Marketing Applications & Practices Strategic Marketing Principles

CHAP 01 - STRATEGIC MARKETING PRINCIPLES

MARKETING & CUSTOMER VALUE - Marketing aims at satisfying customer’s

needs & wants. The task of any business is to deliver customer value at a profit.
In hypercompetitive economy, buyers have many choices. In such a situation, a
company can win only by fine-tuning the value delivery process & choosing,
providing & communicating superior value.

VALUE DELIVERY PROCESS - The traditional view of marketing is to make

something and sell it. The traditional view of marketing also complies to sell
enough to make profits for the firm. This view is best for economies where
goods shortages exist & customers are not fussy about quality, features, style
etc. But in hypercompetitive economies there exists mass markets with
numerous micro markets (with different wants, perceptions, preferences, buying
criteria etc). Smart competitor must design & deliver offerings for specified
target markets. This belief places marketing at the beginning of planning. The
companies which follow this belief do not emphasize on MAKING &
SELLING. These companies see themselves as a part of Value Delivery
Process.

VALUE CHAIN - The value chain is a systematic approach to examining the

development of competitive advantage. It was created by M. E. Porter in his
book, Competitive Advantage (1980). The chain consists of a series of activities
that create and build value. The 'margin' depicted in the diagram is the same as
added value. The organisation is split into 'primary activities' and 'support
activities.'

Primary Activities - those that are directly concerned with creating and
delivering a product (e.g. component assembly); and support Activities, which
whilst they are not directly involved in production, may increase effectiveness
or efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities.

Primary Description
Activity
Inbound All those activities concerned with receiving and storing
logistics externally sourced materials
Operations The manufacture of products and services - the way in
which resource inputs (e.g. materials) are converted to
outputs (e.g. products)
Outbound All those activities associated with getting finished
logistics goods and services to buyers
1
Marketing Applications & Practices Strategic Marketing Principles

Marketing Essentially an information activity - informing buyers

and sales and consumers about products and services (benefits,
use, price etc.)
Service All those activities associated with maintaining product
performance after the product has been sold
Secondary Description
Activity
Procurement This concerns how resources are acquired for a business
(e.g. sourcing and negotiating with materials suppliers)
Human Those activities concerned with recruiting, developing,
Resource motivating and rewarding the workforce of a business
Management
Technology Activities concerned with managing information
Development processing and the development and protection of
"knowledge" in a business
Infrastructure Concerned with a wide range of support systems and
functions such as finance, planning, quality control and
general senior management
Value Chain Analysis is one way of identifying which activities are best
undertaken by a business and which are best provided by others ("out sourced").

1.1 Inbound Logistics.

Here goods are received from a company's suppliers. They are stored until they
are needed on the production/assembly line. Goods are moved around the
organisation.

1.2 Operations.

This is where goods are manufactured or assembled. Individual operations

could include room service in a hotel, packing of books/videos/games by an
online retailer, or the final tune for a new car's engine.

1.3 Outbound Logistics.

The goods are now finished, and they need to be sent along the supply chain to
wholesalers, retailers or the final consumer.

1.4 Marketing and Sales.

In true customer orientated fashion, at this stage the organisation prepares the
offering to meet the needs of targeted customers. This area focuses strongly
upon marketing communications and the promotions mix.

2
Marketing Applications & Practices Strategic Marketing Principles

1.5 Service.

This includes all areas of service such as installation, after-sales service,

complaints handling, training and so on.

2.1 Procurement.

This function is responsible for all purchasing of goods, services and materials.
The aim is to secure the lowest possible price for purchases of the highest
possible quality. They will be responsible for outsourcing (components or
operations that would normally be done in-house are done by other
organisations), and e-purchasing (using IT and web-based technologies to
achieve procurement aims).

2.2 Technology Development.

Technology is an important source of competitive advantage. Companies need

to innovate to reduce costs and to protect and sustain competitive advantage.
This could include production technology, Internet marketing activities, lean
manufacturing, Customer Relationship Management (CRM), and many other
technological developments.

2.3 Human Resource Management (HRM).

Employees are an expensive and vital resource. An organisation would manage

recruitment and s election, training and development, and rewards and
remuneration. The mission and objectives of the organisation would be driving
force behind the HRM strategy.

