Module 6 - Strategic Marketing Management

Level 7 Diploma in Management Studies

Strategic MarketingManagement

rdir e s o u r c edeve l opmentinternational

© Resource Development International Consultants Ltd (RDI)

All rights reserved. Except as permitted under current legislation,no part of this workbook may be photocopied, stored in a retrievalsystem, published, adapted, transmitted, recorded or reproducedin any form or by any means, without the prior consent of one ofthe copyright owners. Initial enquiries should be addressed to RDIConsultants Ltd.

The right of RDI as the authors of this workbook has been assertedin accordance with the Copyright, Designs and Patents Act 1988.

First published in 2008 for RDI Consultants Ltd

RDIMidland Management Centre1A Brandon LaneCoventryCV3 3RD

Strategic Marketing Management

Contents

How to use this workbook

IntroductionModule Objectives 0.1Introductory note 0.1

Unit 1Planning Principles and Range of Tools and Techniques

Principles 1.1Marketing Planning Processes 1.10Strategic Marketing 1.19Marketing Strategy 1.24Tools and Techniques 1.68Portfolio analysis techniques 1.91Summary 1.99

Unit 2Marketing Strategy Options

Options 2.1Summary 2.39

Unit 3Implications of Change in the Marketing Environment

Changes in the Marketing Environment 3.1Implications 3.13Summary 3.18

rdi

How to use this workbook

This workbook has been designed to provide you with the coursematerial necessary to complete the module, Strategic MarketingManagement by distance learning. At various stages throughout themodule you will encounter icons as outlined below which indicate whatyou are required to do to help you learn.

This Activity icon refers to an activity where you are required to undertake aspecific task. These could include reading, questioning, writing, research,analysing, evaluating, etc.

This Activity Feedback icon is used to provide you with the informationrequired to confirm and reinforce the learning outcomes of the activity.

This Key Point icon is included to stress the importance of a particular pieceof information.

This icon shows where the Virtual Campus could be useful as a medium fordiscussion on the relevant topic.

It is important that you utilise these icons as together they will provideyou with the underpinning knowledge required to understandconcepts and theories and apply them to the business and managementenvironment. Try to use your own background knowledge whencompleting the activities and draw the best ideas and solutions you canfrom your work experience. If possible, discuss your ideas with otherstudents or your colleagues; this will make learning much morestimulating. Remember, if in doubt, or you need answers to anyquestions about this workbook or how to study, ask your tutor.

Strategic Marketing Management i

How to use this workbookrdi

Strategic Marketing Management

Introduction

Module Objectives

Effective management of marketing is an essential part of anyorganisation’s operations. In this module, the principles of marketingstrategy are introduced. The aim is to provide an understanding of theformulation, implementation and control of a marketing strategy whichhas been developed by the marketing function of an organisation.

The use of a range of tools and techniques is examined in detail to showthe value of available information to the marketing department.However, it is stressed that this is only useful to the organisation if thetechniques are correctly applied and their findings interpretedobjectively.

This module introduces the principles of strategic marketingmanagement, allowing students to gain a knowledge andunderstanding of a marketing plan, the current marketing environmentand how to contribute to the achievement of marketing objectives.Theoretical concepts are introduced, along with appropriate tools andtechniques, with examples to explain their use.

Introductory note

Many of the activities included within this module require the studentto call upon personal experiences within their own organisation. In anumber of cases it would be useful if the student was able to arrange anopportunity to speak to members of the marketing department toestablish how some of these techniques are put into practice within afamiliar context.

Throughout the module, reference is made to the text, Management; AnIntroduction by D. Boddy. It is strongly recommended that the studentgain access to a copy of this publication.

Strategic Marketing Management 0.1

Introductionrdi

Unit 1

Planning Principles and Range ofTools and Techniques

Unit Objectives

In this unit, the principles and processes of planning are explained in order toprovide a clear understanding of the development of a marketing strategy.

Examples of definitions are included to show the wide range of thought aboutthe subject. These include both formal descriptions from bodies such as theChartered Institute of Marketing as well as a variety of different authors.

The activities involved in the process of developing a marketing strategy areoutlined – from the setting of objectives through to the integration of thevarious activities.

The production of a strategic marketing plan requires a considerable amountof information to be gathered. This may be both quantitative and qualitative.This information must then be processed and evaluated in such a way so that itcan provide a useful and purposeful view of the organisation, its competitorsand the market environment.

A number of tools and techniques are described in this unit, providing thestudent with valuable skills for developing the strategic marketing approach.Most important is the ability to act upon the available evidence and, ultimately,to ensure the effectiveness of the organisation’s operations in the future.

Principles

Basic concepts

KEY POINT

A market consists of people – buyers and sellers – who are trading in aproduct. The price is normally set by the supply of, or the demand for, theproduct. The market for any business consists of its actual and its potential


Unit 1rdi

customers. This market may be local (e.g. a street market), national (e.g. themass market) or international. Markets may be classified as:

� Consumer markets – goods and services bought by the generalpublic.

� Industrial markets – machinery and equipment used inbusiness, and business-related services (e.g. delivery, security).

Marketing is needed because people, businesses and advancedeconomies specialise. The various goods and services supplied need tobe sold. This takes place in a competitive environment. As a result, abusiness needs to discover:

� What to make and sell.

� How many to make and sell.

� Who to sell to.

� How to encourage these people to buy.

� How much to charge for what is sold.

ACTIVITY

Imagine you are a manager of a company marketing the following three items.Answer the five key questions for each item.

1. A pocket diary.

2. Sandwiches sold from a mobile van.

3. A mobile beautician service.

ACTIVITY FEEDBACK

1. A pocket diary

� Small but with enough space for details of appointments,notes, expenses, etc

� Probably in the thousands

� General business environment

� Attractive/fashionable design, advertising connections

1.2 Strategic Marketing Management

Unit 1 rdi

� Modest price, but not too cheap!

2. Sandwiches sold from a mobile van.

� A variety of fillings, sandwiches, rolls, snacks, etc

� Only enough for today’s sale

� Office/factory employees

� Quality must be good, tasty product

� Less than local competition

3. A mobile beautician service.

� Personal fashion products

� Supplies sufficient for likely demand

� Customers with disposable income

� Emphasis on beauty and fashionable

� Prices high to represent prestige service

The role of the marketing department is to carry out marketingactivities. This means it must link production to consumption. To dothis, the department makes sure that the demands of its customers aremet by what is being made. If the marketing department achieves this, itwill meet customer wishes and help the business make a profit.

The term ‘marketing’ is widely used and misused, and oftenmisunderstood. It has come to mean many different things to differentpeople. And you may recall from previous work that trying to work outwhat something means by defining it has its difficulties. Often it is morefruitful to prove how it is used in practice.

The activity that follows is designed to give you the opportunity tothink about how you would define marketing.

ACTIVITY

How would you define marketing? Compile a brief definition of your own.


Unit 1rdi

ACTIVITY FEEDBACK

If you defined it as advertising or selling or promotion you would, in the termsof most ‘marketing’ professionals, be partly, but only partly, right. You wouldbe reflecting a typical common-sense view. But marketing as a concept anddiscipline – as defined by marketing professionals and academics – is a wider,more complex idea. Such people would argue that to approach marketing byseeing it as focused on selling what you have chosen to produce is wrong. Suchan approach belongs to a past era.

The breadth of the concept of marketing, as examined in this unit, is illustratedby two definitions which are well-known in the marketing world.

Leading USA marketing specialist, Philip Kotler, has written:

‘Marketing is a social and managerial process by which individuals andgroups obtain what they need and want through creating andexchanging products and value with others.’

The professional body of marketers in the UK, the Chartered Institute ofMarketing (CIM), suggests:

‘Marketing is the management process responsible for identifying,anticipating, and satisfying customer requirements profitably.’

Christopher and McDonald (1991) say:

‘The simplest definition of marketing is that it is a process of matchingthe resources of a business with identified customer needs.’

Peter Drucker (1974), international management guru, says:

‘The aim of marketing is to know and understand the customer so wellthat the product or service fits him and sells itself.’

Marketing looks outwards: it is firmly focused on what marketingusually refers to as ‘customers’ and ‘consumers’. A primary focus oncustomers, consumers, clients, or service users is possible, and somewould argue desirable, in all organisations, including those in thepublic and charity sectors of economies. Marketing and marketers (aterm we will use to refer in general to those doing or concerned aboutmarketing, who see it in the ways conventional twenty-first centuryprofessionals do) stress that the needs and wants of the customer (orsimilar) should always be paramount.

It is difficult, however, in many organisations to decide who thecustomers are, and what they need and want. Indeed, you may want totalk of several different customers or types of customer.

Note that throughout this module we want you to keep applying theideas and activities at these three levels:


Unit 1 rdi

1. The organisation overall.

2. Your unit or section (if you are not in charge of the wholeorganisation).

3. Your own work (even if your job is to manage and lead others, trythinking of them as customers).

Consider the view of marketing shown in Figure 1.1.

Another comment on marketing emphasises the focus on the customer.The influential USA consultant, Peter Drucker, has said that:

‘Every business can be defined as serving either customersor markets or end users.’

In summary, marketing encompasses a wide-range of ideas and tools.Whilst all definitions and approaches stress that the customer is central,there are differences between the application of the concepts andtechniques in consumer, industrial and public sector settings. Somedifferences are ones of emphasis; some are of language.

Commentators and writers on marketing differ in the way they usesome words. Marketing is full of compound phrases which use nouns asadjectives to produce phrases such as ‘product quality improvements’,where everyday language would more simply speak of ‘improvementsin the quality of products’!

Not all organisations use ‘the marketing concept’, even in formsadapted to their special circumstances. We contend that almost allorganisations and managers would benefit from such use. So the bulk ofthis module examines various aspects of action to put the ‘marketingconcept’ into practice. It looks at how we can establish relationships


Unit 1rdi

What ismarketing?

Customersatisfaction

Marketing asa philosophy

Organisationalsatisfaction

Marketing asa function

Figure 1.1. What is marketing?

between ‘ourselves’ as suppliers of goods and services, and otherpeople or organisations whom we variously call the customer andconsumer, in order to satisfy them, and at the same time pursue ourorganisational purposes, aims and objectives.

Systematic approach

Most definitions of marketing encapsulate what is a surprisingly widerange of activities. For example:

� Marketing begins before the production process when itresearches into the design, styling and performance of theproduct or service that is needed and then on thepotential demand that could exist and the market sharethe company could strive for.

� Then it plays a major role in ‘positioning’ the product orservice against the target segment of the market, decidingwhether to aim at the whole market, or whether to aim atthe top, bottom or middle of the range, or at some nichemarket.

� Next, because it is not only a question of satisfyingdemand but also of creating or directing it, a largenumber of promotional decisions (advertising and salespromotion) have to be made. These cover selection ofmedia to be used, the size, frequency and content of theadvertisements, the nature and duration of salespromotion activities, not to forget the cost of these andthe actual expenditure budgets that will be possible.

� Then there are the physical distribution aspects ofmarketing, especially the depot/inventory questions andthe transportation of the finished goods not only a pointof manufacture but also throughout the distributionnetwork.

� In addition there are all selling possibilities to beconsidered, from the appointment of agents ordistributors to any franchising arrangements that may beadvisable and any personal selling to be undertaken bythe company itself. Often dealers and customers alikemay have to be educated on the products or servicesinvolved, what they can achieve for customers, their salesand profit earning potentials for distributors and usersand, for technical products, the various technologicalfactors that should be considered, etc.

� Finally, how all this will be financed. Estimates on thereturn that would be achieved and the after-sales services


Unit 1 rdi

needed should be considered before the marketing planscan be agreed and launched.

In a systematic approach to marketing, there are eight key points toconsider:

1. Marketing is a philosophy that believes that the business and itsdecisions should be governed by its markets or customers ratherthan by its production or technical facilities.

2. It is an orderly, systematic process of business planning,execution and control.

3. It requires an improved form of commercial organisation.

4. It employees improved methods and systems based oneconomics, statistics, finance and the behavioural sciences.

5. It involves a system of commercial intelligence (i.e. relevantinformation on markets, competitors, etc).

6. It places a strong emphasis on innovation.

7. It is a method for achieving dynamic business strategy andcompetitive advantage.

8. It is a form of management by objectives.

All these have a common purpose - to serve the customers and meettheir needs with products or services designed for that purpose. Pointssix and seven are important at all times but a particularly so in times ofstatic or declining demand, or when competition is intensifying. It isonly through striving to be innovative and so having a dynamicmarketing strategy that a company can survive in such difficultconditions. Without these, a company can be driven to wall by moreaggressive and innovative competitors. Is also true that many of thesepoints apply to other areas of management; this helps to prove theintegrative nature of management and the need for completeco-operation between the different departments.

Integration of activities

The marketing in an organisation needs to be specific to thatorganisation. No two businesses are the same in terms of their culture,organisational structure, management styles and strategies for themarketplace. By the same token, it would be unwise for a company tobelieve that it could approach a market in exactly the same way as thecompetition that it faces.

In order to establish how to market it differently from the competition,and to ‘win’ the numbers of customers needed to make target levels ofsales and profits, an organisation needs to set out its marketing plans. It


Unit 1rdi

is the marketing plan that identifies where the company intends itself tobe in the future.

A marketing plan is essentially a process of marketing and managementactions. A staged approach is taken in order that the organisation is ableto meet the overall objectives set by the company for the future.

As we move through this module, many more principles of marketingwill be introduced to you. The key point is that marketing successdepends on integrating all of the principles into one coherent customer,competitor and environment focused strategy – in essence a route mapfor the marketing stance and the subsequent marketing actions of thecompany.

When looking at this marketing plan or marketing process for anorganisation, a stage-based model can be used. This is illustrated inFigure 1.2.

Resource requirements

Marketing opportunities are affected by organisational resources. Theseinclude capabilities involving production, marketing, finance,technology and employees. By evaluating these resources,organisations can pinpoint their strengths and weaknesses. Strengths to


Unit 1 rdi

Section Purpose

1. Current marketing situation – marketing audit. � Presents relevant background data on the market,product, competition, distribution andmacro-environments.

2. Opportunity and issue analysis. � Identifies the main opportunities and threats, andstrengths and weaknesses.

� Identifies the issues facing the products and services.

3. Objectives. � Defines the goals the plan wants to reach in the areas ofsales volume, market share, profits and othernon-quantitative factors.

4. Marketing strategy. � Presents the broad marketing approach that will be usedto meet the plan’s objectives.

5. Action programmes. � Answers:

� what will be done?

� who will do it?

� when will it be done?

� Outlines approaches to the marketing mix.

Figure 1.2. Marketing activities.

help organisations define their core competences, set objectives,develop plans for meeting objectives, and take advantage of marketingopportunities. For example, the Coca-Cola Company identifies as itsstrengths as having the world’s best-known trademark, financialsoundness, an exceptional distribution system, marketing andadvertising efficiency, new product innovations, and a dedicated teamof managers and employees. The firm’s strategy involves capitalisingon these strengths in addressing international marketing opportunities.

ACTIVITY

Consider you own organisation, or one with which you are familiar. What arethe key organisational resources that are advantageous to the marketingdepartment?

List the resources and briefly explain the benefit of each one.

Timescaling

With the development of any business-related plan, time is a keyelement. The need to carry out an organisation’s operations to acarefully considered time schedule is paramount to the effectiveworking of that organisation. Therefore, just like a production process,the co-ordination of the different activities within the strategicmarketing strategy must be set against a realistic timescale.

The strategy and the eventual marketing plan, should make cleardistinction regarding the period of time allowed for each task to becarried out. This will be shown on the marketing plan overviewdocuments.

Monitoring and control

The marketing plan will be affected by a constantly changingenvironment. As a result it is imperative that the plan is monitored andcontrolled. This is called Marketing Control - the process by which themarketing plan can be measured, evaluated and modified accordinglywith the principle aim of making sure that the stated marketingobjectives are achieved.

This process of control involves four distinct phases:

1. Management set specific marketing goals.

2. Performance is then measured for any disparity between whatshould be happening and what is actually happening.


Unit 1rdi

3. Performance is then evaluated to ascertain the reasons why thereare gaps if any in performance levels.

4. Corrective action is then undertaken and appropriate strategiesput into place.

KEY POINT

To control the marketing function, organisations need to review theiron-going performance on an annual basis to make sure that the organisationachieves the marketing objectives that it has set for itself.

Marketing Planning Processes

To meet the needs of customers efficiently involves:

1. Implementation of the marketing mix.

2. Investment of money and resources.

3. Co-ordination of all organisational departments.

This is usually facilitated by the production of a Marketing Plan as partof the strategic planning process.

Formal strategic planning is essential if organisations are to adopt aco-ordinated and focused approach. The strategic plan defines the totalorganisational mission and objectives. Marketing plays a crucial role inthe execution of the strategic plan and, therefore, it is against thebackdrop of the strategic plan that the marketing plan is derived.

To be able to plan effectively means that marketing objectives must beformulated and stated. This process, however, must be carried out inthe context of how the organisation operates in the market place and isreferred to as the Marketing Audit.

This audit involves the process discussed in Unit 2 – namely carryingout an audit of the macro environment and relevant aspects of theinternal functioning of the organisation to include such items as:

� Market (size, segmentation, customer needs, customerpurchasing factors, etc.).

� Product/service performance (sales, prices, etc.).

� Competition (market share, competitors strategies forquality, pricing, promotion and distribution, etc.).


Unit 1 rdi

� Distribution (sales trends, etc.)

A SWOT analysis is formulated from the data derived from the externaland internal audit and relates to:

Strengths – internal factors that enhance performance.

Weaknesses – internal factors that inhibit performance.

Opportunities – external factors that favour the organisation.

Threats – external factors that are likely to have a negativeimpact on the organisation.

The main aim of the SWOT analysis from an organisational perspectiveis to:

� Develop the strengths to match the opportunities.

� Attend to the weaknesses to match the threats posed.

This valuable marketing technique will be explored in more detail in alater unit.

Strategic marketing analysis

ACTIVITY

To find out more, you might wish to refer to the text, Management; An

Introduction by D. Boddy.

Sections 6.1 to 6.4 remind you about the general planning and strategyprocesses within organisations.

The terms used to describe the processes of setting organisational goalsand achieving them have changed considerably in recent years. For ourpurposes we can define to terms of immediate importance:

� Strategy is concerned with meeting the objectives of anorganisation, or of some part of it. Thus we haveCorporate Strategy concerned with the overall aims andobjectives, but we have Marketing Strategy concernedwith the more specific objectives of the marketingdepartment. At the corporate level the objective may beto secure a return on capital employed of x per cent, andthe strategy chosen to meet this objective may be toconcentrate activity on the organisation’s core activities.The marketing strategy following from this may then beto expand use of existing products in existing markets. In


Unit 1rdi

all these cases there is a definition of the broad approachat each level, but no detail of how the objectives to beachieved.

� Planning is concerned with detail of implementing theagreed strategy. At each level a plan will cover of theresources needed and the means to be used to implementstrategy. The plan will include forecasts of the expectedresults, and where these do not fit the objectives, eitherthe objectives, the strategy or the plan will need to bechanged. Corporate objectives and strategy will bedetermined at board level. Departmental objectives ofstrategy will be determined at director level. Planningwill be at senior or middle management levels, under theoverall control of the directors. Detailed marketing plansfor products or services will then be developed by thoseresponsible for day-to-day marketing of each product orbrand, whatever their specific titles may be.

Strategy establishes the long-term intentions (objectives and targets),while planning specifies the short-term action programmes to befollowed to achieve the strategy. Plans will be altered to counterchanges in market factors (economic, competitive, technological,political and such like) but strategy is usually only alters when someminor change has occurred in the business environment or the companyis changing course (i.e. moving into a new technology and markets, anddiversifying strongly to insure the company’s survival).

Marketing strategy is primarily concerned with optimising profit andreturn on investment, not maximising sales. If there is any conflict withthe first two objectives and the third, the first two should normally takeprecedence. In so doing, the critical factor of market shares will comeright, as well as sales volume. In practice, the marketing plans followed,and hence the marketing mix selected, will be a compromise betweenwhat is ideal and what is practical. The latter is determined by theconstraints of minimum costs and the talents of assets available to thecompany, of which most critical is usually money (funds).

In arriving at the best strategy and plans possible, executives must usethorough scientifically-based assessments and judgements of theirpresent and forecasted future. The planning is research-based, not theconsequence solely of intuition or guesswork, though these two shouldnot be spurned completely. When information and data are scarce ornon-existent, intelligent use of intuition and hunches, based onexperience, knowledge and past performance in related areas may bethe only methods available. In all cases, however, executives must notbe too introspective. They must think through their own situations andthose of customer and competitor. They must appreciate the marketingstrategies and mixes of the major competitors and the managerialconcepts and criteria - motivate customers and competitors.


Unit 1 rdi

It is important to appreciate that many variables influence the decisionstaken on marketing strategy and planning. They may, however, beclassified under five headings or groupings:

1. Product strategy and planning: involves decisions on productrange and mix, and rationalisation, modification and a newproduct development. These in turn require consideration ofproduct life-cycles, warranties and guarantees and, especially forconsumer goods, packaging design, branding and trade marks.

2. Market strategy and planning: involves decisions on all aspectsof the market mix, market segmentation, new marketdevelopment and the relationship between product strategy andpolicy.

3. Pricing strategy and planning: involves one of the most difficultdecision areas for executives and covers the prices and discountsto be operated, trade terms, etc. These are themselvesconditioned by cost aspects; the prices that are justified for thespecification, performance and other properties of the productsor services and selling methods that will be used. The overall aimhere is to ensure that the company achieves its profit targets andobjectives.

4. Promotional strategy and planning: involves decisions on thepersonal selling, advertising, sales promotions and PR activitiesto be followed. While these must be so co-ordinated as tooptimise the company’s communication with the selectedmarkets and customers, they must also be integrated with all theother marketing activities and, hence, strategies and policies.

5. Physical distribution strategy and planning: involves all thedecisions to do with the distribution of the product or service,especially the selection and the marketing channels and methodsof distribution to be used.

All five of these headings lead towards the marketing mix, which wewill discuss further later in the module.

Marketing strategy objective setting

Marketing executives have a number of strategies they can choose, but itis essential that choices are related back to the organisation’s corporatestrategy. In some major conglomerates the overall corporate strategymay be set in financial terms, but at some stage this is brought to thelevel of the operating unit or business. Hence the term StrategicBusiness Unit (SBU).

At the level of the SBU, strategies will be decided which will apply to allits products and three options are generally recognised. These havebeen described by Michael Porter, who has suggested that the companycan achieve success through aiming to:


Unit 1rdi

1. Provide basic goods or services at low-cost.

2. Incur higher costs where differentiated or unique products areselling at premium prices.

3. Focus on a small specialised niche in a market.

Examples all three strategies are common, but in the computer marketAmstrad has provided an example of the first kind, which caused amajor shift in demand. In the car market there are examples all threestrategies run concurrently by different companies. In many foodmarkets some companies follow the first strategy and concentrate onOwn Label products; some produce distinctive branded products athigher prices; some supply specialised diet or health products to meetthe special needs of small sectors of little interest to the other groups.

Within each corporate strategy there is still a choice of specificmarketing strategies, described by Igor Ansoff. The first of these ismarket retention, concentrating on marketing a company’s existingproducts in their current markets, using existing expertise andknowledge to gain a competitive age. Normally product development isvital, but it is low risk evolutionary development, or Old ProductDevelopment, simply to keep abreast of changes within an existingmarket.

The second option is for expansion by taking existing products into newmarkets. This may mean exporting to other countries, a method ofincreasing importance within the European Community since 1992.Here the company has the assurance that it knows and understands itproducts, but it is venturing into new markets, with some degree of risk.However it may only mean marketing existing products to newsegments in the home market, such as selling office equipment todomestic users, or all rooms in holiday hotels to conference organisers.Here the new segments need to be studied as some productmodifications may be needed for success, but the company is stillhandling a familiar product.

The third option is similar, providing for expansion within a company’sexisting market by introducing new products. Here risks are again keptlow as the company continues to work in familiar markets, but byintroducing products with which it is not familiar.

The fourth option is the diversification strategy, in which a firmlaunches new products into unfamiliar markets. This is a high riskstrategy as both product and market elements are new, and there arealso risks but so much effort will be allocated to the new venture thatexisting products and existing markets suffer.


Unit 1 rdi

Option evaluation

Once a firm has moved beyond a single product in a single market it willhave a ‘portfolio’ or a range of products - market operations. Some ofthese may be at early stages used in the life-cycle; others may be indecline. Some may be earning good returns; some may still be costingmore in development and promotion than they are achieving inrevenue. It is vital for the long-term health of the company but there is abalance, within the portfolio, of old and new products or markets. Areview or screening process must be regularly undertaken covering allareas in which the firm is interested. Too few new or emerging productsmay mean that there is nothing to replace the current earners as theybecome obsolete. Too many new products in the range may place aheavy burden on management, on cash flows and resources generallywhich may drag the firm down. Too much concentration in decliningmarkets spells risks of one kind. Too much commitment to new marketsmay be equally risky but in a different way. A balance needs to bestruck, and be maintained by a careful review of current earnings,forecasts and potential returns. Products or markets with no futureneed to be closed down. Current earners need to be managed formaximum results. Those with growth potential need to be fostered.Research and development need to be focused. Securing a balancebetween all these factors in the market is one of the most criticalactivities in marketing management.

Before the market and product-market screening take place, marketopportunities and characteristics must be defined. The work neededhere is summarised in Figure 1.3.

Choice

In addressing the question of the marketing direction and havingevaluated the options, the next ‘simple’ step is to choose which of theoptions is the ‘best’ for the organisation. However, the choice is often farfrom straightforward.

How can you actually define what is ‘best’? How will your concept ofwhat is the best option match with the views of the other stakeholders inthe company?

To consider this dilemma, the aspect of measurement under the bannerof financial and non-financial criteria should be considered, leading to aframework for a decision-making process. The following areas shouldbe considered:

� The short versus the long-term.

� The nature of financial and non financial measures.

� The significance of multiple decision criteria.


Unit 1rdi

� The basis for the ‘best’ criteria.

� The importance of critical success factors.

� The characteristics of good marketing company.

It is also possible to overlay on to this decision-making process aspectsof logical, mathematical modelling, looking at factors such ascost-volume-profit analysis or break-even analysis.


Unit 1 rdi

Identifying markets and discrete market segmentsestimating total demand or market sizeidentifying significant segments of total marketmeasuring the coverage of the market by existing products orservices (to deduce the new or revised/modified activities thecompany could consider)

Market projectionsprojections into the future (for 5, 10 or more years) to evaluategrowth or decline of existing marketschanges in customer requirements, preferences, etcchanges in economic, social, political, technological, ethical and otherenvironmental factors which affect the market conditions or theservices being offered

Characteristics of marketservices required by customersfunction or usage of service or productsessential features which the service or product must havemethods used by customers in searching for services/productscompetitive position, including share of markets, costs/slash prices, etcrange of services to be offeredfunctions critical to the success of operations offering services toselected marketscommercial conditions and terms expected by customerscost/price relationship, price sensitivity, pricing policy

Available market shareestimate of market shares availableprojections of market sharescompany and competitors’ strengths and weaknesses and how thesemay affect market shareshow to modify marketing operations to improve profitability and gainincreased market shares

Marketing strategy and market selectionselection of strategy and operations (tactics) to be followedselection of markets and market segments to be attackedpossible mix to be offereddeciding resulting marketing plans to be implementedimplementation and control of marketing operations, including analysisof results being obtained, feeding new information and data into marketingplanning activities and assessments

Identifyingmarkets

and marketsegments

Selecting marketstrategy; markets and

marketingoperations; control

and informationfeedback

Determiningcharacteristics

Figure 1.3. Identifying options within markets.

ACTIVITY

On what basis does your organisation decide between the various marketingalternatives that it faces?

