Chapter 02

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Developing Successful Marketing and Organizational Strategies2

LEARNING OBJECTIVESAfter reading this chapter you should be able to:

Describe two kinds of organizations and the three levels of strategy in them.

Describe how core values, mission, organizational culture, business, and goals are important to organizations.

Explain why managers use marketing dashboards and metrics.

Discuss how an organization assesses where it is now and seeks to be.

Explain the three steps of the planning phase of the strategic marketing process.

Describe the elements of the implementation and evaluation phases of the strategic marketing process.

WHERE AN “A” IN A CORRESPONDENCE COURSE IN ICE CREAM MAKING CAN LEAD!Here’s what the two founding entrepreneurs who aced their $5 col-lege correspondence course in ice cream making are doing in their organization today:

● They buy their milk and cream from one dairy cooperative whose members guarantee the supplies are bovine growth-hormone free.

● Their PartnerShop, Scoopers Making Change, and Cones 2 Career programs help nonprofit organizations give jobs to at-risk youth.

● The summer 2009 limited edition “Goodbye Yellow Brickle Road” (opposite page) ice cream is a partnership with Sir Elton John to help his worldwide AIDS Foundation. The name is a play on one of his most popular song titles. The flavor is “an outrageous symphony of decadent chocolate ice cream, peanut butter cookie dough, but-terbrickle and white chocolate chunks.” Will it reappear in 2010?

● They are developing a “Cleaner Greener Freezer” for Ben & Jerry’s U.S. retail locations, an innovative freezer that uses an eco-friendly refrigerant to save the ozone layer and reduce greenhouse gases.

This creative, funky business is Ben & Jerry’s Homemade Holdings, Inc., which links its mission statement to social causes designed to improve humanity, as shown on the opposite page. Their business started in 1978 when, longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to start an ice cream parlor in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 Penn State cor-respondence course in ice cream making, Ben and Jerry were off and scooping.1 Today, Ben & Jerry’s is owned by Unilever, which is the mar-ket leader in the global ice cream industry—one that is expected to reach $43 billion by 2013.2 While customers love Cherry Garcia and the company’s other rich premium ice cream flavors, many buy its products to support Ben & Jerry’s social mission (opposite page). Chapter 2 describes how organizations such as Ben & Jerry’s, Medtronic, and Kodak set goals to give an overall direction that is linked to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented. The results are then evaluated to assess the degree to which they accomplish the organization’s goals, consistent with its core values and mission.

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TODAY’S ORGANIZATIONS

In studying today’s visionary organizations, it is important to recognize (1) the kinds

of organizations that exist, (2) what strategy is, and (3) how this strategy relates to

the three levels found in many large organizations.

Kinds of OrganizationsAn organization is a legal entity of people who share a common mission. This moti-

vates them to develop offerings (products, services, or ideas) that create value for both

the organization and its customers by satisfying customer needs and wants.3 Today’s

organizations can be divided into business firms and nonprofit organizations.

A business firm is a privately owned organization such as Amazon or Nike that

serves its customers to earn a profit so that it can survive.4 Profit is the money left

after a business firm’s total expenses are subtracted from its total revenues and is

the reward for the risk it undertakes in marketing its offerings.

In contrast, a nonprofit organization is a nongovernmental organization that serves

its customers but does not have profit as an organizational goal. Instead, its goals

may be operational efficiency or client satisfaction. Regardless, it also must receive

sufficient funds above its expenses to continue operations. Charities and farm coop-

eratives affiliated with Ben & Jerry’s are examples of this kind of organization. Both

business firms and nonprofit organizations increasingly seek to achieve sustainable

development, as described in the Making Responsible Decisions box.5 For simplicity

in the rest of the book, the terms firm, company, corporation, and organization are

used interchangeably to cover both business and nonprofit operations.

Organizations that develop similar offerings create an industry, such as the com-

puter industry or the automobile industry.6 As a result, organizations make strategic

decisions that reflect the dynamics of the industry to create a compelling and sustain-

able advantage for their offerings relative to those of competitors to achieve a supe-

rior level of performance.7 The foundation of much of an organization’s marketing

strategy is having a clear understanding of the industry within which it competes.

Both business firms such as Google and nonprofit organizations like Nature Conservancy use strategies and organizational structures to achieve their goals.

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What Is Strategy?An organization has limited human, financial, technological, and other resources

available to produce and market its offerings—it can’t be all things to all people!

Every organization must develop strategies to help focus and direct its efforts to

accomplish its goals. However, the definition of strategy has been the subject of

debate among management and marketing theorists.8 For our purpose, strategy is

an organization’s long-term course of action designed to deliver a unique customer

experience while achieving its goals.9 Whether explicit or implicit, all organizations

set a strategic direction. And marketing helps not only to set this direction but also

to move the organization there.

Structure of Today’s OrganizationsLarge organizations such as Medtronic and Kodak are extremely complex. They usu-

ally consist of three organizational levels whose strategies are linked to marketing,

as shown in Figure 2–1.

Making Responsible Decisions > > > > sustainabilityThe Global Dilemma: How to Achieve Sustainable Development

Corporate executives and world leaders are increasingly asked to address the issue of “sustainable development.” This term was formally defined in a 1987 United Nations report as meeting present needs “without compromising the ability of future generations to meet their own needs.”

With more than half of the households in many develop-ing nations below the poverty level, should the immediate goal be a cleaner environment or more food, clothing, hous-ing, and consumer goods for its citizens? What should the heads of these governments do? What should business firms and nonprofit organizations trying to enter these developing nations do? What will be the impact on future generations?

The 3M Company developed an innovative program called Pollution Prevention Pays (3P) to reduce harmful envi-ronmental impacts, while making a profit doing so. The com-pany estimates that the 3P program in the last quarter cen-tury has cut its pollution by 1.6 billion pounds while saving almost $900 million in raw materials and avoiding fines. The company’s 2010 environmental goal is to improve energy efficiency per pound of product by 20 percent while reduc-ing waste generated from its operations by 20 percent.

Should the environment or economic growth come first? What are the societal trade-offs?

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Functional-level strategy

Departments

Finance Marketing ManufacturingInformationsystems

Research anddevelopment

Humanresources

Business unit–level strategy

Corporate-level strategy

Board of DirectorsFIGURE 2–1The board of directors oversees the three levels of strategy in organizations: corporate, business unit, and functional.


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Corporate Level The corporate level is where top management directs over-

all strategy for the entire organization. “Top management” usually means the board

of directors and senior management officers with a variety of skills and experiences

that are invaluable in establishing overall strategy.

The president or chief executive officer (CEO) is the highest ranking officer in the

organization and is usually a member of its board of directors. This person must possess

leadership skills and expertise ranging from overseeing the organization’s daily opera-

tions to spearheading strategy planning efforts that may determine its very survival.

In recent years many large firms have changed the title of the head of marketing

from vice president of marketing to chief marketing officer (CMO). These CMOs

have an increasingly important role in top management because of their ability to

think strategically. Most bring multi-industry backgrounds, cross-functional manage-

ment expertise, analytical skills, and intuitive marketing insights to their job, which

enables them to create and deliver value to the organization and its customers.10

Strategic Business Unit Level Some multimarket, multiproduct firms, such

as General Electric or Johnson & Johnson, manage a portfolio or group of busi-

nesses.11 Each group is a strategic business unit (SBU), which is a subsidiary,

division, or unit of an organization that markets a set of related offerings to a clearly

defined group of customers. At the strategic business unit level, managers set a more

specific strategic direction for their businesses to exploit value-creating opportuni-

ties. For less complex firms with a single business focus, such as Ben & Jerry’s, the

corporate and business unit levels may merge.

Functional Level Each strategic business unit has a functional level, where

groups of specialists actually create value for the organization. The term departmentgenerally refers to these specialized functions such as marketing and finance (see

Figure 2–1). At the functional level, the organization’s strategic direction becomes its

most specific and focused. Just as there is a hierarchy of levels within an organiza-

tion, there is a hierarchy of strategic directions set by managers at each level.

A key role of the marketing department is to look outward, keeping the organiza-

tion focused on creating value both for it and for customers. This is accomplished

by listening to customers, developing and producing offerings, and implementing

marketing program activities.