2.4 Firm Infrastructure.

This activity includes and is driven by corporate or strategic planning. It

includes the Management Information System (MIS), and other mechanisms for
planning and control such as the accounting department, finance, planning,
quality control and general senior management.

3
Marketing Applications & Practices Strategic Marketing Principles

Task involved in value creation for the firm

- Firm has to examine its costs & performance in each value creating
activity & look for ways to improve it.
- Estimating competitor’s costs & performance & compare it with its own.
- Also study ‘best of class’ practices of the world’s best companies.

Success depends on how well each department performs its work as well as
how well the various departmental activities are co-ordinated. E.g. Nike
doesn’t manufacture. For them Asian manufacturers manufacture the shoes
who are more competent then Nike. Nike is competent in shoe design &
merchandising.

CORPORATE & DIVISION STRATEGIC PLANNING

How do companies choose, create, deliver & communicate value to customer

depends on the planning made at the corporate level, division level, business
unit level & product level.

At product level (product line/brand) they develop marketing plans for

achieving its objectives in its market. At business unit level, each business unit
develops strategic plans to carry that business unit into a profitable future. Each
division establishes a plan covering allocation of funds to each business unit
within the division. Corporate headquarters is responsible for designing
corporate strategic plan to guide whole enterprise; makes decisions on amount
of resource allocation to each division, which business to start/eliminate.

4
Marketing Applications & Practices Strategic Marketing Principles

CORPORATE PLANNING

At the corporate headquarters six planning activities are done, which are as
follows:

- Defining the corporate mission

- Establishing strategic business units (SBU’s)
- Assessing growth opportunities
- Assigning resources to each SBU
- Organization & organisation culture
- Marketing Innovation
1. DEFINING THE CORPORATE MISSION
- An organisation exists to accomplish something. At start of a business;
purpose/mission is clear. Over a period of time, mission changes to take
advantage of new opportunities/respond to new market conditions.
- How to define a mission statement? – Peter Drucker’s classic questions
viz, what is our business? Who is the customer? What is of value to
customer? What will our business be? What should our business be? Etc.
- Mission statements should be shared with managers, employees & in
many cases with customers also. It provides employees with a shared
sense of purpose, direction, opportunity & guides geographically
dispersed employees to work independently & collectively towards
realising company’s goals.
- A good mission statement should have a limited number of goals, stress
company’s policy & values & define company’s major competitive
spheres.
- It should state the industry, products & applications, competence, market
segment, verticals & geographical boundaries.
- It should not be revised to every new economic development.
5
Marketing Applications & Practices Strategic Marketing Principles

- An organisation should be changed if its mission has lost creditability or

no longer defines an optimal course.
- E.g. Wal Mart – To give ordinary folk the chance to buy the same thing
as rich people.,
- Walt Disney – To make people happy.
- 3M – To solve unsolved problems innovatively.

2. ESTABLISHING STRATEGIC BUSINESS UNITS (SBU’S)

- Business is a customer satisfying process & not a goods producing
process. For large companies with different businesses require own
strategy for individual business.
- Characteristics of SBU: single business/collection of related business that
can be planned separately from the rest of the company, has its own set of
competitors, has a manager responsible for strategic planning & profit
performance who controls most of the factors affecting profit.
- Purpose of establishing SBU: develop separate strategies, assign
appropriate funding to entire business portfolio (senior management need
to see which is profitable or which is in loss and which make it earn bread
today & tomorrow), cannot rely on impressions, needs analytical tools to
classify its business by profit potential.
3. ASSESSING GROWTH OPPORTUNITIES
- This step involves planning new business, downsizing or terminating
older business.
- For higher sales or profits a company’s options may include INTENSIVE
GROWTH, INTEGRATIVE GROWTH & DIVERSIFICATION
GROWTH.
A) Intensive growth may include market penetration strategy, market
development strategy, diversification strategy or product development
strategy which can be better explained with the help of Ansoff Model.

Ansoff Matrix

To portray alternative corporate growth strategies, Igor Ansoff presented a

matrix that focused on the firm's present and potential products and markets
(customers). By considering ways to grow via existing products and new
products, and in existing markets and new markets, there are four possible
product-market combinations. Ansoff's matrix is shown below:

  Existing Products New Products

6
Marketing Applications & Practices Strategic Marketing Principles

Existing Markets Market Penetration Product

Development

New Markets
    Market Development     Diversification

Ansoff's matrix provides four different growth strategies:

(1) Market Penetration - the firm seeks to achieve growth with existing
products in their current market segments, aiming to increase its market
share.

