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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 Activity Feedback icon is used to provide you with the information required to confirm and reinforce the learning outcomes of the activity. discuss your ideas with other students or your colleagues. This Key Point icon is included to stress the importance of a particular piece of information. 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. 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 icon shows where the Virtual Campus could be useful as a medium for discussion on the relevant topic. Strategic Marketing Management i . Strategic Marketing Management by distance learning. ask your tutor. this will make learning much more stimulating. This Activity icon refers to an activity where you are required to undertake a specific task. These could include reading. if in doubt. research. If possible.rdi How to use this workbook This workbook has been designed to provide you with the course material necessary to complete the module. Remember. etc. evaluating. questioning. analysing. writing. Try to use your own background knowledge when completing the activities and draw the best ideas and solutions you can from your work experience. or you need answers to any questions about this workbook or how to study.

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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. the current marketing environment and how to contribute to the achievement of marketing objectives. An Introduction by D. The use of a range of tools and techniques is examined in detail to show the value of available information to the marketing department.rdi Strategic Marketing Management Introduction Introduction Module Objectives Effective management of marketing is an essential part of any organisation’s operations. The aim is to provide an understanding of the formulation. This module introduces the principles of strategic marketing management. it is stressed that this is only useful to the organisation if the techniques are correctly applied and their findings interpreted objectively. Management. It is strongly recommended that the student gain access to a copy of this publication. allowing students to gain a knowledge and understanding of a marketing plan. Boddy. the principles of marketing strategy are introduced. with examples to explain their use. Strategic Marketing Management 0. implementation and control of a marketing strategy which has been developed by the marketing function of an organisation. However. reference is made to the text.1 . along with appropriate tools and techniques. In this module. Theoretical concepts are introduced.

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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. or the demand for. ultimately. Examples of definitions are included to show the wide range of thought about the subject. A number of tools and techniques are described in this unit.rdi Unit 1 Unit 1 Planning Principles and Range of Tools and Techniques Unit Objectives In this unit. providing the student with valuable skills for developing the strategic marketing approach. the principles and processes of planning are explained in order to provide a clear understanding of the development of a marketing strategy. The production of a strategic marketing plan requires a considerable amount of information to be gathered.1 . Most important is the ability to act upon the available evidence and. These include both formal descriptions from bodies such as the Chartered Institute of Marketing as well as a variety of different authors. 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. Principles Basic concepts KEY POINT A market consists of people – buyers and sellers – who are trading in a product. to ensure the effectiveness of the organisation’s operations in the future. The market for any business consists of its actual and its potential Strategic Marketing Management 1. This may be both quantitative and qualitative. its competitors and the market environment. the product. The price is normally set by the supply of.

a street market).g. · How to encourage these people to buy. This market may be local (e. national (e. Sandwiches sold from a mobile van. Markets may be classified as: · Consumer markets – goods and services bought by the general public. ACTIVITY FEEDBACK 1. Marketing is needed because people. Answer the five key questions for each item. 2. A pocket diary · Small but with enough space for details of appointments. notes. A pocket diary. 3. businesses and advanced economies specialise. advertising connections 1. The various goods and services supplied need to be sold. and business-related services (e.g.2 Strategic Marketing Management . As a result. This takes place in a competitive environment. delivery. · Who to sell to. A mobile beautician service.g. · Industrial markets – machinery and equipment used in business. · How many to make and sell. ACTIVITY Imagine you are a manager of a company marketing the following three items. 1. the mass market) or international. security). · How much to charge for what is sold. expenses. etc · Probably in the thousands · General business environment · Attractive/fashionable design. a business needs to discover: · What to make and sell.Unit 1 rdi customers.

snacks. and often misunderstood. Sandwiches sold from a mobile van.3 . Often it is more fruitful to prove how it is used in practice. sandwiches.rdi · Modest price. etc · Only enough for today’s sale · Office/factory employees · Quality must be good. It has come to mean many different things to different people. The term ‘marketing’ is widely used and misused. but not too cheap! 2. Unit 1 · A variety of fillings. If the marketing department achieves this. it will meet customer wishes and help the business make a profit. And you may recall from previous work that trying to work out what something means by defining it has its difficulties. To do this. This means it must link production to consumption. rolls. · 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. tasty product · Less than local competition 3. A mobile beautician service. The activity that follows is designed to give you the opportunity to think about how you would define marketing. the department makes sure that the demands of its customers are met by what is being made. Strategic Marketing Management 1. ACTIVITY How would you define marketing? Compile a brief definition of your own.

or service users is possible. It is difficult.’ Peter Drucker (1974). and some would argue desirable. in the terms of most ‘marketing’ professionals.4 Strategic Marketing Management . including those in the public and charity sectors of economies. and satisfying customer requirements profitably. as examined in this unit. 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. in all organisations. but only partly. is illustrated by two definitions which are well-known in the marketing world.’ The professional body of marketers in the UK.Unit 1 rdi ACTIVITY FEEDBACK If you defined it as advertising or selling or promotion you would. Indeed. consumers. clients. A primary focus on customers. right. Philip Kotler. suggests: ‘Marketing is the management process responsible for identifying. be partly. anticipating.’ Marketing looks outwards: it is firmly focused on what marketing usually refers to as ‘customers’ and ‘consumers’. Marketing and marketers (a term we will use to refer in general to those doing or concerned about marketing. Leading USA marketing specialist. in many organisations to decide who the customers are. the Chartered Institute of Marketing (CIM). however. says: ‘The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Such an approach belongs to a past era. Note that throughout this module we want you to keep applying the ideas and activities at these three levels: 1.’ 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. international management guru. The breadth of the concept of marketing. you may want to talk of several different customers or types of customer. But marketing as a concept and discipline – as defined by marketing professionals and academics – is a wider. Such people would argue that to approach marketing by seeing it as focused on selling what you have chosen to produce is wrong. more complex idea. 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. and what they need and want. You would be reflecting a typical common-sense view.

marketing encompasses a wide-range of ideas and tools. We contend that almost all organisations and managers would benefit from such use. industrial and public sector settings.1. Whilst all definitions and approaches stress that the customer is central. Peter Drucker. there are differences between the application of the concepts and techniques in consumer. So the bulk of this module examines various aspects of action to put the ‘marketing concept’ into practice. 2.’ In summary. Your unit or section (if you are not in charge of the whole organisation). What is marketing? Another comment on marketing emphasises the focus on the customer.1. Some differences are ones of emphasis.rdi 1. It looks at how we can establish relationships Strategic Marketing Management 1. some are of language. Commentators and writers on marketing differ in the way they use some words. The organisation overall. Marketing is full of compound phrases which use nouns as adjectives to produce phrases such as ‘product quality improvements’. has said that: ‘Every business can be defined as serving either customers or markets or end users. even in forms adapted to their special circumstances.5 . where everyday language would more simply speak of ‘improvements in the quality of products’! Not all organisations use ‘the marketing concept’. 3. Unit 1 Consider the view of marketing shown in Figure 1. Organisational satisfaction Marketing as a function What is marketing? Marketing as a philosophy Customer satisfaction Figure 1. try thinking of them as customers). The influential USA consultant. Your own work (even if your job is to manage and lead others.

Unit 1

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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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Strategic Marketing Management

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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.

Unit 1

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

Strategic Marketing Management

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Unit 1

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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 plan’s 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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Strategic Marketing Management

Strategic Marketing Management 1. financial soundness. develop plans for meeting objectives. This is called Marketing Control . Monitoring and control The marketing plan will be affected by a constantly changing environment. an exceptional distribution system. or one with which you are familiar. Performance is then measured for any disparity between what should be happening and what is actually happening. new product innovations.9 . For example. set objectives.rdi help organisations define their core competences. Management set specific marketing goals. marketing and advertising efficiency. and take advantage of marketing opportunities. the Coca-Cola Company identifies as its strengths as having the world’s best-known trademark. and a dedicated team of managers and employees.the process by which the marketing plan can be measured. The need to carry out an organisation’s operations to a carefully considered time schedule is paramount to the effective working of that organisation. The firm’s strategy involves capitalising on these strengths in addressing international marketing opportunities. Unit 1 ACTIVITY Consider you own organisation. time is a key element. What are the key organisational resources that are advantageous to the marketing department? List the resources and briefly explain the benefit of each one. should make clear distinction regarding the period of time allowed for each task to be carried out. Therefore. 2. The strategy and the eventual marketing plan. just like a production process. Timescaling With the development of any business-related plan. This will be shown on the marketing plan overview documents. evaluated and modified accordingly with the principle aim of making sure that the stated marketing objectives are achieved. As a result it is imperative that the plan is monitored and controlled. This process of control involves four distinct phases: 1. the co-ordination of the different activities within the strategic marketing strategy must be set against a realistic timescale.

Marketing plays a crucial role in the execution of the strategic plan and. however. 1. KEY POINT To control the marketing function. Investment of money and resources. 2. Co-ordination of all organisational departments. pricing.). · Product/service performance (sales. etc. competitors strategies for quality. 4.).Unit 1 rdi 3. 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. The strategic plan defines the total organisational mission and objectives. Marketing Planning Processes To meet the needs of customers efficiently involves: 1. promotion and distribution. This process. customer purchasing factors. 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.10 Strategic Marketing Management . Corrective action is then undertaken and appropriate strategies put into place. therefore. This is usually facilitated by the production of a Marketing Plan as part of the strategic planning process.). it is against the backdrop of the strategic plan that the marketing plan is derived. Implementation of the marketing mix. 3. etc. · Competition (market share. Performance is then evaluated to ascertain the reasons why there are gaps if any in performance levels. etc. customer needs. prices. Formal strategic planning is essential if organisations are to adopt a co-ordinated and focused approach. To be able to plan effectively means that marketing objectives must be formulated and stated. segmentation.

Management. The main aim of the SWOT analysis from an organisational perspective is to: Unit 1 · Develop the strengths to match the opportunities. In Strategic Marketing Management 1. Thus we have Corporate Strategy concerned with the overall aims and objectives. At the corporate level the objective may be to secure a return on capital employed of x per cent. Threats – external factors that are likely to have a negative impact on the organisation. Boddy. An Introduction by D.11 . The marketing strategy following from this may then be to expand use of existing products in existing markets. Weaknesses – internal factors that inhibit performance. and the strategy chosen to meet this objective may be to concentrate activity on the organisation’s core activities. but we have Marketing Strategy concerned with the more specific objectives of the marketing department. For our purposes we can define to terms of immediate importance: · Strategy is concerned with meeting the objectives of an organisation.1 to 6. Sections 6. you might wish to refer to the text.) A SWOT analysis is formulated from the data derived from the external and internal audit and relates to: Strengths – internal factors that enhance performance.rdi · Distribution (sales trends.4 remind you about the general planning and strategy processes within organisations. Opportunities – external factors that favour the organisation. Strategic marketing analysis ACTIVITY To find out more. etc. This valuable marketing technique will be explored in more detail in a later unit. or of some part of it. The terms used to describe the processes of setting organisational goals and achieving them have changed considerably in recent years. · Attend to the weaknesses to match the threats posed.

executives must not be too introspective. competitive. Strategy establishes the long-term intentions (objectives and targets). Detailed marketing plans for products or services will then be developed by those responsible for day-to-day marketing of each product or brand. In all cases. Planning will be at senior or middle management levels. whatever their specific titles may be. They must appreciate the marketing strategies and mixes of the major competitors and the managerial concepts and criteria . and diversifying strongly to insure the company’s survival). will be a compromise between what is ideal and what is practical. At each level a plan will cover of the resources needed and the means to be used to implement strategy. In so doing. executives must use thorough scientifically-based assessments and judgements of their present and forecasted future. the first two should normally take precedence. 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. intelligent use of intuition and hunches. the marketing plans followed. The planning is research-based.e. Corporate objectives and strategy will be determined at board level. Marketing strategy is primarily concerned with optimising profit and return on investment. 1. If there is any conflict with the first two objectives and the third. under the overall control of the directors. of which most critical is usually money (funds). technological. The plan will include forecasts of the expected results. and hence the marketing mix selected. Plans will be altered to counter changes in market factors (economic. · Planning is concerned with detail of implementing the agreed strategy. based on experience. and where these do not fit the objectives. the critical factor of market shares will come right. In arriving at the best strategy and plans possible.motivate customers and competitors. as well as sales volume.12 Strategic Marketing Management . the strategy or the plan will need to be changed. either the objectives. moving into a new technology and markets. Departmental objectives of strategy will be determined at director level. When information and data are scarce or non-existent. The latter is determined by the constraints of minimum costs and the talents of assets available to the company. They must think through their own situations and those of customer and competitor.Unit 1 rdi all these cases there is a definition of the broad approach at each level. however. In practice. but no detail of how the objectives to be achieved. while planning specifies the short-term action programmes to be followed to achieve the strategy. though these two should not be spurned completely. not maximising sales. knowledge and past performance in related areas may be the only methods available. not the consequence solely of intuition or guesswork.

which we will discuss further later in the module. 5. however. packaging design. These are themselves conditioned by cost aspects. While these must be so co-ordinated as to optimise the company’s communication with the selected markets and customers. 4. hence. modification and a new product development. who has suggested that the company can achieve success through aiming to: Strategic Marketing Management 1. etc. Promotional strategy and planning: involves decisions on the personal selling. be classified under five headings or groupings: 1. performance and other properties of the products or services and selling methods that will be used. All five of these headings lead towards the marketing mix. These in turn require consideration of product life-cycles. strategies will be decided which will apply to all its products and three options are generally recognised.13 . Market strategy and planning: involves decisions on all aspects of the market mix. Hence the term Strategic Business Unit (SBU). they must also be integrated with all the other marketing activities and. The overall aim here is to ensure that the company achieves its profit targets and objectives. especially the selection and the marketing channels and methods of distribution to be used.rdi It is important to appreciate that many variables influence the decisions taken on marketing strategy and planning. the prices that are justified for the specification. These have been described by Michael Porter. Marketing strategy objective setting Marketing executives have a number of strategies they can choose. Pricing strategy and planning: involves one of the most difficult decision areas for executives and covers the prices and discounts to be operated. and rationalisation. At the level of the SBU. market segmentation. Product strategy and planning: involves decisions on product range and mix. 3. especially for consumer goods. new market development and the relationship between product strategy and policy. but it is essential that choices are related back to the organisation’s corporate strategy. but at some stage this is brought to the level of the operating unit or business. trade terms. In some major conglomerates the overall corporate strategy may be set in financial terms. Unit 1 2. They may. warranties and guarantees and. strategies and policies. advertising. branding and trade marks. Physical distribution strategy and planning: involves all the decisions to do with the distribution of the product or service. sales promotions and PR activities to be followed.

Within each corporate strategy there is still a choice of specific marketing strategies. a method of increasing importance within the European Community since 1992. Here the company has the assurance that it knows and understands it products. 3. In many food markets some companies follow the first strategy and concentrate on Own Label products. The third option is similar. 1. This is a high risk strategy as both product and market elements are new. or Old Product Development. providing for expansion within a company’s existing market by introducing new products. Examples all three strategies are common.14 Strategic Marketing Management . 2. some supply specialised diet or health products to meet the special needs of small sectors of little interest to the other groups. The first of these is market retention. but by introducing products with which it is not familiar. Provide basic goods or services at low-cost.Unit 1 rdi 1. and there are also risks but so much effort will be allocated to the new venture that existing products and existing markets suffer. with some degree of risk. Here risks are again kept low as the company continues to work in familiar markets. some produce distinctive branded products at higher prices. concentrating on marketing a company’s existing products in their current markets. The second option is for expansion by taking existing products into new markets. but the company is still handling a familiar product. in which a firm launches new products into unfamiliar markets. but in the computer market Amstrad has provided an example of the first kind. Here the new segments need to be studied as some product modifications may be needed for success. using existing expertise and knowledge to gain a competitive age. Normally product development is vital. which caused a major shift in demand. Focus on a small specialised niche in a market. The fourth option is the diversification strategy. This may mean exporting to other countries. but it is venturing into new markets. such as selling office equipment to domestic users. Incur higher costs where differentiated or unique products are selling at premium prices. In the car market there are examples all three strategies run concurrently by different companies. but it is low risk evolutionary development. described by Igor Ansoff. simply to keep abreast of changes within an existing market. or all rooms in holiday hotels to conference organisers. However it may only mean marketing existing products to new segments in the home market.

others may be in decline. Research and development need to be focused. The work needed here is summarised in Figure 1. Some of these may be at early stages used in the life-cycle. However. Securing a balance between all these factors in the market is one of the most critical activities in marketing management. Strategic Marketing Management 1. some may still be costing more in development and promotion than they are achieving in revenue. forecasts and potential returns. · The significance of multiple decision criteria. and be maintained by a careful review of current earnings. It is vital for the long-term health of the company but there is a balance. 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.15 . Too much concentration in declining markets spells risks of one kind. market opportunities and characteristics must be defined. Before the market and product-market screening take place. The following areas should be considered: · The short versus the long-term.rdi 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. Current earners need to be managed for maximum results. Unit 1 Choice In addressing the question of the marketing direction and having evaluated the options. of old and new products or markets. Products or markets with no future need to be closed down. A balance needs to be struck. on cash flows and resources generally which may drag the firm down. Some may be earning good returns.3. Those with growth potential need to be fostered. Too few new or emerging products may mean that there is nothing to replace the current earners as they become obsolete. A review or screening process must be regularly undertaken covering all areas in which the firm is interested. Too many new products in the range may place a heavy burden on management. the aspect of measurement under the banner of financial and non-financial criteria should be considered. · The nature of financial and non financial measures. the next ‘simple’ step is to choose which of the options is the ‘best’ for the organisation. Too much commitment to new markets may be equally risky but in a different way. the choice is often far from straightforward. within the portfolio. leading to a framework for a decision-making process.

1. 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. political.3. 10 or more years) to evaluate growth or decline of existing markets changes in customer requirements. price sensitivity. · The basis for the ‘best’ criteria. looking at factors such as cost-volume-profit analysis or break-even analysis. feeding new information and data into marketing planning activities and assessments Determining characteristics Selecting market strategy. costs/slash prices. markets and marketing operations. technological. including share of markets. control and information feedback Figure 1. mathematical modelling. Identifying options within markets. · The importance of critical success factors.Unit 1 rdi 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. including analysis of results being obtained. 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. etc changes in economic. · The characteristics of good marketing company. social.16 Strategic Marketing Management . It is also possible to overlay on to this decision-making process aspects of logical. preferences. 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.

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. but this does not negate the importance of trying to understand how a product portfolio is constructed and what its potential is.rdi 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? Unit 1 Formulation. There are various approaches to planning and often the formulation of a strategy is considered as a two-stage activity. the models and techniques discussed have both their limitations and their critics. Using these. conductor a similar portfolio exercise. plot the position of organisation’s strategic business units. implementation and control With the benefit of having assembled all of the data identified in the earlier stages of the strategic marketing planning process. 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. perhaps. To begin with.17 . a company will now be in a position where it can consider ways in which can formulate its overall marketing strategy. Strategic Marketing Management 1. ACTIVITY Research the Boston Consulting Group Matrix or the General Electric multi-factor portfolio model. Understandably. 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. 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 organisation’s market position has been established.

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. there are pressures.18 Strategic Marketing Management .Unit 1 rdi Among the most useful contributions to understanding of marketing strategy over the past few years has been Michael Porter’s idea of generic Competitive Strategies. 1. ACTIVITY How would you categorise your own organisation’s marketing strategy? What are its strong and weak points? Having reached the point of selecting the appropriate strategy. · There is consensus of the wisdom of the plan and commitment to its accomplishment. it must be recognised that throughout strategic planning process. Once again this illustrates the interrelation between the various aspects of the strategic process. However. Clearly. and the influence of market position and strategy. These include the various PEST elements. it is now necessary to consider its effective delivery. to which we will refer later on in the module. · All of those involved in the implementation of the plan are fully aware of the extent and requirement of the respective roles. therefore. Taking this forward. that create barriers to the successful implementation of the strategic plan. both internal to the organisation and externally in the environment. it would be inappropriate to set goals far beyond the organisation’s capability to deliver to them. 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. 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. Some of these issues include: · The external barriers or factors outside the organisation which create difficulties. Using these as a starting point for thinking about strategy it is possible to focus upon particular dimensions such as issues of competitive advantage.

