are of benefit to both organisations, but they can be aggressive if pressure is applied from the other organisations stakeholders. As the product has now been on the market for some time, promotional strategy will change from creating awareness to brand identity. Expenditure on marketing and distribution will remain high. The view that exposure needs to be high at the point of sale is important. Maturity and saturation work together to some extent, and are combined by some authors into a single phase. Maturity occurs when the sales of the product level off at a peak, whilst saturation occurs as the volume of sales begins to slow down. It is likely that much of the sales volume is repeat trade rather than new customers. Here price becomes an important point. Some organisations may choose to trim their product portfolio in order to retain competitive pricing for products in this phase. Decline occurs when sales start to fall and interest within the market as well as from the organisation becomes less. This may be because the product is becoming obsolete, other products are more competitive or new products have appeared. Similarly, the organisation may now wish to concentrate its efforts on its own new product development. Consumers will often see price-cutting as an attempt to retain customer interest and, therefore, sales volume. Many products will continue to exist despite reaching this stage it is not necessarily a sign that production should cease. An example is the solid fuel market where sales have reduced as a result of other energy sources. There remains a safe level of demand to allow sales to prove effective. Indeed, because many of the suppliers have left the market, there is sufficient demand to enable existing companies to thrive despite the limited number of consumers.

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ACTIVITY
Identify the stages of a product lifecycle by reference to a product or service supplied by your organisation. If you are able, use a number of different products or services. Now consider a well known product readily available in shops. Can you identify where to place it in the product life cycle? Briefly outline the products history in terms of life cycle stages. What does this tell you about the products future?

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Product breakeven analysis
This model is really simple in concept, though it looks a bit daunting in its graphical form. It follows sensibly after the product life cycle model and it seeks to determine when the organisation starts to get a payback on a new product.

KEY POINT
Products are said to have broken even when the profit generated by the product recovers:

The fixed cost of having developed the product. The variable cost what the company charges itself when it
sells a unit.

Let us go back and look at the word profit above. The difference between the cost at which the product is sold and what it costs the organisation to make and sell it is called the margin. Breakeven occurs when the margin generated by the sales of the product equals the total of fixed and variable costs it has incurred. Graphically it looks like Figure 1.29.

Sales revenue Revenue (money) Variable cost Breakeven in money Fixed cost

Unit sales Breakeven in units

Figure 1.29 Product breakeven.

In the model here, the vertical axis is the sales revenue, the horizontal axis is the number of units sold.

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As units are sold, so the sales revenue line rises. But as each unit is sold, a variable cost, usually the cost of making the product, is charged to the company; this means that the variable cost line rises as well. The development cost is recovered when the sales revenue breaks through the fixed cost barrier, and the product breaks even when the sales revenue overtakes the variable cost line. When this happens you can read on the vertical axis how much revenue is needed and on the horizontal axis how many units need to be sold to achieve breakeven. Breakeven analysis is primarily a financial model and is used for a number of reasons:

Unit 1

To determine cash flow requirements how long to


recovering development cost.

To determine resource allocation; products which reach


breakeven sooner may be more attractive to the company than products which may generate higher profit but breakeven later.

To balance the product portfolio in relation to the cash


needed to operate.

To help choose between competing product


opportunities. Breakeven is a simple model (even the non-financial person can master it easily), it contributes to the strategic planning process and can sometimes reveal new insights into strategy.

Summary
Without a product or service a company could not function. The product or service is indeed the rationale for all trade and commerce. The product or service has been traced from its simple categorisation under each of the headings of industrial goods and consumer goods. We then examined product management issues and finally looked at strategic aspects in terms of matrix analyses. Although portfolio techniques and other resource allocation models may be useful devices for reducing the uncertainty associated with strategic management decisions, gaining strategic marketing advantage involves far more than the solutions provided by boxes or matrices. Marketing strategy should be the result of penetrating assessments of marketing advantage analysis of market needs and competitive threats, and management's intuitive sense of the strategic fit of the various strategies under consideration.

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Unit 2

Marketing Strategy Options


Unit Objectives
Having examined the tools and techniques available for assessing the position of an organisation within a business environment, it is now necessary to look at the range of possible options available for the marketing strategy. Examples of these options are given in this unit, showing in many cases how they have been developed to deal with particular problems. The role of market positioning, and its importance, will be discussed. This will help to demonstrate the importance of realising exactly where in a market an organisation lies. Failure to recognise this seemingly obvious requirement will cause considerable waste in terms of both time and money for the organisation.

Options
Porters generic strategies
No set of strategic tools would be complete without a look at Michael Porters definitive thinking on generic strategies. The idea first appeared in 1980 and it has enormously influenced strategic thinking. As time has gone on, however, the model has been overtaken not by better or more definitive thinking, but more by a fast-changing world. At the heart of Porters generic strategies is the assumption that the organisation will seek to dominate a segment or segments of the market, seeing off all competitors by the excellence with which they serve those segments. Porter advocates gaining and maintaining competitive advantage. In the hypercompetitive climate in which we now operate this is increasingly difficult to do. More probably an organisation gains temporary domination of a market and holds that position for a short (and decreasing) period of time until it is lost to a competitor. The contemporary climate probably corresponds more accurately to Richard DAvenis definition of gaining and regaining competitive advantage. Porters generic strategies are best represented by a triangle, as shown in Figure 2.1.

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Focus

Differentiation
Figure 2.1 Porters generic strategies.

Cost leadership

Differentiation
This implies that the organisation pursues a strategy where it offers a product or service which is uniquely different from those of its competitors. Further, this differentiation must be known and, to at least a segment of the market, valued above the offer of others. Differentiation can be achieved through a totally different product (which is increasingly rare) or it can be achieved by the way in which the product or service is offered.

Cost leadership
This is a strategy where the organisation enables itself to provide the product(s) or service(s) at a cost less than any other competitive organisation. This may or may not be reflected in the price it charges to its customers. The essence of cost leadership is not price but the ability the organisation has to price below competitors if and when it needs to.

Focus
This is a strategy where the organisation targets its products or services at a given sector of the market with great accuracy and with a depth of capability and knowledge to support its position in the sector. Each of these strategies has its particular benefits and concomitant organisational commitments, not only in the way the organisation approaches and positions itself in its markets, but also in the way it develops its internal capabilities and competencies to support the chosen strategy. Each strategy also has its risks and these are increasingly difficult to anticipate in a hypercompetitive environment where organisations will compete with the object of displacing the extant market leader rather than winning the market with a sustainable alternative strategy.

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KEY POINT
The key to the use of this model is as a tester. The logic behind it is excellent. The question is whether, as an organisation, we could actually sustain any of these strategies longer term. Evaluating that decision may, of itself, provide a strategic insight of importance to the organisation.

Unit 2

Generic strategy Differentiation

Commonly required skills and resources

Common organisational requirements

- Strong marketing abilities - Product engineering - Creative flair - Strong research capability - Corporate reputation for quality - Long tradition in the industry - Strong cooperation from channels - Sustained capital investment and
access to capital

- Strong coordination among


functions

- Subjective measurement and

incentives instead of quantitative measures labour or creative personnel

- Amenities to attract highly skilled

Cost leadership

- Process engineering skills - Intense supervision of labour - Products designed for ease in
manufacture

- Tight cost control - Frequent, detailed control reports - Structured organisation and
responsibilities

- Incentives based on meeting strict


quantitative targets

- Low-cost distribution system


Focus

- Combination of the above policies


directed at the particular strategic target

- Combination of the above policies


directed at the particular strategic target

Figure 2.2 Common requirements for successfully pursuing Porters strategies.

In 1985 Porter developed a model which furthered this earlier research. His model was based upon three broad stages in the evolution of an industry/market:

Emerging industry that is portrayed by hesitancy on the


part of buyers over the likely performance of products, the function of these products, and the possibility of obsolescence as manufacturers leapfrog each other in terms of technological improvements at the early stage of the life of the industry and the products that are being produced.

Transition to maturity is distinguished by reduced


profits throughout the industry and a general slow down in growth. Customers become more confident with their

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purchases as they are more familiar with the range of products and manufacturers. The industry settles down in terms of technological breakthrough and most product offerings are relatively similar. Emphasis moves away from product features towards non-product features like branding and advertising.

Decline is where substitute products begin to make


inroads into the marketplace, customer needs change because of social or demographic reasons. The product is basically becoming stale. Emerging industries should be developed in order to counteract rivalry between competitors, the possibility of substitute products developed and the producer put in a powerful bargaining position. Transition to maturity means developing new markets and focusing upon specific market segments as well as attempting to become more efficient. A decline strategy suggests either divesting or profitably supplying residual demand.

ACTIVITY
Consider each of the generic strategies identified by Porter in relation to your own organisation. What conclusions do you draw about your organisation?

Core competences

KEY POINT
In recent years a new focus has been placed on the development of an organisations skills and capabilities (generally called its core competences), its ambitions and commitment (strategic intent), its ability to learn, its sense of mission or vision, and the role of the lead centre and as the parents of its operating businesses. Strategy is, therefore, seen less as overseeing the allocation of resources, and more as the definition, creation, stimulation and reinforcement of ambitious skills and capabilities that can be applied across several market segments. Briefly, strategic intent is an ambitious medium-term objective, often expressed in a snappy strategy. The idea is that there is a strong commitment to achieve the objective at all costs, and a shared idea throughout the organisation about how to start on the task. The building of a few strong and specific core competences throughout the company is intrinsic to this approach, as is the idea of stretch goals, more short term objectives but still extremely demanding ones. Strategic intent is like a marathon that is divided up into a series of 500 metre sprints: the stretch goals relate to each sprint.

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There is a strong element of David and Goliath about this. Those who use it generally start as mere upstarts taking on a bigger battalions. The history of Japans economic recovery path from the devastation of the Second World War, and the determination of a handful of corporations to take on the western leaders in industries, can be seen as a demonstration of the force of this idea. Generally, western companies have found it quite difficult to emulate this approach. Similar to the idea of a corporations distinctive competence or distinctive capabilities, the idea of core competences was put forward by C.K. Prahalad & G. Hamel in a renowned 1990 Harvard Business Review article. Prahalad & Hamel defined core competences as: the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technology ... unlike physical assets, competences do not deteriorate as they are applied and shared. They grow. To be valuable, the core competences must add something rather substantial to customers; they must be unique or at least rare: they must be difficult in the imitate, and they must be able to be used effectively by the organisation. The concept of core competences became extremely fashionable in the 1990s, and it does have a great deal to commend it. Still, it is remarkably difficult for organisations to decide what their core competences are whilst at the same time avoiding wishful thinking. One problem is that if core competences are defined in a tax-efficient, rigorous and precise way, they may prove not to be relevant to many businesses within the corporation. These businesses should be divested. However, since managers tend to like to hang on to what theyve got, they often fudge the issue and define the core competences in too inclusive a way. The danger then is that the core competences become meaningless; they cannot realistically describe any competitive advantage. Another problem is that core competency theory starts with the characteristics of the operating businesses rather than those of the parent organisation; the latter may be a better approach to corporate strategy. Therefore it may be that, like BCGs growth/share matrix, the idea of core competences is more valuable at the business unit level than at the corporate level, despite having been designed for the latter. Meanwhile, Johnson & Scholes state that, competitive strategy is the basis on which an SBU might achieve competitive advantage in its market. Competitive strategy is the process whereby competitive advantage may be achieved. The notion of competitive strategy/analysis and that of competitive advantage encompass the whole essence of marketing in gaining a competitive edge over business rivals.

