Strategic Marketing 10th Edition Cravens Solutions Manual 1

Part III – Answers to End-of-Chapter Questions
Strategic Marketing 10th Edition Cravens

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PART III
ANSWERS TO END–OF–CHAPTER QUESTIONS

CHAPTER 1
New-challenges for Market-Driven Strategy
1. Top management of companies probably devotes more time to reviewing (and sometimes
changing) their corporate vision (mission) now than in the past. Discuss the major reasons for this
increased concern with the vision for the corporation.
Management’s vision defines what the corporation is and what it does and provides important guidelines
for managing and improving the corporation. Strategic choices about where the firm is going in the
future—choices that take into account company capabilities, resources, opportunities, and problems—
establish the vision of the enterprise. Developing strategies for sustainable competitive advantage,
implementing them, and adjusting the strategies to respond to new environmental requirements is a
continuing process. Managers monitor the market and competitive environment. The vision is reviewed and
updated as shifts in the strategic direction of the enterprise occur over time.
The changes in corporate mission during the past were due, in large part, to environmental occurrences.
Factors such as inflation, employment rate, commodity prices, and disposable income levels affected the
environment in which businesses operate. Since the turbulent environment also affected the competition,
unforeseen competitive strategy changes surprised many companies. Impending future threats and
opportunities were enormous, and companies were forced to continually re–evaluate and change their
corporate mission.
These days, the major reasons for the increased concern with the vision for the corporation are:
 Escalating globalization
 Technology diversity and uncertainty
 Internet dynamics
 Ethical behavior and corporate social responsiveness
2. Discuss the role of organizational capabilities in corporate strategy.
Organizational capabilities are complex bundles of skills and accumulated knowledge, exercised through
organizational processes, that enables firms to coordinate activities and make use of their assets. Identifying
an organization’s distinctive capabilities (competencies) is a vital part of market-driven strategy. An
organization’s capabilities are not a particular business function, asset, or individual, and instead, consist of
core processes of the organization. Organizational capabilities and organizational processes are closely
related. It is the capability that enables the activities in a business process to be carried out.
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The premise of capabilities is concentrating business operations on what it does best. Management needs to
determine those capabilities that are capable of providing superior customer value and are difficult for
competitors to duplicate.
3. What is the relationship between the corporate strategy and the strategies for the businesses that
comprise the corporate portfolio?
Defining the composition of the business provides direction for both corporate and marketing strategy
design. In single-product firms that serve one market, it is easy to determine the composition of the
business. In many other firms it is necessary to separate the business into parts to facilitate strategic
analyses and planning. When firms are serving multiple markets with different products, grouping similar
business areas together aids decision making.
A business segment, group, or division is often too large in terms of product and market composition to use
in strategic analysis and planning, so it is divided into more specific strategic units. A popular name for
these units is the strategic business unit (SBU). Typically, the SBU has a specific strategy rather than a
shared strategy with another business area. It is a cohesive organizational unit that is separately managed
and produces sales and profit results.
Corporate management must first decide what business areas to pursue and set priorities for allocating
resources to each SBU. The decision makers for each SBU must select the strategies for implementing the
corporate strategy and producing the results that corporate management expects. Corporate-level
management is often involved in assisting SBUs to achieve their objectives.
4. Discuss the major issues that top management should consider when deciding whether or not to
expand business operations into new business areas.
A single product–market offers the advantage of specialization: the company can become very experienced
in the environment, competition, and market situations facing the core business. However, remaining with
the core business may be risky, since the company is totally dependent on a single set of customer needs.
If the customer needs change, the company may be unable to respond. Therefore, many companies
eventually expand business operations into new business areas.
A company can expand in three ways: (1) new markets for existing products, (2) new products for existing
markets, and (3) diversification. Each alternative can give the company a broad and safer base.
Diversification is a popular option for corporate development. Diversification can take place through
internal development or acquisition. Internal development may be expensive, and dangerous, if the
company is inexperienced in the new area. Acquisition may also be costly, but the principal risk is the
integration of management teams and strategies. The major risk in diversification is that once the new
business is established and operational, there is the risk that the new business will not be a success, thus the
large expenditure of resources will be wasted.
However, the diversification of the business means less risk for the business, provided it has the capabilities
and resources available. If the core business suffers a bad year, the losses are partially cushioned by the
success of the diversification. A diversification, if successful, is an attractive avenue for growth since it
reduces the dependencies of the core business on a single set of consumer needs.
5. Develop an outline of how you would explain the marketing strategy process to an inventor that is
forming a new business to develop, produce, and market a new product.
The following is an outline of the components of the marketing strategy process followed by a brief
description. This process would be essential for the inventor to understand and follow for his new business
to be successful.
I. Situation Analysis:
A. Market and Competitor Analysis:
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Markets need to be defined so that buyers and competition can be analyzed. For a market to exist,
the inventor must identify people with particular needs and products. He must then fulfill these
needs with his product. Buyers must be willing and able to purchase this product.
B. Market Segmentation:
Looks at the nature and extent of diversity of buyers’ needs and wants in a market. The inventor’s
objective is to examine differences in needs and wants of customers and to identify the segment’s
sub groups within the product–market of interest.
C. Continuous learning about markets:
The inventor must be able to sense what is happening in the market and what is likely to occur in
the future according to competitive threats beyond industry boundaries. He must develop
strategies to seize opportunities and counter threats, and to anticipate what the market will be like
in the future.
II. Designing marketing strategy:
A. Customer targeting strategies:
The inventor must select the people that he wishes to serve in the product–market. This decision
is the focus of the marketing strategy since targeting guides the setting of objectives and
developing a positioning strategy.
B. Customer positioning strategies:
The inventor must choose a combination of product, channel of distribution, price, and promotion
strategies to position himself against his key competitors in meeting the needs and wants of the
target market.
C. Marketing relationship strategies:
The driving force underlying these relationships is that the inventor may enhance its ability to
satisfy customers and cope with a rapidly changing business environment through a collaboration
of his suppliers, distributors, and customers.
D. Planning for new products:
The inventor must closely coordinate new product planning since it is essential to satisfy
customer requirements and product products with high quality at competitive prices. New product
decisions include finding and evaluating ideas, selecting the most promising for development,
designing marketing programs, market testing the products, and introducing them to the market.
III. Marketing program development:
The inventor must shape each of the following strategies into a coordinated plan of action in order to
be effective.
A. Product
B. Distribution:
The inventor needs to decide the type of channel organization to use, the extent of channel
management, and the intensity of distribution appropriate for his product.
C. Price:
The inventor must choose the role of price in his positioning strategy, including the desired
positioning of the product or brand as well as the margin necessary to satisfy and motivate
distribution channel participants.
D. Promotion:
The inventor must choose activities, such as advertising, sales promotion, salesforce, direct
marketing, and public relations that perform an essential role in communicating the strategy to
buyers.
IV. Strategy implementation and management:
A. Organizational design:
The inventor’s organizational design must match people and work responsibilities in a way that is
best for accomplishing the marketing strategy.
B. Marketing strategy implementation and control:
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The inventor must prepare the marketing plan and budget, implement the plan, and use the plan to
manage and control the strategy on an ongoing basis. The marketing plan includes action
guidelines for the activities to be implemented, who does what, the dates and location of
implementation, and how implementation will be accomplished.
6. Discuss the role of market targeting and positioning in an organization’s marketing strategy.
The purpose of the market targeting strategy is to select the people (or organizations) that management
wishes to serve in the product–market. When buyers’ needs and wants vary, the market target is usually one
or more segments of the product–market. Once the segments are identified and their relative importance to
the firm determined, the targeting strategy is selected. The objective is to find the best match between the
value requirements of each segment and the organization’s distinctive capabilities. The targeting decision is
the focal point of marketing strategy since targeting guides the setting of objectives and developing the
corporate positioning strategy. The positioning strategy is the combination of the product, value chain,
price, and promotion strategies a firm uses to position itself against its key competitors in meeting the
needs and wants of the buyers in the market target. The positioning strategy seeks to position the brand in
the eyes and mind of the buyer and distinguish the product from the competition.
7. Explain the logic of pursuing a market–driven strategy.
The underlying logic of the market–driven strategy is that the customers that form the market should be the
starting point in business strategy. Importantly, market-driven strategy provides a company-wide
perspective, which mandates more effective integration of activities and processes that impact customer
value.
8. Examine the relevance of market orientation as a guiding philosophy for a social service
organization, giving particular attention to user needs and wants.
Students may choose many different organizations such as Boy Scouts, Girl Scouts, Salvation Army, and
the United Way. The following analysis examines a religious organization.
A religious organization must identify the needs and wants of the customers that are the users of the
organization’s service. A customer may use the services of the religious organization for many reasons. For
example, a person may wish:
 To receive spiritual guidance and direction
 To instill ethics and discipline in one’s children
 To participate in social activities
 To conform to social norms or peer pressure
 To be “saved” from punishment of sins
Many religious groups have experienced declines in attendance due to their failure to stay current with
regard to their congregations’ needs.
Marketing research could be used to identify the primary set of needs of the user group. The organization
can then decide which need(s) should be satisfied, basing its decision on competitive advantage or a need
unmet by other organizations.
The religious organization must then identify exactly how these needs can be satisfied. For example, the
organization may decide to satisfy the needs of social affiliation and spiritual guidance. It can then
determine the content of social activities and lecture topics. This should be a team effort of all members of
the organization.
Finally, the religious organization must deliver customer satisfaction. The needs of the customers must be
satisfied by the organization through the religious programs, or customers will discontinue use of the
service.
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Customer satisfaction can also occur through the use of value–added services such as child–care facilities,
bilingual services, or flexible scheduling of programs.
9. How do the organization’s distinctive capabilities contribute to developing market–driven

strategy?
Identifying an organization’s distinctive capabilities (competencies) is a vital part of market-driven

strategy. Capabilities are complex bundles of skills and accumulated knowledge, exercised through
organizational processes, that enables firms to coordinate activities and make use of their assets. An
organization’s capabilities consist of core processes of the organization. Organizational capabilities enable
the activities in a business process to be carried out.
Value for buyers consists of the benefits and costs resulting from the purchase and use of products. Value is
perceived by the buyer. Superior value occurs when there are positive net benefits. A company needs to
pursue value opportunities that match its distinctive capabilities. A market-oriented company uses its
market-sensing processes, shared diagnosis, and cross-functional decision making to identify and take
advantage of superior value opportunities. The organization’s distinctive capabilities are used to deliver
value by differentiating the product/service offer, offering lower prices relative to competing brands, or a
combination of lower cost and differentiation
Organizational capabilities play a significant role in developing market–driven strategies. A company’s
capabilities enable the organization to compete in new markets, provide significant value to customers, and
create entry barriers to potential competitors. By centering business processes on what the company can do
best, a company can offer a customer superior value in a substantially more cost–effective manner. A
capability should be better than the competition and difficult to duplicate so that other companies cannot
adopt the same competency.
10. How would you explain the concept of superior customer value to a new finance manager?
Value for buyers consists of the benefits and costs resulting from the purchase and use of products. Value is
perceived by the buyer. The benefits include the product, supporting services, personnel involved in the
purchase and use experience, and the product’s perceived image. Costs include the price of purchase, the
time and energy involved, and the psychic costs (e.g. perceived risk). To create value, a company can
differentiate the product offer, offer lower prices relative to competing brands, or use a combination of both
differentiation and low cost.
Superior customer value results from a very favorable use experience compared to expectations and the
value offerings of competitors. Superior value occurs when there are positive net benefits. A company
needs to pursue value opportunities that match its distinctive capabilities. A market-oriented company uses
its market-sensing processes, shared diagnosis, and cross-functional decision making to identify and take
advantage of superior value opportunities. The organization’s distinctive capabilities are used to deliver
value by differentiating the product/service offer, offering lower prices relative to competing brands, or a
combination of lower cost and differentiation.
11. Suppose you have been appointed to the top marketing post of a corporation and the president
has asked you to explain market–driven strategy to the board of directors. What will you include in
your presentation?
The underlying logic of market-driven strategy is that the customers that form the market should be the
starting point in business strategy. Importantly, market-driven strategy provides a company-wide
perspective, which mandates more effective integration of activities and processes that impact customer
value. The development of a market-driven strategy is not a short-term endeavor. A considerable amount of
effort is necessary to build a market-driven organizational culture and processes. Also, the methods of
measuring progress extend beyond short-term financial performance measures.
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Market orientation is a business perspective that makes the customer the focal point of a company’s total
operations. “A business is market-oriented when its culture is systematically and entirely committed to the
continuous creation of superior customer value.” Importantly, achieving a market orientation involves the
use of superior organizational skills in understanding and satisfying customers. Becoming market oriented
requires the involvement and support of the entire workforce. The organization must monitor rapidly
changing customer needs and wants, determine the impact of these changes on customer behavior, increase
the rate of product/service innovation, and implement strategies that build the organization’s competitive
advantage.
A market-oriented organization continuously gathers information about customers, competitors, and
markets; views the information from a total business perspective; decides how to deliver superior customer
value; and takes actions to provide value to customers. Importantly, these initiatives involve cross-
functional participation. Market orientation requires participation by everyone in the organization. An
organization that is market oriented has both a culture committed to providing superior customer value and
processes for creating value for buyers. Market orientation requires a customer focus, competitor
intelligence, and cross-functional cooperation and involvement.
The market-oriented organization understands customers’ preferences and requirements and effectively
deploys the skills and resources of the entire organization to satisfy customers.
A market-oriented organization recognizes the importance of understanding its competition as well as the
customer.
Market-oriented companies are effective in getting all business functions working together to provide
superior customer value. These organizations are successful in removing the walls between business
functions—marketing talks with research and development and finance.
Companies that are market oriented begin strategic analysis with a penetrating view of the market and
competition. Companies that are market oriented display favorable organizational performance, compared
to companies that are not market oriented.
Identifying an organization’s distinctive capabilities (competencies) is a vital part of market-driven
strategy. Capabilities are complex bundles of skills and accumulated knowledge, exercised through
organizational processes, that enables firms to coordinate activities and make use of their assets.
A market-oriented company uses its market-sensing processes, shared diagnosis, and cross-functional
decision making to identify and take advantage of superior value opportunities. Management must
determine where and how it can offer superior value, directing these capabilities to customer groups
(market segments) that result in a favorable competency/value match.
Market-driven companies have effective processes for learning about their customers and markets.
There is substantial evidence that creating and maintaining close relationships with customers is important
in market-driven strategies. These relationships offer advantages to both buyer and seller through
information sharing and collaboration. Customer linking also reduces the possibility of a customer shifting
to another supplier.
Becoming market driven may require changing the design of the organization, placing more emphasis on
cross-functional processes. Market orientation and process capabilities require cross-functional
coordination and involvement.
12. Develop a list of the personal challenges confronting the marketing executive, and consider the
qualities and capabilities which may be most relevant to meeting these challenges.
Perhaps the most pervasive challenge is managing in an organizational and external environment of
constant and often turbulent change. Moreover, change pressures are global in scope. These changes impact
markets and customers, competition, and collaborative relationships with other organizations. Increasingly
pressures to behave in ethical and socially responsibly ways are extremely significant. Specific challenges
include:
 Escalating globalization
 Technology diversity and uncertainty
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 Internet dynamics
 Ethical behavior and corporate social responsiveness
The qualities most relevant in meeting these challenges include leadership, cross-functional cooperation,
and international perspective, and ethical standards and behavior.
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CHAPTER 2
Markets and Competitive Space
1. Discuss the important issues that should be considered in defining the product–market for a totally
new product.
There are several important factors that should be considered when trying to introduce a new product and
hence defining a product–market for the same. First of all, is the product really new, or is it a new
substitution for something already on the market? Remember, the product is what it does; if the new item
performs the same generic function as existing products, the product is not really new. For example, a
“new” chemical formula may be introduced that relieves pain. This formula, however, will compete with
other aspirin and non–aspirin pain relievers.
The company should also use marketing research to determine if brand switching will take place or if a
totally new market will be formed. If the product is merely a substitution for existing products, research
could be used to determine the price level at which brand switching would take place, or whether additional
benefits that the product might have would induce consumer preference for the product. If the product is
really an innovation, it could have many different uses and appeal to a broad range of customers. In order to
understand the different use situations, an end–user study could be conducted.
The key to defining the product–market for any product is to link the product’s functions or benefits to the
needs that it is intended to satisfy. Then categories of potential users having these needs can be identified.
The more varied the product uses and customer needs, the more difficult the product–market definition will
be. Also note that several product–markets can exist for a single product.
2. Under what product and market conditions is the end–user customer more likely to make an
important contribution to product–market definition?
It is important to focus on the consumer (or organizational) end-user of the product when defining the
market, since the end-user drives demand for the product. When the end-users’ needs and wants change, the
market changes. Even though a producer considers the distributor to which its products are sold to be the
customer, the market is really defined by the consumer and organizational end-users who purchase the
product for consumption.
Consumer knowledge and experience are essential to participation in the definition of product markets.
However, the consumers that have the knowledge and experience with the product or service must be
located in order that their input be tapped. If consumers do not recognize the need for a particular product
or have no experiences in the use of the product, then they are not likely to be very helpful in the definition
process. Additionally, without some frame of reference for answering questions, consumer responses can
be misleading. Often, consumers will not admit ignorance of questions and will answer to avoid
embarrassment (except for sensitive questions).
For these reasons, a consumer base should be easy to identify, reach, analyze, and understand. Care must be
taken that research dollars are not wasted on contacting a large percentage of consumers that have not had
contact with the product or service. The consumer is more likely to make a contribution to the product–
market definition if the product–market has narrow generic, specific, and brand levels with the same end–
users. A narrow customer base would also aid in a sound product–market definition. Thus, end-user
customers are more useful when analyzing existing product–markets that require more specific definition.
3. What recommendations can you make to the management of a company competing in a rapid
growth market to help it identify new competitive threats early enough so that counterstrategies can
be developed?
New competitors may come from four major sources:

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 Companies competing in a related product-market

 Companies with related technologies
 Companies already targeting similar customer groups with other products
 Companies competing in other geographical regions with similar products
Market entry by a new competitor is likely under one or more of these conditions:
 High profit margins are being achieved by market incumbents.
 Future growth opportunities in the market are attractive.
 No major market-entry barriers are present.
 Competition is limited to one or a few competitors.
 Gaining an equivalent (or better) competitive advantage over the existing firm(s) serving the market
is feasible.
If one or more of these conditions are present in a competitive situation, new competition will probably
appear.
4. There are some dangers in concentrating product-market analysis only upon a firm’s specific
brand and those brands that compete directly with a firm’s brand. Discuss.
By concentrating product–market analysis on directly competing brands only, the product–market analysis
becomes too narrow. Important brand areas that are competing for the same needs as the firm’s product
may be ignored; these other brand areas may greatly change the product–market analysis and hence the
potential of the product in question.
It is important to look deeper than just the specific brand level. Other levels (generic) of the product–
market should be analyzed as well: other products or services may have similar characteristics, and
possibly the same end–users. The firm should also make sure that they look at the entire product line
instead of a specific brand within the line. The product line should be compared to specific–level product–
market; this will be important later on when niche analysis is undertaken. The product–market should also
be broad enough to allow the firm sizable room to introduce the product. Because of customers’ broad
mixes of needs and wants, the product–market should also be defined at the generic level.
One of the best examples of the dangers of being too near–sighted regarding competing products and
services is the financial industry. Banking institutions tended to focus only on other banks or savings and
loans as competition. However, almost overnight stockbrokers attracted huge amounts of savings from
banks, S&Ls, and credit unions with money market funds. Today, banks are facing competition from a
broad array of firms, including Merrill Lynch, Sears, Prudential, and many others. Banks have begun to
retaliate by offering broker services, insurance, and other financial services.
5. Using the approach to product-market definition and analysis discussed in the chapter, select a
brand and describe the generic, product-type and brand product-markets of which the brand is a
part.
The student should keep in mind the following guidelines:

 Generic product-market:
This level includes all products or services that can satisfy a particular need. Since people with the
same need may not satisfy the need in the same manner, the product-market is often comprised of
different end-user groups.
 Specific product-market:
This level represents all brands of a particular product type. This level also often contains user
groups with dissimilar needs.
 Brand product-market:
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The various brands that compete on a direct basis form a brand product-market. It is often comprised
of a subset of brands from the same product type product-market that can satisfy the needs of people
that comprise a particular market segment.
Take, for instance, Schwab stockbroker services. At the generic level, this company would fall within the
area of financial services that meet the various needs of investors. One specific product-market (there are
many) is meeting a need for short-term savings. Many companies, including the federal government, seek
to meet this need with a variety of products (e.g., money market funds). These companies would all be
trying to gain the consumers’ money by providing them with a “good” return on investment. Each of these
different services could expose the user to different investment risks, hence an array of buyer decision
factors. The brand level would focus on specific companies such as Merrill Lynch, Quick & Reilly,
Citicorp, and the U.S. government. The brand level is highly competitive in this industry, with service and
performance playing a key role in customer satisfaction. New laws have made the competitive market open
to banks and other financial institutions who can now offer services they could not offer before.
6. For the brand you selected in Question 5, indicate the kinds of information needed for a complete
product–market analysis. Also suggest sources for obtaining each type of information.
When conducting a product–market analysis, one would want to know about the market target, key
competitors, brand positioning strategy, and basic sales and profit forecasts. Fortunately, Schwab is a well
known, publicly held company that is traded on the NYSE; a great deal of information is available to
analyze the company. Customer data could come from trade association journals and reports done by
government and financial trade associations on the investment market. Competitor data can be found in
Standard and Poor’s Industry Reports along with Value Line’s look at the entire industry. These sources
would tell about different competitors and how Schwab is doing against the market. Sales and profit
forecasts are developed from past data (available in company annual reports). The growth outlook can also
be developed from past data as well as the current outlook of the industry and the firm. Much of this
information is also developed internally from management judgment and experience. Brand positioning can
be observed from historic data where one can observe areas of the financial community that Schwab is after
(i.e., institutional investors, private investors, etc.). These data will enable one to see trends in end user
positioning and help in product–market development. Additional information on companies, industries,
product, or services are available in such publications as Forbes, Business Week, Financial World,
Advertising Age, Wall Street Journal, or Barrons.
7. Select an industry and describe its characteristics, participants, and structure.
As an example, the suntan oil and lotion industry (part of the cosmetics industry or health and beauty aid
industry) is examined. The elements of the analysis may be used for any industry chosen.
Characteristics: The suntan oil/lotion industry is characterized by growth and increased competition. The
growth stage in the product cycle, after outward signs of a mature industry has been spurred by the
increased emphasis on looking “fit and healthy” (which include looking tan) and the increased consumer
concern for protection from skin cancer and other sun related skin problems. From 1978 to 1984, sales
increased by 50%, and attracted many new entrants into the market.
Participants: The industry leader is Plough, Inc., makers of Coppertone products (Tropical Blend, Ultimate
Oil, QT, and Coppertone oils and lotions, Shades, and For Faces Only) and La Solaire. Hawaiian Tropic,
Sea & Ski, Charles of the Ritz’ Bain de Soleil, Presun, and Johnson & Johnson’s Sundown are also major
contenders. There are several companies that provide generic tanning products for store branding as well as
dozens of small, local companies that provide such products as Panama Jack (Texas) and Tiki Tan
(Florida). In addition cosmetic companies such as Bonne Bell, Noxzema, and Estee Lauder have introduced
tanning products.
Industry Structure: The market form of the suntan lotion/oil industry is that of monopolistic, competition.
Many firms of differing sizes compete and offer products that differ to some degree.
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 Degree of Product Differentiation: Suntan products are differentiated by:

o Formula: light oils, heavy oils, creams, lotions, gels.
o Sun Protection Factor: ranging from 0 (no protection) to 25 (maximum sunscreen) by
increments of 2.
o Fragrance: coconut, fruits, perfumed, unscented.
o Special Ingredients: PABA, aloe vera, exotic oils.
o Price/Image: higher price usually commands a more exclusive image.
 Competitive/Environmental Forces
o Substitutes for suntans: tanning salons, topical skin dyes, tanning “pills.”
o Increased government regulation and testing of formulas.
o Constant threat of new entrants.
Other considerations that could be taken into account in an industry analysis are channel of distribution
structure, market targets/general customer profiles, market trends, and product–market structure.
8. A competitor analysis of the 7UP soft–drink brand is being conducted. Management plans to
position the brand against its key competitors. Should the competitors consist of only other noncola
drinks?
Every brand must be concerned not only with competition from similar brands (i.e., the noncola soft
drinks), but also competition from other product types (e.g., the colas). To the extent that different product
types compete for the same market segments, as they do in the soft drink business, then key competitors
may be one of more brands of a different product type. Thus, 7 UP may very well consider soft drinks other
than the noncolas as key competitors.
9. Outline an approach to competitor evaluation, assuming you are preparing the analysis for a
regional bank holding company.
Once key competitors have been identified and described, evaluation can take place. Description should
include business scope and objectives, market position, market targets and consumer base, marketing
program positioning strategy, financial, technical, and operating capabilities, management experience and
capabilities, and any special capabilities.
 Extent of Market Coverage
o Geographic spread of competitor chains, branches, or local banks, savings and loans, and
credit unions
o Which market targets competitors are focusing on?
o Relative market shares.
 Customer Satisfaction
o What criteria do consumers use to evaluate banks?
 Variety of financial service offered
 Location
 Interest rates
 Physical aspects of bank and staff
 Other
 How well is the competition meeting these customer needs?
 Past Performances of Key Competitors
o Market share
o Amount of deposits
o Amount of loans
o Average size of deposits and loans
o Cash flow
o Profits
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o Stockholder dividends
 Current Capabilities: key strengths and weaknesses
o Management capabilities and limitations
o Market position
o Trends in market position
o Profitability
o Financial strength
o Product mix
o Technological capabilities
o Cost outlook
o Quality
o Service developments
o Marketing plans
10. Discuss how a small company (less than $1 million in sales) should analyze its competition.
To analyze its competition, a small firm could define the competitive area, (i.e., identify current or potential
competitors and sources of competition). The company could also examine the industry structure such as the
economic environment, (e.g., number, size and economic classifications of competing firms), and competitive
forces that determine industry performance. The firm should also look at the stage of the product life cycle in
which it is currently operating to determine the type of competition in the industry. Next, strategic dimensions
could be identified to describe the strategies of industry members. This preliminary work should be the
foundation in analyzing the competition. Competitors should then be described, market share and past
performance determined for each competitor and an evaluation made of the current capabilities, strength and
weaknesses of members in the firm’s industry.
11. Many popular forecasting techniques draw from past experience and historical data. Discuss
some of the more important problems that may occur in using these methods.
The key problem with using historical data or past experience as a basis for a forecasting model is that there
is no rule that says things that occur in the past will occur in the future. Often, new trends or unusual
seasonal variations can occur and send the forecast off track. This is why it is unwise to forecast more than
three or four periods into the future: forecasts become very inaccurate after this time. Changes in the
environment can change historical data and experiences. Buyers or end users might change, new products
or competitors may enter the market due to new technology, the economy can affect the demand for a
product or service, government politics may regulate or deregulate the product or service, as well as
countless other influential changes.
Forecasting is particularly dangerous when involved with a new or innovative product or firm. A new
company enjoying explosive growth rates for the first few years cannot expect the trend to continue
indefinitely into the future. Likewise, new products can be involved in a growth phase for many years and
then as they mature, the trends in the past no longer hold. As new products and competitors move into the
product–market, different mixes occur and forecasts are likely to be affected, particularly if new variables
become an important influence on sales.
Past experiences and historical data require accurate assessment and must include factors for trend,
cyclical, seasonal, or product life-cycle phase. It also requires technical skills and good judgment.
Most forecasting techniques rely on historical data. Some techniques can account for early growth of new
products, seasonal variation, and influences by economic indicators. Even so, it is important to recognize
that one cannot be wholly dependent on forecasting techniques. Firms must continue to monitor
environmental influences that may affect the life of the product or the company.
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12. What are the relevant issues a cross–functional team should consider in developing a strategic
vision about the future for the organization’s product–market(s)?
Because market development and competitive processes do not follow predictable paths, several questions
can be asked to indicate the possibility of the market changing in the future. These questions include:
 Are product-market boundaries and composition of the product-market undergoing transformation?
 How and to what extent is the end-user customer base changing?
 Are the scope and structure of competitor space changing due to market and industry transformation
and entry/exit of competitors?
 Are there potential threats from disruptive technologies and/or commoditization?
 Are the composition and structure of the value chain(s) serving the end-user market(s) changing?
 Do other influences operating in the product-market have the potential to significantly transform the
product?
 At what life-cycle stage is the product-market (new, growth, maturity, decline), and how fast is the
life cycle advancing?
 What are the influences (discontinuities) present in the product-market that have the potential to
profoundly transform market/competitor structure?
 Investigate each discontinuity in substantial depth.
 How will the trend impact customers?
 What is the likely economic impact?
 How fast is the trend developing?
 Who is exploiting this trend?
 Who has the most to gain/lose?
 What new product opportunities will be created by this discontinuity?
 How can we learn more about this trend?
Anticipating the future requires searching beyond the existing competitive arena, for influences that
promise to impact product–market boundaries. The process requires the involvement of the entire
organization, and it demands a substantial amount of time. A company with a marketed–oriented and
multifunctional process should be able to utilize these processes for anticipating the future. Also, it is
apparent that developing a vision about the future needs to be an on–going process.
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CHAPTER 3
Strategic Market Segmentation
1. Competing in the single European market raises some interesting market segment questions.
Discuss the segmentation issues regarding this multiple-country market.
There are distinct differences in preferences and tastes between the people in the participating countries.
Segmentation may take two forms. For products where customer differences are significant segmentation
within country boundaries may be important to gaining competitive advantage. Products that display strong
national differences may require within country segmentation. For other products (e.g., airline services),
Pan–European segmentation may be appropriate. Some authorities believe that preferences may become
more similar between consumers over time. However, these shifts will require several years to develop.
2. Why are there marketing strategy advantages in using demographic characteristics to break out
product–markets into segments?
Demographics are often more useful to describe consumer segments after they have been formed rather
than to identify them. But they may assist in identifying potential targeted niches. Logical segments are
fairly easy to see as the demographic data is clearly delineated. One significant advantage is that the
demographic information is readily available through a variety of published sources, thus making it
relatively inexpensive.
Demographic information helps to describe groups of buyers such as heavy users of a product or brand.
Demographics used in combination with buyer behavior information are useful in segmenting markets,
selecting distribution channels, designing promotion strategies, and other decisions on marketing strategy.
Several examples will illustrate the use of demographic targeting. The shifting of the age of the population
was a key in the Limited’s success as it also shifted its targeted niche to satisfy a slightly older customer
base. Many companies are now targeting the “yuppie” market which focuses on age and lifestyle.
Furthermore, the entire lines of convenience foods are based on the changes in the American family where
both parents are more likely to be working.
Demographic variables are popular because available data often relate demographics to the other
segmentation variables such as geographic and population groups. For example, we can locate middle-aged
people in geographic areas using U.S. census data. Although, demographics have not been found to be
extremely useful in segmenting, it may be beneficial for some products, and certainly cannot be ignored.
3. The real test of a segment formation scheme occurs after it has been tried and the results
evaluated. Are there ways to evaluate alternative segmenting schemes without actually trying them?
 Customer analysis:
When forming segments, it is useful to find out as much as possible about the customers in each
segment. Variables such as those used in dividing product-markets into segments are also helpful in
describing the people in the same segments. The objective is to find descriptive characteristics that
are highly correlated to the variables used to form the segments. An essential part of customer
analysis is determining how well the buyers in the segment are satisfied. Customer satisfaction
depends on the perceived performance of a product and supporting services and the standards that
customers use to evaluate that performance.
 Competitor analysis:
Market segment analysis considers the set of key competitors currently active in the market in which
the segment is located plus any potential segment entrants. In complex market structures, mapping
the competitive arena requires detailed analysis. The competing firms are described and evaluated to
highlight their strengths and weaknesses. Information useful in the competitor analysis includes
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business scope and objectives; market position; market target(s) and customer base; positioning
strategy; financial, technical, and operating strengths; management experience and capabilities, and
special competitive advantages (e.g., patents). It is also important to anticipate the future strategies of
key competitors.
 Positioning analysis:
Segment analysis involves some preliminary choices about positioning strategy. One objective of
segment analysis is to obtain guidelines for developing a positioning strategy. Flexibility exists in
selecting how to position the firm (or brand) with its customers and against its competition in a
segment. Positioning analysis shows how to combine product, distribution, pricing, and promotion
strategies to favorably position the brand with buyers in the segment. The positioning strategy should
meet the needs and requirements of the targeted buyers at a cost that yields a profitable margin for
the organization.
 Estimating segment attractiveness:
The financial and market attractiveness of each segment needs to be evaluated. Included are specific
estimates of revenue, cost, and segment profit contribution over the planning horizon. Market
attractiveness can be measured by market growth rate projections and attractiveness assessments
made by management. Financial analysis obtains sales, cost, and profit contribution estimates for
each segment of interest. Since accurate forecasting is diff cult if the projections are too far into the
future, detailed projections typically extend 2 to 5 years ahead.
Unfortunately, all of these methods provide only a partial indication of what will happen when the niche
scheme is implemented. Since niche schemes often evolve over time, the initial decision should not be
considered fixed. In fact, changing conditions over time may call for changing a firm’s basis of
segmentation.
4. Suggest ways of obtaining the information needed to conduct a market segment analysis.
Information for product–market niche segment can be obtained from financial reports and industry data.
Much of the niche information will need to be determined internally since annual reports will normally not
provide a breakdown into niches. The company must set up a system to generate this data. Niche position
data would be more difficult to obtain, especially niche attractiveness. Attractiveness would have to be
determined from company market opportunity analyses that are developed for each niche. Information may
be gathered from salespeople and other representatives of the company who work in the “field.” Marketing
analysis by consultants, who are exposed to a wide range of companies may provide useful insight. Present
business strength data might be obtained from market share measures or subjective measures provided by
management.
5. Why may it become necessary for companies to change their market segmentation identification
over time?
As customer needs/wants change, segments may change. New segments may emerge and old segments
may form into product–markets. These product markets may contain two or more segments. Constant
monitoring of buyers’ preferences will be essential to anticipating segment dynamics. Markets that
experience rapid technological change are good prospects for changes in segment structure. Movement
from growth to market maturity may also cause segment changes.
6. Is considering segments of one buyer a reality or a myth? Discuss.
The ability to consider a segment of one depends on several factors. These factors include:
 The capabilities of companies to offer cost effective, customized offerings
 The desires of buyers for highly customized products
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 The organizational advantages of close customer relationships