When developing marketing programs for new offerings or for improving exist-

ing ones, an organization’s senior management may form cross-functional teams.

These consist of a small number of people from different departments who are

mutually accountable to accomplish a task or a common set of performance goals.

Sometimes these teams will have representatives from outside the organization, such

as suppliers or customers, to assist them.

learning review1. What is the difference between a business firm and a nonprofit organization?

2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS

Management experts stress that to be successful, today’s organizations must be for-

ward looking. They must both anticipate future events and respond quickly and

effectively. This requires a visionary organization to specify its foundation (why does

it exist?), set a direction (what will it do?), and formulate strategies (how will it do

it?) as shown in Figure 2–2.12

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Organizational Foundation: Why Does It Exist?An organization’s foundation is its philosophical reason for being—why it exists—

and rarely changes. Successful visionary organizations use this foundation to guide

and inspire their employees through three elements: core values, mission, and orga-

nizational culture.

Core Values An organization’s core values are the fundamental, passionate,

and enduring principles that guide its conduct over time.13 A firm’s founders or senior

management develop these core values, which are consistent with their essential

beliefs and character.14 They capture the firm’s heart and soul and serve to inspire

and motivate its stakeholders—employees, shareholders, board of directors, suppliers,

distributors, creditors, unions, government, local communities, and customers. Core

values also are timeless and should not change due to short-term financial, opera-

tional, or marketing concerns. Finally, core values guide the organization’s conduct.

To be effective, an organization’s core values must be communicated to and supported

by its top management and employees; if not, they are just hollow words.15

Mission By understanding its core values, an organization can take steps to define

its mission, a statement of the organization’s function in society, often identifying

its customers, markets, products, and technologies. Often used interchangeably with

vision, a mission statement should be clear, concise, meaningful, inspirational, and

long-term.16

Medtronic is the world leader in producing heart pacemakers and other medical

devices. Earl Bakken, its founder, wrote this mission statement for Medtronic when

it was launched a half century ago, which has remained virtually unchanged:

“To contribute to human welfare by application of biomedical engineering in

the research, design, manufacture, and sale of instruments or appliances that

alleviate pain, restore health, and extend life.”

� �

Organizational direction (what)

• Business• Goals (objectives) • Long-term • Short-term

Organizational foundation (why)

• Core values• Mission (vision)• Organizational culture

Organizational strategies (how)

• By level • Corporate • SBU • Functional

• By offering • Product • Service • Idea

FIGURE 2–2Today’s visionary organization uses key elements to (1) establish a foundation and (2) set a direction using (3) its strategies that enable it to develop and market its offerings successfully.

People see this “rising figure” mural in the headquarters of a world-class corporation. What does it signify? What does it say to employees? To others? For some insights and why it is important, see the text.


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This inspiration and focus appear in the mission statements of both business firms

and nonprofit organizations:

● Southwest Airlines: To be dedicated “to the highest quality of Customer Service

delivered with a sense of warmth, friendliness, individual pride, and Company

Spirit.”● American Red Cross: “To provide relief to victims of disaster and help prevent,

prepare for, and respond to emergencies.”

Each statement exhibits the qualities of a good mission: a clear, challenging, and

compelling picture of an envisioned future.

Recently, many organizations have added a social element to their

mission statements to reflect an ideal that is morally right and worth-

while.17 This is what Ben & Jerry’s social mission statement is all about,

as shown in the chapter opening. Stakeholders, particularly customers,

employees, and now society, are asking organizations to be excep-

tional citizens by providing long-term value while solving society’s

problems.18

Organizational Culture An organization must connect with all

of its stakeholders. Thus, an important corporate-level marketing func-

tion is communicating its core values and mission to them. Medtronic

has a “rising figure” wall mural at its headquarters. The firm also

pre sents every new employee with a medallion depicting this “rising

figure” on one side and the company’s mission statement on the other. And each

December, several patients describe to a large employee holiday celebration how

Medtronic devices have changed their lives.19 These activities send clear messages

to employees and other stakeholders about Medtronic’s organizational culture,

the set of values, ideas, attitudes, and norms of behavior that is learned and shared

among the members of an organization.

Organizational Direction: What Will It Do?As shown in Figure 2–1, the organization’s foundation enables it to set a direction

in terms of (1) the “business” it is in and (2) its specific goals.

Business A business describes the clear, broad, underlying industry or market

sector of an organization’s offering. To help define its business, an organization looks

at the set of organizations that sell similar offerings—those that are in direct competi-

tion with each other—such as “the ice cream business.” The organization can then

begin to answer the questions, “What do we do?” or “What business are we in?”

In his famous “Marketing Myopia” article, Theodore Levitt argues that senior

managers of 20th century American railroads defined their business too narrowly,

proclaiming, “We are in the railroad business!” This myopic focus caused these firms

to lose sight of who their customers were and what they needed. Thus, railroads only

saw other railroads as direct competitors and failed to develop strategies to compete

with airlines, barges, pipelines, and trucks—firms whose offerings carry both goods

and people. As a result, many railroads merged or went bankrupt. Railroads would

have fared better if they had realized they were in “the transportation business.”20

With today’s increased global competition and worldwide financial crises, many

organizations are rethinking their business model, the strategies an organization

develops to provide value to the customers it serves. Technological innovation is

often the trigger for this business model change. American newspapers are looking

for a new business model as former subscribers get their news online and buy cars

In the first half of the 20th century, what “business” did railroads believe they were in? The text reveals their disastrous error.

For the reasons Netflix is altering its “business model” to respond to changing consumer demand and technologies, see the text and Marketing Matters box.


from Craigslist Inc. rather than using newspaper want ads.21 Microsoft is rethinking

its business model in the new era of $200 laptops.22 The Marketing Matters box

describes how Netflix founder and Chief Executive Officer Reed Hastings got the

idea for his start-up and how his business model is changing continuously to reflect

the way Internet breakthoughs are able to deliver movies more conveniently to a

consumer’s TV set.23

Goals Goals or objectives (terms used interchangeably in the textbook) are

statements of an accomplishment of a task to be achieved, often by a specific time.

For example, Netflix may have the goal of being the top provider of online movies

by 2011. Goals convert an organization’s mission and business into long- and short-

term performance targets to measure how well it is doing (see Figure 2–2).

Business firms can pursue several different types of goals:

● Profit. Most firms seek to maximize profits—to get as high a financial return

on their investments (ROI) as possible.● Sales (dollars or units). If profits are acceptable, a firm may elect to maintain

or increase its sales even though profits may not be maximized.● Market share. Market share is the ratio of sales revenue of the firm to the

total sales revenue of all firms in the industry, including the firm itself. A firm

may choose to maintain or increase its market share, sometimes at the expense

of greater profits if industry status or prestige is at stake.● Quality. A firm may offer the highest quality, as Medtronic does with its

implantable medical devices.

Marketing Matters > > > > > entrepreneurshipThe Netflix Launch and Its Continually . . . Continually . . . Continually . . . Changing Business Model!

If in 1997 a customer had been charged a late fee of $40 for a VHS tape of Apollo 13, what might she or he have done? Maybe just grumble and pay it?

In the case of Reed Hastings, he was embarrassed, apparently paid the $40 late fee, and—this is where he’s different—got to thinking that there’s a big market out there. “So I started to investigate the idea of how to create a movie-rental business by mail,” he told a Fortune magazine interviewer.

The Original Business Model“Early on, the first concept we launched was rental by mail, but it wasn’t sub-scription based so it worked more like Blockbuster,” says Hastings, the founder and chief executive officer of Netflix. It wasn’t very popular. So in 1999, he relaunched his idea with a new business model—as a subscription service, pretty much the mail busi-ness you see today with 8 million subscribers. “We named the company Netflix, not DVDs by Mail because we knew

that eventually we would deliver movies directly over the Internet,” Hastings says.

Netflix’s Changing Business ModelThe Netflix DVDs-by-mail model can deliver any one of 100,000 movies on DVD to you for a fixed monthly fee—$9 for one movie, $14 for two. But look where its business

model changed over eight months in 2008: from “Watch Now,” enabling regular subscribers to watch any of 1,000 streaming movies on a PC, to using a tiny $100 TV-connect box to let viewers rather awkwardly watch a streaming movie on their TV rather than a PC, to partnering with TiVo, Xbox, and others to enable their systems to let you see one of about 12,000 movies on your TV.

