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

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

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

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

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

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

Peter Drucker. The influential USA consultant. where everyday language would more simply speak of ‘improvements in the quality of products’! Not all organisations use ‘the marketing concept’. there are differences between the application of the concepts and techniques in consumer. We contend that almost all organisations and managers would benefit from such use. even in forms adapted to their special circumstances. Some differences are ones of emphasis. Organisational satisfaction Marketing as a function What is marketing? Marketing as a philosophy Customer satisfaction Figure 1. Marketing is full of compound phrases which use nouns as adjectives to produce phrases such as ‘product quality improvements’. What is marketing? Another comment on marketing emphasises the focus on the customer.rdi 1.5 . Your own work (even if your job is to manage and lead others. Your unit or section (if you are not in charge of the whole organisation). 3. marketing encompasses a wide-range of ideas and tools. try thinking of them as customers).1. The organisation overall.’ In summary. It looks at how we can establish relationships Strategic Marketing Management 1. So the bulk of this module examines various aspects of action to put the ‘marketing concept’ into practice. some are of language. Unit 1 Consider the view of marketing shown in Figure 1. Whilst all definitions and approaches stress that the customer is central. Commentators and writers on marketing differ in the way they use some words. industrial and public sector settings. has said that: ‘Every business can be defined as serving either customers or markets or end users. 2.1.

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.

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

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

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

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

and a dedicated team of managers and employees. The strategy and the eventual marketing plan. Therefore.rdi help organisations define their core competences. marketing and advertising efficiency. an exceptional distribution system. develop plans for meeting objectives. For example. This is called Marketing Control . time is a key element. set objectives. and take advantage of marketing opportunities. 2.9 . financial soundness. or one with which you are familiar. should make clear distinction regarding the period of time allowed for each task to be carried out. What are the key organisational resources that are advantageous to the marketing department? List the resources and briefly explain the benefit of each one. the co-ordination of the different activities within the strategic marketing strategy must be set against a realistic timescale. Unit 1 ACTIVITY Consider you own organisation. evaluated and modified accordingly with the principle aim of making sure that the stated marketing objectives are achieved.the process by which the marketing plan can be measured. This will be shown on the marketing plan overview documents. Performance is then measured for any disparity between what should be happening and what is actually happening. just like a production process. the Coca-Cola Company identifies as its strengths as having the world’s best-known trademark. Timescaling With the development of any business-related plan. The firm’s strategy involves capitalising on these strengths in addressing international marketing opportunities. As a result it is imperative that the plan is monitored and controlled. Strategic Marketing Management 1. The need to carry out an organisation’s operations to a carefully considered time schedule is paramount to the effective working of that organisation. This process of control involves four distinct phases: 1. new product innovations. Management set specific marketing goals. Monitoring and control The marketing plan will be affected by a constantly changing environment.

however. 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. This is usually facilitated by the production of a Marketing Plan as part of the strategic planning process. segmentation. Investment of money and resources. 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. Performance is then evaluated to ascertain the reasons why there are gaps if any in performance levels. prices. therefore.). etc. pricing. etc. Corrective action is then undertaken and appropriate strategies put into place. competitors strategies for quality. 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.). KEY POINT To control the marketing function. 3. Marketing plays a crucial role in the execution of the strategic plan and. Implementation of the marketing mix. 4. This process. 2.10 Strategic Marketing Management . etc. must be carried out in the context of how the organisation operates in the market place and is referred to as the Marketing Audit. · Competition (market share.Unit 1 rdi 3. The strategic plan defines the total organisational mission and objectives. Co-ordination of all organisational departments. it is against the backdrop of the strategic plan that the marketing plan is derived. 1. Marketing Planning Processes To meet the needs of customers efficiently involves: 1. promotion and distribution. · Product/service performance (sales. customer needs.). customer purchasing factors.

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

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

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

In the car market there are examples all three strategies run concurrently by different companies. which caused a major shift in demand. with some degree of risk. In many food markets some companies follow the first strategy and concentrate on Own Label products. and there are also risks but so much effort will be allocated to the new venture that existing products and existing markets suffer. Here the company has the assurance that it knows and understands it products. providing for expansion within a company’s existing market by introducing new products. Provide basic goods or services at low-cost. some produce distinctive branded products at higher prices. using existing expertise and knowledge to gain a competitive age. Here risks are again kept low as the company continues to work in familiar markets. but by introducing products with which it is not familiar. The first of these is market retention. The third option is similar. 3.Unit 1 rdi 1. or Old Product Development. some supply specialised diet or health products to meet the special needs of small sectors of little interest to the other groups. The fourth option is the diversification strategy. a method of increasing importance within the European Community since 1992. such as selling office equipment to domestic users. Here the new segments need to be studied as some product modifications may be needed for success. or all rooms in holiday hotels to conference organisers. However it may only mean marketing existing products to new segments in the home market. The second option is for expansion by taking existing products into new markets. Incur higher costs where differentiated or unique products are selling at premium prices. but in the computer market Amstrad has provided an example of the first kind. 1. simply to keep abreast of changes within an existing market. This is a high risk strategy as both product and market elements are new. 2.14 Strategic Marketing Management . but it is low risk evolutionary development. Normally product development is vital. concentrating on marketing a company’s existing products in their current markets. Focus on a small specialised niche in a market. but the company is still handling a familiar product. but it is venturing into new markets. This may mean exporting to other countries. described by Igor Ansoff. in which a firm launches new products into unfamiliar markets. Examples all three strategies are common. Within each corporate strategy there is still a choice of specific marketing strategies.

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

It is also possible to overlay on to this decision-making process aspects of logical.16 Strategic Marketing Management . preferences. costs/slash prices. 1. ethical and other environmental factors which affect the market conditions or the services being offered Characteristics of market services required by customers function or usage of service or products essential features which the service or product must have methods used by customers in searching for services/products competitive position. including analysis of results being obtained. etc changes in economic. including share of markets. Identifying options within markets. control and information feedback Figure 1. social. mathematical modelling. · The importance of critical success factors. · The characteristics of good marketing company. looking at factors such as cost-volume-profit analysis or break-even analysis.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. 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. technological. feeding new information and data into marketing planning activities and assessments Determining characteristics Selecting market strategy. price sensitivity.3. 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. · The basis for the ‘best’ criteria. 10 or more years) to evaluate growth or decline of existing markets changes in customer requirements. markets and marketing operations.

