Marketing Strategy | Strategic Management | Market Segmentation

Marketing Strategy

By

Prof. RAVI NAGARAJAN

MARKETING STRATEGY

What is a strategy?
A Strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors and other environmental factors. A Strategy should specify (1) what (objectives to be accomplished), (2) where (on which industries and product-markets to focus), and (3) how (which resources and activities to allocate to each product-market to meet environmental opportunities and threats and to gain a competitive advantage.

THE COMPONENTS OF STRATEGY
1. Scope. The scope of an organization refers to the breadth of its strategic domain – the number and types of industries, product lines, and market segments it competes in or plans to enter. Decisions about an organization’s strategic scope should reflect management’s view of the firm’s purpose or mission. Goals and objectives. Strategies also should detail desired levels of accomplishment on one or more dimensions of performance such as volume growth, profit contribution, or return on investment over specified time periods for each of those businesses and product-markets and for the organization as a whole.

2.

3.

4.

5.

Resource deployments. Every organization has limited financial and human resources. Formulating a strategy also involves deciding how those resources are to be obtained and allocated, across businesses, product-markets, functional departments, and activities within each business or product-market. Identification of a sustainable competitive advantage. One important part of any strategy is a specification of how the organization will compete in each business and product-market within its domain. Synergy. Synergy exists when the firm’s businesses, product-markets, resource deployments and competencies complement and reinforce one another.

The Hierarchy of Strategies

The three major levels of strategy in most large, multiproduct organizations are 1. Corporate Strategy, 2. Business-level strategy, and 3. Functional Strategies.
Corporate Strategy At the corporate level, managers must coordinate the activities of multiple business units and in the case of conglomerates, even separate legal business entities. Marketing Strategy The primary focus of marketing strategy is to effectively allocate and coordinate marketing resources and activities to accomplish the firm’s objectives within a specific product market.

Business Level Strategy How a business unit competes within its industry is the critical focus of business-level strategy. Another important issue a business-level strategy must address is appropriate scope: how many and which market segments to compete in. A major issue in a business strategy is that of sustainable competitive advantage. . and the overall breadth of product offerings and marketing programs to appeal to these segments.

differences in market and competitive conditions across country boundaries can require firms to adapt their competitive strategies and marketing programs to be successful. But while global markets represent promising opportunities for additional sales growth and profits.RECENT DEVELOPMENTS AFFECTING THE STRATEGIC ROLE OF MARKETING Globalization International markets account for a large and growing portion of the sales of many organizations. . Its production may or may not be tied to a physical product”. Increased Importance of Service A service can be defined as “any activity or benefit that one party can offer another that is essentially intangible and that does not result in the ownership of anything.

prices and financing arrangements to fit such segments. preferences.Information Technology The computer revolution and related technological developments are changing the nature of marketing management in two important ways. First. new technologies are making it possible for firms to collect and analyze more detailed information about potential customers and their needs. . information technology is making it possible for many firms to identify and target smaller and more precisely defined market segments sometimes segments consisting of only one or a few customers and to customize product features. Thus. promotional appeals. and buying habits. A second impact of information technology has been to open new channels for communications and transactions between suppliers and customers.

Understanding Market Opportunities: Understanding the nature and attractiveness of any opportunity requires conducting an examination of the external environment. . including the markets served and the industry of which the firm is a part.MAJOR OPPORTUNITY ANALYSIS A major factor in the success of failure of strategies at all three levels is whether the strategy elements are consistent with the realities of the firm’s external environment and its own capabilities and resources.