Strategic Marketing Key definitions There is a wide range of definitions of strategic marketing. Unit 1 · The strategic drivers for implementation. it will never achieve the desired results. Most have certain basic features in common.19 . Just as there is a high level of interrelationship between the various stages of the strategic market planning process. Kotler (1987) provides one of the widest definitions. Marketing is a human activity directed at satisfying needs and wants through exchange processes. Strategic Marketing Management 1. if the ability does not exist to follow the chosen should strategy through then no matter how good that strategy may be. ensuring it eventually delivers the desired results is another. 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. some of which have been mentioned earlier in this unit. Organisations must also monitor their performance and take corrective action in order to overcome strategic drift and strategic wear-out. · Control systems. therefore. 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. The importance of effective management control.rdi · The internal barriers including the type of leadership and the organisational culture. cannot be understated. Other definitions place their emphasis on the essentially managerial nature of marketing.

6. He summarises these as: 1. Lack of in-depth analysis.Unit 1 rdi McDonald. 5. 2. states that successful implementation of strategic marketing plans means overcoming the many stumbling blocks that may exist within the organisation. 8. Doyle highlighted the strength of Japanese and German marketing in a study of British and Japanese marketing. Lack of knowledge and skills. decisive and aggressive. The British were woefully weak and defensive. Failure to prioritise objectives. and timed their entry well. 10. Confusion between prices and output. 9. 3. 7. indicating the importance of integration into a powerful customer orientation: The findings confirm the Japanese astuteness in marketing. Isolating the marketing function from operations. Lack of systematic approach to marketing planning. These can range from senior management inertia to determined resistance by vested interests. Organisational barriers. driven much less by market opportunities but more by survival needs. they timed their opportunities in the market. Not losing sight of new opportunities in the market.20 Strategic Marketing Management . Strategies were clearly defined. especially towards 1. in an article in the Journal of Marketing Management (1989) entitled ‘Ten Barriers to Marketing Planning’. The specific strategies adopted. Confusion between tactics and planning. Confusion between the marketing function and marketing concept. The techniques for portfolio analysis are fundamental to the allocation of resources which form a key part of strategy implementation. 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. Successful implementation of marketing plans calls for these barriers to be overcome by committed senior management backed by effective and well-integrated marketing systems. 4. Their products had significant advantages and their marketing efforts were more efficiently targeted at well-defined sectors of the market. Hostile corporate culture.

Of course. BPR the Management of Change and the Learning Organisation which are discussed elsewhere. ownership. they are also used in corporate strategy. capital structure. Strategic Marketing Management 1. as well as issues to do with the environmental movement. or business planning will recognise. In fact. ACTIVITY Summarise the purpose of these key techniques in the process of strategic planning. Unit 1 Role and importance of strategic marketing in an organisation Key strategic concepts are dealt with more fully later on in this unit. it is possible to see why this should be so. · Marketing mix. · Positioning. ACTIVITY FEEDBACK These techniques support decisions about the allocation of resources to achieve a sustainable competitive advantage in selected product markets.21 . TQM. innovation and marketing. but it is useful at this stage to take an overview of their nature and the usefulness to corporate strategy. Recalling Drucker’s statement that there are only two unique activities in business. corporate strategy tends to be wider than marketing strategy in that it includes issues such as financing. · Value chain.rdi competitors are dependent on the stage of market product life-cycle which those who have studied corporate strategy. We shall consider the four key concepts that form the techniques necessary to aid strategic planning: · Segmentation.

ACTIVITY Using the tourist and travel market as an example. however. the needs of any one group being significantly different from the others. further segments can be identified. Any activity classified as a market can embrace numerous groups of customers.Unit 1 rdi Most markets are segmented in one way or another. Asking how a market is segmented can provide valuable insights into customer requirements and help focus on specific market segments. 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 employer’s travel department Hobby Cultural Religious Archaeological or ancient history Ethnic or anthropological Flora and fauna Sports enthusiast Business traveller Special or common Interest traveller 1. A group of customers with broadly similar needs constitutes a market segment. list how the market might be segmented for the development of a marketing strategy.22 Strategic Marketing Management . An evaluation of the current and potential segmentation of the market should reveal untapped or under-tapped opportunities in the market. Even within these broad definitions of the market.

This is demonstrated in Figure 1. Taking this further.and then move systematically through all other variables without appreciating that each factor hasn’t interdependence with the others.23 . we understood that it is neither practical nor appropriate to focus initially upon the first element . In order to help build up an understanding of how they interact and.4. a different pricing strategy may have a revised promotional mix or lead to making the product available to the market in a different way.product . both these are considered separately in the following sections. Demand for a product or service is influenced by Unit 1 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. The true nature of the marketing mix variables. Strategic Marketing Management 1. lies in a set of interdependent variables which need to be managed both tactically and strategically within the constraints imposed by the organisation’s environment. be reflected in price. Take as an example of this any variation in the product that involves some cost implications which may. Influences on demand. in turn.4. therefore.rdi When various elements of the marketing mix are considered independently.

e. credit options and warranty/guarantee are all elements which augment the product or service. The tangible product service Brand name. a safe driving experience.g. texture. installation) can be applied to goods or services. Benefits These are the benefits the customer will enjoy as a result of buying and using the product or service. a photography service. a dry-cleaning service. Kotler distinguishes between the ‘core benefits’. touch. packaging. after-sales service. the brand name and the generalised image might also be important. e. fresher washing. They are tangible and real.) but also by an individual’s perception of any associated services. and which add to the customer’s buying and using experience. the ‘tangible’ product and the ‘augmented’ product (or service) – which although involving terms particularly relevant to goods (e. a warmer home and cost savings on fuel bills. delivery. quality and styling are all the elements which customers can see. etc. features.Unit 1 rdi 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. smell.24 Strategic Marketing Management . The augmented product service Installation. That perception will not only be influenced by the products’ physical properties (text. We should look at some useful definitions: The core product service This is the product or service on offer. cleaner. 1. The package. as could a whole range of social and cultural associations which have become attached to the product.g. experience and appreciate for themselves.g. a bottle of shampoo. 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. a washing machine. colour.

the positioning of the product and ‘branding’.rdi ACTIVITY Identify a key product or service which your organisation produces or provides.5. since they are about how to promote. All other decisions about the marketing mix need to be integrated with those on product policy.technical and marketing Product strategies product/marketing mix product development product positioning branding and packaging Figure 1. See Figure 1. price and distribute the product or service itself. Key decisions which managers must make are about the product–market mix.5. 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. 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 . As has been Strategic Marketing Management 1.25 . Environment and product strategies. These decisions result from the simultaneous analysis and interpretation of the external and internal environments.

select just one of your organisation’s main products or services. and research and development all relate to and affect decisions about the product. strengths and weaknesses in such functions as manufacturing and operations. Internally. finance. marketing. competitors and the product life cycle. For existing products or services the starting point is to decide exactly what you have. personnel. 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: 1.Unit 1 rdi stressed.26 Strategic Marketing Management . 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. 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. crucial aspects of the external environment which affect decisions about the product aspect of the marketing mix relate to consumers.

design. materials used etc. etc.rdi · The prospective customers for this product or service are: · The benefits these existing and prospective customers are seeking are: Unit 1 · 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.) 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. range of extra-large sizes. – 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? Strategic Marketing Management 1. economy timer. how? Styling – Is the styling – appearance. automatic ice dispenser.27 . velcro fastenings. 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. extra zip pockets. range of seven different colours.

· Customers perceive as no longer useful or relevant. the list of customer benefits must be very carefully compiled. 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. at the organisational level. preferably using sophisticated marketing research.28 Strategic Marketing Management . 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. 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. ACTIVITY Note down four problems which could possibly arise if an organisation did not carry out product/service audits on a regular basis. what can we do to improve after-sales service for customers? Delivery – Is the product or service delivered on time. these problems and difficulties are not being resolved satisfactorily? If so. or all. maybe. of the following problems: Products and/or services which: · Are old-fashioned and out-of-date. to see them accurately from the customer’s viewpoint. 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. 1. office. perhaps. easier for customers to buy our competitors’ products or services on credit? If so. car.Unit 1 rdi The augmented product or service Installation – Is it possible for customers to have this product installed in their home.

and each of which has different characteristics. is a very important element of marketing theory. The concept of the PLC suggests that any product or service moves through identifiable stages – introduction.rdi · Have been overtaken by the competition who have improved on packaging. · Due to problems with installation or delivery have acquired a bad reputation with customers. Unit 1 · Are no longer of good enough quality to satisfy sophisticated and discerning buyers. · Do not have a guarantee or warranty which is equivalent to the guarantee or warranty offered by competitors. however. 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. Hopefully. features and styling. or the ‘product life cycle’ (PLC). died. but loss!) at the beginning. It is likely that this will in fact be ‘negative’ (representing not profit. decline – each of which is related to the passage of time as the product or service grows older. growth. · Because of poor after-sales service.6. · 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. Associated with each stage is said to be a profit level. This notion was based on the metaphor of an organisation as an organism that was born. The similar notion of a life cycle of a product or service. · Generally are perceived by customers as poor quality products or services which are no longer desirable. profits will become ‘positive’ by the maturity stage. maturity. Strategic Marketing Management 1. grew and matured and then. when there is high initial investment. The product life cycle (PLC) You may recall the idea that an organisation has a life cycle. See Figure 1. customers perceive as not being good value for money.29 . perhaps.

· Growth. high profile promotions such as competitions and special offers. Customers may decide that they love the product or service or they may decide that it is not something they want to buy. new equipment. · Decline. promotions and so on. · Maturity. in marketing terms. Introduction The company launches a new product or service. The main aim at this stage. The organisation may have invested considerable resources in product research and development.Unit 1 rdi Everything. which covers four stages: · Introduction. is to introduce the produce or service to potential customers and this usually costs a considerable amount of money. advertising. At this stage nothing is certain. etc. occupies a place in the product life cycle. The four stages of the product life style. Usually the product launch is achieved by way of an expensive marketing campaign which can include newspaper.6. magazine and television advertising. Revenue from sales & profit Growth Decline Maturity Introduction Sales + - Profits Time Figure 1.30 Strategic Marketing Management . 1.

Strategic Marketing Management 1. Sales' growth tails off and then begins to fall. of course. Sales continue to grow. and new customers are persuaded to buy for the first time. Eventually the organisation. The product life cycle will be revisited in the next unit.rdi Growth This is stage two of the product life cycle and here. The marketing focus is now on keeping customer loyalty – because. Price reductions and special offers are no longer enough to persuade customers to buy. 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. hopefully. Find out which product or service is intended to follow on from this one. 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. well-prepared organisation then moves into stage one of the product life cycle – Introduction – by launching a new product or service. The wise. affect profitability. Production ceases and the item is no longer available. Maturity During stage three of the product life cycle the product or service becomes well established in the hearts and minds of customers. Decide where this product or service is in relation to the four stages of the product life cycle. but not at the same rate as they did during the Growth Stage. Once loyal customers are now choosing newer. Decline This is the final stage of the product life cycle. in turn. with the aid of the specialists in the marketing department. more exciting products and services. decide that it is time to abandon the product. sales rise as more and more customers decide that they like the product and are prepared to purchase it.31 . Unit 1 ACTIVITY Select one of your organisation’s products or services.

Instead of scattering your marketing effort through a ‘shotgun’ approach. This encourages repeat purchases through brand loyalty. and the third in line of market-based approaches. Mass advertising also becomes a more realistic activity with branding . A business is able to use the brand's unique selling point (USP) to increase sales. and ‘product depth’ represents the number of single products which are offered in each product line. Prior to the segmentation approach. Market segmentation represents a trend away from mass marketing approaches. with segmentation you can focus on the buyers in the marketplace who you have the greatest chance of satisfying – using the ‘rifle’ approach.Unit 1 rdi 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. in doing so.32 Strategic Marketing Management . develop products and marketing programmes that are tailored to each market segment. · Product line: a number of products which are related. mass distribution and mass promotion of one product for all buyers – as epitomised by the legendary Ford Model T. the business guarantees to the consumer that the next one bought will be virtually the same as the last one. The notion of ‘product width’ represents the number of product lines. Market segmentation. By doing so. companies approached their marketing efforts through: · Mass marketing – mass production. Branding also helps a business differentiate its products from those of its competitors. · Product mix: all the products offered by an organisation. · Product group: all product lines which form a group of products which are related. At this point we should also consider the branding of a product. The following terms are often used to help describe the relationships between an organisation’s products (and services): · Product item: a single product. 1. targeting and positioning Market Segmentation Market segmentation is a way for an organisation to distinguish major segments of homogeneous consumers in a market and.

as an approach. styles. mass homogenous markets has been recognised. · Efficient resource allocation. · Effective strategic planning. qualities and sizes – designed to account for customer needs for change and variety. emerged from the recognition of this danger. Market segmentation is the first step in the segmentation – targeting – positioning (STP) approach to marketing.33 . · Better analysis of competition. The trend away from mass marketing occurs for a number of reasons. as illustrated in Figure 1. Unit 1 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. Strategic Marketing Management 1.rdi · Product variety marketing – a seller produces several products that exhibit different features. · Rapid response to changing market needs. Market segmentation.’ Kotler et al (1999) Segmentation allows for: · More precise market definition. ‘The danger of thinking in terms of single.7.7 The reasons for the trend away from mass marketing.

Market position 5. Identify segmentation variables and segment the market. · Enhanced profits.34 Strategic Marketing Management . The market size and market boundaries can be determined. · Reachable – the organisation needs to determine whether the market segment can be reached efficiently and effectively. For market segment share – it is generally market share rather than market size which determines profitability. The benefits of the segmentation approach can be summarised as: · Better matching of customer needs. The segment must further match the resources and the objectives of the organisation. 4. and whether effective communications with the target segment can be made. · To enable more accurate targeting of communications. Evaluate the attractiveness of each segment. Select target segments. · Profitable – the segment must give required turnover and profit figures. The purpose of segmentation is to classify groups of customers with similar needs and wants. 1. · Enhanced opportunities for growth. Develop profiles of resulting segments. 2. Target marketing 3. · To retain customers as their buying behaviour patterns change. Identify a differential advantage for each segment. Formulate the marketing mix to be used in the marketing plan for each segment.Unit 1 rdi Market segmentation 1. There are certain requirements for identifying useable market segments: · Definable – key characteristics of the segment show a degree of homogeneity. 6.

sociability or personality traits). In the 1990s (and beyond) we must look for the individual in each customer. · Psychographics (e. 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. · Geographics. Benefits sought · Benefit segmentation.rdi Bases for segmenting markets There are generally two bases used for segmenting a market: The characteristics of the buyer Unit 1 · Demographics. · Lifestyle.’ We can now look at these bases for segmentation in more detail: Strategic Marketing Management 1. Segmentation is becoming more sophisticated – ‘in the 1980s we looked for the customer in each individual. · Behavioural segmentation.g.35 .

discuss how lifestyle and demographic approaches to market segmentation might be used by a marketing manager to develop a detailed understanding of a market. · Ethnic origin. · Activities. · Service level delivered. 1. Lifestyle: · Attitudes. · Family type/size. · Numbers of customers within certain distances. · Opinions. · Occasional users and non-users. · User status. · Marital status. Psychographic: · Sociability. · Assertiveness. · Social influences. · Income levels. · Education levels. · Postcode penetration. · Age. Figure 1. Geographic: · Rural versus urban. medium and heavy users. · Life-cycle stage.Unit 1 rdi Demographics: · Gender. · Socio-economic classification. · Interest.36 Strategic Marketing Management . · Readiness status. ACTIVITY Making reference to examples. Behavioural segmentation: · The brand-loyal customer.8 The bases for segmentation. · North versus South. · Purchase occasion. Buyer characteristics Benefits sought Benefit segmentation: · On the basis of benefit received. · Other personality traits. · Light. · Occupation. · Self reliance.

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? – Porter’s five forces model of current and potential competition referred to in the earlier section: .Threat of growing bargaining power of buyers.g. Strategic Marketing Management 1.37 . including fast moving consumer goods markets (FMCG). cars).Threat of growing bargaining power of suppliers. small cars and luxury cars.g.Threat of intense segment rivalry. . · 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. .Threat of new entrants. With regard to lifestyle. covering food products. Consider the type of people who buy estate cars. you then need to evaluate the segments and decide how many and which ones to serve.Threat of substitute products. you could consider a lifestyle approach to cars and identify the various life stages associated with buying the different sizes and models of cars. How are these able to be classified according to a person’s lifestyle? Unit 1 Once you have segmented the marketplace that your organisation is in. . services (e. . sports cars.rdi ACTIVITY FEEDBACK You can draw examples from consumer markets. restaurants) or consumer variables (e.

the economic conditions and political policies of the country in which they operate. Any organisation is subject to influences within their immediate environment – influences over which they can exert some control. target marketing is an approach whereby a company markets its products and/or services to selected customers in a marketplace. In essence. In contrast to undifferentiated marketing though. The key components of these are outlined below: Undifferentiated marketing Ignore actual or potential differences amongst segments. Organisations are also subject to influences in the external environment. this approach involves delivering different offers for different market segments. BT and Coca Cola used this strategic option in the past. differentiated marketing and focused marketing. Many companies including BA. Target marketing helps a company to identify the important environmental factors that will influence its effectiveness and overall success in its chosen markets. Differentiated marketing This strategy is similar to undifferentiated marketing in that the organisation seeks to compete across the majority of the market. for example. These can be classified as: undifferentiated marketing.Unit 1 rdi 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. but they do need to be approached in an effective way.38 Strategic Marketing Management . 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. there are several strategic choices open to an organisation. 1. Differentiated marketing further involves developing different product and marketing programmes for each segment of the market. In this unit we will examine those aspects of the business environment that will affect an organisation. These environment factors cannot be controlled by a company. In developing a target market strategy. although recently even these companies have begun to differentiate their products for different consumer groups. and target an offer to the entire market.

Write down five examples of emerging segments associated with changes to the business environment. · Demographic changes. ACTIVITY Think about recent changes in the business environment. · Multi-media developments. Market changes throw up continual opportunities for organisations to create and develop new profitable segments. Strategic Marketing Management 1. · Digital technology. · Rising incomes. · Telecommunications. A business is able to build a strong reputation from its expertise in understanding specific requirements of buyers in a segment. etc. picture telephone. business e-commerce. Marketplace developments must be continually monitored in order to identify potential target markets. Unit 1 KEY POINT Market segments are not fixed. ACTIVITY FEEDBACK Some examples of business environment changes can be seen in the section below.39 . · Fashion. Consider the emergence of new market segments that have arisen because of changes to the environment.rdi 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. As an example. mobile telephone technology continues to offer new segmentation opportunities – text messaging. · New environmental concerns.

It created a new ‘mid-class’ aimed at full-fare economy passengers. · Barriers to entry.Unit 1 rdi In order to deliver new market products and services that meet these market changes. personal computer sales grew by 55% per annum in the UK in the 1990s. it is the competition within segments that will allow customers a choice.40 Strategic Marketing Management . business and first-class segmentation into further segmentation of the economy class. whilst cigarette sales declined by 3% per annum over the same period. a perceived difference means that customers in a target segment will prefer one company’s offer to the offers being made by others. Positioning is the way that an organisation can create a sustainable differential advantage over the competition and. organisations need to adopt an innovative approach. · Difficult to copy. Market positioning ‘Winning in the marketplace means creating some kind of sustainable competitive advantage. whereby. There are certain criteria required to create a differential advantage: · Customer benefit – a benefit is offered that customers consider important. Examples of innovation leading to the emergence of new market segments include: · Virgin Airlines moved on from economy.’ Whilst the choice of target market segments determines where a particular business will compete. · Sustainable. Opportunities for segmentation and targeting tend to increase as a market evolves. For example. · 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). 1. · Haagen Dazs developed a premium segment for ice cream in the UK and other countries across the world. · Unique – not obtainable in a similar way from other companies.