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

both internal to the organisation and externally in the environment. Some of these issues include: · The external barriers or factors outside the organisation which create difficulties. it would be inappropriate to set goals far beyond the organisation’s capability to deliver to them. · All of those involved in the implementation of the plan are fully aware of the extent and requirement of the respective roles. 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. that create barriers to the successful implementation of the strategic plan. 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. it must be recognised that throughout strategic planning process. therefore. Clearly.18 Strategic Marketing Management . Taking this forward. it is now necessary to consider its effective delivery. · There is consensus of the wisdom of the plan and commitment to its accomplishment. 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. 1. However. Using these as a starting point for thinking about strategy it is possible to focus upon particular dimensions such as issues of competitive advantage. 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.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. there are pressures. Once again this illustrates the interrelation between the various aspects of the strategic process. and the influence of market position and strategy. To begin with. These include the various PEST elements. to which we will refer later on in the module.

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

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

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

however.22 Strategic Marketing Management . A group of customers with broadly similar needs constitutes a market segment.Unit 1 rdi Most markets are segmented in one way or another. the needs of any one group being significantly different from the others. further segments can be identified. 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. list how the market might be segmented for the development of a marketing strategy. ACTIVITY Using the tourist and travel market as an example. An evaluation of the current and potential segmentation of the market should reveal untapped or under-tapped opportunities in the market. Any activity classified as a market can embrace numerous groups of customers. Even within these broad definitions of the market.

and then move systematically through all other variables without appreciating that each factor hasn’t interdependence with the others. Strategic Marketing Management 1. both these are considered separately in the following sections. in turn. Influences on demand. we understood that it is neither practical nor appropriate to focus initially upon the first element .4. This is demonstrated in Figure 1. 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. therefore. Taking this further. 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. In order to help build up an understanding of how they interact and. The true nature of the marketing mix variables. Take as an example of this any variation in the product that involves some cost implications which may. be reflected in price.23 . 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 .4.rdi When various elements of the marketing mix are considered independently.

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

Key decisions which managers must make are about the product–market mix. Environment and product strategies.5. External environment Consumers’ needs perceptions Competitors’ product mix product positioning Product life cycle Internal environment Resources and competences in: manufacturing/operations finance marketing knowledge skills reputation channels/relationships R&D . since they are about how to promote. the positioning of the product and ‘branding’. As has been Strategic Marketing Management 1. See Figure 1.5.technical and marketing Product strategies product/marketing mix product development product positioning branding and packaging Figure 1.25 .rdi ACTIVITY Identify a key product or service which your organisation produces or provides. These decisions result from the simultaneous analysis and interpretation of the external and internal environments. Identify the: Unit 1 · core product or service · tangible product or service · augmented product or service An essential vehicle for the generation of customer satisfaction is the product or service which the organisation offers in the market-place or the arena in which it operates. All other decisions about the marketing mix need to be integrated with those on product policy. price and distribute the product or service itself.

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

design. – 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. how? Styling – Is the styling – appearance. extra zip pockets. automatic ice dispenser.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.27 . materials used etc.) Or do we need to add extra features to make the product or service more desirable to customers? Quality – Is the quality of the product or service as good as it should be? Does the quality compare favourably with similar products/services offered by our competitors? Or do we need to improve on the quality? If so. etc. 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. economy timer. range of extra-large sizes. range of seven different colours.

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

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

6. The main aim at this stage. · Maturity. is to introduce the produce or service to potential customers and this usually costs a considerable amount of money. etc. 1. The four stages of the product life style. Introduction The company launches a new product or service. advertising.30 Strategic Marketing Management . The organisation may have invested considerable resources in product research and development. occupies a place in the product life cycle. · Growth. in marketing terms. magazine and television advertising. · Decline. promotions and so on. Usually the product launch is achieved by way of an expensive marketing campaign which can include newspaper. new equipment. Customers may decide that they love the product or service or they may decide that it is not something they want to buy. Revenue from sales & profit Growth Decline Maturity Introduction Sales + - Profits Time Figure 1.Unit 1 rdi Everything. which covers four stages: · Introduction. high profile promotions such as competitions and special offers. At this stage nothing is certain.

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

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

emerged from the recognition of this danger. mass homogenous markets has been recognised. · Better analysis of competition. Strategic Marketing Management 1. ‘The danger of thinking in terms of single. Market segmentation is the first step in the segmentation – targeting – positioning (STP) approach to marketing. · Rapid response to changing market needs. · Efficient resource allocation.rdi · Product variety marketing – a seller produces several products that exhibit different features.33 . qualities and sizes – designed to account for customer needs for change and variety. styles. 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. The trend away from mass marketing occurs for a number of reasons.’ Kotler et al (1999) Segmentation allows for: · More precise market definition. · Effective strategic planning. as illustrated in Figure 1. as an approach.7 The reasons for the trend away from mass marketing. Market segmentation.7.

· Profitable – the segment must give required turnover and profit figures. 2. Target marketing 3. 1.34 Strategic Marketing Management . The benefits of the segmentation approach can be summarised as: · Better matching of customer needs. · Enhanced profits. 4. Identify a differential advantage for each segment. Formulate the marketing mix to be used in the marketing plan for each segment. · Reachable – the organisation needs to determine whether the market segment can be reached efficiently and effectively. The market size and market boundaries can be determined. Select target segments. Evaluate the attractiveness of each segment. Identify segmentation variables and segment the market.Unit 1 rdi Market segmentation 1. and whether effective communications with the target segment can be made. Market position 5. There are certain requirements for identifying useable market segments: · Definable – key characteristics of the segment show a degree of homogeneity. The purpose of segmentation is to classify groups of customers with similar needs and wants. Develop profiles of resulting segments. 6. For market segment share – it is generally market share rather than market size which determines profitability. · Enhanced opportunities for growth. · To enable more accurate targeting of communications. The segment must further match the resources and the objectives of the organisation. · To retain customers as their buying behaviour patterns change.

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

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

Strategic Marketing Management 1. restaurants) or consumer variables (e.Threat of new entrants.g. cars).37 . small cars and luxury cars. .Threat of growing bargaining power of suppliers.g. including fast moving consumer goods markets (FMCG). covering food products. . Consider the type of people who buy estate cars.Threat of substitute products. With regard to lifestyle. you could consider a lifestyle approach to cars and identify the various life stages associated with buying the different sizes and models of cars.rdi ACTIVITY FEEDBACK You can draw examples from consumer markets. 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. sports cars. 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: . . · 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. services (e.Threat of growing bargaining power of buyers. you then need to evaluate the segments and decide how many and which ones to serve.Threat of intense segment rivalry. .