(2) Market Development - the firm seeks growth by targeting its existing
products to new market segments.

(3) Product Development - the firms develops new products targeted to its
existing market segments.

(4) Diversification - the firm grows by diversifying into new businesses by

developing new products for new markets.

The market penetration strategy is the least risky since it leverages many of
the firm's existing resources and capabilities. Here we market our existing
products to our existing customers. This means increasing our revenue by, for
example, promoting the product, repositioning the brand, and so on. A market
penetration strategy means that the company will aim to sell its existing
products within markets that it already serves but in greater numbers. In a
growing market, simply maintaining market share will result in growth, and
there may exist opportunities to increase market share if competitors reach
capacity limits. However, market penetration has limits, and once the market
approaches saturation another strategy must be pursued if the firm is to continue
to grow.

Market development options include the creation of additional market

segments or geographical regions. Exporting the product or marketing it in a
new region are examples of market development. The development of new
markets for the product may be a good strategy if the firm's core competencies
are related more to the specific product than to its experience with a specific
market segment. Because the firm is expanding into a new market, a market
development strategy typically has more risk than a market penetration strategy.

7
Marketing Applications & Practices Strategic Marketing Principles

A product development strategy may be appropriate if the firm's strengths are

related to its specific customers rather than to the specific product itself. In this
situation, it can leverage its strengths by developing a new product targeted to
its existing customers. Similar to the case of new market development, new
product development carries more risk than simply attempting to increase
market share.

Diversification is the most risky of the four growth strategies since it requires
both product and market development and may be outside the core
competencies of the firm. In fact, this quadrant of the matrix has been referred
to by some as the "suicide cell". However, diversification may be a reasonable
choice if the high risk is compensated by the chance of a high rate of return.
Other advantages of diversification include the potential to gain a foothold in an
attractive industry and the reduction of overall business portfolio risk.

B) Integrative growth may include backward integration (acquiring a

supplier), forward integration (acquiring a distributor) or horizontal
integration (acquiring a competitor). If these do not give desired results
then the company can go for diversification growth.

C) Diversification growth includes finding good opportunities outside the

business. The firm may go for concentric, horizontal or conglomerate
diversification strategies.

In concentric diversification strategy the company offers a new product

that have technological & marketing synergies with existing product lines
and appeals to different group of customers.

In horizontal diversification strategy the company offers new product to

current customers but the product is technically unrelated to current product
line.

In conglomerate diversification strategy there is no relationship with

current technology, product & customer/market.

A manager should not pay attention on a weak business & must focus on
growth opportunities so that there is less waste of energy & resources.

4. ASSIGNING RESOURCES TO EACH SBU

- In this step the firm analyses on how to allocate corporate resources to
each BU.
- It uses tools/models for taking investment decisions
8
Marketing Applications & Practices Strategic Marketing Principles

- Some tools/models which are used are GE/Mc Kinsey Matrix (allocates
resources to each BU according to the extent of its competitive advantage
& attractiveness of its industry), BCG Growth-Share Matrix (uses
relative market share & annual rate of market growth), Shareholder
value Analysis etc

BCG Growth-Share Matrix: Companies that are large enough to be organized

into strategic business units face the challenge of allocating resources among
those units. In the early 1970's the Boston Consulting Group developed a
model for managing a portfolio of different business units (or major product
lines). The BCG growth-share matrix displays the various business units on a
graph of the market growth rate v/s market share relative to competitors:

Resources allocated to business units according to where they are situated on

the grid are as follows:

Cash Cow - a business unit that has a large market share in a mature, slow
growing industry. Cash cows require little investment and generate cash that can
be used to invest in other business units.

Star - a business unit that has a large market share in a fast growing industry.
Stars may generate cash, but because the market is growing rapidly they require
investment to maintain their lead. If successful, a star will become a cash cow
when its industry matures.

Question Mark (or Problem Child) - a business unit that has a small market
share in a high growth market. These business units require resources to grow
market share, but whether they will succeed and become stars is unknown.

9
Marketing Applications & Practices Strategic Marketing Principles

Dog - a business unit that has a small market share in a mature industry. A dog
may not require substantial cash, but it ties up capital that could better be
deployed elsewhere. Unless a dog has some other strategic purpose, it should be
liquidated if there is little prospect for it to gain market share.