9 Drivers of customer value used in market positioning. a company must develop an understanding of what customers value – where value is equal to customer satisfaction. · Profitable. Personal drivers . 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. The factors that can drive up the value of an offer can be grouped into specific driver classifications. These are summarised in Figure 1. There are numerous drivers of customer satisfaction that will affect total customer value.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.rdi 1. · Scale economies. e. Levi jeans and Nike · Economic confidence Figure 1.have become more important as competition narrows product differences: · Credit and finance · Delivery – speed and effectiveness · Installation Unit 1 · 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.a strong image gives a customer confidence in the product. · Branding. This value is considered to be the perceived satisfaction offered by consumption or ownership of a product or service. Service drivers .9. Image drivers . Strategic Marketing Management 1. minus price.g. · Patents. · Difficult-to-acquire skills. Product drivers · Performance – speed .41 . This value of a product or service is always a combination of rational. economic factors and subjective image dimensions. service or brand: · Socio-psychological confidence – a personal or social statement. In searching for a differential advantage.

Decide which segment(s) to target. services.10 Step-by-step positioning of a product or service. · Personal value. · Reduce the monetary price to the buyer. · Energy cost. 6. Figure 1. a business can also enhance competitiveness through more effective positioning. There are a series of steps that can be taken to ensure effective 1. Select an image that sets your products and services apart from those of competitors.Unit 1 rdi The key to winning long-term customers is to understand what the customers value and their buying behaviour – better than the competition does. personal and/or image benefits. · Reduce the buyer’s non-monetary costs by simplifying the buyer’s time. Define the segments of the market. matching the images with the aspirations of target customers. Develop a marketing mix which matches your desired market positioning. 2. 5. Evaluate the positioning and images – as perceived by target customers – of competing products and services in the selected market segment(s). 4. The total customer value is comprised of: · Product value.42 Strategic Marketing Management . 1. 3. · Psychic cost. a customer offer can be improved in three ways: · Augment total customer value by improving product. · Services value. Develop the product or service to cater specifically for customer needs and expectations. In order to deliver enhanced value and to compete. · Image value. In addition to these strategies that add value or reduce costs. Assess the utility drivers and hence what customers value. · Time cost. 7. Buyers will buy from the firm that offers the highest delivered value – the difference between total customer value and total customer price. energy and psychic costs. Total customer price is compromised of: · Monetary price.

11.10. Identify important attributes that consumers use when choosing between brands using qualitative research (e.43 .rdi positioning of an organisation’s product or service. An example perceptual map is included again below. The key steps involved in developing a perceptual map are outlined in Figure 1. group discussions). Positioning relies on customer perceptions. 2.12 Perceptual mapping: supermarkets. Conduct qualitative marketing research where consumers score each brand on all key attributes. Plot brands on a two-dimensional map. Identify a set of competing brands.g. 4. These are included in Figure 1.11 The key steps in developing a perceptual map. 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. Unit 1 1. 3. Figure 1. focus groups. Strategic Marketing Management 1.

· Segmentation and positioning. · Branding. From this point of view it becomes important to realise that many factors should be seen as affecting decisions about price. · Segmentation and positioning. overall organisation and marketing aims and objectives. compared with decisions about the other elements of the marketing mix – product. pricing decisions are relatively simple. · Introduction of new products.44 Strategic Marketing Management . · Pricing of the product line. · Pricing of the product line. place. · Introduction of new products. and have also decided on a specified percentage amount which is to be added to these costs to generate surplus or profit. ACTIVITY For each of the following statements note down how each of these factors might affect your organisation’s pricing strategy: · Product life cycle. · Branding.Unit 1 rdi Pricing It is sometimes assumed that. it might be argued that if we know the costs of producing and marketing a product. objectives and plans for pricing must be consistent with. an important principle for pricing is that the strategy. For example. we can easily calculate the selling price required. However. · The product portfolio. promotion. The activity that follows will give you the opportunity to think about how each of these factors might have an impact on pricing strategy. including: · The product life cycle. 1. and related to. · The product portfolio.

· Intention to treat something as a ‘loss leader’. not price leaders. a major influence on the level of demand for the products of a business. Strategic Marketing Management 1. Many businesses take this full-cost figure. · The wish to discourage entry into the market by new competitors. · A desire to be a ‘price leader’. Other influences on a product’s demand include: · The availability of substitutes for the business’s products – the more substitutes there are available. Price takers set prices close to others in the market. relating. therefore. to: Unit 1 · The rate of return on investment which you seek. · A particular image you wish to convey. · The main limitation of using this cost-based pricing is that it ignores the competition. it will not be able to compete successfully on price. · If the business uses cost-based pricing only. Price is. · The market share which you seek. for example.rdi There is no one right price to charge for a given product or service. · Most businesses are price takers. it may find competitors’ prices are lower. KEY POINT Cost-based pricing Accountants can calculate the full cost of making a product.45 . There are broadly two types of approach to decisions about prices: cost-based approaches and demand-based approaches. You must determine what you are trying to accomplish. and then include a mark-up so that a profit will be made. In such cases. the more sensitive the product will be to changes in its price (customers will switch to the substitutes). Demand-based pricing The basic law of supply and demand is that demand falls as price increases and demand increases as price falls.

it also applies to dealings between manufacturers and wholesalers and major retail chains.Unit 1 rdi · The level of consumer income – in general. rather than the older confrontational approach. demand for a product increase as income levels increase. · Skimming (or creaming) . Prices and margins are set at levels acceptable to both sides in the expectation of long-term relationships. While this applies largely in industrial transactions. 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. 1. a unique product. Two main strategies exist for new products: · Penetration pricing . Purchasers prefer stable prices which will not drive suppliers out of business. There is also a middle path where pricing is set in the context of building long-term relationships with customers. and the low price set may stop competitors from entering this market. which help it keep the price low. rather than constantly seeking new customers or renegotiating with the old. The price will then fall when competitors with similar products enter into the market.for a low-price set in the hope of gaining a high market share. e.the business brings out a new. Incorrect pricing strategies mean the business will not find customers and. The business will gain economies of scale.g. therefore.46 Strategic Marketing Management . Businesses use different strategies to price their new products. quality. which is the early market leader. the product’s status. · How sensitive customers are to price – they balance the price against other aspects. So-called relationship marketing involves a co-operative of mutually beneficial approach to trading between supplier and customer. This enables it to set a high price because there is no competition. · Changes in consumer tastes – demand will change as tastes change. Suppliers prefer stable relationships at reasonable rates. will lose income.

They must select. who also themselves fulfil a variety of functions. Relationship marketing does not preclude careful negotiation. Instead. They should also be familiar with the different sorts of channel intermediaries. Marketing managers must also understand the various dimensions of the channels and. Some basic alternative forms of channels of distribution for both consumer and industrial markets are illustrated in Figures 1. Strategic Marketing Management 1. rather than each side seeking its own maximum short-term benefits which may not endure. and decide on stock levels. recruit and organise intermediaries within that channel. Unit 1 Distribution Today. in the right place and in the right quantities. is to ensure that the products or services are available at the right time. People in an organisation must decide on the type of channel they will use to reach their target markets. The task.13 and 1. most producers of goods and some providers of services do not sell directly to the final users.14. the variety of types of channel these dimensions give rise to. however.47 . forms of delivery and timing of delivery. Decisions about channel are those which are reflected in the ‘place’ element of the marketing mix. imply negotiating to obtain maximum mutual long-term benefit which can then be divided. their roles and the relative advantages and disadvantages of each. It does. in relation to distribution. the goods and services move to the user from producers via a series of intermediaries or ‘people in the middle’. in particular.rdi 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.

Channels of distribution represents one of the most rapidly evolving and dynamic areas of marketing.Unit 1 rdi 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 1.48 Strategic Marketing Management . The marketing manager must also understand and appreciate the implications of the dynamic and changing nature of marketing channels. 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.13 Marketing channels for consumer products. Not only have these changes led to the growth of new types of intermediary and the subsequent decline of more traditional ones. 1. This is especially the case in retailing in the UK.

49 . · Services to retailers: . Accompanying these changes in overall structure of distribution. A major reason for this is the growth of large-scale retailing.this cuts the producer’s distribution costs. Major retailers such as Tesco and Sainsbury have their own warehousing and distribution systems.Breaking bulk .product information may be given on a variety of goods. .Taking on risk .a wholesaler bears the risk of not selling the products. . Wholesalers are not as commonly used as they once were. Strategic Marketing Management 1. The fall in the number of small-scale retailers has also affected wholesalers but they have adapted. there have been equally important changes in the relationships between retailers and manufacturers.Advice and promotion . and their credit facilities help retailers finance their purchases.g.Information and choice . and in particular in the focus of power. policy-makers and providers.Buying and storing in bulk . and a wholesaler may help promote the manufacturers product. . Traditional wholesalers could still offer valuable services to both producers and retailers: Unit 1 · Services to producers: .Delivery and credit .rdi they have also led to the growth of completely new channels for distributing products and services. by setting up voluntary chains and supplying those linked to retailers with their goods. e.the wholesaler ‘buys big’ and ‘sells small’.many wholesalers still offer a delivery service for the smaller retailer.feedback on the product popularity can be given . .

handling goods received. mechanical handling systems. etc? What are a warehousing costs for: inventories. air freight. inventory levels. rail freight: road transport . selecting modes of transport. postal charges. packing and packaging requirements? Does the organisation’s structure permit close co-ordination of distribution with marketing and manufacturing operations? What revision of the structure will improve this co-ordination and integration? 1. sea/water transport.Unit 1 rdi KEY POINT Key distribution considerations include: Costs What are the transport costs for: organisation’s own fleet. production programmes. locating. 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 . location and size of depots. order processing procedures. heating. number.50 Strategic Marketing Management . retrieving and order picking: insurance. forwarding agents fees.

seven-days-a-week. Unit 1 What functions do these intermediaries serve? 2. 3. Who are the intermediaries which your organisation uses to service its end users? 1. or using electronic shopping malls available through interactive television. · It can be inexpensive to set up and operate.rdi 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. Electronic commerce (e-commerce) is a popular development. ACTIVITY Describe the advantages and disadvantages to business of e-commerce. E-commerce options include selling over the Internet. How does your organisation influence and manage these intermediaries? You may need to talk to senior managers to answer this question. ACTIVITY FEEDBACK Advantages to businesses of using e-commerce include: · Consumers can buy products 24 hours a day. 4. Strategic Marketing Management 1.51 . now used by many businesses to sell their products.

uk www. Figure 1. salespeople.uk Promotion Organisations continuously promote themselves to their customers. publicity. direct mail literature. Such purposes are pursued by many different means: advertisements. which include: · To inform prospective customers about their products. attend particular entertainment events and perform a variety of other behaviours. and point-of-sale communications.first-e.15 lists a wide range of promotional activities.ukshoppingzone.uk www. clients and stakeholders for a variety of purposes. coupons. Disadvantages include: · Many consumers lack technology or expertise.uk www.uk www.smile.co.shop.co. 1. To explore some of the many shopping sites that exist on the Internet. Promotion embraces a variety of methods: advertising. product packages. shop in certain stores.co. publicity releases and other communication and promotional devices. · A lack of trust may exist in buying over the Internet. services and terms of sale.Unit 1 rdi · Since the Internet is international. personal selling.co. store signs.buyguide.52 Strategic Marketing Management . free samples. point-of-purchase displays. the business can sell in new markets. · To persuade people to prefer particular products and brands. marketing specialists refer to these as marketing communications and/or promotion management. Taken as a whole. Some of these include www. · To induce particular actions from customers and users. sales promotion.co. · Customers may simply be unaware of the e-commerce site.

Point-of-sale displays. Coupons. radio. like advertising. Yearbooks. A sponsor – the advertiser – pays for both forms of advertising. publicity is not paid for by the organisation. Publicity usually comes in the form of news items or editorial comments about an organisation’s products or services. Design .16 shows how advertisements can be categorised.rdi Advertising. but they are said to be ‘non-personal’. Special offers. Loyalty cards. rather than talking with a specific person or small group. Competitions. Public and press relations. involves communication to a mass audience. Sales promotions are directed both at the trade (wholesalers and retailers) and at consumers. Packaging. Audio-visual sales aids. Leaflets. Air miles.53 . perhaps millions of them. Self-liquidators. discounts for quantity. Figure 1. Merchandising. Publicity. magazines. Sales promotion which is aimed at the trade involves the use of various types of allowances for the display of goods. Vehicle livery. Personal selling denotes person-to-person communication in which a seller attempts to persuade prospective buyers to purchase the organisation’s products or services. and help Strategic Marketing Management 1. Catalogues. They involve communicating with many people. increasingly in developed economies. Directories. Brochures. At one time personal selling mainly involved face-to-face interactions but. Advertising and publicity are designed to accomplish other aims such as creating awareness of a particular brand and influencing the attitudes of customers. Financial incentives. which attempt to promote immediate sales of a product (hence the term ‘sales promotion’).15 Popular promotional activities. Free mail-ins. Sales promotion consists of all those marketing activities which attempt to stimulate quick action by buyers or. the telephone and other forms of electronic communication such as the fax machine are being used. Direct Mail. Unit 1 Figure 1. but unlike advertising. Advertising involves either mass communication (via newspapers. television and other media) or direct communication with consumers (via direct mail). Premiums. Company visits. Telephone selling. Free gifts. Off-permises displays. Incentive schemes. in other words. Guarantees. Banded packs. Price reductions and pricing strategy.

even if. establishing budgets which are sufficient to support the objectives. evaluating performance. 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. it is the province of a minority of organisations. Marketers would urge that ‘promotional management’ or the management of promotion is the practice of co-ordinating the various elements of the promotional mix .Unit 1 rdi with merchandising. posters. signs and a variety of other materials which are designed to influence buying decisions at the point of purchase. contests and rebates. free samples. Advertising is perhaps the most visible manifestation of marketing. designing specific programmes (e. and thus think that marketing is simply about advertising products and services. Consumer-orientated sales promotion includes the use of coupons.16 Classification of advertisements. Point-of-sale communications include displays. and taking corrective action when results are not in accordance with objectives.54 Strategic Marketing Management . This may explain why so many people associate marketing with promotion. and promotion with advertising. at least on a large scale. 1. advertising campaigns) to accomplish objectives. premiums.g. determining aims and objectives which the elements are intended to accomplish.

etc. TV. TV. So it is important for managers to be clear what they are trying to achieve by advertising. Major areas of decision in deciding upon and executing an advertising campaign include: Unit 1 · Determination of the aims and objectives. · Selection of the mix of different media which will be used (e. ACTIVITY How does your organisation carry out each stage of an advertising campaign? By completing the following responses. · Formulation of the creative strategy which is to be employed. advertising can consume a vast amount of resources. assess the pluses and minuses of your organisation’s 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.55 . · Identification of the amount of money to be spent on advertising. · Scheduling of the advertisements. radio.) by: My organisation schedules advertisements by: My organisation evaluates the campaign’s effectiveness by: Strategic Marketing Management 1.).rdi Whether on a large or small scale. etc. radio.g. print. · Evaluation of the campaign’s effectiveness. and whether advertising is the appropriate promotional method to use.

Unit 1 rdi The key strengths of my organisation’s advertising activities are: The key weaknesses of my organisation’s advertising activities are: Be sure to check your responses to this activity either with your own line manager. 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 1. Factors they consider in arriving at their top ten are the brand weight (market share). or with a manager from your organisation’s marketing department.56 Strategic Marketing Management . brand depth (loyalty of its customers) and brand length (actual or potential stretch beyond its original category). band breadth (appeal across age. Compile your own expected top ten for 2001. Consider how the table may have changed by the year 2001. ACTIVITY The organisation Interbrand annually produces a chart of the most valuable brands. gender and national barriers). The top ten brands for 1990 are shown in the table.

57 . In turn. 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. It can be a very effective (and inexpensive) part of the promotional mix. like many areas of organisational life. A key secondary source of communication for an organisation is the press (meaning newspapers. editorial comment.rdi VIRTUAL CAMPUS By access to the Virtual Campus. including word-of-mouth. personal recommendation and so on. Unit 1 Face-to-face selling. PR. TV and radio). where it simply cannot afford large advertising budgets. which may find such PR the most effective vehicle for promoting its products. This is just as true of a small company or organisation. or by discussion with colleagues. There are a variety of means or ‘vehicles’ for publicity and PR which include: · Contacts with the media. Investment in press relations can be many times more productive than that spent on other types of promotion (including advertising). they may carry considerable weight with your consumers (possibly even more so than direct primary sources). Strategic Marketing Management 1. · Issuing news stories. attempt to name six brands that you think have made the biggest ‘attack’ on the top ten in the last five years. · Having a dedicated press office. They are under your direct control and you pay for them. These secondary sources may still be influenced by your promotional activities. because of their supposed ‘important’ nature. advertising and sales promotion can all be described as primary types of communication. However. and thus of the marketing mix. But there are also secondary sources of communication which are not under your direct control and for which you do not pay. · Creating special events which may appeal to the media. Compare your thoughts on the subject and then try to agree on a current top ten.

sales promotional activity can: · Identify and attract new customers. because it offers additional or ‘added’ value. A standard definition of it is as an activity or material (or both) directed at re-sellers. For example. · Introduce a new product and encourage greater use. Sales promotion. how effective is your organisation’s PR function? In your opinion. is a very flexible activity. Sales promotion covers a wide range of activities. distribution channels or consumers. or some combination of these groups. The key characteristics of sales promotion are that it is: · A short-term activity. would you say that your organisation’s PR function is reactive or proactive? Explain your answer. 1.Unit 1 rdi 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. · Used in order to stimulate some specific action. Many aims and objectives can be achieved by it. or consumers that acts as a direct inducement to buy. even if defined as above. · Directed towards the sales force.58 Strategic Marketing Management . salespersons. Sales promotion is normally an adjunct to personal selling or advertising. In recent years spending on sales promotions in both the USA and Europe has repeatedly overtaken that on advertising.

It receives. · How audiences are categorised and researched by advertisers. Strategic Marketing Management 1. Selling involves the presentation of tangible products or intangible services and ideas in person to potential customers. These derive from its face-to-face nature. it is frequently the most expensive communications tool that is used by an organisation. sound. · How real examples of advertising construct meaning in a variety of media forms.59 . · How advertising is positioned to reach audiences. However. ACTIVITY Review the nature and effectiveness of your organisation’s sales force.rdi · Bring more customers into stores or service delivery points. copy and editing contribute to meaning in print radio and TV advertising. 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. sales promotions and public relations. back-up from advertising. Unit 1 · Combat or offset the marketing efforts of competitors. · How images. All four should be integrated. and consider what may be the forces working towards and away from such improvements. Personal selling has significant advantages over other methods of promotion – including advertising. or should receive. How advertisers target products at specific audiences/markets. so it must be used carefully. publicity and sales promotion. Identify any areas of operation or management of the sales force where you think your organisation could improve.

· Animation.60 Strategic Marketing Management . 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. · Toy advertising aimed at children. ethnic and lifestyle groups in advertising. · Food and drink advertising aimed at children. · The role of advertising in underpinning other media products. · Use of celebrities and characters in advertising.Unit 1 rdi · How audiences respond to advertising. · How campaign has developed from initial brief to final product. social. The purpose is to compare these expectations with not only what your organisation provides. The steps to create a gap analysis are: 1 Identify the factors that customers expect when they purchase a product. · Use of premiums in advertising. age. cultural. · The roles and production processes within an advertising agency. · The values and lifestyle choices associated with product advertising. 1. but also with the performance of your competitors. Selected debates in contemporary advertising. The messages and values represented in advertising. How advertising has been produced by the advertising industry. · The use of different gender. · Controversial advertising techniques. The regulation and control of advertising.

rdi
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

Unit 1

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

1

2

3

4

5

6

Critical success factors

Company reputation
7

Delivery reliability

Delivery lead time

Enquiry response

Price

Technical back-up

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Unit 1

rdi
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 Excel’s 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 décor and furnishings.