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

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

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

g. · Profitable. Image drivers . Product drivers · Performance – speed . The factors that can drive up the value of an offer can be grouped into specific driver classifications. economic factors and subjective image dimensions. Service drivers . · Difficult-to-acquire skills. Strategic Marketing Management 1. In searching for a differential advantage.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. This value of a product or service is always a combination of rational. e. 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.rdi 1. minus price. · Scale economies. There are numerous drivers of customer satisfaction that will affect total customer value. Levi jeans and Nike · Economic confidence Figure 1.a strong image gives a customer confidence in the product.41 .9 Drivers of customer value used in market positioning. Personal drivers . This value is considered to be the perceived satisfaction offered by consumption or ownership of a product or service.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. These are summarised in Figure 1.9. · Branding. a company must develop an understanding of what customers value – where value is equal to customer satisfaction. · Patents. service or brand: · Socio-psychological confidence – a personal or social statement.

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

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. Plot brands on a two-dimensional map. Figure 1. Positioning relies on customer perceptions. Identify a set of competing brands. focus groups.g. Identify important attributes that consumers use when choosing between brands using qualitative research (e. 2.10. Conduct qualitative marketing research where consumers score each brand on all key attributes. 3.11. group discussions). An example perceptual map is included again below.11 The key steps in developing a perceptual map.43 . Strategic Marketing Management 1. These are included in Figure 1. 4. Unit 1 1.rdi positioning of an organisation’s product or service. The key steps involved in developing a perceptual map are outlined in Figure 1.12 Perceptual mapping: supermarkets.

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

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

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

in relation to distribution. It does.47 . Relationship marketing does not preclude careful negotiation. Instead. Some basic alternative forms of channels of distribution for both consumer and industrial markets are illustrated in Figures 1. People in an organisation must decide on the type of channel they will use to reach their target markets. however. the goods and services move to the user from producers via a series of intermediaries or ‘people in the middle’. They must select. recruit and organise intermediaries within that channel. forms of delivery and timing of delivery. They should also be familiar with the different sorts of channel intermediaries. rather than each side seeking its own maximum short-term benefits which may not endure. Decisions about channel are those which are reflected in the ‘place’ element of the marketing mix. is to ensure that the products or services are available at the right time. The task. who also themselves fulfil a variety of functions. Strategic Marketing Management 1.13 and 1. the variety of types of channel these dimensions give rise to. in particular. their roles and the relative advantages and disadvantages of each. most producers of goods and some providers of services do not sell directly to the final users. imply negotiating to obtain maximum mutual long-term benefit which can then be divided. Unit 1 Distribution Today. and decide on stock levels. in the right place and in the right quantities. Marketing managers must also understand the various dimensions of the channels and.14.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.

1. Not only have these changes led to the growth of new types of intermediary and the subsequent decline of more traditional ones.14 Marketing channels for industrial products. This is especially the case in retailing in the UK.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. 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 1.13 Marketing channels for consumer products.48 Strategic Marketing Management . Channels of distribution represents one of the most rapidly evolving and dynamic areas of marketing.

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

postal charges. etc? What are a warehousing costs for: inventories. inventory levels. heating. forwarding agents fees. air freight.50 Strategic Marketing Management .Unit 1 rdi KEY POINT Key distribution considerations include: Costs What are the transport costs for: organisation’s own fleet. rail freight: road transport . sea/water transport. order processing procedures. locating. number. handling goods received. mechanical handling systems. production programmes. retrieving and order picking: insurance. location and size of depots. 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. 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 . selecting modes of transport.

4. ACTIVITY Describe the advantages and disadvantages to business of e-commerce. E-commerce options include selling over the Internet. · It can be inexpensive to set up and operate. now used by many businesses to sell their products. seven-days-a-week. 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. Unit 1 What functions do these intermediaries serve? 2. Who are the intermediaries which your organisation uses to service its end users? 1. Strategic Marketing Management 1. Electronic commerce (e-commerce) is a popular development. 3.51 .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. or using electronic shopping malls available through interactive television.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Despite these claims it is clear that SBUs have not lived up to their early promise.’ 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 attention to firms as competitors rather than individuals as competitors. according to Ansoff. · Too much use of the wrong measures of success. senior corporate management has the freedom rigorously to appraise the different areas of activity within an internally consistent framework. ‘is a unit of a firm which has the responsibility for developing the firm’s strategic position in one or more strategic business areas. and the priority given to positioning of action and implementation. These observations fit into a more general comment that the development and implementation of marketing strategies are inseparable. It would appear that simply devising alternative organisational structures cannot compensate for lack of strategic insight.rdi Discuss your list with a member of your management. · Inadequate emphasis on when to compete. Does your list cover all angles of the organisation’s operations? If not. Unit 1 Strategic business units KEY POINT A Strategic Business Unit (SBU). This criticism centres on the emphasis on analysis. At the same time. · Too little focus on uniqueness and adaptability. management is forced to look at markets in terms of benefits and costs. The market could be developed as an integrated totality rather than in a piecemeal way through specific offerings.69 . Attention is redirected towards the returns being earned. Simultaneously. There is increasing criticism of the approach of modern writers on marketing strategy. re-draft your list to include as many objectives as you can. Popular failings of current approaches are: · Too much emphasis on where to compete and not enough on how to compete. 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.

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

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

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

predators may be anywhere. As you form a picture of the likely competitive environment in which you will be operating.19 An example Five Forces framework.How profitable are they? .What would you be doing in their shoes? · Think globally about each of the five areas. and it is important that this strategy is imaginative and subsumes the possibilities of partnerships and collaboration as well as competition. Customers Buyer concentration Customer loyalty Switching costs Buyer motives Strategic Marketing Management 1. ACTIVITY FEEDBACK Your results might look something like Figure 1.How good are they? . Unit 1 · Think of the impact of technology in each of the five areas. You will be hatching a strategy to deal with your findings.What emotional commitment might they have in the market? .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. If the market is intrinsically profitable. reflect on the consequences of what the model reveals.73 .rdi .

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

75 .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).rdi . 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.

giving the acronym. Using the macro-environmental forces listed above as a guide. if an international dimension is included. will need to be addressed. In some texts. STEEPLE. Note the key issues which. list those factors which will directly affect your organisation over the next 12 months. (In addition.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.) ACTIVITY Using the grid provided. some authorities include the extra factors of legal and ethical. as a result. conduct a STEEP analysis for your own organisation.76 Strategic Marketing Management . 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. Social factors to be considered: 1 2 3 4 5 6 7 8 How my organisation will address these factors? 1.

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.