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ACTIVITY
What core competences does your organisation possess? Describe them in detail, giving examples to justify your ideas.

Competitive advantage

KEY POINT
The analysis of business strategic situations is the first step towards gaining strategic marketing advantage. Situational analysis identifies the relevant strategic forces including organisational, market, competitive and environmental factors. In the next step, consideration of the importance strategic factors helps management determine the firms distinctive advantage. Formulation of key strategic objectives follows this consideration. There then follows an evaluation of the available strategic alternatives. The choice and implementation of marketing strategy begins the process of gaining competitive advantage. Performance assessment gauges the effectiveness of the strategy and identifies the need for possible strategy alterations.

We can analyse the strategic situation under four key headings: The organisation. The organisations influence on marketing strategy include the corporate culture (shared values and style), the stage of the firms development, organisational structure and operating policies. The size, performance, capabilities and resources of an organisation will also affect its marketing strategy. Market structure and dynamics. The structure of markets and the changes that occur within them can influence strategic decisions in a number of ways. Market maturity often intensifies competition and limits the potential for growth and profit opportunities. The product life-cycle is widely recognised as an influence on marketing strategy. The way in which markets are segmented and market targeting opportunities are also factors in the formulation of marketing strategy. Industry structure. An understanding of the industry in which the firm is operating forms another pillar of Strategic Analysis. Questions to be addressed specifically to the marketer would include: how many firms are in the sector in which we are operating and is this sector expanding of contracting? To what degree is concentration within the sector important? Are long-run economies of scale or experience effects present? Are there barriers to entry or exit? How do these compete within a chosen sector? To what degree can the service be substituted by the service provided by other sectors? Where is the locus of power in that sector - with the customer or supplier?

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Environmental forces. External influences, largely uncontrollable, affect marketing strategy. This effect may be favourable or unfavourable; opportunities or threats may be creative. A comprehensive strategic analysis should include an evaluation of the following: the economic environment, capital markets, suppliers, legal/governmental influences, competitor activity, and shifts in consumer demography and buying behaviour. In addition the analysis should encompass considerations of technology and the rate of technological and socio-cultural change. Five types of strategic situation have been identified which determine competitive advantage. The types are market development, market domination, market selectivity, differential advantage and no advantage. Market development. The first firm to enter a new market has the opportunity to play a leadership role in that market development. The market pioneer stands a good chance of gaining a sustainable competitive advantage. A market development opportunity can also occur in a fragmented commercial sector that has no market leader. Market domination. This is the position occupied by the market leader in an established market if the firm may gain market domination through early market entry, low-cost, product advantages, marketing superiority, customer and other distinctive competences. Differential advantage. Differential advantage may arise from patent protection, special capabilities and experience, low-cost source, innovative products, favourable brand perception, product specialisation, a strong sales force or distribution strengths. Such an advantage can form a key component of the firms marketing strategy and can be critical for the survival of small firms in commodity markets. Market selectivity. Most small firms could not aspire to market domination but could be capable of building a sustainable competitive advantage by employing a strategy of market selectivity. A small firm should be able to survive in differentiated markets if it can identify a specific market segment - an ecological niche - in which it can survive and grow. The leading businesses in the market may not target certain small niches because other, more attractive, market segments are available. No advantage. A firm may not have a competitive advantage. This situation is characteristic of small firms operating in undifferentiated markets. Unless the proprietor can find a way to gain advantage, the result may be low performance and ultimate business failure. Objectives are of two major types; market position and performance. Market position. The purpose of this objective may be to maintain an existing market position, increase market share or regain lost position.

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Performance. Various financial measures are used to gauge performance, including profit contribution, return on assets and return on net worth. The strategic objective may be to improve current performance, maintain an established level of performance or to achieve a performance turnaround. If a firm is in financial trouble, short-term survival may be the primary objective. Increase in the productivity of marketing resources is often included in the performance objectives. Areas of marketing productivity improvement include sales per square metre of floor space, sales per salesperson, sales per checkout, sales to expense ratios and advertising productivity. As part the process to of coming to terms with where the organisation is currently, the marketing planner must understand where customers and competitors are in detail. Without this detailed understanding, any marketing activity is likely to be misdirected and of little, if any, value. As with the observations regarding the audit processes having to be carried out on a regular basis in order for them to be fully beneficial for the company, the same is true of both customer and competitor analysis. With regard to completing the first stage of the planning process and also completing the picture of where the company is now, the focus should be directed towards exploring the sections related to both customer and competitor analysis. For many organisations, competitors are a major determinant of organisational performance. It is, therefore, essential that you understand:

Who you are competing against (this includes indirect as


well as the more obvious direct competitors).

The nature of each competitors objective. The strategies they are pursuing and how successful they
are.

Their strengths and weaknesses. How they are likely to behave when faced with
competitive moves. Given this information, you can begin to construct a competitive response profile. Competitive analysis also needs to take account of a variety of other issues including:

Strategic groupings. Competitive relationships. The sources of competitive information. The different types of competitor.

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The bases for competitive vulnerability. The components of competitive information.

Unit 2

ACTIVITY
In considering competitive advantage, consider the following questions: 1. How detailed an understanding of your competitors does the organisation possess? When are your competitors most vulnerable? What is the organisation's competitive status? What types of competitive relationship exist within your market?

2. 3. 4.

The second major influence upon organisations performance is the size and nature of its customer base. The marketing planning process, if it is to be at all worthwhile, must rest on a detailed and intimate understanding of customers. In order to come to terms with how customer analysis should be conducted, focus upon:

The influences upon consumer behaviour. The buying decision process and how it works. The characteristics of organisational markets and the
organisational buying process.

The different types of buying decision. The influences upon the organisational buyer.

KEY POINT
Porter, in his book Competitive Advantage, suggests that there are two major ways to be competitive. These involve lowest cost and differentiation. Firstly, a business gains competitive advantage from becoming the producer, and a producer at the lowest cost. This can be done by producing goods in a very efficient way using the best available technology. It can also be done by producing and selling very large quantities. Companies like Coca-Cola and the soap powder manufacturers are able to produce individual items at very little unit cost because they literally produced millions of units. The economies of scale which Coca-Cola is able to pack into each bottle or can of Coke are such that the unit cost of production of further units is virtually zero. Similarly, each

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additional chocolate bar that runs off the Mars production-line does so for a very low cost indeed. Michael Porters simple business lessons show that this can be achieved only if the company has a very big share of the market. If you gain the lions share of the market then the profits will follow. The bigger the share of the market, the more chance you have of driving the costs down relative to those of competitors. Secondly, differentiation involves making your product better than that of rivals whilst at the same time making sure the product is bought by customers. A Bentley is different from other motor cars, but it is also very expensive. It is a success because enough people are prepared to buy the products owing to its special quality. There are many ways of differentiating products - through customer-service, through promotion, through advertising, through branding, etc. However, the essential point is that you must add value to your product so that consumers perceive it as being better value than rival offerings. In addition to Porters two ways of being competitive, there is the third concept choosing a market to compete in. Some products compete in a very broad market (e.g. supermarkets) but the organisation may choose to sell top-of-the-range items and low-price discount items. Other businesses compete in a much narrower market; for example, to specialist food shops such as delicatessens sell a much narrower range of products to a more select group of customers. The alternatives for seeking competitive advantage are:

Mass market, coupled with low costs - own-brand baked


beans, bottom-of-the-range washing up liquids, low cost margarines, etc.

Mass market, coupled with differentiation - Heinz


baked beans, Kit Kat, Kellogs Corn Flakes, etc.

Narrow market, coupled with low-costs - specialist


discount bottom-of-the-market retailers, second hand clothes and book shops, etc.

Narrow market, coupled with differentiation - Renault


Twingo, exclusive taylors, etc. Developing a competitive advantage is all about combining an understanding of market forces and the marketing mix. Choosing the most competitive marketing mix should help to stimulate demand, as well as creating a supply advantage for a firm.

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VIRTUAL CAMPUS
What factors do you see as being the main contributors in giving these organisations a competitive advantage? Marks & Spencer Sky Television Mercedes Benz Tesco Dyson Nokia Amazon.com Nintendo

Unit 2

Identify the main contributors for another organisation of your choice. Discuss your findings with your colleagues or by using the Virtual Campus.

ACTIVITY
Looking at your own organisation, how much detailed information on customers appears to exist? How is this information used in the marketing planning process? What additional information might be useful? To what extent are loyal customers really loyal or simply suffering from an inertia that leads to repeat purchases?

ACTIVITY
A range of questions are included in this activity. Go through these and then focus specifically upon the following issues: What problems might be encountered in carrying out a truly worthwhile competitor and customer analysis? How might these problems possibly be overcome? Having considered this, refer now to the framework for reviewing marketing effectiveness that follows. Go through each of the 15 questions, scoring your organisation. What overall picture emerges? Customer philosophy. 1. To what extent does management recognise the need to organise the company to satisfy specific markets demands? 1. The managerial philosophy is to sell existing and new products to whoever will buy them. Management attempts to serve a wide range of markets and needs with equal effectiveness.

2.

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3. Having identified market needs, management focuses upon specific target markets in order to maximise company growth and potential. 2. To what extent is the marketing programme tailored to the needs of different market segments? 1. 2. 3. 3. Not at all. To some extent. To a very high degree.

Does management adopt a systems approach to planning with recognition being given to the interrelationships between environment, suppliers, channels, customers and competitors? 1. Not at all - the company focuses solely upon its existing customer base. To some extent, in that the majority of its efforts goes into serving its immediate and existing customer base. Yes. Management recognises the various dimensions of the marketing environment and attempts to reflect this in its marketing programmes by taking account of the threats and opportunities created by change within the system.

2.

3.

Marketing organisation. 4. To what extent does senior management attempt to control and integrate the major marketing functions? 1. Not at all - but company focuses solely upon its existing customer base To some extent, in that the majority of its efforts goes into serving its immediate and existing customer base. Yes. Management recognises the various dimensions of the marketing environment and attempts to reflect this in its marketing programmes by taking account of the threats and opportunities created by change within the system.

2.

3.

5.

What sort of relationship exists between marketing management and the management of R & D, finance, production and manufacturing functions? 1. Generally poor, with frequent complaint being made that marketing is unrealistic in its demands.

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2. Generally satisfactory, although the feeling exists that each department is intent on serving its own needs. Overall very good, with departments working together well in the interests of the company as a whole. 3. 6. How well organised is the new product development process? 1. 2. 3. Not very well at all. A formal new product process exists but does not work very well. It is well structured, professionally managed and achieves good results.

Unit 2

Marketing information. 7. How frequently does the company conduct market research studies of customers, channels and competitors? 1. 2. 3. 8. Seldom, if ever. Occasionally. Regularly and in a highly structured way.

To what extent is management aware of the sales potential and profitability of different market segments, customers, territories, products and order sizes? 1. 2. 3. Not at all. To some degree. Very well.

9.

What effort is made to measure the cost effectiveness of different levels and types of marketing expenditure? 1. 2. 3. Not at all. To some degree. Very well.