1.62

Strategic Marketing Management

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

Unit 1

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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into improving the process by which the customer is served. ACTIVITY Find out how CRM is used in your organisation. etc. · Customer care. CRM offers a great deal more than just a single product. · Contact management.64 Strategic Marketing Management . co-ordinating information from a range of sources.Unit 1 rdi other policies that may soon also be due for renewal. · Sales force automation. What are its key benefits? Resource requirements Many service sector businesses such as supermarkets. ACTIVITY Critically evaluate the process through which the customer must go in order to obtain your product/service. thus offering a greater service to the customer. banks and cinemas have put a considerable amount of time and effort. How can this be improved for the benefit of the customer and for the development of the business for the future? 1. in: · Marketing campaign management. it is a complete information package of its own. This has been aided by the introduction of new technology. 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. new facilities. increased personnel. · Task management and scheduling. for example. It can be used.

and they get the necessary training to provide professional customer care. · Talks favourably to other people about the business. and 95% if they feel their complaint is resolved quickly. Trained and professional staff who understand the importance of customer care and deliver it are essential. it will not sell itself. Of those customers who register a complaint.65 . There has to be a careful decision over pricing in order for the product to make profit. hey have good interpersonal skills. Research shows that 96% of unhappy customers never inform the organisation.e. which include a regular interface with customers. A satisfied customer: Unit 1 · Buys again. · Buys other products from you. · Pays less attention to competitors’ products. customer care and after-sales service play a major role in achieving a high degree of customer satisfaction. what Strategic Marketing Management 1. ACTIVITY Consider the customer/staff interface in your business. The organisation will need to decide when and how to sell it. i. between 54% and 70% will return to the business as a customer if their complaint is resolved. 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. particularly front line staff who have a great deal of contact with the customer. KEY POINT Ensure that when recruiting people for roles. Monitoring of customer satisfaction is important. how? Integration of marketing activities However good a product is.rdi Consideration must be given to the interface between the customer and employees of the business. Most organisations should strive to exceed expectations.

not only in developing the services. It will have to ensure that the product is promoted so that there is consumer awareness of it.Unit 1 rdi distribution method or methods it will use. or one about which you have a detailed knowledge. Pricing. For example. Staff will need training in product knowledge. or is priced as a loss leader to prevent losing valuable customers to competitors. The organisation must identify these changes and then decide whether to alter the price or absorb the increased costs. Changes in consumer buying behaviour can lead to development of new products and new delivery systems. Other factors also have a direct impact on the inter-relationship of the marketing mix. Setting up a distribution network (even if using an existing network) incurs costs. How might other elements be incorporated into your plan. but also in promoting them. Changes in any of the seven elements of the marketing mix can affect profitability.66 Strategic Marketing Management . sales techniques and customer care/quality of service. 1. as does any promotional campaign and staff training. for example. thus the organisation must ensure that the pricing of such services contributes to profits. increased costs in product production and management. and very importantly getting the processes right. Heavy costs are involved. advertising campaigns or new training courses will affect the pricing for a product. ACTIVITY Choose a product (or service) that your organisation produces. and develop a full marketing plan by addressing the elements of Product. All this impacts upon the cost of the product to the organisation. Place and Promotion. Prepare a report to management detailing your proposals. has resulted in most banks and insurance companies either bringing in new services or redesigning existing telephone services. changes in the distribution network. The increasing demand for telephone banking. and hence on the ultimate price charged for product. providing the physical evidence. The physical evidence must match the customers’ expectations and processes must provide the product as and when specified. 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.

There are three forms of operational integration: Unit 1 · Horizontal . As with most forms of organisational operation. or companies in the same industry.between departments in the same company. The task of marketing management is the process of identifying target markets. Here. Pricing policy is an exercise in reconciling the market forces acting on the firm in order to provide a consistent offer to the customer. 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. but at different stages.between departments in the same company. 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. and leads to economies of scale.67 . This form of integration strengthens control of the supply and sales of products. researching the needs of customers in these markets and developing the product. The essence of this type of information is lifestyle analysis. or companies in the same industry. This is because strongly favourable attitudes resist change. (Vertical backwards is when the Strategic Marketing Management 1. and at the same stage. 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. promotion and distribution to create exchanges that satisfy the objectives of the organisation stakeholders. Organisations can more readily meet the needs of customers if they understand how customers spend their time and money and what they value. integration increases market share and power. hence. Product offerings are differentiated by branding . maximise its efforts. thus making competitive inroads both difficult and expensive. But many components of the marketing mix maybe manipulated so that the firm fits the desired position in the target customers’ perceptions. marketing benefits from a co-ordinated approach to its activities.a high degree of brand loyalty is one of the greatest assets of marketer can possess. Techniques are now widely available to allow the firm to reach key segments and household types. price.rdi Summary Market analysis is a prerequisite to effective market strategy implementation enabling scarce resources to be focused on homogenous consumer groups. The integration of all the different aspects of marketing allows a organisation to ‘pull in the same direction’ and. · Vertical .

As an example. · Other specific customer development programmes. attaining the ‘best image in the marketplace’ could be considered to be an objective. or objectives. of the organisation are the starting points for marketing planning. This integration helps the organisation diversify into different markets. incentives for distributors.between departments in different companies. profitability. whose objectives include: · Outlet penetration by type of distribution. It would be better though if this could be measured in some way. Goals will vary amongst organisations. Non-quantifiable objectives can be included. Tools and Techniques The basic goals. These goals serve as signposts from which marketing plans are established. sales and shareholder value. or between companies in different industries. Place refers to distribution.g. ‘achieve an 8% profits increase over last year’. 1. 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. In most cases the objectives will be quantifiable. for example. ‘attain a 15% increase in market share by 2004’. · Inventory range and levels to be held. but only if such objectives are in fact difficult to quantify. If one market fails. reorganisation can continue trading in its other market(s). which reduces risk. perhaps through customer research. so that it can be clearly seen as a quantifiable objective. · Distributor sales and sales promotion activities. ACTIVITY List the objectives of your own organisation. but will generally focus on market shares.) · Lateral . e.Unit 1 rdi organisation controls business back down the chain of production. Vertical forwards is when the organisation controls business closer to the final customer.68 Strategic Marketing Management .

· Too much attention to firms as competitors rather than individuals as competitors. Unit 1 Strategic business units KEY POINT A Strategic Business Unit (SBU). re-draft your list to include as many objectives as you can. There is increasing criticism of the approach of modern writers on marketing strategy. and the priority given to positioning of action and implementation. The market could be developed as an integrated totality rather than in a piecemeal way through specific offerings. This criticism centres on the emphasis on analysis. At the same time. management is forced to look at markets in terms of benefits and costs. Success turns on the ability of marketing managers to identify areas of strategic advantage which meet customer needs in ways which build on the organisation’s strengths and overcome Strategic Marketing Management 1. · Inadequate emphasis on when to compete. according to Ansoff.69 . Does your list cover all angles of the organisation’s operations? If not. · Too little focus on uniqueness and adaptability.rdi Discuss your list with a member of your management. Simultaneously. Attention is redirected towards the returns being earned. 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. ‘is a unit of a firm which has the responsibility for developing the firm’s strategic position in one or more strategic business areas. senior corporate management has the freedom rigorously to appraise the different areas of activity within an internally consistent framework.’ The SBUs focus managers’ attention on the areas for development without imposing the types of operational constraints typically associated with brand and product management. · 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. Popular failings of current approaches are: · Too much emphasis on where to compete and not enough on how to compete.

Growth in this SBU results from seeking new applications for the adhesive technology. therefore.Unit 1 rdi weaknesses. audio visuals. comprising pharmaceutical and healthcare products. This is done in a competitive environment in which skill rivals are seeking to achieve the same results.000 different products. 1. the Life Science Sector. Some consider that the focus for competitive strategy must be the business or business unit in a single competitive market.70 Strategic Marketing Management . This does not necessarily match the traditional notion of the SBU as it excludes multi-product. the medical products unit is at the forefront of emerging technologies. Differences in customer needs. multi-market administrative units and re emphasises the fit between the offering and the market. product extensions and expansion into global markets. the Information and Imaging Technologies Sector. In contrast. adhesives and electronic connectors. Most of this unit’s growth. comes from developing innovative products for new markets. The practical possibilities of SBUs are demonstrated in Figure 1. product life-cycle stage and competitive considerations lead the various business units to pursue their corporate strategies and different ways. research and development objectives (to obtain 25 per cent of sales from products introduced within the last five years). a turnover of $13 billion and a return of investment of 24 per cent. concerned with the area of commercial graphics. 3M is organised into 44 SBUs grouped into four sectors: the Industrial and Electronics Sector. abrasives. Formal objectives are assigned to each business unit. Today it has more than 50. magnetic media and imaging systems. CASE STUDY Strategic planning at 3M The Minnesota Mining and Manufacturing Company (3M) began making sandpaper about 90 years ago. and the Commercial and Consumer Sector which makes such things as ‘Post-It’ notes and Scotch tape. making such things as tapes. The industrial tape business unit operates in an industry where both the basic technologies and customer segments are mature and relatively stable. for example. growth objectives and return on investment objectives.17.

Allowed development of sophisticated control systems. The SBU alternative · · · · Identify the SBU. Divisions negotiate targets –‘bottom-up/top-down’ consensus.Forced managers to set explicit targets. Figure 1. therefore pinpoint shortfalls. without looking systematically but the context in other stages of the industry value chain. . which previously tended to focus largely on direct competition in the industry.71 . Strategic management of each SBU. Unit 1 · Manage the diversified firm as a portfolio of businesses. · Bargaining power of customers. · Competition among existing suppliers. Follow-up and appraisal. 3. Approved plan is a result of this negotiation. · Bargaining power of suppliers.rdi 1. 2. Traditional planning · · · · · Define overall corporate objectives.17 SBUs – a do-it-yourself guide. . The SBU concept – underlying principles segment with a clearly defined strategy. Disseminate as targets to various divisions. KEY POINT Porter’s five forces to analyse are: · Threat from potential new entrants. · Threat from substitutes used in different technology. Porter’s Five Forces model Michael Porter was an innovator in structural analysis of markets. Strategic analysis for each SBU for competitive advantage and market attractiveness. Strategic Marketing Management 1.Corporate entity could total component targets in advance. Advantages: . · Design and manage the SBU portfolio to achieve corporate strategic objectives. Each to serve a clearly defined product/market · The strategy of each SBU is discrete but consistent with overall objectives. referred to earlier.

How important is the market to them? 1. collaboration. · Concentrate on each of the five areas individually. thinking hard about them to get into the mindset or perspective each would have. customers. input. ACTIVITY Using your own organisation. · Assemble as much research as you can about your known or existing competitors.72 Strategic Marketing Management . To use the model well. both because of the rejected economic changes and also because of the ambitions of the players themselves. From this quarter builds a useful model of industry attractiveness about how this might change over time. consider how the Five Forces model could be applied in an analysis. the following advice is worth noting: · Take time over it – while a first pass will give you a good intuitive response.18 Porter’s Five Forces model. reflection will greatly enhance the value it provides.18.Unit 1 rdi 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. talk to suppliers. people in related industries or companies who might enter the market. · Seek advice. The interactions between the five forces are shown in Figure 1. or one with which you are familiar. .

73 . If the market is intrinsically profitable.How profitable are they? .What would you be doing in their shoes? · Think globally about each of the five areas. Customers Buyer concentration Customer loyalty Switching costs Buyer motives Strategic Marketing Management 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.How good are they? . reflect on the consequences of what the model reveals. You will be hatching a strategy to deal with your findings. As you form a picture of the likely competitive environment in which you will be operating. and it is important that this strategy is imaginative and subsumes the possibilities of partnerships and collaboration as well as competition.What emotional commitment might they have in the market? .rdi . Unit 1 · Think of the impact of technology in each of the five areas. ACTIVITY FEEDBACK Your results might look something like Figure 1.19 An example Five Forces framework. predators may be anywhere.

education: rising number or educated people . promotional expenditure. Because of the wide range of data potentially available. Social. environmental.age: people are living longer .increasing diversity: European integration 1. turnover and utilisation. technological economic. information is easily available on sales. Every department has a useful contribution to make here. manpower and personnel matters including labour availability.and is particularly valuable when considering entering an export market. The general availability of computers should be no barrier to effective use of this information. known as STEEP analysis – social. distribution and delivery. and so on. production capacity. One format. Given a good reporting system. Some of the main factors under four headings are: Social forces include: · Demographic change . and changes in the technological and economic conditions affecting its business situation. It allows a company to analyse and assess the competition it is facing. sales costs and profits. Manufacturers can get instant status reports on sales to date. the amount and type of loans made. cost control exercises. Any of this information may show whether there are opportunities or threats for the market. airlines are able to discover what the seat availability is for specific flights at any time. environmental and political factors . It provides not only the historical-based information for forecasting but is useful in achieving more effective control of ongoing operations. inventory positions. it is useful to have some formal structure within which to collect and analyse information. pricing. it is necessary to recognise the value of internal and external information. For example. cash flows and other financial matters (e.g. current market shares and even estimates on the profit being earned. legal and political information is increasingly important as wider issues may affect the firm too. inventories. volumes.the family: people marrying later and having fewer children . In trying to cover a wide spectrum of study. Banks can get instant print-outs on the status of deposits and withdrawals at each branch.Unit 1 rdi STEEPLE analysis Marketing information and intelligence have to suggest possible answers to a number of questions. past results and forecasts.74 Strategic Marketing Management . External information is collected from a wide variety of sources and can range from hard facts to rumours. credit control). Internal information is obtained from a firm's own records of its activities.

rdi .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). Unit 1 · 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) Strategic Marketing Management 1.75 .

list those factors which will directly affect your organisation over the next 12 months. as a result. some authorities include the extra factors of legal and ethical. (In addition. Using the macro-environmental forces listed above as a guide. if an international dimension is included. Social factors to be considered: 1 2 3 4 5 6 7 8 How my organisation will address these factors? 1. this same method of analysis is referred to as a PESTLE or PESTLIED analysis. In so doing we can endeavour to put strategies in place to seize any opportunities and minimise the impact of any threats. will need to be addressed. giving the acronym. conduct a STEEP analysis for your own organisation. In some texts.) ACTIVITY Using the grid provided.76 Strategic Marketing Management . STEEPLE. Note the key issues which.Unit 1 rdi · 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.

77 .rdi Technological factors: 1 2 3 4 5 6 7 8 How my organisation will address these factors? Unit 1 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? Strategic Marketing Management 1.

Unit 1 rdi 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. on your organisation over the next 12 months. or with colleagues who have experience of other organisations. This knowledge will now allow you to plan accordingly. The main benefit of working through this activity is that you should now have a good idea of the kinds of factors.78 Strategic Marketing Management . 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. and so forth if an efficient system is to be developed. Note similarities and differences between all the findings. in what form. which may impact. Then there are regular audits which should be conducted to ensure that the system evolves with the needs of the organisation. as the factors you have identified are specific to your organisation and the needs of your organisation’s market. 1. and that ‘dead wood’ is cut out to make room for new growth. Share your conclusion using the Virtual Campus. 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.

Figure 1. threats are environmental. Similarly. weaknesses and threats. Grasping this distinction is more important than mere semantics. There is often confusion as to the difference between a strength and an opportunity. They call for the organisation to adapt. on the one hand. familiar to most line managers. Strengths and weaknesses are usually within your control – to consolidate the former and to eliminate the latter.20 SWOT analysis. strengths and opportunities and. Opportunities and threats are not within your control. on the other. 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. As SWOTs are put together there is usually no difficulty in discriminating between. Strengths are internal. opportunities are environmental. 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.20 makes this clear.79 . Strategic Marketing Management 1. weaknesses are internal. 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. to take advantage of the opportunities and to minimise the effect of the threats.rdi SWOT analysis Unit 1 KEY POINT SWOT is a mnemonic standing for Strengths Weaknesses Opportunities and Threats It is a commonly used tool.

on paper. This would be a relatively lean example of a SWOT analysis.20 shows what a SWOT analysis might look like. Most carry a greater level of information. You can use syndicates working on strengths and weaknesses (internal) and a second syndicate working on opportunities and threats (external). ACTIVITY Once again consider your own organisation. repeat the activity using a large retail organisation – possibly even a global corporation. whereby accountants take a ‘snapshot’ of the business once a year for the annual accounts. Carry out a basic SWOT analysis and determine where the strengths and weaknesses of the organisation lie. Now. This helps reinforce the basic discipline of the exercise. 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. the threats and the opportunities Figure 1. It enables you to put shorter-term plans together to consolidate strengths and address weaknesses. the purpose of a marketing audit is to establish the marketing position for the company. It usually calls for more research. The strong advice then is to use the tool with precision. analysis and idea generation about the environmental factors. 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’. 1. 2. Doing a SWOT analysis is a good group activity. The result of a good SWOT analysis is usually twofold: 1.Unit 1 rdi Realising that radically different organisational behaviour is called for in response to your analysis greatly assists the process of developing strategic intent.80 Strategic Marketing Management . Similar to a financial audit of a business. and most actually build over time as people think of other things to add.

Total. Strategic Marketing Management 1. the marketing audit is very important for an organisation. The marketing audit.81 . The marketing audit is the means by which information for planning is organised. in attempting to answer the question. critical and unbiased review and appraisal of the environment and of the company’s marketing and its operations. must take account of the fact that: · A company is faced with two kinds of variables. as future strategies will take account of the information thrown up by the actual audit. · An audit is a systematic. concerned with the controllable variables. and an internal audit. ‘where are we now’.rdi The details of the marketing audit can be gathered from the section below. 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 audit is therefore split into two parts: external audit. (The external audit will be looked at in detail in the next main section of the module). 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 the means by which a company can understand how it relates to the environment in which it operates. ACTIVITY FEEDBACK A list of items that could be included in the internal audit: Marketing operation variables: · Sales . Overall though. concerned with the uncontrollable variables. 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.

discounts. · Market share. · Marketing organisation. · Training. credits.By customer type. . · Distribution characteristics. · Sales promotion.By product. · Profit margins/cost profiles.By location. 1. · Product range and quality. · Selling.Unit 1 rdi . · Stock levels. · Advertising. · Marketing procedures. · Packaging. · Point of sale materials. . · Marketing information/research.82 Strategic Marketing Management . · Pricing. Marketing mix variables: · Product/service management. · Public relations.

The marketing strategy represents the overall company strategy and action for the seven elements of the ‘marketing mix’. In determining the strategy best suited to their marketplace. realistic and achievable objectives should be set for the company’s major products and/or services in each of its major markets. product.rdi The Marketing Objectives The next step in the marketing planning process is to set the marketing objectives. Strategic Options Marketing planning must be directed towards establishing marketing strategies that are efficient.83 . This information is combined with the other audit information covering the resources of the company. 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. 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. · Compatible with the strengths. The specific marketing objectives are created in order to accomplish the broad objectives. 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 company’s resources with the opportunities in the marketplace. a strategy is the way in which you will achieve the objectives set. limitations. and economics of other functions within the organisation. price. flexible and adaptable. Whilst an objective is what you want to achieve. promotion. Strategic Marketing Management 1. 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. These will mirror the corporate objectives that the organisation has set for itself – as we discovered in the first part of this section. place. · Attainable within budget limitations. physical and people. Unless the objective setting is done well. a company will need to fully understand the market. In broad terms. everything else that follows in the planning process will lack focus and cohesion. customers and competitors in order to come to a sound decision. effective. At this stage of the marketing planning process. The end result of the process should be objectives that are: Unit 1 · Consistent with the strategic plan. In essence. process.

the next step is deciding how to get there – your marketing strategy. do not match up. · Market penetration. · Market extension.21. . This is illustrated in Figure 1. . · Diversification.21 Gap analysis. Very often where a company wants to go (based on its objectives) and where it is actually going. Having established where you are now through the marketing audit and where you are going via the establishment of corporate and marketing objectives. 1. new strategies are needed to fill the gap.Unit 1 rdi £m 12 10 8 6 4 2 Forecast New strategies gap Objective Time Figure 1. · Reducing the objectives. ‘Gap analysis’ highlights the fact that if corporate sales and other financial objectives are greater than the current long-range forecasts. Ansoff (1987) suggests that the strategies gap can be filled through one of the following strategies: · Improved productivity .84 Strategic Marketing Management .Improving the sales mix.Increasing prices. · Product development.Reducing costs.