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

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

2. 1. Similar to a financial audit of a business. analysis and idea generation about the environmental factors.20 shows what a SWOT analysis might look like. 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. Doing a SWOT analysis is a good group activity. This helps reinforce the basic discipline of the exercise. Carry out a basic SWOT analysis and determine where the strengths and weaknesses of the organisation lie. Marketing audit KEY POINT This establishes the internal position of the company in marketing terms – in other words ‘where are we now’. The strong advice then is to use the tool with precision. the threats and the opportunities Figure 1.80 Strategic Marketing Management . ACTIVITY Once again consider your own organisation. Use the SWOT analysis to evaluate the position of the organisation within its market. The result of a good SWOT analysis is usually twofold: 1. repeat the activity using a large retail organisation – possibly even a global corporation. It enables you to put shorter-term plans together to consolidate strengths and address weaknesses. Now. It usually calls for more research. Most carry a greater level of information. and most actually build over time as people think of other things to add. the purpose of a marketing audit is to establish the marketing position for the company. This would be a relatively lean example of a SWOT analysis. whereby accountants take a ‘snapshot’ of the business once a year for the annual accounts. on paper.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. You can use syndicates working on strengths and weaknesses (internal) and a second syndicate working on opportunities and threats (external).

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

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

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

Improving the sales mix.Unit 1 rdi £m 12 10 8 6 4 2 Forecast New strategies gap Objective Time Figure 1. ‘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 . · Product development. 1.Reducing costs.84 Strategic Marketing Management . · Reducing the objectives. Having established where you are now through the marketing audit and where you are going via the establishment of corporate and marketing objectives.21 Gap analysis. .Increasing prices. This is illustrated in Figure 1. · Market extension. new strategies are needed to fill the gap. . · Diversification.21. Very often where a company wants to go (based on its objectives) and where it is actually going. · Market penetration. the next step is deciding how to get there – your marketing strategy. do not match up.

New market segments 2. or particular brands of companies. More purchasing and usage from existing customers 2. ACTIVITY FEEDBACK Taking each quadrant in turn. ACTIVITY Think about companies. New distribution channels 3. Gain customers from competitors 3. Different quality levels 3. Acquisition/take-over Figure 1. Product modification via new features 2. Mergers 3. Joint ventures 2.22: existing products Market penetration strategy existing markets 1. house insurance – ‘we will pay the switching fee’. e. · Special offers through the post. the primary concern is to ensure your understanding of the principles. New product Unit 1 Diversification strategies 1. Look at the descriptions given in each quadrant of the matrix and identify companies/ brands that fit the criteria. Don’t worry if your answers are different. Convert non-users to users Market development strategy new markets 1.g. 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’.85 . that have pursued the strategies given in the Ansoff matrix. New geographical areas new products Product development strategy 1.22 The Ansoff strategies matrix.rdi How some of these key strategies relate to each other in practice can be seen in Figure 1. Strategic Marketing Management 1. examples are given below. take out life insurance and receive a store voucher. in magazines – attempting to get you to buy something.

In addition to the trade-off between sales expansion and profitability.com. · Amazon. which in turn reduces the profitability. Diversification · Numerous examples of mergers and takeovers – Time Warner. Market development · Tesco home shopping. · Joint ventures include – the SMART car – Mercedes and Swatch. 1. · CD Rewriter on a computer. there may well be other constraints.86 Strategic Marketing Management . etc. · TNT ‘guaranteed’ overnight delivery. whilst achieving sales targets may appear to mean lowering the price. 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. Examples include. A further example would be a company wishing to introduce a new product or service.Unit 1 rdi · Special offers on the Sky Digital box to encourage non-users to subscribe to the monthly payment service. · Widescreen television. · Staples catering for the emerging ‘home office’ market. Achieving profit objectives may seem to necessitate cutting the marketing budget. Constraints When an organisation determines its corporate and marketing objectives it has to recognise the constraints under which it operates. Product development · ‘40-plus’ toothpaste. BHS and Arcadian. · Morrisons supermarkets moving from their northern base in the UK to the midlands region.

Unit 1 · In order to ensure the thoroughness that is needed to ensure a comprehensive review. despite the potentially high costs. 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. Strategic Marketing Management 1. Resource auditing Value chain analysis Resource utilisation Finance Comparative measures Measures of balance Performance importance Marketing effectiveness SWOT analysis Figure 1.23. 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. the wrong skills amongst the workforce and a lack of understanding of a new market place. a systematic approach aimed at identifying and evaluating the data is crucial. · 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. This is in order to avoid any elements being overlooked and permit effective development of future strategies and implementation. Indeed. 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.87 . An example framework is shown in Figure 1. Almost inevitably. there is often the need for external consultants to be used.rdi Other limiting factors can range from a lack of money to finance a new investment. All of these constraints must be recognised and accounted for if the plan is to actually work in practice.23 Putting the marketing plan together. Without this degree of comprehensiveness. a manager's effort would be directed towards the ‘effect’ of poor performance or direction rather than the true ‘cause’ of any problems. check on progress in line with the overall strategic objectives and permit action to be taken to correct or improve on performance.

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

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

In order to understand this model. An important outcome. but also of its weaknesses and areas of vulnerability and gaps. With this understanding. and so on.23. Without this. the strategies available.Unit 1 rdi creating an attractive list. an inadequate marketing mix. This is illustrated in Figure 1. Explain how you feel your organisation might benefit from such an exercise. Managerial intent Gap in performance Performance reality Figure 1. far more realistic objectives and strategies can then be developed. its culture. 1. an absence of market understanding. Almost inevitably there will be a gap between two which stems from a lack of resources or commitment. the marketing plan should have a far clearer idea not just of the real strengths of the organisation.90 Strategic Marketing Management . 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. think about what you organisation would really wish to achieve in the marketplace and contrast this with what it is really capable of doing. or the feasibility of implementing the strategy. Perceived capability ACTIVITY Using the nine headings from Figure 1.24. What might appear at first sight to be an opportunity may not be so when examined against the organisation’s resources.24 The Intent-Capability-Reality gap. therefore. it is likely that sooner or later problems will be faced which stem from what is called the intent-perceived capability-reality gap. In the absence of this understanding. the expectations of its stakeholders. compile an outline marketing plan for your organisation. Having gone through the process of evaluating and assessing corporate capability. 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.

this well known model is a classic in strategy building.25. We can unpack the model a bit and interpret some of the implications of position in each of the boxes. We shall noe look at it in more detail. Current products New products Current markets Market penetration Product development New markets Market development Diversification Figure 1.rdi Portfolio analysis techniques The Ansoff matrix As we saw earlier in this unit. 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. 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. The model also prompts consideration of synergy which might exist on both the product or market axis. Tucked within the model is an assessment of the risks involved in pursuing given strategies. The risk level is relatively low for the organisation because it knows the markets and the products.91 .25 The Ansoff matrix. See Figure 1. Strategic Marketing Management 1.