The strategic perspective. 10. How formalised is the marketing and planning process? 1. 2. The company does virtually no formal marketing planning. An annual marketing plan is developed.

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3. The company develops a detailed annual marketing plan and a long-range plan that is updated annually. 11. What is the quality of the thinking that underlies the current marketing strategy? 1. 2. The current strategy is unclear. The current strategy is clear and is largely a continuation of earlier strategies. The current strategy is clear, well argued and well developed.

3. 12.

To what extent does management engage in contingency thinking and planning? 1. 2. Not at all. There is some contingency thinking but this is not incorporated into a formal planning process. A serious attempt is made to identify most contingencies, and contingency plans are then developed.

3.

Operational efficiency. 13. How well is senior management thinking on marketing communicated and implemented down-the-line? 1. 2. 3. 14. Very badly. Reasonably well. Extremely successfully.

Does marketing management do an effective job with resources available? 1. No. The resource base is inadequate for the objectives of have been set. To a limited extent. The resources available are adequate but are only rarely applied in an optimal manner. Yes. The resources available are adequate and managed efficiently.

2.

3. 15.

Does management respond quickly and effectively to unexpected developments in the marketplace? 1. No. Market information is typically out of date and management responses are slow.

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2. To a limited extent. Market information is reasonably up-to-date, although management response times vary. Yes. Highly efficient information systems exist and management of responds quickly and effectively. 3.

Unit 2

ACTIVITY FEEDBACK
The scoring process. The manager works his way through the 15 questions in order to arrive at a score. The scores of the response numbers are then aggregated. The overall measure of marketing effectiveness can then be assessed against the following scale: 15-20 = 21-25 = 26-30 = 31-35 = 36-40 = 41-45 = none poor fair good very good superior

With a score of 25 or less, major questions should be asked about the organisations ability to survive in anything more than the short-term, and any serious competitive challenge is likely to create significant problems. Fundamental changes are needed, both in the management philosophy and the organisational structure. For many organisations in this position, however, these changes are likely to be brought about by the existing management, since it is this group which has led to the current situation. The solution may, therefore, indicate major changes to the senior management. With a score of between 26 and 30, there is again a major opportunity to improve the management philosophy and organisational structure. With a score between 31 and 40, and scope for improvement exists, although this is likely to be in terms of a series of small changes and modifications rather than anything more fundamental. With a score of between 41 and 45 care needs to be taken to ensure that the proactive stance is maintained and that complacency does not begin to emerge.

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Investment opportunity evaluation
The evaluation of an investment opportunity is an important factor in the strategic management of any organisation. As an example of the opportunities thrown up by a significant market change, we can look at the implications of challenge and change in European business resulting from the Single European Market in a 1992. The opportunities are seen to lie in two areas: the effect on the market itself, and the logistical implications - savings of cost and time. Regarding the market three developments are apparent: growth, differentiation and increased competition. The question of logistics of is seen both as an opportunity under threat. On the production side there is a reduction of costs and the saving of time and energy through the elimination of border bureaucracy: by ending direct costs of frontiers, by reducing technological barriers, by better supply and distribution systems in the food and beverage industries and in the car industry, by better access to financial services, and by economies of scale and the reduction of inefficiency a growth of between 4.5 and 7 per cent of GDP was forecast. The increased competition and the single market was seen as an opportunity for firms possessing a competitive edge and deduced growth and development of the markets. Particularly emphasised were the various opportunities to reduce costs, including the saving of time and energy. The barrier to be reduced mentioned most often was the technical one, where a harmonisation of technical specifications took place. These technical barriers were very important, for example in the car sector, and they were highly important in the food and beverage sector, while in the paper and printing industry they were of little importance. Other cost-saving opportunities discussed were:

Less paperwork. Cheaper physical distribution and inventory. Rationalised product ranges. Better sourcing opportunities. Reduced costs of research and development. Time saved due to common procedures. Streamlining an organisation and its administrative
functions.

Easier logistics, faster transportation.

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General Electric model
The General Electric Model was developed by management consultants, McKinsey & Co. It was developed for General Electric (USA) as an alternative to the BCG matrix, using a wider range of factors for describing SBUs. The two criteria used are market attractiveness and business position. This means that consideration can be made for market growth rate, market size and difficulty of market entry. In addition, the size of the SBU, and its strength relative to its competition can be incorporated. The matrix is composed of nine boxes and uses the same concept of circles to show market size as in the BCG matrix. Although the BCG Matrix is the best known portfolio planning framework, the GE Matrix (or GE/McKinsey Matrix) is a later and more advanced form. It is more sophisticated in three aspects:

Unit 2

Market (Industry) attractiveness replaces market growth


as the dimension of industry attractiveness. Market attractiveness includes a broader range of factors other than just the rate of market growth that can determine the attractiveness of an industry/market.

Competitive strength replaces market share as the


dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit.

The GE/McKinsey Matrix works with a 3x3 grid, while


the BCG Matrix has only a 2x2 matrix. This allows for more sophistication. The factors affecting the two main variables are shown in Figure 2.3.

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Typical (external) factors affecting Market Attractiveness Typical (internal) factors affecting Competitive Strength

- market size - market growth rate - market profitability - pricing trends - competitive intensity/rivalry - overall risk of returns in the industry - entry barriers - opportunity to differentiate - demand variability - segmentation - distribution structure - technology development

- strength of assets and competences - relative brand strength - market share - market share growth - customer loyalty - relative cost position - relative profit margins - distribution strength/production capacity - record of technological innovation - quality - access to financial resources - management strength

Figure 2.3. Typical GE/McKinsey factors.

Often SBUs are portrayed as a circle plotted in the GE/McKinsey Matrix, whereby:

The size of the circles represent the Market Size. The size of the sectors represent the Market Share of the
SBUs.

Arrows represent the direction and the movement of the


SBUs in the future. A six-step approach to implementation of portfolio analysis could, therefore, look like this: 1. Specify drivers of each dimension. The organisation must carefully determine those factors that are important to its overall strategy. Weight drivers. The organisation must assign relative importance to the drivers. Score each of the SBUs drivers. Multiply weights by scores for each SBU. View resulting graph and interpret it. Perform a review/sensitivity analysis using other adjusted weights (there may be no consensus) and scores.

2. 3. 4. 5. 6.

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Some important limitations of the GE/McKinsey Matrix are:

Unit 2

Valuation of the realisation of the various factors. Aggregation of the indicators is difficult. Core competences are not represented. Interactions between SBUs are not considered.

ACTIVITY
Try to apply the General Electric model to your own organisation, or one with which you are familiar. What conclusions can you draw?

Shell directional policy matrix


Strategic Emphasis The traditional way of looking at the business unit's strengths and weaknesses as well as comparing business sector prospects was to use historical and forecast rates of return on capital employed. This was done because a sector where prospects were favourable and the companys position was strong tended to show higher profitability. Shell found that these records and forecasts were not sufficient for the guidance of management in the corporate planning and allocation of resources. Reasons for this being:

Records and forecasts do not provide a systematic


explanation why one business sector has more favourable prospects than another or why the companys position in a particular sector is strong or weak.

Records and forecasts do not provide enough insight into


the underlying dynamics and balance of the individual business sectors or the balance between the sectors.

Using the forecast and record method, when new


products are being considered, actual experience cannot be consulted.

Worldwide inflation has severely weakened validity and


credibility of financial forecasts especially in the case of businesses that are affected by the oil production process.

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The basic method of the directional policy matrix is to identify and place on the horizontal and vertical axes respectively:

The main criteria by which prospects for a business may


be judged to be favourable or unfavourable (favourable meaning a high profit and growth potential).

The main criteria by which a companys position in a


sector may be judged to be strong or weak. Horizontal Axis Horizontal labels for the quadrants are the reverse of those on the GE matrix. The extreme left quadrant is labelled Unattractive while the corresponding quadrant on the GE matrix is labelled High. The horizontal axis is labelled Business Sector Prospects while the vertical axis is named Companys Competitive Capabilities/Position. Vertical Axis The y-axis labels are the reverse of those in the GE/McKinsey matrix and the lowest quadrant is labelled Strong versus the GE matrix Low. The Shell directional policy matrix can be used to analyse different business sectors in an industry as well as competitors within a business sector. The Approach The general technique of this model can be applied to any business with separate identifiable sectors even though it was developed for the petrochemical industry. Business Sectors In the petrochemical environment it is not difficult to identify a business sector as these can be acknowledged as product sectors. These are distinct businesses with well-defined boundaries and substantial competition within the boundaries. Geographical Areas Any geographical area can be analysed but in this industry it has been found that economic blocs such as Western Europe should be measured, as there is usually a greater amount of movement within these blocs than between them.

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Forecasting Period For most petroleum-based companies a time scale of 10 years is considered, as this is the effective forecasting horizon. Business Sector Prospects. (Horizontal x-Axis) Profitability prospects (or attractiveness) for businesses in the petroleum sector are judged on four criteria 1. Market Growth Rate market growth is necessary for the growth of sector profits but sectors with the highest growth rate are not necessarily those with the largest profit growth. Shell advocated a rating system for this factor where the midpoint was the average growth rate for the industry. A star rating system was used rating the growth rate from one star to five stars. Market Quality this is a difficult concept to quantify and to get to a rating for the sector. A number of questions must be answered (Shell questions)

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2.

- Has the sector a record of high, stable profitability? - Can margins be maintained when manufacturing
capacity exceeds demand?

- Is the product resistant to commodity pricing


behaviour?

- Is the technology of production freely available or is


it restricted to those who developed it?

- Do relatively few producers supply the market? - Is the market free from domination by a small group
of powerful customers?

- Has the product high added value when converted


by the customer?

- In the case of a new product, is the market destined


to remain small enough not to attract too many producers?

- Is the product one where the customer has to change


his formulation or even his machinery if he changes supplier?

- Is the product free from the risk of substitution by


an alternative synthetic or natural product? A business sector rating yes on all or most of these questions would score a four or five star rating.

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3. Industry Feedstock Situation Expansion of productive capacity is often hindered by the uncertainty of feedstock supply. If the feed stocks in the sector have a strong pull towards an alternative use or are difficult to assemble in large quantities then this is a plus for sector prospects and the rating is better than average. If the feedstock is a by-product of another process and the main product consumption is growing at a faster rate than that of the by-product, pressure might result due to low prices or direct investment by the by-product producer to increase its consumption. This would be given a lower than average rating. 4. Environmental (Regulatory) Aspects Business sector prospects can be affected by restrictions on manufacture, transportation and marketing of a product. If this has not been built into the forecast of market growth, it must be assessed separately. Strong positive or negative environmental or regulatory influences must be taken into account. Competitive Capabilities (Vertical y-Axis) A petroleum company can be judged as strong, average or weak on three major criteria. Shell recommended reviewing these criteria in relation to significant competitors in the relevant business sector. (This axis is similar to the Business Strength axis on the GE/McKinsey matrix.) Market Position The percentage share of the total market as well as the degree to which this share is secure is of primary importance. Shell looked at this factor in terms of a relative market leadership position rather than market share and rated this factor on a 5 star rating scale as follows: Leader 5 stars this type of company has market leadership and technical leadership usually accompanies this. Major Producer 4 stars this occurs where no single company is leader but there are two to four competitors are closely placed. Viable Producer 3 stars this type of company has a strong viable stake but falls below the top league. Minor 2 stars - businesses in this category are less than able to support research and development in the long term. Negligible 1 star companies with a negligible position in the market fall into this category.