The capabilities of organizations to offer customized products is feasible because of extensive information
flow and comprehensive data bases, computerized manufacturing systems, and integrated value chains.
Database knowledge, computer-aided product design and manufacturing, and distribution technology offer
promising opportunities for serving the needs and preferences of very small market segments.
Segmenting of one also relies on customers’ needs and wants. Buyers must want customized products. The
requirements of an increasingly diverse customer base for many products are apparent. Companies such as
Boeing and Lutron Electronics as well as global competitors seek to offer unique products.
Finally, the ability of a company to form close customer relationships is imperative for segmenting of one.
Companies recognize the benefits of close relationships with their customers. By identifying customer
value opportunities and developing cost-effective customized offerings, relationships can be profitable and
effective in creating competitive barriers.
7. Is it necessary to use a unique positioning strategy for each market segment targeted by an
organization?
The unique marketing program utilizes the four P’s (product, place, price, and promotion) specifically
directed toward one market target. On the other hand, an overlapping market strategy involves the overlap
of some program components between niches, such as the same product serving both targets. An airline is a
good example of overlapping niche approach. You have different sales efforts and they are directed
towards business and pleasure travelers niches. Many times a product–market is such that many of the
promotional efforts get picked up by different niche areas resulting in a natural overlap. The separate niche
approach is also important in that sometimes the firm only wants its efforts directed toward one and only
one niche.
Luxury brands good examples of consumer goods that use a separate niche program. These companies only
want the luxury market (because they are the only people in the market that can justify the high prices).
8. Under what circumstances may it not be possible to break up a product–market into segments?
What are the dangers of using an incorrect segment formation scheme?
It may not be possible to break up a product–market into segments if the product or market is new or if the
users needs are difficult to understand or to separate into a meaningful division. If response differences do
not exist, or if the differences are not identifiable, actionable, or stable, it would be useless to segment a
market. As with any strategy a cost/benefit analysis is important to perform. The dangers with incorrect
segmenting involve high costs that do not translate into profits, poor performance, and/or loss of market
share to competitors who have achieved the correct type of strategies with regard to targeting.
9. What are some of the advantages of using mass customization technology to satisfy the needs of
buyers?
The most specific form of market segmentation is to consider each buyer as a market segment. This is the
basis for “one-to-one marketing.” Such fine-tuned segmentation is possible for an expanding array of
products due to mass customization techniques (the use of flexible computer-aided manufacturing systems
to produce custom output, which combines the low unit costs of mass production processes with the
flexibility of individual customization). It offers an exciting new approach to serving the unique needs and
wants of individual buyers. Custom-designed products satisfy individual buyer’s needs and wants at prices
comparable to mass-produced products.
Mass customization offers a promising means of responding to different use situations at competitive
prices.
Providing customized products at prices not much higher than mass-produced items is feasible using mass
customization concepts and methods. Achieving mass customization objectives is possible through
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computer-aided design and manufacturing software, flexible manufacturing techniques, and flexible supply
systems.
Mass customization methods also enable companies to offer an extensive variety at relatively low prices,
thus gaining the advantages of customized and variety offerings.
10. Does the use of mass customization eliminate the need to segment a market?
Mass customization techniques use flexible computer-aided manufacturing systems to produce custom
output, which combines the low unit costs of mass production processes with the flexibility of individual
customization.
There are two common forms of mass customization. One uses standard components to configure a
customized product offering. The other uses a flexible process. Through system design, a variety of
products can be achieved at low costs. Thus, mass customization can theoretically satisfy individual
customers’ needs. However, management needs to ensure that the customer does not view the variety as
confusing.
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CHAPTER 4
Strategic Customer Management: Systems, Ethics, and Social Responsibility
1. How should CRM be defined to provide a complete strategy perspective?
The term CRM means very different things in different circumstances, a consequence of the rapid evolution
and development of this approach to managing customer relationships. CRM may be used to identify an
array of initiatives including automated customer contact systems, salesforce productivity, customer service
and automated call centers, and enterprise-wide systems designed to integrate information about customers
into a single access point.
CRM may refer to little more than building relationships with customers to match a company’s product and
service offer better with customer needs. Others see CRM as developing a unified and cohesive view of the
customer, without regard to how the customer chooses to communicate with the organization (in person, by
mail, Internet, or telephone). Emphasis is placed on enhanced customer service and the use of call centers
to provide consistency in how the company interacts with customers. Alternatively, CRM may focus only
on the creation and use of a customer database to support decision makers.
CRM is the continuing process of “making managerial decisions with the end goal of increasing the value
of the customer base through better relationships with customers, usually on an individual basis.”
Another useful viewpoint suggests that CRM consists of three main elements:
 Identifying, satisfying, retaining, and maximizing the value of a firm’s best customers.
 Wrapping the firm around the customer to ensure that each contact with the customer is appropriate
and based upon extensive knowledge of both the customer’s needs and profitability.
 Creating a full picture of the customer.
2. Discuss the value of considering CRM at different organizational levels.
CRM can be viewed from company-wide, customer-facing, and functional levels. Each level has important
but different implications for strategic marketing. All three perspectives are important, although the
company-wide or strategic level provides the most complete view of CRM. The functional perspective
considers the processes that are needed to fulfill required marketing functions. The customer-facing level
offers a single view of the customer across all of the organization’s access channels to the customer. This
level of CRM is concerned with coordinating information across all contact channels on a continuing basis.
The company-wide level provides a strategic focus for CRM. It considers the implications of knowledge
about customers and their preferences across the entire company. The intent is to guide the interactions
between the organization and its customers in seeking to maximize the lifetime value of customers for the
firm. Importantly, the strategic perspective acknowledges that:
 Customers vary in their economic value to the company
 Customers differ in their expectations toward the firm
3. What is involved in estimating customer lifetime value (CLV)?
While traditional approaches to market segmentation identify groups of customers by their purchase
behavior and/or descriptive data, CRM offers the opportunity to examine individual customers or narrowly
defined groups, and to calculate what each customer offers the company in profits. The metric customer
lifetime value (CLV) calculates past profit produced by the customer for the firm—the sum of all the
margins of all the products purchased over time, less the cost of reaching that customer. To this is added a
forecast of margins on future purchases (under different assumptions for different customers), discounted
back to their present value. This process provides an estimate of the profitability of a customer during the
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time span of the relationship. The CLV calculation is a powerful tool for focusing marketing and
promotional efforts where they will be most productive.
Thus, CLV provides the estimated profitability of a customer (business or consumer) during the time span
of the relationship.
The usefulness of the CLV is very dependent on an organization’s customer-sensing capabilities. The
estimates require a depth understanding of sales and costs over time relative to each customer. Identifying
high value customers is an important strategy initiative.
4. Discuss the process of developing a CRM strategy.
The major steps in developing a CRM strategy are:

 Organizational Commitment to CRM
Everyone in the firm needs to be supportive of the CRM initiative, beginning with top management.
This commitment is consistent with the characteristics of a market- oriented organizational culture.
All functions in the firm are likely to have an involvement with certain of the CRM processes and
activities. These parts of the business need to be involved at the beginning of strategy development.
Ongoing cooperation and acceptance are essential to success.
 The Project Team
The cross-functional team is the center of decision analysis and action for the CRM process. The
team will need to become familiar with the CRM process before pursuing analysis and action
initiatives. All relevant functions and departments should be involved. Initially, external consulting
capabilities may be needed. Major financial commitments will be required as well as management
and professional time commitments. Value chain representation may also be needed depending on
the firm’s position in the value chain.
 Business Needs Analysis
Each company’s requirements concerning customer relationships need to be examined. These
analyses are critical in providing direction to CRM initiatives, which must be integrated into the
business strategy. The departments and individuals utilizing the CRM system should clearly indicate
what is needed from the strategy and agreement must be reached concerning CRM expectations and
performance metrics.
 The CRM Strategy
The value proposition component of the CRM strategy spells out what the organization must provide
in order to satisfy customer expectations. Understanding customers’ value requirements is essential.
The business case component is an assessment that indicates the shareholder value and financial
return of delivery of the required customer value. CRM initiatives require substantial resources and
the return needs to be carefully evaluated. The customer strategy component indicates how different
customer segments will be formed and managed. In business-to-business markets, firms may need to
target individual customers. The enterprise transformation plan component indicates the necessary
initiatives to launch the CRM strategy—the changes which are required throughout the enterprise.
Finally, all relevant stakeholders must be familiar with the plan, to ensure that the necessary value
propositions are determined and provided to the targeted customer segments.
5. What are the important issues in CRM implementation?
Some CRM experts propose that the major components of the successful implementation of CRM are:
 A front office that integrates sales, marketing, and service functions across all media (call centers,
people, retail outlets, value chain members, Internet).
 A data warehouse that stores customer information and the appropriate analytical tools with which to
analyze that data and learn about customer behavior.
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 Business rules developed from the data analysis to ensure the front office benefits from the firm’s
learning about its customers.
 Measures of performance that enable customer relationships to continually improve.
 Integration into the firm’s operational support (or “back office”) systems, ensuring the front office’s
promises are delivered.
There have been several suggestions that high failure rates associated with CRM are caused by managers
underestimating the necessary organizational changes required for effective implementation that obtains the
benefits of CRM. While the front end of CRM systems is concerned with building databases, integrating
customer data, providing better customer service, and establishing systems like automated call centers for
enhanced responsiveness, achieving the full potential of CRM requires change in company-wide processes,
organization structure, and corporate culture.
Bain & Co. research suggests that there are four significant pitfalls to avoid in CRM initiatives:
 Implementing CRM before creating a customer strategy—success relies on making strategic
customer and positioning choices, and this outweighs the importance of the computer systems,
software, call centers, and other technologies.
 Putting CRM in place before changing the organization to match—CRM affects more than customer-
facing processes: it impacts internal structures and systems that may have to change.
 Assuming that more CRM technology is necessarily better, rather than matching the technology to
the customer strategy.
 Investing in building relationships with disinterested customers, instead of those customers who
value them
6. Discuss how CRM creates value for the firm’s stakeholders.
Payne and Frow define the value creation process in CRM as:
 The value the customer receives
 The value the organization receives.
Successfully managing the value exchange between the customer and the firm is essential in achieving
effective CRM.
The benefits the customer receives are expressed by the value proposition. The objective of the
organization is to provide a superior customer experience. The value proposition “explains the relationship
among the performance of the product, the fulfillment of the customer’s needs, and the total cost to the
customer over the customer relationship life cycle.”
Assessing whether a superior customer experience is accomplished requires determining the relative
importance placed by customers on different attributes of the product. Market segmentation may be useful
in analyses to find the extent of correspondence between customer value requirements and value provided
by the firm. Conjoint analysis and other techniques can be used in these assessments.
Determining value received from CRM requires the following information:
 First, it is necessary to determine how existing and potential customer profitability varies across
different customers and customer segments.
 Second, the economics of customer acquisition and customer retention and opportunity for selling,
up-selling, and building customer advocacy must be understood.
A key concept associated with the value received by the organization via CRM is customer lifetime value
(CLV). CLV is the expected profitability of a customer over the time-span of the relationship with the
customer. The sum of CLV for all of a firm’s customers is termed customer equity. CLV provides useful
information in selecting valuable customers for targeting.
Value received by the customer is also relevant. It is important to recognize the potential negative impact of
issues regarding consumer trust on CRM activities. If buyers believe that the information collected by their
suppliers may be used to exploit them, their trust in the relationship may be jeopardized. Accordingly,
executives need to recognize trust and privacy implications of CRM initiatives.
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CRM approaches may also be valuable in identifying less attractive customers and developing effective
ways to handle this issue.
Managing customer profitability begins by analyzing the alternative. The options include customer
profitability, customer lifetime value, and customer equity. Based on this assessment the objective is to
manage the customer-portfolio for profit. Finally, the organization needs to work toward acquiring more
profitable customers. The key to the whole process is understanding the profitability of the firm’s
customers.
7. What is the relationship between CRM and market segmentation?
The basic logic of market segmentation is to place customers with similar value requirement into a market
subgroup or market segment. CRM takes this process to the individual customer level. CRM determines
more precise value requirements in its focus on each customer. Of course, segment value requirements are
likely to be similar yet determined on a more aggregate basis than for each customer. Benefits and costs of
determining individual customer value requirements and customer lifetime value (CLV) may dictate a
market segment focus for certain customer groups. This would involve dividing the product-market into
very precise segments and individual customers for the purpose of determining CLV and designing
positioning strategies.
8. Discuss the role of the cross-functional CRM team.
The cross-functional team is the center of decision analysis and action for the CRM process. The team will
need to become familiar with the CRM process before pursuing analysis and action initiatives. All relevant
functions and departments should be involved. Initially, external consulting capabilities may be needed.
Major financial commitments will be required as well as management and professional time commitments.
Value chain representation may also be needed depending on the firm’s position in the value chain
(supplier, producer, or marketing intermediary).
The team provides the planning and implementing direction for the CRM strategy. The team will need to
organize its members into leadership role(s) and determine roles and responsibilities for action. This will
require resources and management and professional time commitments. There may be a need for one or
more full-time assignments for key people. Outside consultants may be involved with the team during
initial planning and implementation. Depending on the size and organizational complexity of the company,
more than one cross-functional team may be needed.
9. In what ways can perceptions of poor ethical standards inhibit a company’s ability to build
customer relationships and compete effectively?
Ethics and social responsibility questions are significant to the creation of effective customer relationships,
in part because of the impact on corporate reputation. A company that has poor ethical standards will lose
out on this. Damage to corporate reputation of a business—because of ethics violations or failure to provide
societal benefits—can substantially reduce its ability to compete and can undermine the value of a
company. The strength or weakness of an organization’s corporate reputation significantly impacts
customer perceptions of how attractive it is to do business with that company. In addition, reputation
influences investors, the capital markets, the ability to recruit talented people, and the influential
commentary of investment analysts and the media. In several ways, corporate reputation is about the ability
to compete.
A poor corporate reputation—regarding handling of suppliers and customers, honesty and fairness in
making deals, behavior toward the environment, working standards for employees in the value chain, and
similar judgments—can make a company unattractive to customers.
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Ethical standards and corporate responsibility initiatives are an important foundation for an attractive
corporate reputation, which impacts positively on relationships with consumers and business-to-business
customers.
10. How can it be right for a company to invest resources in social responsibility projects, when its
primary role is to deliver value to its shareholders?
The objective of corporate social responsibility (CSR) is to have a favorable impact on society and
eliminate or reduce the negative effects which a business may have. Importantly, while at one time CSR
was mainly an issue of “corporate philanthropy,” or entirely a question of moral obligation or pure
altruism, CSR has been increasingly recognized as a source of competitive advantage, as well as an
important part of how competitive relationships operate.
Factors underpinning the growing attention by executives to issues of corporate social responsibility are:
 The new concerns and expectations of consumers
 Public authorities, and investors in the context of globalization and industrial change
 Social criteria increasingly influencing the investment decisions of individuals and institutions;
 Increased concern about the damage caused by economic and business activity to the physical
environment, and the transparency of business activities brought about by media and new
information and communication technologies.
Business norms across the world have moved CSR into the mainstream of business practice.
Effective CSR can provide significant and measurable benefits for companies. Some commentators suggest
that there is a business case underpinning social initiatives—behind the drive for sustainability lies a
growing belief that environmental and social projects not only improve corporate reputations, but also
foster innovation, cut costs, and open up new markets.
Company approaches to CSR vary from the defensive to the more strategic:
Defensive CSR: If a firm is essentially, defensive in its stance on social responsiveness, then its primary
concerns will be the protection of relationships. The goal in defensive CSR mode is to anticipate and
develop appropriate responses to social demands from any source that threatens to undermine the value and
credibility of brands, the attractiveness of the competitive position on which the company’s strategy
depends, and the viability of the marketing strategy itself. Management attention can usefully be given to
examining the links between CSR stance and the impacts on consumers, business-to-business customers,
investors, lobby groups, suppliers, employees and managers, and competitors.
Strategic CSR: At a strategic level, the logic is the transformation of value chain activities to benefit
society, while at the same time reinforcing the company’s strategy, and making strategic moves that
leverage corporate capabilities competitiveness. Strategic CSR may involve the introduction of radically
different new products. However, the broader goal of strategic CSR is to invest in social aspects of the
company’s context to strengthen company competitiveness. This is achieved, in part, by adding a social
dimension to the company’s value proposition and ways of doing business.
Porter and Kramer argue that societal needs, not just economic needs, define markets, and that viewing
markets through the lens of shared value opens up innovation and growth opportunities. Their logic rests on
closely linking social goals with business goals. They define shared value as policies and operating
practices that enhance a company’s competitiveness while simultaneously improving the economic and
social conditions in the communities in which the company operates. They argue that creating shared value
supersedes CSR.
Escalating transparency underlines the importance of CSR to a company’s competitive position with
customers.
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CHAPTER 5
Capabilities for Learning about Customers and Markets
1. Discuss how an organization’s marketing information skills and resources contribute to its
distinctive capabilities.
Strategic agility, demanded by rapidly changing markets, mandates strategic sensitivity—awareness of