Look at the descriptions given in each quadrant of the matrix and identify companies/ brands that fit the criteria. New distribution channels 3.rdi How some of these key strategies relate to each other in practice can be seen in Figure 1. More purchasing and usage from existing customers 2. Gain customers from competitors 3. the primary concern is to ensure your understanding of the principles. that have pursued the strategies given in the Ansoff matrix. New market segments 2. or particular brands of companies.22: existing products Market penetration strategy existing markets 1.g. Strategic Marketing Management 1. house insurance – ‘we will pay the switching fee’.85 . in magazines – attempting to get you to buy something. Acquisition/take-over Figure 1. Joint ventures 2. New product Unit 1 Diversification strategies 1. e. ACTIVITY Think about companies. Convert non-users to users Market development strategy new markets 1. · Special offers through the post. Different quality levels 3. New geographical areas new products Product development strategy 1.22 The Ansoff strategies matrix. Mergers 3. Product modification via new features 2. Don’t worry if your answers are different. take out life insurance and receive a store voucher. ACTIVITY FEEDBACK Taking each quadrant in turn. Examples include: Market penetration · Kellogg’s – advertising the fact that we can eat cornflakes at any time of the day! · BT – ‘it’s good to talk’. examples are given below.

com. Achieving profit objectives may seem to necessitate cutting the marketing budget.Unit 1 rdi · Special offers on the Sky Digital box to encourage non-users to subscribe to the monthly payment service. BHS and Arcadian. there may well be other constraints. which in turn reduces the profitability. · CD Rewriter on a computer. · Joint ventures include – the SMART car – Mercedes and Swatch. Diversification · Numerous examples of mergers and takeovers – Time Warner. · Widescreen television. Examples include. A further example would be a company wishing to introduce a new product or service.86 Strategic Marketing Management . Constraints When an organisation determines its corporate and marketing objectives it has to recognise the constraints under which it operates. a company wishing to enter a new market may not have a good understanding of what the market dynamics are. when there are question marks over whether the company has the necessary resources and skills to actually do this. · Morrisons supermarkets moving from their northern base in the UK to the midlands region. Product development · ‘40-plus’ toothpaste. · Amazon. Market development · Tesco home shopping. · TNT ‘guaranteed’ overnight delivery. · Staples catering for the emerging ‘home office’ market. 1. etc. In addition to the trade-off between sales expansion and profitability. whilst achieving sales targets may appear to mean lowering the price.

a systematic approach aimed at identifying and evaluating the data is crucial. check on progress in line with the overall strategic objectives and permit action to be taken to correct or improve on performance. 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. despite the potentially high costs. the wrong skills amongst the workforce and a lack of understanding of a new market place. Strategic Marketing Management 1. Without this degree of comprehensiveness. Indeed.23 Putting the marketing plan together. a manager's effort would be directed towards the ‘effect’ of poor performance or direction rather than the true ‘cause’ of any problems. Resource auditing Value chain analysis Resource utilisation Finance Comparative measures Measures of balance Performance importance Marketing effectiveness SWOT analysis Figure 1. An example framework is shown in Figure 1.87 . 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. · 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. Almost inevitably.23. All of these constraints must be recognised and accounted for if the plan is to actually work in practice. Unit 1 · In order to ensure the thoroughness that is needed to ensure a comprehensive review.rdi Other limiting factors can range from a lack of money to finance a new investment. 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. This is in order to avoid any elements being overlooked and permit effective development of future strategies and implementation. there is often the need for external consultants to be used.

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. A minimum of three is normally needed in order to give a fuller picture and allow the comparison of the key ratios.88 Strategic Marketing Management .‘ the whole business scene from the point of view of its final results. those related to the running of the organisation as a whole. it must be recognised that figures taken from a balance sheet simply reflect the position of an organisation at a single point in time. therefore. 1. Step 2 Value chain analysis Developed by Michael Porter. the value chain analysis is used as a means of gaining and maintaining competitive advantage. The key to effective interpretation lies. However. through the evaluation of balance sheet and trading account figures. In isolation. in examining a number of consecutive sets of accounts. 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. including physical. which will not only help to highlight strengths and weaknesses. hence. In this way it is possible to identify trends. Step 4 Financial measures The next step involves a review of financial resources in terms of current stakeholders’ expectations and historic financial performance. it is important to remember one of the definitions of marketing . With this in mind. It does this by categorising activities of an organisation into primary activities. it is unwise to draw any conclusions or make any judgments on the basis of one set of accounts only. therefore. and support activities. 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. human and financial elements.Unit 1 rdi 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. as well as intangible resources such as brands. the degree of competitive advantage. that is from the customer’s point of view’. those were the direct impact on the company’s product. in undertaking any financial evaluation.

however. As part of this. this step outlines the major attributes of a marketing orientation.rdi It is necessary. each of which can be measured relatively easily to build an overall picture of marketing effectiveness. is to identify those areas where scope exists for improvement. to understand customers’ perceptions both of your own and competitors' products and activities.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. therefore. you also need to draw comparisons between your own performance. then provide the means by which the information gathered may be assembled and the overall organisational performance evaluated.89 . Whilst this process has been fully described earlier in this unit. it is also necessary to consider the strength and composition of the product portfolio. regardless of the overall performance of the organisation itself. but also through increased efficiency or by absorbing increased demands on output. that an organisation may be performing well as a result of circumstance rather than because of good management. it is then necessary to build an understanding of how the operation can adapt to change. how balanced it is and the extent to which each element or product is dependent upon other products in the organisation’s portfolio. operations and procedures with that of your competitors in order to identify areas of competitive advantage and recognise areas of comparative weakness. It is important to recognise. however. that this refers not just to the implementation at any future strategic direction or having the flexibility to adapt through reorganisation. therefore. Step 8 The marketing effectiveness review Building upon the evaluation of performance. The underlying purpose of this review. opportunities and threats) analysis. Step 6 Measures of balance Once an understanding of the organisation’s resources and their current utilisation has been developed. Step 7 Dimensions of performance importance Put together all the elements thus far in the form of a performance importance matrix. The temptation to simply list every conceivable factor will achieve little more than Unit 1 Strategic Marketing Management 1. Step 9 The identification of key issues . weaknesses. 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. Recognise. In addition.

it is likely that sooner or later problems will be faced which stem from what is called the intent-perceived capability-reality gap.90 Strategic Marketing Management .24.23. Managerial intent Gap in performance Performance reality Figure 1. Having gone through the process of evaluating and assessing corporate capability. the expectations of its stakeholders. its culture. but also of its weaknesses and areas of vulnerability and gaps. With this understanding. 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. an inadequate marketing mix. 1. Without this. Almost inevitably there will be a gap between two which stems from a lack of resources or commitment. Explain how you feel your organisation might benefit from such an exercise. the marketing plan should have a far clearer idea not just of the real strengths of the organisation. from the evaluation of corporate capability is the identification of the organisation’s real capabilities so that the subsequent marketing planning process can be rooted far more firmly in reality. an absence of market understanding. This is illustrated in Figure 1. think about what you organisation would really wish to achieve in the marketplace and contrast this with what it is really capable of doing. An important outcome. therefore. In the absence of this understanding. compile an outline marketing plan for your organisation. Perceived capability ACTIVITY Using the nine headings from Figure 1.Unit 1 rdi creating an attractive list. far more realistic objectives and strategies can then be developed. or the feasibility of implementing the strategy. What might appear at first sight to be an opportunity may not be so when examined against the organisation’s resources. and so on. the strategies available.24 The Intent-Capability-Reality gap. In order to understand this model.

The model also prompts consideration of synergy which might exist on both the product or market axis.25 The Ansoff matrix. Current products New products Current markets Market penetration Product development New markets Market development Diversification Figure 1.91 . See Figure 1.rdi Portfolio analysis techniques The Ansoff matrix As we saw earlier in this unit. We can unpack the model a bit and interpret some of the implications of position in each of the boxes. Strategic Marketing Management 1. Unit 1 KEY POINT Its primary purpose is to analyse the organisation’s approaches to its products and to its markets to assure that an appropriate marketing strategy is being pursued and possibly to reveal opportunities. this well known model is a classic in strategy building. We shall noe look at it in more detail. The risk level is relatively low for the organisation because it knows the markets and the products. Tucked within the model is an assessment of the risks involved in pursuing given strategies.25. 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.

Sometimes it becomes the reason behind an acquisition where expertise is being bought to minimise the strategic risk. The risk involved here is that new products can have a high failure rate. · Focusing on competitor activity. 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. the cost of marketing a broader range of products to the market is less in relation to the larger revenues generated. hence probably cheaper production costs. · Revealing the potential opportunities for product synergy and for market synergy. 1. widely known and widely used. The key determinant of risk here is the cost of market entry. While the benefit of the Ansoff matrix lies primarily in examining strategic product/market strategy. if the new products are successful. 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 organisation’s vision.92 Strategic Marketing Management .Unit 1 rdi 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. 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. Market development Current products to new markets – here the strategy is to expand the markets beyond those in which current products are sold. The benefit to the organisation is. The Ansoff matrix is a very clear and easily understood model. it also has value in: · Causing long-term evaluation of markets. The major benefit is longer product runs.

In the figure the market size is shown by the size of each circle. This may mean that an aggressive marketing effort is needed. They have good earning potential. but they have a relatively low market share.93 . They are profitable and reliable products. the Boston Consulting Group (BCG) matrix is a simple model that examines the joint criteria of market growth and market share. Cash cows have a high market share from a slow. the company’s share of the total market is represented by the size of the segment within the circle. or zero. Question marks occur when the potential for market growth is good. with the associated high advertising expenditure. In addition.26 The BCG matrix. growth market. The BCG matrix is described in Figure 1. Stars often move into this position when the overall market has become established. which will allow a company to develop a strong portfolio.26. The market is likely to be very competitive with the SBU having only limited impact. Considerable amounts of Strategic Marketing Management 1. Market share High Low Unit 1 High Star Question mark Market growth rate Low Cash cow Dog Figure 1. It is likely that the product is costly to maintain early in its life cycle. Usually they will have loyal customers. with the consequence that product development costs are relatively low.rdi Boston Consulting Group (BCG) matrix Produced by the Harvard Business School. KEY POINT Stars are Strategic Business Units (SBUs) with a significant market share of a high growth industry.

it has its limitations. they may survive as part of a marketing product mix.28. KEY POINT If Ohmae’s Nine Specimen Strategies (see later in this unit) and Ansoff’s matrix provide a check against the organisation’s strategic behaviour. It demonstrates how a product moves through certain distinct stages of development and decline during its life. showing how the product is able to recover the costs of development and launch. The actual shape of the curve will vary according to the product itself. Like all modelling techniques. then BCG has great value in determining the strategic allocation of resources. Once this is achieved. However. and that each one will deviate in some way from the norm. they must also realise that such deviations are to be expected and that these should not be cause for unnecessary alarm. Managers must remember that there is no such thing as a perfect product. these are SBUs facing possible liquidation.27 the revenue curve has been superimposed on the theoretical life cycle.28 includes some examples of actual products’ life cycles. As an interesting activity you might consider trying out the Ansoff matrix and BCG matrix against the products or services of your organisation. it is able to move towards profitability. In Figure 1. They are likely to be the first to be liquidated in the event of financial difficulties. The first diagram shows a ‘fad’ product. 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. and some variations are shown in Figure 1. you will find that you have products and services all over both matrices. These are sometimes known as ‘problem children’.94 Strategic Marketing Management . The second 1. quickly entering and leaving the market.27 shows an example of the idealised product life cycle. Often they will continue to exist because of nostalgic reasons on the part of management.Unit 1 rdi money may need to be spent on marketing or research. whilst Figure 1. Dogs are characterised by low market share and low growth. However. 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. While the plotting exercise is valuable. Figure 1.

ranging from a single fashion season to a period of many years. (ii) (iii) The product life cycle can be applied to individual products or to the market as a whole. during which efforts are made to modify or rejuvenate the product to maintain market interest. where sales numbers are likely to follow cycles. Sales Sales Sales (i) Figure 1. Unit 1 Sales Profit Profit Loss Development Introduction Growth Maturity Saturation Decline Figure 1.27 Theoretical life cycle curve.95 . Also the time scale can be variable. Consider the examples of soap and shoes.rdi diagram shows a ‘fashion’ product.28 Examples of actual cycles. In the third diagram the product passes through a number of stages. thus delaying entry into the mature stage. If we consider a product category life cycle. we would look at generic products such as soap or shoes where life cycles Strategic Marketing Management 1.

· Changes in the competitive market. it is also the stage of greatest risk. This also is a time where confidentiality is important. · Fluctuations in consumer preferences. Industrial espionage is often associated with this phase as a serious threat to the early stages of new product development.Unit 1 rdi tend to be quite long. Finally. providing another barrier for the consumer. as such. This is often referred to as ‘skimming’. They will have the advantage of knowing your product’s price and have seen the degree of success that 1. Growth is the time when competitors are likely to appear within the market. These will each have an effect on the shape of the product life cycle curve. · Behaviour of competitors. If we prefer to deal with product form life cycles. This forms a key component of an organisation’s strategic management. It may well have a high price associated with it. The new product must prove its innovative nature and overcome threats from existing products. The organisation needs to use market research and market intelligence with care. However. we could consider brand life cycles. 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. These include: · The nature of the product. we would look at more specific products such as perfumed soap or plastic shoes with much shorter life cycles.96 Strategic Marketing Management . 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. enabling predictions to be made about the long-term growth in the marketplace. 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. should be valued. the innovative nature of the product may be enough to compensate. which deal with named brand products. Availability is often limited as distribution may not be widespread. Research and development are both expensive and time consuming and. Using the product life cycle carefully can be successful for positioning the product effectively in its market. Other companies may have been developing parallel products but have not launched them until now. However. A number of influences impact on the product life style at different times.

This stage is sometimes referred to as an exponential growth phase as sales can rapidly take off. Here price becomes an important point. Expenditure on marketing and distribution will remain high. Decline occurs when sales start to fall and interest within the market as well as from the organisation becomes less. There remains a ‘safe’ level of demand to allow sales to prove effective. use a number of different products or services. promotional strategy will change from creating awareness to brand identity. and are combined by some authors into a single phase. What does this tell you about the product’s future? Strategic Marketing Management 1. there is sufficient demand to enable existing companies to thrive despite the limited number of consumers. It is likely that much of the sales volume is repeat trade rather than new customers. An example is the solid fuel market where sales have reduced as a result of other energy sources. but they can be aggressive if pressure is applied from the other organisation’s stakeholders. Your position as leader of the market may be under threat and management will need to assess the risk involved. Maturity and saturation work together to some extent. It is sensible to assume that they will charge less for their product. If you are able.rdi you have had. This may be because the product is becoming obsolete. sales volume.97 . The view that exposure needs to be high at the point of sale is important. Now consider a well known product readily available in shops. other products are more competitive or new products have appeared. Consumers will often see price-cutting as an attempt to retain customer interest and. Can you identify where to place it in the product life cycle? Briefly outline the product’s history in terms of life cycle stages. therefore. Unit 1 ACTIVITY Identify the stages of a product lifecycle by reference to a product or service supplied by your organisation. Maturity occurs when the sales of the product level off at a peak. These would only normally occur if they are of benefit to both organisations. because many of the suppliers have left the market. Many products will continue to exist despite reaching this stage – it is not necessarily a sign that production should cease. whilst saturation occurs as the volume of sales begins to slow down. Some organisations may choose to trim their product portfolio in order to retain competitive pricing for products in this phase. Similarly. Indeed. As the product has now been on the market for some time. the organisation may now wish to concentrate its efforts on its own new product development. If this happens to a small company it might create interest from larger organisations as targets for acquisition.

Unit 1 rdi Product breakeven analysis This model is really simple in concept. 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. Let us go back and look at the word profit above.29 Product breakeven. the horizontal axis is the number of units sold. In the model here. 1. though it looks a bit daunting in its graphical form. Sales revenue Revenue (money) Variable cost Breakeven in money Fixed cost Unit sales Breakeven in units Figure 1. the vertical axis is the sales revenue.98 Strategic Marketing Management . 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.29. Graphically it looks like Figure 1. 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. Breakeven occurs when the margin generated by the sales of the product equals the total of fixed and variable costs it has incurred.

99 . We then examined product management issues and finally looked at strategic aspects in terms of matrix analyses. 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. But as each unit is sold. · 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. Marketing strategy should be the result of penetrating assessments of marketing advantage analysis of market needs and competitive threats. · To balance the product portfolio in relation to the cash needed to operate. it contributes to the strategic planning process and can sometimes reveal new insights into strategy. The development cost is recovered when the sales revenue breaks through the fixed cost barrier. usually the cost of making the product.rdi As units are sold. The product or service has been traced from its simple categorisation under each of the headings of industrial goods and consumer goods. is charged to the company. so the sales revenue line rises. 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. this means that the variable cost line rises as well. and the product breaks even when the sales revenue overtakes the variable cost line. Although portfolio techniques and other resource allocation models may be useful devices for reducing the uncertainty associated with strategic management decisions. Strategic Marketing Management 1. Breakeven is a simple model (even the non-financial person can master it easily). Summary Without a product or service a company could not function. and management's intuitive sense of the strategic fit of the various strategies under consideration. · To help choose between competing product opportunities. The product or service is indeed the rationale for all trade and commerce. gaining strategic marketing advantage involves far more than the solutions provided by boxes or matrices. a variable cost.

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as shown in Figure 2. and its importance. The contemporary climate probably corresponds more accurately to Richard D’Aveni’s definition of ‘gaining and regaining competitive advantage’. At the heart of Porter’s generic strategies is the assumption that the organisation will seek to dominate a segment or segments of the market. showing in many cases how they have been developed to deal with particular problems. however. but more by a fast-changing world. Examples of these options are given in this unit. it is now necessary to look at the range of possible options available for the marketing strategy.1. Strategic Marketing Management 2.1 . As time has gone on. 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 model has been overtaken – not by better or more definitive thinking. Porter’s generic strategies are best represented by a triangle.rdi 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. Porter advocates ‘gaining and maintaining competitive advantage’. Failure to recognise this seemingly obvious requirement will cause considerable waste in terms of both time and money for the organisation. This will help to demonstrate the importance of realising exactly where in a market an organisation lies. The role of market positioning. The idea first appeared in 1980 and it has enormously influenced strategic thinking. will be discussed. Options Porter’s generic strategies No set of strategic tools would be complete without a look at Michael Porter’s definitive thinking on generic strategies. seeing off all competitors by the excellence with which they serve those segments.

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. The essence of cost leadership is not price but the ability the organisation has to price below competitors if and when it needs to.1 Porter’s generic strategies. This may or may not be reflected in the price it charges to its customers. 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. not only in the way the organisation approaches and positions itself in its markets. Further. 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 differentiation must be known and. 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. to at least a segment of the market. 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.Unit 2 rdi Focus Differentiation Figure 2. but also in the way it develops its internal capabilities and competencies to support the chosen strategy. 2.2 Strategic Marketing Management . Each of these strategies has its particular benefits and concomitant organisational commitments.

Low-cost distribution system Focus .Long tradition in the industry .Intense supervision of labour . we could actually sustain any of these strategies longer term. 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. Evaluating that decision may.Structured organisation and responsibilities . Unit 2 Generic strategy Differentiation Commonly required skills and resources Common organisational requirements .Strong marketing abilities .Tight cost control .Strong cooperation from channels .Strong coordination among functions .Creative flair .2 Common requirements for successfully pursuing Porter’s strategies.Combination of the above policies directed at the particular strategic target .Combination of the above policies directed at the particular strategic target Figure 2.Strong research capability .Sustained capital investment and access to capital .Product engineering . the function of these products.Process engineering skills . detailed control reports .Corporate reputation for quality . provide a strategic insight of importance to the organisation. In 1985 Porter developed a model which furthered this earlier research. of itself.Products designed for ease in manufacture . 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.Frequent. The question is whether.Subjective measurement and incentives instead of quantitative measures labour or creative personnel .3 . · Transition to maturity is distinguished by reduced profits throughout the industry and a general slow down in growth. The logic behind it is excellent. Customers become more confident with their Strategic Marketing Management 2.Amenities to attract highly skilled Cost leadership .Incentives based on meeting strict quantitative targets .rdi KEY POINT The key to the use of this model is as a tester. as an organisation.