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

rdi Boston Consulting Group (BCG) matrix Produced by the Harvard Business School. the Boston Consulting Group (BCG) matrix is a simple model that examines the joint criteria of market growth and market share. or zero. Market share High Low Unit 1 High Star Question mark Market growth rate Low Cash cow Dog Figure 1. In addition. but they have a relatively low market share. Cash cows have a high market share from a slow. with the associated high advertising expenditure. KEY POINT Stars are Strategic Business Units (SBUs) with a significant market share of a high growth industry. Stars often move into this position when the overall market has become established. It is likely that the product is costly to maintain early in its life cycle. Considerable amounts of Strategic Marketing Management 1.93 . This may mean that an aggressive marketing effort is needed. They are profitable and reliable products. with the consequence that product development costs are relatively low. which will allow a company to develop a strong portfolio.26. They have good earning potential. Usually they will have loyal customers. In the figure the market size is shown by the size of each circle. The market is likely to be very competitive with the SBU having only limited impact. Question marks occur when the potential for market growth is good. growth market. The BCG matrix is described in Figure 1. the company’s share of the total market is represented by the size of the segment within the circle.26 The BCG matrix.

and that each one will deviate in some way from the norm. In Figure 1.27 the revenue curve has been superimposed on the theoretical life cycle. you will find that you have products and services all over both matrices. showing how the product is able to recover the costs of development and launch. Like all modelling techniques. The second 1. If your organisation is like most others. Dogs are characterised by low market share and low growth. Managers must remember that there is no such thing as a perfect product. these are SBUs facing possible liquidation. and some variations are shown in Figure 1. recognising the consequences is more instructive. then BCG has great value in determining the strategic allocation of resources. it has its limitations. The first diagram shows a ‘fad’ product. They are likely to be the first to be liquidated in the event of financial difficulties. whilst Figure 1.28. However. As an interesting activity you might consider trying out the Ansoff matrix and BCG matrix against the products or services of your organisation. The actual shape of the curve will vary according to the product itself. Once this is achieved. While the plotting exercise is valuable. it is able to move towards profitability. However. they may survive as part of a marketing product mix. Figure 1. A key recommendation is that you do it product-by-product rather than trying to place the whole organisation on either matrix. These are sometimes known as ‘problem children’.Unit 1 rdi money may need to be spent on marketing or research. Product life cycle model The product life cycle is one of the cornerstones of marketing and is used as an essential planning tool. 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.94 Strategic Marketing Management . It demonstrates how a product moves through certain distinct stages of development and decline during its life. they must also realise that such deviations are to be expected and that these should not be cause for unnecessary alarm.28 includes some examples of actual products’ life cycles. 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 Sales Profit Profit Loss Development Introduction Growth Maturity Saturation Decline Figure 1. Sales Sales Sales (i) Figure 1.27 Theoretical life cycle curve. where sales numbers are likely to follow cycles. during which efforts are made to modify or rejuvenate the product to maintain market interest.95 . In the third diagram the product passes through a number of stages. we would look at generic products such as soap or shoes where life cycles Strategic Marketing Management 1.28 Examples of actual cycles. thus delaying entry into the mature stage.rdi diagram shows a ‘fashion’ product. If we consider a product category life cycle. ranging from a single fashion season to a period of many years. Consider the examples of soap and shoes. (ii) (iii) The product life cycle can be applied to individual products or to the market as a whole. Also the time scale can be variable.

Research and development are both expensive and time consuming and. These include: · The nature of the product.96 Strategic Marketing Management .Unit 1 rdi tend to be quite long. If we prefer to deal with product form life cycles. · Behaviour of competitors. These will each have an effect on the shape of the product life cycle curve. we could consider brand life cycles. Using the product life cycle carefully can be successful for positioning the product effectively in its market. enabling predictions to be made about the long-term growth in the marketplace. A number of influences impact on the product life style at different times. Availability is often limited as distribution may not be widespread. However. it is also the stage of greatest risk. Almost always there will be no competitors at this stage. providing another barrier for the consumer. Induction is the point at which a product is launched and gains acceptance by the market. 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. Growth is the time when competitors are likely to appear within the market. should be valued. It may well have a high price associated with it. as such. The organisation needs to use market research and market intelligence with care. Other companies may have been developing parallel products but have not launched them until now. Industrial espionage is often associated with this phase as a serious threat to the early stages of new product development. This is often referred to as ‘skimming’. However. · Changes in the competitive market. we would look at more specific products such as perfumed soap or plastic shoes with much shorter life cycles. Finally. 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. · Fluctuations in consumer preferences. They will have the advantage of knowing your product’s price and have seen the degree of success that 1. This forms a key component of an organisation’s strategic management. This also is a time where confidentiality is important. the innovative nature of the product may be enough to compensate. which deal with named brand products. The new product must prove its innovative nature and overcome threats from existing products.

Now consider a well known product readily available in shops. It is sensible to assume that they will charge less for their product. use a number of different products or services. Your position as leader of the market may be under threat and management will need to assess the risk involved. This may be because the product is becoming obsolete. If you are able. Unit 1 ACTIVITY Identify the stages of a product lifecycle by reference to a product or service supplied by your organisation. Can you identify where to place it in the product life cycle? Briefly outline the product’s history in terms of life cycle stages. The view that exposure needs to be high at the point of sale is important.rdi you have had. An example is the solid fuel market where sales have reduced as a result of other energy sources. What does this tell you about the product’s future? Strategic Marketing Management 1.97 . and are combined by some authors into a single phase. Expenditure on marketing and distribution will remain high. Some organisations may choose to trim their product portfolio in order to retain competitive pricing for products in this phase. These would only normally occur if they are of benefit to both organisations. Consumers will often see price-cutting as an attempt to retain customer interest and. Indeed. Decline occurs when sales start to fall and interest within the market as well as from the organisation becomes less. other products are more competitive or new products have appeared. Maturity occurs when the sales of the product level off at a peak. Here price becomes an important point. sales volume. This stage is sometimes referred to as an exponential growth phase as sales can rapidly take off. because many of the suppliers have left the market. promotional strategy will change from creating awareness to brand identity. the organisation may now wish to concentrate its efforts on its own new product development. but they can be aggressive if pressure is applied from the other organisation’s stakeholders. It is likely that much of the sales volume is repeat trade rather than new customers. therefore. whilst saturation occurs as the volume of sales begins to slow down. There remains a ‘safe’ level of demand to allow sales to prove effective. Maturity and saturation work together to some extent. there is sufficient demand to enable existing companies to thrive despite the limited number of consumers. Many products will continue to exist despite reaching this stage – it is not necessarily a sign that production should cease. Similarly. As the product has now been on the market for some time. If this happens to a small company it might create interest from larger organisations as targets for acquisition.