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Model Use and Applicability The key words in the different zones indicate different strategies for businesses/products falling within these areas. It must be pointed out that Shell found the zones to be of irregular shape, with no hard and fast boundaries, they shade into one another and in some cases they overlap. Disinvest Products in this area will probably be losing money. It is recommended that assets be disposed of and the resources of cash, feedstock and manpower resulting from this action be redeployed more profitability. Phased Withdrawal A company with an average to weak position in a low-growth sector will not be earning significant amounts of cash and should gradually be withdrawn. Efforts should be made to realise the value of the assets and use the money from these in a more profitable area. This would also be the strategy for a weak positioned company in an average market sector Cash Generator This is the type of product that is moving towards the end of its lifecycle and is being replaced by other products. Finance should not be used for expansion and the business (if it is profitable) should be used as a source of cash in other areas efforts should be made to maximise profits, as there is no long-term future. Custodial A product falls into this area when the company has a position of weakness either in respect of market position (lower than 3 stars) process economics, hardware, feedstock or two or more of these in combination. This type of positioning occurs with the weaker products where there are too many competitors. The strategy is to maximise cash generation without committing further resources. Model weaknesses The Shell DPM has been used in different industries and some practical problems have been raised. 1. There is a need to change the questions for companies not in the petroleum industry and the questions regarding the factors should be customised for the company doing the analysis. Shell advocated equal weightings for the criteria on each of the axes. This worked for Shell but other companies may feel that certain factors are more important than others and therefore the weights should be adjusted accordingly

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2.

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3. The environment was the fourth factor on the business sector prospects axis yet Shell often left this factor out altogether. Environment can be a very important factor as it deals with the wider question of risk When using the Shell DPM methodology, it was found that the star rating system added very little value and a points allocation rating was superior. 4.

The Shell DPM was a technique originated for systematically analysing the qualitative factors present in the organisation, which had an impact on corporate planning. It was developed at around about the same time as the GE/McKinsey matrix and was developed specifically for the petroleum industry. The main criteria by which prospects for a business may be judged to be favourable or unfavourable (favourable meaning a high profit and growth potential) business sector prospects: x-axis. The main criteria by which a companys position in a sector may be judged to be strong or weak competitive position: y-axis. The Shell DPM is made up of nine quadrants and has found the three columns and three rows to be convenient for them. Factors are given the same weighting and are then scored on a star system. Positioning occurs on any of nine boxes, which are usually assessed according to the prospects of the sector

Right hand column - Leader - Try harder - Double or quit Middle column growth in this area has fallen to the
average for the industry (average sectors)

- Leader/Growth - Growth/Custodial - Phased withdrawal Left hand column this relates to businesses with low
growth rate and market quality, poor feedstock position ands outlook

- Cash generation

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- Phased withdrawal - Divest

Unit 2

ACTIVITY
Could the Shell directional policy matrix be a useful tool for your organisation? Discuss its possible merits with reference to your organisation. If it is unlikely to provide any advantage to you, explain why.

Market positioning
Market leadership

KEY POINT
Market share is the term used to describe the proportion of a particular market that is held by a product or business. British Telecom, for example, have a smaller share of the European telephone market than its French and German rivals.

Why might the measurement of market share be important? It might indicate a business that is a market leader. This could encourage the other companies to follow the leader or influence the leader to maintain its position. It might influence the strategy or objectives of a business. A business that has a small market share may set a target of increasing its share by five per cent over a period of time. It may also be an indication of the success or failure the business or its strategy. Illustrating the market share held by different businesses is not as straightforward as it may seem. There are problems that must be taken into consideration when calculating and interpreting the data:

The share of the market may be measured in different


ways. These might include sales revenue, profit, or the quantity of goods produced for services sold or provided. For example, the share of BT may be different if sales revenue from calls or the number of calls is used as a measure of market share, rather than the number of calls.

The type of product on which the market share is based


can affect the results. For example, the market shares of telephone companies may seem different if mobile phone companies are included, such as Orange or T-mobile.

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The type of business to be included can often influence
market share. For example, in 1998 it was reported that Tesco, Sainsburys, Asda and Safeway sold 45 per cent of British groceries. This measure, however, excluded small shops and petrol stations which also sell groceries. If they were included, the percentage would be lower.

Feed data may relate to different markets internationally.


Market share figures are likely to be different if national markets or global markets a taken into account. BT, for example, has a larger share of national fixed phone lines. Market planning must take into account the market image a company wishes to achieve. It can be measured in terms of thequality of the products or services offered, value for money aspect, technological innovation, and reliability and performance. It can also be measured by the views customers hold of the fact that the firm is playing fair by them. That is, its prices are more than reasonable for the dependability provided and that unjust demands are not being made. That is, when costs increase, the resultant price is not raised by more than is necessary, nor that existing stocks at old costs have been sold. For firms operating overseas, especially in developing countries, strict adherence to the letter and spirit of the law, no matter how inconvenient, is something else that is appreciated by the general public and can lead to the reinforcement of the firms market image or standing. Market image can be lost when marketing plans and actions are not kept up-to-date and when firms are run on outmoded ideas and methods of stemming from obsolete experience and maintained prejudices. It can also be lost when the wrong type of executive is allowed to gain control of any of the firms operations and gain dominance for his or her ideas regardless of the relevant to the conditions and requirements of the market place. Failure to design and produce products or services in accordance with market needs would also erode the market leadership being enjoyed by a firm. Ignoring any of the points mentioned earlier can also prove disastrous here.

VIRTUAL CAMPUS
Find some examples of products fulfilling a market leadership role. Discuss with colleagues, or by using the Virtual Campus, the reasons for your choices.

Market challenger
A market challenger is a strong follower in market share terms: companies not far behind the market leader in a particular product or service. The term is not wholly satisfactory because it implies that the

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second or third player is gaining relative market share on the leader and challenging him.

Unit 2

CASE STUDY
Extracts from How Nike Figured Out China taken from Time magazine, 28th February 2005. Nike swung into action and even before most Chinese knew they had a new hero. The moment hurdler Liu Xiang became the countrys first Olympic medallist in a short distance speed event - he claimed the gold medal with a new Olympic record in the 110 metre hurdles last August Nike launched a television advertisement in China showing Liu destroying the field of and superimposed a series of questions designed to set nationalistic teeth on edge. Asians lack muscle? asked one. Asians lack the will to win? Then came the kicker, as Liu raised his arms above the trademark swoosh on his shoulder: Stereotypes are made to be broken. It was an instant success. Nike understands why Chinese are proud, says Li Yao, a weekend player at swoosh-bedecked basketball courts near Beijings Tiananmen Square. Such clever marketing tactics have helped make Nike the icon for the new China. According to a Hill & Knowlton survey, Chinese consider Nike the Middle Kingdoms coolest brand. Just as a new Flying Pigeon bicycle found success when reforms began in the 1980s, so the Air Jordan - or any number of Nike products turned out in factories across Asia - has become the symbol of success for Chinas new middle-class. Sales rose 66 per cent in 2003, estimated at $300 million, and Nike is currently opening an average of 1.5 new stores a day in China. Yes, a day! The goal is to migrate inland from Chinas richer East Coast towns in time for the outpouring of interest in sports that will accompany the 2008 Summer Olympics in Beijing. How did Nike build such a booming business? For starters, the company promoted the right sports and launched a series of inspired ad campaigns (as well as some tremendous flops). But the story of how Nike cracked that China code has as much to do with the rise of Chinas new middle-class, which is hungry for Western gear and individualism, and Nikes ability to tap into that hunger. The Chinese government may have a love-hate relationship with the West - eager for Western technology yet threatened by democracy - but for Chinese consumers, Western groups mean one thing: status. Chinas biggest seller of athletic shoes, Li Nang, recently surrendered its top position to Nike, even though Nikes shoes - upwards of $100 a pair - cost twice as much. The new middle-class seeks Western culture, says Zhang Wanli, a social scientist at the Chinese Academy of Social Sciences. Nike was smart because it didnt enter China selling the usefulness, but selling status.

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Zhang hadnt yet been born when Nike founder Phil Knight first travelled to China in 1980, before Beijing could even ship to US ports; the country was just emerging from the turmoil of the Cultural Revolution. By the mid-80s, Knight had moved much of his production to China from South Korea and Taiwan. But he sold China as more than a workshop. There are 2 billion feeders out there, former Nike executives recall his saying. Go get them! Phase 1, getting the swoosh recognised, proved relatively easy. Nike outfitted top Chinese athletes and sponsors all teams in Chinas new pro Basketball League in 1995 the. But the company had its share of horror stories too, struggling with production problems (grey sneakers instead of white), rampant knock-offs, then criticism but it was exploiting Chinese labour. Cracking the market in a big way seemed impossible. Why would the Chinese consumer spend so much - twice the average monthly salary back in the late 1990s - on a pair of sneakers? Sport wasnt a factor in a country where, since the days of Confucius, education levels and test scores dictated success. So Nike executives set themselves a quixotic challenge: to change Chinas culture. Recalls Terry Rhoads, then director of sports marketing for Nike in China: We thought, We wont get anything if they dont play sports. A Chinese speaker, Rhoads saw basketball as Nikes ticket. He donated equipment to Shanghais high schools and paid them to open their basketball courts to the public after hours. He put together three-on-three tournaments and founded the citys first high-school basketball league, the Nike League, which has spread to 17 cities. At games, Rhoads blasted the recorded sound of cheering to encourage straitlaced fans to loosen up, and he arranged for the state-run television network to broadcast the finals nationally. The Chinese responded: sales through the 1990s picked up 60 per cent a year. our goal was to hook kids into Nike early and hold them for life, says Rhoads, who now runs the Shanghai based sports marketing company, Zou Marketing. Nike also pitched its wagon to the NBA (which had begun televising games in China), bringing players like David Robinson for visits. Slowly but surely, in-the-know Chinese came to call sneakers Nai-ke. Those sneakers brought with them a lot more than just basketball. Nike gambled that the new middle-class, now some 40 million people who make an average of $8,500 a year for a family of three, was developing a whole new set of values, centred on individualism. Nike unabashedly made American culture it selling-point, with ads that challenged Chinas traditional group oriented ethos. This year the company released Internet teaser clips showing a faceless but Asian looking high school basketball player shaking-and-baking his way through a defence. It was timed to coincide with Nike tournaments around the country and concluded with the question, Is this you? The viral advertisement drew 5 million e-mails. More recently, however, Nike plundered a series of TV commercials showing Cleveland Cavaliers star LeBron James defeating mythical Chinese characters in video-game style fights on the basketball court. The government said that James

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blasphemes national practices and cultures. Nike killed the commercials and apologised. Kick-starting into 2001, Nike coined a new phrase for its China marketing, borrowed from American black street culture: Hip Hoop. The idea is to connect Nike with a creative lifestyle, says Frank Pan, Nikes current director of sports marketing for China. The company's Chinese websites even encourages a rap-style trash talk. Success aside, Nike has had its stumbles. When I began outfitting Chinese professional soccer teams in the mid-1990s, its ill-fitting cleats caused heel sores so painful that Nike had to let its athletes to wear Adidas (with black tape over the trademark). In 1997, Nike ramped up production just before the Asian banking crisis killed demand, then flooded the market with cheap shoes, undercutting its own retailers and driving many into the arms of Adidas. Two years later, the company created a $15 swoosh-bearing canvas sneaker designed for poor Chinese. The World Shoe flopped so badly that Nike killed it. Yet all that amounts to a frayed shoelace compared with losing Chinas most famous living human. Yao Ming had worn Nike since Rhoads discovered him as a skinny kid with a sweat jumper - and brought him some size 18s made for NBA All-Star Alonzo Mourning. In 1999 he signed Yao to a four-year contract worth $200,000. But Nike let his contract expire in 2003; Yao defected to Reebok for an estimated $100 million. The failure leaves Nike executives visibly dejected. The only thing I know is, we lost Yao Ming , says a Shanghai executive who negotiated with the star. Nike is determined not to repeat the mistake. It has signed Chinas next NBA prospect, the 7ft Yi Jianlian, 20, who plays for the Guangdong Tigers. And it has resolved problems that dogged it a few years ago, cleaning up its shop floors and cutting its footwear suppliers in China from 40 to 16. (15 sell only to Nike, allowing it to monitor conditions more easily.) At Shoetown, in the southern city of Guanzhou, 10,000 mostly female labourers work legal hours stitching shoes for $95 a month - more than the minimum wage. Theyve made huge progress, says Li Qiamg, director of New York City-based China Labour Watch.