what is happening and what is going to happen next, as a basis for rapidly developing effective responses to
change or new opportunities.
In the current business environment, firms must utilize all available assets to accomplish their strategic
mission. Information is a resource that provides the foundation for the firm to recognize opportunities,
exploit strengths and correct weaknesses. Identifying the market that the company can best serve with its
distinctive capabilities requires information. Efficient and effective information, collection and
organization allows the firm to target the market that would obtain the most value from its capabilities.
Without the information, the firm is ignorant of its ability to offer a high value service.
2. How would you explain to a group of top–level executives the relationship between market–
orientation and continuous learning about markets?
Market orientation is both a culture and a process committed to achieving superior customer value. The
process consists of information acquisition, broad information dissemination, a shared diagnosis leading to
coordinated action. A market orientation view needs to incorporate all of the relevant sources of knowledge
and ideas.
Market-oriented organizations are guided by a shared vision that focuses the energies of organizational
members on creating superior value for customers. These organizations continuously acquire, process, and
disseminate throughout the organization knowledge about markets, products, technologies, and business
processes. They do not hesitate to question long held assumptions and beliefs regarding their business.
Their knowledge is based on experience, experimentation, and information from customers, suppliers,
competitors, and other sources.
Through complex communication, coordination, and conflict resolution processes, these organizations
reach a shared interpretation of the information, which enables them to act swiftly and decisively to exploit
opportunities and defuse problems. Market-oriented organizations are exceptional in their ability to
anticipate and act on opportunities in turbulent and fragmenting markets.
The members of the market–oriented organization recognize the importance of market sensing and
coordinated interpretation of market intelligence to guide strategies.
3. Outline an approach to develop an effective market sensing capability for a regional full–service
bank.
Market-driven companies deploy multiple approaches to understand the opportunities and threats emerging
in their markets, and to predict how customers will react to changes in marketing strategy. They include:
 Building open-minded inquiry process
 Analyzing competitor’s actions
 Listening to front-line employees
 Searching for latent customer needs
 Scanning the periphery of the market
 Encouraging experimentation
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Learning about markets requires developing processes throughout the organization for obtaining,
interpreting, and acting on information from sensing activities. The learning processes of market-oriented
companies include the following sequence of activities:
 Objective Inquiry
One danger to be avoided is not exploring new views about markets and competition, because they
are not taken seriously. Search for information is of little value if management already has a fixed
view, on which new information will have no influence whatever it indicates. Not all companies see
the value in continuous learning about markets. Managers who are not part of market-driven cultures
may be unwilling to invest in information to improve their decision-making results. The same
companies often encounter problems because of faulty or incomplete market sensing. Developing
processes for continuous learning allows firms to capture more information about customers,
suppliers, and competitors. This capability provides the potential for growth based on informed
decisions and a more complete mapping and analysis of the competitive environment. Firms can
respond much more quickly to competitors’ actions and take advantage of situations in the
marketplace. Open-minded inquiry also helps to anticipate value migration threats, which are
frequently initiated by competitors from outside the traditional market or industry.
 Information Distribution for Synergy
The widespread distribution of information in the organization can leverage the value of the
information by cutting across business functions to share information on customers, channels of
distribution, suppliers, and competitors. Synergistic distribution works to remove functional hurdles
and practices. Cross-functional teams are useful to encourage transfer of information across
functions. The explosion in information connectivity (access) facilitates widespread information
distribution. Unbundling information from its physical carrier, such as salespeople, will provide
access as well as speed in organizations. This will help cross-functional teams and alter hierarchical
structures and proprietary information systems. Expanded information connectivity promises to
encourage cooperation among functions, reduce the power of information possession, and enhance
organizational learning.
 Mutually Informed Interpretations
The mental model of the market guides managers’ interpretation of information. The intent is to
reach a shared vision about the market and about the impact that new information has on this vision.
Market-oriented culture encourages market sensing. The mental model reflects executives’ vision
about the forces influencing the market and likely future directors of change. Learning occurs as
members of the organization evaluate the results of their decisions based on their vision at the time
the decisions were made. Deciding to take the high risk of cutting-edge ventures requires managers
to reach a shared vision about uncertain future market opportunities.
 Accessible Memory
This part of the learning process emphasizes the importance of keeping and gaining access to prior
learning. The objective is not to lose valuable information that can continue to be used. Doing this
involves integrating the information into the organizational memory, and not losing information
when people leave the organization. Information storage technology is an important facilitator, but
the human factor remains critical.
Objective inquiry for a bank would include exploring what their target market wanted out of banking
service, i.e., convenience, low rates as well as what other competing banks were offering their customers.
Information distribution for synergy would include spreading information across all functions of the bank
and perhaps forming a task force to be responsible for communicating across functional barriers. The bank
should also have a shared vision of how to react to the information that it gathers. The mutually informed
interpretations should be shared across all functions as well. The bank would want to be sure that it retains
information even when employees leave the bank; it needs to maintain its accessible memory. The bank
would have to determine what information is needed by doing a cost–benefit analysis and gathering the
Part III-24
information. Finally, the bank would share information through all functions of the bank (marketing,
finance, etc.).
4. Compare and contrast the use of standardized information services as an alternative to special
research studies for tracking the performance of a new packaged food product.
Sometimes many of the same types of information can be gathered from a standardized information service
and a special research project. A key advantage to the standardized information in these resources is that
the costs of collection and analysis are shared by many users. New product studies could be the subject of a
standardized service, thus eliminating the need for a more costly special research project. Basically, if the
new product is just a rehashing of an old idea there will be past information on these types of products. If
the product is truly new, a special research study will need to be done. As an example, Market Research
Corporation of America offers a standardized information service for food and drug products. A diary is
used by a panel of consumers to record food and drug purchases. New products in these categories would
be included in the information recorded by consumers. Standardized information may not correspond well
with the user’s individual needs, whereas a special project is custom designed for the user’s needs. Also,
data used to describe elements about new packaging for food products could be outdated with a
standardized information source. Cost is another major difference between primary and secondary
information. Management must weigh the cost–benefit of each alternative.
5. Suppose the management of a retail floor covering (carpet, tile, wood) chain is considering a
research study to measure household awareness of the retail chain, reactions to various aspects of
wallpaper purchase and use, and identification of competing firms. How could management estimate
the benefits of such a study in order to determine if the study should be conducted?
First, management should see if any secondary data or standardized information already exists on the topic.
This would aid in a benefit analysis. Next, management should identify possible strategies for obtaining
other information. An exploratory study would be relatively inexpensive and might be used to define the
research problem and determine the objectives of the project. Management should also set priorities
regarding the information that is needed. It is possible that the exploratory research will generate enough
information so that more extensive primary research will not be necessary. For example, it is likely that
adequate information about competitors can be obtained from secondary sources. The retail floor covering
chain would need to estimate sales and profit data in order to figure any benefit from the research, and how
much should be paid for this research. Doing a less expensive exploratory study to get a sample of
information could be useful in determining the value of the research. Finally management must determine
how much research information is worth to the success of the retail floor covering chain and to the bottom
line. This is essentially determining the approximate magnitude of the impact this new information will
have on the firm’s strategic decisions.
6. Are there similarities between marketing intelligence and the operations of the U.S. Central
Intelligence Agency? Do companies ever employ business spies?
There are many similarities between marketing intelligence (MI) and the Central Intelligence Agency
(CIA). The CIA and MI are both concerned with monitoring the entire environment around their specific
area of interest. MI’s environment deals with information that affects the business of marketing the product,
including the economic, social, technological, governmental, and physical factors. The CIA is also
concerned with changes in the factors listed; however, its emphasis is primarily on political and military
matters versus private business matters. Both are looking for change, and how this change will affect
performance in the future. If the change is likely to cause problems, it can be identified early enough for the
company or government to adjust.
Part III-25
It is a fact that some firms employ spies. In late April of 1982, the FBI caught Japanese spies stealing
valuable information from IBM on its new generation computer systems. Apparently, the spies had found a
source for this top secret information. IBM worked with the FBI on this case for months, and its internal
controls helped eliminate the problem. This type of spying can involve even big companies, and it is feared
the condition could worsen because of increased competition in the world markets. As competition
intensifies, MI and spying will take on greater importance. The day–to–day activities of intelligence
gathering of MI and CIA are essentially marketing research activities. Both are concerned with obtaining
information, analyzing it, and determining what actions to take based on the analysis.
7. What obstacles may be faced in enhancing a company’s ability to learn more and better about its
customers, and how should they be addressed?
It is important to be aware that information in organizations is far from a neutral resource—it has
considerable cultural and political significance. In particular, new information, intelligence or insight that
disrupts management’s shared understanding of the marketplace is especially sensitive. Obstacles to
developing and enhancing a company’s learning capabilities range from the overt (mainly resource-based)
issues, to more covert aspects of the inner workings of an organization. Managers may lack the time to give
attention to the results of new types of enquiries, or may be unwilling to provide resources needed
elsewhere in the company for current operations in the absence of proof that new intelligence will provide
added-value. Strong cultures sometimes have problems with new ideas and challenges to existing ways of
doing things and looking at the world. New intelligence may have implications for investment priorities
and strategic change in the business (which may be radical), which are unwelcome to those currently
controlling resources. Nonetheless, increasingly learning and responding positively to what is learned is
critical in maintaining competitive advantage and developing new business models that deliver superior
value to customers.
8. Why would a company consider observational or ethnographic research in preference to

conventional surveys?
Observational studies in the conventional sense involve a data collection approach not dissimilar to survey
work, the difference being that by avoiding the asking of direct questions, the researcher does not interact
with the respondent or the situation. In many ways this is attractive in providing more objective data.
However, the limitation is that many of the phenomena about which management needs information cannot
be observed, e.g., attitudes, beliefs, intentions. Only actual behaviors can be observed.
Research suggests that it may be mistaken for executives to assume that consumers think in a well-reasoned
or rational way, or that they can readily explain their thinking and behavior. Accordingly, asking customers
direct questions may give misleading results, and observational techniques like ethnography may be more
insightful.
Ethnography is a social science based on anthropology and its use in marketing studies is based on the idea
that richer information and insight can be generated by immersion in the consumer’s life.
Ethnographic approaches, while a form of observation are somewhat different. Ethnography sacrifices the
objectivity and large numbers associated with conventional marketing research methods in favor of
immersion in a situation to develop richer and more unusual insights and predictions. The strength of
qualitative research, such as ethnography, is in the richness of the data, which can create important insights
into the market. The weakness is that the small numbers of subjects studied means that it is difficult to
know if the results are representative of the wider market.
9. Data mining from databases is receiving increased attention in many companies. Discuss the
underlying logic of data mining.
Part III-26
Data mining assists in diagnosing patterns in databases. One of the challenges of using databases is
identifying these patterns in huge accumulations of information. This power of data mining enables the
analysis of as many as 10,000 customer attributes to help identify key patterns of customers. This helps the
company to know patterns of their customers’ buying behavior, and it allows them to keep the best
customers. MCI Communications Corp. and Victoria’s Secret both use data mining to keep profiles of
customers.
10. What are the relevant issues that need to be considered when obtaining the services of an outside
supplier for a marketing research project?
When obtaining the services of an outside supplier for a marketing research project, a company must make
sure that there is no invasion of privacy of individuals. Another relevant issue to be considered is how
companies and research suppliers should respond to ethical issues. For example, should a prospective client
share a supplier’s detailed project proposal with a competing supplier? Other issues relate to the ways in
which information is collected and from whom it is collected. Another important issue deals with cost,
specifically which organization pays for the cost of preparing the proposal. If the supplier covers the costs
for the proposal, it is the property of the supplier, and it may be a breach of ethics to share the proposal
with a competing supplier. Information sharing with research suppliers, other external contractors, strategic
alliance partners, and acquisition/merger prospects often involves highly confidential information, and
many situations may involve a potential breach of confidentiality. Companies normally sign confidentiality
agreements. Nonetheless, revealing trade secrets is a risk that relies primarily on the ethical behavior of the
participants.
11. What do you consider to be the proper ethical limits on the collection and use of customer
information by companies?
There are several ways to consider ethical questions in this area. Some rely on the personal value-
judgments of the individual—e.g., what actions/practices would they be prepared to accept as reasonable
and fair to all parties concerned, and which not; and some relate to the advantages or disadvantages for the
company as a commercial entity with a duty to deliver value to its owners. Judgments should also address
the question of whether some actions are justified because they generate attractive outcomes, or whether
they are simply wrong in an absolute sense.
Dilemmas relate firstly to the ways in which information is collected, and the extent to which these
methods breach requirements for individual privacy, dignity and freedom from harm, as well as meeting
standards of honesty and openness in the relationship between the observer and the observed. Secondly,
several issues relate to the way information is used once it has been collected. Is it ethical, for example, to
collect information knowing that it will be used to disadvantage the person/organization from whom it is
collected. This occurs particularly in the context of information sharing with third parties, in ways which
disadvantage the observed party, and of which they may not have been informed when data were collected.
Identifying appropriate ethical limits revolves around the personal value of executives and researchers and
the standards of integrity and honesty they identify, but also the formally identified standards represented
by company and professional codes of conduct.
Part III-27
CHAPTER 6
Market Targeting and Strategic Positioning
1 Discuss why it may be necessary for an organization to alter its targeting strategy over time.
The marketplace is very dynamic and ever changing. Elements of the product–market constantly change
over time causing a segment to either adapt to change in the market or lose its market position.
Technological changes can cause the product in the niche to become obsolete or allow competitors to come
in and take away market share. Also, changes in forecasts, along with changes in the economy require
strategy changes and new forecasts developed for the future. Sometimes the niche is eliminated totally
because of factors that were not built into the market strategy. New competitors or changing fads may
result in a company withdrawing from a niche. Targeting strategies also change in moving from the growth
to maturity stages of the product-market. Targeting may also be altered to reflect changes in priorities
among market targets.
Firms pursuing extensive targeting strategies may decide to exit from certain segments. The targets that are
retained in the portfolio may have to be prioritized to help guide new product planning, value chain
strategy, pricing strategy, and promotion strategy and expenditures.
Segmentation is a continuing responsibility of management. Market and competitor dynamics require a
continuing assessment of niche strategy.
2. What factors are important in selecting a market target?
Market targeting approaches fall into two major categories:

 Segment targeting when segments are clearly defined
 Targeting based on product differentiation
While segment targeting is used more extensively than product differentiation, the latter may be appropriate
in certain situations. When segments are difficult to identify, even though diversity in preferences may
exist, companies may appeal to buyers through product specialization or product variety.
Market segment analysis helps to evaluate and rank the relative attractiveness of the segments under
consideration as market targets. These evaluations include customer information, competitor strengths and
positioning, and the financial and market attractiveness of the segments.
Management needs to decide if it will target a single segment, selectively target a few segments, or target
all or most of the segments in the product-market. Several factors may influence the choice of the targeting
strategy:
 Stage of product-market maturity.
 Extent of diversity in buyer value requirements
 Industry structure
 The firm’s capabilities and resources
 Opportunities for gaining competitive advantage
3. Discuss the considerations that should be evaluated in targeting a macro-market segment whose
buyers’ needs vary versus targeting three microsegments within the macro segment.
When buyers’ needs are similar across a product market, little opportunity exists for extensive
segmentation. However, single segment targeting may gain competitive advantage more easily than
targeting multiple segments. When buyers’ needs vary in a macro-market, the effort to response will vary
as well. As consumers’ needs vary, a firm can only meet certain needs of its single segment, and buyers’
needs may not be met. The objective of targeting a single macro-market segment is not to meet all needs,
but to appeal to all or most of the buyers to gain high market share. On the other hand, when a firm targets
Part III-28
multiple or micro–segments, it is determined that the needs within these segments will be mostly the same.
Multiple targets can expand a firm’s market opportunity and also eliminate dependence on a single target.
The positioning strategy will vary among the different segments. The extent of buyer differentiation will be
a determining factor in selecting the market target.
4. How might a medium-size bank determine the major market targets served by the bank?
A bank could determine the major market targets it serves by examining and categorizing the types of
transactions its customers utilize. The bank could also examine the demographics (age, income, family size,
etc.) of its customers according to geographic location, lifestyle, profession, etc. Accounts could be divided
and customers profiled to further examine this customer base. Future trends of the bank could be estimated
to determine who would most likely use those services.
5. Select a product and discuss how the size and composition of the marketing program might
require adjustment as the product moves through its life cycle.
A product such as “Miller Light Beer” has seen some fantastic growth in the last few years. A great deal of
money has been spent on trying to communicate to the market the benefits of light beer. Almost every beer
manufacturer has entered the light market in some form. As the market started to mature Miller has
changed its advertising by adding more creative TV ads including famous sports figures. At the
introduction phase, Miller seemed to position itself to mainly the younger “health set” until the beer gained
growth in other markets. Miller still is directing its efforts towards the younger set but has expanded efforts
to include the sporty bar crowd. Miller still has significant market share in the light market, and with
maturity, advertising can be changed to add new creativity. The only catch is that other companies have
strongly entered the “light” market with their own innovative advertising such as Bud light—“Give me a
light” and Coors Light—“The Silver Bullet,” etc.
6. Suggest an approach that can be used by a regional family restaurant chain to determine the
firm’s strengths over its competitors.
One method the restaurant could use would be a customer survey. The restaurant also could select popular
menu items and offer coupon specials on these items to see how sales react after the specials have been run.
If customers like the items and come back this could indicate a strength. The restaurant could try to
evaluate itself and its competitors using such factors as location, volume, menu, atmosphere, etc. More
points are given to the restaurant if they occupy a successful niche. Additionally, the restaurant chain could
develop its strategy around an item or series of items like a burger, hot dog, or any other area. Then the
chain could build up this item(s) and establish its own niche of position against competitors in the market.
Market share data could be used (if available) to gauge the chain’s position against key competitors. This
should be done over a time period of at least 3 to 5 years to determine if the chain’s position is increasing
or decreasing.
7. Describe a positioning concept for three different brands/products that corresponds to functional,
experiential, and symbolic positioning.
A wide variety of brands/products can be chosen depending on interests, however the goal is to distinguish
positioning types, as in:
 A functional positioning concept applies to products that solve consumption-related problems for
externally generated consumption needs. Dell, Inc. utilizes functional positioning by emphasizing
customization and incorporation of the latest technology in its personal computers.
Part III-29
 The experiential concept is used to position products that provide sensory pleasure, variety, and/or
cognitive stimulation. BMW emphasizes the exciting experience of driving its automobiles, backed
by the brand’s German heritage.
 Symbolic positioning relates to the buyer’s internally generated need for self-enhancement, role
position, group membership, or ego-identification. Louis Vuitton is positioned as a symbol of luxury,
a brand to be desired.
8. Discuss some of the more important reasons why test market results may not be a good gauge of
how well a new product will perform when it is launched in the national market.
Test markets can mislead a firm into believing that good results indicate that a full scale introduction will
be successful. The opposite is also true, in that bad test markets can cause the firm to think the product
would not make it in the market. One of the major problems with a test market is that competitors come
into the market and try to disrupt test results. They will lower prices on competitive brands, or step–up ads,
or increase promotional efforts to push the product through the test market. Also the actual test market area
can bias results and the method of test marketing the product can show misleading results. Customers may
try the product and communicate this liking to the firm, but they may not continue to buy this product.
Finally, environmental conditions may change during the national introduction.
9. “Evaluating marketing performance by using return-on-investment (ROI) measures is not