The industry settles down in terms of technological breakthrough and most product offerings are relatively similar. Briefly. and the role of the lead centre and as the parents of its operating businesses. The building of a few strong and specific core competences throughout the company is intrinsic to this approach. and a shared idea throughout the organisation about how to start on the task.Unit 2 rdi purchases as they are more familiar with the range of products and manufacturers. therefore. its ability to learn. and more as the definition. 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 organisation’s skills and capabilities (generally called its core competences). as is the idea of ‘stretch goals’. its sense of mission or vision. the possibility of substitute products developed and the producer put in a powerful bargaining position. its ambitions and commitment (strategic intent). The idea is that there is a strong commitment to achieve the objective at all costs. customer needs change because of social or demographic reasons. more short term objectives but still extremely demanding ones. strategic intent is an ambitious medium-term objective. A decline strategy suggests either divesting or profitably supplying residual demand. The product is basically becoming ‘stale’. often expressed in a snappy strategy. · Decline is where substitute products begin to make inroads into the marketplace. stimulation and reinforcement of ambitious skills and capabilities that can be applied across several market segments. seen less as overseeing the allocation of resources. Strategic intent is like a marathon that is divided up into a series of 500 metre sprints: the stretch goals relate to each sprint. ACTIVITY Consider each of the generic strategies identified by Porter in relation to your own organisation. Emphasis moves away from product features towards non-product features like branding and advertising. Transition to maturity means developing new markets and focusing upon specific market segments as well as attempting to become more efficient. creation. 2.4 Strategic Marketing Management . Strategy is. Emerging industries should be developed in order to counteract rivalry between competitors.

Prahalad & G. and it does have a great deal to commend it. since managers tend to like to hang on to what they’ve got. can be seen as a demonstration of the force of this idea.. 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. Prahalad & Hamel defined core competences as: ‘…the collective learning in the organisation. Still. Another problem is that core competency theory starts with the characteristics of the operating businesses rather than those of the parent organisation. they often fudge the issue and define the core competences in too inclusive a way. Hamel in a renowned 1990 Harvard Business Review article. they must be unique or at least rare: they must be difficult in the imitate. Unit 2 Strategic Marketing Management 2. unlike physical assets. The danger then is that the core competences become meaningless.. rigorous and precise way. and the determination of a handful of corporations to take on the western leaders in industries. Meanwhile. Similar to the idea of a corporation’s ‘distinctive competence’ or ‘distinctive capabilities’. they cannot realistically describe any competitive advantage. the core competences must add something rather substantial to customers. competences do not deteriorate as they are applied and shared.5 . However. ‘competitive strategy is the basis on which an SBU might achieve competitive advantage in its market. it is remarkably difficult for organisations to decide what their core competences are whilst at the same time avoiding wishful thinking.rdi There is a strong element of David and Goliath about this.’ Competitive strategy is the process whereby competitive advantage may be achieved.K. One problem is that if core competences are defined in a tax-efficient. Johnson & Scholes state that. The concept of core competences became extremely fashionable in the 1990s. Those who use it generally start as mere upstarts taking on a bigger battalions. and they must be able to be used effectively by the organisation. they may prove not to be relevant to many businesses within the corporation. They grow. especially how to co-ordinate diverse production skills and integrate multiple streams of technology . the idea of core competences was put forward by C. western companies have found it quite difficult to emulate this approach. like BCG’s growth/share matrix. The history of Japan’s economic recovery path from the devastation of the Second World War. These businesses should be divested. the latter may be a better approach to corporate strategy. Generally. despite having been designed for the latter. Therefore it may be that.’ To be valuable. the idea of core competences is more valuable at the business unit level than at the corporate level.

the stage of the firm’s development. Market structure and dynamics. We can analyse the strategic situation under four key headings: The organisation. The product life-cycle is widely recognised as an influence on marketing strategy. Situational analysis identifies the relevant strategic forces including organisational. Performance assessment gauges the effectiveness of the strategy and identifies the need for possible strategy alterations. capabilities and resources of an organisation will also affect its marketing strategy. The structure of markets and the changes that occur within them can influence strategic decisions in a number of ways. An understanding of the industry in which the firm is operating forms another pillar of Strategic Analysis. Industry structure.6 Strategic Marketing Management .Unit 2 rdi ACTIVITY What core competences does your organisation possess? Describe them in detail. Formulation of key strategic objectives follows this consideration. market. Competitive advantage KEY POINT The analysis of business strategic situations is the first step towards gaining strategic marketing advantage. performance. competitive and environmental factors. In the next step.with the customer or supplier? 2. The organisation’s influence on marketing strategy include the corporate culture (shared values and style). consideration of the importance strategic factors helps management determine the firm’s distinctive advantage. There then follows an evaluation of the available strategic alternatives. The way in which markets are segmented and market targeting opportunities are also factors in the formulation of marketing strategy. giving examples to justify your ideas. The size. The choice and implementation of marketing strategy begins the process of gaining competitive advantage. Market maturity often intensifies competition and limits the potential for growth and profit opportunities. organisational structure and operating policies. 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 .

Market development. special capabilities and experience. the result may be low performance and ultimate business failure. Market selectivity. opportunities or threats may be creative. suppliers. The purpose of this objective may be to maintain an existing market position. market position and performance. market domination. market selectivity. No advantage. a strong sales force or distribution strengths. favourable brand perception. and shifts in consumer demography and buying behaviour. low-cost. In addition the analysis should encompass considerations of technology and the rate of technological and socio-cultural change. product specialisation. largely uncontrollable. competitor activity. market segments are available. product advantages. differential advantage and no advantage. Such an advantage can form a key component of the firm’s marketing strategy and can be critical for the survival of small firms in commodity markets. affect marketing strategy. innovative products. Differential advantage. The market pioneer stands a good chance of gaining a sustainable competitive advantage. This situation is characteristic of small firms operating in undifferentiated markets.an ecological niche . External influences. A firm may not have a competitive advantage. low-cost source. The leading businesses in the market may not target certain small niches because other. customer and other distinctive competences. Unit 2 Strategic Marketing Management 2. Unless the proprietor can find a way to gain advantage. Objectives are of two major types. marketing superiority.7 .rdi Environmental forces. 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 comprehensive strategic analysis should include an evaluation of the following: the economic environment. legal/governmental influences. capital markets. The first firm to enter a new market has the opportunity to play a leadership role in that market development. Five types of strategic situation have been identified which determine competitive advantage. Market position. A market development opportunity can also occur in a fragmented commercial sector that has no market leader. Market domination. Differential advantage may arise from patent protection. The types are market development. This effect may be favourable or unfavourable. increase market share or regain lost position. more attractive.in which it can survive and grow. A small firm should be able to survive in differentiated markets if it can identify a specific market segment . This is the position occupied by the market leader in an established market if the firm may gain market domination through early market entry.

sales per salesperson. the same is true of both customer and competitor analysis. Given this information. · The nature of each competitor’s objective. · Their strengths and weaknesses. you can begin to construct a competitive response profile. sales to expense ratios and advertising productivity. competitors are a major determinant of organisational performance. Various financial measures are used to gauge performance. Increase in the productivity of marketing resources is often included in the performance objectives. the focus should be directed towards exploring the sections related to both customer and competitor analysis. sales per checkout. For many organisations. maintain an established level of performance or to achieve a performance turnaround. It is. Areas of marketing productivity improvement include sales per square metre of floor space. · The strategies they are pursuing and how successful they are. Competitive analysis also needs to take account of a variety of other issues including: · Strategic groupings.8 Strategic Marketing Management . If a firm is in financial trouble. including profit contribution. · How they are likely to behave when faced with competitive moves. short-term survival may be the primary objective. The strategic objective may be to improve current performance. · Competitive relationships.Unit 2 rdi Performance. With regard to completing the first stage of the planning process and also completing the picture of where the company is now. 2. any marketing activity is likely to be misdirected and of little. As part the process to of coming to terms with where the organisation is currently. if any. the marketing planner must understand where customers and competitors are in detail. essential that you understand: · Who you are competing against (this includes indirect as well as the more obvious direct competitors). Without this detailed understanding. therefore. 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 sources of competitive information. return on assets and return on net worth. · The different types of competitor. value.

These involve lowest cost and differentiation. a business gains competitive advantage from becoming the producer. consider the following questions: 1. Similarly. in his book Competitive Advantage. The marketing planning process. It can also be done by producing and selling very large quantities. KEY POINT Porter. if it is to be at all worthwhile. focus upon: · The influences upon consumer behaviour. suggests that there are two major ways to be competitive. 4. · The buying decision process and how it works. each Strategic Marketing Management 2. · The components of competitive information. must rest on a detailed and intimate understanding of customers. and a producer at the lowest cost. Firstly. · The influences upon the organisational buyer.9 .rdi · The bases for competitive vulnerability. Unit 2 ACTIVITY In considering competitive advantage. 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. The second major influence upon organisation’s performance is the size and nature of its customer base. · The characteristics of organisational markets and the organisational buying process. 3. · The different types of buying decision. In order to come to terms with how customer analysis should be conducted. 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. This can be done by producing goods in a very efficient way using the best available technology. 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.

In addition to Porter’s two ways of being competitive. the more chance you have of driving the costs down relative to those of competitors. Developing a competitive advantage is all about combining an understanding of market forces and the marketing mix. through branding. coupled with low-costs . for example. Michael Porter’s simple business lessons show that this can be achieved only if the company has a very big share of the market. etc. coupled with differentiation . Other businesses compete in a much narrower market. the essential point is that you must add value to your product so that consumers perceive it as being better value than rival offerings. · Narrow market. 2. Kit Kat. It is a success because enough people are prepared to buy the products owing to its special quality. as well as creating a supply advantage for a firm.own-brand baked beans. there is the third concept – choosing a market to compete in. · Mass market. Choosing the most competitive marketing mix should help to stimulate demand.through customer-service. to specialist food shops such as delicatessens sell a much narrower range of products to a more select group of customers. However. through promotion. exclusive taylors.Heinz baked beans. Some products compete in a very broad market (e. coupled with low costs . The bigger the share of the market. coupled with differentiation . second hand clothes and book shops. etc. but it is also very expensive.specialist discount bottom-of-the-market retailers. etc. etc. low cost margarines. bottom-of-the-range washing up liquids. A Bentley is different from other motor cars.g. Kellog’s Corn Flakes. Secondly. supermarkets) but the organisation may choose to sell top-of-the-range items and low-price discount items.Unit 2 rdi additional chocolate bar that runs off the Mars production-line does so for a very low cost indeed. etc.Renault Twingo. The alternatives for seeking competitive advantage are: · Mass market. · Narrow market. There are many ways of differentiating products . through advertising. differentiation involves making your product better than that of rivals whilst at the same time making sure the product is bought by customers.10 Strategic Marketing Management . If you gain the lion’s share of the market then the profits will follow.

1.11 . 2. refer now to the framework for reviewing marketing effectiveness that follows. scoring your organisation. ACTIVITY Looking at your own organisation. 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.rdi 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. Strategic Marketing Management 2.com Nintendo Unit 2 Identify the main contributors for another organisation of your choice. 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. Management attempts to serve a wide range of markets and needs with equal effectiveness. What overall picture emerges? Customer philosophy. To what extent does management recognise the need to organise the company to satisfy specific markets demands? 1. Discuss your findings with your colleagues or by using the Virtual Campus. Go through each of the 15 questions. The managerial philosophy is to sell existing and new products to whoever will buy them.

3. Not at all . finance. 2. 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. 4.but company focuses solely upon its existing customer base To some extent. To some extent. To a very high degree. To some extent.the company focuses solely upon its existing customer base. in that the majority of its efforts goes into serving its immediate and existing customer base. What sort of relationship exists between marketing management and the management of R & D.Unit 2 rdi 3. Yes. 3. production and manufacturing functions? 1. in that the majority of its efforts goes into serving its immediate and existing customer base. 3. customers and competitors? 1. 3. Having identified market needs. suppliers. channels. 2. To what extent does senior management attempt to control and integrate the major marketing functions? 1. Does management adopt a systems approach to planning with recognition being given to the interrelationships between environment. 2.12 Strategic Marketing Management . Generally poor. Not at all. 2. management focuses upon specific target markets in order to maximise company growth and potential. 5. 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. Marketing organisation. To what extent is the marketing programme tailored to the needs of different market segments? 1. Not at all . 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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Unit 2

rdi
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.

2.14

Strategic Marketing Management

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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 organisation’s 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.

Strategic Marketing Management

2.15

by better access to financial services. while in the paper and printing industry they were of little importance. differentiation and increased competition. and by economies of scale and the reduction of inefficiency a growth of between 4. including the saving of time and energy. Particularly emphasised were the various opportunities to reduce costs. · Streamlining an organisation and its administrative functions. · Time saved due to common procedures. by reducing technological barriers. and they were highly important in the food and beverage sector. by better supply and distribution systems in the food and beverage industries and in the car industry. · Better sourcing opportunities. · Easier logistics. 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. Regarding the market three developments are apparent: growth. and the logistical implications . for example in the car sector. The question of logistics of is seen both as an opportunity under threat.16 Strategic Marketing Management . · Cheaper physical distribution and inventory. we can look at the implications of challenge and change in European business resulting from the Single European Market in a 1992. These technical barriers were very important. As an example of the opportunities thrown up by a significant market change. where a harmonisation of technical specifications took place. The opportunities are seen to lie in two areas: the effect on the market itself. 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. faster transportation.5 and 7 per cent of GDP was forecast. The barrier to be reduced mentioned most often was the technical one. · Rationalised product ranges.savings of cost and time.Unit 2 rdi Investment opportunity evaluation The evaluation of an investment opportunity is an important factor in the strategic management of any organisation. 2. Other cost-saving opportunities discussed were: · Less paperwork. · Reduced costs of research and development.

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. This means that consideration can be made for market growth rate. using a wider range of factors for describing SBUs. the GE Matrix (or GE/McKinsey Matrix) is a later and more advanced form. the size of the SBU. It is more sophisticated in three aspects: Unit 2 · Market (Industry) attractiveness replaces market growth as the dimension of industry attractiveness. This allows for more sophistication. The two criteria used are market attractiveness and business position.rdi General Electric model The General Electric Model was developed by management consultants. and its strength relative to its competition can be incorporated. McKinsey & Co.17 . Although the BCG Matrix is the best known portfolio planning framework. market size and difficulty of market entry. · Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Strategic Marketing Management 2. The matrix is composed of nine boxes and uses the same concept of circles to show market size as in the BCG matrix.3. · The GE/McKinsey Matrix works with a 3x3 grid. 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. The factors affecting the two main variables are shown in Figure 2. It was developed for General Electric (USA) as an alternative to the BCG matrix. while the BCG Matrix has only a 2x2 matrix. In addition.

3.distribution strength/production capacity .pricing trends . 2.market size . Specify drivers of each dimension.market share .market profitability . Typical GE/McKinsey factors.relative profit margins . 6.Unit 2 rdi Typical (external) factors affecting Market Attractiveness Typical (internal) factors affecting Competitive Strength .quality .opportunity to differentiate .entry barriers . look like this: 1. Multiply weights by scores for each SBU. Perform a review/sensitivity analysis using other adjusted weights (there may be no consensus) and scores.record of technological innovation .competitive intensity/rivalry . whereby: · The size of the circles represent the Market Size.relative cost position .segmentation .customer loyalty . The organisation must carefully determine those factors that are important to its overall strategy.access to financial resources .overall risk of returns in the industry .distribution structure . Score each of the SBU’s drivers. therefore.management strength Figure 2. 2.18 Strategic Marketing Management .market share growth .market growth rate . 4.demand variability . Weight drivers.3. View resulting graph and interpret it. A six-step approach to implementation of portfolio analysis could. Often SBUs are portrayed as a circle plotted in the GE/McKinsey Matrix. · Arrows represent the direction and the movement of the SBUs in the future. 5. · The size of the sectors represent the Market Share of the SBUs.technology development .relative brand strength . The organisation must assign relative importance to the drivers.strength of assets and competences .

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 company’s position in a particular sector is strong or weak. when new products are being considered. Strategic Marketing Management 2. · 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. This was done because a sector where prospects were favourable and the company’s position was strong tended to show higher profitability. 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. · Aggregation of the indicators is difficult. actual experience cannot be consulted. · Using the forecast and record method. · 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. · Interactions between SBUs are not considered. · Core competences are not represented.19 . or one with which you are familiar.rdi Some important limitations of the GE/McKinsey Matrix are: Unit 2 · Valuation of the realisation of the various factors. Shell found that these records and forecasts were not sufficient for the guidance of management in the corporate planning and allocation of resources. ACTIVITY Try to apply the General Electric model to your own organisation.

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. · The main criteria by which a company’s position in a sector may be judged to be strong or weak. The extreme left quadrant is labelled Unattractive while the corresponding quadrant on the GE matrix is labelled High. The Shell directional policy matrix can be used to analyse different business sectors in an industry as well as competitors within a business sector. 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. as there is usually a greater amount of movement within these blocs than between them. 2. These are distinct businesses with well-defined boundaries and substantial competition within the boundaries. Horizontal Axis Horizontal labels for the quadrants are the reverse of those on the GE matrix.Unit 2 rdi 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).20 Strategic Marketing Management . Business Sectors In the petrochemical environment it is not difficult to identify a business sector as these can be acknowledged as product sectors. 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. The horizontal axis is labelled Business Sector Prospects while the vertical axis is named Company’s Competitive Capabilities/Position.

In the case of a new product.Has the product high added value when converted by the customer? .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. Strategic Marketing Management 2. Market Quality – this is a difficult concept to quantify and to get to a rating for the sector. Business Sector Prospects. A star rating system was used rating the growth rate from one star to five stars.Do relatively few producers supply the market? . Shell advocated a rating system for this factor where the midpoint was the average growth rate for the industry. (Horizontal x-Axis) Profitability prospects (or attractiveness) for businesses in the petroleum sector are judged on four criteria 1.Is the technology of production freely available or is it restricted to those who developed it? .Is the market free from domination by a small group of powerful customers? .Is the product one where the customer has to change his formulation or even his machinery if he changes supplier? . is the market destined to remain small enough not to attract too many producers? . as this is the effective forecasting horizon.Can margins be maintained when manufacturing capacity exceeds demand? . . 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.Has the sector a record of high. A number of questions must be answered – (Shell questions) Unit 2 2.Is the product resistant to commodity pricing behaviour? .21 .rdi Forecasting Period For most petroleum-based companies a time scale of 10 years is considered. stable profitability? .

If this has not been built into the forecast of market growth. Shell recommended reviewing these criteria in relation to significant competitors in the relevant business sector. 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. 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. Minor – 2 stars . Strong positive or negative environmental or regulatory influences must be taken into account. it must be assessed separately. transportation and marketing of a product. 4. This would be given a lower than average rating. (This axis is similar to the Business Strength axis on the GE/McKinsey matrix. Competitive Capabilities (Vertical y-Axis) A petroleum company can be judged as strong. pressure might result due to low prices or direct investment by the by-product producer to increase its consumption.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.Unit 2 rdi 3. Viable Producer – 3 stars – this type of company has a strong viable stake but falls below the top league.22 Strategic Marketing Management . Major Producer – 4 stars – this occurs where no single company is leader but there are two to four competitors are closely placed. Environmental (Regulatory) Aspects Business sector prospects can be affected by restrictions on manufacture. 2. average or weak on three major criteria. 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.) Market Position The percentage share of the total market as well as the degree to which this share is secure is of primary importance.

with no hard and fast boundaries.rdi Model Use and Applicability The key words in the different zones indicate different strategies for businesses/products falling within these areas. 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. 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. It is recommended that assets be disposed of and the resources of cash. as there is no long-term future. 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.23 . The strategy is to maximise cash generation without committing further resources. feedstock or two or more of these in combination. Model weaknesses The Shell DPM has been used in different industries and some practical problems have been raised. Shell advocated equal weightings for the criteria on each of the axes. This type of positioning occurs with the weaker products where there are too many competitors. 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. 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. Strategic Marketing Management 2. 1. It must be pointed out that Shell found the zones to be of irregular shape. Disinvest Products in this area will probably be losing money. feedstock and manpower resulting from this action be redeployed more profitability. Efforts should be made to realise the value of the assets and use the money from these in a more profitable area. 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 Unit 2 2. hardware. they shade into one another and in some cases they overlap.