Breakeven occurs when the margin generated by the sales of the product equals the total of fixed and variable costs it has incurred. the horizontal axis is the number of units sold. 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.Unit 1 rdi Product breakeven analysis This model is really simple in concept. 1. · The variable cost – what the company charges itself when it sells a unit. Graphically it looks like Figure 1.29 Product breakeven. In the model here. Let us go back and look at the word profit above. though it looks a bit daunting in its graphical form.98 Strategic Marketing Management .29. 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 vertical axis is the sales revenue. Sales revenue Revenue (money) Variable cost Breakeven in money Fixed cost Unit sales Breakeven in units 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.

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

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as shown in Figure 2. The idea first appeared in 1980 and it has enormously influenced strategic thinking. showing in many cases how they have been developed to deal with particular problems. The contemporary climate probably corresponds more accurately to Richard D’Aveni’s definition of ‘gaining and regaining competitive advantage’. however.1. Failure to recognise this seemingly obvious requirement will cause considerable waste in terms of both time and money for the organisation. Strategic Marketing Management 2. As time has gone on. This will help to demonstrate the importance of realising exactly where in a market an organisation lies. Examples of these options are given in this unit. Porter’s generic strategies are best represented by a triangle. the model has been overtaken – not by better or more definitive thinking. 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. will be discussed. 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. Porter advocates ‘gaining and maintaining competitive advantage’. but more by a fast-changing world. 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 role of market positioning.1 .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. In the hypercompetitive climate in which we now operate this is increasingly difficult to do. seeing off all competitors by the excellence with which they serve those segments. and its importance. it is now necessary to look at the range of possible options available for the marketing strategy.

this differentiation must be known and. to at least a segment of the market.1 Porter’s generic strategies. not only in the way the organisation approaches and positions itself in its markets. 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.Unit 2 rdi Focus Differentiation Figure 2. 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. but also in the way it develops its internal capabilities and competencies to support the chosen strategy. 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. 2. Each of these strategies has its particular benefits and concomitant organisational commitments. valued above the offer of others. Further.2 Strategic Marketing Management . 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. This may or may not be reflected in the price it charges to its customers. 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.

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

its sense of mission or vision. Strategy is. · Decline is where substitute products begin to make inroads into the marketplace. therefore. strategic intent is an ambitious medium-term objective. and the role of the lead centre and as the parents of its operating businesses. and a shared idea throughout the organisation about how to start on the task.4 Strategic Marketing Management .Unit 2 rdi purchases as they are more familiar with the range of products and manufacturers. its ambitions and commitment (strategic intent). as is the idea of ‘stretch goals’. Transition to maturity means developing new markets and focusing upon specific market segments as well as attempting to become more efficient. its ability to learn. The product is basically becoming ‘stale’. Emphasis moves away from product features towards non-product features like branding and advertising. 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. A decline strategy suggests either divesting or profitably supplying residual demand. Briefly. stimulation and reinforcement of ambitious skills and capabilities that can be applied across several market segments. often expressed in a snappy strategy. 2. The building of a few strong and specific core competences throughout the company is intrinsic to this approach. Emerging industries should be developed in order to counteract rivalry between competitors. 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). seen less as overseeing the allocation of resources. customer needs change because of social or demographic reasons. more short term objectives but still extremely demanding ones. the possibility of substitute products developed and the producer put in a powerful bargaining position. and more as the definition. The idea is that there is a strong commitment to achieve the objective at all costs. creation. The industry settles down in terms of technological breakthrough and most product offerings are relatively similar.

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

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

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

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

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

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

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

To some extent.12 Strategic Marketing Management . 2. 5. 4. 2. in that the majority of its efforts goes into serving its immediate and existing customer base. 3. To some extent.the company focuses solely upon its existing customer base. 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. Does management adopt a systems approach to planning with recognition being given to the interrelationships between environment. To a very high degree. To what extent does senior management attempt to control and integrate the major marketing functions? 1. What sort of relationship exists between marketing management and the management of R & D. channels. management focuses upon specific target markets in order to maximise company growth and potential. Not at all. finance. customers and competitors? 1. 2. 3. Not at all . Generally poor. 3. production and manufacturing functions? 1. 2. Marketing organisation. 3. Yes.but company focuses solely upon its existing customer base To some extent. Having identified market needs. Yes. suppliers. 2. with frequent complaint being made that marketing is unrealistic in its demands.Unit 2 rdi 3. Not at all . To what extent is the marketing programme tailored to the needs of different market segments? 1. 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. in that the majority of its efforts goes into serving its immediate and existing customer base.

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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

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

3. 12.

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

3.

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

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

2.

3. 15.

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

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

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

Although the BCG Matrix is the best known portfolio planning framework. McKinsey & Co. The factors affecting the two main variables are shown in Figure 2.17 . The two criteria used are market attractiveness and business position. market size and difficulty of market entry. This means that consideration can be made for market growth rate.rdi General Electric model The General Electric Model was developed by management consultants. using a wider range of factors for describing SBUs. Strategic Marketing Management 2.3. · Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. the GE Matrix (or GE/McKinsey Matrix) is a later and more advanced form. In addition. The matrix is composed of nine boxes and uses the same concept of circles to show market size as in the BCG matrix. while the BCG Matrix has only a 2x2 matrix. Market attractiveness includes a broader range of factors other than just the rate of market growth that can determine the attractiveness of an industry/market. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit. · The GE/McKinsey Matrix works with a 3x3 grid. This allows for more sophistication. It is more sophisticated in three aspects: Unit 2 · Market (Industry) attractiveness replaces market growth as the dimension of industry attractiveness. and its strength relative to its competition can be incorporated. the size of the SBU. It was developed for General Electric (USA) as an alternative to the BCG matrix.

opportunity to differentiate .strength of assets and competences .pricing trends .segmentation . therefore. 4. View resulting graph and interpret it. 3. 5. · The size of the sectors represent the Market Share of the SBUs. The organisation must assign relative importance to the drivers.relative brand strength .customer loyalty .demand variability .access to financial resources . 6.competitive intensity/rivalry . A six-step approach to implementation of portfolio analysis could. whereby: · The size of the circles represent the Market Size.market share growth . · Arrows represent the direction and the movement of the SBUs in the future.entry barriers . look like this: 1. Often SBUs are portrayed as a circle plotted in the GE/McKinsey Matrix.relative profit margins . Perform a review/sensitivity analysis using other adjusted weights (there may be no consensus) and scores.management strength Figure 2.overall risk of returns in the industry . 2.record of technological innovation .quality .market growth rate . Score each of the SBU’s drivers.3.market size .technology development .market share .distribution structure . The organisation must carefully determine those factors that are important to its overall strategy. Typical GE/McKinsey factors. 2. Specify drivers of each dimension. Multiply weights by scores for each SBU.distribution strength/production capacity .18 Strategic Marketing Management . Weight drivers.market profitability .relative cost position .Unit 2 rdi Typical (external) factors affecting Market Attractiveness Typical (internal) factors affecting Competitive Strength .