appropriate because marketing is only one of several influences upon ROI.” Develop an argument
against this statement.
Marketing is a key business activity that influences ROI. When you break down ROI and look at the basic
components, you see that all of the variables are highly influenced by marketing. Sales, profits, and the
investment are generally the responsibility of the marketing department and ROI really makes an excellent
measure of performance in the marketing function. It is true that the variables that make up ROI are
important to the other parts of the organization but marketing generates the variables. The other business
functions simply use the variables.
Additionally, one must remember that many businesses are basically marketing organizations such as retail
firms. For these firms, ROI is an excellent measure of performance. With manufacturing firms the variables
included in the ROI formula become more difficult to separate into pure marketing variables.
10. Two factors complicate the problem of making future projections as to the financial performance
of marketing programs. First, the flow of revenues and costs is likely to be uneven over the planning
horizon. Second, sales may not develop as forecasted. How should we handle these factors in financial
projections?
When developing budgets for financial plans it is beneficial to keep flexibility and adaptability in mind.
The unevenness of flows should be expected and analyzed periodically. For example, the flows may not be
level each quarter of the year, but end up evening out when reviewed in terms of a year. Obviously,
revenues and costs are going to change drastically in the beginning stages of any product. Sales are very
difficult to forecast and many times management’s experience is the only basis of making a sales forecast.
One way to prepare for misstated future forecasts is to evaluate the budget periodically. Making financial
projections is a continuous process requiring revisions when changes to the original plan are expected. One
must strive to meet the objectives of the financial plan, and hence it must be determined why the plan of
revenues and costs is not being met. There also can be problems that are external to the firm and thus not
under control of management.
11. Discuss the relationship between the positioning concept and positioning strategy.
Part III-30
The positioning concept is the core focus for designing an integrated strategy, which indicates how (and
why) the product mix, line, or brand is to be positioned for each market target. The positioning concept
relates how the firm desires its target market to perceive it. The positioning concept should be linked to
buyers’ value requirements. Positioning concepts can be functional, symbolic, or experienced. A functional
concept applies to products that solve consumption-related problems for externally generated consumption
needs. Symbolic positioning relates to the buyer’s internally generated need for self-enhancement, role
position, group membership, or ego-identification. The experiential concept is used to position products
that provide sensory pleasure, variety, and/or cognitive stimulation.
The positioning concept applies to a specific brand rather than all of the competing brands in a product
classification. The concept is used to guides positioning decisions over the life of the brand, recognizing
that the brand’s specific position may change over time. The positioning strategy is the combination of the
marketing mix actions that transform the positioning concept into a specific position with targeted buyers.
12. Select a product type product–market (e.g., ice cream). Discuss the use of functional, symbolic,
and experiential positioning concepts in this product category.
In the product–market of athletic court shoes, Converse canvas basketball shoes would probably be viewed
as functional. They serve the purpose of just meeting the need of having to wear shoes on the court. New
Balance shoes are perceived as experiential. They provide pleasure when worn because of the superior
quality and cushion while on the court. On the other hand, Nike Air court shoes would be symbolic.
Buyers’ feel self–enhanced by wearing the athletic shoe Michael Jordan wears. Consumers would also feel
that they perform better by identifying with Michael Jordan while wearing the Nike Air.
13. Discuss the conditions that might enable a new competitor to enter a mature product–market.
A new competitor can enter a mature product market when certain conditions are prevalent at the time of
entry. For instance, when buyers’ needs are differentiated, new entrants could find segments, or niches,
whose needs have not been satisfied. New technology could also ease the entry of a new competitor, which
could render the existing technology in that market obsolete. Substitutes are more prevalent in mature
product markets. Indeed, buyers are more experienced in a mature market and have differentiated needs.
Thus, they could become dissatisfied with specific or major brands, therefore making it possible for a
company to enter the market with a new brand or product. Most competitive situations in a mature market
are on the basis of cost, because of the price sensitivity of consumers.
Normally, new competitors must be fairly large, because of the capital investment required. Some can even
enter the market through acquisitions, either domestically or internationally.
14. Competing in the mature market for air travel promises to be a demanding challenge in the 21st
century. Discuss the marketing strategy issues facing American Airlines during the next decade.
American Airlines will face several marketing strategy issues in the future. For instance, the decade of the
90s was one of much consolidation. Most of the smaller and larger unstable firms were bought out or went
bankrupt. In the future, those with no strategic direction will not be able to handle the pressure in such a
competitive, volatile industry. Indeed, the industry will be very dynamic and constantly changing. Also,
competition will grow to a global scale, with airlines responding to rapid international demands. American
Airlines must utilize its marketing strategy to target certain segments of the market and meet those needs in
a specific way. As competitors compete in this oligopolistic environment, creativity will be important to
reach certain targets. Customers will continue to be price sensitive. American Airlines must establish
operating guidelines encompassing all components of the marketing program to capture these customers
and to compete domestically and internationally.
American Airlines is a very effective competitor in air travel markets, and successfully avoided bankruptcy,
unlike other major competitors. Its very powerful revenue management program enables the carrier to
Part III-31
manage its route network for maximum performance. Its strategic alliance network is a major strength in
international markets.
15. Assume you are assisting Nokia in determining information needs for monitoring its cell phone
targeting and positioning strategies. What are your recommendations?
Nokia should pay attention in the following areas:

 Size and structure of the product-market, market segments, and growth projections
 Competitors’ strengths and weaknesses in each segment of interest (including financial performance)
 Marketing targeting and positioning priorities
 Positioning strategies of each competitor in targets of interest
 Potential disruptive innovations
 Metrics for monitoring performance
Part III-32
CHAPTER 7
Strategic Relationships
1. Discuss the major factors that encourage the formation of strategic partnerships among
companies.
The formation of strategic relationships among suppliers, producers, distribution channel organizations, and
customers (intermediate customers and end-users) occurs for several reasons. The goal may be:
 Gaining access to markets
 Enhancing value offerings
 Reducing the risks caused by rapid technological change
 Sharing complementary skills
 Learning and acquiring new knowledge
 Building sustained close relationships with major customers
 Obtaining resources beyond those available to a single company
Strategic relationships of these kinds are escalating in importance because of the complexity and risks in a
global economy, the skill and resource limitations of a single organization, and the power of major
customers to insist on collaborative relationships with their strategic suppliers.
Environmental turbulence and diversity, and skill and resource gaps also encourage strategic relationships.
Environmental turbulence and diversity may encourage cooperative relationships because the organization
may need to deal with a variety of issues on either a global or purely domestic basis. Turbulence is
generally much more prevalent on a global rather than domestic basis, yet this is not always the case.
Diversity includes such differences between the elements of an environment which is comprised of people,
organizations and social forces which may affect resources. Environmental diversity considers the
relationship between the organization and other organizations. This diversity makes it difficult to respond
to customers’ needs in a timely manner, and hinders new product development. Similarly, an organization
may not be able to respond to changes in technology or obsolescence. A cooperative relationship allows the
organization to respond to this type of turbulence more quickly.
Cooperative relationships also allow the organization to acquire skills or resources from other firms. This is
often the case in technology dependent industries, or in industries where research and development is
particularly important. Or, an organization may desire to produce a product where it lacks the complete
compilation of skills necessary to manufacture the product. This skill gap could also apply to gaps in
information technology. Organizations may pursue collaborative relationships to obtain resources necessary
to access markets or to overcome financial constraints.
2. Compare and contrast vertical and horizontal strategic relationships between independent
companies.
Vertical and horizontal relationships differ primarily in the position of the partners in the alliance process
and their potential contribution to the alliance effort. Vertical relationships arise due to the functional
specialization of participants in the value chain. This includes product development and design,
manufacturing, marketing, distribution and even customer service. The vertical channels of distribution link
the areas of supply and demand. Vertical relationships may involve customer/supplier relationships or
relationships among participants in the distribution channel. The distribution channel includes wholesalers,
manufacturers, retailers and end–users.
In contrast, horizontal relationships occur with strategic alliances or joint ventures. The relationship
partners are not linked primarily by their position in the value chain process which involves creating goods
or services. Horizontal relationships exist primarily between organizations which manufacture a good or
Part III-33
provide a service. Strategic alliance and joint venture cooperative relationships involve partners at the same
level in the distribution channel. This makes the relationship horizontal.
3. Discuss the similarities and differences between strategic alliances and joint ventures.
A strategic alliance between two organizations is an agreement to cooperate to achieve one or more
common strategic objectives. The relationship is horizontal in scope, between companies at the same level
in the value chain. Each organization’s contribution to the alliance is intended to complement the partner’s
contribution. The alliance requires each participant to yield some of its independence. The rationale for the
relationship may be to gain access to markets, utilize existing distribution channels, share technology
development costs, or obtain specific skills or resources. The alliance is not a merger between two
independent organizations, although the termination of an alliance may eventually lead to an acquisition of
one partner by the other partner. It is different from a joint venture launched by two firms or a formal
contractual relationship between organizations. Moreover, the alliance involves more than purchasing stock
in another company. Instead, it is a commitment to actively participate on a common project or program
that is strategic in scope.
Joint ventures are agreements between two or more firms to establish a separate entity. These relationships
may be used in several ways: to develop a new market opportunity; to access an international market; to
share costs and financial risks; to gain a share of local manufacturing profits; or to acquire knowledge or
technology for the core business. While joint ventures are similar to strategic alliances, a venture results in
the creation of a new organization. Environmental turbulence and risk set the rationale for the venture more
so than a major skill/resource gap, although both pressures may be present. Lack of success in the
management of joint ventures often reflects a lack of adequate attention to planning and executing the
launch of the venture, leading to strategic conflicts between partners, governance problems, and missed
operational synergies. A dedicated team focused on managing alignment of strategic interests of the
partners and creating a shared governance system improves the chances of building a high-performing joint
venture.
4. A German electronics company and a Japanese electronics company are discussing the formation
of a strategic alliance to market the other firm’s products in their respective countries. What are the
important issues in making this relationship successful for both partners?
The success of the alliance will depend heavily on effectively matching the capabilities of the participating
organizations and on achieving the full commitment of each partner to the alliance. The benefits and the
trade-offs in the alliance must be favorable for each of the partners. The contribution of one partner should
fill a gap in the other partner’s capabilities.
One important concern in the alliance relationship is that the partner may gain access to confidential
technology and other proprietary information. While this issue is important, the essential consideration is
assessing the relationship’s risks and rewards and the integrity of the alliance partner. A strong bond of
trust between the partners exists in most successful relationships. The purpose of the alliance is for each
partner to contribute something distinctive rather than to transfer core skills to the other partner. It is
important for the managers in each organization to evaluate the advisability and risks concerning the
transfer of skills and technologies to the partner.
The two companies should consider their motivation in forming the strategic alliance. This will determine
the objective(s) of the alliance and thus influence the means by which a successful alliance can be
identified. The companies should also consider what factors will promote the success of the alliance in
terms of achieving the objective(s).
In this particular situation, the partners seek access to global markets. Both partners should have strong
marketing capabilities and/or a strong market position within their own markets. In other words, the
partners must be a “good match” to establish the foundation for a successful alliance.
Part III-34
The partners should then manage the alliance. Both firms will be faced with the complexities of managing a
situation which is a hybrid of two separate companies. The alliance is an inter-organizational relationship
where the management skills developed for single organizations may not apply or may not need to be
adapted. In general, the companies may follow these eight guidelines for the management of the alliance to
enhance the opportunity of success for the alliance partners:
 Planning is imperative.
 Trust and cooperative communication must exist between the partners.
 Conflicts are inevitable, and plans must be made to resolve them rapidly.
 The leadership structure for the alliance must be explicitly defined.
 Each partner must be flexible enough to adapt to the other partner’s needs and to changing
conditions.
 Cultural differences must be acknowledged and resolved.
 Technology transfer between the partners must be carefully orchestrated and implemented.
 Each partner must be willing to learn from the other partner’s strengths.
5. What are the attractions and possible problems in developing a strategic relationship with a major
customer in the form of strategic account management?
Strategic customers are those with which the relationship is based on collaboration and joint decision
making, where both buyer and seller invest time and resources in the strategic relationship. For a growing
number of companies strategic account management (SAM) provides an innovative model for managing
relationships with their most important customers. The importance of these developments is underlined
when customers actively promote concentration in their supply base and attempt to restrict supplier
numbers.
The rationale for SAM is that a supplier’s most important customers require dedicated resources and
special value-adding activities (such as, joint product development, business planning, consulting services)
in the value offering. SAM is seen as a new business model that goes beyond conventional buyer-seller
relationships to establish partnership and joint decision making between the customer and supplier.
Nonetheless, there are substantial risks in high levels of dependence on strategic customers. The close
relationship multiplies the dependence of the supplier on the larger customer and is likely to divert
resources from developing new areas of business. The choice of attractive prospects for SAM investments
is problematic – if the choice is just of the largest customers, there may be little prospect of partnership
simply a more elaborate transactional buyer-seller relationship. If the customer fails in its core business, or
if there is a major change in the customer’s business strategy, then existing strategic suppliers may be
abandoned in favor of new relationships. It is important not to confuse the partnership involved in SAM
with simply conforming to the demands of major customers exerting their power to obtain advantages in
terms and prices from suppliers. Investments should be weighed against the risks of customer disloyalty
and strategic change, as well as the perception of strategic customer privileges by the rest of the customer
base. The attraction of SAM may rest on a degree of market and relationship stability which may not exist.
6. To what extent is it reasonable for a partner organization to attempt to exert control over your
strategic choices in areas not part of the alliance or joint venture?
Issues of what is fair and reasonable business conduct are subjective and open to interesting debate. Some
would argue that an alliance or joint venture covers a specific and carefully defined part of a business’
operations and that no undertakings are made or implied for operations outside the agreement. Others
would argue that this is unrealistic, if for example one partner undertakes actions in a new area which
undermine the rationale for the alliance/joint venture, and which are thus potentially damaging to the
alliance/venture or to partner organizations. Yet others would suggest that for an alliance/venture to be
effective, there needs to be a level of trust and openness between the partner organizations, such that
Part III-35
actions by one seen as undesirable by others will be re-considered to protect the inter-organizational
relationship. The most interesting points which emerge are the extent to which entering an alliance or joint
venture may have a hidden opportunity cost associated with restrictions to the partners’ activities in other
areas not covered by the alliance, and the extent to which developing the trust and exchange upon which an
alliance is likely to rely creates a strategic vulnerability. These costs of alliance relationships are real, but
rarely considered.
7. Establishing successful interorganizational relationships is difficult, according to authorities. Will