With Netflix breaking a series of technology barriers, its “any movie, any time” business model is literally just around the corner.

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● Customer satisfaction. Customers are the reason the organization exists, so

their perceptions and actions are of vital importance. Satisfaction can be mea-

sured with surveys or by the number of customer complaints it receives.● Employee welfare. A firm may recognize the critical importance of its employ-

ees by stating its goal of providing them with good employment opportunities

and working conditions.● Social responsibility. Firms may seek to balance the conflicting goals of stake-

holders to promote their overall welfare, even at the expense of profits.

Nonprofit organizations (such as museums and hospitals) also have goals, such

as to serve consumers as efficiently as possible. Similarly, government agencies set

goals that seek to serve the public good.

Organizational Strategies: How Will It Do It?As shown in Figure 2–2, the organizational foundation sets the “why” of organi-

zations and organizational direction sets the “what.” To convert these into actual

results, the organizational strategies are concerned with the “how.” These organi-

zational strategies vary in at least two ways, partly depending on the level in the

organization and the offerings it provides customers:

Variation by Level Moving from the corporate to the strategic business unit to

the functional level involves creating increasingly detailed strategies and plans. For

example, at the corporate level, top managers may struggle with writing a meaningful

mission statement, while at the functional level the issue may involve whether Joan

or Adam makes the sales call tomorrow.

Variation by Offering Organizational strategies also vary by the organiza-

tion’s offering. The strategy will be far different when marketing a very tangible

physical product (a Medtronic heart pacemaker), a service (Southwest Airlines

flight), or an idea (donate to the American Red Cross).

The remainder of Chapter 2 covers many aspects of developing these organiza-

tional strategies.

learning review3. What is the meaning of an organization’s mission?

4. What is the difference between an organization’s business and its goals?

Tracking Strategic Performance with Marketing DashboardsAlthough marketing managers can set strategic directions for their organizations,

how do they know if they are making progress in getting there? One answer is to

measure performance by using marketing dashboards.

Car Dashboards and Marketing Dashboards A marketing dashboardis the visual computer display of the essential information related to achieving a mar-

keting objective.24 Often, it is an Internet-based display with real-time information

and active hyperlinks to provide further detail. An example is when a chief marketing

officer (CMO) wants to see daily what the effect of a new TV advertising campaign

is on a product’s sales. This also increases the CMO’s accountability in using mar-

keting resources effectively.25

The idea of a marketing dashboard really comes from that of a car’s dashboard.

On a car’s dashboard we glance at the fuel gauge and take action when our gas

is getting low. With a marketing dashboard, a marketing manager glances at a

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graph or table and makes a decision whether to take action or to analyze the

problem further.26

Dashboards, Metrics, and Plans The marketing dashboard of Oracle, a

large software firm, appears in Figure 2–3. It shows graphic displays of key per-

formance measures of a product category such as sales versus cost of sales.27 Each

variable in a marketing dashboard is a marketing metric, which is a measure of the

quantitative value or trend of a marketing activity or result.28 The choice of which

marketing metrics to display is critical for a busy marketing manager, who can be

overwhelmed with too much or with inappropriate information.29

Dashboard designers take great care to show graphs and tables in easy-to-understand

formats to enable clear interpretation at a glance.30 The Oracle marketing dashboard,

in Figure 2–3 presents several marketing metrics on the computer screen. The three-

step “challenge-findings-action” format in the Using Marketing Dashboards box for

Ben & Jerry’s on the next page is the one used throughout the textbook. This format

stresses the importance of using marketing dashboards and the metrics contained

within them to produce effective marketing strategy and program actions. The Ben

& Jerry’s dashboard shows that both its dollar sales and dollar market share grew

from 2008 to 2009.

Most organizations tie the marketing metrics they track in their marketing dash-

boards to the quantitative objectives established in their marketing plan, which is

a road map for the marketing activities of an organization for a specified future time

period, such as one year or five years. The planning phase of the strategic marketing

process (discussed later in this chapter) usually results in a marketing plan that sets

the direction for the marketing activities of an organization.

Appendix A at the end of this chapter provides guidelines for writing a marketing

plan and also presents a sample marketing plan for Paradise Kitchens® Inc., a firm

that produces and distributes a line of spicy chili under the Howlin’ Coyote® brand

name. Appendix A also links each section of the marketing plan to the relevant

textbook chapter to assist students who are writing marketing plans.

FIGURE 2–3An effective marketing dashboard, like this one from Oracle, helps managers assess a business situation at a glance.


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SETTING STRATEGIC DIRECTIONS

To set a strategic direction, an organization needs to answer two difficult questions:

(1) Where are we now? (2) Where do we want to go?

A Look Around: Where Are We Now?Asking an organization where it is at the present time involves identifying its com-

petencies, customers, and competitors.

Competencies Senior managers must ask the question: What do we do best?

The answer involves an assessment of the organization’s core competencies, which

are its special capabilities—the skills, technologies, and resources—that distinguish

Using Marketing DashboardsHow Well Is Ben & Jerry’s Doing?

As the marketing manager for Ben & Jerry’s, you have been asked to provide a snapshot of the firm’s total super- premium ice cream product line performance for the United States. You choose the following marketing metrics: dollar sales and dollar market share.

Your Challenge Information Resources, Inc. (IRI), pro-vides scanner data from grocery stores and other retailers. It has just sent you a report showing that the total ice cream sales for 2009 were $25 billion. Of that total, 5 percent or $1.25 billion (0.05 � $25 billion) comprises the super-premi-um category—the segment of the market that Ben & Jerry’s competes in. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit in 2009.

Your Findings Each of the metrics you chose (dollar sales and dollar market share) are goals that firms such as Ben & Jerry’s use to measure performance. They can be cal-culated for 2009 using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows:

Dollar sales ($) � Average price � Quantity sold � $5.00 � 50 million units � $250 million

Dollar market share (%) � Ben & Jerry’s sales ($)

___ Total industry sales ($)

� $250 million __

$1.25 billion

� 0.20 or 20%

Your dashboard displays show that from 2008 to 2009 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent.

Your Action The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. NOTE: Marketers also find it useful to calculate market share based on the number of units sold, if data are available.

Ben & Jerry’s Dollar Sales

2008

Sale

s ($

mill

ions

)

2009

$240

0

200

220

240

$280

260 $250

10%

5% 35%

15%20%

25%

18.4(2008)

20.0(2009)

30%

Ben & Jerry’sDollar Market Share

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it from other organizations and provide customer value.

Exploiting these competencies can lead to success.31

Medtronic’s competencies include world-class technol-

ogy, training, and service that respond to life-threatening

medical needs. BusinessWeek magazine calls Medtronic

“the standard setter for quality.”32 Competencies should

be distinctive enough to provide a competitive advan-tage, a unique strength relative to competitors that pro-

vides superior returns, often based on quality, time, cost,

or innovation.33

Customers Ben & Jerry’s customers are ice cream

and frozen yogurt eaters who have different preferences

(form, flavor, health, and convenience). Medtronic’s cus-

tomers are cardiologists and heart surgeons who serve

patients. Lands’ End communicates a remarkable commitment about its customer

experience and product quality with these unconditional words:

Guaranteed. Period.®

The Lands’ End Web site points out that this guarantee has always been an uncon-

ditional one. It reads: “If you’re not satisfied with any item, simply return it to us

at any time for an exchange or refund of its purchase price.” But to get the message

across more clearly to its customers, it created the two-word guarantee. The point is

that Lands’ End’s strategy must provide genuine value to customers to ensure that

they have a satisfying experience.34

Competitors In today’s global competition, the distinctions among competi-

tors are increasingly blurred. Lands’ End started as a catalog retailer. But today,

Lands’ End competes with not only other clothing catalog retailers but also tradi-

tional department stores, mass merchandisers, and specialty shops. Even well-known

clothing brands such as Liz Claiborne now have their own chain stores. Although

only some of the clothing in any of these stores directly competes with Lands’ End

offerings, all these retailers have Web sites to sell their offerings over the Internet.

