CHAPTER 2 :MARKETING STRATEGY AND TACTICS
Regulatory context includes taxes; import tariffs; embargoes;
The term strategy is used in reference to maneuvering troops into
position before a battle. In marketing, strategy outlines a company’s
choice of the market in which it will compete and the value it intends
to create in this market. Accordingly, marketing strategy involves two
key components: the target market and the value proposition.
The term tactics is used in reference to the deployment of troops
during the battle from their initial strategic position. In marketing,
tactics refer to a set of specific activities, also known as the “marketing
mix”, employed to execute a given strategy.
STRATEGY and TACTICS are the two key components defining a
company’s business model. Strategy identifies the market in which
the company operates, defines the value exchanges among the key
market entities, and outlines the ways in which an offering will create
value for the relevant participants in the market exchange. Tactics, on
the other hand, define the specific activities employed to execute a
given strategy by designing, communicating, and delivering specific
market offerings.
MARKETING STRATEGY: IDENTIFYING THE TARGET MARKET
The target market is the market in which a company aims to create
and capture value. It is defined by five factors: a) Customers whose
needs the company aims to fulfill, b) competitors that aim to fulfill the
same needs of the same target customers, c) collaborators that work
with the company to fulfill customers’ needs, d) the company
managing the offering, and the e) context in which the company
operates.
A. Customers are the entities (individuals or organizations) whose
needs the company aims to fulfill. In business-to-consumer
markets, target customers are the individuals who are typically
the end users of the company’s offerings. In business-to-business
markets, target customers are other businesses that use the
company’s offerings.
B. Competitors are entities that aim to fulfill the same need of the
same customers as the company does. Competitors are defined
relative to customer needs, not merely based on the industry
within which they operate.
C. Collaborators are entities that work with the company to create
value for target customers. Collaboration involves outsourcing
(rather than developing). Instead of building or acquiring
resources that are lacking, a company can borrow them by
partnering with entities that have these resources and can
benefit from sharing them.
D. Company is the entity that develops and manages a given market
offering. The company can be a manufacturer that produces the
actual goods being sold (Procter & Gamble), a service provider
(American Express), an entity engaged in brand building
(Lacoste), a media company (Facebook), or a retailer (Walmart).
E. Context describes the environment in which the company
operates. It is defined by five factors:
1. Sociocultural context includes social and demographic
trends, value systems, religion, language, lifestyles, attitudes,
and beliefs.
2. Technological context includes new techniques, skills,
methods, and processes for designing, manufacturing,
communicating, and delivering market offerings.
3.
product specification; pricing; communication regulations;
and intellectual property laws.
4. Economic context includes economic growth, money supply,
inflation, and interest rates.
5. Physical context includes natural resources, climate,
geographical location, and health trends.
MARKETING STRATEGY: DEVELOPING A VALUE PROPOSITION
The value proposition defines the value that an offering aims to
create for the relevant market entities. The key to designing a
meaningful value proposition is to understand the value exchange
defining the relationship among the different market participants –
customers; the company; its collaborators; and its competitors.
To illustrate, consider the relationship between a manufacturer, a
retailer, and their customers. The manufacturer (the company)
partners with a retailer (the collaborator) to deliver offering to target
customers. Customers receive value from the product (created by the
manufacturer) they purchase as well as from the service (delivered by
the retailer) involved in the buying process. The retailer receives value
from customers in the form of margins (the differential between the
buying and selling price).
THE MARKET VALUE PRINCIPLE
1. Customer value – is the worth of an offering to its customers; it
is customers’ assessment of the degree to which an offering
fulfills their needs.
2. Collaborator value – is the worth of an offering to the company’s
collaborators; it is the sum of all benefits and the costs that an
offering creates for collaborators. Simply put, the collaborator
value proposition answers the question: Why would
collaborators choose the company’s offering instead of the
competitive alternatives?
3. Company value – is the worth of the offering to the company; it
is the sum of all benefits and costs associated with an offering.
The value of an offering is defined relative to the company’s goal
and the value of other opportunities that are available to the
company. The company value proposition answers the question:
Why would the company choose this offering instead of the
alternative options?
MARKETING TACTICS: DESIGNING THE MARKET OFFERING
The market offering is the actual good that the company deploys in
order to fulfill a particular customer need. It is defined by seven (7)
attributes:
1. The product – is a good that aims to create value for target
customers. Products can be both tangible and intangible.
Products entitle customers to the rights to the acquired good.
2. The service – is a good that aims to create value for its customers
without entitling them to ownership of this good (movie rental,
appliance repair, medical procedures, and tax preparation).
3. The brand – aims to identify the company’s products and
services, differentiate them from those of the competition, and
create unique value beyond the product and service aspects of
the offering.
4. The price – is the amount of money the company charges its
customers and collaborators for the benefits provided by the
offering.
5. Incentives – are tools that enhance the value of the offering by
reducing its costs and/or by increasing its benefits. Common
incentives include volume discounts, price reductions, coupon,
rebates, premiums, bonus offerings, contests, and rewards.
Incentives can be offered to individual customers as well as to the
company’s collaborators (incentives given to channel partners).
6. Communication – informs the relevant market entities- target
customers, collaborators, and the company-about the specifics
of the offering.
7. Distribution – involves the channels used to deliver the offering
to target customers and the company’s collaborators.
CHAPTER 3: IDENTIFYING TARGET CUSTOMERS:
SEGMENTATION AND TARGETING ANALYSIS
Targeting as a key marketing concept
Targeting is the process of identifying customers for whom the
company will optimize its offering.
The logic of targeting: Imagine a company operating in a market in
which there are two customers with different needs. Which of these
customers should the company serve? Should the company choose to
target both customers, it has two options for developing an offering.
One approach is to develop same offering for both customers (one-
for-all strategy), and the other is to develop different offerings based
on the needs of each customer (one-for-each strategy).
The one-for-all strategy of developing the same offering for different
customers is not effective for customers with different needs because
the offering will end up not creating value for at least one of them
(and perhaps even both).
The one-for-each strategy of developing a separate offering for each
customer might not be effective because the company might not have
the resources to develop offerings that meet the needs of both
customers.
As a general rule, developing a separate offering for each individual
customer is beneficial when the incremental value created by
customizing the offering outweighs the costs of developing the
offering. To illustrate, when the cost of customization is relatively high
(as with durable goods such as cars, household appliances, and
electronic equipment), companies tend to develop offerings that
serve relatively large groups of customers, whereas in industries
where the cost of customization is relatively low (as in the case of
delivering online information), offerings can be tailored for smaller
groups of customers.
Segment-based targeting
Grouping customers into segments enables a company to improve the
cost efficiency of its marketing activities by not having to customize
the offering for individual customers, usually with the minimal
sacrifice to the effectiveness of the offering. From a conceptual
standpoint, the process of identifying target customers is virtually the
same, be it individual customers or customer segments. The key
difference is that in addition to identifying the needs of the target
customers, segment-based targeting involves grouping customers
with similar needs into segments – a process commonly called
segmentation.
Customers vary in two main aspects:
1. The first aspect captures value-based factors that reflect
customers’ needs and their ability to pay for the company’s
offering.
2. The second aspect captures profile-based factors that reflect
customers’ readily observable characteristics such as their age,
gender, income, social status, geographic location, and buying
behavior.
The existence of value and profile raises the question of which one to
prioritize in targeting. Focusing on value is logical because value-
creation is the essence of any business activity. The drawback of
focusing on value is that value is unobservable, which makes it difficult
for the company to develop an effective and cost-efficient action plan
to create and manage customer value. Focusing on the customer
profile can be beneficial because it is observable, which enables the
company to make customers aware of the offering and deliver the
offering in an effective and cost-efficient manner.
Strategic targeting
Strategic targeting – focuses on the value defined by customer needs
and the potential to create value for the company. It identifies the
specific customer needs that the company aims to fulfill with its
offering. It is guided by the company’s ability to develop an offering
that will fulfill the needs of its customers better than the competition
can while benefiting the company and its collaborators. Accordingly,
when evaluating the viability of a particular customer segment, a
manager must address two key questions:
a. Can the company create superior value for the customers?
b. Can the customers create superior value for the company
and its collaborators?
The answer to the first question is determined by the degree to which
the company’s resources are compatible with the needs of target
customers. The answer to the second question is determined by the
ability of target customers to create value for the company and its
collaborators.
Target compatibility
It reflects the company’s ability to fulfill the needs of its customers
better than the competition. Simply put, it is the ability of the
company to create superior customer value. It is the function of the
company’s resources and the degree to which these resources enable
it to create superior value for target customers. The key resources –
also referred to as strategic assets include the following:
1. Business Infrastructure involves several types of assets like
manufacturing infrastructure that comprises the company’s
production facilities and equipment; service infrastructure such
as call-center and customer relationship management solutions;
supply- chain infrastructure including procurement and
processes; and management infrastructure which is define by the
company’s business management culture.
2. Skilled employees are the company’s human resources with
technological, operational, and business expertise. For many
organizations – such as those involved in research and
development, education, and consulting – human capital is a key
value-creating asset.
 customer’s affinity for sports does not necessarily mean
3. Collaborator networks include two types: vertical networks in that this customer needs a new tennis racket.
which collaborators are located along the company’s supply
chain (suppliers and distributors), and horizontal networks that
collaborate with the company in developing and promoting the
offering (research and development, manufacturing, and
promotion collaborators).