the success record improve in the future as more companies pursue this strategy?
As more companies pursue interorganizational relationships, we will be able to learn more about what
factors influence and create a successful relationship. In addition, the environment will change and provide
increased opportunities. For example, the increasing advancement in technology continues to improve
communication among alliances partners, and do so in a more cost efficient manner. Similarly, as firms
gain more experience with these relationships, they will be better able to handle problems and resolve
conflicts. The experience of the firms also may allow problems to be avoided more often. Firms may also
increase the amount of attention given to the type of partner selected and critically examine the overall
motivation for the relationship. More of this advance planning should increase the likelihood of success.
Firms should be more interested in this type of “pre-planning” once they have seen or participated in
interorganizational relationships.
In general, if companies follow the following guidelines, the success record of interorganizational
relationships will improve in the future:
 Comprehensive planning is critical when combining the skills and resources of two independent
organizations to achieve one or more strategic objectives. The objectives must be specified,
alternative strategies for achieving the objectives evaluated, and decisions made concerning how the
relationship will be structured and managed.
 Successful partnerships involve trust and respect between the partners and a willingness to share with
each other on various self-interest issues. Prior informal experience may be useful in showing
whether participants can cooperate on a more formalized strategic project.
 Realizing that conflicts will occur is an important aspect of the relationship. The partners must
respond when conflicts occur and work proactively to resolve the issues.
 Care is required that a partnership should not be with companies where there may be risk of damage
by association, for example because of the partner’s ethical standards or ineffective social
responsibility.
 Strategic leadership of the partnership can be achieved by (1) developing an independent leadership
structure, or (2) assigning the responsibility to one of the partners.
 Recognizing the interdependence of the partners is essential in building successful relationships. The
partnership must be flexible in order to adjust to changing conditions and partner requirements.
 Strategic relationships among companies from different nations are influenced by cultural
differences. Both partners must accept these realities.
 When the partnership involves both developing technology and transferring the technology into
commercial applications, special attention must be given to implementation. Important issues include
organizational problems, identifying a commercial sponsor, appointing a team to achieve the
transfer, and building transfer mechanisms into the plan.
 The opportunity for an organization to expand its skills and experience should be exploited.
8. Are vertical relationships more likely to be successful than horizontal relationships? Discuss.
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Vertical relationships link together participants in the value chain of manufacturing products or services.
This may include a supplier/manufacturer cooperation, or a distribution channel relationship. These
relationships may be transactional or collaborative.
In contrast, horizontal relationships describe strategic alliances or joint ventures which join partners at the
same level in the distribution channel. It is not the type of the relationship which determines the chances for
success. What is more important in predicting success is:
 How well the partners are matched
 How committed the partners are to the relationship
 The degree of definition of the alliance objectives for all partners
 The amount of effective communication between the partners
 The mechanism in place for managing the relationship and resolution of conflict
 The cultural (national and corporate) similarities of the partners
 The degree of dependence of the partners on each other for overall corporate success, or how
important the relationship is to each of the partners in the context of the organizational objectives
 The degree of similarities in the overall corporate philosophies of the partners
To the extent that a vertical or horizontal relationship can positively influence all of these factors, then one
form would be more likely to be successful.
While it is difficult to make broad generalizations, vertical relationships appear to provide the situations
which most often lead to successful interorganizational relationships. The vertical relationship links
partners together which are more dependent on each other for overall corporate success. Also, the
relationship is more likely to be critical to the organization’s success overall. This is especially true of
customer supplier relationships. Vertical relationships may provide easier communication, and often the
corporate philosophies of the participants are similar. Similarly, the participants may be a part of a common
distribution chain where it is not necessary to divulge any proprietary information. It may be easier for
vertical partners to trust each other, and thus communicate more effectively. The reason for the formation
of the relationship often tends to be related to achieving efficiencies in the value chain process. Again, this
imposes the need for a cooperative relationship among the partners. The relationship is thus perhaps more
destined from the start to be successful.
This is not to say that horizontal relationships cannot be successful. Participants in horizontal relationships
must be aware of the situations which might make management of the relationship more difficult and less
likely to succeed than a vertical relationship.
9. Suppose you are seeking a Japanese strategic alliance partner to market your French
pharmaceutical products in Asia. What characteristics are important in selecting a good partner?
The success of the alliance will depend heavily on effectively matching the capabilities of the participating
organizations and on achieving the full commitment of each partner to the alliance. The benefits and the
trade-offs in the alliance must be favorable for each of the partners. The contribution of one partner should
fill a gap in the other partner’s capabilities.
One important concern in the alliance relationship is that the partner may gain access to confidential
technology and other proprietary information. While this issue is important, the essential consideration is
assessing the relationship’s risks and rewards and the integrity of the alliance partner. A strong bond of
trust between the partners exists in most successful relationships. The purpose of the alliance is for each
partner to contribute something distinctive rather than to transfer core skills to the other partner. It is
important for the managers in each organization to evaluate the advisability and risks concerning the
transfer of skills and technologies to the partner.
Perhaps the two most important criteria in selecting an alliance partner are:
 Compatible philosophies of doing business
 Similar commitment to the attainment of a common strategic objective
Successful alliances are particularly difficult to achieve due to:
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 Shifting strategic requirements resulting from changing conditions and market and technological
uncertainties
 The lack of clear decision–making responsibility determination
 Conflicts concerning objectives, cultural differences and styles of making decisions
 The decline of long–term commitment and interest by one of the alliance partners.
Therefore, the French firm should be careful to select a partner which avoids encountering the above
difficulties. The Japanese firm will come from a different national culture, yet could have a similar
corporate culture to the French firm and may possess a comparable approach to decision making. The
Japanese firm should be as committed to the alliance as the French firm and should be willing to rapidly
resolve conflicts. The partners should agree as to the formal structural management arrangement of the
alliance. In summary, the Japanese firm should expect to gain from the alliance the same strategic benefits
that the French firm seeks. The alliance may still be successful even if the partners differ according to size,
functional specialization, resource capabilities or even culture.
10. Discuss how alliances may enable foreign companies to reduce the negative reaction that is
anticipated if they tried to purchase companies in other countries.
A strategic alliance between two organizations is an agreement to cooperate to achieve one or more
common strategic objectives. A strategic alliance avoids the need for direct foreign investment in another
country. An alliance allows a company to enter a foreign market through one of the existing host country
companies. The foreign country host partner retains its independence. The foreign partner is a partner and
not an investor which may exploit citizens and resources of the host country. The host country is not as
afraid of giving up its sovereignty and exposing its markets to foreign intervention. Citizens and the
government have an incentive to support the alliance since the other partner in the alliance is from their
own host country. The product which may be sold is also not perceived as foreign due to this partnership.
11. Discuss how government may participate in helping domestic companies develop their
competitive advantages in an industry such as aerospace products.
Government interventions range from indicating preferred strategies to companies through to the full
subsidy of commercial enterprises to achieve political ends. Governments may cooperate in an active
manner to promote the success of a domestic aerospace products company. The government may join with
the company in any of three types of government and private industry relationships:
 A single nation partnership
 A multiple nation partnership
 Governmental corporations
In addition, the government may enact legislation which makes it easier for the domestic company to
compete with foreign rivals. The government may provide financial as well as informational support. In the
single nation partnership, the government may help foster cooperation among several firms in the industry
to achieve global objectives for the companies. Multiple nation partnerships may be created with other
countries to expose the domestic firm to advantages possessed by foreign competitors. Or, the government
may directly participate in ownership of a company providing financial and other support for the benefit of
the entire country.
12. Identify and discuss important issues in deciding whether to create internal cross–functional
relationships.
The intent of cross–functional relationships is to encourage and facilitate cooperation rather than
specialization. Key internal processes such as new product development benefit from cross-functional
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cooperation in areas such as research and development, marketing, purchasing, finance, and operations
working together to identify, evaluate, develop, and commercialize new product concepts.
The success of internal relationship strategies requires developing strong internal collaboration that cuts
across functional boundaries. Some of the guidelines for developing effective relationships are:
 Demonstrate management support
 Start with a pilot team
 Keep the teams small—and together
 Link the teams to the strategy
 Seek complementary skills for the team—and look for potential
 Educate and train
 Address the issue of team leadership
 Motivate and reward team performance, not just individual performance
The relationship strategy requires attention to the internal structure. The starting point is building a
collaborative customer–driven internal culture.
Part III-39
CHAPTER 8
Innovation and New-Product Strategy
1. Explain the relationship between customer satisfaction and customer value.
Value and satisfaction are closely related. Customer value is the combination of benefits provided by a
product minus all of the costs incurred by the buyer. Customer satisfaction indicates how well the product
use experience compares to the value expected by the buyer. The closer the match between expectations
and the use experience, the better the resulting value delivery. Superior customer value results when the
benefits are substantially greater than the costs. When the buyer’s use experience exceeds both his/her
expectations and the value offerings of competitors, superior value is achieved.
2. In many consumer products companies, marketing executives seem to play the lead role in new-
product planning, whereas research and development executives occupy this position in firms with
very complex products such as electronics. Why do these differences exist? Do you agree that such
differences should occur?
Many times these organizational differences exist because management believes that high technology
products need technical personnel to market the product because they understand the complex nature of the
product. In consumer products companies’ management does not feel complex R&D people should be
involved when the product’s marketed to the layman consumer. These organizational differences come
from the premise that a high technical product is positioned at a high technical consumer and therefore
needs to be controlled by R&D people who design the product, whereas the opposite case is true for a
consumer product firm. This is not to say that R&D people should not be involved in planning (many times
they must because they know so much about the new product) but the overall planning strategy is the role
of marketing. The product manager’s form of marketing–product organization is sometimes used where a
manager is held responsible for one product and under him a staff qualified in different product areas
(R&D, advertising, etc.) support the product planning function. In technical product firms, the product
manager may have a technical background in addition to marketing training and experience.
3. Discuss the features and limitations of focus group interviews for use in new-product planning.
The focus group is a useful technique to identify and evaluate new-product concepts, and this research
method can be used for both consumer and industrial products. The focus group consists of 8 to 12 people
invited to meet with an experienced moderator to discuss a product use situation. Idea generation may
occur in the focus group discussion of user requirements for a particular product use situation. Group
members are asked to suggest new-product ideas. Later, focus group sessions may be used to evaluate
alternative product concepts intended to satisfy the needs identified in the initial session. More than one
focus group can be used at each stage in the process.
Although the groups are selected to represent the target market of the firm, the group may not actually be a
representative one. As a result, such a group may not be productive in identifying or evaluating products
targeted to a particular group. Also the moderator may have a difficult time in generating an insightful
discussion. A group of 8–12 is also limited by their own experiences and creative abilities. Although these
focus groups have proved to be fruitful, their limitations must be evaluated.
4. Identify and discuss the important issues in deciding how to organize for new-product planning.
An organizational approach for new product planning involves:

 Developing an operating philosophy that decides whether to produce products internally or
externally and follows a formal new product planning process.
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 Develop organization structures that incorporate formal structures of R&D with close involvement of
marketing.
 Matching management styles to new product planning needs.
Open communications throughout the organization and high levels of employee involvement and interest
are characteristic of innovative cultures. The company also needs to develop an environment that
encourages innovation initiatives. Management must be supportive of the planning process. The approach
has to correspond to the level of risk management is willing to take. Developing successful new products
requires systematic planning to coordinate the many decisions, activities, and functions necessary to
identify and move a new-product idea to commercial success.
Successful new-product planning requires:
 Generating a continuing stream of new-product ideas that will satisfy the organization’s requirements
for new products
 Putting in place people, processes, and methods conducting activities and evaluating new-product
ideas as they move through each of the planning stages
The following initiatives are important in effectively applying the planning process to develop and
introduce new products:
 The process involves different business functions, so it is necessary to develop ways of coordinating
and integrating cross-functional activities in the planning process.
 Compressing the time span for product development creates an important competitive advantage.
 The product planning activities require resources and must be managed so that the results deliver
high levels of customer satisfaction at acceptable costs.
 The planning process can be used for new service development as well as physical products.
Since new-product development involves different business functions such as marketing, finance,
operations, human resources, and research and development (R&D), ways of encouraging cross-functional
interaction and coordination are essential.
5. Discuss the issues and trade-offs of using tight evaluation versus loose evaluation procedures as a
product concept moves through the planning process to the commercialization stage.
Due to the huge cost of developing a new idea and commercializing it, a tight policy may seem to be
indicated to reduce costs. However, a somewhat loose (or not overly tight) screening procedure will help to
prevent the rejection of a good idea. Management needs to develop a level of risk it is willing to take in
prescribing its screening procedures. Of course, the essential issue is to reject the least promising ideas as
early as possible to reduce costs.
The degree of tightness or looseness at the screening level must be based on the compatibility or feasibility
of the idea with the company. The company’s mission and objectives play a dominant role in defining the
screening boundaries.
Management needs a screening and evaluation process that will eliminate unpromising ideas as soon as
possible while keeping the risks of rejecting good ideas at acceptable levels. Moving too many ideas
through too many stages in the new-product planning process is expensive. Costs build up from the idea
stage to the commercialization stage, whereas the risks of developing a bad new product decline as
information accumulates about product performance and market acceptance. The objective is to eliminate
the least promising ideas before too much time and money are invested in them. However, the tighter the
screening procedure, the higher the risk of rejecting a good idea. Based on the specific factors involved, it
is necessary to establish a level of risk that is acceptable to management.
Evaluation should occur regularly as an idea moves through the new-product planning stages. Since the
objective is to eliminate the poor risks as early as possible, evaluation is necessary at each stage in the
planning process.
A new-product idea receives an initial screening to determine its strategic fit in the company or business
unit. Screening eliminates ideas that are not compatible or feasible for the business. Management must
Part III-41
establish how narrow or wide the screening boundaries should be. After identifying relevant screening
criteria, scoring and importance-weighting techniques may be used to make a composite evaluation of the
factors considered in the screening process. By summing the weighted scores, an evaluation is obtained for
each idea being screened.
After completing initial screening, each idea that survives becomes a new-product concept and receives a
more comprehensive evaluation.
6. What factors may affect the length of the new-product planning process?
The following factors affect the length of the new product planning process:
 Whether it is an industrial or consumer good
 Corporate environment
 Corporate risk factor
 Number of new products to screen
 Fit of the product with the company’s objectives
 Amount of time required for product development
 Amount of time for testing
 Necessary revisions for successful testing
 Amount of marketing research required (i.e., is it a new market?)
 Time to produce a prototype
At each step along the way the product must be reevaluated and either revised or rejected if necessary.
7. Compare and contrast the use of scanner tests and conventional market tests.
Scanner tests are conducted in an actual market environment. The test product must be made available in
each test city. It is less expensive than the conventional testing because it employs electronic marketing
testing. It enables the use of controlled advertisement testing. Furthermore, with this method a large
number of people can be tested nationally. As the information boom continues this type of testing will grow
and likely cost less as new technologies are used.
Like the scanner testing, conventional testing attempts to measure the consumers’ response to a product by
testing a sample of the population. This method of market testing introduces the product under actual
market conditions in one or more test cities. It is typically used for frequently purchased consumer
products. The time required for the tests ranges from a year to 18 months or more. It employs a complete
marketing program including advertising and personal selling. Product sampling is often an important
factor in launching the new product in the test market. The product is marketed on a commercial basis in
each city, and test results are then projected to the national or regional target market. Because of its high
cost, conventional test marketing represents the final evaluation before full-scale market introduction.
Management may decide not to test market in order to avoid competitor awareness and high testing costs,
and to speed up the new-product introduction. Although it is more expensive than scanner testing, it is not
as artificial. The environment may not be as controlled, but it is real. The key to this type of testing is the
selection of the test site(s). The company must make sure it is a representative city. The conventional
testing has greatly improved the success/failure odds.
8. Is the use of a single city test market appropriate? Discuss.
The use of a single city test market may be a very risky venture. By testing only one city, the company is
maintaining that the city is representative of its target market. If the product is intended to go national, this
may be an extremely bold statement. In reality, a company can only “hope” to find a reasonable match
between the test and the commercial market. A single city test is a limited sample resulting in problems in
predicting regional and national responses and trends. Also, the necessary requirements of a test city
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(isolation, comparability representative, media mix, diversified socio–economic cross section, etc.) may be
difficult to find in one city. Finally, the competition could more easily taint a company’s results in one city.
Yet, the motivation behind using one test city is probably cost. This conventional type of testing is very
expensive, although it produces rather successful results. Therefore, companies may want to perform some
useful testing (one city) but cannot afford to do multiple cities testing. In this case, the cost/benefit analysis
must carefully be performed. Alternative evaluation methods may be a better option to a single city market
test (e.g., simulated mall tests).
9. Examine the new-product-planning process assuming a platform strategy is being used by the
organization (see Exhibit 8.10). How does the use of a platform strategy alter the planning process?
In a platform strategy, the team assumes that the new product will be built around an established
technological system. A platform strategy entails the organization developing a capability that can be used
to generate other products. This capability is leveraged to develop many products. Thus, the new product
planning process would not begin with a customer needs analysis as it does in Exhibit 8.4. It would instead
begin with the company’s distinct capability. The company would also not be required to go through the
idea generation, screening and evaluation stages. Instead, the processes of the products would all start with
the available platform.
10. Discuss the potential role of the Internet in the new-product-planning process. Which stages of
the process may benefit most from Internet initiatives?
The communications capabilities of the Internet can be utilized in various ways in new product planning.
At the idea evaluation stage, customer feedback may help identify potential new product ideas. The Global
Application feature of the text—“Worldwide Innovation Networks”—describes how companies like
Microsoft, IBM, and Procter & Gamble are using the Internet to drive innovation and to exploit
“crowdsourcing” to solve innovation problems. The Internet can contribute to generating new product
ideas, evaluating new products, guiding taste tests, and improving existing products. The Internet has the
potential to contribute to all stages of the new-product planning process (Exhibit 8.4).
Part III-43
CHAPTER 9
Strategic Brand Management
1. Eli Lilly & Company manufactures a broad line of pharmaceuticals with strong brand positions in
the marketplace. Lilly is also a manufacturer of generic drug products. Is this combination branding
strategy a logical one? If so, why?
This is a sound strategy for two main reasons:

 There has been a big increase in demand for generic drugs in the last five years.
 Generic products can be highly profitable while using up excess capacity.
If Eli Lilly failed to move into this market, it would be missing a big piece of the market for all drugs and
allow its competitors to have a chance at a significant and profitable market. Consumers in the U.S. have
purchased generic products in many product areas. They provide good quality at substantial price savings.
In the troubled times of 1980–1981 people became very cost conscious and increased the number of
generic products they bought. Generic drugs have done well. Much of the reason is due to consumer reports
and generic studies that indicate that most drugs have the same ingredients. One example of this is a recent
aspirin study that says all aspirin contains about the same ingredients; therefore, K–Mart brand is just as
good as Bufferin at half the cost. So as long as Eli Lilly can maintain good sales growth and profits in
generics without damaging sales in their brand lines then it is felt this is a very logical strategy. An
important consideration in the generic market is developing strong middlemen which is something Eli Lilly
has already done. Also, one must observe the retailers who sell the products, as long as a demand for
generics increases, will allocate more shelf space for these products.
2. Discuss the advantages and limitations of following a branding strategy of using brand names for
specific products.
An important advantage of using a brand name strategy is to build brand identity with either the product or
mix of products in the line. Another critical advantage is that branding offers a way to distinguish a
company’s product, thus, providing a competitive advantage. Many times the name supplies information to
the customer as to quality, reputation, etc. Brand names are important elements used in advertising and
promotion. Of course the company must decide their reasons why a brand name should be used. Brand
names for specific products identifies the product’s use to the customer. Instead of the customer thinking,
“I need something to clean my ear,” he thinks, “I need a Q–Tip.” This is obviously the ideal situation for
the marketer—where the customer has a need and identifies that need to your specific product by name.
One of the best examples of this is Coke. Many people ask for Coke when they want a cola drink even if an
establishment has another brand such as R/C Cola.
The limitations of a brand name strategy for a specific product is that you may form a good solid brand
identity and a competitor will come in with a private label product they claim does the same thing at a
cheaper price. They play on the image you have built in the consumer’s mind. Also, sometimes the brand
name confuses the customer and turns the customer away because the name is too complex or does not
mean anything. Sometimes brand names are associated with high cost in relation to private names. The
economies of scale in promoting many products under one name (e.g., Craftsman) are not possible when
using a different name for each brand. Finally, some brand names become so associated with a product they
become “public property.” In other words, the name is associated with a product and not a company.
3. What is the role of strategic brand analysis in building strong brands?
Strategic brand analysis performs a vital role in providing information essential in managing the
organization’s brand portfolio. It provides essential information for decision making for each of the brand
management activities shown in Exhibit 9.1 of the text.
Part III-44
The analysis includes market and customer, competitor, and brand analysis. Information is needed on how
each brand is performing, competitive strengths and weaknesses, market trends, and changes in
competitors’ brand strategies. Various aspects of the brand may be examined including performance,
portfolio interrelationships, leveraging strengths and weaknesses, and brand values.
4. To what extent are the SBU strategy and product strategy interrelated?
The SBU can be viewed as a separate product company which has a product or line of products that will be
marketed to a target market. The way in which the SBU markets its products is through one or more
product strategies. Basically, the SBU and product strategies are very much interrelated. The big step in
directing the SBU is determining how management wants to position the SBU products against key
competitors. The product strategy will also provide valuable marketing research information for the SBU.
This information is of key importance in designing the positioning strategy for the product(s) as well as
guiding the SBU’s mission. The interrelationship between the SBU and the product strategy becomes more
complex as multiple products and markets are added to the firm. Priorities must be established as to the
importance of each of the product categories in the SBU. This aids in planning for new products, and
guides resource allocations for the overall firm.
5. Suppose that a top administrator of a university wants to establish a product-management

function covering both new and existing services. Develop a plan for establishing a product-planning
program.
The important first step for the administrator is to decide how much of a management function the
university wants. Much of this will come from the objectives set by the administrator. Next, a review of
existing services should be done, focusing attention on how well they are performing. This necessitates the
establishment of criteria for use in evaluation. Doing this is not simple since there is likely to be wide
variation across academic areas (e.g., music versus journalism). A guide to tracking is as follows:
ESTABLISH PRODUCT PRODUCT REVIEW