This means there’s a lot of competition out there.

Growth Strategies: Where Do We Want to Go?Knowing where the organization is at the present time enables managers to set a

direction for the firm and allocate resources to move in that direction. Two techniques

Lands’ End’s unconditional guarantee for its products highlights its focus on customers.

Kodak today must make a series of difficult marketing decisions. From what you know about cameras and photos, assess Kodak’s sales opportunities for the four products shown here. For some possible answers and a way to show these opportunities graphically, see the text and Figure 2–4.

Kodak digital cameras Kodak digital picture frames

Kodak ink-jet printers and cartridges to print photos at home Kodak film


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to aid managers with these decisions are (1) business portfolio analysis and (2)

diversification analysis strategies.

Business Portfolio Analysis The Boston Consulting Group (BCG), a nation-

ally known management consulting firm, uses business portfolio analysis to quantify

performance measures and growth targets to analyze its clients’ strategic business units

(SBUs) as though they were a collection of separate investments.35 The purpose of the

tool is to determine the appeal of each SBU or offering and then determine the amount

of cash, if any, each should receive. The BCG analysis can also be applied at the offer-

ing, product, or brand level. More than 75 percent of the largest U.S. firms have used

this analytical tool.

The BCG business portfolio analysis requires an organization to locate the posi-

tion of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis

is the market growth rate, which is the annual rate of growth of the SBU’s industry.

The horizontal axis is the relative market share, defined as the sales of the SBU

divided by the sales of the largest firm in the industry. A relative market share of

10� (at the left end of the scale) means that the SBU has 10 times the share of its

largest competitor, whereas a share of 0.1� (at the right end of the scale) means it

has only 10 percent of the share of its largest competitor.

The BCG has given specific names and descriptions to the four resulting quadrants

in its growth-share matrix based on the amount of cash they generate for or require

from the organization:

● Cash cows are SBUs that generate large amounts of cash, far more than they

can invest profitably in themselves. They have dominant shares of slow-growth

markets and provide cash to cover the organization’s overhead and to invest in

other SBUs.● Stars are SBUs with a high share of high-growth markets that may need extra

cash to finance their own rapid future growth. When their growth slows, they

are likely to become cash cows.

FIGURE 2–4Boston Consulting Group business portfolio analysis for Kodak’s consumer-related SBUs as they appeared in 2003 (solid red circle) and might appear in 2010 (white circle).

Kodak digital cameras

Kodak digital picture frames

Kodak ink-jet printers and cartridges to print photos at home

Kodak film

10�High

1�Low

0.1�

Mar

ket

gro

wth

rat

e(%

per

yea

r)

Stars

Dogs

Questionmarks

Relative market share(share relative to largest competitor)

40

30

High

Low

20

10

0

2

4

1

?

?

?

?

3

Cashcows

�10

�20

2

1

3

4


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● Question marks are SBUs with a low share of high-growth markets. They

require large injections of cash just to maintain their market share, much less

increase it. The name implies management’s dilemma for these SBUs: choosing

the right ones to invest in and phasing out the rest.● Dogs are SBUs with low shares of slow-growth markets. Although they may

generate enough cash to sustain themselves, they do not hold the promise of

ever becoming real winners for the organization. Dropping SBUs that are dogs

may be required, except when relationships with other SBUs, competitive con-

siderations, or potential strategic alliances exist.36

An organization’s SBUs often start as question marks and go counterclockwise

around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an

organization has limited influence on the market growth rate, its main alternative is

to try to change its relative market share. To accomplish this, management decides

what role each SBU should have in the future and either injects or removes cash

from it.

Kodak provides an example of how new technology and changing consumer tastes

force a company to convert a crisis into potential long-run opportunities.37 Until

2000, Kodak relied on its film for the bulk of its revenues and profits because of

the billions of photos taken every year. The company made money on repeat busi-

ness from traditional film sales and not on camera purchases. The appearance of

digital cameras radically changed Kodak’s business forever as film sales began to

evaporate.

Four Kodak SBUs (see the solid red circles in Figure 2–4) are shown as they may

have appeared in 2003 and can serve as an example of BCG analysis. The area of

each solid red circle in Figure 2–4 is roughly proportional to the SBU’s 2003 sales

revenue. In a more complete analysis, Kodak’s other SBUs would be included. This

example also shows the agonizing strategic decisions that executives must make in an

industry facing profound change—the situation Kodak confronted due to the arrival

of digital technology.

The success of Kodak’s new digital strategy and its product lines shown in Figure

2–4 depends on how millions of consumers (1) take photos and convert them into

printed or online images in the coming years and (2) continue to be affected by the

global economic recession. Here is a snapshot of where sales revenues were for four

Kodak consumer product lines in 2003 (the solid red circles) and where they now

appear headed in 2010 (the white circles).

1. Kodak digital cameras. In 2008, about 80 percent of U.S. consumers owned a

digital camera because it is now easier to use than a film camera, is cheaper, and

allows images to be uploaded and shared online. But Kodak’s digital camera

sales may flatten due to high household penetration, the economic downturn, and

increased competition. Kodak remains No. 3 in market share behind Canon and

Sony. Today more women are buying digital cameras because they are small and

light. Bottom line: Kodak expects this SBU to continue to be a cash cow, with its

new digital camera models generating mainly replacement sales.38

2. Kodak digital picture frames. In 2007, Kodak introduced a line of digital pic-

ture frames that allowed consumers to upload, store, and view digital images. In

2008, Kodak expanded its line with more than 10 items ranging in price from

$60 to $230. And in 2009, it introduced the $999 OLED (organic light-emitting

diode) digital picture frame that features a high-resolution flat-panel display to

present extremely sharp photo images. Global demand has exploded, and today

Kodak is the market leader—clearly a star. By 2012, sales could approach 50

million units.39

3. Kodak ink-jet printers and cartridges to print digital photos at home. In

2008, the ink-jet printer market dramatically changed as consumers shifted

from single-purpose to multi-function machines designed to print photos, make


38

copies, scan images, and send faxes. Today Kodak now offers only multi-

function models. Moreover, Kodak’s high-quality ink cartridges make photos

at half the cost of Hewlett-Packard’s (HP) printers. The result: In two short

years, Kodak has sold over 1 million printers. Consumers buy an average of

eight ink cartridges a year. Because HP is the entrenched 300-pound gorilla in

this market, the future of this question mark could evolve into a star if Kodak

is able to double or triple unit sales. Or this SBU may turn into a dog because

online printing and sharing have taken off and may soon reach $1 billion.40

4. Kodak film. An $8 billion cash cow in 2003, Kodak film sales were the com-

pany’s biggest single source of revenue. Now in a free fall because of digital

cameras, Kodak film sales dropped to $3 billion in 2008, moving it from being

a cash cow to a potential dog. Kodak stopped producing its Kodachrome slides

in late 2009. Experts believe film sales will evaporate by 2012.41

The primary strength of business portfolio analysis lies in forcing a firm to place

each of its SBUs in the growth-share matrix, which in turn suggests which SBUs

will be cash producers and cash users in the future. Weaknesses of this analysis

arise from the difficulty in (1) getting the needed information and (2) incorporating

competitive data into business portfolio analysis.42

Diversification Analysis Diversification analysis is a tool that helps a firm

search for growth opportunities from among current and new markets as well as

current and new products.43 For any market, there is both a current product (what

the firm now sells) and a new product (what the firm might sell in the future). And

for any product there is both a current market (the firm’s existing customers) and a

new market (the firm’s potential customers). As Ben & Jerry’s attempts to increase

sales revenues, it must consider all four of the market-product strategies shown in

Figure 2–5:

● Market penetration is a marketing strategy to increase sales of current products

in current markets, such as Ben & Jerry’s current ice cream products to U.S.

consumers. There is no change in either the basic product line or the markets

served. Increased sales are generated by selling either more ice cream (through

better promotion or distribution) or the same amount of ice cream at a higher

price to its current customers.● Market development is a marketing strategy to sell current products to new mar-

kets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news

and bad news for this strategy: As household incomes of Brazilians increase,

consumers can buy more ice cream; however, the Ben & Jerry’s brand may be

unknown to Brazilian consumers.