Targeting and Positioning Decisions Not all customers with similar needs seek the same products or services to satisfy those needs. . that is. Their purchase decisions may be influenced by individual preferences. Market Segmentation. especially those of the newto-the-world variety. Preparing an evidence-based forecast of the sales that can be achieved over the short and intermediate term is quite another. to design the product and its marketing program so as to emphasize attributes and benefits that appeal to customers in the target segment and at once distinguish the company’s offering from those of competitors. social circum-stances. personal characteristics. The manager must decide how to position the product or service offering within a target segment.Measuring Market Opportunities Understanding the overall attractiveness of a market opportunity is one thing. and is a particularly difficult task for new products.

it targeted its marketing efforts at a more selective segment of potential customers.CORPORATE STRATEGY DECISIONS AND THEIR MARKETING IMPLICATIONS The Target Market Consistent with the firm’s new strategic mission. mission and What business(es) should the firm intent be in? What customer needs. and/or technologies should be focused on? What is the firm’s enduring strategic purpose or intent? . market segments. Corporate Strategy Components and Issues Strategy Component Key Issues Scope.

or other resources or competencies available to the firm provide a basis for a sustainable competitive advantage? How can the firm achieve a desired level of growth over time? Can the desired growth be attained by expanding the firm’s current businesses? Will the company have to diversify into new businesses or product-markets to achieve its future growth objectives? Source of competitive advantage Development Strategy .Objectives What performance dimensions should the firm’s business units and employees focus on? What is the target level of performance to be achieved on each dimension? What is the time frame in which each target should be attained? What human. technical.

and customer based intangibles (e. brand recognition.g. R&D..Resource Allocation How should the firm’s limited financial resources be allocated across its businesses to produce the highest returns? Of the alternative strategies that each business might pursue. reputation) might be developed and shared across the firm’s businesses? What operational resources. knowledge. which will produce the greatest returns for the dollars invested? What competencies. facilities or functions (eg. sales force) might the firm’s businesses share to increase their efficiency? Sources of Synergy . plants..

Two sets of analytical tools have proven useful in making such decisions: Portfolio models and value-based planning. .Allocating Corporate Resources Diversified organizations have several advantages over more narrowly focused firms. They have a broader range of areas in which they can knowledgeably invest. and their growth and profitability rates may be more stable because they can offset declines in one business with gains in another.

. The vertical axis indicates the industry’s growth rate and the horizontal axis shows the business’s relative market share.The Boston Consulting Group’s (BCG) GrowthShare Matrix One of the first-and best known of the portfolio models is the growth-share matrix developed by the Boston Consulting Group. It analyzes the impact of investing resources in different businesses on the corporation’s future earnings and cash flows.

This model represents businesses in rapidly growing industries as more attractive investment opportunities for future growth and profitability. . a business’s relative market share is a proxy for its competitive strength within its industry. the market growth rate on the vertical axis is a proxy measure for the maturity and attractiveness of an industry. Resource Allocation and Strategy Implications Question marks.The growth-share matrix assumes that a firm must generate cash from businesses with strong competitive positions in mature markets. Similarly. Businesses in high-growth industries with low relative market shares are called question marks or problem children Stars. Thus.

Strategic Decisions at the business-unit level The components of a firm engaged in multiple industries or businesses are typically called strategic business units. 2.Control over those factors necessary for successful performance. such as production. R&D and engineering.A homogeneous set of markets to serve with a limited number of related technologies. How should Strategic Business Units Be Designed? 1. marketing. in the sense that no other SBU within the competes for the same customers with similar products.Responsibility for their own profitability.A unique set of product-markets. and distribution. 3. 4. .

An industry is a group of firms that offer a product or class of products that are similar and are close substitutes for one another.Markets and Industries: What’s the Difference? We define a market as being comprised of individuals and organizations who are interested and willing to buy a good or service to obtain benefits that will satisfy a particular need or want and who have the resources to engage in such a transaction. .

PORTER’S FIVE COMPETITIVE FORCES The Major Forces that Determine Industry Attractiveness Threat of new entrants Bargaining power of buyers Rivalry among present competitors Bargaining power of suppliers Threat of substitutes .

thereby making competition more intense. Threat of New Entrants A second force affecting industry attractiveness is the threat of new entrants.Rivalry among Present Competitors Rivalry occurs among firms that produce products that are close substitutes for each other. . firms are mutually dependent. Thus. New competitors add capacity to the industry and bring with them the need to gain market share. especially when one competitor acts to improve its standing or protect its position.