How explicit of these criteria?

What additional factors might usefully be taken into account?

Formulation, implementation and control

With the benefit of having assembled all of the data identified in theearlier stages of the strategic marketing planning process, a companywill now be in a position where it can consider ways in which canformulate its overall marketing strategy. There are various approachesto planning and often the formulation of a strategy is considered as atwo-stage activity.

To begin with, there is the argument that says it is necessary to considerthe strengths and weaknesses of a product portfolio in order to providea focus against which the overall direction of the organisation may beconstructed. Understandably, perhaps, the models and techniquesdiscussed have both their limitations and their critics, but this does notnegate the importance of trying to understand how a product portfoliois constructed and what its potential is.

The student is asked to consider why this area receives little attentionfrom managers involved in strategic planning but it is also important toconsider at the same time how useful a tool portfolio analysis can beprovided it is undertaken with the full appreciation of its limitations.

This second stage of the strategy formulation process is to examine theprincipal factors that can influence strategic direction and then considerthe strategic options available once an organisation’s market positionhas been established.

ACTIVITY

Research the Boston Consulting Group Matrix or the General Electricmulti-factor portfolio model.

Using these, plot the position of organisation’s strategic business units.

How are these likely to move over the next few years? What does the analysistell you about the health of your organisation?

Taking two of your principal competitors, conductor a similar portfolioexercise.


Unit 1rdi

Among the most useful contributions to understanding of marketingstrategy over the past few years has been Michael Porter’s idea ofgeneric Competitive Strategies. Using these as a starting point forthinking about strategy it is possible to focus upon particulardimensions such as issues of competitive advantage, and the influenceof market position and strategy.

ACTIVITY

How would you categorise your own organisation’s marketing strategy?

What are its strong and weak points?

Having reached the point of selecting the appropriate strategy, it is nownecessary to consider its effective delivery. However, it must berecognised that throughout strategic planning process, aspectssurrounding the ability to deliver the ultimate strategy direction takenwill need to have been a fundamental consideration in the selection ofthe ultimate direction. Clearly, it would be inappropriate to set goals farbeyond the organisation’s capability to deliver to them. Once again thisillustrates the interrelation between the various aspects of the strategicprocess.

The implementation of any strategic plan can immediately create apotential conflict within organisations between the need to integratefunctions and the desire to segment responsibilities. To begin with,therefore, it is crucial that:

� The component elements of the plan are communicatedclearly and there is an absolute understanding of whatthe plan actually says.

� All of those involved in the implementation of the planare fully aware of the extent and requirement of therespective roles.

� There is consensus of the wisdom of the plan andcommitment to its accomplishment.

Taking this forward, there are pressures, both internal to theorganisation and externally in the environment, that create barriers tothe successful implementation of the strategic plan. Some of these issuesinclude:

� The external barriers or factors outside the organisationwhich create difficulties. These include the various PESTelements, to which we will refer later on in the module.


Unit 1 rdi

� The internal barriers including the type of leadership andthe organisational culture.

� The strategic drivers for implementation.

� Control systems.

Organisations must also monitor their performance and take correctiveaction in order to overcome strategic drift and strategic wear-out.

ACTIVITY

What particular problems of implementation are encountered within yourown organisation?

How significant are these and what are their consequences?

What are the causes of the problems?

How might these be overcome?

Putting an implementation programme into effect is one thing, ensuringit eventually delivers the desired results is another. The importance ofeffective management control, therefore, cannot be understated. Just asthere is a high level of interrelationship between the various stages ofthe strategic market planning process, if the ability does not exist tofollow the chosen should strategy through then no matter how goodthat strategy may be, it will never achieve the desired results.

Strategic Marketing

Key definitions

There is a wide range of definitions of strategic marketing, some ofwhich have been mentioned earlier in this unit. Most have certain basicfeatures in common, especially the notion of looking at the organisationfrom the point of view of the customer or striving to ensure mutualprofitability from the marketing exchange. Other definitions place theiremphasis on the essentially managerial nature of marketing.

Kotler (1987) provides one of the widest definitions;

Marketing is a human activity directed at satisfying needs and wantsthrough exchange processes.


Unit 1rdi

McDonald, in an article in the Journal of Marketing Management (1989)entitled ‘Ten Barriers to Marketing Planning’, states that successfulimplementation of strategic marketing plans means overcoming themany stumbling blocks that may exist within the organisation. Thesecan range from senior management inertia to determined resistance byvested interests. He summarises these as:

1. Confusion between tactics and planning.

2. Isolating the marketing function from operations.

3. Confusion between the marketing function and marketingconcept.

4. Organisational barriers.

5. Lack of in-depth analysis.

6. Confusion between prices and output.

7. Lack of knowledge and skills.

8. Lack of systematic approach to marketing planning.

9. Failure to prioritise objectives.

10. Hostile corporate culture.

Successful implementation of marketing plans calls for these barriers tobe overcome by committed senior management backed by effective andwell-integrated marketing systems.

Doyle highlighted the strength of Japanese and German marketing in astudy of British and Japanese marketing, indicating the importance ofintegration into a powerful customer orientation:

The findings confirm the Japanese astuteness in marketing. Strategieswere clearly defined, decisive and aggressive. Not losing sight of newopportunities in the market, they timed their opportunities in themarket, and timed their entry well. Their products had significantadvantages and their marketing efforts were more efficiently targeted atwell-defined sectors of the market. The British were woefully weak anddefensive, driven much less by market opportunities but more bysurvival needs.

Nature of strategic and marketing links tocorporate strategy

Marketing strategy is a crucial part of corporate strategy at the level ofthe SBU and the portfolio of products it manages forms part of theprocess. The techniques for portfolio analysis are fundamental to theallocation of resources which form a key part of strategyimplementation. The specific strategies adopted, especially towards


Unit 1 rdi

competitors are dependent on the stage of market product life-cyclewhich those who have studied corporate strategy, or business planningwill recognise. In fact, they are also used in corporate strategy. RecallingDrucker’s statement that there are only two unique activities inbusiness, innovation and marketing, it is possible to see why this shouldbe so.

Of course, corporate strategy tends to be wider than marketing strategyin that it includes issues such as financing, capital structure, ownership,as well as issues to do with the environmental movement, TQM, BPRthe Management of Change and the Learning Organisation which arediscussed elsewhere.

Role and importance of strategic marketing in anorganisation

Key strategic concepts are dealt with more fully later on in this unit, butit is useful at this stage to take an overview of their nature and theusefulness to corporate strategy.

We shall consider the four key concepts that form the techniquesnecessary to aid strategic planning:

� Segmentation.

� Positioning.

� Marketing mix.

� Value chain.

ACTIVITY

Summarise the purpose of these key techniques in the process of strategicplanning.

ACTIVITY FEEDBACK

These techniques support decisions about the allocation of resources toachieve a sustainable competitive advantage in selected product markets.


Unit 1rdi

Most markets are segmented in one way or another. Any activityclassified as a market can embrace numerous groups of customers, theneeds of any one group being significantly different from the others. Agroup of customers with broadly similar needs constitutes a marketsegment. Asking how a market is segmented can provide valuableinsights into customer requirements and help focus on specific marketsegments.

Even within these broad definitions of the market, however, furthersegments can be identified. An evaluation of the current and potentialsegmentation of the market should reveal untapped or under-tappedopportunities in the market.

ACTIVITY

Using the tourist and travel market as an example, list how the market mightbe segmented for the development of a marketing strategy.

ACTIVITY FEEDBACK

You might have considered some form of segmentation like this:

Segment Sub-segment

Holiday tourist Fully inclusive packagePartly inclusive packageIndependent traveller booked via an agencyIndependent traveller booked privately

Business traveller Booked via agencyBooked by employer’s travel department

Special or common Hobby

Interest traveller CulturalReligiousArchaeological or ancient historyEthnic or anthropologicalFlora and faunaSports enthusiast


Unit 1 rdi

When various elements of the marketing mix are consideredindependently, we understood that it is neither practical norappropriate to focus initially upon the first element - product - and thenmove systematically through all other variables without appreciatingthat each factor hasn’t interdependence with the others.

Take as an example of this any variation in the product that involvessome cost implications which may, in turn, be reflected in price. Takingthis further, a different pricing strategy may have a revised promotionalmix or lead to making the product available to the market in a differentway.

The true nature of the marketing mix variables, therefore, lies in a set ofinterdependent variables which need to be managed both tactically andstrategically within the constraints imposed by the organisation’senvironment. This is demonstrated in Figure 1.4.

In order to help build up an understanding of how they interact and,both these are considered separately in the following sections.


Unit 1rdi

Demand for a productor service is influenced by

Uncontrollable factors

The economyLegislationThe political environmentSocio-cultural factorsCompetitorsTechnologyEcological issues

Controllable factors(the marketing mix)

The “hard” elementsProductPricePlace (distribution)Promotion

The “soft” elementsPeoplePhysical evidenceProcess management

Figure 1.4. Influences on demand.

Marketing Strategy

Strategies for product/service

It is the consumers’ or customers’ perception of the product whichshould be the cornerstone of all product policy. That perception will notonly be influenced by the products’ physical properties (text, texture,colour, smell, etc.) but also by an individual’s perception of anyassociated services. The package, the brand name and the generalisedimage might also be important, as could a whole range of social andcultural associations which have become attached to the product.

If there are so many aspects of what at first might have seemed a simplenotion – the product or service – it is worth thinking whether there areany further ways to distinguish between the different dimensions.Kotler distinguishes between the ‘core benefits’, the ‘tangible’ productand the ‘augmented’ product (or service) – which although involvingterms particularly relevant to goods (e.g. installation) can be applied togoods or services.

We should look at some useful definitions:

The core product service

This is the product or service on offer, e.g. a washing machine, a bottle ofshampoo, a dry-cleaning service, a photography service.

Benefits

These are the benefits the customer will enjoy as a result of buying andusing the product or service, e.g. cleaner, fresher washing; a safe drivingexperience; a warmer home and cost savings on fuel bills.

The tangible product service

Brand name, packaging, features, quality and styling are all theelements which customers can see, touch, experience and appreciate forthemselves. They are tangible and real.

The augmented product service

Installation, after-sales service, delivery, credit options andwarranty/guarantee are all elements which augment the product orservice, and which add to the customer’s buying and using experience.


Unit 1 rdi

ACTIVITY

Identify a key product or service which your organisation produces orprovides.

Identify the:

� core product or service

� tangible product or service

� augmented product or service

An essential vehicle for the generation of customer satisfaction is theproduct or service which the organisation offers in the market-place orthe arena in which it operates. All other decisions about the marketingmix need to be integrated with those on product policy, since they areabout how to promote, price and distribute the product or service itself.See Figure 1.5.

Key decisions which managers must make are about theproduct–market mix, the positioning of the product and ‘branding’.These decisions result from the simultaneous analysis andinterpretation of the external and internal environments. As has been


Unit 1rdi

External environment Internal environment

Consumers’needsperceptions

Competitors’product mixproduct positioning

Product life cycle

Resources andcompetences in:

manufacturing/operationsfinancemarketing knowledgeskills reputationchannels/relationshipsR&D - technical andmarketing

Product strategies

product/marketing mixproduct developmentproduct positioningbranding and packaging

Figure 1.5. Environment and product strategies.

stressed, crucial aspects of the external environment which affectdecisions about the product aspect of the marketing mix relate toconsumers, competitors and the product life cycle. Internally, strengthsand weaknesses in such functions as manufacturing and operations,personnel, finance, marketing, and research and development all relateto and affect decisions about the product.

For existing products or services the starting point is to decide exactlywhat you have. The main purpose of what marketers call a ‘product (orservice) audit’ is to look at the products or services in terms of how thecustomer sees them.

Some of the questions for such a review or audit might be:

� What is the market segment which this ‘brand’addresses?

� Who are the existing customers?

� Who are the prospective customers?

� What benefits are these customers and prospectivecustomers seeking?

� How does the product or service match up to thesecustomers’ needs and wants?

� How does it compare with competitive products?

ACTIVITY

For this activity, select just one of your organisation’s main products orservices. Complete the following statements about your chosen productor service:

� The product or service I have selected:

� The important features of the product or service I haveselected:

� The market segment which this product or service addressesis:

� The existing customers for this product or service are:


Unit 1 rdi

� The prospective customers for this product or service are:

� The benefits these existing and prospective customers are seekingare:

� The way in which this product or service matches up to thesecustomers’ needs and wants:

� The way in which this product or service compares with acompetitive product or service:

ACTIVITY FEEDBACK

When an organisation is carrying out a product audit a number of importantquestions have to be addressed.

The core product or service

Are customers still keen to buy our product or service?

Is our product or service still relevant to customers’ needs?

The tangible product or service

Brand name – Is the name of the product or service still relevant andappropriate? Or might customers perceive the name as out-of-date or justplain boring?

Packaging – Is the packaging appropriate and likely to appeal to our targetmarket? Or does the packaging need to be updated or changed in some way?

Features – Does our product or service have enough of the right kind offeatures? (For example: safety locks, economy timer, extra zip pockets,automatic ice dispenser, velcro fastenings, range of extra-large sizes, range ofseven different colours, etc.) Or do we need to add extra features to make theproduct or service more desirable to customers?

Quality – Is the quality of the product or service as good as it should be? Doesthe quality compare favourably with similar products/services offered by ourcompetitors? Or do we need to improve on the quality? If so, how?

Styling – Is the styling – appearance, design, materials used etc. – of the productsufficiently modern and up-to-date so that it appeals to our target market? Ordo we need to improve the styling in some way?


Unit 1rdi

The augmented product or service

Installation – Is it possible for customers to have this product installed in theirhome, car, office, shop or factory swiftly and easily with a minimum of fuss? Orare customers complaining about installation problems? Do we need to makechanges to the way in which the product is installed?

After-sales service – Do customers receive an effective after-sales service? Areproblems dealt with smoothly and efficiently? Or are we receiving complaintsfrom customers that problems and difficulties are occurring with the productor service? And, maybe, these problems and difficulties are not being resolvedsatisfactorily? If so, what can we do to improve after-sales service forcustomers?

Delivery – Is the product or service delivered on time, according to promisesand agreements that have been made with customers? Is the product arrivingundamaged and in good condition? If not, how can we put these issues right?

Credit options – Are there a range of credit options available so that customersfind it easy to buy our product or service? Is it, perhaps, easier for customersto buy our competitors’ products or services on credit? If so, what can we doto make it easier for people to buy from us?

Warranty/guarantee – Do we provide a good guarantee/ warranty with ourproduct or service? How does our guarantee compare with the guaranteesthat our competitors offer? Do we need to improve some aspects of theguarantee we offer?

In reality, at the organisational level, the list of customer benefits must be verycarefully compiled, preferably using sophisticated marketing research, to seethem accurately from the customer’s viewpoint.

ACTIVITY

Note down four problems which could possibly arise if an organisation did notcarry out product/service audits on a regular basis.

ACTIVITY FEEDBACK

Any organisation which does not take the time or trouble to perform regularproduct or service audits may have to deal with some, or all, of the followingproblems:

Products and/or services which:

� Are old-fashioned and out-of-date.

� Customers perceive as no longer useful or relevant.


Unit 1 rdi

� Have been overtaken by the competition who have improved onpackaging, features and styling.

� Are no longer of good enough quality to satisfy sophisticated anddiscerning buyers.

� Because of poor after-sales service, customers perceive as not beinggood value for money.

� Due to problems with installation or delivery have acquired a badreputation with customers.

� Do not have a guarantee or warranty which is equivalent to theguarantee or warranty offered by competitors.

� Generally are perceived by customers as poor quality products orservices which are no longer desirable.

KEY POINT

The people in the marketing department of any organisation need to makesure that they:

� Constantly audit the goods or services which their organisation iscurrently offering.

� Constantly look for new ideas for products and services (researchand development) which will enable the organisation to stay aheadof the competition in the future.

The product life cycle (PLC)

You may recall the idea that an organisation has a life cycle. This notionwas based on the metaphor of an organisation as an organism that wasborn, grew and matured and then, perhaps, died. The similar notion of alife cycle of a product or service, or the ‘product life cycle’ (PLC), is avery important element of marketing theory. The concept of the PLCsuggests that any product or service moves through identifiable stages –introduction, growth, maturity, decline – each of which is related to thepassage of time as the product or service grows older, and each of whichhas different characteristics. See Figure 1.6.

Associated with each stage is said to be a profit level. It is likely that thiswill in fact be ‘negative’ (representing not profit, but loss!) at thebeginning, when there is high initial investment. Hopefully, however,profits will become ‘positive’ by the maturity stage.


Unit 1rdi

Everything, in marketing terms, occupies a place in the product lifecycle, which covers four stages:

� Introduction.

� Growth.

� Maturity.

� Decline.

Introduction

The company launches a new product or service. Usually the productlaunch is achieved by way of an expensive marketing campaign whichcan include newspaper, magazine and television advertising; highprofile promotions such as competitions and special offers, etc. Themain aim at this stage, is to introduce the produce or service to potentialcustomers and this usually costs a considerable amount of money. Atthis stage nothing is certain. The organisation may have investedconsiderable resources in product research and development; newequipment, advertising, promotions and so on. Customers may decidethat they love the product or service or they may decide that it is notsomething they want to buy.


Unit 1 rdi

Revenue fromsales & profit

Time

+-

Introduction

Growth

Maturity

Decline

Sales

Profits

Figure 1.6. The four stages of the product life style.

Growth

This is stage two of the product life cycle and here, hopefully, sales riseas more and more customers decide that they like the product and areprepared to purchase it. Although the organisation will be keen torecoup its original investment in research and development costs, theywill still have to spend money on advertising and marketing in order tocontinually increase customer awareness so that customers who havealready bought buy again; and new customers are persuaded to buy forthe first time.

Maturity

During stage three of the product life cycle the product or servicebecomes well established in the hearts and minds of customers. Salescontinue to grow, but not at the same rate as they did during the GrowthStage. The marketing focus is now on keeping customer loyalty –because, of course, other new products and services are now beingmade available by competitors. During this stage the marketingcampaign may include price cuts in an attempt to retain market sharewhich will, in turn, affect profitability.

Decline

This is the final stage of the product life cycle. Sales' growth tails off andthen begins to fall. Price reductions and special offers are no longerenough to persuade customers to buy. Once loyal customers are nowchoosing newer, more exciting products and services. Eventually theorganisation, with the aid of the specialists in the marketingdepartment, decide that it is time to abandon the product. Productionceases and the item is no longer available.

The wise, well-prepared organisation then moves into stage one of theproduct life cycle – Introduction – by launching a new product orservice.

The product life cycle will be revisited in the next unit.

ACTIVITY

Select one of your organisation’s products or services.

Decide where this product or service is in relation to the four stages of theproduct life cycle.

Find out which product or service is intended to follow on from this one.


Unit 1rdi

Most companies and organisations offer more than one product orservice. Managers must understand the relationships among all theproducts of their organisation if they are to co-ordinate the marketing ofthe total group of products.

The following terms are often used to help describe the relationshipsbetween an organisation’s products (and services):

� Product item: a single product.

� Product line: a number of products which are related.

� Product group: all product lines which form a group ofproducts which are related.

� Product mix: all the products offered by an organisation.

The notion of ‘product width’ represents the number of product lines;and ‘product depth’ represents the number of single products which areoffered in each product line.

At this point we should also consider the branding of a product. Bydoing so, the business guarantees to the consumer that the next onebought will be virtually the same as the last one. This encourages repeatpurchases through brand loyalty.

Branding also helps a business differentiate its products from those ofits competitors. A business is able to use the brand's unique sellingpoint (USP) to increase sales. Mass advertising also becomes a morerealistic activity with branding .

Market segmentation, targeting and positioning

Market Segmentation

Market segmentation is a way for an organisation to distinguish majorsegments of homogeneous consumers in a market and, in doing so,develop products and marketing programmes that are tailored to eachmarket segment. Instead of scattering your marketing effort through a‘shotgun’ approach, with segmentation you can focus on the buyers inthe marketplace who you have the greatest chance of satisfying – usingthe ‘rifle’ approach.

Market segmentation represents a trend away from mass marketingapproaches, and the third in line of market-based approaches. Prior tothe segmentation approach, companies approached their marketingefforts through:

� Mass marketing – mass production, mass distributionand mass promotion of one product for all buyers – asepitomised by the legendary Ford Model T.


Unit 1 rdi

� Product variety marketing – a seller produces severalproducts that exhibit different features, styles, qualitiesand sizes – designed to account for customer needs forchange and variety.

The trend away from mass marketing occurs for a number of reasons, asillustrated in Figure 1.7.

‘The danger of thinking in terms of single, masshomogenous markets has been recognised. Marketsegmentation, as an approach, emerged from therecognition of this danger.’

Kotler et al (1999)

Segmentation allows for:

� More precise market definition.

� Better analysis of competition.

� Rapid response to changing market needs.

� Efficient resource allocation.

� Effective strategic planning.

Market segmentation is the first step in the segmentation – targeting –positioning (STP) approach to marketing.


Unit 1rdi

Trends awayfrom massmarketing

Consumers:

More discerningMore awareBombarded with messagesRequire service convenienceIndividualism

Technology: Competition:

Reducing unit costs New playersCapacity increasing Systems-driven productsCommunications Relative media costs

Figure 1.7 The reasons for the trend away from mass marketing.

Market segmentation

1. Identify segmentation variables and segment the market.

2. Develop profiles of resulting segments.

Target marketing

3. Evaluate the attractiveness of each segment.

4. Select target segments.

Market position

5. Identify a differential advantage for each segment.

6. Formulate the marketing mix to be used in the marketing planfor each segment.

The benefits of the segmentation approach can be summarised as:

� Better matching of customer needs.

� Enhanced profits.

� Enhanced opportunities for growth.

� To retain customers as their buying behaviour patternschange.

� To enable more accurate targeting of communications.

For market segment share – it is generally market share rather thanmarket size which determines profitability.

The purpose of segmentation is to classify groups of customers withsimilar needs and wants. There are certain requirements for identifyinguseable market segments:

� Definable – key characteristics of the segment show adegree of homogeneity. The market size and marketboundaries can be determined.

� Profitable – the segment must give required turnover andprofit figures. The segment must further match theresources and the objectives of the organisation.

� Reachable – the organisation needs to determine whetherthe market segment can be reached efficiently andeffectively, and whether effective communications withthe target segment can be made.


Unit 1 rdi

Bases for segmenting markets

There are generally two bases used for segmenting a market:

The characteristics of the buyer

� Demographics.

� Geographics.

� Psychographics (e.g. sociability or personality traits).

� Lifestyle.

Benefits sought

� Benefit segmentation.

� Behavioural segmentation.

KEY POINT

Although different characteristics are used to segment a market, generally twoor more of the segmentation variables will be combined in the segmentationprocess.

Segmentation is becoming more sophisticated – ‘in the 1980s we lookedfor the customer in each individual. In the 1990s (and beyond) we mustlook for the individual in each customer.’

We can now look at these bases for segmentation in more detail:


Unit 1rdi

ACTIVITY

Making reference to examples, discuss how lifestyle and demographicapproaches to market segmentation might be used by a marketing manager todevelop a detailed understanding of a market.


Unit 1 rdi

Buyercharacteristics

Demographics:

� Gender.

� Age.

� Marital status.

� Occupation.

� Socio-economic classification.

� Family type/size.

� Income levels.

� Ethnic origin.

� Education levels.

� Life-cycle stage.

Geographic:

� Rural versus urban.

� North versus South.

� Numbers of customers withincertain distances.

� Postcode penetration.

Psychographic:

� Sociability.

� Self reliance.

� Assertiveness.

� Other personality traits.

Lifestyle:

� Attitudes.

� Interest.

� Opinions.

� Social influences.

� Activities.

Benefitssought

Benefit segmentation:

� On the basis ofbenefit received.

� Service level delivered.

Behavioural segmentation:

� The brand-loyalcustomer.

� Light, medium andheavy users.

� Occasional users andnon-users.

� Purchase occasion.

� User status.

� Readiness status.

Figure 1.8 The bases for segmentation.

ACTIVITY FEEDBACK

You can draw examples from consumer markets, including fast movingconsumer goods markets (FMCG), covering food products, services (e.g.restaurants) or consumer variables (e.g. cars).

With regard to lifestyle, you could consider a lifestyle approach to cars andidentify the various life stages associated with buying the different sizes andmodels of cars. Consider the type of people who buy estate cars, sports cars,small cars and luxury cars. How are these able to be classified according to aperson’s lifestyle?

Once you have segmented the marketplace that your organisation is in,you then need to evaluate the segments and decide how many andwhich ones to serve.

Evaluating market segments

There are a number of ways to evaluate the potential attractiveness ofmarket segments:

� Segment size and growth – is the segment growing ordeclining?

� Is the segment changing? – Porter’s five forces model ofcurrent and potential competition referred to in theearlier section:

� Threat of intense segment rivalry.

� Threat of new entrants.

� Threat of substitute products.

� Threat of growing bargaining power of buyers.

� Threat of growing bargaining power of suppliers.

� Organisation objectives – does the segment fit with theobjectives of the organisation?

� The capabilities and resources of the organisation – doesthe organisation have the necessary resources andknow-how to compete in the identified segment?

� Profitability of the segment – taking account of the othercriteria given above.


Unit 1rdi

Selecting Target Segments

Target marketing involves the analysis and understanding of some ofthe factors that can affect organisations as they serve the interests oftheir markets and individual consumers.

In this unit we will look at the many facets of the environment that havea profound effect on the way in which organisations are able to operate.Any organisation is subject to influences within their immediateenvironment – influences over which they can exert some control.Organisations are also subject to influences in the external environment;for example, the economic conditions and political policies of thecountry in which they operate. These environment factors cannot becontrolled by a company, but they do need to be approached in aneffective way.

In essence, target marketing is an approach whereby a companymarkets its products and/or services to selected customers in amarketplace. Target marketing helps a company to identify theimportant environmental factors that will influence its effectivenessand overall success in its chosen markets. In this unit we will examinethose aspects of the business environment that will affect anorganisation.

In developing a target market strategy, there are several strategicchoices open to an organisation. These can be classified as:undifferentiated marketing, differentiated marketing and focusedmarketing.

The key components of these are outlined below:

Undifferentiated marketing

Ignore actual or potential differences amongst segments, and target anoffer to the entire market. Many companies including BA, BT and CocaCola used this strategic option in the past, although recently even thesecompanies have begun to differentiate their products for differentconsumer groups.

Differentiated marketing

This strategy is similar to undifferentiated marketing in that theorganisation seeks to compete across the majority of the market. Incontrast to undifferentiated marketing though, this approach involvesdelivering different offers for different market segments. Differentiatedmarketing further involves developing different product andmarketing programmes for each segment of the market.


Unit 1 rdi

Focused marketing

With focused marketing the aim is not to compete in the majority of amarket but to specialise in one or a small number of segments. Abusiness is able to build a strong reputation from its expertise inunderstanding specific requirements of buyers in a segment.

KEY POINT

Market segments are not fixed. Marketplace developments must be continuallymonitored in order to identify potential target markets. Market changes throwup continual opportunities for organisations to create and develop newprofitable segments.

ACTIVITY

Think about recent changes in the business environment. Consider theemergence of new market segments that have arisen because of changes to theenvironment.

As an example, mobile telephone technology continues to offer newsegmentation opportunities – text messaging, picture telephone, businesse-commerce, etc.

Write down five examples of emerging segments associated with changes tothe business environment.

ACTIVITY FEEDBACK

Some examples of business environment changes can be seen in the sectionbelow.

� Rising incomes.

� Demographic changes.

� Fashion.

� New environmental concerns.

� Digital technology.

� Telecommunications.

� Multi-media developments.