How can Ben & Jerry’s develop new products and social responsibility programs that contribute to its mission? The text describes how the strategic marketing process and its SWOT analysis can help.

DiversificationSelling a new product such as children’s clothing under the Ben & Jerry’s brand to Braziliansfor the first time

Product developmentSelling a new product such aschildren’s clothing under the Ben& Jerry’s brand to Americans

Market developmentSelling Ben & Jerry’s super-premium ice cream to Braziliansfor the first time

Market penetrationSelling more Ben & Jerry’s super-premium ice cream to Americans

New

Current

PRODUCTS

NewMarkets

Current

FIGURE 2–5Four market-product strategies: alternative ways to expand sales revenues for Ben & Jerry’s using diversification analysis.


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● Product development is a marketing strategy of selling new products to current

markets. Ben & Jerry’s could leverage its brand by selling children’s clothing

in the United States. This strategy is risky because Americans may not see a

clear connection between the company’s expertise in ice cream and children’s

clothing.● Diversification is a marketing strategy of developing new products and selling

them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s

because the firm has neither previous production nor marketing experience on

which to draw to market the offerings to Brazilian consumers.

learning review

5. What is the difference between a marketing dashboard and a marketing metric?

6. What is business portfolio analysis?

7. Explain the four market-product strategies in diversification analysis.

THE STRATEGIC MARKETING PROCESS

After an organization assesses where it is and where it wants to go, other questions

emerge, such as:

1. How do we allocate our resources to get where we want to go?

2. How do we convert our plans into actions?

3. How do results compare with our plans, and do deviations require new plans?

To answer these questions, an organization uses the strategic marketing pro-cess, whereby an organization allocates its marketing mix resources to reach its

target markets. This process is divided into three phases: planning, implementation,

and evaluation, as shown in Figure 2–6.

Marketing plan

Results

Step 1 Step 2 Step 3

Situation (SWOT)analysis

Chapters 2–8

Market-product focusand goal setting

Chapters 9 and 10

Marketing programChapters 10–21

Evaluation phaseChapter 22

Co

rrective Actio

ns

Planning phase

Implementation phaseChapter 22

FIGURE 2–6The strategic marketing process has three vital phases: planning, implementation, and evaluation. The figure also shows where these phases are discussed in the text.


40

The Planning Phase of the Strategic Marketing ProcessFigure 2–6 shows the three steps in the planning phase of the strategic marketing

process: (1) situation (SWOT) analysis, (2) market-product focus and goal setting,

and (3) the marketing program.

Step 1: Situation (SWOT) Analysis The essence of situation analysis

is taking stock of where the firm or product has been recently, where it is now, and

where it is headed in terms of the organization’s marketing plans and the external

forces and trends affecting it. The situation (SWOT) analysis box in Figure 2–6 is

the first of the three steps in the planning phase. An effective summary of a situation

analysis is a SWOT analysis, an acronym describing an organization’s appraisal of

its internal Strengths and Weaknesses and its external Opportunities and Threats.

The SWOT analysis is based on an exhaustive study of four areas that form the

foundation upon which the firm builds its marketing program:

● Identify trends in the organization’s industry.● Analyze the organization’s competitors.● Assess the organization itself.● Research the organization’s present and prospective customers.

Assume you are responsible for doing the SWOT analysis for Unilever, Ben &

Jerry’s parent company shown in Figure 2–7. Note that the SWOT table has four cells

formed by the combination of internal versus external factors (the rows) and favor-

able versus unfavorable factors (the columns) that identify Ben & Jerry’s strengths,

weaknesses, opportunities, and threats.

The task is not simply to conduct a SWOT analysis but to translate its results

into specific actions to help the firm grow and succeed. The ultimate goal is to iden-

tify the critical strategy-related factors that impact the firm and then build on vital

strengths, correct glaring weaknesses, exploit significant opportunities, and avoid

disaster-laden threats.

The Ben and Jerry’s SWOT analysis in Figure 2–7 can be the basis for these kinds

of specific actions. An action in each of the four cells might be:

Threats• B&J customers read nutritional labels and are concerned with sugary and fatty desserts• Competes with General Mills and Nestlé brands• Increasing competition in international markets

Weaknesses• B&J’s social responsibility actions could reduce focus • Experienced managers needed to help growth• Modest sales growth and profits in recent years

External

Internal

Location of Factor Favorable

TYPE OF FACTOR

Unfavorable

Strengths• Prestigious, well-known brand name among U.S. consumers• Complements Unilever’s other ice cream brands• Recognized for its social mission, values, and actions

Opportunities• Growing demand for quality ice cream in overseas markets• Increasing U.S. demand for 100-calorie novelties such as cones and bars• Many U.S. firms successfully use product and brand extensions

FIGURE 2–7Ben & Jerry’s: a SWOT analysis to keep it growing. The picture painted in this SWOT analysis is the basis for management actions.

LO5


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● Build on a strength. Find specific efficiencies in distribution with Unilever’s

existing ice cream brands.● Correct a weakness. Recruit experienced managers from other consumer prod-

uct firms to help stimulate growth.● Exploit an opportunity. Develop new product lines of low-fat, low-carb frozen

yogurts and sorbets as well as 100-calorie novelty items to respond to consumer

health concerns.44

● Avoid a disaster-laden threat. Focus on less risky international markets, such

as Canada and Mexico.

Step 2: Market-Product Focus and Goal Setting Determining which

products will be directed toward which customers (step 2 of the planning phase in

Figure 2–6) is essential for developing an effective marketing program (step 3). This

decision is often based on market segmentation, which involves aggregating pro-

spective buyers into groups, or segments, that (1) have common needs and (2) will

respond similarly to a marketing action. This enables an organization to identify the

segments on which it will focus its efforts—its target market segments—and develop

specific marketing programs to reach them.

As always, understanding the customer is essential. In the case of Medtronic,

executives researched a potential new market in Asia by talking extensively with

doctors in India and China. They learned that these doctors saw some of the cur-

rent state-of-the-art features of heart pacemakers as less essential and too expensive.

Instead, they wanted an affordable pacemaker that was reliable and easy to implant.

This information led Medtronic to develop and market a new product, the Champion

heart pacemaker, directed at the needs of these Asian market segments.

Goal setting involves setting measurable marketing objectives to be achieved. For

a specific market, the goal may be to introduce a new product, such as Medtronic’s

Champion pacemaker in Asia or Toyota’s launch of its Prius hybrid car in the United

States. For a specific brand or product, the goal may be to create a promotional

campaign or pricing strategy to get more consumers to purchase.

Let’s examine Medtronic’s five-year plan to reach the “affordable and reliable”

segment of the pacemaker market:45

● Set marketing and product goals. The chances of new-product success are

increased by specifying both market and product goals. Based on their market

research showing the need for a reliable yet affordable pacemaker, Medtronic

executives set the following as their goal: Design and market such a pacemaker

in the next three years that could be manufactured in China for the Asian

market.● Select target markets. The Champion pacemaker will be targeted at cardiolo-

gists and medical clinics performing heart surgery in India, China, and other

Asian countries.● Find points of difference. Points of difference are those characteris-

tics of a product that make it superior to competitive substitutes. Just

as a competitive advantage is a unique strength of an entire organiza-

tion compared to its competitors, points of difference are unique char-

acteristics of one of its products that make it superior to competitive

products it faces in the marketplace. For the Champion pacemaker, the

key points of difference are not the state-of-the-art features that drive

up production costs and are important to only a minority of patients.

Instead, they are high quality, long life, reliability, ease of use, and

low cost.● Position the product. The pacemaker will be “positioned” in car-

diologists’ and patients’ minds as a medical device that is high

The Champion: Medtronic’s high-quality, long-life, low-cost heart pacemaker for Asian market segments.


42

quality and reliable with a long, nine-year life. The name Champion was

selected after testing acceptable names among doctors in India, China, Pakistan,

Singapore, and Malaysia. So step 2 provides a solid foundation to use in devel-

oping the marketing program, step 3 in the planning phase of the strategic

marketing process.