Threat of Substitute Products Substitutes are alternative product types (not brands) that perform essentially the same functions.Bargaining Power of Suppliers The bargaining power of suppliers over firms in an industry is the third major determinant of industry attractiveness. Bargaining Power of Buyers An industry’s customers constantly look for reduced prices. improved product quality and added services and thus can affect competition within an industry. .

Statistical and Other Quantitative Methods Statistical methods use past history and various statistical techniques. such as multiple regression or time series analysis. Observation Another method for preparing an evidence-based forecast is to directly observe or gather existing data about what real consumers do in the product-market of interest. . to forecast the future based on an extrapolation of the past.

Surveys or Focus Groups Another common way to forecast sales or estimate market potential is to conduct surveys or focus groups. Analogy An approach often used for new product forecasting where neither statistical methods nor observations are possible is to forecast the sales or market potential for a new product or product class by analogy. .

Judgment While he hesitate to call this a forecasting method of its own. market tests such as experimental test markets may be done under controlled experimental conditions in research laboratories. Used largely for new products. or intuition. or in live test markets with real advertising and promotion and distribution in stores . sometimes forecasts are made solely on the basis of experienced judgment. Market Tests Market tests of various kinds are the last of our most commonly used methods. since capable and informed judgment is required for all methods.

.Marketing Research: A Foundation for Strategic Decision Making We now turn briefly to the marketing research task: the design. analysis and reporting of research intended to gather data pertinent to a particular marketing challenge or situation. collection.

data collection approach. 4. 5. Design research: type of study. sample. . 6. Identify managerial problem and establish research objectives. Determine data sources (primary or secondary) and types of data and research approaches (qualitative or quantitative) required. 3. etc.Steps in the Marketing Research Process Steps: 1. Collect data Analyze data Report results to the decision maker 2.

Market Segmentation Market segmentation is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and marketing program. target marketing. All must be well considered and implemented if the firm is to be successful in managing a given product-market relationship. These three decision processes-market segmentation. . and positioning are closely linked and have strong interdependence.

their response rates to products and marketing programs differ. . • Specify criteria that define the segment. How Are Market Segments Best Defined? • Identify a homogeneous segment that differs from other segments.Most Markets Are Heterogeneous Because markets are rarely homogeneous in benefits wanted. and price and promotion elasticities. • Determine segment size and potential. purchase rates.

Demographic Descriptors 1. The product that provides the best bundle of benefits given the customer’s particular needs is most likely to be purchased. 3. . 2. Age Sex Income Consumer Needs Customer needs are expressed in benefits sought from a particular product or service. Marketers can defined segments according to these different choice criteria in terms of the presence or absence of certain characteristics and the importance attached to each. Choice Criteria.

Product-Related Behavioral Descriptors Product usage is important because in many markets a small proportion of potential customers makes a high percentage of all purchases. Market segmentation based on sources of purchase influence for the product category is relevant for both consumer and organizational markets. . but joint husband-wife decisions are becoming more common. Many products used by various family members are purchased by the wife.

segments markets on the basis of consumer’s activities. .Lifestyle Segmentation by lifestyle. Social Class Every society has its status groupings based largely on similarities in income. interest. education. what they do or believe. and opinions in other words. and occupation. or psychographics. rather than who they are in a demographic sense.

they break that market into a number of homogeneous segments on the basis of meaningful differences in the benefits sough by different groups of customers. To prioritize target segments by their potential. One useful analytical framework managers or entrepreneurs can use for this purpose is the marketattractiveness/competitive-position matrix. marketers must evaluate their future attractiveness and their firm’s strengths and capabilities relative to the segment’s needs and competitive situations. Instead.Choosing Attractive Market Segments: A Five-Step Process Most firms no longer aim a single product and marketing program at the mass market. . But not all segments represent equally attractive opportunities for the firm.