4. Know-how is the relevant expertise needed to address a

particular customer need, including a company’s proprietary
processes, technologies, and intellectual property such as
patents and trade secrets.

5. Strong brands create value by identifying the offering and

generating meaningful associations that create value above and
beyond the value created by the product and service aspects of
the offering.

6. Access to capital provides the company with access to the

financing needed to design, produce, communicate, and deliver
the offering to target market.

Tactical targeting

It aims to identify an effective and cost-efficient approach to

communicate and deliver the offering to already selected target
customers. It has key aspects:

1. The customer identification problem. Identifying viable

customers is the key to success of an offering. However,
identifying target customer based on their needs has an
important drawback: customer needs are not readily observable
and therefore cannot be acted upon to communicate and deliver
the company’s offering. Because targeting aims to optimize the
value-creation process, value-based segmentation is almost
always the starting point of targeting analysis.

2. Defining the customer profile. These observable factors –

referred to as customer profile involves the following:
a. Demographic factors – include customers’ descriptive
characteristics such as age, gender, income, occupation,
level of education, religion, nationality, employment status,
population density (urban or rural), social class, household
size, and geographical location. When target customers are
companies, they are referred to as firmographics which
include: location, size, organizational structure, industry,
revenues, growth, profitability, and buying processes.

b. Behavioral factors – include the frequency with which they

purchase the offering, the quantity they typically purchased,
price sensitivity, sensitivity to the company’s promotional
activities, mode of purchase (online vs. offline), loyalty, and
frequently used retail outlets.

c. Psychographics - a commonly used customer descriptor,

reflects individual’s personality including moral values,
attitudes, interest, and lifestyle. These are not readily
observable. These are more general descriptors of an
individual’s attitudes that in most cases are not directly
related to the company’s offering. For example, a