Step 3: Marketing Program Activities in step 2 tell the marketing manager

which customers to target and which customer needs the firm’s product offerings

can satisfy—the who and what aspects of the strategic marketing process. The howaspect—step 3 in the planning phase—involves developing the program’s marketing

mix (the 4 Ps) and its budget. Figure 2–8 shows that each marketing mix element is

combined to provide a cohesive marketing program. The five-year marketing plan of

Medtronic’s Champion pacemaker includes these marketing mix activities:

● Product strategy. Offer a Champion brand heart pacemaker with features needed

by Asian patients.● Price strategy. Manufacture the Champion to control costs so that it can be

priced below $1,000 (in U.S. dollars)—an affordable price for Asian markets.● Promotion strategy. Feature demonstrations at cardiologist and medical conven-

tions across Asia to introduce the Champion and highlight the device’s features

and application.● Place (distribution) strategy. Search out, utilize, and train reputable medical

device distributors across Asia to call on cardiologists and medical clinics.

Putting this marketing program into effect requires that the firm commit time and

money to it in the form of a sales forecast (see Chapter 8) and budget that must be

approved by top management.

Cohesive marketing program

Promotion

Price

PlaceProduct

ProductFeaturesBrand namePackagingServiceWarranty

PriceList priceDiscountsAllowancesCredit termsPayment period

PlaceOutletsChannelsCoverageTransportationStock level

PromotionAdvertisingPersonal sellingPublic relationsSales promotionDirect marketing

Marketing managerFIGURE 2–8The 4 Ps elements of the marketing mix must be blended to produce a cohesive marketing program.

learning review8. What are the three steps of the planning phase of the strategic marketing

process?

9. What are points of difference and why are they important?


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The Implementation Phase of the Strategic Marketing ProcessAs shown in Figure 2–6, the result of the tens or hundreds of hours spent in the

planning phase of the strategic marketing process is the firm’s marketing plan.

Implementation, the second phase of the strategic marketing process, involves car-

rying out the marketing plan that emerges from the planning phase. If the firm can-

not put the marketing plan into effect—in the implementation phase—the planning

phase was a waste of time.

There are four components of the implementation phase: (1) obtaining resources,

(2) designing the marketing organization, (3) developing planning schedules, and

(4) actually executing the marketing program designed in the planning phase. Kodak

provides a case example.

Obtaining Resources In 2003, Kodak announced a bold plan to reenergize the

film marketer for the new age of digital cameras and prints. Kodak needed huge sums

of cash to implement the plan. So by early 2009, it had sold or transformed several

of its SBUs that provided over $300 billion to develop and market new products,

such as the exciting Zi6 pocket video camera, which takes HD quality videos that

can be uploaded to YouTube.46

Designing the Marketing Organization A marketing program needs a

marketing organization to implement it. Figure 2–9 shows the organization chart

of a typical manufacturing firm, giving some details of the marketing department’s

structure. Four managers of marketing activities are shown to report to the vice

president of marketing. Several regional sales managers and an international sales

manager may report to the manager of sales. The product or brand managers and

their subordinates help plan, implement, and evaluate the marketing plans for their

offerings. However, the entire marketing organization is responsible for converting

these marketing plans to reality as part of the corporate marketing team.

Developing Planning Schedules To implement marketing plans, members of

the marketing department hold meetings to identify the tasks that need to be done, the

Kodak’s new Zi6 pocket video camera can upload its videos to YouTube.

President/Chief Executive Officer

*Called chief marketing officer (CMO) in many corporations

ManagerAdvertisingand Promotion

ManagerSales

ManagerMarketingResearch

MarketingAssistants

AssociateProductManagers

Product orBrand Manager

Sales Regions andRepresentatives

Vice PresidentHumanResourcesDepartment

Vice PresidentAccountingand FinanceDepartment

Vice President*MarketingDepartment

Vice PresidentManufacturingDepartment

Vice PresidentResearch andDevelopmentDepartment

Vice PresidentInformationSystemsDepartment

FIGURE 2–9Organization of a typical manufacturing firm, showing a breakdown of the marketing department.

LO6


44

time to allocate to each one, the people responsible, and the deadlines for their accom-

plishment. In most cases, each team member works on different parts of the plan.

Executing the Marketing Program Marketing plans are meaningless

pieces of paper without effective execution of those plans. This effective execution

requires attention to detail for both marketing strategies and marketing tactics. A

marketing strategy is the means by which a marketing goal is to be achieved,

usually characterized by a specified target market and a marketing program to reach

it. The term implies both the end sought (target market) and the means to achieve it

(marketing program). At this marketing strategy level, Kodak will seek to increase

sales of digital cameras, ink-jet printers, and digital picture frames.

To implement a marketing program successfully, hundreds of detailed decisions

are often required. These decisions, called marketing tactics, are detailed day-to-

day operational decisions essential to the overall success of marketing strategies.

At Kodak, writing ads and setting prices for its new lines of digital cameras are

examples of marketing tactics.

The Evaluation Phase of the Strategic Marketing ProcessThe evaluation phase of the strategic marketing process seeks to keep the market-

ing program moving in the direction set for it (see Figure 2–6). Accomplishing this

requires the marketing manager to (1) compare the results of the marketing pro-

gram with the goals in the written plans to identify deviations and (2) act on these

deviations—correcting negative deviations and exploiting positive ones.

Comparing Results with Plans to Identify Deviations Suppose you

are on a Kodak task force in 2003 responsible for making plans through 2010. You

observe that Kodak’s sales revenues from 1998 through 2003, or AB in Figure 2–10,

exhibit a very flat trend. Extending the 1998–2003 trend to 2010 along BC shows

very flat sales revenues, a totally unacceptable, no-growth strategy.

Kodak’s growth target of 5 to 6 percent annually, the line BD in Figure 2–10,

would give sales revenues of $16 billion in 2006 and $20 billion in 2010. This reveals

a wedge-shaped shaded gap in the figure. Planners call this the planning gap, the

difference between the projection of the path to reach a new goal (line BD) and the

projection of the path of the results of a plan already in place (line BC). The ultimate

purpose of the firm’s marketing program is to “fill in” this planning gap—in the case

Ann

ual s

ales

rev

enue

s ($

bill

ions

)

2006 2010200220001998

FuturePast

D

CB

Target salesrevenues with new plansand actions

A

Trend of sales revenues in 2003without new plans and actions

Planning gap

020082004

14

$20

18

16

12

10

8

D

EActual salesrevenues

FIGURE 2–10The evaluation phase of the strategic marketing process requires that the organization compare actual results with goals to identify and act on deviations to fill in its “planning gap.” The text describes how Kodak hopes to fill in its planning gap by 2010.


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of your Kodak task force, to move its future sales revenue line from the

no-growth line BC up to the challenging target of line BD. But poor

performance can result in actual sales revenues being far less than the

targeted levels, the actual situation faced by Kodak in 2009 (line BE),

where sales were expected to be about $8 billion. This is the essence

of evaluation: comparing actual results with goals set.

In this example, the Kodak task force in 2003 used trend extrapo-

lation to project the historic trend through 2010. But as shown by the

discrepancy between line BC (the trend extrapolation) and BE (Kodak’s

actual annual sales revenues), serious forecasting problems can occur.

In this case, Kodak failed to anticipate the drastic decline in sales of

its film and film cameras.

Acting on Deviations When evaluation shows that actual per-

formance failed to meet expectations, managers need to take corrective

actions. Two possible Kodak midcourse corrections for both positive

and negative deviations from targets illustrate these management actions

your Kodak task force might take in 2009:47

● Exploiting a positive deviation. If Kodak’s innovative digital cameras

sell better than expected, Kodak might try to move quickly to offer

these to international customers—such as those in France.● Correcting a negative deviation. However, if Panasonic is able to surpass Kodak

in global market share of digital cameras, Kodak may need to reduce prices.

Kodak also might (1) develop more feature-laden digital cameras that use its propri-

etary sensor technologies that improve image (picture) quality to (2) launch a new

aggressive global marketing program that integrates its digital camera images into

its Kodak digital picture frame.

To help fill in its planning gap, Kodak is pursuing opportunities for sales of digital cameras in France.

learning review10. What is the implementation phase of the strategic marketing process?