Unit 2

ACTIVITY
What other products (or organisations) can you think of that have attained market challenger status in Asia recently?

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ACTIVITY FEEDBACK
There a many possible answers to this activities. You may have considered some or all of the following: Proctor & Gamble most urban Chinese homes stock affordable P&G products. Its Olay and Rejoice are the best-selling facial cream and shampoo. The company, which made an estimated $1.8bn in revenue in 2003 in China and has recently announced a huge merger with Gillette, was hurt by fake P&G products in the 1990s. However, it has since worked with the government to crack down on knock-offs. Dell The computer maker focuses on business customers, ceding the low-price market for home computers to Chinese companies. It boasts 7 per cent of computer sales in China; superior after-sale service has the figure climbing. KFC The chicken specialist owned by YUM! Brands is Chinas dominant fast-food joint, with an estimated $1bn in revenue. KFC has added a twist to 40 per cent of its dishes, such as red-hot Sichuan chicken and Peking duck flavoured poultry. Coca-Cola Excellent distribution has helped Coke capture 53 per cent of the soft-drinks market (Pepsi has 26 per cent) and an estimated $1.86bn in revenue. Once delivered in Shanghai, it is now available for 50 cents a can from the South China Sea to Tibet. The Chinese name means thirsty mouth, happy mouth. GM The second biggest car manufacturer in China, with an estimated $4.6bn in revenue, produced nearly 500,000 cars in 2004 and will soon start selling China-built Cadillacs. GMs advantage rests on the fact that it is the first foreign car manufacturer with a license to provide financing.

Market follower

KEY POINT
A market follower is a product or organisation which is content to take up a middle-ground within its particular market. It is not aiming to outstrip all competition, nor is it likely to occupy a lowly place within the market. The product or organisation is content to operate efficiently, with often good financial results, from a position that it has probably occupied for some time. The likelihood is that the management of the organisation are confident enough to be able to hold that position against competition from all directions. Statistically it is likely that the market follower will hold considerably less than 70 per cent of the size of the market leader.

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ACTIVITY
Describe an example of a product that has followed existing market trends.

Unit 2

Market niche

KEY POINT
Niche marketing involves a business aiming a product at a particular, often tiny, segment of the market. It is the opposite of mass marketing, which involves a product being aimed at whole markets rather than particular parts of them. Tie Rack, Knickerbox and Classic FM are all examples of attempts to exploit niche markets.

ACTIVITY
Why do firms attempt this type of marketing? What are the problems associated with this type of marketing?

ACTIVITY FEEDBACK
Common reasons include:

Small firms are often able to sell to niche markets which have been
either overlooked or ignored by other firms. In this way, they are able to avoid competition in the short run, at least.

By targeting specific market segments, firms can focus on the needs


of consumers in the segments. This can allow them to gain an advantage over firms targeting a wider market. There are some problems with niche marketing. These include:

Firms which manage successfully to explore a niche market often


attract competition. Niche markets, by their very nature, are small and are often unable to sustain two or more competing firms. Large businesses joining the market may benefit from economies of scale which small firms are unable to achieve.

Many small firms involved in niche marketing have just one product
aimed at one main market. This does not allow a business to spread its risks in the way that a business producing many goods might be able to do.

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Because niche markets contain small numbers of consumers,
they tend to be faced with bigger and more frequent swings in consumer spending than the larger markets. This may mean a rapid decline in sales following an equally rapid growth in sales.

ACTIVITY
Describe an example of a product that fills a market niche.

ACTIVITY FEEDBACK
Obviously, there are many products that could be cited. Here is an example of a recently introduced product. Dietrich Mateschitz is the Austrian billionaire inventor of the energy drink, Red Bull. He first encountered the concept of an energy drink whilst visiting the Mandarin Hotel, in Hong Kong, as international marketing director of German toothpaste maker, Blendax, during the early 1980s. He observed the popularity of certain tonic drinks throughout the Far East. His associates in Thailand swore by these drinks, which they took before long meetings to help them concentrate, and many taxi drivers used them to help them keep awake during the nights. Mateschitz tried them and every time he flew to the East he would have one. He claimed that it cured jetlag in seconds even after only a single glass. It was while waiting for colleagues to arrive at the Mandarin Hotel that he read in a magazine how a company producing tonic drinks was Japans biggest corporate taxpayer. He quickly realised that if they paid such a lot of tax, they must be making an enormous profit. Could this concept be brought to Europe and similar huge profits made from drinks of this type? He approached Thai businessman, Chaleo Yoovidhya, who was already selling a syrup drink called Krating Daeng, which means water buffalo. Mateschitz changed the name to Red Bull (appropriate as he was born under the star sign of Taurus!) and bought the rights to sell it in the West. However, the taste of the syrup-like mixture of caffeine, sugar, vitamins, detoxicants and the chemical taurine was not well received. Most said it was disgusting and market researchers tried hard to persuade Mateschitz to forget the whole project, warning him that no other product had ever failed so convincingly. Ignoring their warning, he made changes to the formula and created his new product in the now familiar slim-line blue aluminium can. There was no market in Red Bull so we created one, he stated. He was convinced of the potential of his new drink. Rather than paying large sums on marketing, at first he refused to advertise and deliberately restricted

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supplies. Instead he paid DJs, students and sportsmen to promote it. Formula 1 driver Gerhard Berger was among the first on Red Bulls payroll. Controversy soon developed as stories abounded about the harm the drink was doing. Claims that one can was equivalent to the caffeine in 14 cups of coffee were proved wrong and sales continued to rocket. When Red Bull was launched in Germany it sold out in days. This year, Mateschitz expects to sell two billion cans in more than 100 countries. Britain and Ireland remain its biggest markets, where it is often mixed with vodka. This has made Mateschitz extremely wealthy. Forbes magazine calculates his 49 per cent share of Red Bull to be worth nearly $1.5bn. Thinking back to his early days promoting the new drink, it is with some irony that Mateschitzs latest venture is into Formula 1 motor racing. He bought the rather unsuccessful Jaguar Formula 1 racing business in 2004 and renamed it Red Bull. The ability to compete effectively in such a highly priced sport is conclusive proof of his profitability in a market he has made his own.

Unit 2

Market pioneer

KEY POINT
Market pioneers are often thought of as innovators either within existing markets or in areas that have previously been unexplored. Such a case would be the invention of a revolutionary new method to solve an already recognised problem, or an initial attempt to solve a new problem.

In the latter case, such problems may occur as the result of new technology. For example, the rapid expansion of the market for mobile phones led to the need for hands-free operation whilst driving a car. To achieve this it has been necessary to develop the market for hands-free technology. An example of an innovative invention causing ripples within the existing market would be the introduction within the domestic cleaning market of the Dyson cleaner. By utilising new technology - and some would say simplifying the design - a product has seriously threatened existing products to such an extent that the structure of the market has been radically altered. Dyson cleaners have been accepted all over the world as the new standard and existing companies have sought to produce their own versions using similar technology.

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ACTIVITY
What do you think of when the term market pioneer is used? State some examples.

Offensive, defensive and value-based marketing strategies


Increasingly, one hears marketing terms borrowed from the vocabulary of military strategy. From launching a breakthrough campaign to the cola wars, the analogy between marketing and warfare is evident. As in military strategy, it is unwise for an organisation to publicly state deadlines for its victory. Deadlines often are missed, and the organisation loses credibility in the propaganda war if it fails to live up to a prediction. Politicians who are wise to this rule tend to make their campaign promises vague. Publicly stated marketing promises should be vague for the same reason. Organisations also should avoid the trap of thinking that if they work hard enough, they will succeed in their attack. Al Reis & Jack Trout (Marketing Warfare, 1998) argue that it is strategy and not hard work that determines success. In warfare, when a battle turns to hand to hand combat, the advantage resulting from the strategic plan no longer exists. In marketing, an organisation achieves victory through a smarter strategy, not by spending longer hours with meetings, reports, memos and management reviews. When management declares that it is time to redouble our efforts, then the marketing battle has turned to hand to hand combat and is likely to end in defeat.

Offensive marketing
An offensive strategy is appropriate for a firm that is number two or possibly number three in the market. However, in some cases, no firms may be strong enough to challenge the leader with an offensive strategy. In such industries, the market leader should play a defensive strategy and much smaller firms should look for other options.

KEY POINT
The three principles of offensive strategy are:

The challengers primary concern should be the strength of the


leaders position, not the challenger's and own strengths and weaknesses.

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The challenger should seek a weakness in the leaders strength - not
simply a weakness in the leaders position.

Unit 2

Attack on as narrow front as possible. Avoid a broad attack.


The strength of the leaders position is of primary importance because the leader has the top position in the mind of the consumer and this position must be attacked. A weakness in the leaders strength must be found. Simply attacking any weakness is insufficient. For example, the leader may charge a premium price and the price may appear to be a weakness. However, the leader may in fact have large profit margins and may be willing to lower the price as much as necessary to defend its position. The leader usually has the resources to defend against an attack against its weaknesses, whereas there may be weaknesses inherent in the leader's strengths that cannot be defended. There often is a flip side to the leaders strength but converse of the target of the challengers attack. For example, a leader may be so successful that it is crowded with customers, and the challenger can then exploits that success by offering a better customer experience. For example, Avis Rent-a-Car once advertised Rent from Avis. The line at a counter is shorter. Sometimes the weakness in the leaders strength arises from the fact that it has a major investment in assets that cannot be readily adapted. A more flexible challenger can use this fact to its advantage. The challenger should attack on as narrowly front as possible. Generally this means one product rather than a wide range of products. The reason for keeping the attack narrow is the principle of force; a narrow attack allows the challenger to concentrate its resources in the narrow area, and in that area may present more force than the leader. Many number two and number three companies ignore this principle and try to increase market share by broadening their product lines to compete in more areas, often with disastrous consequences. FedEx made this mistake in its early years by offering a wide array of transit times such as overnight, 2-day and 3-day delivery. FedEx became successful only when it began to focus on the next day delivery market and won that position in the mind of the consumer using the slogan When it absolutely, positively has to be there overnight. A narrow attack is particularly effective when the leader has attempted to be all things to all people with a single product. In that situation, a challenger can identify a segment within the leaders market and offer a product that serves only that segment. The challenger then stands a

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chance of winning a position in the consumers mind for that narrower class of product.