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. actual experience cannot be consulted. 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. · Core competences are not represented. · 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.19 . · 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. ACTIVITY Try to apply the General Electric model to your own organisation. 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. · Aggregation of the indicators is difficult. · Using the forecast and record method. This was done because a sector where prospects were favourable and the company’s position was strong tended to show higher profitability. Shell found that these records and forecasts were not sufficient for the guidance of management in the corporate planning and allocation of resources. · Interactions between SBUs are not considered. Strategic Marketing Management 2.

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

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

pressure might result due to low prices or direct investment by the by-product producer to increase its consumption. Minor – 2 stars . Strong positive or negative environmental or regulatory influences must be taken into account. 2. Environmental (Regulatory) Aspects Business sector prospects can be affected by restrictions on manufacture. Major Producer – 4 stars – this occurs where no single company is leader but there are two to four competitors are closely placed. 4.Unit 2 rdi 3. Negligible – 1 star – companies with a negligible position in the market fall into this category. it must be assessed separately.businesses in this category are less than able to support research and development in the long term. Viable Producer – 3 stars – this type of company has a strong viable stake but falls below the top league. 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. Industry Feedstock Situation Expansion of productive capacity is often hindered by the uncertainty of feedstock supply.) Market Position The percentage share of the total market as well as the degree to which this share is secure is of primary importance. Shell recommended reviewing these criteria in relation to significant competitors in the relevant business sector. transportation and marketing of a product. (This axis is similar to the Business Strength axis on the GE/McKinsey matrix. 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. 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. average or weak on three major criteria. If this has not been built into the forecast of market growth. Competitive Capabilities (Vertical y-Axis) A petroleum company can be judged as strong.22 Strategic Marketing Management . This would be given a lower than average rating.

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

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

such as Orange or T-mobile. 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. for example.25 . the market shares of telephone companies may seem different if mobile phone companies are included. Illustrating the market share held by different businesses is not as straightforward as it may seem. 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. Why might the measurement of market share be important? It might indicate a business that is a market leader. · The type of product on which the market share is based can affect the results. 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.Divest Unit 2 ACTIVITY Could the Shell directional policy matrix be a useful tool for your organisation? Discuss its possible merits with reference to your organisation. If it is unlikely to provide any advantage to you. British Telecom. For example. There are problems that must be taken into consideration when calculating and interpreting the data: · The share of the market may be measured in different ways. These might include sales revenue.Phased withdrawal . It might influence the strategy or objectives of a business. rather than the number of calls. It may also be an indication of the success or failure the business or its strategy.rdi . Strategic Marketing Management 2. have a smaller share of the European telephone market than its French and German rivals. or the quantity of goods produced for services sold or provided. For example. This could encourage the other companies to follow the leader or influence the leader to maintain its position. explain why. profit.

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

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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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Strategic Marketing Management

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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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2.000 cars in 2004 and will soon start selling China-built Cadillacs.8bn in revenue in 2003 in China and has recently announced a huge merger with Gillette. The product or organisation is content to operate efficiently. However. happy mouth. 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. Its Olay and Rejoice are the best-selling facial cream and shampoo. 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. GM’s advantage rests on the fact that it is the first foreign car manufacturer with a license to provide financing. KFC – The chicken specialist owned by YUM! Brands is China’s dominant fast-food joint. The company.Unit 2 rdi ACTIVITY FEEDBACK There a many possible answers to this activities. The likelihood is that the management of the organisation are confident enough to be able to hold that position against competition from all directions. You may have considered some or all of the following: Proctor & Gamble – most urban Chinese homes stock affordable P&G products. ceding the low-price market for home computers to Chinese companies. with an estimated $4.30 Strategic Marketing Management . KFC has added a twist to 40 per cent of its dishes. it has since worked with the government to crack down on ‘knock-offs’.6bn in revenue. It boasts 7 per cent of computer sales in China. with often good financial results. Once delivered in Shanghai. which made an estimated $1. It is not aiming to outstrip all competition. Dell – The computer maker focuses on business customers. Statistically it is likely that the market follower will hold considerably less than 70 per cent of the size of the market leader. with an estimated $1bn in revenue. superior after-sale service has the figure climbing. nor is it likely to occupy a lowly place within the market. such as red-hot Sichuan chicken and Peking duck flavoured poultry. produced nearly 500.’ GM – The second biggest car manufacturer in China. was hurt by fake P&G products in the 1990s.86bn in revenue. The Chinese name means ‘thirsty mouth. 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.

they are able to avoid competition in the short run. · By targeting specific market 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.31 . There are some problems with niche marketing. by their very nature. · Many small firms involved in niche marketing have just one product aimed at one main market. often tiny. In this way. This can allow them to gain an advantage over firms targeting a wider market. 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. at least. Knickerbox and Classic FM are all examples of attempts to exploit niche markets. firms can focus on the needs of consumers in the segments. Tie Rack. Unit 2 Market niche KEY POINT Niche marketing involves a business aiming a product at a particular.rdi ACTIVITY Describe an example of a product that has followed existing market trends. Strategic Marketing Management 2. It is the opposite of mass marketing. Niche markets. These include: · Firms which manage successfully to explore a niche market often attract competition. are small and are often unable to sustain two or more competing firms. which involves a product being aimed at whole markets rather than particular parts of them. segment of the market. Large businesses joining the market may benefit from economies of scale which small firms are unable to achieve.