11. How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?

LEARNING OBJECTIVES REVIEWLO1 Describe two kinds of organizations and the three levels of strategy in them.An organization is a legal entity of people who share a common

mission. There are two kinds. One is a business firm that is a

privately owned organization that serves its customers to earn

a profit so that it can survive. The other is a nonprofit, nongov-

ernmental organization that serves its customers but does not

have profit as a goal. Most large business firms and nonprofit

organizations are divided into three levels of strategy: (a) the

corporate level, where top management directs overall strategy

for the entire organization; (b) the strategic business unit level,

where managers set a more specific strategic direction for their

businesses to set value-creating opportunities; and (c) the func-

tional level, where groups of specialists actually create value for

the organization.

LO2 Describe how core values, mission, organizational culture, business, and goals are important to organizations.Organizations exist to accomplish something for someone.

To give organizations direction and focus, they continuously

assess their core values, mission, organizational culture, busi-

ness, and goals. Today’s organizations specify their foundation,

set a direction, and formulate strategies—”why,” “what,” and

“how” factors, respectively. Core values are the organization’s

fundamental, passionate, and enduring principles that guide

its conduct over time—what Enron forgot when it lost sight of

its responsibilities to its stakeholders. The organization’s mis-

sion is a statement of its function in society, often identifying

its customers, markets, products, and technologies. Organiza-

tional culture is a set of values, ideas, attitudes, and norms of

behavior that is learned and shared among the members of an

45


46

organization. To answer the question, “What business are we

in?” an organization defines its “business”—the clear, broad,

underlying industry category or market sector of its offering.

Finally, the organization’s goals (or objectives) are statements

of an accomplishment of a task to be achieved, often by a spe-

cific time.

LO3 Explain why managers use marketing dashboards and metrics.Marketing managers use marketing dashboards to visually dis-

play on a single computer screen the essential information to

make a decision to take an action or further analyze a problem.

This information consists of key performance measures of a

product category, such as sales or market share, and is known

as a marketing metric, which is a measure of the quantitative

value or trend of a marketing activity or result. Most organiza-

tions tie their marketing metrics to the quantitative objectives

established in their marketing plan, which is a road map for

the marketing activities of an organization for a specified future

time period, such as one year or five years.

LO4 Discuss how an organization assesses where it is now and seeks to be.Managers of an organization ask two key questions to set a

strategic direction. The first question, “Where are we now?”

requires an organization to (a) reevaluate its competencies to

ensure that its special capabilities still provide a competitive

advantage; (b) assess its present and prospective customers to

ensure they have a satisfying customer experience—the central

goal of marketing today; and (c) analyze its current and poten-

tial competitors from a global perspective to determine whether

it needs to redefine its business.

The second question, “Where do we want to go?” requires an

organization to set a specific direction and allocate resources to

move it in that direction. Business portfolio and diversification

analyses help an organization do this. Managers use business

portfolio analysis to assess its strategic business units (SBUs),

product lines, or individual products as though they were a col-

lection of separate investments (cash cows, stars, question marks,

and dogs) to determine the amount of cash each should receive.

Diversification analysis is a tool that helps managers use one or

a combination of four strategies to increase revenues: market

penetration (selling more of an existing product to existing mar-

kets); market development (selling an existing product to new

markets); product development (selling a new product to exist-

ing markets); and diversification (selling new products to new

markets).

LO5 Explain the three steps of the planning phase of the strategic marketing process.An organization uses the strategic marketing process to allo-

cate its marketing mix resources to reach its target markets. This

process is divided into three phases: planning, implementation,

and evaluation. The planning phase consists of: (a) a situation

(SWOT) analysis, which involves taking stock of where the

firm or product has been recently, where it is now, and where it

is headed. This assessment focuses on the organization’s inter-

nal factors (strengths and weaknesses) and the external forces

and trends affecting it (opportunities and threats); (b) a market-

product focus through market segmentation—grouping buyers

into segments with common needs and similar responses to

marketing programs—and goal setting, which in part requires

creating points of difference—those characteristics of a product

that make it superior to competitive substitutes; and (c) a mar-

keting program that specifies the budget and activities (market-

ing strategies and tactics) for each marketing mix element.

LO6 Describe the elements of the implementation and evaluation phases of the strategic marketing process.The implementation phase of the strategic marketing process

carries out the marketing plan that emerges from the plan-

ning phase. It has four key elements: (a) obtaining resources;

(b) designing the marketing organization to perform product

management, marketing research, sales, and advertising and

promotion activities; (c) developing schedules to identify the

tasks that need to be done, the time that is allocated to each one,

the people responsible for each task, and the deadlines for each

task’s accomplishment; and (d) executing the marketing strate-

gies, which are the means by which marketing goals are to be

achieved, and their associated marketing tactics, which are the

detailed day-to-day operational decisions of a firm’s marketing

strategies. These are the marketing program actions a firm takes

to achieve the goals set forth in its marketing plan.

The evaluation phase of the strategic marketing process

seeks to keep the marketing program moving in the direction

that was established in the marketing plan. This requires the

marketing manager to compare the results from the market-

ing program with the marketing plan’s goals to (a) identify

deviations or “planning gaps” and (b) take corrective actions to

exploit positive deviations or correct negative ones.

FOCUSING ON KEY TERMS

business p. 30business portfolio analysis p. 36competitive advantage p. 35core values p. 29corporate level p. 28cross-functional teams p. 28diversification analysis p. 38functional level p. 28goals p. 31

market segmentation p. 41market share p. 31marketing dashboard p. 32marketing metric p. 33marketing plan p. 33marketing strategy p. 44marketing tactics p. 44mission p. 29objectives p. 31

organizational culture p. 30points of difference p. 41profit p. 26situation analysis p. 40strategic business unit (SBU) p. 28strategic marketing process p. 39strategy p. 27SWOT analysis p. 40


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APPLYING MARKETING KNOWLEDGE

1 (a) Using Medtronic as an example, explain how a

mission statement gives it a strategic direction. (b) Create

a mission statement for your own career.

2 What competencies best describe (a) your college or

university and (b) your favorite restaurant?

3 Why does a product often start as a question mark and

then move counterclockwise around the BCG’s growth-

share matrix shown in Figure 2–4?

4 Select one strength, one weakness, one opportunity,

and one threat from the Ben & Jerry’s SWOT analysis

shown in Figure 2–7. Suggest an action that a marketing

manager there might take to address each factor.

5 What is the main result of each of the three phases

of the strategic marketing process? (a) planning, (b)

implementation, and (c) evaluation.

6 The goal-setting step in the planning phase of the

strategic marketing process sets quantified objectives for

use in the evaluation phase. What does a manager do if

measured results are below objectives? Above objectives?

building your marketing plan

1 Read Appendix A, “Building an Effective Marketing

Plan.” Then write a 600-word executive summary for the

Paradise Kitchens marketing plan using the numbered

headings shown in the plan. When you have completed the

draft of your own marketing plan, use what you learned

in writing an executive summary for Paradise Kitchens to

write a 600-word executive summary to go in the front of

your own marketing plan.

2 Using Chapter 2 and Appendix A as guides, give focus

to your marketing plan by (a) writing your mission state-

ment in 25 words or less, (b) listing three nonfinancial

goals and three financial goals, (c) writing your competi-

tive advantage in 35 words or less, and (d) doing a SWOT

analysis table.

3 Draw a simple organization chart for your organization.

“We want to get people to drive an extra

block or cut across an extra lane of traffic to

choose BP over its competitors,” claims Ann

Hand, senior vice president—Global Brand

Marketing and Innovation (photo below).

BP, formerly known as British Petroleum,

is one of the world’s largest producers and marketers of

petroleum products. Through innovative marketing and

with a focus on the environment, BP

has been transforming itself into a

consumer-centric provider of energy

products and services that are broader

than just oil and gas.

KEY ELEMENTS IN BP’S “BEYOND PETROLEUM” TRANSFORMATIONIncreased energy demand due to the

growing economies of both the devel-

oped and developing countries as well

as supply constraints have caused oil

video case 2 BP: Transforming Its Strategy “Beyond Petroleum”

prices to rise sharply during the past few decades. This,

along with the heightened awareness of global climate

change in the late 1990s, created an opportunity for BP to

transform its mission statement to the following:

Our business is about finding, producing, and marketing the

natural energy resources on which the modern world de-

pends.