Defensive marketing

KEY POINT
A defensive strategy is appropriate for the market leader. There are three basic principles of defensive marketing warfare:

Defensive strategies only should be pursued by the market


leader. It is self-defeating for an organisation to pretend that it is the market leader for the purpose the of strategy selection. The market leader is the organisation who has attained that position in the mind of the consumer.

Attacking yourself is the best defensive strategy. Introducing


products better than your existing ones pre-empts similar moves by the competition. Even if the new product has less profit margin and may reduce short-term profit, it accomplishes the more important long-term goal of protecting the organisations market share.

The leader always should block strong offensive moves made


by competitors. If the leader fails to do so, the competitor may become entrenched and permanently maintain market share.

A classic example of a well-executed defensive block was that of Johnson & Johnson when Bristol-Meyers decided to launch Datril to compete directly with Johnson & Johnsons successful Tylenol brand. Datril was to be priced 35 per cent lower than Tylenol. Johnson & Johnson learned of Datril before its launch and informed Bristol-Meyers that they were cutting the price of Tylenol to match that of Datril . Johnson & Johnson even extended credits to its distribution channels to make the price cut effective immediately. This move was intended to block Bristol-Meyers from advertising Datril as a lower-priced alternative to Tylenol. However, Bristol-Meyers responded by accelerating the launch of the television advertising campaign. Finally, Johnson & Johnson countered by convincing the television companies not to run the Datril advertisements since they no longer can truthfully claim that Datril was priced lower than Tylenol . Johnson & Johnsons efforts were successful and Datril achieved less than a one per cent market share. Tylenol sales soared on the publicity and lower prices. Legal issues are an important factor in a market leader's strategy. Successfully attacking the competition and winning raises anti-trust

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issues. Attacking oneself is less risky from anti-trust perspective. It also is preferable to expand vertically rather than horizontally into new markets since laws prevent an organisation from using its monopoly in one market to develop a competitive advantage in another. Finally, once there is marketing peace and the brand has affirmed its dominance, it can grow its sales by growing the market. For example, Campbells Soup can run advertisements to increase soup consumption in general (e.g. Soup is good food) since it enjoys such a large share of all soup sales. Strategy can be developed using a top-down or a bottom-up approach. Some favoured a bottom-up approach because of deep knowledge of tactics actually used on the battlefield and needed to formulate a strategy that has the gold of achieving tactical objectives. More specifically, the sole purpose of strategy is to put the forces in motion to overpower a competitor at the point of contact using the principle of force. On the military battlefield, this means having more soldiers or force at the point of battle. On the marketing battle field, it means overpowering the competitor in a specific position in the mind of the customer. A good strategy may not depend on brilliant tactics. Mediocre tactics are usually sufficient for a good strategy. However, even the best possible tactics are unlikely to compensate for poor strategy. In marketing, advertising can be considered tactics and many managers falsely assume that success depends almost entirely on the quality of the advertising campaign. If the strategy requires top notch tactics to win the battle, such a strategy is unsound because tactical brilliance is rare. Any strategy should take into account the probable response of the competitor. The best way to protect against response is to attack the weakness in the leaders strength so that the leader cannot respond that giving up its strength. To support the argument of a bottom-up strategy, many large companies incorrectly believed that they can do anything if they simply allocate enough resources. History shows otherwise when one considers failed attempts such as Exxons entry into office systems and Mobils acquisition of Montgomery Ward. Such diversions shift resources away from the point of battle where they are needed. This is one of the dangers that can be avoided by a bottom-up strategy based on what can be accomplished on the tactical level.

Unit 2

Value-based strategies
For products or services to compete in todays marketplace, both domestic and export, organisations must have a good understanding of the market. Meeting the needs of the customer is something that every successful business must continually strive to do. Producing a product for a market rather than producing a product and trying to find a

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market for it are two separate activities. The latter activity has been the area that many organisations have participated in rather than the former. For success into the twenty-first century, and for future survivability, organisations must target the market more effectively and adapt products and service practices to assure complete compliance with the specifications called for from their customers.

KEY POINT
The keys to value thinking are that:

Each part of the internal processes of the organisation can


improve the overall competitive advantage.

The interrelationships or links between the activities of the


organisation can be enhanced to improve competitive advantage.

The interrelationships between the internal processes and the


upstream (suppliers chain) and the downstream (customers chain) can be examined to provide competitive advantage.

In order to achieve these key objectives, reflect on the value chain discussed earlier in the module. The key stages of which are: Be clear that you are looking for cost saving or process improvement within the value chain (internally) and within the system (upstream and downstream from the chain). Set up the nine-box graphic shown at the start of this model and within each of the boxes write the main activities which your organisation performs in that component of the value chain go easy on detail. When you have completed the graphic, look hard at possible links between items which might repay closer investigation (i.e. detailed work analysis or process re-engineering possibilities). Consider carefully the potential for linking with suppliers to your organisation. Consider what those links might look like, what payoff they would provide you, and what payoff they would provide the supplier(s) with which you link Think also about the elements in the supply chain which take your goods and services to your ultimate customers or users. Do links suggest themselves? What is the payoff and for whom? While value chain analysis is complex and can be time consuming, it does allow for imagination and assists thinking across complex

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systems. Remember too that you have two great consultancy allies to help in value chain analysis; they are: the IT providers, particularly those involved in what is called enterprise resource planning. This branch of IT deals with radical revision of the information systems within the organisation and within its extended value system. Since IT is often a key element in optimising links in the system, there is considerable expertise to hand there. The other area of potential help is advice in process re-engineering. This involves examination of internal processes within the organisation and seeks to eliminate redundancy, waste and duplication. Most organisations suffer trauma as a result of extensive process re-engineering, but cost is usually shed and efficiency enhanced.

Unit 2

ACTIVITY
Find examples of organisations who use offensive, defensive and value-based strategies in their marketing. Briefly outline why you have selected each organisation.

ACTIVITY
For further details, refer to the text, Management; An Introduction by D. Boddy. Read sections 7.5 to 7.8.

Summary
This unit has examined a range of marketing strategy options including Porters generic strategies, core competencies and evaluation of investment opportunities. The use of models devised by General Electric and Shell provide key anchors in the development of a strategy. Positions in the market, such as leader, follower, pioneer and challenger, all have different issues to deal with when faced with competition. Recognition of the roles played by each different position is an important marketing skill.

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Unit 3

Implications of Change in the Marketing Environment


Unit Objectives
The aim of this unit is to identify the range of changes that are likely to occur within a market and consider the implication upon the organisation. Often these implications should be viewed as potential for improved profitability, but it should not be forgotten that they may have more serious impact on the organisation in terms of simply survival.

Changes in the Marketing Environment


Why change?
Having seen how the four major components of organisations processes, structure, hierarchies and people group around the central core of strategy, we want to look at how to change organisations, why you need to, and when to do it. All organisations are having to respond to an unprecedented increase in the rate of change. This need is being driven by a number of things, but among the most influential are the following.

Customer demand
We live in a period of accelerating competitiveness. The customer has never had so wide a set of options for choice, and never been more enthusiastic about exercising those options. The proliferation of those options, this increasing choice, in turn spawns smaller niche markets and more opportunities for specialisation. Organisations which win in this kind of climate are those which know their customers well, can pace rather than respond to demand, and can do so fast.

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Globalisation
The competitive environment of any organisation is increasingly difficult to predict. New suppliers enter the market very fast and often from sources which were never anticipated. As the European Union develops, an organisation needs knowledge of their competitors in a dozen countries; as the ability to buy and transact internationally increases through, for example, the Internet, an organisation needs to know its competitors in 100 countries. To survive in a global environment organisations need good information, and the ability to respond to events by enacting radical change very fast.

Technology
The microprocessor is transforming products and services embedded chips, those sold as parts of a product like a washing machine for example, are radically redefining the capability, versatility and reliability of products. This in turn is feeding customer choice (above), accelerating market fragmentation and abbreviating product life cycles. Information technology too is changing the way organisations bring their products and services to market. The Internet will allow you to enter a market, and an international market at that, for the cost of a web page. For an organisation to survive it must, on the one hand, take advantage of the enormous benefits technology can provide in information, business processes, communications and marketing. On the other hand, it must balance this against the value of the investment necessary to keep abreast of the latest technology.

Organisational accountability
The modern organisation is subject to, or answerable to, a greatly increased number of influences than was previously the case. The Royal Society of Arts, in their study Tomorrows Company, talks of a licence to operate. It means that, to operate smoothly an organisation must keep a number of different interests happy. Failure to do so can at least slow it down if not stop it operating entirely. Some of these interests are:

Law and regulation Industry standards Industry reputation The media Pressure groups

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Public opinion Political opinion Owners Suppliers Its own employees Its communities
Organisations which successfully keep all these interests in balance generally are more successful than those which do not. Changes can happen very quickly too. A recent example has been Nike, formerly an outstandingly successful organisation, fighting an expensive, bitter and debilitating rearguard action against accusations of using child labour to manufacture its products.

Unit 3

KEY POINT
The point being made is that organisations are in a less stable, less predictable and more rapidly changing environment now than they have ever been. To adapt to that environment requires frequent and sometimes radical changes of strategy, focus and hence operations. Perhaps one of the main reasons for studying organisations in detail is because, as managers, we have to change them so often.

ACTIVITY
What sort of effect are these four change drivers having on marketing for your organisation? 1. 2. 3. 4. Customer power? Globalisation? Technology? Organisational accountability?

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Micro-markets
From a marketing point of view, there is a tendency to view organisational planning as wide-ranging. The feeling is sometimes that considerations are made only for the market as a large national, or even global, entity. This is, however, often not the case as effort must be made to consider smaller areas of the general market. Some products have an impact only on a limited scale, yet these still need to be considered in the same way as higher impact products. These may be very localised in a geographical sense. For example, sales of childrens bucket and spade sets will be considerable higher at popular seaside resorts than in a city centre. The concept of a micro-market is based on the premise that certain products have only a very limited market but that they still need to be marketed effectively to capture the potential market share. Even though the likely market may be highly restricted by certain factors, those in the market must be made aware of the product and its attractiveness for them. There may also be a number of rival products and companies providing competition. Products designed for specialist groups of people , such as for the elderly or disabled, may have once been considered as being in a micro-market, but the general awareness of the needs of minority groups has greatly increased market sizes. Thus, marketing an aid to walking is now carried out to a wider audience as younger family members might be considering purchasing such a product for an elderly parent.

ACTIVITY
Consider the range of products offered by your organisation. For each one, try to determine the size of the market. Are any of them aimed at micro-markets?