Unit 1rdi

In order to deliver new market products and services that meet thesemarket changes, organisations need to adopt an innovative approach.Examples of innovation leading to the emergence of new marketsegments include:

� Virgin Airlines moved on from economy, business andfirst-class segmentation into further segmentation of theeconomy class. It created a new ‘mid-class’ aimed atfull-fare economy passengers.

� Haagen Dazs developed a premium segment for icecream in the UK and other countries across the world.

� British Airports Authority – recognising the emergingdifferent needs of customer segments – has segmented itslong-term car parking into tourist (£6 per day) andexecutive (£12 per day) (1997 prices).

Opportunities for segmentation and targeting tend to increase as amarket evolves. For example, personal computer sales grew by 55% perannum in the UK in the 1990s, whilst cigarette sales declined by 3% perannum over the same period.

Market positioning

‘Winning in the marketplace means creating some kind ofsustainable competitive advantage.’

Whilst the choice of target market segments determines where aparticular business will compete, it is the competition within segmentsthat will allow customers a choice.

Positioning is the way that an organisation can create a sustainabledifferential advantage over the competition and, whereby, a perceiveddifference means that customers in a target segment will prefer onecompany’s offer to the offers being made by others.

There are certain criteria required to create a differential advantage:

� Customer benefit – a benefit is offered that customersconsider important.

� Unique – not obtainable in a similar way from othercompanies.

� Sustainable.

� Difficult to copy.

� Barriers to entry.


Unit 1 rdi

� Difficult-to-acquire skills.

� Scale economies.

� Branding.

� Patents.

� Profitable.

In searching for a differential advantage, a company must develop anunderstanding of what customers value – where value is equal tocustomer satisfaction, minus price.

There are numerous drivers of customer satisfaction that will affect totalcustomer value. This value is considered to be the perceived satisfactionoffered by consumption or ownership of a product or service. This valueof a product or service is always a combination of rational, economicfactors and subjective image dimensions.

The factors that can drive up the value of an offer can be grouped intospecific driver classifications. These are summarised in Figure 1.9.


Unit 1rdi

1. Product drivers

� Performance – speed , accuracy

� Features – added to primary function

� Reliability

� Conformance – design specification

� Durability – working life of product

� Operating costs – lifetime costs

� Serviceability – product repairs

� Aesthetics – how product looks and feels to thebuyer

2. Service drivers

� have become more important as competitionnarrows product differences:

� Credit and finance

� Ordering facilities – ease/efficiency of ordering

� Delivery – speed and effectiveness

� Installation

� Training and consultancy – customer help andsupport

� After-sales service – maintenance and back up

� Guarantees – to eliminate perceived purchaserisks

� Operational support

3. Personal drivers

� especially valuable in service-oriented markets:

� Professional – training for skills and knowledge

� Courtesy

� Trustworthy

� Reliable – accurate and consistent service

� Positive – staff can overcome difficulties

� Responsive – to customer requests

� Initiative – in solving problems

� Communication – skills

4. Image drivers

� a strong image gives a customer confidence inthe product, service or brand:

� Socio-psychological confidence – a personal orsocial statement, e.g. Levi jeans and Nike

� Economic confidence

Figure 1.9 Drivers of customer value used in market positioning.

The key to winning long-term customers is to understand what thecustomers value and their buying behaviour – better than thecompetition does. Buyers will buy from the firm that offers the highestdelivered value – the difference between total customer value and totalcustomer price.

The total customer value is comprised of:

� Product value.

� Services value.

� Personal value.

� Image value.

Total customer price is compromised of:

� Monetary price.

� Time cost.

� Energy cost.

� Psychic cost.

In order to deliver enhanced value and to compete, a customer offer canbe improved in three ways:

� Augment total customer value by improving product,services, personal and/or image benefits.

� Reduce the buyer’s non-monetary costs by simplifyingthe buyer’s time, energy and psychic costs.

� Reduce the monetary price to the buyer.

In addition to these strategies that add value or reduce costs, a businesscan also enhance competitiveness through more effective positioning.There are a series of steps that can be taken to ensure effective


Unit 1 rdi

1. Define the segments of the market.

2. Decide which segment(s) to target.

3. Assess the utility drivers and hence whatcustomers value.

4. Develop the product or service to caterspecifically for customer needs andexpectations.

5. Evaluate the positioning and images – as perceived bytarget customers – of competing products and services inthe selected market segment(s).

6. Select an image that sets your products and services apartfrom those of competitors, matching the images with theaspirations of target customers.

7. Develop a marketing mix which matches your desiredmarket positioning.

Figure 1.10 Step-by-step positioning of a product or service.

positioning of an organisation’s product or service. These are includedin Figure 1.10.

Positioning relies on customer perceptions. The key steps involved indeveloping a perceptual map are outlined in Figure 1.11.

An example perceptual map is included again below.


Unit 1rdi

1. Identify a set of competing brands.

2. Identify important attributes that consumers use when choosing between brands using qualitative research(e.g. focus groups, group discussions).

3. Conduct qualitative marketing research where consumers score each brand on all key attributes.

4. Plot brands on a two-dimensional map.

Figure 1.11 The key steps in developing a perceptual map.

High qualityHigh price

Lower qualityLow price

Low choiceLimited range

M&SX

AldiX

LidlX

Kwik SaveX

AsdaX

WaitroseX Tesco

X

J SainsburyX

SafewayX

High choiceExtensive range

Figure 1.12 Perceptual mapping: supermarkets.

Pricing

It is sometimes assumed that, compared with decisions about the otherelements of the marketing mix – product, promotion, place, pricingdecisions are relatively simple. For example, it might be argued that ifwe know the costs of producing and marketing a product, and have alsodecided on a specified percentage amount which is to be added to thesecosts to generate surplus or profit, we can easily calculate the sellingprice required.

However, an important principle for pricing is that the strategy,objectives and plans for pricing must be consistent with, and related to,overall organisation and marketing aims and objectives. From this pointof view it becomes important to realise that many factors should be seenas affecting decisions about price, including:

� The product life cycle.

� Introduction of new products.

� The product portfolio.

� Pricing of the product line.

� Segmentation and positioning.

� Branding.

The activity that follows will give you the opportunity to think abouthow each of these factors might have an impact on pricing strategy.

ACTIVITY

For each of the following statements note down how each of these factorsmight affect your organisation’s pricing strategy:

� Product life cycle.

� Introduction of new products.

� The product portfolio.

� Pricing of the product line.

� Segmentation and positioning.

� Branding.


Unit 1 rdi

There is no one right price to charge for a given product or service. Youmust determine what you are trying to accomplish, relating, forexample, to:

� The rate of return on investment which you seek.

� The market share which you seek.

� A particular image you wish to convey.

� A desire to be a ‘price leader’.

� The wish to discourage entry into the market by newcompetitors.

� Intention to treat something as a ‘loss leader’.

There are broadly two types of approach to decisions about prices:cost-based approaches and demand-based approaches.

KEY POINT

Cost-based pricing

Accountants can calculate the full cost of making a product. Many businessestake this full-cost figure, and then include a mark-up so that a profit will bemade.

� The main limitation of using this cost-based pricing is that it ignoresthe competition.

� Most businesses are price takers, not price leaders. Price takers setprices close to others in the market.

� If the business uses cost-based pricing only, it may find competitors’prices are lower. In such cases, it will not be able to competesuccessfully on price.

Demand-based pricing

The basic law of supply and demand is that demand falls as price increases anddemand increases as price falls. Price is, therefore, a major influence on thelevel of demand for the products of a business. Other influences on a product’sdemand include:

� The availability of substitutes for the business’s products – the moresubstitutes there are available, the more sensitive the product willbe to changes in its price (customers will switch to the substitutes).


Unit 1rdi

� The level of consumer income – in general, demand for aproduct increase as income levels increase.

� Changes in consumer tastes – demand will change as tasteschange.

� How sensitive customers are to price – they balance the priceagainst other aspects, e.g. the product’s status, quality, designand performance.

ACTIVITY

What approach does your organisation use to determine the prices of itsproducts or services?

To determine this information you may need to speak to managers within yourorganisation.

Businesses use different strategies to price their new products. Incorrectpricing strategies mean the business will not find customers and,therefore, will lose income. Two main strategies exist for new products:

� Penetration pricing - for a low-price set in the hope ofgaining a high market share. The business will gaineconomies of scale, which help it keep the price low, andthe low price set may stop competitors from entering thismarket.

� Skimming (or creaming) - the business brings out a new,a unique product, which is the early market leader. Thisenables it to set a high price because there is nocompetition. The price will then fall when competitorswith similar products enter into the market.

There is also a middle path where pricing is set in the context of buildinglong-term relationships with customers. So-called relationshipmarketing involves a co-operative of mutually beneficial approach totrading between supplier and customer, rather than the olderconfrontational approach. While this applies largely in industrialtransactions, it also applies to dealings between manufacturers andwholesalers and major retail chains. Prices and margins are set at levelsacceptable to both sides in the expectation of long-term relationships.Purchasers prefer stable prices which will not drive suppliers out ofbusiness. Suppliers prefer stable relationships at reasonable rates,rather than constantly seeking new customers or renegotiating with theold.


Unit 1 rdi

In these situations the extremes of skimming or penetration pricingdetermined by the producer will give way to market-based pricingstrategies aimed at securing and retaining a stable customer base.

Relationship marketing does not preclude careful negotiation. It does,however, imply negotiating to obtain maximum mutual long-termbenefit which can then be divided, rather than each side seeking its ownmaximum short-term benefits which may not endure.

Distribution

Today, most producers of goods and some providers of services do notsell directly to the final users. Instead, the goods and services move tothe user from producers via a series of intermediaries or ‘people in themiddle’, who also themselves fulfil a variety of functions.

Decisions about channel are those which are reflected in the ‘place’element of the marketing mix. The task, in relation to distribution, is toensure that the products or services are available at the right time, in theright place and in the right quantities.

People in an organisation must decide on the type of channel they willuse to reach their target markets. They must select, recruit and organiseintermediaries within that channel, and decide on stock levels, forms ofdelivery and timing of delivery.

Marketing managers must also understand the various dimensions ofthe channels and, in particular, the variety of types of channel thesedimensions give rise to. They should also be familiar with the differentsorts of channel intermediaries, their roles and the relative advantagesand disadvantages of each. Some basic alternative forms of channels ofdistribution for both consumer and industrial markets are illustrated inFigures 1.13 and 1.14.


Unit 1rdi

The marketing manager must also understand and appreciate theimplications of the dynamic and changing nature of marketingchannels.

Channels of distribution represents one of the most rapidly evolvingand dynamic areas of marketing. This is especially the case in retailingin the UK. Not only have these changes led to the growth of new typesof intermediary and the subsequent decline of more traditional ones,


Unit 1 rdi

Producer

A

Producer

B

Producer

C

Producer

D

Agent orbroker

Wholesaler Wholesaler

Retailer Retailer Retailer

Customer Customer Customer Customer

Producer

Agent orbroker

Wholesaler

Retailer

Customer

Figure 1.13 Marketing channels for consumer products.

Producer

A

Producer

B

Producer

C

Producer

D

Agent Agent

Industrialdistributor


Industrialbuyer

Industrialbuyer

Industrialbuyer

Industrialbuyer

Producer

Agent


Industrialbuyer

Figure 1.14 Marketing channels for industrial products.

they have also led to the growth of completely new channels fordistributing products and services.

Wholesalers are not as commonly used as they once were. A majorreason for this is the growth of large-scale retailing. Major retailers suchas Tesco and Sainsbury have their own warehousing and distributionsystems. The fall in the number of small-scale retailers has also affectedwholesalers but they have adapted, e.g. by setting up voluntary chainsand supplying those linked to retailers with their goods.

Traditional wholesalers could still offer valuable services to bothproducers and retailers:

� Services to producers:

� Buying and storing in bulk - this cuts the producer’sdistribution costs.

� Advice and promotion - feedback on the productpopularity can be given , and a wholesaler may helppromote the manufacturers product.

� Taking on risk - a wholesaler bears the risk of notselling the products.

� Services to retailers:

� Breaking bulk - the wholesaler ‘buys big’ and ‘sellssmall’.

� Information and choice - product information maybe given on a variety of goods.

� Delivery and credit - many wholesalers still offer adelivery service for the smaller retailer, and theircredit facilities help retailers finance their purchases.

Accompanying these changes in overall structure of distribution, therehave been equally important changes in the relationships betweenretailers and manufacturers, policy-makers and providers, and inparticular in the focus of power.


Unit 1rdi

KEY POINT

Key distribution considerations include:

Costs

What are the transport costs for:

organisation’s own fleet; rail freight: road transport ; air freight;sea/water transport; postal charges; forwarding agents fees; etc?

What are a warehousing costs for:

inventories; handling goods received; locating, retrieving and orderpicking: insurance, heating; etc?

What are materials handling costs?

What other packaging and packing costs?

What other distribution costs are involved?

Are distribution costs broken down for home and export markets?

Service requirements

What level of service is expected by the customers?

How will this affect inventory levels?

What delivery service is being offered by competitors?

What are the distribution and marketing implications of the proposedservices?

Organisation

Who is responsible for laying down policies and making decisions on:

forecasts of customer needs ; inventory levels; productionprogrammes; number, location and size of depots; selecting modes oftransport; order processing procedures; mechanical handling systems;packing and packaging requirements?

Does the organisation’s structure permit close co-ordination of distributionwith marketing and manufacturing operations?

What revision of the structure will improve this co-ordination and integration?


Unit 1 rdi

ACTIVITY

Who are the intermediaries which your organisation uses to service itsend-users?

What functions do each of these intermediaries serve?

How does your organisation influence and manage these intermediaries?

Complete the chart.

Who are the intermediaries which yourorganisation uses to service its end users?

What functions do these intermediaries serve?

1.

2.

3.

4.

How does your organisation influence and manage these intermediaries? Youmay need to talk to senior managers to answer this question.

Electronic commerce (e-commerce) is a popular development, nowused by many businesses to sell their products. E-commerce optionsinclude selling over the Internet, or using electronic shopping mallsavailable through interactive television.

ACTIVITY

Describe the advantages and disadvantages to business of e-commerce.

ACTIVITY FEEDBACK

Advantages to businesses of using e-commerce include:

� Consumers can buy products 24 hours a day, seven-days-a-week.

� It can be inexpensive to set up and operate.


Unit 1rdi

� Since the Internet is international, the business can sell in newmarkets.

Disadvantages include:

� Many consumers lack technology or expertise.

� A lack of trust may exist in buying over the Internet.

� Customers may simply be unaware of the e-commerce site.

To explore some of the many shopping sites that exist on the Internet. Someof these include

www.buyguide.co.uk

www.ukshoppingzone.co.uk

www.shop.co.uk

www.first-e.co.uk

www.smile.co.uk

Promotion

Organisations continuously promote themselves to their customers,clients and stakeholders for a variety of purposes, which include:

� To inform prospective customers about their products,services and terms of sale.

� To persuade people to prefer particular products andbrands, shop in certain stores, attend particularentertainment events and perform a variety of otherbehaviours.

� To induce particular actions from customers and users.

Such purposes are pursued by many different means: advertisements,salespeople, store signs, point-of-purchase displays, product packages,direct mail literature, free samples, coupons, publicity releases andother communication and promotional devices. Taken as a whole,marketing specialists refer to these as marketing communicationsand/or promotion management.

Promotion embraces a variety of methods: advertising, publicity,personal selling, sales promotion, and point-of-sale communications.Figure 1.15 lists a wide range of promotional activities.


Unit 1 rdi

Advertising involves either mass communication (via newspapers,magazines, radio, television and other media) or direct communicationwith consumers (via direct mail). A sponsor – the advertiser – pays forboth forms of advertising, but they are said to be ‘non-personal’. Theyinvolve communicating with many people, perhaps millions of them,rather than talking with a specific person or small group. Figure 1.16shows how advertisements can be categorised.

Publicity, like advertising, involves communication to a mass audience,but unlike advertising, publicity is not paid for by the organisation.Publicity usually comes in the form of news items or editorial commentsabout an organisation’s products or services.

Personal selling denotes person-to-person communication in which aseller attempts to persuade prospective buyers to purchase theorganisation’s products or services. At one time personal selling mainlyinvolved face-to-face interactions but, increasingly in developedeconomies, the telephone and other forms of electronic communicationsuch as the fax machine are being used.

Sales promotion consists of all those marketing activities which attemptto stimulate quick action by buyers or, in other words, which attempt topromote immediate sales of a product (hence the term ‘salespromotion’). Advertising and publicity are designed to accomplishother aims such as creating awareness of a particular brand andinfluencing the attitudes of customers. Sales promotions are directedboth at the trade (wholesalers and retailers) and at consumers. Salespromotion which is aimed at the trade involves the use of various typesof allowances for the display of goods, discounts for quantity, and help


Unit 1rdi

Advertising.

Air miles.

Audio-visual sales aids.

Banded packs.

Brochures.

Catalogues.

Company visits.

Competitions.

Coupons. Design .

Direct Mail.

Directories.

Financial incentives.

Free gifts.

Free mail-ins.

Guarantees.

Incentive schemes.

Leaflets.

Loyalty cards.

Merchandising.

Off-permises displays.

Packaging.

Point-of-sale displays.

Premiums.

Public and press relations.

Price reductions and pricing strategy.

Self-liquidators.

Special offers.

Telephone selling.

Vehicle livery.

Yearbooks.

Figure 1.15 Popular promotional activities.

with merchandising. Consumer-orientated sales promotion includesthe use of coupons, premiums, free samples, contests and rebates.

Point-of-sale communications include displays, posters, signs and avariety of other materials which are designed to influence buyingdecisions at the point of purchase.

Marketers would urge that ‘promotional management’ or themanagement of promotion is the practice of co-ordinating the variouselements of the promotional mix , determining aims and objectiveswhich the elements are intended to accomplish, establishing budgetswhich are sufficient to support the objectives, designing specificprogrammes (e.g. advertising campaigns) to accomplish objectives,evaluating performance, and taking corrective action when results arenot in accordance with objectives.

Advertising is perhaps the most visible manifestation of marketing,even if, at least on a large scale, it is the province of a minority oforganisations. This may explain why so many people associatemarketing with promotion, and promotion with advertising, and thusthink that marketing is simply about advertising products and services.


Unit 1 rdi

By appeal factual

emotional

By content product advertising

institutional advertising

By demand influence primary product level

selective brand level

By geographical spread national regional local

By intended effect direct action delayed action

By sponsor manufacturer

distributor

manufacturer-distributor

co-operative advertising

joint by two manufacturers

retail outlet

By target market consumer

industry

trade

government agencies

Figure 1.16 Classification of advertisements.

Whether on a large or small scale, advertising can consume a vastamount of resources. So it is important for managers to be clear whatthey are trying to achieve by advertising, and whether advertising is theappropriate promotional method to use.

Major areas of decision in deciding upon and executing an advertisingcampaign include:

� Determination of the aims and objectives.

� Identification of the amount of money to be spent onadvertising.

� Formulation of the creative strategy which is to beemployed.

� Selection of the mix of different media which will be used(e.g. print, radio, TV, etc.).

� Scheduling of the advertisements.

� Evaluation of the campaign’s effectiveness.

ACTIVITY

How does your organisation carry out each stage of an advertising campaign?

By completing the following responses, assess the pluses and minuses of yourorganisation’s advertising activities and identify the key strengths and keyweaknesses:

My organisation determines advertising aims and objectives by:

My organisation identifies the amount of money to be spent on advertising by:

My organisation formulates a creative strategy by:

My organisation selects a mix of different media (print, radio, TV, etc.) by:

My organisation schedules advertisements by:

My organisation evaluates the campaign’s effectiveness by:


Unit 1rdi

The key strengths of my organisation’s advertising activities are:

The key weaknesses of my organisation’s advertising activities are:

Be sure to check your responses to this activity either with your own linemanager, or with a manager from your organisation’s marketing department.

ACTIVITY

The organisation Interbrand annually produces a chart of the most valuablebrands. Factors they consider in arriving at their top ten are the brand weight(market share), band breadth (appeal across age, gender and national barriers),brand depth (loyalty of its customers) and brand length (actual or potentialstretch beyond its original category).

The top ten brands for 1990 are shown in the table. Consider how the tablemay have changed by the year 2001. Compile your own expected top ten for2001.

1990 Top Ten

1 Coca-cola2 Kelloggs3 McDonalds4 Kodak5 Marlboro6 IBM7 American Express8 Sony9 Mercedes-Benz10 Nescafe

ACTIVITY FEEDBACK

The top ten for 2001 was:

1 Coca-cola2 Microsoft3 IBM4 General Electrics5 Nokia6 Intel7 Disney8 Ford9 McDonalds10 AT&T


Unit 1 rdi

VIRTUAL CAMPUS

By access to the Virtual Campus, or by discussion with colleagues, attempt toname six brands that you think have made the biggest ‘attack’ on the top ten inthe last five years.

Compare your thoughts on the subject and then try to agree on a current topten.

Face-to-face selling, advertising and sales promotion can all bedescribed as primary types of communication. They are under yourdirect control and you pay for them. But there are also secondarysources of communication which are not under your direct control andfor which you do not pay, including word-of-mouth, editorialcomment, personal recommendation and so on. These secondarysources may still be influenced by your promotional activities. In turn,because of their supposed ‘important’ nature, they may carryconsiderable weight with your consumers (possibly even more so thandirect primary sources).

A key secondary source of communication for an organisation is thepress (meaning newspapers, TV and radio). It can be a very effective(and inexpensive) part of the promotional mix, and thus of themarketing mix. Investment in press relations can be many times moreproductive than that spent on other types of promotion (includingadvertising). This is just as true of a small company or organisation,which may find such PR the most effective vehicle for promoting itsproducts, where it simply cannot afford large advertising budgets.However, PR, like many areas of organisational life, is an area where agreat deal of professional expertise has been developed: organisationsoften choose to contract the specialist expertise of a PR agency if they donot have the internal expertise which is required.

There are a variety of means or ‘vehicles’ for publicity and PR whichinclude:

� Contacts with the media.

� Issuing news stories.

� Creating special events which may appeal to the media.

� Having a dedicated press office.


Unit 1rdi

ACTIVITY

To what extent does your organisation use the PR methods listed above?

Contacts with the media:

Issuing news stories:

Creating special events which may appeal to the media:

Having a dedicated press office:

In your opinion, how effective is your organisation’s PR function?

In your opinion, would you say that your organisation’s PR function is reactiveor proactive? Explain your answer.

Sales promotion is normally an adjunct to personal selling oradvertising. The key characteristics of sales promotion are that it is:

� A short-term activity.

� Directed towards the sales force, distribution channels orconsumers, or some combination of these groups.

� Used in order to stimulate some specific action.

In recent years spending on sales promotions in both the USA andEurope has repeatedly overtaken that on advertising.

Sales promotion covers a wide range of activities. A standard definitionof it is as an activity or material (or both) directed at re-sellers,salespersons, or consumers that acts as a direct inducement to buy,because it offers additional or ‘added’ value.

Sales promotion, even if defined as above, is a very flexible activity.Many aims and objectives can be achieved by it. For example, salespromotional activity can:

� Identify and attract new customers.

� Introduce a new product and encourage greater use.


Unit 1 rdi

� Bring more customers into stores or service deliverypoints.

� Combat or offset the marketing efforts of competitors.

Selling involves the presentation of tangible products or intangibleservices and ideas in person to potential customers. It receives, orshould receive, back-up from advertising, sales promotions and publicrelations. All four should be integrated.

Personal selling has significant advantages over other methods ofpromotion – including advertising, publicity and sales promotion.These derive from its face-to-face nature. However, it is frequently themost expensive communications tool that is used by an organisation, soit must be used carefully.

ACTIVITY

Review the nature and effectiveness of your organisation’s sales force.

Identify any areas of operation or management of the sales force where youthink your organisation could improve, and consider what may be the forcesworking towards and away from such improvements.

ACTIVITY

What do you think are the essential areas for a marketing manager to considerin order to produce and project the desired message in advertising?

ACTIVITY FEEDBACK

You may have looked at some of following points:

The language of advertising.

� How real examples of advertising construct meaning in a variety ofmedia forms.

� How images, sound, copy and editing contribute to meaning in printradio and TV advertising.

How advertisers target products at specific audiences/markets.

� How audiences are categorised and researched by advertisers.

� How advertising is positioned to reach audiences.


Unit 1rdi

� How audiences respond to advertising.

How advertising has been produced by the advertising industry.

� How campaign has developed from initial brief to final product.

� The roles and production processes within an advertisingagency.

� The role of advertising in underpinning other media products.

The regulation and control of advertising.

The messages and values represented in advertising.

� The use of different gender, age, social, cultural, ethnic andlifestyle groups in advertising.

� The values and lifestyle choices associated with productadvertising.

Selected debates in contemporary advertising.

� Controversial advertising techniques.

� Use of celebrities and characters in advertising.

� Use of premiums in advertising.

� Food and drink advertising aimed at children.

� Toy advertising aimed at children.

� Animation.

Gap analysis

Gap analysis is a valuable tool for identifying customer expectationsand assessing how well an organisation is performing in its task to fulfilthose expectations. The purpose is to compare these expectations withnot only what your organisation provides, but also with theperformance of your competitors.

The steps to create a gap analysis are:

1 Identify the factors that customers expect when they purchase aproduct.


Unit 1 rdi

2 Allocate them a score indicating the importance that customersplace on each factor – from 1 for non-critical to 10 for criticalfactors.

3 Give your own organisation and its competitor(s) a score for eachfactor.

4 Map the results on a chart as shown.

5 Having identified what factors are valued by your customers,and how you perform in these areas you may wish to reviewyour strategy!

Consider the example given for a garage supply company:

No. Critical success factor (indescending order for importance)

Marketexpectation

Company A Company B

1 Quality 9 6 7

2 Delivery reliability 9 8 3

3 Price 7 6 4

4 Enquiry response time 6 8 2

5 Delivery lead time 6 9 5

6 Technical back-up 5 6 9

7 Company reputation 4 5 7


Unit 1rdi

0

Qua

lity

1

Del

iver

yre

liabi

lity

2

Pric

e

3

Enqu

iry

resp

onse

4

Del

iver

yle

adtim

e

5

Tech

nica

lba

ck-u

p

6

Com

pany

repu

tatio

n

7

2

4

6

8

10Market

Company A

Company B

Gap Analysis

S ign

ifica

nce

offa

ctor

Critical success factors

ACTIVITY

Try a gap analysis for an organisation with which you are familiar. Choose asingle product or service and analyse the expectations.

Produce a critical success factor table, and then draw a gap analysis chart. (UseExcel’s Chart Wizard to help you.)

Comment on your findings.

People

The ideal promotional mix will be specific to an individual product orservice, and to the marketing aims and objectives which have been set inspecific circumstances. A number of general factors may need to betaken into account when deciding on the mix:

� The available budget.

� The actual message.

� Complexity of the product or service.

� The size and location of the market.

� Distribution.

� Product life cycle.

� Competition.

The nature of communications is undergoing rapid change due to newideas and technology. One significant area of development is that ofdirect mail or direct marketing.

Processes and physical evidence

The presentation and appearance of all physical aspects of the businessrequire care and thought as they serve collectively to provide animpression of the professionalism of the business. These include:

� The outward appearance of the business.

� Vehicles.

� Staff uniforms.

� Internal décor and furnishings.


Unit 1 rdi

KEY POINT

It is crucial that the image projected through these physical aspects isconsistent with the image that the business wants to project.

ACTIVITY

Consider the physical setting of your business and answer the followingquestions:

What impression is the physical setting likely to give to the customer?

If this is not the impression that you want to project, what else needs to bedone in order to get the physical setting right?

E-marketing strategy

With the advent of the Internet in the early 1990s as a major businesstool, a new age of information technology and communication dawned.It was now possible to communicate in real time and have access to anever-increasing source of information.