.Select Market – Attractiveness and Competitive Position Factors An evaluation of the attractiveness of a particular market or market segment and of the strength of the firm’s current or potential competitive position in it builds naturally on the kind of opportunity analysis developed.

customer. Assess the current position of each potential target market on each factor. Weigh market attractiveness and competitive position factors to reflect their relative importance 3. Project the future position of each market based on expected environmental.1. Evaluate implications of possible future changes for business strategies and resources requirements. 4. Choose criteria to measure market attractiveness and competitive position 2. and competitive trends. . 5.

Niche Market Strategy This strategy involves serving one or more segments that.Different Targeting Strategies Suit Different Opportunities Three common targeting strategies are niche-market. while not the largest. consist of substantial numbers of customer seeking some what specialized benefits from a product or service. . mass-market and growth market strategies.

even though they may not currently be very large. A second approach to the mass market is to design separate products and marketing programs for the differing segments. First it can ignore any segment differences and design a single product and marketing program that will appeal to the largest number of consumers.Mass Market Strategy A business can pursue a mass-market strategy in two ways. . This is often called differentiated marketing. Growth Market Strategy Businesses pursuing a growth market strategy often target one or more fast-growth segments.

More and more companies are approaching global market segmentation by attempting to identify consumers with similar needs and wants reflected in their behavior in the market place in a range of countries.GLOBAL MARKET SEGMENTATION The traditional approach to global market segmentation has been to view a country or a group of countries as a single segment comprising all consumers. .

PREPARING THE FOUNDATION MARKETING STRATEGIES: THE POSITIONING PROCESS FOR Positioning a new product in customer’s minds or repositioning a current product involves a series of steps. .

7. Identify the set of determinant attributes that define the “product space” in which positions of current offerings are located 3. Determine product’s current location (positioning) in the product space and intensity thereof. Examine the fit between preferences of market segments and current position of product (market positioning) Identify positions where additional new products might be placed. Identify relevant set of competitive products serving a target market 2. Write positioning statement or value proposition to guide development and implementation of marketing strategy.1. Determine customers’ most preferred combination of determinant attributes. . 5. 6. Collect information from a sample of customers and potential customers about perception of each product on the determinant attributes 4.

The mature state is reached when the net adoption rate holds steady – that is. when adopters approximate dropouts. also the product often lacks easy availability. enter suddenly.THE PRODUCT LIFE CYCLE The product life cycle is concerned with the sales history of a product or product class. and enter the decline stage shortly thereafter. peak early. Growth slows as the number of buyers nears the maximum and repeat sales become increasingly more important than trial sales. sales increase at a progressively faster rate (the growth stage). a new product’s purchase is limited because members of the target market are insufficiently aware of its existence. Fads. The sales rate declines and the product is said to have reached its final or decline stage. such as per rocks and hula hoops. Just before the advent of maturity – the shakeout or competitive turbulence stage occurs. . As more people learn about the product and it becomes more readily available. experience strong and quick enthusiasm. At the beginning (the introductory stage).

Penetration pricing enables the firm to strive for quick market development and makes sense when there is a steep experience curve. promotion expenditures involving advertising and sales force are a high percentage of sales. and strong potential competition. especially for a mass-market. During the introductory period. a large market. Some dot-coms spent themselves to failure for promotional purposes. .Market and Competitive Implications of Product Life Cycle Stages Marketing Mix in the Introductory Stage Basic strategy choices involve skimming and penetration. The importance of distribution and channel intermediaries varies substantially from consumer to industrial goods. For industrial goods. Skimming is designed to obtain as much margin per unit as possible. small-value product. which lowers costs. personal selling costs are apt to be much higher than advertising costs.

Prices tend to decline during the growth period and price differences between brands decrease. Important product improvements continue in the growth stage. Marketing Mix Changes While the product line expands to attract new market segments. . the quest for competitive advantage shifts to differentiation from other entrants in the product class.Growth Stage This stage starts with a sharp increase in sales.