Increased expectations
The increasing knowledge and awareness of consumers has led to a more discerning approach. Media coverage of new products or, indeed, existing product failings, has meant that consumers have a large amount of information about products without the need to carry out lengthy research on them. Indeed, it is probably correct to say that todays consumers are more knowledgeable than at any stage in the past.

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The effect of consumer awareness is that expectations are greater. Products need to be reliable and to perform their functions properly. If they fail to do so, there are numerous channels whereby consumers can publicly state their dissatisfaction. By doing so on the television, through the press or over the Internet, organisations can suffer from the negative comments to the extent that reputations can fall to harmful levels. It is often said that bad news spreads quicker than good news, and can have a longer lasting effect. Unfortunately, this can be true and so organisations should be conscious of the need to avoid failing to reach consumer expectations of their products.

Unit 3

Importance of service
The importance of quality standards has been emphasised in a number of areas of this module. This reflects the current tendency for improved service expected from consumers. With many products quality after-sales service is an important consideration for consumers. This provides a guaranteed level of support from manufacturers, which is appealing to buyers. Similarly, good customer service before sale impresses, and can be used a key marketing tool. Consider the efforts made by a number of car manufacturers to provide an excellent experience for potential customers, from the first step that they take into the showroom.

ACTIVITY
Carry out some research to determine the level of service provision in a variety of different business settings. What do you feel are the most effective ways of effectively marketing a business through customer service? Write a brief summary of your thoughts.

Generic strategic responses to change


Strategy is, of course, particular to each organisation; in fact those with clearly defined or unique strategies are more likely to succeed longer term. All organisations are confronted with an environment of change which, if not identical in impact for each, is at least similar for classes of organisations. From this similarity of experience, a number of generic strategies have emerged which are defining the modern organisation, and we need to look at these strategies in the context of what we now know of organisations.

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First let us look at some common generic strategies; then let us look at how these might be implemented in an organisation using the four-part analytical base we have devised.

Reducing cost base


Many organisations are aiming for a reduced cost base a leaner organisation, less expensive to run and more productive or effective. The thinking behind this is that in the event of a price war with competitors, the organisation has more flexibility to respond if its cost base is lower. Alternatively, it could use its lower cost base to initiate a price war to take out a competitor. At least if its cost base is lower it can survive for longer in the event of an unanticipated market downturn or margin squeeze.

Improving quality
Most organisations now hold the view that consistent incremental quality improvement is an essential precondition for serving a market. Customers insist on improving quality, competitor pressures force quality improvement, and the market is very unforgiving of quality failure or disadvantageous comparison with competitors.

Getting closer to the customer


Customers are whimsical, customers are fickle, customers are not loyal all these things are true. The ability to anticipate this fickleness is a strategic strength. The ability to respond fast to changing customer fashion and the ability to create customer fashion are powerful strategic attributes. Knowing your customers well can also enable you to lead demand, to create fashion, to pre-empt competitors in developing niches and to fill them fast.

Shorter cycle times


When product life cycles are falling, recovering the development cost of the product fast becomes a necessity. Keeping the cycle time short (i.e. the time from conceiving the product to hitting the market with it) is a way of keeping development cost lower. The ability, too, to enter the market with a new product before or very shortly after competitors is a key cost recovery and profitability strategy.

Strategic partnerships
Being able to add value (or reduce cost) to your product or service by entering a mutually advantageous partnership provides an excellent increase in capability. Strategic partners can also take you to markets

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too expensive to enter directly, or they can provide capacity too expensive to invest in yourself. Isolating the areas for strategic partnership, identifying the partners and managing the partnerships are a source of advantage.

Unit 3

Ability to change fast


Some organisations are just better able to embrace change than others. Being able to point the organisation in a different direction, being able to march the troops down the hill when you have been vigorously marching them up the hill is a great strategic advantage. Being fast on your feet and being able to learn fast are organisational competencies of great strategic value. The learning organisation, the athletic organisation, the responsive organisation, the creative organisation are all names for this strategic strength.

ACTIVITY
It may be that some of the generic strategies organisations are following are also material to your organisation. This activity is in two parts. Part 1 Rate the importance of these generic strategies to your own organisation by ticking one response for each statement: Reducing the cost base o Very important Improving quality o Very important o Indifferent o Not important o Indifferent o Not important

Getting closer to the customer o Very important Shortening the cycle time o Very important o Indifferent o Not important o Indifferent o Not important

Developing strategic partnerships o Very important o Indifferent o Not important

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The ability to change fast o Very important Part 2 List the three most important strategies you think your organisation is pursuing, or should be pursuing. o Indifferent o Not important

Erosion of brands
Marketers need to be aware that a brand image will not last forever. It may follow a series of stages rather like a product life cycle, but these are highly unpredictable. The value of the brand image amongst consumers will also alter, and it is this fluctuation that marketers must note. Influences outside the scope of the organisation itself can result in a deterioration of the image to the extent that it may have a negative marketing effect. Such erosion of a brand name or image is damaging to the organisation and is best avoided at all costs. An example is the variation in the status of Saab cars. Whilst initially the make was perceived to be at the high quality end of the market, change of ownership and more competitive pricing policies have led to lower overall image. The cars are now available to a wider range of consumers, but some would argue that this has been at the expense of quality and, therefore, image. Erosion of brand image is, therefore, the result of a combination of factors, some that are within the control of the organisation and others which are consumer driven.

Planning and implementing change


We can look at implementing change under two separate headings: First, we will look at options for change in the areas of work processes, structure and hierarchies; to illustrate we will look at the potential for implementing the generic strategies we have identified above. This helps analyse the nature of the change. Second, we will look at the people aspect of change. Here we will offer some examples of those things necessary to get right so that change can be implemented successfully . The checklist below shows some of the potential for enacting strategic change in the first three areas we have used to explore organisations.

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Work processes Reducing the cost base Structure Hierarchies

Unit 3

re-engineer processes to

eliminate duplication and redundancy, focus on value-added only

introduce

cross-departmental cost-reduction teams

eliminate a tier in the


hierarchy

increase span of control


of line managers

look at IT potential look at outsourcing


potential Improving the quality

have quality teams focus

on process improvement, simplify the complex, and streamline

consider moving to
structure

product-based structure

get management
objectives

attention on quality

consider process-based consider

prioritise quality-based create customer-centred


culture reward, publicise success objectives

Getting closer to the customer

reverse engineer some


processes from known customer satisfaction components satisfaction and behaviour time

customer/market-based structure satisfaction teams cross-departmental

monitor customer consider shortening cycle


Shortening cycle time

introduce customer

prioritise customer-based

examine potential for

process re-engineering to speed cycle time component sourcing

consider product-based
structures structures

accelerate decision taking


eliminate some signoffs investment decision procedures

consider partner/supplier

consider process-based consider crossdepartmental teams tasked on shortening cycle time it encompasses key competencies

rethink budgeting/capital

Developing strategic partnerships

identify most expensive,


least productive processes and look for outsourcing/partner potential

simplify structure so that consider market-based


strategic partnerships

task the hierarchy to


surface partnership potential outsourcing

create culture of consider spinning off


some hierarchy and making partners of them

consider potential (IT for


example) for integrating processes with partners processes systems and procedures

develop partner control


Improving the organisations ability to change fast

develop flexible processes


and multiskill the staff to operate them

consider market-based
structure, strongly underpinned by empowered teams networks

minimise the layers of


hierarchy to teams

devolve decision making create a learning


organisation culture culture, joint planning, joint strategy development, etc.

encourage informal

create participative

stress values, purpose

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This checklist is intended to stimulate your thinking, to help you understand the tools which are at your disposal in designing and changing the organisation.

KEY POINT
There are no right answers; but never forget that the two key determinants of the processes, structure and hierarchy of the organisation are:

Its inherent nature, the kind of business it is. Its strategy, how it is going to fulfil its purpose.

People aspects
If you look through the literature on organisational change, and there is a lot of it, you are offered an array of advice for implementing change. Most of it addresses how we go about bringing people aboard. Here is a selection of journal articles pulled from the Internet in about 15 minutes:

The Eight Stage Change Processes (Kotter) The Twelve Principles of Organisational Transformation
(Trahant et al)

Nine Ways to Create an Atmosphere for Change


(Denton) The depressing fact which much of the reported case literature supports is that probably-two thirds of major change initiatives undertaken by organisations never deliver what they were intended to deliver. Large-scale business process re-engineering has particularly attracted critical reportage recently. Fortune magazine, which occasionally monitors the incidence of consultancy interventions in US industry, reports a marked decline in process re-engineering interventions. Major IT process changes, built around large-scale integration, so-called enterprise resource planning initiatives, have also had mixed results, usually run over time and often cost a great deal more than anticipated. In many ways introducing major change in organisations parallels the process of strategy development, in that it is a blend of involving people in visioning long-term outcomes on the one hand, and helping them with shorter-term planning on the other. Here is a change process which may help.

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ACTIVITY
Collect a small group of convinced energetic people who understand and believe in the need for changes. These are your champions and your missionaries. Imbue them with a sense of the urgency and the importance of the need for change.

Unit 3

Get them to build a vision of what it looks and feels like after we
have made the change. Let them develop this as a group, with others in the organisation upwards through the hierarchy and downwards through the ranks.

Communicate the vision. You and the missionaries must never miss
an opportunity to talk about it, to hold meetings about it, to discuss it formally and informally. Bring up the vision constantly in day-to-day activities. Use it to support a point of view, use it as a basis for decision taking.

Start to take the first moves which will enact the change. As far as
possible let the shared vision you and the missionaries have been generating among the people pace what those first moves should be. Facilitate a plan or the elements of the plan coming together, rather than rolling out a great initiative.

Use the short term wins philosophy, i.e. create the opportunities
for some successes appropriate to the change. Then celebrate, publicise, draw lessons from, use as a basis to extrapolate from etc. You are trying here to increase the momentum for change.

Get more serious and more structured about planning for and
implementing the changes. Take the short term wins as legitimation and as providing the mandate. Turn up the heat, become more purposeful.

When you feel that the change is actually in position, when people
are thinking and acting in support of it, when results are being achieved, acknowledge that you are there or nearly there and seek ways of anchoring the change into the culture of the organisation.

While it is true that change is ongoing and unceasing, you will exhaust and deplete your people if you are in a constant state of exhorting them to different and continuously changing behaviour. You have to stop, to find ways of saying: Look, we got there, these things are better, we got rid of some of the baggage that was holding us back etc. Joseph Dionne, CEO of McGraw-Hill, has described the way he changed McGraw-Hill from a print-based publishing house to an electronic information provider. He describes how the divisional

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print-on-paper operating silos had to be replaced with the concept of an electronic data pool which could be assembled in different ways to serve different classes of customer. The process took three years to enact and fourteen to perfect. Some of the key points he makes are shown below.
Dionnes words the company had multiple silos housing dozens of separate business units we had to replace the silos with cross-functional divisions where information could be shared we needed to take all the bits of data generated by our writers and generate an ever changing matrix of new electronic products to combine invention and commerce [we needed] innovative people; nurturing them is important it takes corporate evangelism, finding the right words to create the right vision having a core ethos of pride and integrity, of respecting our customers intelligence anticipating change is paramount, JAVA, writeable CDs, and innovations we havent dreamed of Translated in our terms a product-based structure

in fact this turned out to be moving to a market/customer-based structure

this involved radical process change from printing and publishing processes to those able to create and maintain multi-accessible electronic data banks culture change what gets rewarded around here

identifying and deploying our missionaries

corporate values (affecting the culture)

technology pacing change

ACTIVITY
1. Identify three major organisational changes you would like to make, changes which you believe would really contribute to the organisations strategic effectiveness. Expand the description of the changes into terms we have used, e.g. structural change, moving from functional to market, or process-based changes or organisational culture change our case study on McGraw-Hill above will help. We need to do this just so you will see what you are up against in effecting the change. Identify three missionaries who could work on developing the vision of the completed change and start to communicate the vision through the organisation.