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

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

not the challenger's and own strengths and weaknesses. Organisations also should avoid the trap of thinking that if they work hard enough. the market leader should play a defensive strategy and much smaller firms should look for other options. When management declares that it is time to ‘ redouble our efforts’. when a battle turns to hand to hand combat. no firms may be strong enough to challenge the leader with an offensive strategy. KEY POINT The three principles of offensive strategy are: · The challengers primary concern should be the strength of the leader’s position. However. Deadlines often are missed.Unit 2 rdi ACTIVITY What do you think of when the term ‘market pioneer’ is used? State some examples. In such industries. an organisation achieves victory through a smarter strategy. and the organisation loses credibility in the propaganda war if it fails to live up to a prediction. reports. 1998) argue that it is strategy and not hard work that determines success. Offensive marketing An offensive strategy is appropriate for a firm that is number two or possibly number three in the market. In marketing. As in military strategy. then the marketing battle has turned to hand to hand combat and is likely to end in defeat. one hears marketing terms borrowed from the vocabulary of military strategy. memos and management reviews. Offensive. 2.34 Strategic Marketing Management . In warfare. they will succeed in their attack. the advantage resulting from the strategic plan no longer exists. Publicly stated marketing promises should be vague for the same reason. Al Reis & Jack Trout (Marketing Warfare. the analogy between marketing and warfare is evident. it is unwise for an organisation to publicly state deadlines for its victory. defensive and value-based marketing strategies Increasingly. From ‘launching a breakthrough campaign’ to the ‘cola wars’. not by spending longer hours with meetings. Politicians who are wise to this rule tend to make their campaign promises vague. in some cases.

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

Johnson & Johnson even extended credits to its distribution channels to make the price cut effective immediately. If the leader fails to do so. It is self-defeating for an organisation to pretend that it is the market leader for the purpose the of strategy selection. The market leader is the organisation who has attained that position in the mind of the consumer. Bristol-Meyers responded by accelerating the launch of the television advertising campaign. Introducing products better than your existing ones pre-empts similar moves by the competition. 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. Defensive marketing KEY POINT A defensive strategy is appropriate for the market leader. Successfully attacking the competition and winning raises anti-trust 2. This move was intended to block Bristol-Meyers from advertising Datril as a lower-priced alternative to Tylenol. Datril was to be priced 35 per cent lower than Tylenol. Finally. Johnson & Johnson’s efforts were successful and Datril achieved less than a one per cent market share. There are three basic principles of defensive marketing warfare: · Defensive strategies only should be pursued by the market leader. Even if the new product has less profit margin and may reduce short-term profit. it accomplishes the more important long-term goal of protecting the organisation’s market share. · The leader always should block strong offensive moves made by competitors. the competitor may become entrenched and permanently maintain market share.36 Strategic Marketing Management . · Attacking yourself is the best defensive strategy. However. Tylenol sales soared on the publicity and lower prices. 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 . Legal issues are an important factor in a market leader's strategy. 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 .Unit 2 rdi chance of winning a position in the consumer’s mind for that narrower class of product.

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

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

core competencies and evaluation of investment opportunities. waste and duplication. Briefly outline why you have selected each organisation.rdi systems. This involves examination of internal processes within the organisation and seeks to eliminate redundancy. defensive and value-based strategies in their marketing. pioneer and challenger. such as leader. there is considerable expertise to hand there. Management. particularly those involved in what is called enterprise resource planning. The use of models devised by General Electric and Shell provide key anchors in the development of a strategy. but cost is usually shed and efficiency enhanced.5 to 7. Read sections 7. refer to the text. Unit 2 ACTIVITY Find examples of organisations who use offensive. The other area of potential help is advice in process re-engineering. Since IT is often a key element in optimising links in the system. An Introduction by D. Summary This unit has examined a range of marketing strategy options including Porter’s generic strategies. Positions in the market.8. Remember too that you have two great consultancy allies to help in value chain analysis. This branch of IT deals with radical revision of the information systems within the organisation and within its extended value system.39 . all have different issues to deal with when faced with competition. Recognition of the roles played by each different position is an important marketing skill. Boddy. ACTIVITY For further details. Strategic Marketing Management 2. Most organisations suffer trauma as a result of extensive process re-engineering. follower. they are: the IT providers.

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

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

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

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

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

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

Isolating the areas for strategic partnership. The learning organisation.7 . the responsive organisation. 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 athletic organisation. or they can provide capacity too expensive to invest in yourself. Being fast on your feet and being able to learn fast are organisational competencies of great strategic value. 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. This activity is in two parts. Being able to point the organisation in a different direction. identifying the partners and managing the partnerships are a source of advantage. Unit 3 Ability to change fast Some organisations are just better able to embrace change than others. ACTIVITY It may be that some of the generic strategies organisations are following are also material to your organisation.rdi too expensive to enter directly. the creative organisation are all names for this strategic strength.

change of ownership and more competitive pricing policies have led to lower overall image. but these are highly unpredictable. structure and hierarchies. but some would argue that this has been at the expense of quality and. therefore. The cars are now available to a wider range of consumers. we will look at the people aspect of change. some that are within the control of the organisation and others which are consumer driven. Second. therefore. Erosion of brand image is. to illustrate we will look at the potential for implementing the generic strategies we have identified above. Such erosion of a brand name or image is damaging to the organisation and is best avoided at all costs.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. 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. The value of the brand image amongst consumers will also alter. This helps analyse the nature of the change. and it is this fluctuation that marketers must note. It may follow a series of stages rather like a product life cycle. we will look at options for change in the areas of work processes. An example is the variation in the status of Saab cars. 3. Planning and implementing change We can look at implementing change under two separate headings: First. The checklist below shows some of the potential for enacting strategic change in the first three areas we have used to explore organisations.8 Strategic Marketing Management . Here we will offer some examples of those things necessary to get right so that change can be implemented successfully . the result of a combination of factors. image. Whilst initially the make was perceived to be at the high quality end of the market. or should be pursuing.

· encourage informal · create participative · stress values. joint strategy development. 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.rdi Work processes Reducing the cost base Structure Hierarchies Unit 3 · re-engineer processes to eliminate duplication and redundancy. etc. 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.9 . purpose Strategic Marketing Management 3. strongly underpinned by empowered teams networks · minimise the layers of hierarchy to teams · devolve decision making · create a learning organisation culture culture. joint planning. 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. 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.

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

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

moving from functional to market. 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. changes which you believe would really contribute to the organisation’s strategic effectiveness. of respecting our customers’ intelligence ¼ ¼ anticipating change is paramount.g. 3. or process-based changes or organisational culture change – our case study on McGraw-Hill above will help. JAVA. We need to do this just so you will see what you are up against in effecting the change. structural change. finding the right words to create the right vision ¼ ¼ having a core ethos of pride and integrity. Expand the description of the changes into terms we have used. Some of the key points he makes are shown below. The process took three years to enact and fourteen to perfect. 2. Identify three major organisational changes you would like to make. 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. nurturing them is important ¼ ¼ it takes corporate evangelism.12 Strategic Marketing Management . Identify three ‘missionaries’ who could work on developing the vision of the completed change and start to communicate the vision through the organisation. writeable CDs.

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

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

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

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

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

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

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