Shakeout Stage The advent of this period is signaled by a drop in the overall growth rate and is typically marked by substantial price cuts. . During shakeout the firm must rationalize its product line by eliminating weaker items. the stronger firms gain share. and strengthen its channel relationships. Mature Stage When sales plateau. As weaker competitors exit the market. which typically lasts for some time. emphasize creative promotional pricing. the product enters the mature stage.

. which may be gradual (canned vegetables / hot cereals) or extremely fast (some prescription drugs). therefore any significant breakthroughs by R&D or engineering that help to differentiate the product or redirect its cost can have a substantial payout. Promotion expenditures and prices tend to remain stable during the mature stage. The sales pattern may be one of decline and then petrification as a small residual segment still clings to the use of the product (tooth powder versus toothpaste). Decline Stage Eventually most products enter the decline stage. the various brands in the market place become more similar.Marketing Mix Changes Because of technical maturity.

4. 5. 7. 2. It is assumed competitive advantages inherent in being the first to enter a new product-market can be sustained through the growth stage and into the maturity stage of the product life cycle. Some of the potential sources of competitive advantage available to pioneers are: 1. 3. Distribution Advantages Economics of Scale and Experience High switching costs for early adopters Possibility of positive network effects Possibility of preempting scarce resources suppliers.MARKET ENTRY STRATEGIES: IS IT BETTER TO BE A PIONEER OR A FOLOWER? Pioneer Strategy Successful pioneers are handsomely rewarded. First choice of market segments and positions. and . 6. resulting in a strong share position and substantial returns. The pioneer defines the rules of the game.

3. Ability to take advantage of the pioneer’s marketing mistakes Ability to take advantage of the latest technology Ability to take advantage of the pioneer’s limited resources . 5. 4. 1. Ability to take advantage of the pioneer’s positioning mistakes.In many cases a firm becomes a follower by default. 2. It is simply beaten to a new product market by a quicker competitor. Ability to take advantage of the pioneer’s product mistakes.

Early participation in a growth market is necessary to make sure that the firm keeps pace with the technology. It is easier to gain share when a market is growing Share gains are worth more in a growth market than in a mature market. Price competition is likely to be less intense. . 3.OPPORTUNITIES MARKETS AND RISKS IN GROWTH Why are followers attracted to rapidly growing markets? 1. 2. 4.

ensuring that those customers remain brand loyal when making repeat or replacement purchases. The leader is typically the pioneer.GROWTH MARKET STRATEGIES FOR MARKET LEADERS For the share leader in a growing market. Marketing Objectives for Share Leaders Share maintenance for a market leader involves two important marketing objectives. the first must stimulate selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales. or at least one of the first entrants. who developed the product-market in the first place. . of course. First the firm must retain its current customers. Second. the question of the relative advantages versus risks of market entry is moot.

. Actions to Improve Customer Satisfaction and Loyalty The rapid expansion of output necessary to keep up with a growth market often can lead to quality control problems for the market leader.Fortress. or Position Defense. Flanker Strategy To defend against an attack directed at a weakness in its current offering (its exposed flank). Strategy The most basic defensive strategy is to continually strengthen a strongly held current position. a leader might develop a second brand (a flanker or fighting brand) to complete directly against the challengers offering. Actions to Encourage and Simplify Repeat Purchasing One of the most critical actions a leader must take a ensure that customers continue buying its product is to maximize its availability.

or Strategic Withdrawal. Here the leader defends market share by expanding into a market segment. Market Expansion Strategy A market expansion strategy aggressive and proactive version of strategy. a leader may be unable to defend itself adequately in all segments.Confrontation Strategy Suppose a competitor choose to attack the leader head to head and attempts to steal customers in the leader’s main target market. Strategy In some highly fragmented markets. is a more the flanker its relative number of Contraction. .