2.

3.

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Implications
Any form of change in a business environment will have consequences on the organisation as a whole. In terms of marketing, the changes will reflect different consumer attitudes and behaviour. In this section, we will consider some of these implications. Some of the following text is reproduced from the earlier module in the course on Managing Change.

Unit 3

Changing marketing strategies


Developing a new marketing strategy is a bold step to take. It demonstrates to consumers that there is new thinking within the organisation. Perhaps there are new products or new presentation of existing ones. Either way, a different vision is being presented. Re-branding is often used to refresh a product range, often with considerable success, despite sceptics views that it is merely re-selling old products. It tends to excite the consumer to try a product that they may perhaps have dismissed previously. Expensive and risky as they are, new marketing strategies can provide the boost needed to raise an organisational profile sufficiently to achieve significant results. However, they must be very carefully managed and implemented.

Speed of new product development


If an organisation is going to develop a new product, the decision must be a firm commitment to improvement. It must be initiated and carried through as swiftly as possible to take advantage of the likely wave of consumer enthusiasm that will be generated by an established organisation. Delaying the development can be counter-productive as the consumer will see that the process is taking an unacceptably long time to accomplish. Consumers, in general, are not patient and if they perceive the introduction of a new product or range as taking too long they may quickly turn against it, seeking other offerings from competitors. A major part of new product development should be assessing the optimum speed of delivery of the product in conjunction with marketing that reflects the organisational commitment.

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E-marketing
The use of the Internet to market products and services has proved to be very successful to many organisations. Businesses have focused their efforts on online marketing for a number of reasons. Among them are:

Fast up-to-date service. 24-hour availability of promotional material. Creates an visual impact. Easy to amend and keep current.
Consider the example of the joint venture between Toys R Us and Amazon.com. Here the partnership between an established well known toy store and the online trading company offers a wealth of new marketing directions. Both organisations benefit from the availability of instant marketing tailored to the individual needs of its customers. Toys R Us in particular felt the improvement as it presented them with a much wider market audience.

The learning organisation and knowledge


Education will become the centre of the knowledge society, and the school is the key institution. Peter F. Drucker Nobody has been more influential on modern management than Peter Drucker. In other ways, the Knowledge Age that Mr. Drucker first started writing about in 1959 in Landmarks of Tomorrow, is just the beginning. Throughout history, whether in pre-industrial or industrial times, great nations developed based on their access to physical resources or their ability to surmount physical barriers: England and Spain crossed the oceans, Germany turned coal and iron into steel, and the United States exploited a wealth of agricultural and industrial resources to become the worlds breadbasket and industrial superpower. The advent of the personal computer, the Internet and the electronic delivery of information have transformed the world from a manufacturing, physically-based economy to an electronic, knowledge-based economy. Whereas the resources of the physically-based economy are coal, oil and steel, the resources of the new, knowledge-based economy are brainpower and the ability to acquire, deliver, and process information effectively.

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With some of the greatest developments in new technologies arriving late in the 20th century, widespread optimism surrounding the 21st century had yielded Mr. Drucker predicting a period of rapid growth at the magnitude of the industrial revolution, if not greater, with the advent of the knowledge-based economy. In this new economy, knowledge workers form the cornerstones of successful businesses, emerging industries and economic growth. In this new environment, however, the labour force is presented with an unprecedented challenge as it must now gain and continuously upgrade its skills. Companies are increasing R&D expenditures, and employees must continue to upgrade their skills in order to keep pace with the innovation. Case in point, the number of patents being issued in the United States is almost twice the amount granted only 10 years ago, and the pace of patent application is accelerating. In todays global marketplace and knowledge-based economy, its the brainpower that gives a country or a company its advantages. The smartest people win. The growth industries of the future will be propelled by intellectual capital; software, biotechnology, nanotechnology, new mediaall examples of knowledge industries. Technology is a driver of growth industries of the future, but human capital is its fuel. One of the reasons China and India are the future, is the enormous production of knowledge workers each country is creating. With the acceleration of Internet learning, the democratisation of education will dramatically increase the advantages these countries have by lowering the cost, increasing access and ultimately improving the quality. Education has become critical for both individuals and employers. In todays economy, a four-year degree is just a prerequisite to participating in the industries of the future. As the result of technology innovations such as the Internet, video-conferencing, and satellite systems, a New Economy has emerged driven by knowledge and information. The educational needs of the knowledge economy, contrasted with the current systems inability to fill those needs provide innovative companies with open-ended opportunities for growth. The classic big investment opportunity is a company that has a solution to a problem; the more significant the problem, the larger the investment potential. There is not, in our view, a bigger problem in the United States today than the need to better educate our populace and, hence, we think the investment potential in this sector is tremendous. Businesses are saying they cant employ the students that come out of our schools graduates cant read or write. Corporations are spending billions of dollars on remedial education, tens of billions on corporate training and are making large contributions to education reform.

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Put another way, a 30-year-old male with only a high school qualification makes less than two-thirds what he made in the 1970s. This becomes even more striking when you take into account that only 21% of the U.S. adult population has a bachelors degree or better. The push from employers demanding relevant skills and the pull from employees seeking better jobs has created a fertile growth environment for postsecondary providers, as well as redefined who the students are. Twenty-five years ago, 25% of the students in postsecondary schools were 25 years or older. Today, nearly 50% are 25 years or older. Americans need look no further than their own pay checks to see the importance of education in todays economy. In 1980, the pay difference between someone who had a high school education and a college education was 50%. Today it is over 100% and growing. Peter Drucker, through his wisdom and insight has recognised that the knowledge era is upon us with all its associated problems and opportunities.

Environmental change
Environmental turbulence refers to the amount of change and complexity in the environment of a company. The greater the amount of change in environmental factors, such as technology and governmental regulations, and/or the greater the number of environmental factors that must be considered, the higher the level of environmental turbulence. For many reasons environmental volatility and instability have been increasing for the past 100 years. This means that decision makers have difficulty gathering good and reliable information and predicting external changes. Such turbulence occurs when the external environment is rapidly changing and complex. Three things may occur within an organisation as a consequence:

Increased differences occur among departments. The organisation needs increased coordination to keep
departments working together.

The organisation must adapt to change.


Environmental characteristics that influence uncertainty are the number of factors that affect the organisation and the extent to which those factors change. A large organisation such as Nortel Networks has thousands of factors in the external environment creating uncertainty for managers. When external factors change rapidly, the organisation experiences very high uncertainty; examples include telecommunications and aerospace firms, computer and electronics

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companies, and e-commerce organisations that sell products and services over the Internet. Organisations have to make an effort to adapt to the rapid changes in the environment. When an organisation deals with only a few external factors and these factors are relatively stable, such as soft-drink suppliers or food processors, managers experience low uncertainty and can devote less attention to external issues.

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Characteristics of different types of change


Understanding the nature of the change you wish to effect and the context in which you are working are important in determining an appropriate strategy. Entering uncharted change territory without some sort of route map puts you at an immediate disadvantage from the start. One of the first stages in charting the territory is to understand a little more about the type of change you wish to make (broadly where you want to get to and how you plan to travel). There are a number of ways in which change can be categorised, most are related to the extent of the change and whether it is seen as organic (often characterised as bottom-up) or driven (top-down). Ackerman (1997) has distinguished between three types of change:

Type of Change Developmental

Characteristics May be either planned or emergent; it is first order, or incremental. It is change that enhances or corrects existing aspects of an organisation, often focusing on the improvement of a skill or process. Seeks to achieve a known desired state that is different from the existing one. It is episodic, planned and second order, or radical. Much of the organisational change literature is based on this type. Is radical or second order in nature. It requires a shift in assumptions made by the organisation and its members. Transformation can result in an organisation that differs significantly in terms of structure, processes, culture and strategy. It may, therefore, result in the creation of an organisation that operates in developmental mode - one that continuously learns, adapts and improves.

Transitional

Transformational

Figure 3.1 Characteristics of different types of change.

Sometimes change is deliberate, a product of conscious reasoning and actions - planned change. In contrast, change sometimes unfolds in an apparently spontaneous and unplanned way. This type of change is known as emergent change. Change can be emergent rather than planned in two ways:

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Managers make a number of decisions apparently
unrelated to the change that emerges. The change is therefore not planned. However, these decisions may be based on unspoken, and sometimes unconscious, assumptions about the organisation, its environment and the future (Mintzberg, 1989) and are, therefore, not as unrelated as they first seem. Such implicit assumptions dictate the direction of the seemingly disparate and unrelated decisions, thereby shaping the change process by drift rather than by design.

External factors (such as the economy, competitors


behaviour, and political climate) or internal features (such as the relative power of different interest groups, distribution of knowledge, and uncertainty) influence the change in directions outside the control of managers. Even the most carefully planned and executed change programme will have some emergent impacts. This highlights important aspects of managing change: The need to identify, explore and if necessary challenge the assumptions that underlie managerial decisions. Understanding that organisational change is a process that can be facilitated by perceptive and insightful planning and analysis and well crafted, sensitive implementation phases, while acknowledging that it can never be fully isolated from the effects of serendipity, uncertainty and chance (Dawson, 1996). An important (arguably the central) message of recent management of change literature is that organisation-level change is not fixed or linear in nature but contains an important emergent element as identified in the section on complexity theory.

Summary
In this unit we have looked some of the changes that can take place within an organisation, and at the subsequent effect on the marketing environment. Some of these are driven by innovation and improvement; others are the result of consumer response to products and the organisations themselves. For many of these, the implications on the marketing mix can be significant. A number of these are discussed with appropriate examples.

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Ultimately, the success of an organisation relies substantially on the effectiveness of its marketing policy. This, in turn, must reflect the changes occurring in the businedss environment at the present time.

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Further reading
Bass, B. (1985) Leadership: Good, Better, Best. Winter. Kotter, J. & Heskett, J. (1992) Corporate Culture and Performance. Free Press. Mintzberg, H. (1989) Mintzberg on Management. Free Press, Ring, P. & Van de Ven, A. (1994) Academy of Management Review. Saskin, M. & Burke, W. (1990) General Management. Schein, E. (1992) Organizational Culture and Leadership. Jossey-Bass. Belbin, R. M. (1996) The Coming Shape of Organisations. Butterworth Heinemann. Colenso, M. (1998) Strategic Skills for Team Leaders and Line Managers. Butterworth Heinemann. Connor, D. (2006) Managing at the Speed of Change. Villard Books. Coulson-Thomas, C. (1997) Business Process Re-engineering: Myth and Reality. Kogan Page. Taffinder (1999) Big Change: A Route Map for Transformation. John Wiley. Volberda (1999) Building the Flexible Firm. Oxford University Press.

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