Under the growth-share matrix model, as an industry matures and its growth
rate declines, a business unit will become either a cash cow or a dog,
determined solely by whether it had become the market leader during the period
of high growth.

5. ORGANIZATION & ORGANISATION CULTURE - Strategic planning is

done in context of the organisation. It consists of structures, policies &
corporate culture. Corporate culture is defined as ‘shared experiences, stories,
beliefs & norms that characterize an organisation.

6. MARKETING INNOVATION - Three groups which are under-represented

in strategy making are employees with youthful perspectives, employees which
are far removed from company headquarters & employees who are new to the
industry

BUSINESS UNIT STRATEGIC PLANNING

1. BUSINESS MISSION
- Each BU has to define its specific mission within the broader company’s
mission.
2. SWOT ANALYSIS
- Overall evaluation of company’s strengths, weaknesses, opportunities &
threats.
- It is a way of monitoring the external & internal marketing environment.
EXTERNAL ENVIRONMENT ANALYSIS
- BU must monitor key macro & micro environmental factors that affect its
ability to earn profits.

10
Marketing Applications & Practices Strategic Marketing Principles

- MIS plays an important role in tracking trends & important developments

& any related opportunities & threats.
- Good marketing is art of finding, developing & profiting from these
opportunities.
- Marketing opportunity is an area of buyer’s need & interest that a
company has a high profitability of profitably satisfying its customers.
- There exists three sources of marketing opportunities; first, supply
something that is in short supply, second, supply an existing
product/service in a new/superior way (by problem detection method,
ideal method & consumption chain method) & third, supply a totally new
product/service.
- An environment threat is a challenge posed by an unfavourable
trend/development that would lead in the absence of defensive marketing
action to lower sales or profit.
INTERNAL ENVIRONMENT ANALYSIS
- Business does not have to correct all weaknesses, nor be over confident
about its strengths.
- It must not restrict itself for the opportunities for which it has strengths
- It must find & develop new strengths.
3. GOAL FORMULATION
- Business should have specific goals for the planning period.
- Goals are objectives that are specific with respect to magnitude & time.
- Most BU mix objectives, including profitability, sales growth, market
share improvement, risk containment, innovation & reputation.
4. STRATEGY FORMULATION
- Goals help BU understand what it wants to achieve.
- Strategy is the game plan for getting there (achieving the goal).
- One should design a business strategy consisting of a marketing strategy,
technology strategy & sourcing strategy.
- Firm that executes/carries out the strategy best will make most of the
profits.
- Michael Porter’s Generic Strategies
a) Overall Cost Leadership – lowest production & distribution cost, low
price than competitor, win large market share, require less skills in
marketing. Problem arises when other firms incur still lower costs &
hurt the firm that rested its whole future on cost.
b) Differentiation – firm concentrates on uniquely achieving superior
performance in an important customer benefit area value by a large
11
Marketing Applications & Practices Strategic Marketing Principles

part of market. Product with best components, expertise, inspect,

quality, communicate.
c) Focus – focus on one/more narrow segments, understand segments
intimately, pursues either cost leadership or differentiation within the
target segment.
- Strategic Alliances- Big companies often cannot achieve leadership either
nationally or globally. They form alliances with domestic or multinational
companies that complement or leverage their capabilities & resources.
Doing business in another country requires license for its product, form
joint venture with local firm, buy from local suppliers etc. The
company/firm that builds better global network wins. Many strategic
alliances take form of marketing alliances such as product/service
alliance, promotional alliance, logistics alliance, pricing alliance etc.
5. PROGRAM FORMULATION & IMPLEMENTATION
- If the marketing strategy is excellent but implementation is poor then the
plan will fail. If marketing program is formulated then its worthiness
should be evaluated. Mc Kinsey’s 7S Model (Hard S- strategy, structure,
systems & Soft S- style, skills, staff, shared value) considers strategy as
one of the ‘S’.
6. FEEDBACK & CONTROL
- Strategy may fail as environment changes faster than the 7S of the
company. Thus company might be efficient but not effective. Successful
companies excel in both. If company fails to respond to changed
environment it becomes hard to recapture its position. In a company, it is
difficult to change one part without adjusting everything else. Strong
leadership & adoptiveness can help company achieve new goals &
changing behaviours. E.g. Satyam, Nokia, Mc Donalds, Coke.

12