or lifestyles. . replacement purchases rather than first-time buyers account for the vast majority of that volume. This slackening of the growth rate either sparks or occurs simultaneously with other changes in the market and competitive environment. Challenges in Declining Markets : Eventually. changing customer demographics. tastes.STRATEGIC CHALLENGES ADDRESSED Challenges in Mature Markets : Businesses that survive the shakeout face new challenges as market growth stagnates. Characteristics of the Transition Period : The transition from market growth to maturity typically begins when the market is still growing but the rate of growth starts to decline. and development of substitutes result in declining demand for most product forms and brands. technological advances. As a market matures. total volume stabilizes.

Centralization refers to the location of decision authority and control within an organization’s hierarchy. Specialization refers to the division of tasks and activities across positions within the organizational unit. centralization and specialization are important in shaping both an SBU’s and its marketing department’s performance within the context of a given competitive strategy. . Organizational Structures Three structural variables – formalization. Formalization is the degree to which formal rules and standard policies and procedures govern decisions and working relationships.STRATEGIC CHOICES IN MATURE MARKETS The maturity phase of an industry’s life cycle is often depicted as one of stability characterized by few changes in the market shares of leading competitors and steady prices.

and other relevant factors. product quality. Macro Environmental Situation This section describes broad environmental occurrences or trends that may have a bearing on the product’s future. Total market size and growth trends should be discussed. along with any variations across geographic regions or other market segments. . marketing strategies. Competitive Situation This section identifies and describes the product’s major competitors in terms of their size. market share.THE SITUATION ANALYSIS Market Situation Here data are presented on the target market.

this part of the situation analysis discusses the product’s performance on such dimensions as sales volume. the assessment of the current situation also typically includes estimates of sales potential. . margins. marketing expenditures. Sales Forecast and Other Key Assumptions Finally. and profit contribution for several recent years. sales forecasts. and other evidence or assumptions underlying the plan.Past Product Performance If the plan is for an existing product.

DESIGNING MARKETING METRICS STEP BY STEP Setting standards of performance Specifying the necessary feedback data Obtaining the needed data Evaluating feedback data – explaining gap between actual and given standards of performance Taking corrective action .

Contribution analysis is helpful in determining the yield derived from the application of additional resources (for instance. and distribution channels (intermediaries). products. or variable. Direct costing involves the use of contribution accounting. to certain sales territories) .PROFITABILITY ANALYSIS Profitability analysis requires that analysis determine the costs associated with specific marketing activities to find out the profitability of such units as different market segments. customer accounts. and indirect costs to the unit of analysis. analysts assign both direct. In full costing. Indirect costs involve certain fixed joint costs that cannot be linked directly to a single unit of analysis.

planning and control systems. the ability to satisfy the customer across a variety of activities (of which the product is only one) will become an even greater success determinant. THE MARKETING AUDIT TYPES OF AUDITS Audits are normally conducted for such areas as the SBU’s marketing environment. objectives and strategy.CUSTOMER SATISFACTION As products and services become more alike in an already highly competitive marketplace. and individual marketing activities such as sales and advertising. productivity. Organization. .

The marketing environment audit requires an analysis of the firm’s present and future environment with respect to its macro components. especially in consumer goods companies. 4. given current major environmental trends and any changes in the firm’s resources. in depth. . how adequacy the firm handles each of the marketing mix elements. The marketing productivity audit evaluates the profitability of the company’s individual products. The unit’s planning and control system audit evaluates the adequacy of the systems that develop the firm’s productmarket entry action plans and the control and reappraisal process. The marketing functions audit examines. 8. 3. 7. The organization audit deals with the firm’s overall structure 5. markets 6. 2. The company’s ethical audit evaluates the extent to which the company engages in ethical and socially responsible marketing.1. The product manager audit. The objectives and strategy audit calls for an assessment of how appropriate these internal factors are. seeks to determine whether product managers are channeling their efforts in the best ways possible.

Sign up to vote on this title
UsefulNot useful