In terms of marketing, this meant that strategy needed to move with thenew times and use this exciting new development to its full capacity,not only for marketing but for all aspects of business.

Partnerships and joint ventures could be much more easily undertakenas it was possible to make decisions and disseminate informationinstantly. Projects took a new element of monitoring and evaluation toensure progress to plan.

We will return to this subject and discuss it in more detail in Unit 3.

Customer relationship management

Customer relationship management (CRM) systems collect andintegrate information about customers – such as their buying patterns,personal characteristics, income bracket, demographics and lifestyle.Companies use such data to strengthen the ties with their moreprofitable customers and to attract other customers by special offers orpromotions carefully targeted to suit their individual circumstances.For example, when a customer calls their insurer to ask about their carinsurance renewal, the agent gets an immediate overview on thecomputer of all the policies that customer has or has made enquiriesabout in the past. The system also suggests some questions. So when theagent has answered the car insurance question they can then refer to


Unit 1rdi

other policies that may soon also be due for renewal, thus offering agreater service to the customer.

CRM offers a great deal more than just a single product; it is a completeinformation package of its own, co-ordinating information from a rangeof sources. It can be used, for example, in:

� Marketing campaign management.

� Sales force automation.

� Customer care.

� Contact management.

� Task management and scheduling.

ACTIVITY

Find out how CRM is used in your organisation. What are its key benefits?

Resource requirements

Many service sector businesses such as supermarkets, banks andcinemas have put a considerable amount of time and effort, intoimproving the process by which the customer is served. This has beenaided by the introduction of new technology, increased personnel, newfacilities, etc.

Any improvements of this nature help to create a good impression ofthe business to the customer and may help you maintain a competitiveadvantage.

ACTIVITY

Critically evaluate the process through which the customer must go in orderto obtain your product/service.

How can this be improved for the benefit of the customer and for thedevelopment of the business for the future?


Unit 1 rdi

Consideration must be given to the interface between the customer andemployees of the business, particularly front line staff who have a greatdeal of contact with the customer.

Trained and professional staff who understand the importance ofcustomer care and deliver it are essential. A satisfied customer:

� Buys again.

� Talks favourably to other people about the business.

� Pays less attention to competitors’ products.

� Buys other products from you.

Most organisations should strive to exceed expectations, customer careand after-sales service play a major role in achieving a high degree ofcustomer satisfaction.

Monitoring of customer satisfaction is important. Research shows that96% of unhappy customers never inform the organisation. Of thosecustomers who register a complaint, between 54% and 70% will returnto the business as a customer if their complaint is resolved, and 95% ifthey feel their complaint is resolved quickly.

KEY POINT

Ensure that when recruiting people for roles, which include a regular interfacewith customers, hey have good interpersonal skills, and they get the necessarytraining to provide professional customer care.

ACTIVITY

Consider the customer/staff interface in your business.

How well trained are your staff in customer care?

How is customer care monitored?

Are there ways in which customer care could be improved? If so, how?

Integration of marketing activities

However good a product is, it will not sell itself. There has to be a carefuldecision over pricing in order for the product to make profit. Theorganisation will need to decide when and how to sell it, i.e. what


Unit 1rdi

distribution method or methods it will use. It will have to ensure thatthe product is promoted so that there is consumer awareness of it. Staffwill need training in product knowledge, sales techniques andcustomer care/quality of service. Setting up a distribution network(even if using an existing network) incurs costs, as does anypromotional campaign and staff training. The physical evidence mustmatch the customers’ expectations and processes must provide theproduct as and when specified. All this impacts upon the cost of theproduct to the organisation, and hence on the ultimate price charged forproduct.

Changes in any of the seven elements of the marketing mix can affectprofitability. For example, increased costs in product production andmanagement; changes in the distribution network; advertisingcampaigns or new training courses will affect the pricing for a product.The organisation must identify these changes and then decide whetherto alter the price or absorb the increased costs.

Other factors also have a direct impact on the inter-relationship of themarketing mix. Changes in consumer buying behaviour can lead todevelopment of new products and new delivery systems. Economicchanges such as a recession can result in the financial services sector inreduction in the sale of lending products and an increase in the sale ofsavings products as consumers become wary of debt and the inability torepay loans if they lose their jobs.

The increasing demand for telephone banking, for example, hasresulted in most banks and insurance companies either bringing in newservices or redesigning existing telephone services. Heavy costs areinvolved, not only in developing the services, but also in promotingthem, providing the physical evidence, and very importantly gettingthe processes right, thus the organisation must ensure that the pricing ofsuch services contributes to profits, or is priced as a loss leader toprevent losing valuable customers to competitors.

ACTIVITY

Choose a product (or service) that your organisation produces, or one aboutwhich you have a detailed knowledge, and develop a full marketing plan byaddressing the elements of Product, Pricing, Place and Promotion.

How might other elements be incorporated into your plan.

Prepare a report to management detailing your proposals.


Unit 1 rdi

Summary

Market analysis is a prerequisite to effective market strategyimplementation enabling scarce resources to be focused onhomogenous consumer groups. A number of criteria may be employedto segment markets and in recent years measures derived from theassessment of personality variables have attracted growing interest.Organisations can more readily meet the needs of customers if theyunderstand how customers spend their time and money and what theyvalue. The essence of this type of information is lifestyle analysis.

Since the early 1980s managers in many countries have been able totarget their offerings to narrow groups of customers defined in terms ofdemographics. Techniques are now widely available to allow the firmto reach key segments and household types.

But many components of the marketing mix maybe manipulated so thatthe firm fits the desired position in the target customers’ perceptions. Anumber of techniques are available to reduce the uncertainty associatedwith the positioning process and effective position in strategies are nowbeing successfully pursued by many firms.

The task of marketing management is the process of identifying targetmarkets, researching the needs of customers in these markets anddeveloping the product, price, promotion and distribution to createexchanges that satisfy the objectives of the organisation stakeholders.

Product offerings are differentiated by branding - a high degree ofbrand loyalty is one of the greatest assets of marketer can possess. Thisis because strongly favourable attitudes resist change, thus makingcompetitive inroads both difficult and expensive.

Pricing policy is an exercise in reconciling the market forces acting onthe firm in order to provide a consistent offer to the customer.

As with most forms of organisational operation, marketing benefitsfrom a co-ordinated approach to its activities. The integration of all thedifferent aspects of marketing allows a organisation to ‘pull in the samedirection’ and, hence, maximise its efforts.

There are three forms of operational integration:

� Horizontal - between departments in the same company,or companies in the same industry, and at the same stage.Here, integration increases market share and power, andleads to economies of scale.

� Vertical - between departments in the same company, orcompanies in the same industry, but at different stages.This form of integration strengthens control of the supplyand sales of products. (Vertical backwards is when the


Unit 1rdi

organisation controls business back down the chain ofproduction. Vertical forwards is when the organisationcontrols business closer to the final customer.)

� Lateral - between departments in different companies, orbetween companies in different industries. Thisintegration helps the organisation diversify into differentmarkets, which reduces risk. If one market fails,reorganisation can continue trading in its other market(s).Promotion is an exercise in communication. Thecommunication model sets out to answer the followingquestions: (1)who (2) says what (3) how (4) to whom and(5) with what effect? It is widely accepted that measuresof recall provide the marketer with the best availablegauge of advertising effectiveness.

Place refers to distribution, whose objectives include:

� Outlet penetration by type of distribution.

� Inventory range and levels to be held.

� Distributor sales and sales promotion activities.

� Other specific customer development programmes, e.g.incentives for distributors.

Tools and Techniques

The basic goals, or objectives, of the organisation are the starting pointsfor marketing planning. These goals serve as signposts from whichmarketing plans are established. Goals will vary amongstorganisations, but will generally focus on market shares, profitability,sales and shareholder value. In most cases the objectives will bequantifiable; for example, ‘achieve an 8% profits increase over last year’,‘attain a 15% increase in market share by 2004’.

Non-quantifiable objectives can be included, but only if such objectivesare in fact difficult to quantify. As an example, attaining the ‘best imagein the marketplace’ could be considered to be an objective. It would bebetter though if this could be measured in some way, perhaps throughcustomer research, so that it can be clearly seen as a quantifiableobjective.

ACTIVITY

List the objectives of your own organisation.


Unit 1 rdi

Discuss your list with a member of your management. Does your list cover allangles of the organisation’s operations? If not, re-draft your list to include asmany objectives as you can.

Strategic business units

KEY POINT

A Strategic Business Unit (SBU), according to Ansoff;

‘is a unit of a firm which has the responsibility for developing the firm’sstrategic position in one or more strategic business areas.’

The SBUs focus managers’ attention on the areas for developmentwithout imposing the types of operational constraints typicallyassociated with brand and product management. The market could bedeveloped as an integrated totality rather than in a piecemeal waythrough specific offerings. At the same time, management is forced tolook at markets in terms of benefits and costs. Attention is redirectedtowards the returns being earned. Simultaneously, senior corporatemanagement has the freedom rigorously to appraise the different areasof activity within an internally consistent framework. Despite theseclaims it is clear that SBUs have not lived up to their early promise. Itwould appear that simply devising alternative organisationalstructures cannot compensate for lack of strategic insight.

There is increasing criticism of the approach of modern writers onmarketing strategy. This criticism centres on the emphasis on analysis,and the priority given to positioning of action and implementation.Popular failings of current approaches are:

� Too much emphasis on where to compete and notenough on how to compete.

� Too little focus on uniqueness and adaptability.

� Inadequate emphasis on when to compete.

� Too much attention to firms as competitors rather thanindividuals as competitors.

� Too much use of the wrong measures of success.

These observations fit into a more general comment that thedevelopment and implementation of marketing strategies areinseparable. Success turns on the ability of marketing managers toidentify areas of strategic advantage which meet customer needs inways which build on the organisation’s strengths and overcome


Unit 1rdi

weaknesses. This is done in a competitive environment in which skillrivals are seeking to achieve the same results. Some consider that thefocus for competitive strategy must be the business or business unit in asingle competitive market. This does not necessarily match thetraditional notion of the SBU as it excludes multi-product, multi-marketadministrative units and re emphasises the fit between the offering andthe market.

The practical possibilities of SBUs are demonstrated in Figure 1.17.

CASE STUDY

Strategic planning at 3M

The Minnesota Mining and Manufacturing Company (3M) beganmaking sandpaper about 90 years ago. Today it has more than 50,000different products, a turnover of $13 billion and a return of investmentof 24 per cent.

3M is organised into 44 SBUs grouped into four sectors: the Industrialand Electronics Sector, making such things as tapes, abrasives,adhesives and electronic connectors, the Life Science Sector, comprisingpharmaceutical and healthcare products, the Information and ImagingTechnologies Sector, concerned with the area of commercial graphics,audio visuals, magnetic media and imaging systems, and theCommercial and Consumer Sector which makes such things as ‘Post-It’notes and Scotch tape. Formal objectives are assigned to each businessunit; for example, research and development objectives (to obtain 25 percent of sales from products introduced within the last five years),growth objectives and return on investment objectives.

The industrial tape business unit operates in an industry where both thebasic technologies and customer segments are mature and relativelystable. Growth in this SBU results from seeking new applications for theadhesive technology, product extensions and expansion into globalmarkets.

In contrast, the medical products unit is at the forefront of emergingtechnologies. Most of this unit’s growth, therefore, comes fromdeveloping innovative products for new markets.

Differences in customer needs, product life-cycle stage and competitiveconsiderations lead the various business units to pursue their corporatestrategies and different ways.


Unit 1 rdi

Porter’s Five Forces model

Michael Porter was an innovator in structural analysis of markets,which previously tended to focus largely on direct competition in theindustry, without looking systematically but the context in other stagesof the industry value chain, referred to earlier.

KEY POINT

Porter’s five forces to analyse are:

� Threat from potential new entrants.

� Threat from substitutes used in different technology.

� Bargaining power of customers.

� Bargaining power of suppliers.

� Competition among existing suppliers.


Unit 1rdi

1. The SBU concept – underlying principles

� Manage the diversified firm as a portfolio of businesses. Each to serve a clearly defined product/marketsegment with a clearly defined strategy.

� The strategy of each SBU is discrete but consistent with overall objectives.

� Design and manage the SBU portfolio to achieve corporate strategic objectives.

2. Traditional planning

� Define overall corporate objectives.

� Disseminate as targets to various divisions.

� Divisions negotiate targets –‘bottom-up/top-down’ consensus.

� Approved plan is a result of this negotiation.

� Advantages:

� Forced managers to set explicit targets.

� Corporate entity could total component targets in advance, therefore pinpoint shortfalls.

� Allowed development of sophisticated control systems.

3. The SBU alternative

� Identify the SBU.

� Strategic analysis for each SBU for competitive advantage and market attractiveness.

� Strategic management of each SBU.

� Follow-up and appraisal.

Figure 1.17 SBUs – a do-it-yourself guide.

The interactions between the five forces are shown in Figure 1.18. Fromthis quarter builds a useful model of industry attractiveness about howthis might change over time, both because of the rejected economicchanges and also because of the ambitions of the players themselves.

ACTIVITY

Using your own organisation, or one with which you are familiar, consider howthe Five Forces model could be applied in an analysis.

To use the model well, the following advice is worth noting:

� Take time over it – while a first pass will give you a goodintuitive response, reflection will greatly enhance the value itprovides.

� Concentrate on each of the five areas individually, thinkinghard about them to get into the mindset or perspective eachwould have.

� Seek advice, input, collaboration; talk to suppliers, customers,people in related industries or companies who might enter themarket.

� Assemble as much research as you can about your known orexisting competitors.

� How important is the market to them?


Unit 1 rdi

Industrycompetitors

Rivalry amongexisting firms

Potentialentrants

Substitutes

Suppliers Buyers

Bargaining powerof suppliers

Bargaining powerof buyers

Threat ofnew entrants

Threat ofsubstitute products

or services

Figure 1.18 Porter’s Five Forces model.

� How profitable are they?

� How good are they?

� What emotional commitment might they have in the market?

� What would you be doing in their shoes?

� Think globally about each of the five areas. If the market isintrinsically profitable, predators may be anywhere.

� Think of the impact of technology in each of the five areas.

As you form a picture of the likely competitive environment in which you willbe operating, reflect on the consequences of what the model reveals. You willbe hatching a strategy to deal with your findings, and it is important that thisstrategy is imaginative and subsumes the possibilities of partnerships andcollaboration as well as competition.

ACTIVITY FEEDBACK

Your results might look something like Figure 1.19:


Unit 1rdi

Existing players

Competition withinthe industry

New entrants

Cost of entryInherent profitabilityFixed/variable costGlobal operations

Substitute products

CheaperBetterDifferent

Suppliers

Supplier concentrationBargaining powerSupplier extensionFixed/variable cost

Customers

Buyer concentrationCustomer loyaltySwitching costsBuyer motives

Figure 1.19 An example Five Forces framework.

STEEPLE analysis

Marketing information and intelligence have to suggest possibleanswers to a number of questions. In trying to cover a wide spectrum ofstudy, it is necessary to recognise the value of internal and externalinformation.

Internal information is obtained from a firm's own records of itsactivities, past results and forecasts. Every department has a usefulcontribution to make here. Given a good reporting system, informationis easily available on sales, sales costs and profits; production capacity,volumes; inventories; distribution and delivery; pricing; promotionalexpenditure; cash flows and other financial matters (e.g. cost controlexercises, credit control); manpower and personnel matters includinglabour availability, turnover and utilisation. The general availability ofcomputers should be no barrier to effective use of this information. Itprovides not only the historical-based information for forecasting but isuseful in achieving more effective control of ongoing operations. Forexample, airlines are able to discover what the seat availability is forspecific flights at any time. Manufacturers can get instant status reportson sales to date, inventory positions, current market shares and evenestimates on the profit being earned. Banks can get instant print-outs onthe status of deposits and withdrawals at each branch, the amount andtype of loans made, and so on.

External information is collected from a wide variety of sources and canrange from hard facts to rumours. It allows a company to analyse andassess the competition it is facing, and changes in the technological andeconomic conditions affecting its business situation. Social,environmental, legal and political information is increasingly importantas wider issues may affect the firm too. Any of this information mayshow whether there are opportunities or threats for the market. Becauseof the wide range of data potentially available, it is useful to have someformal structure within which to collect and analyse information. Oneformat, known as STEEP analysis – social, technological economic,environmental and political factors - and is particularly valuable whenconsidering entering an export market. Some of the main factors underfour headings are:

Social forces include:

� Demographic change

� age: people are living longer

� the family: people marrying later and having fewerchildren

� education: rising number or educated people

� increasing diversity: European integration


Unit 1 rdi

� mobility: people living/moving to new areas

� Changes in lifestyle (faster pace of life leading to ademand for products/services which enables people todo things more quickly and conveniently).

� Fashion and trends

Technological forces include:

� Fast pace of technological change

� Research and development (a need for increased budgetsto keep step with the pace of technological change)

� Opportunities for innovation

� The cost of technology (reducing/increasing)

� Increased regulation (health and safety aspects of newproducts/services)

Economic forces include:

� The state of the economy in terms of economicgrowth/decline

� Interest rates

� Exchange rates

� Taxation

� Inflation

� Customers’ disposable income and attitude to spending

Environmental forces include:

� Shortages of raw materials

� Increased energy costs

� Environmental protection controls

� Increased pollution

Political forces include:

� Government policies and legislation

� Political stability

� Public interest groups (consumer watchdogs)


Unit 1rdi

� Ethics and social responsibility

� Increased pollution

Each of these forces can impact on the organisation in some way andneed to be monitored carefully in order to anticipate possibledevelopments. In so doing we can endeavour to put strategies in placeto seize any opportunities and minimise the impact of any threats.

(In addition, some authorities include the extra factors of legal andethical, giving the acronym, STEEPLE. In some texts, this same methodof analysis is referred to as a PESTLE or PESTLIED analysis, if aninternational dimension is included.)

ACTIVITY

Using the grid provided, conduct a STEEP analysis for your own organisation.

Using the macro-environmental forces listed above as a guide, list those factorswhich will directly affect your organisation over the next 12 months. Note thekey issues which, as a result, will need to be addressed.

Social factors to be considered: How my organisation will address these factors?

1

2

3

4

5

6

7

8


Unit 1 rdi

Technological factors: How my organisation will address these factors?

1

2

3

4

5

6

7

8

Economic factors: How my organisation will address these factors?

1

2

3

4

5

6

7

8

Environmental factors: How my organisation will address these factors?

1

2

3

4

5

6

7

8


Unit 1rdi

Political factors: How my organisation will address these factors?

1

2

3

4

5

6

7

8

What additional considerations might you make to incorporate legal andethical issues?

ACTIVITY FEEDBACK

There are no ‘right or wrong’ responses to this activity, as the factors you haveidentified are specific to your organisation and the needs of your organisation’smarket. The main benefit of working through this activity is that you shouldnow have a good idea of the kinds of factors, which may impact, on yourorganisation over the next 12 months. This knowledge will now allow you toplan accordingly.

The overriding factor is that there is so much external informationwhich might be collected but some discipline must be established onwhat is to be held, in what form, and so forth if an efficient system is tobe developed. Then there are regular audits which should be conductedto ensure that the system evolves with the needs of the organisation,and that ‘dead wood’ is cut out to make room for new growth.

VIRTUAL CAMPUS

Consider doing the STEEPLE exercise with a group – preferably those peoplewho will be responsible for delivering the plan to support the strategy.

Share your conclusion using the Virtual Campus, or with colleagues who haveexperience of other organisations. Note similarities and differences betweenall the findings.


Unit 1 rdi

SWOT analysis

KEY POINT

SWOT is a mnemonic standing for

StrengthsWeaknessesOpportunities andThreats

It is a commonly used tool, familiar to most line managers. Its primary purposeis to locate the organisation in its operating environment and try to assess itsinternal and external capabilities and vulnerabilities – its purpose is diagnostic.

Using a SWOT analysis after a STEEPLE session is a good way of organising allthe data you may have gleaned into a format which makes it easier toassimilate. As SWOTs are put together there is usually no difficulty indiscriminating between, on the one hand, strengths and opportunities and, onthe other, weaknesses and threats. There is often confusion as to thedifference between a strength and an opportunity. Strengths are internal,opportunities are environmental. Similarly, weaknesses are internal, threatsare environmental. Figure 1.20 makes this clear.

Grasping this distinction is more important than mere semantics. Strengthsand weaknesses are usually within your control – to consolidate the formerand to eliminate the latter. Opportunities and threats are not within yourcontrol. They call for the organisation to adapt, to take advantage of theopportunities and to minimise the effect of the threats.


Unit 1rdi

Characteristics of the organisation:

Strengths For example: Skilled workforceGood systemsStrong brand

Weaknesses For example: Inadequate resourcesHigh cost baseSlow internal decisions

Characteristics of the environment:

Opportunities For example: Booming economyCheap creditFashionable product

Threats For example: Global competitionHostile legislationIndustry reputation

Figure 1.20 SWOT analysis.

Realising that radically different organisational behaviour is called forin response to your analysis greatly assists the process of developingstrategic intent. The strong advice then is to use the tool with precision.

Doing a SWOT analysis is a good group activity. You can use syndicatesworking on strengths and weaknesses (internal) and a second syndicateworking on opportunities and threats (external). This helps reinforcethe basic discipline of the exercise.

The result of a good SWOT analysis is usually twofold:

1. It enables you to put shorter-term plans together to consolidatestrengths and address weaknesses.

2. It usually calls for more research, analysis and idea generationabout the environmental factors, the threats and theopportunities

Figure 1.20 shows what a SWOT analysis might look like, on paper. Thiswould be a relatively lean example of a SWOT analysis. Most carry agreater level of information, and most actually build over time as peoplethink of other things to add.

The tool remains a standard in the repertoire of most managers as itprovides a good basis for recording a great deal of information andorganising it in a way which is a good precursor to planning andstrategy development.

ACTIVITY

Once again consider your own organisation. Carry out a basic SWOT analysisand determine where the strengths and weaknesses of the organisation lie.

Now, repeat the activity using a large retail organisation – possibly even aglobal corporation. Use the SWOT analysis to evaluate the position of theorganisation within its market.

Marketing audit

KEY POINT

This establishes the internal position of the company in marketing terms – inother words ‘where are we now’. Similar to a financial audit of a business,whereby accountants take a ‘snapshot’ of the business once a year for theannual accounts, the purpose of a marketing audit is to establish the marketingposition for the company.


Unit 1 rdi

The details of the marketing audit can be gathered from the sectionbelow. Overall though, the marketing audit is very important for anorganisation, as future strategies will take account of the informationthrown up by the actual audit. The main points associated with an auditare given here:

� The current marketing situation of a company ordepartment is compiled using a marketing audit. Themarketing audit is the means by which information forplanning is organised.

� The audit is the means by which a company canunderstand how it relates to the environment in which itoperates.

� An audit is a systematic, critical and unbiased review andappraisal of the environment and of the company’smarketing and its operations.

The marketing audit, in attempting to answer the question, ‘where arewe now’, must take account of the fact that:

� A company is faced with two kinds of variables; thoseover which the company has no direct control(environmental and market variables) and those overwhich it has complete control (the operational variables).

� The audit is therefore split into two parts: external audit,concerned with the uncontrollable variables, and aninternal audit, concerned with the controllable variables.

ACTIVITY

What do you think are included in the internal and external audits? What arethe variables? Make a list of those elements that you believe should beconsidered. (The external audit will be looked at in detail in the next mainsection of the module).

ACTIVITY FEEDBACK

A list of items that could be included in the internal audit:

Marketing operation variables:

� Sales

� Total.


Unit 1rdi

� By location.

� By customer type.

� By product.

� Market share.

� Profit margins/cost profiles.

� Marketing procedures.

� Marketing organisation.

� Marketing information/research.

Marketing mix variables:

� Product/service management.

� Product range and quality.

� Stock levels.

� Pricing, discounts, credits.

� Distribution characteristics.

� Sales promotion.

� Advertising.

� Packaging.

� Selling.

� Point of sale materials.

� Public relations.

� Training.


Unit 1 rdi

The Marketing Objectives

The next step in the marketing planning process is to set the marketingobjectives. These will mirror the corporate objectives that theorganisation has set for itself – as we discovered in the first part of thissection. In essence, the development of a marketing plan is part of theoverall corporate planning or corporate strategy process – it is a way toassist in the achievement of the overall business objectives. Whilst anobjective is what you want to achieve, a strategy is the way in which youwill achieve the objectives set. At this stage of the marketing planningprocess, realistic and achievable objectives should be set for thecompany’s major products and/or services in each of its major markets.Unless the objective setting is done well, everything else that follows inthe planning process will lack focus and cohesion.

The specific marketing objectives are created in order to accomplish thebroad objectives. The end result of the process should be objectives thatare:

� Consistent with the strategic plan.

� Attainable within budget limitations.

� Compatible with the strengths, limitations, andeconomics of other functions within the organisation.

Strategic Options

Marketing planning must be directed towards establishing marketingstrategies that are efficient, effective, flexible and adaptable. Themarketing strategy represents the overall company strategy and actionfor the seven elements of the ‘marketing mix’.

This marketing mix is discussed in much more detail later on in themarketing module and at this point we will merely name the 7 Ps; price,promotion, place, product, process, physical and people. In broadterms, a company will select a particular target market of customers andwill then satisfy the customers in the particular segment through carefuluse of the elements of this marketing mix.

In determining the strategy best suited to their marketplace, a companywill need to fully understand the market, customers and competitors inorder to come to a sound decision. This information is combined withthe other audit information covering the resources of the company. Themarketing audit section that was covered above outlined the key pointsto consider and also introduced the SWOT and PEST analysistechniques that can be used to combine the company’s resources withthe opportunities in the marketplace.


Unit 1rdi

Having established where you are now through the marketing auditand where you are going via the establishment of corporate andmarketing objectives, the next step is deciding how to get there – yourmarketing strategy.

Very often where a company wants to go (based on its objectives) andwhere it is actually going, do not match up. ‘Gap analysis’ highlights thefact that if corporate sales and other financial objectives are greater thanthe current long-range forecasts, new strategies are needed to fill thegap. This is illustrated in Figure 1.21.

Ansoff (1987) suggests that the strategies gap can be filled through oneof the following strategies:

� Improved productivity

� Reducing costs.

� Improving the sales mix.

� Increasing prices.

� Market penetration.

� Reducing the objectives.

� Market extension.

� Product development.

� Diversification.


Unit 1 rdi

Time

2

4

6

8

10

12£m

Objective

Forecast

New strategies gap

Figure 1.21 Gap analysis.

How some of these key strategies relate to each other in practice can beseen in Figure 1.22:

ACTIVITY

Think about companies, or particular brands of companies, that have pursuedthe strategies given in the Ansoff matrix. Look at the descriptions given in eachquadrant of the matrix and identify companies/ brands that fit the criteria.

ACTIVITY FEEDBACK

Taking each quadrant in turn, examples are given below. Don’t worry if youranswers are different, the primary concern is to ensure your understanding ofthe principles.

Examples include:

Market penetration

� Kellogg’s – advertising the fact that we can eat cornflakes at anytime of the day!

� BT – ‘it’s good to talk’.

� Special offers through the post, in magazines – attempting to getyou to buy something, e.g. take out life insurance and receive astore voucher, house insurance – ‘we will pay the switching fee’.


Unit 1rdi

Market penetration strategy

More purchasing and usagefrom existing customersGain customers fromcompetitorsConvert non-users to users

1.

2.

3.

Product development strategy

Product modification vianew featuresDifferent quality levelsNew product

1.

2.3.

Market development strategy

New market segmentsNew distribution channelsNew geographical areas

1.2.3.

Diversification strategies

Joint venturesMergersAcquisition/take-over

1.2.3.

existing products new products

existingmarkets

newmarkets

Figure 1.22 The Ansoff strategies matrix.

� Special offers on the Sky Digital box to encourage non-usersto subscribe to the monthly payment service.