The Shell DPM was a technique originated for systematically analysing the qualitative factors present in the organisation. which are usually assessed according to the prospects of the sector · Right hand column – . 4. which had an impact on corporate planning.24 Strategic Marketing Management . poor feedstock position ands outlook .Growth/Custodial .Phased withdrawal · Left hand column – this relates to businesses with low growth rate and market quality. it was found that the star rating system added very little value and a points allocation rating was superior.Leader/Growth . Factors are given the same weighting and are then scored on a star system.Try harder . It was developed at around about the same time as the GE/McKinsey matrix and was developed specifically for the petroleum industry. The environment was the fourth factor on the business sector prospects axis yet Shell often left this factor out altogether. 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 Shell DPM is made up of nine quadrants and has found the three columns and three rows to be convenient for them. Positioning occurs on any of nine boxes.Leader . The main criteria by which a company’s position in a sector may be judged to be strong or weak – competitive position: y-axis. Environment can be a very important factor as it deals with the wider question of risk When using the Shell DPM methodology.Double or quit · Middle column – growth in this area has fallen to the average for the industry (average sectors) .Unit 2 rdi 3.Cash generation 2.

the market shares of telephone companies may seem different if mobile phone companies are included. have a smaller share of the European telephone market than its French and German rivals. explain why.25 . 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. for example. rather than the number of calls. It may also be an indication of the success or failure the business or its strategy. Strategic Marketing Management 2.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. such as Orange or T-mobile. Why might the measurement of market share be important? It might indicate a business that is a market leader. These might include sales revenue. If it is unlikely to provide any advantage to you. 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. British Telecom. For example. For example. · The type of product on which the market share is based can affect the results. It might influence the strategy or objectives of a business. 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. or the quantity of goods produced for services sold or provided. 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. profit.rdi . This could encourage the other companies to follow the leader or influence the leader to maintain its position. Illustrating the market share held by different businesses is not as straightforward as it may seem.

26 Strategic Marketing Management . · Feed data may relate to different markets internationally. BT. Asda and Safeway sold 45 per cent of British groceries. strict adherence to the letter and spirit of the law. is something else that is appreciated by the general public and can lead to the reinforcement of the firm’s market image or standing. its prices are more than reasonable for the dependability provided and that unjust demands are not being made. the resultant price is not raised by more than is necessary. It can be measured in terms of thequality of the products or services offered. If they were included. Sainsbury’s. VIRTUAL CAMPUS Find some examples of products fulfilling a market leadership role. no matter how inconvenient. Market share figures are likely to be different if national markets or global markets a taken into account. the reasons for your choices. technological innovation. For firms operating overseas. and reliability and performance. however. the percentage would be lower. It can also be measured by the views customers hold of the fact that the firm is playing fair by them.Unit 2 rdi · The type of business to be included can often influence market share. That is. when costs increase. Discuss with colleagues. The term is not wholly satisfactory because it implies that the 2. ‘value for money’ aspect. especially in developing countries. 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. Failure to design and produce products or services in accordance with market needs would also erode the market leadership being enjoyed by a firm. 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. Market planning must take into account the market image a company wishes to achieve. nor that existing stocks at old costs have been sold. For example. That is. has a larger share of national fixed phone lines. Ignoring any of the points mentioned earlier can also prove disastrous here. in 1998 it was reported that Tesco. This measure. or by using the Virtual Campus. for example. excluded small shops and petrol stations which also sell groceries. It can also be lost when the wrong type of executive is allowed to gain control of any of the firm’s operations and gain dominance for his or her ideas regardless of the relevant to the conditions and requirements of the market place.

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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 country’s 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 Beijing’s 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 Kingdom’s “ 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 China’s 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 China’s 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 China’s new middle-class, which is hungry for Western gear and individualism, and Nike’s 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. China’s biggest seller of athletic shoes, Li Nang, recently surrendered its top position to Nike, even though Nike’s 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 didn’t enter China selling the usefulness, but selling status.”

Strategic Marketing Management

2.27

Unit 2

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Zhang hadn’t 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 China’s 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 wasn’t 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 China’s culture. Recalls Terry Rhoads, then director of sports marketing for Nike in China: “We thought, ‘We won’t get anything if they don’t play sports.’ ” A Chinese speaker, Rhoads saw basketball as Nike’s ticket. He donated equipment to Shanghai’s 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 city’s 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 China’s 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, Nike’s 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 China’s 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 China’s 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. “ They’ve 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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produced nearly 500. superior after-sale service has the figure climbing.86bn in revenue. such as red-hot Sichuan chicken and Peking duck flavoured poultry. KFC has added a twist to 40 per cent of its dishes. KFC – The chicken specialist owned by YUM! Brands is China’s dominant fast-food joint.8bn in revenue in 2003 in China and has recently announced a huge merger with Gillette. from a position that it has probably occupied for some time. it is now available for 50 cents a can from the South China Sea to Tibet. ceding the low-price market for home computers to Chinese companies.6bn in revenue.Unit 2 rdi ACTIVITY FEEDBACK There a many possible answers to this activities. happy mouth. with an estimated $1bn in revenue. 2. Its Olay and Rejoice are the best-selling facial cream and shampoo.30 Strategic Marketing Management . with often good financial results. it has since worked with the government to crack down on ‘knock-offs’. Once delivered in Shanghai. However.000 cars in 2004 and will soon start selling China-built Cadillacs. GM’s advantage rests on the fact that it is the first foreign car manufacturer with a license to provide financing. was hurt by fake P&G products in the 1990s. 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. The Chinese name means ‘thirsty mouth. The likelihood is that the management of the organisation are confident enough to be able to hold that position against competition from all directions. The product or organisation is content to operate efficiently.’ GM – The second biggest car manufacturer in China. Statistically it is likely that the market follower will hold considerably less than 70 per cent of the size of the market leader. which made an estimated $1. The company. Dell – The computer maker focuses on business customers. 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. with an estimated $4. It boasts 7 per cent of computer sales in China. You may have considered some or all of the following: Proctor & Gamble – most urban Chinese homes stock affordable P&G products. nor is it likely to occupy a lowly place within the market.

These include: · Firms which manage successfully to explore a niche market often attract competition. This can allow them to gain an advantage over firms targeting a wider market. at least. by their very nature. Tie Rack. In this way. which involves a product being aimed at whole markets rather than particular parts of them. Niche markets. It is the opposite of mass marketing.31 . Strategic Marketing Management 2. they are able to avoid competition in the short run. are small and are often unable to sustain two or more competing firms. Knickerbox and Classic FM are all examples of attempts to exploit niche markets.rdi ACTIVITY Describe an example of a product that has followed existing market trends. segment of the market. · By targeting specific market segments. firms can focus on the needs of consumers in the segments. This does not allow a business to spread its risks in the way that a business producing many goods might be able to do. · Many small firms involved in niche marketing have just one product aimed at one main market. Large businesses joining the market may benefit from economies of scale which small firms are unable to achieve. Unit 2 Market niche KEY POINT Niche marketing involves a business aiming a product at a particular. 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. There are some problems with niche marketing. often tiny.

Could this concept be brought to Europe and similar huge profits made from drinks of this type? He approached Thai businessman. ACTIVITY FEEDBACK Obviously. He was convinced of the potential of his new drink. they tend to be faced with bigger and more frequent swings in consumer spending than the larger markets. Blendax. in Hong Kong. they must be making an enormous profit. 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. sugar. he made changes to the formula and created his new product in the now familiar slim-line blue aluminium can. and many taxi drivers used them to help them keep awake during the nights. during the early 1980s. Rather than paying large sums on marketing. ‘There was no market in Red Bull … so we created one’. His associates in Thailand swore by these drinks. However. which they took before long meetings to help them concentrate. 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. This may mean a rapid decline in sales following an equally rapid growth in sales. warning him that no other product had ever failed so convincingly. there are many products that could be cited. He first encountered the concept of an energy drink whilst visiting the Mandarin Hotel. as international marketing director of German toothpaste maker. Most said it was disgusting and market researchers tried hard to persuade Mateschitz to forget the whole project. He quickly realised that if they paid such a lot of tax. Chaleo Yoovidhya.32 Strategic Marketing Management . Here is an example of a recently introduced product. He observed the popularity of certain ‘tonic drinks’ throughout the Far East. which means water buffalo.Unit 2 rdi · Because niche markets contain small numbers of consumers. detoxicants and the chemical taurine was not well received. he stated. 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 Japan’s biggest corporate taxpayer. who was already selling a syrup drink called Krating Daeng. vitamins. Ignoring their warning. Red Bull. at first he refused to advertise and deliberately restricted 2. Dietrich Mateschitz is the Austrian billionaire inventor of the energy drink. ACTIVITY Describe an example of a product that fills a market niche. the taste of the syrup-like mixture of caffeine.

Claims that one can was equivalent to the caffeine in 14 cups of coffee were proved wrong and sales continued to rocket. Forbes magazine calculates his 49 per cent share of Red Bull to be worth nearly $1. Strategic Marketing Management 2. such problems may occur as the result of new technology. Instead he paid DJs. Controversy soon developed as stories abounded about the harm the drink was doing. For example.a product has seriously threatened existing products to such an extent that the structure of the market has been radically altered. where it is often mixed with vodka. Thinking back to his early days promoting the new drink. By utilising new technology .rdi supplies. 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. 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. He bought the rather unsuccessful Jaguar Formula 1 racing business in 2004 and renamed it Red Bull. When Red Bull was launched in Germany it sold out in days. 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. 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. or an initial attempt to solve a new problem. 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. Britain and Ireland remain its biggest markets.33 . it is with some irony that Mateschitz’s latest venture is into Formula 1 motor racing. This year. students and sportsmen to promote it. Mateschitz expects to sell two billion cans in more than 100 countries.5bn. This has made Mateschitz extremely wealthy. Formula 1 driver Gerhard Berger was among the first on Red Bull’s payroll.and some would say simplifying the design . In the latter case. Such a case would be the invention of a revolutionary new method to solve an already recognised problem.

From ‘launching a breakthrough campaign’ to the ‘cola wars’. defensive and value-based marketing strategies Increasingly. it is unwise for an organisation to publicly state deadlines for its victory. one hears marketing terms borrowed from the vocabulary of military strategy.Unit 2 rdi ACTIVITY What do you think of when the term ‘market pioneer’ is used? State some examples. the advantage resulting from the strategic plan no longer exists. not by spending longer hours with meetings. Al Reis & Jack Trout (Marketing Warfare. they will succeed in their attack. the market leader should play a defensive strategy and much smaller firms should look for other options. Offensive marketing An offensive strategy is appropriate for a firm that is number two or possibly number three in the market. When management declares that it is time to ‘ redouble our efforts’. Organisations also should avoid the trap of thinking that if they work hard enough. when a battle turns to hand to hand combat. the analogy between marketing and warfare is evident.34 Strategic Marketing Management . not the challenger's and own strengths and weaknesses. 2. in some cases. and the organisation loses credibility in the propaganda war if it fails to live up to a prediction. then the marketing battle has turned to hand to hand combat and is likely to end in defeat. Offensive. In marketing. In warfare. KEY POINT The three principles of offensive strategy are: · The challengers primary concern should be the strength of the leader’s position. no firms may be strong enough to challenge the leader with an offensive strategy. memos and management reviews. However. As in military strategy. 1998) argue that it is strategy and not hard work that determines success. an organisation achieves victory through a smarter strategy. Publicly stated marketing promises should be vague for the same reason. In such industries. Deadlines often are missed. Politicians who are wise to this rule tend to make their campaign promises vague. reports.

35 . Sometimes the weakness in the leader’s strength arises from the fact that it has a major investment in assets that cannot be readily adapted. Simply attacking any weakness is insufficient. and in that area may present more force than the leader. However. For example. Avis Rent-a-Car once advertised Rent from Avis. A more flexible challenger can use this fact to its advantage. The strength of the leader’s position is of primary importance because the leader has the top position in the mind of the consumer and this position must be attacked. whereas there may be weaknesses inherent in the leader's strengths that cannot be defended.not simply a weakness in the leader’s position. Unit 2 · Attack on as narrow front as possible.rdi · The challenger should seek a weakness in the leader’s strength . A narrow attack is particularly effective when the leader has attempted to be all things to all people with a single product. For example. a challenger can identify a segment within the leader’s market and offer a product that serves only that segment. The challenger should attack on as narrowly front as possible. 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. a narrow attack allows the challenger to concentrate its resources in the narrow area. a leader may be so successful that it is crowded with customers. 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. In that situation. The line at a counter is shorter. The challenger then stands a Strategic Marketing Management 2. 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. Generally this means one product rather than a wide range of products. A weakness in the leader’s strength must be found. For example. 2-day and 3-day delivery. and the challenger can then exploits that success by offering a better customer experience. The reason for keeping the attack narrow is the principle of force. Avoid a broad attack. FedEx made this mistake in its early years by offering a wide array of transit times such as overnight. The leader usually has the resources to defend against an attack against its weaknesses. There often is a flip side to the leaders’ strength but converse of the target of the challengers attack. positively has to be there overnight. the leader may charge a premium price and the price may appear to be a weakness.

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 . Successfully attacking the competition and winning raises anti-trust 2.36 Strategic Marketing Management . Defensive marketing KEY POINT A defensive strategy is appropriate for the market leader. · Attacking yourself is the best defensive strategy. There are three basic principles of defensive marketing warfare: · Defensive strategies only should be pursued by the market leader. 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 & Johnson’s successful Tylenol brand. Johnson & Johnson even extended credits to its distribution channels to make the price cut effective immediately.Unit 2 rdi chance of winning a position in the consumer’s mind for that narrower class of product. Legal issues are an important factor in a market leader's strategy. Datril was to be priced 35 per cent lower than Tylenol. If the leader fails to do so. Johnson & Johnson’s efforts were successful and Datril achieved less than a one per cent market share. 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 . the competitor may become entrenched and permanently maintain market share. Bristol-Meyers responded by accelerating the launch of the television advertising campaign. It is self-defeating for an organisation to pretend that it is the market leader for the purpose the of strategy selection. Finally. it accomplishes the more important long-term goal of protecting the organisation’s market share. Tylenol sales soared on the publicity and lower prices. The market leader is the organisation who has attained that position in the mind of the consumer. This move was intended to block Bristol-Meyers from advertising Datril as a lower-priced alternative to Tylenol. 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. · The leader always should block strong offensive moves made by competitors. However.

‘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. this means having more soldiers or force at the point of battle. it means overpowering the competitor in a specific position in the mind of the customer. 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 marketing battle field. If the strategy requires top notch tactics to win the battle.37 . On the military battlefield. Producing a product for a market rather than producing a product and trying to find a Strategic Marketing Management 2. 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. once there is marketing peace and the brand has affirmed its dominance. even the best possible tactics are unlikely to compensate for poor strategy. Meeting the needs of the customer is something that every successful business must continually strive to do.g. For example. However. In marketing. More specifically. The best way to protect against response is to attack the weakness in the leader’s strength so that the leader cannot respond that giving up its strength. organisations must have a good understanding of the market. 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. such a strategy is unsound because tactical brilliance is rare. Such diversions shift resources away from the point of battle where they are needed. A good strategy may not depend on brilliant tactics. Campbell’s Soup can run advertisements to increase soup consumption in general (e. advertising can be considered tactics and many managers falsely assume that success depends almost entirely on the quality of the advertising campaign. many large companies incorrectly believed that they can do anything if they simply allocate enough resources. Any strategy should take into account the probable response of the competitor. Unit 2 Value-based strategies For products or services to compete in today’s marketplace. both domestic and export. To support the argument of a bottom-up strategy. Finally. Mediocre tactics are usually sufficient for a good strategy. Attacking oneself is less risky from anti-trust perspective.rdi issues. it can grow its sales by growing the market. History shows otherwise when one considers failed attempts such as Exxon’s entry into office systems and Mobil’s acquisition of Montgomery Ward. 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.

Unit 2 rdi market for it are two separate activities. In order to achieve these key objectives. · The interrelationships or links between the activities of the organisation can be enhanced to improve competitive advantage. and for future survivability. Consider carefully the potential for linking with suppliers to your organisation. 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. 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. KEY POINT The keys to ‘value thinking’ are that: · Each part of the internal processes of the organisation can improve the overall competitive advantage.e. The latter activity has been the area that many organisations have participated in rather than the former. detailed work analysis or process re-engineering possibilities). it does allow for imagination and assists thinking across complex 2. Do links suggest themselves? What is the payoff and for whom? While value chain analysis is complex and can be time consuming. look hard at possible links between items which might repay closer investigation (i. · The interrelationships between the internal processes and the upstream (suppliers’ chain) and the downstream (customers’ chain) can be examined to provide competitive advantage. 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. Consider what those links might look like. 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). For success into the twenty-first century. reflect on the value chain discussed earlier in the module. what payoff they would provide you.38 Strategic Marketing Management . When you have completed the graphic.

waste and duplication. ACTIVITY For further details.5 to 7. they are: the IT providers. but cost is usually shed and efficiency enhanced. such as leader.rdi systems. Remember too that you have two great consultancy allies to help in value chain analysis. Recognition of the roles played by each different position is an important marketing skill. Summary This unit has examined a range of marketing strategy options including Porter’s generic strategies. Strategic Marketing Management 2. Since IT is often a key element in optimising links in the system. This branch of IT deals with radical revision of the information systems within the organisation and within its extended value system. all have different issues to deal with when faced with competition.39 . An Introduction by D. refer to the text. The other area of potential help is advice in process re-engineering. pioneer and challenger. there is considerable expertise to hand there. Most organisations suffer trauma as a result of extensive process re-engineering. Read sections 7.8. Unit 2 ACTIVITY Find examples of organisations who use offensive. Briefly outline why you have selected each organisation. The use of models devised by General Electric and Shell provide key anchors in the development of a strategy. Management. This involves examination of internal processes within the organisation and seeks to eliminate redundancy. core competencies and evaluation of investment opportunities. follower. defensive and value-based strategies in their marketing. particularly those involved in what is called enterprise resource planning. Boddy. Positions in the market.

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Customer demand We live in a period of accelerating competitiveness. can pace rather than respond to demand. structure. Changes in the Marketing Environment Why change? Having seen how the four major components of organisations – processes. This need is being driven by a number of things. The proliferation of those options. The customer has never had so wide a set of options for choice. and can do so fast. Organisations which win in this kind of climate are those which know their customers well.rdi 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 among the most influential are the following.1 . but it should not be forgotten that they may have more serious impact on the organisation in terms of simply survival. and never been more enthusiastic about exercising those options. why you need to. and when to do it. hierarchies and people – group around the central core of strategy. we want to look at how to change organisations. in turn spawns smaller niche markets and more opportunities for specialisation. All organisations are having to respond to an unprecedented increase in the rate of change. Strategic Marketing Management 3. this increasing choice.

talks of a ‘licence to operate’. Failure to do so can at least slow it down if not stop it operating entirely. the Internet. or answerable to. an organisation needs to know its competitors in 100 countries. are radically redefining the capability. for example. Technology The microprocessor is transforming products and services – embedded chips. those sold as parts of a product like a washing machine for example. For an organisation to survive it must. for the cost of a web page. and an international market at that. accelerating market fragmentation and abbreviating product life cycles. communications and marketing. on the one hand. The Royal Society of Arts. an organisation needs knowledge of their competitors in a dozen countries. Some of these interests are: · Law and regulation · Industry standards · Industry reputation · The media · Pressure groups 3. to operate smoothly an organisation must keep a number of different interests happy. On the other hand. This in turn is feeding customer choice (above). a greatly increased number of influences than was previously the case.2 Strategic Marketing Management . it must balance this against the value of the investment necessary to keep abreast of the latest technology. versatility and reliability of products. and the ability to respond to events by enacting radical change very fast. It means that. Information technology too is changing the way organisations bring their products and services to market. as the ability to buy and transact internationally increases through. take advantage of the enormous benefits technology can provide in information.Unit 3 rdi Globalisation The competitive environment of any organisation is increasingly difficult to predict. As the European Union develops. New suppliers enter the market very fast and often from sources which were never anticipated. The Internet will allow you to enter a market. To survive in a global environment organisations need good information. Organisational accountability The modern organisation is subject to. business processes. in their study Tomorrow’s Company.