BP then reorganized itself primar-

ily into two strategic performance

(i.e., business) units to support its

mission. These “SPUs” consist of

activities related to the (1) discovery

and production of oil and natural gas

and (2) refining and marketing of

petroleum products.

BP also identified and evaluated

many opportunities to increase its

sales and profits. One strategy was

through acquisitions. During the late

1990s, BP invested $120 billion to

add competitors Amoco, ARCO, and

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Castrol to its business portfolio. BP now produces about

3 percent of the planet’s oil and gas, operates in over 100

countries around the world, and serves 13 million custom-

ers per day at 24,600 retail sites, including 12,300 stations

in the United States. The benefits to its stakeholders: BP

global sales now exceed $360 billion.

In 2000, BP introduced a new brand identity to reflect

the integrated company it had become. The BP shield and

Amoco torch were replaced by a new Helios logo that

more appropriately reflects BP’s corporate and retail

brand image as a green, environmentally friendly com-

pany. Because a brand image communicates the brand’s

essence—an emotional tie between the company and its

customers—it provides confidence to customers: They

know they can get high-quality gas, conveniently pur-

chase food and beverages, and travel onwards refreshed.

Thus, BP is not just about gasoline—it goes “beyond

petroleum.”

Within its refining and marketing SPU, BP sells gaso-

line at its branded retail gas stations, which include the BP,

Amoco Ultimate, Wild Bean Café, BP Connect, and BP

Express brands (eastern United States) and the ARCO and

am/pm brands (western United States). In the near term,

BP’s retail strategy will focus on high-growth metropoli-

tan areas in the United States through new and franchised

service stations. In the long term, BP plans to transform

the retail gasoline landscape with its new Helios House

and Helios Power strategies.

BP’S FOUR CORE VALUESBP specifies four core values to express the way the orga-

nization does business and help translate the mission into

practical action:

● Progressive: BP is always looking for new and better

ways to conduct business. It has developed a relation-

ship with Ford to build hydrogen vehicles and fueling

stations in California, Michigan, and elsewhere. BP

also has reformulated its BP Amoco Ultimate fuel to

reduce air pollutants.● Innovative: Through the creative approaches of employ-

ees, and the development and application of cutting-

edge drilling technology, BP seeks breakthrough solu-

tions for its customers.● Green: BP is committed to environmental leadership—

the proactive and responsible treatment of the planet’s

natural resources and developing lower carbon emission

energy sources. As a result, BP now stores its gasoline

in double-skinned tanks to prevent spills and leaks.● Performance-driven: BP sets the global standards of

performance on financial and environmental dimen-

sions, as well as safety, growth, and customer and

employee satisfaction.

HELIOS HOUSE: TRANSFORMING BP’S GASOLINE RETAILINGSince 1977, the percentage of gasoline stations in the

United States that also contain a convenience store has

gone from 5 percent to more than 50 percent. To support

the demand for convenience store offerings, BP devel-

oped a very successful convenience store concept called

am/pm. This branded offering was created and tested on

ARCO sites in the western United States; in the future,

am/pm will partner with the BP retail brand and penetrate

the eastern United States.

Currently, the am/pm stores sell both fuel and more

than 2,000 convenience items (snacks, beverages, neces-

sities, etc.). Sales from the more than 1,000 am/pm stores

now exceed $6 billion; both the number and sales rev-

enues are expected to grow significantly during the next

several years as BP transforms many of its existing gas

stations into am/pm stores.


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In early 2007, BP launched a two-part strategy to

change the way consumers think about its gas stations.

One part was Helios House, a new-look gasoline station

located in Los Angeles that will serve as a living labora-

tory to test ideas in a real environment (photo below). Ann

Hand, who manages BP’s $280 million global marketing

programs, was instrumental in the planning and imple-

mentation of Helios House. Becoming operational during

April 2007, Helios House was designed to be eco-friendly

from the top down. The building itself was constructed

from recycled, sustainable, and nontoxic materials. More-

over, its canopy has 90 solar panels to gen-

erate its own electricity. The roof is covered

with grass to reduce the building’s heating

and cooling needs and has rain collectors to

irrigate the surrounding drought-tolerant land-

scape. The facility also has energy-efficient

lighting, using one-fifth less energy than a

traditional gas station. As a result of these and

other design features, Helios House became

the first gas station to be certified as green by

the U.S. Green Building Council.

Helios House also offers customers (1) clean, well-

maintained restrooms, (2) friendly “green team” employ-

ees who will not only greet customers with a smile but also

check their cars’ tire pressure to ensure proper inflation—

which boosts gas mileage, and (3) tips on creating a green

lifestyle through its www.thegreencurve.com Web site.

According to Kathy Seegebrecht, BP’s U.S. advertising

manager, “Helios House will serve as a place where BP

can have a conversation with its customers about green

ideas and how its gas station can play a part in creating

a better environment. It was designed to serve as a bea-

con to inspire the employees and franchisees through the

U.S.”

Helios House is not a prototype of BP’s station of the

future. However, it will be an incubator of green ideas that

can be implemented among its existing and new stations.

It is just too costly to replace 25,000 existing stations

throughout the world. Seegebrecht concludes, “Helios

House is showing us that in a more brand-conscious

world, where we all want the best of everything, people

might actually want a better gas station.” How successful

has the Helios House been? “The site has nearly doubled

its fuel volumes.”

HELIOS POWER: BP’S PROMOTION OF ITS GASOLINE RETAILINGThe second part of BP’s strategy was a promotional cam-

paign to transform BP’s retail brand image at its locations

in the United States. Buying gasoline is a low involvement

purchase and consumers have low expectations regarding

their purchase experiences. Armed with that consumer

insight, BP created and executed the $45 million Helios

Power advertising and brand-building campaign, which is

an extension of BP’s “Beyond Petroleum” corporate cam-

paign that began in the early 2000s. The Helios Power

campaign consisted of the following marketing tactics:

● “A little better” tagline. BP customers can expect to

receive “a little better” experience at its service sta-

tions and other retail outlets compared to those of its

competitors. Hand elaborates, “In this market, a little

better means a lot. People see refueling as a necessary

and unpleasant chore. However, BP can be cleaner and

friendlier, and that’s why people will choose us rather

than our competitors.” And this choice will

be made on an emotional basis because cus-

tomers “like what we stand for.”

• Animated TV ads. These feature a family

of characters (the Lighthouse family, the

Babies, and the Beeps) and a catchy tune

designed to reinforce the emotional appeal

of the BP brand. The TV ads aired during

some of the top U.S. TV shows (American Idol, Ugly Betty) and also had exposure

on YouTube. The purposes of the ads were to generate

awareness of and an emotional connection to the BP

brand and its offerings.● In-store give-aways. At the launch in April 2007, envi-

ronmentally friendly paper bags, T-shirts with a fun

new look from the campaign, kids activity books and

trading cards featuring the campaign characters, and

sunflower seed packets were handed out to customers

throughout the entire network of BP stations.● Unique Web site. The www.alittlebettergasstation

.com Web site features the “Gas Mania” interactive

game, selected animations, ringtones, screensavers, a

sweepstakes, and the TV ads.● Street teams. BP and Ford teamed up to promote the use

of BP’s Ultimate gasoline in Ford’s new Edge automo-

bile. Videos featuring groups of college-aged students

were created to showcase the BP brand in Florida and

the ARCO brand in California.

Questions

1 (a) What is BP’s “Helios” strategy? (b) How does this

strategy relate to BP’s mission and core values?

2 Conduct a SWOT (strengths, weaknesses, opportuni-

ties, and threats) analysis for BP’s “Helios” initiative—

looking forward globally to the next three years.

3 What are some ways BP could use to effectively com-

municate its “Helios” strategy to consumers?

4 What are the long-term benefits to (a) society and

(b) BP of its “Helios” initiative?

5 Looking at BP’s Helios Power marketing strategy and

its “street team” marketing tactic: (a) What objectives

would you set for this tactic? (b) How would you propose

BP measure the results?

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Chapter 02

Documents

Transcript of Chapter 02