Product development

� ‘40-plus’ toothpaste.

� Widescreen television.

� CD Rewriter on a computer.

� TNT ‘guaranteed’ overnight delivery.

Market development

� Tesco home shopping.

� Amazon.com.

� Morrisons supermarkets moving from their northern base inthe UK to the midlands region.

� Staples catering for the emerging ‘home office’ market.

Diversification

� Numerous examples of mergers and takeovers – TimeWarner, BHS and Arcadian, etc.

� Joint ventures include – the SMART car – Mercedes andSwatch.

Constraints

When an organisation determines its corporate and marketingobjectives it has to recognise the constraints under which it operates.Achieving profit objectives may seem to necessitate cutting themarketing budget, whilst achieving sales targets may appear to meanlowering the price, which in turn reduces the profitability. In addition tothe trade-off between sales expansion and profitability, there may wellbe other constraints. Examples include, a company wishing to enter anew market may not have a good understanding of what the marketdynamics are. A further example would be a company wishing tointroduce a new product or service, when there are question marks overwhether the company has the necessary resources and skills to actuallydo this.


Unit 1 rdi

Other limiting factors can range from a lack of money to finance a newinvestment, the wrong skills amongst the workforce and a lack ofunderstanding of a new market place. All of these constraints must berecognised and accounted for if the plan is to actually work in practice.

For any audit to be worthwhile and for it to give a true reflection of theorganisation's activity it must cover all aspects of the business and notsimply be directed towards apparent trouble spots. Without this degreeof comprehensiveness, a manager's effort would be directed towardsthe ‘effect’ of poor performance or direction rather than the true ‘cause’of any problems.

� In order to ensure the thoroughness that is needed toensure a comprehensive review, a systematic approachaimed at identifying and evaluating the data is crucial.This is in order to avoid any elements being overlookedand permit effective development of future strategies andimplementation. Almost inevitably, if such an audit isundertaken by personnel within an organisation ouroutlook is likely to be tainted by experience or pressureswithin that organisation. Indeed, how objective wouldmanagers be in auditing activities for which they haveresponsibility? As it is necessary to strive for a high levelof objectivity or independence, there is often the need forexternal consultants to be used, despite the potentiallyhigh costs.

� If the audit process is to be fully beneficial for thecompany it needs to be carried out on a periodic orregular basis in order to review activities, check onprogress in line with the overall strategic objectives andpermit action to be taken to correct or improve onperformance.

An example framework is shown in Figure 1.23.


Unit 1rdi

Resource auditingValue chain analysis

Resource utilisationFinance

Comparative measuresMeasures of balance

Performance importanceMarketing effectiveness

SWOT analysis

Figure 1.23 Putting the marketing plan together.

Step 1 Resource auditing

This involves the identification and devaluation of the internal andexternal resources available to the organisation and looking at aspectsof tangible resources, including physical, human and financialelements, as well as intangible resources such as brands.

Step 2 Value chain analysis

Developed by Michael Porter, the value chain analysis is used as ameans of gaining and maintaining competitive advantage. It does thisby categorising activities of an organisation into primary activities,those were the direct impact on the company’s product, and supportactivities, those related to the running of the organisation as a whole.

Step 3 The utilisation of resources

This is concerned with examining ways in which resources are currentlyused and might be changed in order to increase levels of efficiency andeffectiveness and, hence, the degree of competitive advantage.

Step 4 Financial measures

The next step involves a review of financial resources in terms of currentstakeholders’ expectations and historic financial performance, throughthe evaluation of balance sheet and trading account figures. However,in undertaking any financial evaluation, it must be recognised thatfigures taken from a balance sheet simply reflect the position of anorganisation at a single point in time. In isolation, therefore, it is unwiseto draw any conclusions or make any judgments on the basis of one setof accounts only.

The key to effective interpretation lies, therefore, in examining anumber of consecutive sets of accounts. A minimum of three isnormally needed in order to give a fuller picture and allow thecomparison of the key ratios. In this way it is possible to identify trends,which will not only help to highlight strengths and weaknesses, but alsoidentify any unusual figures in the accounts – more a reflection of theday on which the accounts were made up than an indication of theoverall financial performance.

Step 5 Comparative measures

The issue of comparative analysis forms the next step of this frameworkas it is necessary to establish a neutral and justifiable base against whichperformance can be measured so that a greater understanding might begained of the level of success achieved and the causes of failure andsuccess.

With this in mind, it is important to remember one of the definitions ofmarketing - ‘ the whole business scene from the point of view of its finalresults, that is from the customer’s point of view’.


Unit 1 rdi

It is necessary, therefore, to understand customers’ perceptions both ofyour own and competitors' products and activities. In addition, youalso need to draw comparisons between your own performance,operations and procedures with that of your competitors in order toidentify areas of competitive advantage and recognise areas ofcomparative weakness.

Step 6 Measures of balance

Once an understanding of the organisation’s resources and their currentutilisation has been developed, it is then necessary to build anunderstanding of how the operation can adapt to change. Recognise,however, that this refers not just to the implementation at any futurestrategic direction or having the flexibility to adapt throughreorganisation, but also through increased efficiency or by absorbingincreased demands on output.

As part of this, it is also necessary to consider the strength andcomposition of the product portfolio, how balanced it is and the extentto which each element or product is dependent upon other products inthe organisation’s portfolio.

Step 7 Dimensions of performance importance

Put together all the elements thus far in the form of a performanceimportance matrix, then provide the means by which the informationgathered may be assembled and the overall organisational performanceevaluated.

Step 8 The marketing effectiveness review

Building upon the evaluation of performance, this step outlines themajor attributes of a marketing orientation, each of which can bemeasured relatively easily to build an overall picture of marketingeffectiveness.

It is important to recognise, however, that an organisation may beperforming well as a result of circumstance rather than because of goodmanagement. The underlying purpose of this review, therefore, is toidentify those areas where scope exists for improvement, regardless ofthe overall performance of the organisation itself.

Step 9 The identification of key issues - SWOT analysis

The final step involves taking all the information gathered from theprevious steps and evaluating it in the form of a SWOT (strengths,weaknesses, opportunities and threats) analysis.

Whilst this process has been fully described earlier in this unit, it has tobe recognised that for such an exercise to be effective it must be focusedand related back to the information already gathered to. The temptationto simply list every conceivable factor will achieve little more than


Unit 1rdi

creating an attractive list. What might appear at first sight to be anopportunity may not be so when examined against the organisation’sresources, its culture, the expectations of its stakeholders, the strategiesavailable, or the feasibility of implementing the strategy.

Having gone through the process of evaluating and assessing corporatecapability, the marketing plan should have a far clearer idea not just ofthe real strengths of the organisation, but also of its weaknesses andareas of vulnerability and gaps. With this understanding, far morerealistic objectives and strategies can then be developed. In the absenceof this understanding, it is likely that sooner or later problems will befaced which stem from what is called the intent-perceivedcapability-reality gap. This is illustrated in Figure 1.24. In order tounderstand this model, think about what you organisation would reallywish to achieve in the marketplace and contrast this with what it isreally capable of doing. Almost inevitably there will be a gap betweentwo which stems from a lack of resources or commitment, an absence ofmarket understanding, an inadequate marketing mix, and so on. Animportant outcome, therefore, from the evaluation of corporatecapability is the identification of the organisation’s real capabilities sothat the subsequent marketing planning process can be rooted far morefirmly in reality. Without this, it is likely that many of the commentsmade by marketing planners about what the organisation will do or iscapable of doing will owe more to the richness of managerialimagination than to commercial reality.

ACTIVITY

Using the nine headings from Figure 1.23, compile an outline marketing plan foryour organisation.

Explain how you feel your organisation might benefit from such an exercise.


Unit 1 rdi

Performance reality

Gap in performance

Managerial intent

Perceived capability

Figure 1.24 The Intent-Capability-Reality gap.

Portfolio analysis techniques

The Ansoff matrix

As we saw earlier in this unit, this well known model is a classic instrategy building. We shall noe look at it in more detail.

KEY POINT

Its primary purpose is to analyse the organisation’s approaches to its productsand to its markets to assure that an appropriate marketing strategy is beingpursued and possibly to reveal opportunities.

Tucked within the model is an assessment of the risks involved inpursuing given strategies. The model also prompts consideration ofsynergy which might exist on both the product or market axis. SeeFigure 1.25. We can unpack the model a bit and interpret some of theimplications of position in each of the boxes.

Market penetration

Current products in current markets – the strategy here will be toincrease the share of the market which the product or service currentlyenjoys. The risk level is relatively low for the organisation because itknows the markets and the products.


Unit 1rdi

Marketpenetration

Marketdevelopment

Diversification

Productdevelopment

Currentproducts

Newproducts

Currentmarkets

Newmarkets

Figure 1.25 The Ansoff matrix.

Product development

New products in current markets – this may mean absolutely newproducts or iterations of other products to make them more suitable tothe known market. The benefit to the organisation is, if the newproducts are successful, the cost of marketing a broader range ofproducts to the market is less in relation to the larger revenuesgenerated. The risk involved here is that new products can have a highfailure rate.

Market development

Current products to new markets – here the strategy is to expand themarkets beyond those in which current products are sold. The majorbenefit is longer product runs, hence probably cheaper productioncosts. The key determinant of risk here is the cost of market entry. It isalso likely that the organisation knows less about the behaviour in thenew market and probably less about the competitor behaviour in thatmarket.

Diversification

New products to new markets – this is the highest risk strategy of alland is usually only pursued after a great deal of market research.Sometimes it becomes the reason behind an acquisition where expertiseis being bought to minimise the strategic risk.

The Ansoff matrix is a very clear and easily understood model, widelyknown and widely used.

While the benefit of the Ansoff matrix lies primarily in examiningstrategic product/market strategy, it also has value in:

� Causing long-term evaluation of markets.

� Revealing the potential opportunities for product synergyand for market synergy.

� Focusing on competitor activity.

KEY POINT

Using the Ansoff matrix in conjunction with the BCG matrix (next in this unit)the organisation can conduct a useful strategic review of product/marketstrategy and what that implies for achieving the organisation’s vision.


Unit 1 rdi

Boston Consulting Group (BCG) matrix

Produced by the Harvard Business School, the Boston ConsultingGroup (BCG) matrix is a simple model that examines the joint criteria ofmarket growth and market share.

The BCG matrix is described in Figure 1.26.

In the figure the market size is shown by the size of each circle. Inaddition, the company’s share of the total market is represented by thesize of the segment within the circle.

KEY POINT

Stars are Strategic Business Units (SBUs) with a significant market share of ahigh growth industry. They have good earning potential. It is likely that theproduct is costly to maintain early in its life cycle. This may mean that anaggressive marketing effort is needed, with the associated high advertisingexpenditure.

Cash cows have a high market share from a slow, or zero, growth market.Usually they will have loyal customers, with the consequence that productdevelopment costs are relatively low. They are profitable and reliableproducts, which will allow a company to develop a strong portfolio. Stars oftenmove into this position when the overall market has become established.

Question marks occur when the potential for market growth is good, butthey have a relatively low market share. The market is likely to be verycompetitive with the SBU having only limited impact. Considerable amounts of


Unit 1rdi

Star

Cash cow Dog

Question mark

High Low

High

Low

Marketgrowth rate

Market share

Figure 1.26 The BCG matrix.

money may need to be spent on marketing or research. These are sometimesknown as ‘problem children’.

Dogs are characterised by low market share and low growth, these are SBUsfacing possible liquidation. Often they will continue to exist because ofnostalgic reasons on the part of management. They are likely to be the first tobe liquidated in the event of financial difficulties. However, they may survive aspart of a marketing product mix.

KEY POINT

If Ohmae’s Nine Specimen Strategies (see later in this unit) and Ansoff’s matrixprovide a check against the organisation’s strategic behaviour, then BCG hasgreat value in determining the strategic allocation of resources.

As an interesting activity you might consider trying out the Ansoff matrix andBCG matrix against the products or services of your organisation. A keyrecommendation is that you do it product-by-product rather than trying toplace the whole organisation on either matrix. If your organisation is like mostothers, you will find that you have products and services all over both matrices.While the plotting exercise is valuable, recognising the consequences is moreinstructive.

Product life cycle model

The product life cycle is one of the cornerstones of marketing and isused as an essential planning tool. It demonstrates how a productmoves through certain distinct stages of development and declineduring its life.

Like all modelling techniques, it has its limitations. Managers mustremember that there is no such thing as a perfect product, and that eachone will deviate in some way from the norm. However, they must alsorealise that such deviations are to be expected and that these should notbe cause for unnecessary alarm.

Figure 1.27 shows an example of the idealised product life cycle, whilstFigure 1.28 includes some examples of actual products’ life cycles.

In Figure 1.27 the revenue curve has been superimposed on thetheoretical life cycle, showing how the product is able to recover thecosts of development and launch. Once this is achieved, it is able tomove towards profitability.

The actual shape of the curve will vary according to the product itself,and some variations are shown in Figure 1.28. The first diagram shows a‘fad’ product, quickly entering and leaving the market. The second


Unit 1 rdi

diagram shows a ‘fashion’ product, where sales numbers are likely tofollow cycles. In the third diagram the product passes through anumber of stages, during which efforts are made to modify orrejuvenate the product to maintain market interest, thus delaying entryinto the mature stage.

The product life cycle can be applied to individual products or to themarket as a whole. Also the time scale can be variable, ranging from asingle fashion season to a period of many years. Consider the examplesof soap and shoes. If we consider a product category life cycle, wewould look at generic products such as soap or shoes where life cycles


Unit 1rdi

Development

Sales

Introduction Growth Maturity Saturation Decline

ProfitProfit

Loss

Figure 1.27 Theoretical life cycle curve.

(i)

Sales

(ii)

Sales

(iii)

Sales

Figure 1.28 Examples of actual cycles.

tend to be quite long. If we prefer to deal with product form life cycles,we would look at more specific products such as perfumed soap orplastic shoes with much shorter life cycles. Finally, we could considerbrand life cycles, which deal with named brand products. These willhave variable life spans depending upon the fashionable nature of theproduct – a certain type of plastic shoe may only be in demand for asingle season.

Using the product life cycle carefully can be successful for positioningthe product effectively in its market. The organisation needs to usemarket research and market intelligence with care. This forms a keycomponent of an organisation’s strategic management, enablingpredictions to be made about the long-term growth in the marketplace.

A number of influences impact on the product life style at differenttimes. These include:

� The nature of the product.

� Changes in the competitive market.

� Fluctuations in consumer preferences.

� Behaviour of competitors.

These will each have an effect on the shape of the product life cyclecurve.

The following actions can be taken to improve the effectiveness of theproduct life cycle planning model:

Development is the period of planning that precedes the launch of anynew product. This also is a time where confidentiality is important.Industrial espionage is often associated with this phase as a seriousthreat to the early stages of new product development. Research anddevelopment are both expensive and time consuming and, as such,should be valued.

Induction is the point at which a product is launched and gainsacceptance by the market. Almost always there will be no competitors atthis stage. However, it is also the stage of greatest risk. The new productmust prove its innovative nature and overcome threats from existingproducts. It may well have a high price associated with it, providinganother barrier for the consumer. However, the innovative nature of theproduct may be enough to compensate. This is often referred to as‘skimming’. Availability is often limited as distribution may not bewidespread.

Growth is the time when competitors are likely to appear within themarket. Other companies may have been developing parallel productsbut have not launched them until now. They will have the advantage ofknowing your product’s price and have seen the degree of success that


Unit 1 rdi

you have had. It is sensible to assume that they will charge less for theirproduct. Your position as leader of the market may be under threat andmanagement will need to assess the risk involved.

This stage is sometimes referred to as an exponential growth phase assales can rapidly take off. If this happens to a small company it mightcreate interest from larger organisations as targets for acquisition. Thesewould only normally occur if they are of benefit to both organisations,but they can be aggressive if pressure is applied from the otherorganisation’s stakeholders.

As the product has now been on the market for some time, promotionalstrategy will change from creating awareness to brand identity.Expenditure on marketing and distribution will remain high. The viewthat exposure needs to be high at the point of sale is important.

Maturity and saturation work together to some extent, and arecombined by some authors into a single phase. Maturity occurs whenthe sales of the product level off at a peak, whilst saturation occurs as thevolume of sales begins to slow down. It is likely that much of the salesvolume is repeat trade rather than new customers. Here price becomesan important point. Some organisations may choose to trim theirproduct portfolio in order to retain competitive pricing for products inthis phase.

Decline occurs when sales start to fall and interest within the market aswell as from the organisation becomes less. This may be because theproduct is becoming obsolete, other products are more competitive ornew products have appeared. Similarly, the organisation may now wishto concentrate its efforts on its own new product development.Consumers will often see price-cutting as an attempt to retain customerinterest and, therefore, sales volume. Many products will continue toexist despite reaching this stage – it is not necessarily a sign thatproduction should cease. An example is the solid fuel market wheresales have reduced as a result of other energy sources. There remains a‘safe’ level of demand to allow sales to prove effective. Indeed, becausemany of the suppliers have left the market, there is sufficient demand toenable existing companies to thrive despite the limited number ofconsumers.

ACTIVITY

Identify the stages of a product lifecycle by reference to a product or servicesupplied by your organisation. If you are able, use a number of differentproducts or services.

Now consider a well known product readily available in shops. Can youidentify where to place it in the product life cycle? Briefly outline the product’shistory in terms of life cycle stages. What does this tell you about the product’sfuture?


Unit 1rdi

Product breakeven analysis

This model is really simple in concept, though it looks a bit daunting inits graphical form. It follows sensibly after the product life cycle modeland it seeks to determine when the organisation starts to get a paybackon a new product.

KEY POINT

Products are said to have broken even when the profit generated by theproduct recovers:

� The fixed cost of having developed the product.

� The variable cost – what the company charges itself when itsells a unit.

Let us go back and look at the word profit above. The differencebetween the cost at which the product is sold and what it costs theorganisation to make and sell it is called the margin. Breakeven occurswhen the margin generated by the sales of the product equals the totalof fixed and variable costs it has incurred.

Graphically it looks like Figure 1.29.

In the model here, the vertical axis is the sales revenue, the horizontalaxis is the number of units sold.


Unit 1 rdi

Revenue(money)

Unit sales

Sales revenue

Variable cost

Fixed cost

Breakevenin money

Breakevenin units

Figure 1.29 Product breakeven.

As units are sold, so the sales revenue line rises. But as each unit is sold,a variable cost, usually the cost of making the product, is charged to thecompany; this means that the variable cost line rises as well. Thedevelopment cost is recovered when the sales revenue breaks throughthe fixed cost barrier, and the product breaks even when the salesrevenue overtakes the variable cost line.

When this happens you can read on the vertical axis how much revenueis needed and on the horizontal axis how many units need to be sold toachieve breakeven.

Breakeven analysis is primarily a financial model and is used for anumber of reasons:

� To determine cash flow requirements – how long torecovering development cost.

� To determine resource allocation; products which reachbreakeven sooner may be more attractive to the companythan products which may generate higher profit butbreakeven later.

� To balance the product portfolio in relation to the cashneeded to operate.

� To help choose between competing productopportunities.

Breakeven is a simple model (even the non-financial person can masterit easily), it contributes to the strategic planning process and cansometimes reveal new insights into strategy.

Summary

Without a product or service a company could not function. Theproduct or service is indeed the rationale for all trade and commerce.The product or service has been traced from its simple categorisationunder each of the headings of industrial goods and consumer goods.We then examined product management issues and finally looked atstrategic aspects in terms of matrix analyses.

Although portfolio techniques and other resource allocation modelsmay be useful devices for reducing the uncertainty associated withstrategic management decisions, gaining strategic marketing advantageinvolves far more than the solutions provided by boxes or matrices.Marketing strategy should be the result of penetrating assessments ofmarketing advantage analysis of market needs and competitive threats,and management's intuitive sense of the strategic fit of the variousstrategies under consideration.


Unit 1rdi

Unit 2

Marketing Strategy Options

Unit Objectives

Having examined the tools and techniques available for assessing the positionof an organisation within a business environment, it is now necessary to look atthe range of possible options available for the marketing strategy. Examples ofthese options are given in this unit, showing in many cases how they have beendeveloped to deal with particular problems.

The role of market positioning, and its importance, will be discussed. This willhelp to demonstrate the importance of realising exactly where in a market anorganisation lies. Failure to recognise this seemingly obvious requirement willcause considerable waste in terms of both time and money for theorganisation.

Options

Porter’s generic strategies

No set of strategic tools would be complete without a look at MichaelPorter’s definitive thinking on generic strategies. The idea firstappeared in 1980 and it has enormously influenced strategic thinking.As time has gone on, however, the model has been overtaken – not bybetter or more definitive thinking, but more by a fast-changing world.

At the heart of Porter’s generic strategies is the assumption that theorganisation will seek to dominate a segment or segments of the market,seeing off all competitors by the excellence with which they serve thosesegments. Porter advocates ‘gaining and maintaining competitiveadvantage’. In the hypercompetitive climate in which we now operatethis is increasingly difficult to do. More probably an organisation gainstemporary domination of a market and holds that position for a short(and decreasing) period of time until it is lost to a competitor. Thecontemporary climate probably corresponds more accurately toRichard D’Aveni’s definition of ‘gaining and regaining competitiveadvantage’.

Porter’s generic strategies are best represented by a triangle, as shownin Figure 2.1.


rdi

Differentiation

This implies that the organisation pursues a strategy where it offers aproduct or service which is uniquely different from those of itscompetitors. Further, this differentiation must be known and, to at leasta segment of the market, valued above the offer of others.Differentiation can be achieved through a totally different product(which is increasingly rare) or it can be achieved by the way in which theproduct or service is offered.

Cost leadership

This is a strategy where the organisation enables itself to provide theproduct(s) or service(s) at a cost less than any other competitiveorganisation. This may or may not be reflected in the price it charges toits customers. The essence of cost leadership is not price but the abilitythe organisation has to price below competitors if and when it needs to.

Focus

This is a strategy where the organisation targets its products or servicesat a given sector of the market with great accuracy and with a depth ofcapability and knowledge to support its position in the sector.

Each of these strategies has its particular benefits and concomitantorganisational commitments, not only in the way the organisationapproaches and positions itself in its markets, but also in the way itdevelops its internal capabilities and competencies to support thechosen strategy. Each strategy also has its risks and these areincreasingly difficult to anticipate in a hypercompetitive environmentwhere organisations will compete with the object of displacing theextant market leader rather than winning the market with a sustainablealternative strategy.


Unit 2 rdi

Focus

Differentiation Cost leadership

Figure 2.1 Porter’s generic strategies.

KEY POINT

The key to the use of this model is as a tester. The logic behind it is excellent.The question is whether, as an organisation, we could actually sustain any ofthese strategies longer term. Evaluating that decision may, of itself, provide astrategic insight of importance to the organisation.

In 1985 Porter developed a model which furthered this earlier research.His model was based upon three broad stages in the evolution of anindustry/market:

� Emerging industry that is portrayed by hesitancy on thepart of buyers over the likely performance of products,the function of these products, and the possibility ofobsolescence as manufacturers leapfrog each other interms of technological improvements at the early stage ofthe life of the industry and the products that are beingproduced.

� Transition to maturity is distinguished by reducedprofits throughout the industry and a general slow downin growth. Customers become more confident with their


Unit 2rdi

Generic strategy Commonly required skillsand resources

Common organisationalrequirements

Differentiation � Strong marketing abilities

� Product engineering

� Creative flair

� Strong research capability

� Corporate reputation for quality

� Long tradition in the industry

� Strong cooperation from channels

� Strong coordination amongfunctions

� Subjective measurement andincentives instead of quantitativemeasures

� Amenities to attract highly skilledlabour or creative personnel

Cost leadership � Sustained capital investment andaccess to capital

� Process engineering skills

� Intense supervision of labour

� Products designed for ease inmanufacture

� Low-cost distribution system

� Tight cost control

� Frequent, detailed control reports

� Structured organisation andresponsibilities

� Incentives based on meeting strictquantitative targets

Focus � Combination of the above policiesdirected at the particular strategictarget

� Combination of the above policiesdirected at the particular strategictarget

Figure 2.2 Common requirements for successfully pursuing Porter’s strategies.

purchases as they are more familiar with the range ofproducts and manufacturers. The industry settles downin terms of technological breakthrough and most productofferings are relatively similar. Emphasis moves awayfrom product features towards non-product features likebranding and advertising.

� Decline is where substitute products begin to makeinroads into the marketplace, customer needs changebecause of social or demographic reasons. The product isbasically becoming ‘stale’.

Emerging industries should be developed in order to counteract rivalrybetween competitors, the possibility of substitute products developedand the producer put in a powerful bargaining position. Transition tomaturity means developing new markets and focusing upon specificmarket segments as well as attempting to become more efficient. Adecline strategy suggests either divesting or profitably supplyingresidual demand.

ACTIVITY

Consider each of the generic strategies identified by Porter in relation to yourown organisation. What conclusions do you draw about your organisation?

Core competences

KEY POINT

In recent years a new focus has been placed on the development of anorganisation’s skills and capabilities (generally called its core competences),its ambitions and commitment (strategic intent), its ability to learn, its senseof mission or vision, and the role of the lead centre and as the parents of itsoperating businesses. Strategy is, therefore, seen less as overseeing theallocation of resources, and more as the definition, creation, stimulation andreinforcement of ambitious skills and capabilities that can be applied acrossseveral market segments.

Briefly, strategic intent is an ambitious medium-term objective, oftenexpressed in a snappy strategy. The idea is that there is a strong commitmentto achieve the objective at all costs, and a shared idea throughout theorganisation about how to start on the task. The building of a few strong andspecific core competences throughout the company is intrinsic to thisapproach, as is the idea of ‘stretch goals’, more short term objectives but stillextremely demanding ones. Strategic intent is like a marathon that is divided upinto a series of 500 metre sprints: the stretch goals relate to each sprint.


Unit 2 rdi

There is a strong element of David and Goliath about this. Those whouse it generally start as mere upstarts taking on a bigger battalions. Thehistory of Japan’s economic recovery path from the devastation of theSecond World War, and the determination of a handful of corporationsto take on the western leaders in industries, can be seen as ademonstration of the force of this idea. Generally, western companieshave found it quite difficult to emulate this approach.

Similar to the idea of a corporation’s ‘distinctive competence’ or‘distinctive capabilities’, the idea of core competences was put forwardby C.K. Prahalad & G. Hamel in a renowned 1990 Harvard BusinessReview article. Prahalad & Hamel defined core competences as:

‘…the collective learning in the organisation, especially howto co-ordinate diverse production skills and integratemultiple streams of technology ... unlike physical assets,competences do not deteriorate as they are applied andshared. They grow.’

To be valuable, the core competences must add something rathersubstantial to customers; they must be unique or at least rare: they mustbe difficult in the imitate, and they must be able to be used effectively bythe organisation.

The concept of core competences became extremely fashionable in the1990s, and it does have a great deal to commend it. Still, it is remarkablydifficult for organisations to decide what their core competences arewhilst at the same time avoiding wishful thinking. One problem is thatif core competences are defined in a tax-efficient, rigorous and preciseway, they may prove not to be relevant to many businesses within thecorporation. These businesses should be divested. However, sincemanagers tend to like to hang on to what they’ve got, they often fudgethe issue and define the core competences in too inclusive a way. Thedanger then is that the core competences become meaningless; theycannot realistically describe any competitive advantage.

Another problem is that core competency theory starts with thecharacteristics of the operating businesses rather than those of theparent organisation; the latter may be a better approach to corporatestrategy.

Therefore it may be that, like BCG’s growth/share matrix, the idea ofcore competences is more valuable at the business unit level than at thecorporate level, despite having been designed for the latter.