2. bitter and debilitating rearguard action against accusations of using child labour to manufacture its products. Customer power? Globalisation? Technology? Organisational accountability? Strategic Marketing Management 3. Perhaps one of the main reasons for studying organisations in detail is because. 4. fighting an expensive. Changes can happen very quickly too. formerly an outstandingly successful organisation. A recent example has been Nike. ACTIVITY What sort of effect are these four change drivers having on marketing for your organisation? 1. we have to change them so often. 3. as managers.3 . To adapt to that environment requires frequent and sometimes radical changes of strategy. focus and hence operations. 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.rdi · 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.

such as for the elderly or disabled. 3. entity. there is a tendency to view organisational planning as wide-ranging. however. sales of children’s bucket and spade sets will be considerable higher at popular seaside resorts than in a city centre. 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. Some products have an impact only on a limited scale. For each one. Thus. existing product failings. Products designed for specialist groups of people . The feeling is sometimes that considerations are made only for the market as a large national. There may also be a number of rival products and companies providing competition. Are any of them aimed at micro-markets? Increased expectations The increasing knowledge and awareness of consumers has led to a more discerning approach.4 Strategic Marketing Management . 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. but the general awareness of the needs of minority groups has greatly increased market sizes. yet these still need to be considered in the same way as higher impact products.Unit 3 rdi Micro-markets From a marketing point of view. 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. try to determine the size of the market. These may be very localised in a geographical sense. indeed. For example. Indeed. This is. it is probably correct to say that today’s consumers are more knowledgeable than at any stage in the past. Media coverage of new products or. often not the case as effort must be made to consider smaller areas of the general market. or even global. may have once been considered as being in a micro-market. ACTIVITY Consider the range of products offered by your organisation. has meant that consumers have a large amount of information about products without the need to carry out lengthy research on them.

If they fail to do so. This provides a guaranteed level of support from manufacturers. good customer service before sale impresses. there are numerous channels whereby consumers can publicly state their dissatisfaction. of course. This reflects the current tendency for improved service expected from consumers. ACTIVITY Carry out some research to determine the level of service provision in a variety of different business settings.rdi The effect of consumer awareness is that expectations are greater. organisations can suffer from the negative comments to the extent that reputations can fall to harmful levels. a number of generic strategies have emerged which are defining the modern organisation. From this similarity of experience. which is appealing to buyers. Unit 3 Importance of service The importance of quality standards has been emphasised in a number of areas of this module. Similarly. All organisations are confronted with an environment of change which. By doing so on the television. Generic strategic responses to change Strategy is. and can have a longer lasting effect. What do you feel are the most effective ways of effectively marketing a business through customer service? Write a brief summary of your thoughts. Strategic Marketing Management 3. through the press or over the Internet. and we need to look at these strategies in the context of what we now know of organisations. Products need to be reliable and to perform their functions properly. if not identical in impact for each. and can be used a key marketing tool. in fact those with clearly defined or unique strategies are more likely to succeed longer term. Consider the efforts made by a number of car manufacturers to provide an excellent experience for potential customers. this can be true and so organisations should be conscious of the need to avoid failing to reach consumer expectations of their products. from the first step that they take into the showroom. With many products quality after-sales service is an important consideration for consumers. Unfortunately. particular to each organisation. It is often said that bad news spreads quicker than good news.5 . is at least similar for classes of organisations.

Strategic partners can also take you to markets 3. Improving quality Most organisations now hold the view that consistent incremental quality improvement is an essential precondition for serving a market. the organisation has more flexibility to respond if its cost base is lower. to create fashion. The ability to respond fast to changing customer fashion and the ability to create customer fashion are powerful strategic attributes. customers are fickle. then let us look at how these might be implemented in an organisation using the four-part analytical base we have devised. to pre-empt competitors in developing niches and to fill them fast. less expensive to run and more productive or effective. The ability to anticipate this fickleness is a strategic strength.6 Strategic Marketing Management . to enter the market with a new product before or very shortly after competitors is a key cost recovery and profitability strategy. Knowing your customers well can also enable you to lead demand. competitor pressures force quality improvement. customers are not loyal – all these things are true. recovering the development cost of the product fast becomes a necessity. Shorter cycle times When product life cycles are falling. too. The ability. At least if its cost base is lower it can survive for longer in the event of an unanticipated market downturn or margin squeeze.e. The thinking behind this is that in the event of a price war with competitors. the time from conceiving the product to hitting the market with it) is a way of keeping development cost lower. Reducing cost base Many organisations are aiming for a reduced cost base – a leaner organisation. Alternatively. it could use its lower cost base to initiate a price war to take out a competitor. 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. and the market is very unforgiving of quality failure or disadvantageous comparison with competitors.Unit 3 rdi First let us look at some common generic strategies. Keeping the cycle time short (i. Customers insist on improving quality. Getting closer to the customer Customers are whimsical.

the responsive organisation.7 . Being fast on your feet and being able to learn fast are organisational competencies of great strategic value. being able to march the troops down the hill when you have been vigorously marching them up the hill is a great strategic advantage. the creative organisation are all names for this strategic strength. This activity is in two parts. the athletic organisation. 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.rdi too expensive to enter directly. 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 Strategic Marketing Management 3. Unit 3 Ability to change fast Some organisations are just better able to embrace change than others. The learning organisation. ACTIVITY It may be that some of the generic strategies organisations are following are also material to your organisation. Being able to point the organisation in a different direction.

to illustrate we will look at the potential for implementing the generic strategies we have identified above. The cars are now available to a wider range of consumers. It may follow a series of stages rather like a product life cycle.8 Strategic Marketing Management . therefore. structure and hierarchies. image. the result of a combination of factors. some that are within the control of the organisation and others which are consumer driven. Whilst initially the make was perceived to be at the high quality end of the market. or should be pursuing. Second. but these are highly unpredictable.Unit 3 rdi The ability to change fast o Very important Part 2 List the three most important strategies you think your organisation is pursuing. Erosion of brand image is. and it is this fluctuation that marketers must note. we will look at options for change in the areas of work processes. Such erosion of a brand name or image is damaging to the organisation and is best avoided at all costs. 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. therefore. we will look at the people aspect of change. change of ownership and more competitive pricing policies have led to lower overall image. 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. o Indifferent o Not important Erosion of brands Marketers need to be aware that a brand image will not last forever. Planning and implementing change We can look at implementing change under two separate headings: First. The value of the brand image amongst consumers will also alter. This helps analyse the nature of the change. An example is the variation in the status of Saab cars. but some would argue that this has been at the expense of quality and. 3.

simplify the complex. 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 organisation’s ability to change fast · develop flexible processes and multiskill the staff to operate them · consider market-based structure. 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. etc. joint planning.rdi 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. purpose Strategic Marketing Management 3. 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. strongly underpinned by empowered teams networks · minimise the layers of hierarchy to teams · devolve decision making · create a learning organisation culture culture.9 . joint strategy development. · encourage informal · create participative · stress values.

3. 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. Most of it addresses how we go about bringing people aboard.Unit 3 rdi This checklist is intended to stimulate your thinking. Large-scale business process re-engineering has particularly attracted critical reportage recently. KEY POINT There are no right answers. People aspects If you look through the literature on organisational change. so-called enterprise resource planning initiatives. reports a marked decline in process re-engineering interventions. have also had mixed results. usually run over time and often cost a great deal more than anticipated. how it is going to fulfil its purpose. Major IT process changes. but never forget that the two key determinants of the processes. Fortune magazine. in that it is a blend of involving people in visioning long-term outcomes on the one hand. you are offered an array of advice for implementing change. and there is a lot of it. and helping them with shorter-term planning on the other. the kind of business it is. · Its strategy. which occasionally monitors the incidence of consultancy interventions in US industry. Here is a change process which may help. In many ways introducing major change in organisations parallels the process of strategy development. to help you understand the tools which are at your disposal in designing and changing the organisation. structure and hierarchy of the organisation are: · Its inherent nature. built around large-scale integration.10 Strategic Marketing Management .

· When you feel that the change is actually in position. when results are being achieved. Unit 3 · Get them to build a vision of what it looks and feels like after we have made the change. Then celebrate.e. publicise. i.rdi ACTIVITY Collect a small group of convinced energetic people who understand and believe in the need for changes. to find ways of saying: ‘Look. create the opportunities for some successes appropriate to the change. Turn up the heat.11 . · Get more serious and more structured about planning for and implementing the changes. Bring up the vision constantly in day-to-day activities. CEO of McGraw-Hill. He describes how the divisional Strategic Marketing Management 3. you will exhaust and deplete your people if you are in a constant state of exhorting them to different and continuously changing behaviour. to discuss it formally and informally. · Communicate the vision. · Use the ‘short term wins’ philosophy. with others in the organisation upwards through the hierarchy and downwards through the ranks. use it as a basis for decision taking. Use it to support a point of view. You and the missionaries must never miss an opportunity to talk about it. Let them develop this as a group. 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. we got there. acknowledge that you are there or nearly there and seek ways of anchoring the change into the culture of the organisation. these things are better. Facilitate a plan or the elements of the plan coming together. You have to stop. to hold meetings about it. You are trying here to increase the momentum for change. we got rid of some of the baggage that was holding us back etc. has described the way he changed McGraw-Hill from a print-based publishing house to an electronic information provider. draw lessons from. become more purposeful. use as a basis to extrapolate from etc. when people are thinking and acting in support of it. · Start to take the first moves which will enact the change. Take the short term wins as legitimation and as providing the mandate. These are your champions and your missionaries. rather than rolling out a great initiative. Imbue them with a sense of the urgency and the importance of the need for change. While it is true that change is ongoing and unceasing.’ Joseph Dionne.

JAVA. Expand the description of the changes into terms we have used. nurturing them is important ¼ ¼ it takes corporate evangelism. structural change. 3. finding the right words to create the right vision ¼ ¼ having a core ethos of pride and integrity. 2. Some of the key points he makes are shown below. Dionne’s words ¼ the company had multiple silos housing dozens of separate business units ¼ ¼ we had to replace the silos with cross-functional divisions where information could be shared ¼ ¼ we needed to take all the bits of data generated by our writers and generate an ever changing matrix of new electronic products … ¼ to combine invention and commerce [we needed] innovative people.Unit 3 rdi 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. of respecting our customers’ intelligence ¼ ¼ anticipating change is paramount.g. e. and innovations we haven’t dreamed of ¼ 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 ‘¼ what gets rewarded around here ¼’ identifying and deploying our ‘missionaries’ corporate values (affecting the culture) technology pacing change ACTIVITY 1. 3. The process took three years to enact and fourteen to perfect. writeable CDs.12 Strategic Marketing Management . changes which you believe would really contribute to the organisation’s strategic effectiveness. moving from functional to market. Identify three major organisational changes you would like to make. We need to do this just so you will see what you are up against in effecting the change. or process-based changes or organisational culture change – our case study on McGraw-Hill above will help. Identify three ‘missionaries’ who could work on developing the vision of the completed change and start to communicate the vision through the organisation.

in general. the decision must be a firm commitment to improvement. Delaying the development can be counter-productive as the consumer will see that the process is taking an unacceptably long time to accomplish. 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. Either way. However. a different vision is being presented. the changes will reflect different consumer attitudes and behaviour. they must be very carefully managed and implemented. we will consider some of these implications. 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. It demonstrates to consumers that there is new thinking within the organisation. It tends to excite the consumer to try a product that they may perhaps have dismissed previously. despite sceptics views that it is merely re-selling old products. often with considerable success. Re-branding is often used to ‘refresh’ a product range. Some of the following text is reproduced from the earlier module in the course on Managing Change. In terms of marketing. Unit 3 Changing marketing strategies Developing a new marketing strategy is a bold step to take. In this section. Speed of new product development If an organisation is going to develop a new product.13 . Consumers. seeking other offerings from competitors.rdi Implications Any form of change in a business environment will have consequences on the organisation as a whole. Expensive and risky as they are. new marketing strategies can provide the boost needed to raise an organisational profile sufficiently to achieve significant results. Perhaps there are new products or new presentation of existing ones. 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. Strategic Marketing Management 3.

Drucker first started writing about in 1959 in Landmarks of Tomorrow. Among them are: · Fast up-to-date service. great nations developed based on their access to physical resources or their ability to surmount physical barriers: England and Spain crossed the oceans. Businesses have focused their efforts on online marketing for a number of reasons. 3. In other ways. the Internet and the electronic delivery of information have transformed the world from a manufacturing. Germany turned coal and iron into steel. and the school is the key institution. Drucker Nobody has been more influential on modern management than Peter Drucker. · Easy to amend and keep current. and process information effectively. oil and steel. Both organisations benefit from the availability of instant marketing tailored to the individual needs of its customers. The learning organisation and knowledge “Education will become the centre of the knowledge society. is just the beginning.com.14 Strategic Marketing Management . deliver. · Creates an visual impact. physically-based economy to an electronic. Toys “R” Us in particular felt the improvement as it presented them with a much wider market audience. · 24-hour availability of promotional material. The advent of the personal computer. Consider the example of the joint venture between Toys “R” Us and Amazon.” Peter F. Here the partnership between an established well known toy store and the online trading company offers a wealth of new marketing directions. the resources of the new. the “Knowledge Age” that Mr. knowledge-based economy. whether in pre-industrial or industrial times.Unit 3 rdi E-marketing The use of the Internet to market products and services has proved to be very successful to many organisations. Throughout history. knowledge-based economy are brainpower and the ability to acquire. Whereas the resources of the physically-based economy are coal. and the United States exploited a wealth of agricultural and industrial resources to become the world’s breadbasket and industrial superpower.

One of the reasons China and India are the future. In this new economy. but human capital is its fuel. Unit 3 Strategic Marketing Management 3. the number of patents being issued in the United States is almost twice the amount granted only 10 years ago. The educational needs of the knowledge economy. widespread optimism surrounding the 21st century had yielded Mr. the larger the investment potential. with the advent of the knowledge-based economy. In today’s global marketplace and knowledge-based economy. Businesses are saying they can’t employ the students that come out of our schools – graduates can’t read or write. tens of billions on corporate training and are making large contributions to education reform. There is not. it’s the brainpower that gives a country or a company its advantages. biotechnology. Drucker predicting a period of rapid growth at the magnitude of the industrial revolution. Technology is a driver of growth industries of the future. the democratisation of education will dramatically increase the advantages these countries have by lowering the cost. we think the investment potential in this sector is tremendous. a four-year degree is just a prerequisite to participating in the industries of the future. a bigger problem in the United States today than the need to better educate our populace and. emerging industries and economic growth. the labour force is presented with an unprecedented challenge as it must now gain and continuously upgrade its skills. and satellite systems. and employees must continue to “upgrade” their skills in order to keep pace with the innovation. Case in point. Education has become critical for both individuals and employers. if not greater. in our view. new media—all examples of knowledge industries. Corporations are spending billions of dollars on remedial education. With the acceleration of Internet learning. however. In today’s economy. is the enormous production of knowledge workers each country is creating. nanotechnology. video-conferencing. In this new environment. and the pace of patent application is accelerating. As the result of technology innovations such as the Internet. Companies are increasing R&D expenditures.rdi With some of the greatest developments in new technologies arriving late in the 20th century. contrasted with the current system’s inability to fill those needs provide innovative companies with open-ended opportunities for growth. a New Economy has emerged driven by knowledge and information. the more significant the problem. hence. The classic “big investment opportunity” is a company that has a solution to a problem.15 . increasing access and ultimately improving the quality. knowledge workers form the cornerstones of successful businesses. The growth industries of the future will be propelled by intellectual capital. The smartest people win. software.

through his wisdom and insight has recognised that the knowledge era is upon us with all its associated problems and opportunities.Unit 3 rdi Put another way. A large organisation such as Nortel Networks has thousands of factors in the external environment creating uncertainty for managers. such as technology and governmental regulations. computer and electronics 3. Peter Drucker. and/or the greater the number of environmental factors that must be considered. the higher the level of environmental turbulence. In 1980. This becomes even more striking when you take into account that only 21% of the U. · The organisation needs increased coordination to keep departments working together. examples include telecommunications and aerospace firms.S.16 Strategic Marketing Management . adult population has a bachelor’s degree or better. 25% of the students in postsecondary schools were 25 years or older. · The organisation must adapt to change. For many reasons environmental volatility and instability have been increasing for the past 100 years. Twenty-five years ago. Today. Americans need look no further than their own pay checks to see the importance of education in today’s economy. Environmental change Environmental turbulence refers to the amount of change and complexity in the environment of a company. Today it is over 100% and growing. Such turbulence occurs when the external environment is rapidly changing and complex. the organisation experiences very high uncertainty. The “push” from employers demanding relevant skills and the “pull” from employees seeking better jobs has created a fertile growth environment for postsecondary providers. The greater the amount of change in environmental factors. the pay difference between someone who had a high school education and a college education was 50%. This means that decision makers have difficulty gathering good and reliable information and predicting external changes. as well as redefined who the students are. Environmental characteristics that influence uncertainty are the number of factors that affect the organisation and the extent to which those factors change. nearly 50% are 25 years or older. When external factors change rapidly. a 30-year-old male with only a high school qualification makes less than two-thirds what he made in the 1970s. Three things may occur within an organisation as a consequence: · Increased differences occur among departments.

It requires a shift in assumptions made by the organisation and its members. This type of change is known as emergent change. such as soft-drink suppliers or food processors. It is change that enhances or corrects existing aspects of an organisation.rdi companies. 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). Ackerman (1997) has distinguished between three types of change: Type of Change Developmental Characteristics May be either planned or emergent. Sometimes change is deliberate. result in the creation of an organisation that operates in developmental mode . Is radical or second order in nature. Organisations have to make an effort to adapt to the rapid changes in the environment.one that continuously learns. adapts and improves. When an organisation deals with only a few external factors and these factors are relatively stable. or incremental. Seeks to achieve a known desired state that is different from the existing one. Unit 3 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. In contrast. Much of the organisational change literature is based on this type. There are a number of ways in which change can be categorised. and e-commerce organisations that sell products and services over the Internet. 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). culture and strategy.17 . Change can be emergent rather than planned in two ways: Strategic Marketing Management 3. managers experience low uncertainty and can devote less attention to external issues. It may.1 Characteristics of different types of change. It is episodic. processes. a product of conscious reasoning and actions . often focusing on the improvement of a skill or process. Entering uncharted change territory without some sort of route map puts you at an immediate disadvantage from the start.planned change. it is first order. planned and second order. Transformation can result in an organisation that differs significantly in terms of structure. or radical. therefore. Transitional Transformational Figure 3. change sometimes unfolds in an apparently spontaneous and unplanned way.

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. uncertainty and chance (Dawson.Unit 3 rdi · Managers make a number of decisions apparently unrelated to the change that emerges. others are the result of consumer response to products and the organisations themselves. A number of these are discussed with appropriate examples. For many of these. the implications on the marketing mix can be significant.18 Strategic Marketing Management . competitors’ behaviour. these decisions may be based on unspoken. not as unrelated as they first seem. However. explore and if necessary challenge the assumptions that underlie managerial decisions. distribution of knowledge. and at the subsequent effect on the marketing environment. 1996). thereby shaping the change process by ‘drift’ rather than by design. and political climate) or internal features (such as the relative power of different interest groups. 1989) and are. Understanding that organisational change is a process that can be facilitated by perceptive and insightful planning and analysis and well crafted. The change is therefore not planned. assumptions about the organisation. 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. while acknowledging that it can never be fully isolated from the effects of serendipity. This highlights important aspects of managing change: The need to identify. 3. · External factors (such as the economy. sensitive implementation phases. Summary In this unit we have looked some of the changes that can take place within an organisation. Such implicit assumptions dictate the direction of the seemingly disparate and unrelated decisions. and sometimes unconscious. Some of these are driven by innovation and improvement. therefore. its environment and the future (Mintzberg.

J. Free Press. Butterworth Heinemann. Saskin. Taffinder (1999) Big Change: A Route Map for Transformation. M. (1997) Business Process Re-engineering: Myth and Reality. (1989) Mintzberg on Management. John Wiley. B. Connor. Colenso. Belbin. Coulson-Thomas. Mintzberg. Kotter. Volberda (1999) Building the Flexible Firm. Free Press. Strategic Marketing Management 3. (1994) Academy of Management Review. (1985) Leadership: Good. C. H. Winter. This. (1990) General Management. A. must reflect the changes occurring in the businedss environment at the present time. (1992) Corporate Culture and Performance. Butterworth Heinemann. Oxford University Press. & Van de Ven.19 . D. & Heskett. & Burke. Ring. the success of an organisation relies substantially on the effectiveness of its marketing policy. M. (2006) Managing at the Speed of Change. E.rdi Ultimately. (1998) Strategic Skills for Team Leaders and Line Managers. Unit 3 Further reading Bass. W. M. J. Villard Books. (1992) Organizational Culture and Leadership. (1996) The Coming Shape of Organisations. P. Kogan Page. Schein. R. Better. Best. Jossey-Bass. in turn.

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