Meanwhile, Johnson & Scholes state that, ‘competitive strategy is thebasis on which an SBU might achieve competitive advantage in itsmarket.’ Competitive strategy is the process whereby competitiveadvantage may be achieved. The notion of competitivestrategy/analysis and that of competitive advantage encompass thewhole essence of marketing in gaining a competitive edge over businessrivals.


Unit 2rdi

ACTIVITY

What core competences does your organisation possess? Describe them indetail, giving examples to justify your ideas.

Competitive advantage

KEY POINT

The analysis of business strategic situations is the first step towards gainingstrategic marketing advantage. Situational analysis identifies the relevantstrategic forces including organisational, market, competitive andenvironmental factors. In the next step, consideration of the importancestrategic factors helps management determine the firm’s distinctive advantage.Formulation of key strategic objectives follows this consideration. There thenfollows an evaluation of the available strategic alternatives. The choice andimplementation of marketing strategy begins the process of gainingcompetitive advantage. Performance assessment gauges the effectiveness ofthe strategy and identifies the need for possible strategy alterations.

We can analyse the strategic situation under four key headings:

The organisation. The organisation’s influence on marketing strategyinclude the corporate culture (shared values and style), the stage of thefirm’s development, organisational structure and operating policies.The size, performance, capabilities and resources of an organisation willalso affect its marketing strategy.

Market structure and dynamics. The structure of markets and thechanges that occur within them can influence strategic decisions in anumber of ways. Market maturity often intensifies competition andlimits the potential for growth and profit opportunities. The productlife-cycle is widely recognised as an influence on marketing strategy.The way in which markets are segmented and market targetingopportunities are also factors in the formulation of marketing strategy.

Industry structure. An understanding of the industry in which the firmis operating forms another pillar of Strategic Analysis. Questions to beaddressed specifically to the marketer would include: how many firmsare in the sector in which we are operating and is this sector expandingof contracting? To what degree is concentration within the sectorimportant? Are long-run economies of scale or experience effectspresent? Are there barriers to entry or exit? How do these competewithin a chosen sector? To what degree can the service be substituted bythe service provided by other sectors? Where is the locus of power inthat sector - with the customer or supplier?


Unit 2 rdi

Environmental forces. External influences, largely uncontrollable,affect marketing strategy. This effect may be favourable orunfavourable; opportunities or threats may be creative. Acomprehensive strategic analysis should include an evaluation of thefollowing: the economic environment, capital markets, suppliers,legal/governmental influences, competitor activity, and shifts inconsumer demography and buying behaviour. In addition the analysisshould encompass considerations of technology and the rate oftechnological and socio-cultural change.

Five types of strategic situation have been identified which determinecompetitive advantage. The types are market development, marketdomination, market selectivity, differential advantage and noadvantage.

Market development. The first firm to enter a new market has theopportunity to play a leadership role in that market development. Themarket pioneer stands a good chance of gaining a sustainablecompetitive advantage. A market development opportunity can alsooccur in a fragmented commercial sector that has no market leader.

Market domination. This is the position occupied by the market leaderin an established market if the firm may gain market dominationthrough early market entry, low-cost, product advantages, marketingsuperiority, customer and other distinctive competences.

Differential advantage. Differential advantage may arise from patentprotection, special capabilities and experience, low-cost source,innovative products, favourable brand perception, productspecialisation, a strong sales force or distribution strengths. Such anadvantage can form a key component of the firm’s marketing strategyand can be critical for the survival of small firms in commodity markets.

Market selectivity. Most small firms could not aspire to marketdomination but could be capable of building a sustainable competitiveadvantage by employing a strategy of market selectivity. A small firmshould be able to survive in differentiated markets if it can identify aspecific market segment - an ecological niche - in which it can surviveand grow. The leading businesses in the market may not target certainsmall niches because other, more attractive, market segments areavailable.

No advantage. A firm may not have a competitive advantage. Thissituation is characteristic of small firms operating in undifferentiatedmarkets. Unless the proprietor can find a way to gain advantage, theresult may be low performance and ultimate business failure.

Objectives are of two major types; market position and performance.

Market position. The purpose of this objective may be to maintain anexisting market position, increase market share or regain lost position.


Unit 2rdi

Performance. Various financial measures are used to gaugeperformance, including profit contribution, return on assets and returnon net worth. The strategic objective may be to improve currentperformance, maintain an established level of performance or toachieve a performance turnaround. If a firm is in financial trouble,short-term survival may be the primary objective. Increase in theproductivity of marketing resources is often included in theperformance objectives. Areas of marketing productivity improvementinclude sales per square metre of floor space, sales per salesperson, salesper checkout, sales to expense ratios and advertising productivity.

As part the process to of coming to terms with where the organisation iscurrently, the marketing planner must understand where customersand competitors are in detail. Without this detailed understanding, anymarketing activity is likely to be misdirected and of little, if any, value.

As with the observations regarding the audit processes having to becarried out on a regular basis in order for them to be fully beneficial forthe company, the same is true of both customer and competitor analysis.

With regard to completing the first stage of the planning process andalso completing the picture of where the company is now, the focusshould be directed towards exploring the sections related to bothcustomer and competitor analysis.

For many organisations, competitors are a major determinant oforganisational performance. It is, therefore, essential that youunderstand:

� Who you are competing against (this includes indirect aswell as the more obvious direct competitors).

� The nature of each competitor’s objective.

� The strategies they are pursuing and how successful theyare.

� Their strengths and weaknesses.

� How they are likely to behave when faced withcompetitive moves.

Given this information, you can begin to construct a competitiveresponse profile. Competitive analysis also needs to take account of avariety of other issues including:

� Strategic groupings.

� Competitive relationships.

� The sources of competitive information.

� The different types of competitor.


Unit 2 rdi

� The bases for competitive vulnerability.

� The components of competitive information.

ACTIVITY

In considering competitive advantage, consider the following questions:

1. How detailed an understanding of your competitors does theorganisation possess?

2. When are your competitors most vulnerable?

3. What is the organisation's competitive status?

4. What types of competitive relationship exist within your market?

The second major influence upon organisation’s performance is the sizeand nature of its customer base. The marketing planning process, if it isto be at all worthwhile, must rest on a detailed and intimateunderstanding of customers. In order to come to terms with howcustomer analysis should be conducted, focus upon:

� The influences upon consumer behaviour.

� The buying decision process and how it works.

� The characteristics of organisational markets and theorganisational buying process.

� The different types of buying decision.

� The influences upon the organisational buyer.

KEY POINT

Porter, in his book Competitive Advantage, suggests that there are two majorways to be competitive. These involve lowest cost and differentiation.

Firstly, a business gains competitive advantage from becoming the producer,and a producer at the lowest cost. This can be done by producing goods in avery efficient way using the best available technology. It can also be done byproducing and selling very large quantities. Companies like Coca-Cola and thesoap powder manufacturers are able to produce individual items at very littleunit cost because they literally produced millions of units. The economies ofscale which Coca-Cola is able to pack into each bottle or can of Coke are suchthat the unit cost of production of further units is virtually zero. Similarly, each


Unit 2rdi

additional chocolate bar that runs off the Mars production-line does so for avery low cost indeed.

Michael Porter’s simple business lessons show that this can be achievedonly if the company has a very big share of the market. If you gain thelion’s share of the market then the profits will follow. The bigger theshare of the market, the more chance you have of driving the costs downrelative to those of competitors.

Secondly, differentiation involves making your product better than thatof rivals whilst at the same time making sure the product is bought bycustomers. A Bentley is different from other motor cars, but it is alsovery expensive. It is a success because enough people are prepared tobuy the products owing to its special quality. There are many ways ofdifferentiating products - through customer-service, throughpromotion, through advertising, through branding, etc. However, theessential point is that you must add value to your product so thatconsumers perceive it as being better value than rival offerings.

In addition to Porter’s two ways of being competitive, there is the thirdconcept – choosing a market to compete in. Some products compete ina very broad market (e.g. supermarkets) but the organisation maychoose to sell top-of-the-range items and low-price discount items.Other businesses compete in a much narrower market; for example, tospecialist food shops such as delicatessens sell a much narrower rangeof products to a more select group of customers.

The alternatives for seeking competitive advantage are:

� Mass market, coupled with low costs - own-brand bakedbeans, bottom-of-the-range washing up liquids, low costmargarines, etc.

� Mass market, coupled with differentiation - Heinzbaked beans, Kit Kat, Kellog’s Corn Flakes, etc.

� Narrow market, coupled with low-costs - specialistdiscount bottom-of-the-market retailers, second handclothes and book shops, etc.

� Narrow market, coupled with differentiation - RenaultTwingo, exclusive taylors, etc.

Developing a competitive advantage is all about combining anunderstanding of market forces and the marketing mix. Choosing themost competitive marketing mix should help to stimulate demand, aswell as creating a supply advantage for a firm.


Unit 2 rdi

VIRTUAL CAMPUS

What factors do you see as being the main contributors in giving theseorganisations a competitive advantage?

Marks & Spencer Dyson

Sky Television Nokia

Mercedes Benz Amazon.com

Tesco Nintendo

Identify the main contributors for another organisation of your choice.

Discuss your findings with your colleagues or by using the Virtual Campus.

ACTIVITY

Looking at your own organisation, how much detailed information oncustomers appears to exist? How is this information used in the marketingplanning process? What additional information might be useful? To whatextent are loyal customers really loyal or simply suffering from an inertia thatleads to repeat purchases?

ACTIVITY

A range of questions are included in this activity. Go through these and thenfocus specifically upon the following issues:

What problems might be encountered in carrying out a truly worthwhilecompetitor and customer analysis? How might these problems possibly beovercome?

Having considered this, refer now to the framework for reviewing marketingeffectiveness that follows. Go through each of the 15 questions, scoring yourorganisation. What overall picture emerges?

Customer philosophy.

1. To what extent does management recognise the need to organise thecompany to satisfy specific markets demands?

1. The managerial philosophy is to sell existing and new products towhoever will buy them.

2. Management attempts to serve a wide range of markets and needswith equal effectiveness.


Unit 2rdi

3. Having identified market needs, management focuses uponspecific target markets in order to maximise company growth andpotential.

2. To what extent is the marketing programme tailored to the needs ofdifferent market segments?

1. Not at all.

2. To some extent.

3. To a very high degree.

3. Does management adopt a systems approach to planning withrecognition being given to the interrelationships betweenenvironment, suppliers, channels, customers and competitors?

1. Not at all - the company focuses solely upon its existing customerbase.

2. To some extent, in that the majority of its efforts goes into servingits immediate and existing customer base.

3. Yes. Management recognises the various dimensions of themarketing environment and attempts to reflect this in itsmarketing programmes by taking account of the threats andopportunities created by change within the system.

Marketing organisation.

4. To what extent does senior management attempt to control andintegrate the major marketing functions?

1. Not at all - but company focuses solely upon its existing customerbase

2. To some extent, in that the majority of its efforts goes into servingits immediate and existing customer base.

3. Yes. Management recognises the various dimensions of themarketing environment and attempts to reflect this in itsmarketing programmes by taking account of the threats andopportunities created by change within the system.

5. What sort of relationship exists between marketing management andthe management of R & D, finance, production and manufacturingfunctions?

1. Generally poor, with frequent complaint being made thatmarketing is unrealistic in its demands.


Unit 2 rdi

2. Generally satisfactory, although the feeling exists that eachdepartment is intent on serving its own needs.

3. Overall very good, with departments working together well in theinterests of the company as a whole.

6. How well organised is the new product development process?

1. Not very well at all.

2. A formal new product process exists but does not work very well.

3. It is well structured, professionally managed and achieves goodresults.

Marketing information.

7. How frequently does the company conduct market research studies ofcustomers, channels and competitors?

1. Seldom, if ever.

2. Occasionally.

3. Regularly and in a highly structured way.

8. To what extent is management aware of the sales potential andprofitability of different market segments, customers, territories,products and order sizes?

1. Not at all.

2. To some degree.

3. Very well.

9. What effort is made to measure the cost effectiveness of differentlevels and types of marketing expenditure?

1. Not at all.

2. To some degree.

3. Very well.

The strategic perspective.

10. How formalised is the marketing and planning process?

1. The company does virtually no formal marketing planning.

2. An annual marketing plan is developed.


Unit 2rdi

3. The company develops a detailed annual marketing plan and along-range plan that is updated annually.

11. What is the quality of the thinking that underlies the current marketingstrategy?

1. The current strategy is unclear.

2. The current strategy is clear and is largely a continuation of earlierstrategies.

3. The current strategy is clear, well argued and well developed.

12. To what extent does management engage in contingency thinking andplanning?

1. Not at all.

2. There is some contingency thinking but this is not incorporatedinto a formal planning process.

3. A serious attempt is made to identify most contingencies, andcontingency plans are then developed.

Operational efficiency.

13. How well is senior management thinking on marketing communicatedand implemented down-the-line?

1. Very badly.

2. Reasonably well.

3. Extremely successfully.

14. Does marketing management do an effective job with resourcesavailable?

1. No. The resource base is inadequate for the objectives of havebeen set.

2. To a limited extent. The resources available are adequate but areonly rarely applied in an optimal manner.

3. Yes. The resources available are adequate and managed efficiently.

15. Does management respond quickly and effectively to unexpecteddevelopments in the marketplace?

1. No. Market information is typically out of date and managementresponses are slow.


Unit 2 rdi

2. To a limited extent. Market information is reasonably up-to-date,although management response times vary.

3. Yes. Highly efficient information systems exist and management ofresponds quickly and effectively.

ACTIVITY FEEDBACK

The scoring process.

The manager works his way through the 15 questions in order to arrive at ascore. The scores of the response numbers are then aggregated. The overallmeasure of marketing effectiveness can then be assessed against the followingscale:

15-20 = none

21-25 = poor

26-30 = fair

31-35 = good

36-40 = very good

41-45 = superior

With a score of 25 or less, major questions should be asked about theorganisation’s ability to survive in anything more than the short-term, and anyserious competitive challenge is likely to create significant problems.Fundamental changes are needed, both in the management philosophy and theorganisational structure. For many organisations in this position, however,these changes are likely to be brought about by the existing management, sinceit is this group which has led to the current situation. The solution may,therefore, indicate major changes to the senior management.

With a score of between 26 and 30, there is again a major opportunity toimprove the management philosophy and organisational structure.

With a score between 31 and 40, and scope for improvement exists, althoughthis is likely to be in terms of a series of small changes and modifications ratherthan anything more fundamental.

With a score of between 41 and 45 care needs to be taken to ensure that theproactive stance is maintained and that complacency does not begin toemerge.


Unit 2rdi

Investment opportunity evaluation

The evaluation of an investment opportunity is an important factor inthe strategic management of any organisation. As an example of theopportunities thrown up by a significant market change, we can look atthe implications of challenge and change in European businessresulting from the Single European Market in a 1992. The opportunitiesare seen to lie in two areas: the effect on the market itself, and thelogistical implications - savings of cost and time. Regarding the marketthree developments are apparent: growth, differentiation and increasedcompetition. The question of logistics of is seen both as an opportunityunder threat. On the production side there is a reduction of costs and thesaving of time and energy through the elimination of borderbureaucracy: by ending direct costs of frontiers, by reducingtechnological barriers, by better supply and distribution systems in thefood and beverage industries and in the car industry, by better access tofinancial services, and by economies of scale and the reduction ofinefficiency a growth of between 4.5 and 7 per cent of GDP was forecast.

The increased competition and the single market was seen as anopportunity for firms possessing a competitive edge and deducedgrowth and development of the markets. Particularly emphasised werethe various opportunities to reduce costs, including the saving of timeand energy. The barrier to be reduced mentioned most often was thetechnical one, where a harmonisation of technical specifications tookplace. These technical barriers were very important, for example in thecar sector, and they were highly important in the food and beveragesector, while in the paper and printing industry they were of littleimportance. Other cost-saving opportunities discussed were:

� Less paperwork.

� Cheaper physical distribution and inventory.

� Rationalised product ranges.

� Better sourcing opportunities.

� Reduced costs of research and development.

� Time saved due to common procedures.

� Streamlining an organisation and its administrativefunctions.

� Easier logistics, faster transportation.


Unit 2 rdi

General Electric model

The General Electric Model was developed by managementconsultants, McKinsey & Co. It was developed for General Electric(USA) as an alternative to the BCG matrix, using a wider range of factorsfor describing SBUs. The two criteria used are market attractiveness andbusiness position. This means that consideration can be made formarket growth rate, market size and difficulty of market entry. Inaddition, the size of the SBU, and its strength relative to its competitioncan be incorporated.

The matrix is composed of nine boxes and uses the same concept ofcircles to show market size as in the BCG matrix.

Although the BCG Matrix is the best known portfolio planningframework, the GE Matrix (or GE/McKinsey Matrix) is a later and moreadvanced form. It is more sophisticated in three aspects:

� Market (Industry) attractiveness replaces market growthas the dimension of industry attractiveness. Marketattractiveness includes a broader range of factors otherthan just the rate of market growth that can determinethe attractiveness of an industry/market.

� Competitive strength replaces market share as thedimension by which the competitive position of each SBUis assessed. Competitive strength likewise includes abroader range of factors other than just the market sharethat can determine the competitive strength of a StrategicBusiness Unit.

� The GE/McKinsey Matrix works with a 3x3 grid, whilethe BCG Matrix has only a 2x2 matrix. This allows formore sophistication.

The factors affecting the two main variables are shown in Figure 2.3.


Unit 2rdi

Often SBUs are portrayed as a circle plotted in the GE/McKinseyMatrix, whereby:

� The size of the circles represent the Market Size.

� The size of the sectors represent the Market Share of theSBUs.

� Arrows represent the direction and the movement of theSBUs in the future.

A six-step approach to implementation of portfolio analysis could,therefore, look like this:

1. Specify drivers of each dimension. The organisation mustcarefully determine those factors that are important to its overallstrategy.

2. Weight drivers. The organisation must assign relative importanceto the drivers.

3. Score each of the SBU’s drivers.

4. Multiply weights by scores for each SBU.

5. View resulting graph and interpret it.

6. Perform a review/sensitivity analysis using other adjustedweights (there may be no consensus) and scores.


Unit 2 rdi

Typical (external) factors affectingMarket Attractiveness

Typical (internal) factors affectingCompetitive Strength

� market size

� market growth rate

� market profitability

� pricing trends

� competitive intensity/rivalry

� overall risk of returns in the industry

� entry barriers

� opportunity to differentiate

� demand variability

� segmentation

� distribution structure

� technology development

� strength of assets and competences

� relative brand strength

� market share

� market share growth

� customer loyalty

� relative cost position

� relative profit margins

� distribution strength/production capacity

� record of technological innovation

� quality

� access to financial resources

� management strength

Figure 2.3. Typical GE/McKinsey factors.

Some important limitations of the GE/McKinsey Matrix are:

� Valuation of the realisation of the various factors.

� Aggregation of the indicators is difficult.

� Core competences are not represented.

� Interactions between SBUs are not considered.

ACTIVITY

Try to apply the General Electric model to your own organisation, or one withwhich you are familiar.

What conclusions can you draw?

Shell directional policy matrix

Strategic Emphasis

The traditional way of looking at the business unit's strengths andweaknesses as well as comparing business sector prospects was to usehistorical and forecast rates of return on capital employed. This wasdone because a sector where prospects were favourable and thecompany’s position was strong tended to show higher profitability.Shell found that these records and forecasts were not sufficient for theguidance of management in the corporate planning and allocation ofresources.

Reasons for this being:

� Records and forecasts do not provide a systematicexplanation why one business sector has more favourableprospects than another or why the company’s position ina particular sector is strong or weak.

� Records and forecasts do not provide enough insight intothe underlying dynamics and balance of the individualbusiness sectors or the balance between the sectors.

� Using the forecast and record method, when newproducts are being considered, actual experience cannotbe consulted.

� Worldwide inflation has severely weakened validity andcredibility of financial forecasts especially in the case ofbusinesses that are affected by the oil production process.


Unit 2rdi

The basic method of the directional policy matrix is to identify and placeon the horizontal and vertical axes respectively:

� The main criteria by which prospects for a business maybe judged to be favourable or unfavourable (favourablemeaning a high profit and growth potential).

� The main criteria by which a company’s position in asector may be judged to be strong or weak.

Horizontal Axis

Horizontal labels for the quadrants are the reverse of those on the GEmatrix. The extreme left quadrant is labelled Unattractive while thecorresponding quadrant on the GE matrix is labelled High.

The horizontal axis is labelled Business Sector Prospects while thevertical axis is named Company’s Competitive Capabilities/Position.

Vertical Axis

The y-axis labels are the reverse of those in the GE/McKinsey matrixand the lowest quadrant is labelled Strong versus the GE matrix Low.

The Shell directional policy matrix can be used to analyse differentbusiness sectors in an industry as well as competitors within a businesssector.

The Approach

The general technique of this model can be applied to any business withseparate identifiable sectors even though it was developed for thepetrochemical industry.

Business Sectors

In the petrochemical environment it is not difficult to identify a businesssector as these can be acknowledged as product sectors. These aredistinct businesses with well-defined boundaries and substantialcompetition within the boundaries.

Geographical Areas

Any geographical area can be analysed but in this industry it has beenfound that economic blocs such as Western Europe should bemeasured, as there is usually a greater amount of movement withinthese blocs than between them.


Unit 2 rdi

Forecasting Period

For most petroleum-based companies a time scale of 10 years isconsidered, as this is the effective forecasting horizon.

Business Sector Prospects. (Horizontal x-Axis)

Profitability prospects (or attractiveness) for businesses in thepetroleum sector are judged on four criteria

1. Market Growth Rate – market growth is necessary for the growthof sector profits but sectors with the highest growth rate are notnecessarily those with the largest profit growth. Shell advocateda rating system for this factor where the midpoint was theaverage growth rate for the industry. A star rating system wasused rating the growth rate from one star to five stars.

2. Market Quality – this is a difficult concept to quantify and to getto a rating for the sector. A number of questions must beanswered – (Shell questions)

� Has the sector a record of high, stable profitability?

� Can margins be maintained when manufacturingcapacity exceeds demand?

� Is the product resistant to commodity pricingbehaviour?

� Is the technology of production freely available or isit restricted to those who developed it?

� Do relatively few producers supply the market?

� Is the market free from domination by a small groupof powerful customers?

� Has the product high added value when convertedby the customer?

� In the case of a new product, is the market destinedto remain small enough not to attract too manyproducers?

� Is the product one where the customer has to changehis formulation or even his machinery if he changessupplier?

� Is the product free from the risk of substitution byan alternative synthetic or natural product?

A business sector rating yes on all or most of these questionswould score a four or five star rating.


Unit 2rdi

3. Industry Feedstock Situation

Expansion of productive capacity is often hindered by theuncertainty of feedstock supply.

If the feed stocks in the sector have a strong pull towards analternative use or are difficult to assemble in large quantities thenthis is a plus for sector prospects and the rating is better thanaverage.

If the feedstock is a by-product of another process and the mainproduct consumption is growing at a faster rate than that of theby-product, pressure might result due to low prices or directinvestment by the by-product producer to increase itsconsumption. This would be given a lower than average rating.

4. Environmental (Regulatory) Aspects

Business sector prospects can be affected by restrictions onmanufacture, transportation and marketing of a product. If thishas not been built into the forecast of market growth, it must beassessed separately. Strong positive or negative environmental orregulatory influences must be taken into account.

Competitive Capabilities (Vertical y-Axis)

A petroleum company can be judged as strong, average or weak onthree major criteria. Shell recommended reviewing these criteria inrelation to significant competitors in the relevant business sector. (Thisaxis is similar to the Business Strength axis on the GE/McKinseymatrix.)

Market Position

The percentage share of the total market as well as the degree to whichthis share is secure is of primary importance. Shell looked at this factorin terms of a relative market leadership position rather than marketshare and rated this factor on a 5 star rating scale as follows:

Leader – 5 stars – this type of company has market leadershipand technical leadership usually accompanies this.

Major Producer – 4 stars – this occurs where no single companyis leader but there are two to four competitors are closely placed.

Viable Producer – 3 stars – this type of company has a strongviable stake but falls below the top league.

Minor – 2 stars - businesses in this category are less than able tosupport research and development in the long term.

Negligible – 1 star – companies with a negligible position in themarket fall into this category.


Unit 2 rdi

Model Use and Applicability

The key words in the different zones indicate different strategies forbusinesses/products falling within these areas. It must be pointed outthat Shell found the zones to be of irregular shape, with no hard and fastboundaries, they shade into one another and in some cases they overlap.

Disinvest

Products in this area will probably be losing money. It is recommendedthat assets be disposed of and the resources of cash, feedstock andmanpower resulting from this action be redeployed more profitability.

Phased Withdrawal

A company with an average to weak position in a low-growth sectorwill not be earning significant amounts of cash and should gradually bewithdrawn. Efforts should be made to realise the value of the assets anduse the money from these in a more profitable area. This would also bethe strategy for a weak positioned company in an average market sector

Cash Generator

This is the type of product that is moving towards the end of its lifecycleand is being replaced by other products. Finance should not be used forexpansion and the business (if it is profitable) should be used as a sourceof cash in other areas – efforts should be made to maximise profits, asthere is no long-term future.

Custodial

A product falls into this area when the company has a position ofweakness either in respect of market position (lower than 3 stars)process economics, hardware, feedstock or two or more of these incombination. This type of positioning occurs with the weaker productswhere there are too many competitors. The strategy is to maximise cashgeneration without committing further resources.

Model weaknesses

The Shell DPM has been used in different industries and some practicalproblems have been raised.

1. There is a need to change the questions for companies not in thepetroleum industry and the questions regarding the factorsshould be customised for the company doing the analysis.

2. Shell advocated equal weightings for the criteria on each of theaxes. This worked for Shell but other companies may feel thatcertain factors are more important than others and therefore theweights should be adjusted accordingly


Unit 2rdi

3. The environment was the fourth factor on the business sectorprospects axis yet Shell often left this factor out altogether.Environment can be a very important factor as it deals with thewider question of risk

4. When using the Shell DPM methodology, it was found that thestar rating system added very little value and a points allocationrating was superior.

The Shell DPM was a technique originated for systematically analysingthe qualitative factors present in the organisation, which had an impacton corporate planning.

It was developed at around about the same time as the GE/McKinseymatrix and was developed specifically for the petroleum industry.

The main criteria by which prospects for a business may be judged to befavourable or unfavourable (favourable meaning a high profit andgrowth potential) – business sector prospects: x-axis.

The main criteria by which a company’s position in a sector may bejudged to be strong or weak – competitive position: y-axis.

The Shell DPM is made up of nine quadrants and has found the threecolumns and three rows to be convenient for them.

Factors are given the same weighting and are then scored on a starsystem.

Positioning occurs on any of nine boxes, which are usually assessedaccording to the prospects of the sector

� Right hand column –

� Leader

� Try harder

� Double or quit

� Middle column – growth in this area has fallen to theaverage for the industry (average sectors)

� Leader/Growth

� Growth/Custodial

� Phased withdrawal

� Left hand column – this relates to businesses with lowgrowth rate and market quality, poor feedstock positionands outlook

� Cash generation


Unit 2 rdi

� Phased withdrawal

� Divest

ACTIVITY

Could the Shell directional policy matrix be a useful tool for your organisation?Discuss its possible merits with reference to your organisation. If it is unlikelyto provide any advantage to you, explain why.

Market positioning

Market leadership

KEY POINT

Market share is the term used to describe the proportion of a particularmarket that is held by a product or business. British Telecom, for example,have a smaller share of the European telephone market than its French andGerman rivals.

Why might the measurement of market share be important? It mightindicate a business that is a market leader. This could encourage theother companies to follow the leader or influence the leader to maintainits position. It might influence the strategy or objectives of a business. Abusiness that has a small market share may set a target of increasing itsshare by five per cent over a period of time. It may also be an indicationof the success or failure the business or its strategy.

Illustrating the market share held by different businesses is not asstraightforward as it may seem. There are problems that must be takeninto consideration when calculating and interpreting the data:

� The share of the market may be measured in differentways. These might include sales revenue, profit, or thequantity of goods produced for services sold or provided.For example, the share of BT may be different if salesrevenue from calls or the number of calls is used as ameasure of market share, rather than the number of calls.

� The type of product on which the market share is basedcan affect the results. For example, the market shares oftelephone companies may seem different if mobile phonecompanies are included, such as Orange or T-mobile.


Unit 2rdi

� The type of business to be included can often influencemarket share. For example, in 1998 it was reported thatTesco, Sainsbury’s, Asda and Safeway sold 45 per cent ofBritish groceries. This measure, however, excluded smallshops and petrol stations which also sell groceries. If theywere included, the percentage would be lower.

� Feed data may relate to different markets internationally.Market share figures are likely to be different if nationalmarkets or global markets a taken into account. BT, forexample, has a larger share of national fixed phone lines.

Market planning must take into account the market image a companywishes to achieve. It can be measured in terms of thequality of theproducts or services offered, ‘value for money’ aspect, technologicalinnovation, and reliability and performance. It can also be measured bythe views customers hold of the fact that the firm is playing fair by them.That is, its prices are more than reasonable for the dependabilityprovided and that unjust demands are not being made. That is, whencosts increase, the resultant price is not raised by more than is necessary,nor that existing stocks at old costs have been sold. For firms operatingoverseas, especially in developing countries, strict adherence to theletter and spirit of the law, no matter how inconvenient, is somethingelse that is appreciated by the general public and can lead to thereinforcement of the firm’s market image or standing.

Market image can be lost when marketing plans and actions are not keptup-to-date and when firms are run on outmoded ideas and methods ofstemming from obsolete experience and maintained prejudices. It canalso be lost when the wrong type of executive is allowed to gain controlof any of the firm’s operations and gain dominance for his or her ideasregardless of the relevant to the conditions and requirements of themarket place. Failure to design and produce products or services inaccordance with market needs would also erode the market leadershipbeing enjoyed by a firm. Ignoring any of the points mentioned earliercan also prove disastrous here.

VIRTUAL CAMPUS

Find some examples of products fulfilling a market leadership role. Discusswith colleagues, or by using the Virtual Campus, the reasons for your choices.

Market challenger

A market challenger is a strong follower in market share terms:companies not far behind the market leader in a particular product orservice. The term is not wholly satisfactory because it implies that the


Unit 2 rdi

second or third player is gaining relative market share on the leader andchallenging him.

CASE STUDY

Extracts from How Nike Figured Out China taken from Time magazine,28th February 2005.

Nike swung into action and even before most Chinese knew they had anew hero. The moment hurdler Liu Xiang became the country’s firstOlympic medallist in a short distance speed event - he claimed the goldmedal with a new Olympic record in the 110 metre hurdles last August -Nike launched a television advertisement in China showing Liudestroying the field of and superimposed a series of questions designedto set nationalistic teeth on edge. “Asians lack muscle?” asked one.“Asians lack the will to win?” Then came the kicker, as Liu raised hisarms above the trademark swoosh on his shoulder: “ Stereotypes aremade to be broken.” It was an instant success. “ Nike understands whyChinese are proud,” says Li Yao, a weekend player at swoosh-bedeckedbasketball courts near Beijing’s Tiananmen Square.

Such clever marketing tactics have helped make Nike the icon for thenew China. According to a Hill & Knowlton survey, Chinese considerNike the Middle Kingdom’s “ coolest brand”. Just as a new FlyingPigeon bicycle found success when reforms began in the 1980s, so theAir Jordan - or any number of Nike products turned out in factoriesacross Asia - has become the symbol of success for China’s newmiddle-class. Sales rose 66 per cent in 2003, estimated at $300 million,and Nike is currently opening an average of 1.5 new stores a day inChina. Yes, a day! The goal is to migrate inland from China’s richer EastCoast towns in time for the outpouring of interest in sports that willaccompany the 2008 Summer Olympics in Beijing. How did Nike buildsuch a booming business? For starters, the company promoted the rightsports and launched a series of inspired ad campaigns (as well as sometremendous flops). But the story of how Nike cracked that China codehas as much to do with the rise of China’s new middle-class, which ishungry for Western gear and individualism, and Nike’s ability to tapinto that hunger.

The Chinese government may have a love-hate relationship with theWest - eager for Western technology yet threatened by democracy - butfor Chinese consumers, Western groups mean one thing: status.

China’s biggest seller of athletic shoes, Li Nang, recently surrendered itstop position to Nike, even though Nike’s shoes - upwards of $100 a pair- cost twice as much. The new middle-class “ seeks Western culture,”says Zhang Wanli, a social scientist at the Chinese Academy of SocialSciences. “Nike was smart because it didn’t enter China selling theusefulness, but selling status.”


Unit 2rdi

Zhang hadn’t yet been born when Nike founder Phil Knight firsttravelled to China in 1980, before Beijing could even ship to US ports;the country was just emerging from the turmoil of the CulturalRevolution. By the mid-’80s, Knight had moved much of his productionto China from South Korea and Taiwan. But he sold China as more thana workshop. “There are 2 billion feeders out there,” former Nikeexecutives recall his saying. “Go get them!”

Phase 1, getting the swoosh recognised, proved relatively easy. Nikeoutfitted top Chinese athletes and sponsors all teams in China’s newpro Basketball League in 1995 the. But the company had its share ofhorror stories too, struggling with production problems (grey sneakersinstead of white), rampant knock-offs, then criticism but it wasexploiting Chinese labour. Cracking the market in a big way seemedimpossible. Why would the Chinese consumer spend so much - twicethe average monthly salary back in the late 1990s - on a pair of sneakers?

Sport wasn’t a factor in a country where, since the days of Confucius,education levels and test scores dictated success. So Nike executives setthemselves a quixotic challenge: to change China’s culture. RecallsTerry Rhoads, then director of sports marketing for Nike in China: “Wethought, ‘We won’t get anything if they don’t play sports.’ ” A Chinesespeaker, Rhoads saw basketball as Nike’s ticket. He donated equipmentto Shanghai’s high schools and paid them to open their basketballcourts to the public after hours. He put together three-on-threetournaments and founded the city’s first high-school basketball league,the Nike League, which has spread to 17 cities. At games, Rhoadsblasted the recorded sound of cheering to encourage straitlaced fans toloosen up, and he arranged for the state-run television network tobroadcast the finals nationally. The Chinese responded: sales throughthe 1990s picked up 60 per cent a year. “ our goal was to hook kids intoNike early and hold them for life,” says Rhoads, who now runs theShanghai based sports marketing company, Zou Marketing. Nike alsopitched its wagon to the NBA (which had begun televising games inChina), bringing players like David Robinson for visits. Slowly butsurely, in-the-know Chinese came to call sneakers ‘Nai-ke.’

Those sneakers brought with them a lot more than just basketball. Nikegambled that the new middle-class, now some 40 million people whomake an average of $8,500 a year for a family of three, was developing awhole new set of values, centred on individualism. Nike unabashedlymade American culture it selling-point, with ads that challengedChina’s traditional group oriented ethos. This year the companyreleased Internet teaser clips showing a faceless but Asian looking highschool basketball player shaking-and-baking his way through adefence. It was timed to coincide with Nike tournaments around thecountry and concluded with the question, ‘Is this you?’ The viraladvertisement drew 5 million e-mails. More recently, however, Nikeplundered a series of TV commercials showing Cleveland Cavaliers starLeBron James defeating mythical Chinese characters in video-gamestyle fights on the basketball court. The government said that James


Unit 2 rdi

“blasphemes national practices and cultures.” Nike killed thecommercials and apologised.

Kick-starting into 2001, Nike coined a new phrase for its Chinamarketing, borrowed from American black street culture: ‘Hip Hoop.’The idea is to “ connect Nike with a creative lifestyle,” says Frank Pan,Nike’s current director of sports marketing for China. The company'sChinese websites even encourages a rap-style trash talk.

Success aside, Nike has had its stumbles. When I began outfittingChinese professional soccer teams in the mid-1990s, its ill-fitting cleatscaused heel sores so painful that Nike had to let its athletes to wearAdidas (with black tape over the trademark). In 1997, Nike ramped upproduction just before the Asian banking crisis killed demand, thenflooded the market with cheap shoes, undercutting its own retailers anddriving many into the arms of Adidas. Two years later, the companycreated a $15 swoosh-bearing canvas sneaker designed for poorChinese. The ‘World Shoe’ flopped so badly that Nike killed it.

Yet all that amounts to a frayed shoelace compared with losing China’smost famous living human. Yao Ming had worn Nike since Rhoadsdiscovered him as a skinny kid with a sweat jumper - and brought himsome size 18s made for NBA All-Star Alonzo Mourning. In 1999 hesigned Yao to a four-year contract worth $200,000. But Nike let hiscontract expire in 2003; Yao defected to Reebok for an estimated $100million. The failure leaves Nike executives visibly dejected. “The onlything I know is, we lost Yao Ming ,” says a Shanghai executive whonegotiated with the star.

Nike is determined not to repeat the mistake. It has signed China’s nextNBA prospect, the 7ft Yi Jianlian, 20, who plays for the GuangdongTigers. And it has resolved problems that dogged it a few years ago,cleaning up its shop floors and cutting its footwear suppliers in Chinafrom 40 to 16. (15 sell only to Nike, allowing it to monitor conditionsmore easily.) At Shoetown, in the southern city of Guanzhou, 10,000mostly female labourers work legal hours stitching shoes for $95 amonth - more than the minimum wage. “ They’ve made huge progress,”says Li Qiamg, director of New York City-based China Labour Watch.

ACTIVITY

What other products (or organisations) can you think of that have attainedmarket challenger status in Asia recently?


Unit 2rdi

ACTIVITY FEEDBACK

There a many possible answers to this activities. You may have consideredsome or all of the following:

Proctor & Gamble – most urban Chinese homes stock affordable P&Gproducts. Its Olay and Rejoice are the best-selling facial cream and shampoo.The company, which made an estimated $1.8bn in revenue in 2003 in Chinaand has recently announced a huge merger with Gillette, was hurt by fake P&Gproducts in the 1990s. However, it has since worked with the government tocrack down on ‘knock-offs’.

Dell – The computer maker focuses on business customers, ceding thelow-price market for home computers to Chinese companies. It boasts 7 percent of computer sales in China; superior after-sale service has the figureclimbing.

KFC – The chicken specialist owned by YUM! Brands is China’s dominantfast-food joint, with an estimated $1bn in revenue. KFC has added a twist to 40per cent of its dishes, such as red-hot Sichuan chicken and Peking duckflavoured poultry.

Coca-Cola – Excellent distribution has helped Coke capture 53 per cent ofthe soft-drinks market (Pepsi has 26 per cent) and an estimated $1.86bn inrevenue. Once delivered in Shanghai, it is now available for 50 cents a can fromthe South China Sea to Tibet. The Chinese name means ‘thirsty mouth, happymouth.’

GM – The second biggest car manufacturer in China, with an estimated $4.6bnin revenue, produced nearly 500,000 cars in 2004 and will soon start sellingChina-built Cadillacs. GM’s advantage rests on the fact that it is the first foreigncar manufacturer with a license to provide financing.

Market follower

KEY POINT

A market follower is a product or organisation which is content to take up amiddle-ground within its particular market. It is not aiming to outstrip allcompetition, nor is it likely to occupy a lowly place within the market. Theproduct or organisation is content to operate efficiently, with often goodfinancial results, from a position that it has probably occupied for some time.The likelihood is that the management of the organisation are confidentenough to be able to hold that position against competition from all directions.Statistically it is likely that the market follower will hold considerably less than70 per cent of the size of the market leader.


Unit 2 rdi

ACTIVITY

Describe an example of a product that has followed existing market trends.

Market niche

KEY POINT

Niche marketing involves a business aiming a product at a particular, often tiny,segment of the market. It is the opposite of mass marketing, which involves aproduct being aimed at whole markets rather than particular parts of them. TieRack, Knickerbox and Classic FM are all examples of attempts to exploit nichemarkets.

ACTIVITY

Why do firms attempt this type of marketing? What are the problemsassociated with this type of marketing?

ACTIVITY FEEDBACK

Common reasons include:

� Small firms are often able to sell to niche markets which have beeneither overlooked or ignored by other firms. In this way, they areable to avoid competition in the short run, at least.

� By targeting specific market segments, firms can focus on the needsof consumers in the segments. This can allow them to gain anadvantage over firms targeting a wider market.

There are some problems with niche marketing. These include:

� Firms which manage successfully to explore a niche market oftenattract competition. Niche markets, by their very nature, are smalland are often unable to sustain two or more competing firms. Largebusinesses joining the market may benefit from economies of scalewhich small firms are unable to achieve.

� Many small firms involved in niche marketing have just one productaimed at one main market. This does not allow a business to spreadits risks in the way that a business producing many goods might beable to do.


Unit 2rdi

� Because niche markets contain small numbers of consumers,they tend to be faced with bigger and more frequent swings inconsumer spending than the larger markets. This may mean arapid decline in sales following an equally rapid growth in sales.

ACTIVITY

Describe an example of a product that fills a market niche.

ACTIVITY FEEDBACK

Obviously, there are many products that could be cited. Here is an example ofa recently introduced product.

Dietrich Mateschitz is the Austrian billionaire inventor of the energy drink,Red Bull. He first encountered the concept of an energy drink whilst visitingthe Mandarin Hotel, in Hong Kong, as international marketing director ofGerman toothpaste maker, Blendax, during the early 1980s. He observed thepopularity of certain ‘tonic drinks’ throughout the Far East. His associates inThailand swore by these drinks, which they took before long meetings to helpthem concentrate, and many taxi drivers used them to help them keep awakeduring the nights.

Mateschitz tried them and every time he flew to the East he would have one.He claimed that it cured jetlag in seconds – even after only a single glass.

It was while waiting for colleagues to arrive at the Mandarin Hotel that he readin a magazine how a company producing tonic drinks was Japan’s biggestcorporate taxpayer. He quickly realised that if they paid such a lot of tax, theymust be making an enormous profit. Could this concept be brought to Europeand similar huge profits made from drinks of this type?

He approached Thai businessman, Chaleo Yoovidhya, who was already sellinga syrup drink called Krating Daeng, which means water buffalo. Mateschitzchanged the name to Red Bull (appropriate as he was born under the star signof Taurus!) and bought the rights to sell it in the West. However, the taste ofthe syrup-like mixture of caffeine, sugar, vitamins, detoxicants and thechemical taurine was not well received. Most said it was disgusting and marketresearchers tried hard to persuade Mateschitz to forget the whole project,warning him that no other product had ever failed so convincingly.

Ignoring their warning, he made changes to the formula and created his newproduct in the now familiar slim-line blue aluminium can. ‘There was no marketin Red Bull … so we created one’, he stated.

He was convinced of the potential of his new drink. Rather than paying largesums on marketing, at first he refused to advertise and deliberately restricted


Unit 2 rdi

supplies. Instead he paid DJs, students and sportsmen to promote it. Formula 1driver Gerhard Berger was among the first on Red Bull’s payroll.

Controversy soon developed as stories abounded about the harm the drinkwas doing. Claims that one can was equivalent to the caffeine in 14 cups ofcoffee were proved wrong and sales continued to rocket. When Red Bull waslaunched in Germany it sold out in days. This year, Mateschitz expects to selltwo billion cans in more than 100 countries. Britain and Ireland remain itsbiggest markets, where it is often mixed with vodka. This has made Mateschitzextremely wealthy. Forbes magazine calculates his 49 per cent share of RedBull to be worth nearly $1.5bn.

Thinking back to his early days promoting the new drink, it is with some ironythat Mateschitz’s latest venture is into Formula 1 motor racing. He bought therather unsuccessful Jaguar Formula 1 racing business in 2004 and renamed itRed Bull.

The ability to compete effectively in such a highly priced sport is conclusiveproof of his profitability in a market he has made his own.

Market pioneer

KEY POINT

Market pioneers are often thought of as innovators either within existingmarkets or in areas that have previously been unexplored. Such a case wouldbe the invention of a revolutionary new method to solve an already recognisedproblem, or an initial attempt to solve a new problem.

In the latter case, such problems may occur as the result of newtechnology. For example, the rapid expansion of the market for mobilephones led to the need for hands-free operation whilst driving a car. Toachieve this it has been necessary to develop the market for hands-freetechnology.

An example of an innovative invention causing ripples within theexisting market would be the introduction within the domestic cleaningmarket of the Dyson cleaner. By utilising new technology - and somewould say simplifying the design - a product has seriously threatenedexisting products to such an extent that the structure of the market hasbeen radically altered. Dyson cleaners have been accepted all over theworld as the new standard and existing companies have sought toproduce their own versions using similar technology.


Unit 2rdi

ACTIVITY

What do you think of when the term ‘market pioneer’ is used? State someexamples.

Offensive, defensive and value-based marketingstrategies

Increasingly, one hears marketing terms borrowed from the vocabularyof military strategy. From ‘launching a breakthrough campaign’ to the‘cola wars’, the analogy between marketing and warfare is evident.

As in military strategy, it is unwise for an organisation to publicly statedeadlines for its victory. Deadlines often are missed, and theorganisation loses credibility in the propaganda war if it fails to live upto a prediction. Politicians who are wise to this rule tend to make theircampaign promises vague. Publicly stated marketing promises shouldbe vague for the same reason.

Organisations also should avoid the trap of thinking that if they workhard enough, they will succeed in their attack. Al Reis & Jack Trout(Marketing Warfare, 1998) argue that it is strategy and not hard workthat determines success. In warfare, when a battle turns to hand to handcombat, the advantage resulting from the strategic plan no longer exists.In marketing, an organisation achieves victory through a smarterstrategy, not by spending longer hours with meetings, reports, memosand management reviews. When management declares that it is time to‘ redouble our efforts’, then the marketing battle has turned to hand tohand combat and is likely to end in defeat.

Offensive marketing

An offensive strategy is appropriate for a firm that is number two orpossibly number three in the market. However, in some cases, no firmsmay be strong enough to challenge the leader with an offensivestrategy. In such industries, the market leader should play a defensivestrategy and much smaller firms should look for other options.

KEY POINT

The three principles of offensive strategy are:

� The challengers primary concern should be the strength of theleader’s position, not the challenger's and own strengths andweaknesses.


Unit 2 rdi

� The challenger should seek a weakness in the leader’s strength - notsimply a weakness in the leader’s position.

� Attack on as narrow front as possible. Avoid a broad attack.

The strength of the leader’s position is of primary importance becausethe leader has the top position in the mind of the consumer and thisposition must be attacked.

A weakness in the leader’s strength must be found. Simply attackingany weakness is insufficient. For example, the leader may charge apremium price and the price may appear to be a weakness. However,the leader may in fact have large profit margins and may be willing tolower the price as much as necessary to defend its position. The leaderusually has the resources to defend against an attack against itsweaknesses, whereas there may be weaknesses inherent in the leader'sstrengths that cannot be defended.

There often is a flip side to the leaders’ strength but converse of thetarget of the challengers attack. For example, a leader may be sosuccessful that it is crowded with customers, and the challenger canthen exploits that success by offering a better customer experience. Forexample, Avis Rent-a-Car once advertised

Rent from Avis. The line at a counter is shorter.

Sometimes the weakness in the leader’s strength arises from the factthat it has a major investment in assets that cannot be readily adapted. Amore flexible challenger can use this fact to its advantage.

The challenger should attack on as narrowly front as possible. Generallythis means one product rather than a wide range of products. Thereason for keeping the attack narrow is the principle of force; a narrowattack allows the challenger to concentrate its resources in the narrowarea, and in that area may present more force than the leader. Manynumber two and number three companies ignore this principle and tryto increase market share by broadening their product lines to competein more areas, often with disastrous consequences. FedEx made thismistake in its early years by offering a wide array of transit times such asovernight, 2-day and 3-day delivery. FedEx became successful onlywhen it began to focus on the next day delivery market and won thatposition in the mind of the consumer using the slogan

When it absolutely, positively has to be there overnight.

A narrow attack is particularly effective when the leader has attemptedto be all things to all people with a single product. In that situation, achallenger can identify a segment within the leader’s market and offer aproduct that serves only that segment. The challenger then stands a


Unit 2rdi

chance of winning a position in the consumer’s mind for that narrowerclass of product.

Defensive marketing

KEY POINT

A defensive strategy is appropriate for the market leader. There are threebasic principles of defensive marketing warfare:

� Defensive strategies only should be pursued by the marketleader. It is self-defeating for an organisation to pretend that itis the market leader for the purpose the of strategy selection.The market leader is the organisation who has attained thatposition in the mind of the consumer.

� Attacking yourself is the best defensive strategy. Introducingproducts better than your existing ones pre-empts similarmoves by the competition. Even if the new product has lessprofit margin and may reduce short-term profit, itaccomplishes the more important long-term goal of protectingthe organisation’s market share.

� The leader always should block strong offensive moves madeby competitors. If the leader fails to do so, the competitor maybecome entrenched and permanently maintain market share.

A classic example of a well-executed defensive block was that ofJohnson & Johnson when Bristol-Meyers decided to launch Datril tocompete directly with Johnson & Johnson’s successful Tylenol brand.Datril was to be priced 35 per cent lower than Tylenol.

Johnson & Johnson learned of Datril before its launch and informedBristol-Meyers that they were cutting the price of Tylenol to match thatof Datril . Johnson & Johnson even extended credits to its distributionchannels to make the price cut effective immediately. This move wasintended to block Bristol-Meyers from advertising Datril as alower-priced alternative to Tylenol. However, Bristol-Meyersresponded by accelerating the launch of the television advertisingcampaign. Finally, Johnson & Johnson countered by convincing thetelevision companies not to run the Datril advertisements since they nolonger can truthfully claim that Datril was priced lower than Tylenol .Johnson & Johnson’s efforts were successful and Datril achieved lessthan a one per cent market share. Tylenol sales soared on the publicityand lower prices.

Legal issues are an important factor in a market leader's strategy.Successfully attacking the competition and winning raises anti-trust


Unit 2 rdi

issues. Attacking oneself is less risky from anti-trust perspective. It alsois preferable to expand vertically rather than horizontally into newmarkets since laws prevent an organisation from using its monopoly inone market to develop a competitive advantage in another.

Finally, once there is marketing peace and the brand has affirmed itsdominance, it can grow its sales by growing the market. For example,Campbell’s Soup can run advertisements to increase soup consumptionin general (e.g. ‘Soup is good food’) since it enjoys such a large share ofall soup sales.

Strategy can be developed using a top-down or a bottom-up approach.Some favoured a bottom-up approach because of deep knowledge oftactics actually used on the battlefield and needed to formulate astrategy that has the gold of achieving tactical objectives. Morespecifically, the sole purpose of strategy is to put the forces in motion tooverpower a competitor at the point of contact using the principle offorce. On the military battlefield, this means having more soldiers orforce at the point of battle. On the marketing battle field, it meansoverpowering the competitor in a specific position in the mind of thecustomer.

A good strategy may not depend on brilliant tactics. Mediocre tacticsare usually sufficient for a good strategy. However, even the bestpossible tactics are unlikely to compensate for poor strategy. Inmarketing, advertising can be considered tactics and many managersfalsely assume that success depends almost entirely on the quality of theadvertising campaign. If the strategy requires top notch tactics to winthe battle, such a strategy is unsound because tactical brilliance is rare.

Any strategy should take into account the probable response of thecompetitor. The best way to protect against response is to attack theweakness in the leader’s strength so that the leader cannot respond thatgiving up its strength.

To support the argument of a bottom-up strategy, many largecompanies incorrectly believed that they can do anything if they simplyallocate enough resources. History shows otherwise when oneconsiders failed attempts such as Exxon’s entry into office systems andMobil’s acquisition of Montgomery Ward. Such diversions shiftresources away from the point of battle where they are needed. This isone of the dangers that can be avoided by a bottom-up strategy based onwhat can be accomplished on the tactical level.

Value-based strategies

For products or services to compete in today’s marketplace, bothdomestic and export, organisations must have a good understanding ofthe market. Meeting the needs of the customer is something that everysuccessful business must continually strive to do. Producing a productfor a market rather than producing a product and trying to find a


Unit 2rdi

market for it are two separate activities. The latter activity has been thearea that many organisations have participated in rather than theformer. For success into the twenty-first century, and for futuresurvivability, organisations must target the market more effectively andadapt products and service practices to assure complete compliancewith the specifications called for from their customers.

KEY POINT

The keys to ‘value thinking’ are that:

� Each part of the internal processes of the organisation canimprove the overall competitive advantage.

� The interrelationships or links between the activities of theorganisation can be enhanced to improve competitiveadvantage.

� The interrelationships between the internal processes and theupstream (suppliers’ chain) and the downstream (customers’chain) can be examined to provide competitive advantage.

In order to achieve these key objectives, reflect on the value chaindiscussed earlier in the module. The key stages of which are:

Be clear that you are looking for cost saving or process improvementwithin the value chain (internally) and within the system (upstream anddownstream from the chain).

Set up the nine-box graphic shown at the start of this model and withineach of the boxes write the main activities which your organisationperforms in that component of the value chain – go easy on detail.

When you have completed the graphic, look hard at possible linksbetween items which might repay closer investigation (i.e. detailedwork analysis or process re-engineering possibilities).

Consider carefully the potential for linking with suppliers to yourorganisation. Consider what those links might look like, what payoffthey would provide you, and what payoff they would provide thesupplier(s) with which you link

Think also about the elements in the supply chain which take yourgoods and services to your ultimate customers or users. Do linkssuggest themselves? What is the payoff and for whom?

While value chain analysis is complex and can be time consuming, itdoes allow for imagination and assists thinking across complex


Unit 2 rdi

systems. Remember too that you have two great consultancy allies tohelp in value chain analysis; they are: the IT providers, particularlythose involved in what is called enterprise resource planning. Thisbranch of IT deals with radical revision of the information systemswithin the organisation and within its extended value system. Since ITis often a key element in optimising links in the system, there isconsiderable expertise to hand there.

The other area of potential help is advice in process re-engineering.This involves examination of internal processes within the organisationand seeks to eliminate redundancy, waste and duplication. Mostorganisations suffer trauma as a result of extensive processre-engineering, but cost is usually shed and efficiency enhanced.

ACTIVITY

Find examples of organisations who use offensive, defensive and value-basedstrategies in their marketing. Briefly outline why you have selected eachorganisation.

ACTIVITY

For further details, refer to the text, Management; An Introduction by D. Boddy.

Read sections 7.5 to 7.8.

Summary

This unit has examined a range of marketing strategy options includingPorter’s generic strategies, core competencies and evaluation ofinvestment opportunities. The use of models devised by GeneralElectric and Shell provide key anchors in the development of a strategy.

Positions in the market, such as leader, follower, pioneer andchallenger, all have different issues to deal with when faced withcompetition. Recognition of the roles played by each different positionis an important marketing skill.


Unit 2rdi

Unit 3

Implications of Change in theMarketing Environment

Unit Objectives

The aim of this unit is to identify the range of changes that are likely to occurwithin a market and consider the implication upon the organisation. Oftenthese implications should be viewed as potential for improved profitability, butit should not be forgotten that they may have more serious impact on theorganisation in terms of simply survival.

Changes in the Marketing Environment

Why change?

Having seen how the four major components of organisations –processes, structure, hierarchies and people – group around the centralcore of strategy, we want to look at how to change organisations, whyyou need to, and when to do it.

All organisations are having to respond to an unprecedented increase inthe rate of change. This need is being driven by a number of things, butamong the most influential are the following.

Customer demand

We live in a period of accelerating competitiveness. The customer hasnever had so wide a set of options for choice, and never been moreenthusiastic about exercising those options. The proliferation of thoseoptions, this increasing choice, in turn spawns smaller niche marketsand more opportunities for specialisation. Organisations which win inthis kind of climate are those which know their customers well, can pacerather than respond to demand, and can do so fast.


rdi

Globalisation

The competitive environment of any organisation is increasinglydifficult to predict. New suppliers enter the market very fast and oftenfrom sources which were never anticipated. As the European Uniondevelops, an organisation needs knowledge of their competitors in adozen countries; as the ability to buy and transact internationallyincreases through, for example, the Internet, an organisation needs toknow its competitors in 100 countries.

To survive in a global environment organisations need goodinformation, and the ability to respond to events by enacting radicalchange very fast.

Technology

The microprocessor is transforming products and services – embeddedchips, those sold as parts of a product like a washing machine forexample, are radically redefining the capability, versatility andreliability of products. This in turn is feeding customer choice (above),accelerating market fragmentation and abbreviating product life cycles.

Information technology too is changing the way organisations bringtheir products and services to market. The Internet will allow you toenter a market, and an international market at that, for the cost of a webpage. For an organisation to survive it must, on the one hand, takeadvantage of the enormous benefits technology can provide ininformation, business processes, communications and marketing. Onthe other hand, it must balance this against the value of the investmentnecessary to keep abreast of the latest technology.

Organisational accountability

The modern organisation is subject to, or answerable to, a greatlyincreased number of influences than was previously the case. The RoyalSociety of Arts, in their study Tomorrow’s Company, talks of a ‘licenceto operate’. It means that, to operate smoothly an organisation mustkeep a number of different interests happy. Failure to do so can at leastslow it down if not stop it operating entirely. Some of these interests are:

� Law and regulation

� Industry standards

� Industry reputation

� The media

� Pressure groups


Unit 3 rdi

� Public opinion

� Political opinion

� Owners

� Suppliers

� Its own employees

� Its communities

Organisations which successfully keep all these interests in balancegenerally are more successful than those which do not. Changes canhappen very quickly too. A recent example has been Nike, formerly anoutstandingly successful organisation, fighting an expensive, bitter anddebilitating rearguard action against accusations of using child labourto manufacture its products.

KEY POINT

The point being made is that organisations are in a less stable, less predictableand more rapidly changing environment now than they have ever been.

To adapt to that environment requires frequent and sometimes radicalchanges of strategy, focus and hence operations. Perhaps one of the mainreasons for studying organisations in detail is because, as managers, we have tochange them so often.

ACTIVITY

What sort of effect are these four change drivers having on marketing for yourorganisation?

1. Customer power?

2. Globalisation?

3. Technology?

4. Organisational accountability?


Unit 3rdi

Micro-markets

From a marketing point of view, there is a tendency to vieworganisational planning as wide-ranging. The feeling is sometimes thatconsiderations are made only for the market as a large national, or evenglobal, entity. This is, however, often not the case as effort must be madeto consider smaller areas of the general market.

Some products have an impact only on a limited scale, yet these stillneed to be considered in the same way as higher impact products. Thesemay be very localised in a geographical sense. For example, sales ofchildren’s bucket and spade sets will be considerable higher at popularseaside resorts than in a city centre.

The concept of a micro-market is based on the premise that certainproducts have only a very limited market but that they still need to bemarketed effectively to capture the potential market share. Even thoughthe likely market may be highly restricted by certain factors, those in themarket must be made aware of the product and its attractiveness forthem. There may also be a number of rival products and companiesproviding competition.

Products designed for specialist groups of people , such as for theelderly or disabled, may have once been considered as being in amicro-market, but the general awareness of the needs of minoritygroups has greatly increased market sizes. Thus, marketing an aid towalking is now carried out to a wider audience as younger familymembers might be considering purchasing such a product for anelderly parent.

ACTIVITY

Consider the range of products offered by your organisation. For each one, tryto determine the size of the market.

Are any of them aimed at micro-markets?

Increased expectations

The increasing knowledge and awareness of consumers has led to amore discerning approach. Media coverage of new products or, indeed,existing product failings, has meant that consumers have a largeamount of information about products without the need to carry outlengthy research on them. Indeed, it is probably correct to say thattoday’s consumers are more knowledgeable than at any stage in thepast.


Unit 3 rdi

The effect of consumer awareness is that expectations are greater.Products need to be reliable and to perform their functions properly. Ifthey fail to do so, there are numerous channels whereby consumers canpublicly state their dissatisfaction. By doing so on the television,through the press or over the Internet, organisations can suffer from thenegative comments to the extent that reputations can fall to harmfullevels. It is often said that bad news spreads quicker than good news,and can have a longer lasting effect. Unfortunately, this can be true andso organisations should be conscious of the need to avoid failing toreach consumer expectations of their products.

Importance of service

The importance of quality standards has been emphasised in a numberof areas of this module. This reflects the current tendency for improvedservice expected from consumers.

With many products quality after-sales service is an importantconsideration for consumers. This provides a guaranteed level ofsupport from manufacturers, which is appealing to buyers.

Similarly, good customer service before sale impresses, and can be useda key marketing tool. Consider the efforts made by a number of carmanufacturers to provide an excellent experience for potentialcustomers, from the first step that they take into the showroom.

ACTIVITY

Carry out some research to determine the level of service provision in avariety of different business settings.

What do you feel are the most effective ways of effectively marketing abusiness through customer service? Write a brief summary of your thoughts.

Generic strategic responses to change

Strategy is, of course, particular to each organisation; in fact those withclearly defined or unique strategies are more likely to succeed longerterm. All organisations are confronted with an environment of changewhich, if not identical in impact for each, is at least similar for classes oforganisations.

From this similarity of experience, a number of generic strategies haveemerged which are defining the modern organisation, and we need tolook at these strategies in the context of what we now know oforganisations.


Unit 3rdi

First let us look at some common generic strategies; then let us look athow these might be implemented in an organisation using the four-partanalytical base we have devised.

Reducing cost base

Many organisations are aiming for a reduced cost base – a leanerorganisation, less expensive to run and more productive or effective.The thinking behind this is that in the event of a price war withcompetitors, the organisation has more flexibility to respond if its costbase is lower. Alternatively, it could use its lower cost base to initiate aprice war to take out a competitor. At least if its cost base is lower it cansurvive for longer in the event of an unanticipated market downturn ormargin squeeze.

Improving quality

Most organisations now hold the view that consistent incrementalquality improvement is an essential precondition for serving a market.Customers insist on improving quality, competitor pressures forcequality improvement, and the market is very unforgiving of qualityfailure or disadvantageous comparison with competitors.

Getting closer to the customer

Customers are whimsical, customers are fickle, customers are not loyal– all these things are true. The ability to anticipate this fickleness is astrategic strength. The ability to respond fast to changing customerfashion and the ability to create customer fashion are powerful strategicattributes. Knowing your customers well can also enable you to leaddemand, to create fashion, to pre-empt competitors in developingniches and to fill them fast.

Shorter cycle times

When product life cycles are falling, recovering the development cost ofthe product fast becomes a necessity. Keeping the cycle time short (i.e.the time from conceiving the product to hitting the market with it) is away of keeping development cost lower. The ability, too, to enter themarket with a new product before or very shortly after competitors is akey cost recovery and profitability strategy.

Strategic partnerships

Being able to add value (or reduce cost) to your product or service byentering a mutually advantageous partnership provides an excellentincrease in capability. Strategic partners can also take you to markets


Unit 3 rdi

too expensive to enter directly, or they can provide capacity tooexpensive to invest in yourself. Isolating the areas for strategicpartnership, identifying the partners and managing the partnershipsare a source of advantage.

Ability to change fast

Some organisations are just better able to embrace change than others.

Being able to point the organisation in a different direction, being able tomarch the troops down the hill when you have been vigorouslymarching them up the hill is a great strategic advantage. Being fast onyour feet and being able to learn fast are organisational competencies ofgreat strategic value. The learning organisation, the athleticorganisation, the responsive organisation, the creative organisation areall names for this strategic strength.

ACTIVITY

It may be that some of the generic strategies organisations are following arealso material to your organisation.

This activity is in two parts.

Part 1

Rate the importance of these generic strategies to your own organisation byticking one response for each statement:

Reducing the cost base

� Very important � Indifferent � Not important

Improving quality


Getting closer to the customer


Shortening the cycle time


Developing strategic partnerships



Unit 3rdi

The ability to change fast


Part 2

List the three most important strategies you think your organisation ispursuing, or should be pursuing.

Erosion of brands

Marketers need to be aware that a brand image will not last forever. Itmay follow a series of stages rather like a product life cycle, but these arehighly unpredictable. The value of the brand image amongst consumerswill also alter, and it is this fluctuation that marketers must note.

Influences outside the scope of the organisation itself can result in adeterioration of the image to the extent that it may have a negativemarketing effect. Such erosion of a brand name or image is damaging tothe organisation and is best avoided at all costs. An example is thevariation in the status of Saab cars. Whilst initially the make wasperceived to be at the high quality end of the market, change ofownership and more competitive pricing policies have led to loweroverall image. The cars are now available to a wider range ofconsumers, but some would argue that this has been at the expense ofquality and, therefore, image.

Erosion of brand image is, therefore, the result of a combination offactors, some that are within the control of the organisation and otherswhich are consumer driven.

Planning and implementing change

We can look at implementing change under two separate headings:

First, we will look at options for change in the areas of work processes,structure and hierarchies; to illustrate we will look at the potential forimplementing the generic strategies we have identified above. Thishelps analyse the nature of the change.

Second, we will look at the people aspect of change. Here we will offersome examples of those things necessary to get right so that change canbe implemented successfully .

The checklist below shows some of the potential for enacting strategicchange in the first three areas we have used to explore organisations.


Unit 3 rdi

Work processes Structure Hierarchies

Reducing the costbase

� re-engineer processes toeliminate duplication andredundancy, focus onvalue-added only

� look at IT potential

� look at outsourcingpotential

� introducecross-departmentalcost-reduction teams

� eliminate a tier in thehierarchy

� increase span of controlof line managers

Improving thequality

� have quality teams focuson process improvement,simplify the complex, andstreamline

� consider moving toproduct-based structure

� consider process-basedstructure

� get managementattention on quality

� prioritise quality-basedobjectives

Getting closer tothe customer

� ‘reverse engineer’ someprocesses from knowncustomer satisfactioncomponents

� monitor customersatisfaction andbehaviour

� consider shortening cycletime

� considercustomer/market-basedstructure

� introduce customersatisfaction teams –cross-departmental

� create customer-centredculture – reward,publicise success

� prioritise customer-basedobjectives

Shortening cycletime

� examine potential forprocess re-engineering tospeed cycle time

� consider partner/suppliercomponent sourcing

� consider product-basedstructures

� consider process-basedstructures

� consider cross-departmental teamstasked on shorteningcycle time

� accelerate decision taking– eliminate some signoffs

� rethink budgeting/capitalinvestment decisionprocedures

Developingstrategicpartnerships

� identify most expensive,least productiveprocesses and look foroutsourcing/partnerpotential

� consider potential (IT forexample) for integratingprocesses with partners’processes

� develop ‘partner control’systems and procedures

� simplify structure so thatit encompasses keycompetencies

� consider market-basedstrategic partnerships

� task the hierarchy tosurface partnershippotential

� create culture ofoutsourcing

� consider spinning offsome hierarchy andmaking partners of them

Improving theorganisation’sability to changefast

� develop flexible processesand multiskill the staff tooperate them

� consider market-basedstructure, stronglyunderpinned byempowered teams

� encourage informalnetworks

� minimise the layers ofhierarchy

� devolve decision makingto teams

� create a learningorganisation culture

� create participativeculture, joint planning,joint strategydevelopment, etc.

� stress values, purpose


Unit 3rdi

This checklist is intended to stimulate your thinking, to help youunderstand the tools which are at your disposal in designing andchanging the organisation.

KEY POINT

There are no right answers; but never forget that the two key determinants ofthe processes, structure and hierarchy of the organisation are:

� Its inherent nature, the kind of business it is.

� Its strategy, how it is going to fulfil its purpose.

People aspects

If you look through the literature on organisational change, and there isa lot of it, you are offered an array of advice for implementing change.Most of it addresses how we go about bringing people aboard. Here is aselection of journal articles pulled from the Internet in about 15 minutes:

� The Eight Stage Change Processes (Kotter)

� The Twelve Principles of Organisational Transformation(Trahant et al)

� Nine Ways to Create an Atmosphere for Change(Denton)

The depressing fact which much of the reported case literature supportsis that probably-two thirds of major change initiatives undertaken byorganisations never deliver what they were intended to deliver.

Large-scale business process re-engineering has particularly attractedcritical reportage recently. Fortune magazine, which occasionallymonitors the incidence of consultancy interventions in US industry,reports a marked decline in process re-engineering interventions. MajorIT process changes, built around large-scale integration, so-calledenterprise resource planning initiatives, have also had mixed results,usually run over time and often cost a great deal more than anticipated.

In many ways introducing major change in organisations parallels theprocess of strategy development, in that it is a blend of involving peoplein visioning long-term outcomes on the one hand, and helping themwith shorter-term planning on the other.

Here is a change process which may help.


Unit 3 rdi

ACTIVITY

Collect a small group of convinced energetic people who understand andbelieve in the need for changes. These are your champions and yourmissionaries.

Imbue them with a sense of the urgency and the importance of the need forchange.

� Get them to build a vision of what it looks and feels like after wehave made the change. Let them develop this as a group, withothers in the organisation upwards through the hierarchy anddownwards through the ranks.

� Communicate the vision. You and the missionaries must never missan opportunity to talk about it, to hold meetings about it, to discussit formally and informally. Bring up the vision constantly inday-to-day activities. Use it to support a point of view, use it as abasis for decision taking.

� Start to take the first moves which will enact the change. As far aspossible let the shared vision you and the missionaries have beengenerating among the people pace what those first moves shouldbe. Facilitate a plan or the elements of the plan coming together,rather than rolling out a great initiative.

� Use the ‘short term wins’ philosophy, i.e. create the opportunitiesfor some successes appropriate to the change. Then celebrate,publicise, draw lessons from, use as a basis to extrapolate from etc.You are trying here to increase the momentum for change.

� Get more serious and more structured about planning for andimplementing the changes. Take the short term wins as legitimationand as providing the mandate. Turn up the heat, become morepurposeful.

� When you feel that the change is actually in position, when peopleare thinking and acting in support of it, when results are beingachieved, acknowledge that you are there or nearly there and seekways of anchoring the change into the culture of the organisation.

While it is true that change is ongoing and unceasing, you will exhaustand deplete your people if you are in a constant state of exhorting themto different and continuously changing behaviour. You have to stop, tofind ways of saying: ‘Look, we got there, these things are better, we gotrid of some of the baggage that was holding us back etc.’

Joseph Dionne, CEO of McGraw-Hill, has described the way hechanged McGraw-Hill from a print-based publishing house to anelectronic information provider. He describes how the divisional


Unit 3rdi

print-on-paper operating silos had to be replaced with the concept of anelectronic data pool which could be assembled in different ways toserve different classes of customer.

The process took three years to enact and fourteen to perfect. Some ofthe key points he makes are shown below.

Dionne’s words Translated in our terms

� the company had multiple siloshousing dozens of separate businessunits �

a product-based structure

� we had to replace the silos withcross-functional divisions whereinformation could be shared �

in fact this turned out to be moving toa market/customer-based structure

� we needed to take all the bits of datagenerated by our writers and generatean ever changing matrix of newelectronic products …

this involved radical process changefrom printing and publishing processesto those able to create and maintainmulti-accessible electronic data banks

� to combine invention and commerce[we needed] innovative people;nurturing them is important �

culture change ‘� what gets rewardedaround here �’

� it takes corporate evangelism,finding the right words to create theright vision �

identifying and deploying our‘missionaries’

� having a core ethos of pride andintegrity, of respecting our customers’intelligence �

corporate values (affecting the culture)

� anticipating change is paramount,JAVA, writeable CDs, and innovationswe haven’t dreamed of �

technology pacing change

ACTIVITY

1. Identify three major organisational changes you would like to make,changes which you believe would really contribute to theorganisation’s strategic effectiveness.

2. Expand the description of the changes into terms we have used, e.g.structural change, moving from functional to market, or process-basedchanges or organisational culture change – our case study onMcGraw-Hill above will help. We need to do this just so you will seewhat you are up against in effecting the change.

3. Identify three ‘missionaries’ who could work on developing the visionof the completed change and start to communicate the vision throughthe organisation.


Unit 3 rdi

Implications

Any form of change in a business environment will have consequenceson the organisation as a whole. In terms of marketing, the changes willreflect different consumer attitudes and behaviour. In this section, wewill consider some of these implications. Some of the following text isreproduced from the earlier module in the course on Managing Change.

Changing marketing strategies

Developing a new marketing strategy is a bold step to take. Itdemonstrates to consumers that there is new thinking within theorganisation. Perhaps there are new products or new presentation ofexisting ones. Either way, a different vision is being presented.

Re-branding is often used to ‘refresh’ a product range, often withconsiderable success, despite sceptics views that it is merely re-sellingold products. It tends to excite the consumer to try a product that theymay perhaps have dismissed previously.

Expensive and risky as they are, new marketing strategies can providethe boost needed to raise an organisational profile sufficiently toachieve significant results. However, they must be very carefullymanaged and implemented.

Speed of new product development

If an organisation is going to develop a new product, the decision mustbe a firm commitment to improvement. It must be initiated and carriedthrough as swiftly as possible to take advantage of the likely wave ofconsumer enthusiasm that will be generated by an establishedorganisation.

Delaying the development can be counter-productive as the consumerwill see that the process is taking an unacceptably long time toaccomplish. Consumers, in general, are not patient and if they perceivethe introduction of a new product or range as taking too long they mayquickly turn against it, seeking other offerings from competitors.

A major part of new product development should be assessing theoptimum speed of delivery of the product in conjunction withmarketing that reflects the organisational commitment.


Unit 3rdi

E-marketing

The use of the Internet to market products and services has proved to bevery successful to many organisations. Businesses have focused theirefforts on online marketing for a number of reasons. Among them are:

� Fast up-to-date service.

� 24-hour availability of promotional material.

� Creates an visual impact.

� Easy to amend and keep current.

Consider the example of the joint venture between Toys “R” Us andAmazon.com. Here the partnership between an established well knowntoy store and the online trading company offers a wealth of newmarketing directions. Both organisations benefit from the availability ofinstant marketing tailored to the individual needs of its customers. Toys“R” Us in particular felt the improvement as it presented them with amuch wider market audience.

The learning organisation and knowledge

“Education will become the centre of the knowledgesociety, and the school is the key institution.”

Peter F. Drucker

Nobody has been more influential on modern management than PeterDrucker.

In other ways, the “Knowledge Age” that Mr. Drucker first startedwriting about in 1959 in Landmarks of Tomorrow, is just the beginning.

Throughout history, whether in pre-industrial or industrial times, greatnations developed based on their access to physical resources or theirability to surmount physical barriers: England and Spain crossed theoceans, Germany turned coal and iron into steel, and the United Statesexploited a wealth of agricultural and industrial resources to becomethe world’s breadbasket and industrial superpower.

The advent of the personal computer, the Internet and the electronicdelivery of information have transformed the world from amanufacturing, physically-based economy to an electronic,knowledge-based economy. Whereas the resources of thephysically-based economy are coal, oil and steel, the resources of thenew, knowledge-based economy are brainpower and the ability toacquire, deliver, and process information effectively.


Unit 3 rdi

With some of the greatest developments in new technologies arrivinglate in the 20th century, widespread optimism surrounding the 21stcentury had yielded Mr. Drucker predicting a period of rapid growth atthe magnitude of the industrial revolution, if not greater, with theadvent of the knowledge-based economy. In this new economy,knowledge workers form the cornerstones of successful businesses,emerging industries and economic growth. In this new environment,however, the labour force is presented with an unprecedentedchallenge as it must now gain and continuously upgrade its skills.Companies are increasing R&D expenditures, and employees mustcontinue to “upgrade” their skills in order to keep pace with theinnovation. Case in point, the number of patents being issued in theUnited States is almost twice the amount granted only 10 years ago, andthe pace of patent application is accelerating.

In today’s global marketplace and knowledge-based economy, it’s thebrainpower that gives a country or a company its advantages. Thesmartest people win.

The growth industries of the future will be propelled by intellectualcapital; software, biotechnology, nanotechnology, new media—allexamples of knowledge industries. Technology is a driver of growthindustries of the future, but human capital is its fuel.

One of the reasons China and India are the future, is the enormousproduction of knowledge workers each country is creating. With theacceleration of Internet learning, the democratisation of education willdramatically increase the advantages these countries have by loweringthe cost, increasing access and ultimately improving the quality.

Education has become critical for both individuals and employers. Intoday’s economy, a four-year degree is just a prerequisite toparticipating in the industries of the future. As the result of technologyinnovations such as the Internet, video-conferencing, and satellitesystems, a New Economy has emerged driven by knowledge andinformation.

The educational needs of the knowledge economy, contrasted with thecurrent system’s inability to fill those needs provide innovativecompanies with open-ended opportunities for growth. The classic “biginvestment opportunity” is a company that has a solution to a problem;the more significant the problem, the larger the investment potential.There is not, in our view, a bigger problem in the United States todaythan the need to better educate our populace and, hence, we think theinvestment potential in this sector is tremendous.

Businesses are saying they can’t employ the students that come out ofour schools – graduates can’t read or write. Corporations are spendingbillions of dollars on remedial education, tens of billions on corporatetraining and are making large contributions to education reform.


Unit 3rdi

Put another way, a 30-year-old male with only a high schoolqualification makes less than two-thirds what he made in the 1970s.This becomes even more striking when you take into account that only21% of the U.S. adult population has a bachelor’s degree or better.

The “push” from employers demanding relevant skills and the “pull”from employees seeking better jobs has created a fertile growthenvironment for postsecondary providers, as well as redefined who thestudents are. Twenty-five years ago, 25% of the students inpostsecondary schools were 25 years or older. Today, nearly 50% are 25years or older.

Americans need look no further than their own pay checks to see theimportance of education in today’s economy. In 1980, the pay differencebetween someone who had a high school education and a collegeeducation was 50%. Today it is over 100% and growing.

Peter Drucker, through his wisdom and insight has recognised that theknowledge era is upon us with all its associated problems andopportunities.

Environmental change

Environmental turbulence refers to the amount of change andcomplexity in the environment of a company. The greater the amount ofchange in environmental factors, such as technology and governmentalregulations, and/or the greater the number of environmental factorsthat must be considered, the higher the level of environmentalturbulence. For many reasons environmental volatility and instabilityhave been increasing for the past 100 years.

This means that decision makers have difficulty gathering good andreliable information and predicting external changes. Such turbulenceoccurs when the external environment is rapidly changing andcomplex. Three things may occur within an organisation as aconsequence:

� Increased differences occur among departments.

� The organisation needs increased coordination to keepdepartments working together.

� The organisation must adapt to change.

Environmental characteristics that influence uncertainty are thenumber of factors that affect the organisation and the extent to whichthose factors change. A large organisation such as Nortel Networks hasthousands of factors in the external environment creating uncertaintyfor managers. When external factors change rapidly, the organisationexperiences very high uncertainty; examples includetelecommunications and aerospace firms, computer and electronics


Unit 3 rdi

companies, and e-commerce organisations that sell products andservices over the Internet. Organisations have to make an effort to adaptto the rapid changes in the environment. When an organisation dealswith only a few external factors and these factors are relatively stable,such as soft-drink suppliers or food processors, managers experiencelow uncertainty and can devote less attention to external issues.

Characteristics of different types of change

Understanding the nature of the change you wish to effect and thecontext in which you are working are important in determining anappropriate strategy. Entering uncharted change territory withoutsome sort of route map puts you at an immediate disadvantage from thestart. One of the first stages in charting the territory is to understand alittle more about the type of change you wish to make (broadly whereyou want to get to and how you plan to travel).

There are a number of ways in which change can be categorised, mostare related to the extent of the change and whether it is seen as organic(often characterised as bottom-up) or driven (top-down).

Ackerman (1997) has distinguished between three types of change:

Sometimes change is deliberate, a product of conscious reasoning andactions - planned change. In contrast, change sometimes unfolds in anapparently spontaneous and unplanned way. This type of change isknown as emergent change. Change can be emergent rather thanplanned in two ways:


Unit 3rdi

Type of Change Characteristics

Developmental May be either planned or emergent; it is first order, or incremental. It is changethat enhances or corrects existing aspects of an organisation, often focusing onthe improvement of a skill or process.

Transitional Seeks to achieve a known desired state that is different from the existing one. It isepisodic, planned and second order, or radical. Much of the organisational changeliterature is based on this type.

Transformational Is radical or second order in nature. It requires a shift in assumptions made by theorganisation and its members.

Transformation can result in an organisation that differs significantly in terms ofstructure, processes, culture and strategy. It may, therefore, result in the creationof an organisation that operates in developmental mode - one that continuouslylearns, adapts and improves.

Figure 3.1 Characteristics of different types of change.

� Managers make a number of decisions apparentlyunrelated to the change that emerges. The change istherefore not planned. However, these decisions may bebased on unspoken, and sometimes unconscious,assumptions about the organisation, its environment andthe future (Mintzberg, 1989) and are, therefore, not asunrelated as they first seem. Such implicit assumptionsdictate the direction of the seemingly disparate andunrelated decisions, thereby shaping the change processby ‘drift’ rather than by design.

� External factors (such as the economy, competitors’behaviour, and political climate) or internal features(such as the relative power of different interest groups,distribution of knowledge, and uncertainty) influence thechange in directions outside the control of managers.Even the most carefully planned and executed changeprogramme will have some emergent impacts.

This highlights important aspects of managing change:

The need to identify, explore and if necessary challenge theassumptions that underlie managerial decisions.

Understanding that organisational change is a process that can befacilitated by perceptive and insightful planning and analysis and wellcrafted, sensitive implementation phases, while acknowledging that itcan never be fully isolated from the effects of serendipity, uncertaintyand chance (Dawson, 1996).

An important (arguably the central) message of recent management ofchange literature is that organisation-level change is not fixed or linearin nature but contains an important emergent element as identified inthe section on complexity theory.

Summary

In this unit we have looked some of the changes that can take placewithin an organisation, and at the subsequent effect on the marketingenvironment. Some of these are driven by innovation andimprovement; others are the result of consumer response to productsand the organisations themselves.

For many of these, the implications on the marketing mix can besignificant. A number of these are discussed with appropriateexamples.


Unit 3 rdi

Ultimately, the success of an organisation relies substantially on theeffectiveness of its marketing policy. This, in turn, must reflect thechanges occurring in the businedss environment at the present time.

Further reading

Bass, B. (1985) Leadership: Good, Better, Best. Winter.

Kotter, J. & Heskett, J. (1992) Corporate Culture and Performance. FreePress.

Mintzberg, H. (1989) Mintzberg on Management. Free Press,

Ring, P. & Van de Ven, A. (1994) Academy of Management Review.

Saskin, M. & Burke, W. (1990) General Management.

Schein, E. (1992) Organizational Culture and Leadership. Jossey-Bass.

Belbin, R. M. (1996) The Coming Shape of Organisations. ButterworthHeinemann.

Colenso, M. (1998) Strategic Skills for Team Leaders and Line Managers.Butterworth Heinemann.

Connor, D. (2006) Managing at the Speed of Change. Villard Books.

Coulson-Thomas, C. (1997) Business Process Re-engineering: Myth andReality. Kogan Page.

Taffinder (1999) Big Change: A Route Map for Transformation. JohnWiley.

Volberda (1999) Building the Flexible Firm. Oxford University Press.


Unit 3rdi

Module 6 - Strategic Marketing Management

Documents

Transcript of Module 6 - Strategic Marketing Management