PERFORMANCE SYSTEM
OBJECTIVES
STRATEGY IDENTIFICATION
ELIMINATING OF PROBLEM
THE PROBLEM PRODUCTS
It is important to eliminate services before consideration is given to new services. Next, university-wide
research should be done, perhaps in the form of a survey, covering all services the university provides its
students and faculty. This survey would vary in length and form depending on the size of the school. This
would set the stage for new product ideas, and help develop a starting point for the planning process. If the
survey is done properly, the administrator will have more service ideas than is economically feasible;
therefore, the evaluation stage is crucial to developing a beneficial new product (service) plan. Obviously,
the administrator will evaluate the new service ideas against the school’s objectives. Once some new
services are developed a marketing strategy should be built around the services in the same manner as with
a product. It is much easier to test a service than a product, and less costly, the testing phase could be
beneficial to the administrator to gauge the real importance of the new service. After testing, the new
services that look best are introduced and traced as to performance. Tracking is especially important in this
Part III-45
service example because many times a university service is not successful, yet it continues to consume the
school’s resources. One added problem with a university is that needs change so suddenly (student bodies
tend to be so trendy), and many times university services compete directly with non-university services,
such as, food outlets, movies, and other entertainment activities. This makes the new service decision more
difficult.
6. Many products like Jell-O reach maturity. Discuss several ways to give mature products new
vigor. How can management determine whether it is worthwhile to attempt to salvage products that
are performing poorly?
The management must decide whether the mature product is meeting the objectives set down and if these
objectives have changed say since they were last determined. Objectives such as, profitability, market
share, sales growth, etc., should be easy to verify. These figures will be a part of the product tracking
strategy.
Management should have been analyzing the product all along. If objectives are not being met or
management desires to change these objectives the first thing to consider is ways to restate the product’s
position or give it new life. During the maturity stage, product repositioning efforts may occur by adjusting
size, color, and packaging to appeal to different market segments. Typically, advertising or new
promotional methods are used. Many times the product is put in a new package, or given a “new” branding.
Actual improvements to the product may be useful in stimulating sales. These strategies are very effective,
and have helped many old products contribute profitability to a product line. Additionally, new shelf space
designs can be added along with contests. Other ways to expand an aging brand are to convert nonusers,
enter new market segments, find new uses for the product, obtain competitor’s customers as they leave the
market, and increase usage. It is important to remember that this product could still be providing benefit to
the overall product line, and to the image of the company. The decision to remove it from the shelf should
be done with caution. Old customers may use the product along with others in the line so changes in
availability could hurt other line sales.
NOTE: If competition is the reason for a lack of products performance one fast way to restore sales is by
lowering the price, or offering two-for-one type deals. But, one must be careful not to destroy the quality
image of the product if price is dropped. An excellent example of this is Xerox Corporation, which has had
to drop price to compete with the Japanese producers. This strategy could hurt the company’s image of
high quality and competitive advantage.
7. How does improving product quality lower the cost of producing a product?
Product quality is a critical factor when competing on a national or global scale. Producing a high quality
product can establish a strategic advantage for the firm. Uniformity of the product occurs when all
processes of the business are improved to increase quality. This in turn reduces the necessity to rework the
product. Labor, machine hours and materials used are ultimately reduced as well by producing the product
correctly the first time. These reductions in operating and rework costs lead to higher efficiency,
productivity and increased competitive position. Thus, improving the quality of a product can, in effect,
lower the costs of production.
The experience of firms adopting quality improvement programs indicates that improving the processes
that produce products, lowers costs by eliminating costly rework and rejects. Implementation of quality
programs requires a substantial time and resource commitment but the returns from cost reduction and
improved quality are substantial.
8. Why do some products experience long successful lives while others have very short life cycles?
Products last as long as they meet buyers’ needs and wants. When these requirements change or alternative
product forms are made available, the product life cycle may move into the decline stage. Continued
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success of some products may also be due to management’s efforts to extend the life cycle by improving
the product. A continuing effort to improve product benefits and lower costs is important to maintaining
and strengthening competitive advantage. Early identification of the end of a product’s life cycle enables
management to plan for new product replacements.
Products can experience short life cycles due to changes in technology. For instance, a product in the
computer industry could be rendered obsolete within six months of its introduction, due to technology
advancing at an increasing rate. Also, as customers’ needs change, the product life cycle could begin to
change as well. Furthermore, if substitute products are prevalent, other products’ life cycles could be
shortened drastically. On the other hand, if technology remains constant, customers’ needs stay the same, or
no substitutes are found in that industry, a product could have a long product life cycle.
9. How can a company combine the strengths of global brands with the need to adapt to local market
requirements in a multinational operation?
A company’s global brand strategy is intended to position it favorably with international retailers.
There can be enormous strengths in ownership of a “master brand”—a brand identification that extends
across national and cultural boundaries. The global brand appeals to common values across different
countries and regions, not what is different. They may appeal to certain types of buyers whose needs and
requirements vary little between different countries. Examples of such brands might include, Coke, Pepsi,
Toyota, and Intel. Strong global brands enable the brand owner to negotiate on more equal terms with
international purchaser like powerful retailers, and may offer substantial economies in marketing costs, as
well as competitive advantages against smaller local brands. Increasingly cosmopolitan consumers in many
countries with similar tastes drawn from exposure to similar media and the economies of scale of global
brand identification and communications, encourage the development of global brands. However, global
brand identity may also create barriers to building strong identification with local markets, so both a global
and local perspective may be important. The emphasis on a global brand which varies little between
different international markets may be a barrier to gaining a strong position in local markets, which require
adaptation and differentiated approaches. Current pressures mandate greater diversity in brand offerings to
meet local market requirements, possibly replacing the “master brand” with the brand portfolio as the
important issue in strategic brand management.
10. Discuss the underlying logic of managing brand portfolio.
Portfolio management is concerned with enhancing the performance of all the brands and product lines
offered by a company. Initiatives include changing brand and product-line priorities, adding new product
lines or brands, and deleting product lines or brands.
A brand portfolio perspective encourages the use of brands to support the entire portfolio as well as the
support of each brand.
Many times, new products alone cannot generate sales and profits that are essential to the vitality of the
business. A contributing factor to the firm’s success is their portfolio of products at various stages of
maturity. Managing brand systems strategically is the key to performing well in the market place. Firms
offering a wide variety of brands across a variety of markets need to manage them collectively. If managed
separately or on an ad hoc basis, resource allocation may be less than optimal. If firms do not strategically
manage their brands as a cohesive portfolio, then decisions made for individual products may end up
hurting the company.
A brand system perspective encourages the use of brands to support the brand system. That is, the brands
work to support each other. A key concept is that specific brands play different roles in the portfolio. An
important issue in managing brand portfolios is deciding how many brands should comprise the system.
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11. What are the strengths and limitations in moving the Marriott brand vertically upward and
downward in terms of price and quality?
Stretching the brand vertically is a form of line extension that may include moving up or down in
price/quality from the core brand. It may involve subbrands that vary in price and features. The same name
may be used, or the brand name linked less directly. The advantages of this strategy include expanded
market opportunities, shared costs, and leveraging distinctive capabilities. The primary limitations are
damage to the core brand when moving lower (e.g., lower-price/quality versions of a premium brand) or
difficulty in moving the brand to a higher-price/quality level.
Moving the brand down is more likely to affect buyers’ perceptions than other brand management options.
It is an attractive option because of the size of the lower-price/quality market, and this initiative is relatively
easy to pursue since it benefits from the image of the higher-level brand.
Moving the brand up is also risky.
Marriott has an array of hotel and lodging properties ranging from luxury hotels to less expensive lodging.
Many of its chains are associated in some way with the Marriott name (e.g. Courtyard by Marriott).
Vertically extension of a brand name has potential risks such as brand damage by moving a high
quality/price brand to a lower position. Marriott was successful in downward extension to create Courtyard
by Marriott. An association with Marriott was indicated but the core brand identity focus was on Courtyard.
Marriott has not linked the Marriott brand name with its super-luxury Ritz Carlton chain.
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CHAPTER 10
Value-Chain Strategy
1. In the late 1990s several airlines started selling tickets using the Internet. Discuss the implications
of this method of distribution for travel agencies.
This was one of the early examples of the digitization of the channel of distribution. This method of
distribution is a potential threat for travel agencies since the dispenser takes the agency out of the loop.
Internet ticket sales as well as ticketless travel are likely to be used most by low cost carriers like
Southwest. The agencies must work aggressively to show customers that they benefit from an agency
relationship. Savings from ticketless travel and Internet sales may be $20 or more per ticket. Similar
savings are possible via dispensers, so there is an incentive for the airline to use these methods of
distribution.
2. Distribution analysts indicate that costs for supermarkets equal about 98 percent of sales. What
influence does this high break-even level have on supermarkets’ diversification into delis, cheese
shops, seafood shops, and flowers?
The maturing food industry has seen its margins on basic food items narrowing for a long time. Stores such
as Kroger have diversified their store offering to develop new opportunities and to provide one stop
shopping. In this age of convenience shopping, one stop shopping is becoming a strong desire of the
consumers. This one stop shopping enables food stores to offer higher margin goods such as deli items, and
hard goods. Non foods, for example, carry as much as four times the margins of food items. Once you have
the customer in the store buying regular staple items, it does not take that much more effort to get them
interested in more expensive diversified items. It may eliminate any extra trip to another store; therefore,
they are willing to pay higher margins. To illustrate, many customers used to obtain food items at one place
and hardware at another place. This costs time and money and in today’s fast pace world people prefer a
one stop shop atmosphere. There is also a novelty in the diversified areas of a store. Cheese shops sell
expensive cheese, and people will buy it because it is different and is the “in” thing.
3. Why do some large, financially strong manufacturers choose not to own their dealers but instead
establish contractual relationships with them?
One reason is that serving your dealers takes a great deal of capital and using this capital to buy dealers
limits expansion. Although a big manufacturer might have the capital to buy a dealer network, expanding
operations may be a better investment. Also, cost–benefit analysis might indicate that establishing a
contractual relationship is the most profitable way to run the channel (i.e., similar to a purchase versus lease
decision). Motivation is often higher with independent dealers.
The automotive dealership generally is sold as a franchise. But the manufacturer still maintains control over
the dealership because under contract the dealer can only purchase from the specific manufacturer. Also the
dealer is generally strapped for financing and therefore, must borrow money from the manufacturer to keep
operations moving. So in the case of an automobile manufacturer, there is no need for ownership because
control can be maintained through contractual agreement. Additionally, by not owning a dealer the
manufacturer can spread some of the risk (and rewards) down through the channel.
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4. What are the advantages and limitations of the use of multiple channels of distribution by a
manufacturer?
One of the advantages of using multiple channels of distribution is that it gives greater access to end-user
customers. Thus it increases sales and profits. Another advantage is it reduces the dependence upon one
channel. Multiple channels allow more flexibility in marketing strategies.
One of the major problems of using multiple channels is that it is difficult to define innovative channel
combinations that best meet customer needs. Another limitation of the strategy is the possible irritation of
channel organizations if there are variations in price, advertising support, and other actions by the
manufacturer. Some manufacturers’ use of factory outlets has been a source of retailer conflict. Selling the
same or similar products at reduced prices through factory outlets and discount malls may cause retailers to
drop the manufacturer’s line.
Care is required in managing channels which may in part compete with each other. Attention is required to
ensure that incentives and rewards are aligned with the channel strategy.
5. Discuss some likely trends in the distribution of automobiles in the 21st century, including the shift
away from exclusive distribution arrangements.
One can observe some major changes underway in the automotive industry. For instance, dealers are
starting to sell more than one brand of car to increase volume and satisfy the consumer needs. This is likely
to continue. In the past this was unheard of because the major manufacturers had a tight grip on dealers, but
today dealers have been found to offer a more diverse product line because the customer has become more
picky in selection and the major manufacturers have not been able to offer a solid and diversified line. The
failure of many dealers has weakened the manufacturers’ hold on dealers. Cars like Mercedes, or BMW
will probably remain exclusive distribution arrangements because this exclusiveness is part of their allure.
It is possible that retail automobile supermarkets will develop, offering a buyer multiple brands at large
discounts and one stop shopping.
6. In the late 1990s, Radio Shack initiated co-branding strategies with Compaq computer and
SPRINT. Discuss the logic of this strategy, pointing out its strengths and shortcomings.
Co-branding strategy consists of two or more well-known brands working together in promoting their
products. An obvious advantage of co-branding would be that the three companies could share or merge
their distribution channels to target a specific market. The strengths of this collaborative relationship are
sharing information and higher economic performance if the channel systems are properly managed.
However, some shortcomings also exist. The participating firms in the channel must make certain
concessions and be willing to work toward overall channel performance. There are rules to be followed,
control is exercised in various ways, and generally, there is less flexibility for the channel members. Also,
some of the requirements of the shared distribution system may not be in the best interests of a particular
participant. However, competing in a collaborative distribution system is a major competitive advantage
that outweighs the costs associated with it.
7. Identify and discuss some of the factors that should increase the trend toward collaborative
relationships in vertical marketing systems.
Collaborative relationships in vertical marketing systems should increase the benefits associated with
vertical marketing systems. If set up properly, the vertical system can perform much more efficiently than
traditional channels. The most important factor in favor of the vertical structure is that the customer is
serviced better through a totally integrated and coordinated system. Promotion flows better through the
chain, and service is given by the channel leader instead of someone with less responsibility. As customers
become more informed and demanding of the services they receive, companies’ emphasis on vertical
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relationships will become more and more important. Collaboration among vertical channel members will
enhance the service delivered to the customer. As Just-In-Time inventory programs and total quality
management programs are implemented, collaboration between suppliers and producers will become more
necessary.
8. Why might a manufacturer choose to enter a conventional channel of distribution?
The manufacturer might not be able to service the customer through a vertical channel for many reasons.
One of the biggest factors is a firm might not have the financial resources for a vertical arrangement. Also,
the customer base could be impossible to service through a vertical channel. Some industries work
exclusively through brokers and deviation from this strategy is not expected. The manufacturer might not
be interested in controlling the channel or taking responsibility for selling throughout the channel. Also,
there may be legal restrictions on a manufacturer which forces the conventional system to be used. A
manufacturer wanting greater flexibility in entering and exiting a channel may look at a conventional
channel. Finally, a manufacturer may be unable to enter a vertical marketing system.
9. Discuss what is meant by channel migration and the issues that a manufacturer faces in dealing
with migration issues.
Channel migration refers to the strategic shift from one channel to another—either because customers
prefer a new channel opportunity, or because competitors modify their channel strategy. For example, the
move in low-cost airlines like Ryanair away from selling tickets through travel agents to selling only in the
Internet—98 percent of Ryanair tickets are now sold online.
Essential questions to consider are:
 Whether the new channel complements or replaces existing distribution channels?
 If the new channel opportunity enhances or undermines the company’s existing value chain?
The answers to these questions should indicate the necessary channel migration strategy.
Channel migration indicates the need to add or drop channels, reinforce or develop new channel
capabilities, and the resistance or conflict to be faced with existing channel members.
The challenge for a manufacturer is deciding when, or if, a shift in channel use mandates a change in
channel strategy. The picture emerging from channel maps is frequently the indication that this has become
an issue.
If changes are necessary to channel strategy, then the issue becomes how well suited the company is to
operate through the new channel, or a combination of traditional and new channels. For example, one major
strength for Dell computers in its growth phase was that it was not easy for competitors to adopt direct
business models, because they competed with their traditional channels and distributors.
Channel migration indicates the need to add or drop channels, reinforce or develop new channel
capabilities, and the resistance or conflict to be faced with existing channel members.
10. Suppose management of a raw material supplier is interested in performing a financial analysis
of a distribution channel comprised of manufacturers, distributors, and retailers. Outline an
approach for doing the analysis.
The raw material supplier would first want to run the basic financial ratios on channel organizations, such
as, profitability ratios, solvency ratios, debt ratios, etc. Also, the supplier would want to look closely at the
debt structure of all channel firms. This will indicate if the members will be able to pay their bills on a
regular basis. Another good idea is to have required channel members provide letters of recommendations
from other suppliers (if possible). It is generally required to review the companies’ auditor’s report (if audit
is performed) and to have bankers verify financial stability. All one is trying to do is establish a record of
good payment which is critical to the operations of a channel. If possible it is valuable to see a long range
financial plan of channel firms. This enables the suppliers to align goals, and make the channel more
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efficient. Depending upon the number of firms involved, the supplier could select a sample of channel
organizations concentrating on those accounting for the bulk of the supplier’s business.
11. Discuss some of the important strategic issues facing a drug manufacturer in deciding whether to
distribute veterinary prescriptions and over-the-counter products through veterinarians or
distributors.
A drug company would be faced with the following strategic issues when deciding to use veterinarians or
distributors in distributing its products:
 Access to market target:
In one regard, veterinarians have direct access to the customers of the drug company’s products.
However, distributors may provide wider distribution of the product.
 Channel functions:
Distributors may be able to take over more channel functions, whereas, the company would probably
have to assume more of them with veterinarians.
 Financial considerations:
Costs to reach veterinarians may be greater than distributors. Yet distributors may add a higher price
markup to cover costs.
 Control over channel:
This area must be evaluated in light of each intermediary.
12. Consider the differences in retail concentration between the United States and Europe. How do
those differences impact on manufacturers’ channel strategies?
Managers concerned with global value chains need to make allowances for the very different competitive
conditions in overseas markets and the restrictions these may place of the value chain, and the need to
develop alternative approaches to accommodate these local conditions.
European retail markets display much higher levels of concentration than is the case in the United States.
The dominant retailing companies have high market shares and very strong market positions. They tend to
be very aggressive and very price-oriented in their dealings with suppliers. This is very challenging for
suppliers who lack alternative means to economically reach consumer markets in European countries.
Supplier responses may include: greater emphasis on consumer advertising to build brand familiarity to
reduce the bargaining power of local retailers; establishing alternative distribution channels (e.g., direct,
online) to work around the dominant retailer position; attempt to establish collaborative relationships with
one or more local retail organizations; accept lower prices and margins in overseas markets; emphasize
emerging markets where local distribution is not dominated by a small number of powerful retailers.
Whatever means are identified to cope with higher levels of retail concentration in overseas markets, it is
likely that the resulting channel strategy will be substantially different to that in the domestic market.
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CHAPTER 11
Pricing Strategy
1. Discuss the role of price in the marketing strategy for Rolex watches. Contrast Timex’s price
strategy with Rolex’s strategy.
Rolex markets its watches with a very high quality, high price strategy. Pricing is not active—it is passive.
People know that Rolexes are expensive but one is looking for quality, image, and looks. In fact, price may
serve as a proxy for quality to the buyer.
On the other hand, Timex uses price as a major part of its marketing strategy. Advertisements are centered
around good quality (dependability) and low price. It used this strategy to gain entry and market share in
the watch market. It satisfied a need that had not been met through its product pricing strategy. It has a low-
active strategy.
2. The Toyota Camry and the Lexus ES 330 are very similar but the ES 330 is priced substantially
higher than the Camry. Discuss the features and limitations of this pricing strategy.
The use of common manufacturing components is not a new strategy. General Motors has followed this
practice for several years. An important issue is successfully positioning the Camry and ES 330 as two
different bundles of value in the eyes and minds of buyers. While the cars look somewhat similar, they also
display differences. Importantly, the ES 330 benefits from the image of the Lexus name. No doubt part of
the price differential between the two cars is accounted for by this image.
3. Indicate how a fast-food chain can estimate the price elasticity of a proposed new product such as
a new chicken sandwich.
Price elasticity is the percentage change in the quantity sold of a brand when the price changes, divided by
the percentage change in price.
The price of the chicken sandwich could be varied at different locations (in different test market cities) and
then statistics could be generated on demand. If the higher priced sandwich location had the same demand
or more than the lower priced locations, then the chain might be able to determine that the sandwich is
fairly price inelastic within a range appropriate for sandwiches. It is doubtful that it could continue to raise
the price without a decrease in demand. However, if demand was much greater for the sandwich priced at a
low price, then the chicken sandwich may be quite price elastic. Of course in order for the demand statistics
to be significant the different test locations must be compatible on size, traffic, customer characteristics,
etc.
4. Real estate brokers typically charge a fixed percentage of a home’s sales price. Advertising
agencies follow a similar price strategy. Discuss why this may be sound price strategy. What are the
arguments against it from the buyer’s point of view?
This fixed commission strategy is an accepted practice because it makes pricing very easy. The selling
price of the home sets the sales price for the sales agent. Also, this strategy is nice for the broker because
high dollar sales do not require proportionately more effort compared to low dollar sales while the brokers
receive a larger commission. This is one of the biggest arguments from the buyer side. Many buyers feel
that a commission rate should be negotiable on each and every deal in order to let the market forces take
place. This is what happened in the stock market. For years the market had a fixed commission strategy and
then buyers discovered that brokers could sell 10,000 shares as easy as 100 shares and hence should not be
paid a fixed rate. Fixed pricing is a very comfortable strategy for any company and it facilitates easy
planning. It may be unfair to the person/company who pays the commission.
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5. Cite examples of businesses to which the experience-curve effect may not be applicable. What
influence may this have on price determination?
Companies with very specialized products that are custom designed especially for a buyer’s needs would
not necessarily be subject to an experience-curve. Examples of such companies are defense contractors,
engineers, and oil drilling companies. Another example is custom home contracting. This makes price
determination difficult because it is hard to judge different project costs (similar historic costs may be used
but this is also difficult). In these businesses costs generally rise with inflation, and innovation. Moreover,
pricing is likely to be influenced more by demand and competition than by cost and set accordingly.
6. In some industries prices are set low, subsidies are provided, and other price-reducing mechanisms
are used to establish a long-term relationship with the buyer. Utilities, for example, sometimes use
incentives to encourage contractors to install electric- or gas-powered appliances. Manufacturers
may price equipment low, then depend on service and parts for profit contribution. What are the
advantages and limitations of this pricing strategy?
Such a pricing strategy is an important and highly visible way of attracting customers. It may be used to
gain sales and market share. It allows a company to be competitive with its main product while making up
the difference with high margins on supplies, etc. Some of the disadvantages of such a strategy are that
competition may be limited because they cannot meet the subsidized price and the strategy may be
questioned on ethical grounds. The underlying strategy is to lock the buyer into a company that supplies the
auxiliary items. For example, razor blade companies give away razors when you buy their blades (and
many times only their blades fit the razor). Hence, they can market higher margin blades to the customer,
and the buyer is happy. This strategy makes for nice profit potential and steady cash flow among other
things. Also, over the long run a service company can maintain a good relationship with the customer, and
hence promote this service to others.
7. Discuss why it is important to consider pricing from a strategic rather than a tactical perspective.
Taking a wholly tactical view of price neglects the important strategic role pricing can play in marketing
strategy. Strategic choices about market targets, positioning strategies, and products and distribution
strategies set guidelines for both price and promotion strategies. Product quality and features, type of
distribution channel, end-users served, and the functions performed by value chain members all help
establish a feasible price range. When an organization forms a new distribution network, selection of the
channel and intermediaries may be driven by price strategy. Pricing decisions should be an integrated part
of positioning strategy. Positioning strategy is guided by how management wants the brand to be positioned
by buyers. Pricing strategy works in combination with product, distribution, and promotion strategies in
seeking to position the marketing offer in the eyes and minds of the buyers in the market target. Short-term
tactics are important but these decisions should be consistent with longer-term pricing strategy.
8. Discuss some of the ways that estimates of the costs of competitors’ products can be determined.
One could buy competitors products and take them apart and try to cost out the components parts. Many of
the parts might be built by the same vendor. Vendors themselves might be able to help a company
determine competitor costs. Sometimes, study of financial statements can give an indication of costs,
particularly when there are not too many different products lumped together. If a competitor has a one
product line financial statement, one can sometimes review cost data that can be helpful. Finally,
management experience and judgment can be used with high accuracy to sometimes predict costs of
competitors. Knowledge of wage rates, for example, is useful in some product categories.
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9. Discuss how a pricing strategy should be developed by a software firm to price its business-
analysis software line.
The software product is one that is evaluated on the basis of features and performance. Buyers have
difficulty evaluating the applicability and cost benefits of these products. In this regard price may not seem
to play an active role; however, there seems to be a certain range that non-business consumers are willing
to pay. For example, customers may show resistance to prices over $100 for personal use software. Within
this range, the price may be inelastic while elastic outside the range. Since this technological market is very
competitive, prices set must reflect the competitive environment. The software could be distributed through
retail outlets at a price below $100. The key to marketing this product may be to emphasize its features and
performance.
10. Suppose a firm is considering changing from a low-active price strategy to a high-active strategy.
Discuss the implications of this proposed change.
This policy may have a major impact on the success of product. Since both strategies are “active”, the
consumer would be extremely aware of the product’s “price”. Increasing the price may lead consumers to
discontinue the use of the product. One way to counter such an attitude might be to increase the quality or
status of the product. This would be rather difficult though since people have a strong association of a low-
price with the product due to the “active” strategy. For example, if a “discount” store (K mart) tried to
significantly raise its prices, people may not be willing to pay higher prices because that store used to have a
“low-price” image.
11. Describe and evaluate the price strategy used for the Lexus 430 European-style luxury sedan.
Toyota markets the Lexus 430 as a very high quality, high priced luxury sedan providing a leather interior,
a very smooth ride, and ultimate comfort. Toyota has positioned the Lexus in the upper ranges of the
American sedan market. At the same time, it is priced at the low to mid ranges of the luxury styled
European cars. Americans have become a little more price sensitive and therefore, want quality and
comfort at a little lower price. Toyota, intent on increasing brand recognition and loyalty, markets non-
price factors of the Lexus when attracting its customers.
The entry of Honda (Acura), and the Toyota Lexus, slowed down price increases by European car makers.
The Lexus was “value” priced to offer comparable design and performance to the more expensive BMW
and Mercedes models. Lexus with extras averaged $40,000 plus when introduced in 1989. Ratings of the
Lexus were very high by automobile magazines. The pricing strategy helped Toyota gain a position in the
luxury segment.
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CHAPTER 12
Promotion, Advertising, and Sales Promotion Strategies
1. Compare and contrast the role of promotion in an international public accounting firm with
promotion by American Airlines.
Certified Public Accountant (CPA) firms’ promotional strategies reflect their strategies of segmenting
markets and developing new products. The lifting of the ban on advertising (with some restrictions)
resulted in a shift of promotional strategies. Although advertising is now allowed, the firms are still
somewhat conservative in their advertising styles because they want to preserve their professional image.
They tend to advertise in trade journals or business magazines versus television. Personal selling is a key
element in promoting a CPA firm because potential clients are really “buying” the service based on their
confidence in the firm’s representatives. This is similar to the promotion of other professional services.
American Airlines’ promotional strategies rely heavily on advertising in all types of media. Radio,
newspaper, and television are all vital elements of an airline’s advertising strategies. Sales promotions such
as “Super-Savers” also play an important role and encourage higher volume levels. Since advertising has
not been restricted in the airlines, they have developed it to a greater degree and are not faced with
maintaining the “professional” image as CPAs are. Price wars are encountered by both types of industries
although with CPA firms it is more subtle. The airlines depend on promotion from an intermediary—travel
agent. Selling effort is targeted to travel agents and corporate accounts, though selling also occurs via ticket
agents.
2. Identify and discuss the factors that are important in determining the promotion program for the
following products:
a. Video tape recorder/player.
b. Personal computer.
c. Boeing 7E7 Dreamliner commercial aircraft.
d. Residential homes.
a. Competition has forced video tape recorder manufacturers and retailers to emphasize advertising for
quality and/or low prices. Video discounters for example, must generate high volume from advertising
to compensate for the low prices. Although personal selling is important in the stores, its significance
will decrease as video recorders become a commodity.
b. Personal computers are generally expensive, complex, and in a competitive market. As a result,
personal selling is necessary to inform the public. Trade shows also help to disperse information.
National advertising is also used. As personal computers become more common, advertising will
become a more important component.
c. Boeing, due to its complexity and limited market, relies primarily on executive selling. The
communication process needs to be tailored to the particular client. The high cost of the aircraft also
supports a strong personal selling strategy.
d. Residential homes are an expensive purchase and therefore require personal selling. Personal contact
is critical because for most people this is their largest planned investment. Advertising, however, may
be used to bring people to a development. Developers use television, newspapers, radio, and road signs
to attract potential consumers’ attention.
3. What are the important considerations in determining a promotion budget?
The important issues in promotion budget determination are identifying:

 Market share
 New products
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 Market growth
 Plant capacity utilization
 Unit price of public relations
 Product purchases as a percent of total purchase
 Product pricing
 Product quality
 Breadth of product line
 Standard versus custom
Based on relationships between the various factors, budgeting techniques can then be developed to estimate
the promotional budget. The factors can then be averaged in simple or weighted terms.
4. Under what conditions is a firm’s promotion strategy more likely to be advertising/sales

promotion-driven rather than personal selling-driven?
A promotional strategy will likely be advertising/sales promotion driven under some of the following
conditions:
 Larger number of buyers
 Less expensive products
 Undifferentiated audiences
 Stimulation for personal communication
 Nonindustrial products
 Simple type of products versus complex ones
 Commodity type products (standard)
 Introduce a new product
 Exposure to numerous geographically dispersed consumers at a low cost
Required:
 Stronger, quick response
 Attention getting promotion needed (i.e., low prices)
Desired:
 Cost effectiveness
 Premium priced product
 High manufacture contribution margin
The key to using advertising/sales promotion driven strategy is when a firm needs to communicate to a
large group, consumers buying an understandable product or service, or when the consumers are trying to
gain information.
5. Discuss the advantages and limitations of using awareness as an advertising objective. When may
this objective be appropriate?
The key issue with using awareness as an advertising objective is to find whether awareness is related to
purchase behavior. One of the advantages of using awareness as an advertising objective is that awareness
can be measured. Another advantage is that research evidence indicates that it leads to increased market
share, and therefore, larger profits. Obviously, consumers cannot buy a product they do not know about.
Awareness may trigger a need or desire.
The problem with using awareness is that the linkage between exposure and purchase is precarious. A
marketing manager will usually find it more useful to know that advertising caused a measurable increase
in sales instead of knowing that advertising exposed a specific number to the company’s message.
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This objective may be ideal for a new product or concept. In such a case, sales are dependent on the
number of people that learn about the product and the speed in which they take action on a purchasing
decision (e.g., word-of-mouth may be to slow).
6. Identify and discuss the important differences between advertising and sales promotion strategies
in promotion strategy.
Sales promotion expenditures are increasing more rapidly than advertising in many companies. Sales
promotion is a more personalized strategy than advertising. Sales promotion activities provide extra value
or incentives to consumers and value-chain participants. Sales promotion activities can be targeted to
various points of influence in the value chain. It offers special communication techniques and incentives
that are customized to respond to a specific occasion or purchase. It directly interacts with customers
through trade shows, contests, samples, point-of-purchase displays, trade incentives, and coupons.
Advertising, on the other hand, involves nonpersonal communication concerning an organization, paid for
by a specific sponsor. It cannot interact with viewers and does not promise to hold customers’ attention.
However, it can target communications to specific buyers with more focus than the large networks. It also
communicates through a large variety of media channels.
7. Coordination of advertising and personal selling strategies is a major challenge in large companies.
Outline a plan for integrating these strategies.
There are several ways to coordinate and integrate strategies. The development of formal plans that require
advertising and selling team participation is one effective integrating method. Some companies assign these
coordination responsibilities to product or market managers. Another method is holding regular planning
and coordination meetings. These meetings assemble the people responsible for the various promotion
activities. Importantly, responsibility should be assigned to a person or group and the people responsible for
implementation should participate in the planning process.
8. Discuss the role of sales promotion methods in the promotion strategy of a major airline.
Sales promotion methods for a major airline fall into three broad categories—the general public, the
commercial traveler, and travel packages. For the general public, advertising is probably the main
communication device along with incentives like the “Super Saver” fares. This type of promotional tool is
meant to be an incentive to induce an immediate response from the consumer. Usually such “deals” have
tight time restrictions and limitations. Again, their thrust is to draw attention.
For the commercial traveler the “Frequent Flyer” program entices business travelers to use a particular
airline for their personal gain. Free trips or upgrades are great incentives to use a particular airline.
9. How and to what extent is the Internet likely to be useful in companies’ promotion strategies?
Internet initiatives regarding promotion strategy may range from comprising the entire promotion strategy
to providing support for any or all of the promotion components. Many conventional brick-and-mortar
companies have websites that offer a wide range of information capabilities. Some of these firms accept
orders by Internet. Companies operating using only an Internet business design perform all or many of their
promotion activities via the Internet.
Internet advertising enables advertisers to target their communications to specific buyers with more focus
than other media options. The Internet enables buyers and sellers to communicate with each other. It
performs an important and rapidly escalating role in promotion strategy. In addition to providing a direct
sales channel, the Internet may be used to identify sales lead, conduct Web-based surveys, provide product
information, and display advertisements. It is the platform for a complete business strategy in the case of
Internet business models. Marketing strategies are increasingly linked to Internet initiatives.
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But, the capabilities and costs need to be evaluated in deciding the promotion role of the Internet. Also, it is
important to minimize conflict with salespeople and to be consistent in communicating with market target
customers and prospects. Nonetheless, the Internet performs an important and rapidly escalating role in
promotion strategy.
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CHAPTER 13
Sales, Digital, and Direct Marketing Strategies
1 What information does management require to analyze the selling situation?
Information needed to evaluate the selling situation includes market potential, number and location of
customers, intensity of competition, and market (brand) position of the company. This information may
identify the potential for sales in a territory. The sales potential can be compared against actual results to
analyze a particular selling situation. Revenue/cost and sales response information also provides other
means for evaluating the situation. Further review of the selling situation involves evaluation of the
salesforce performance, such as sales results, costs, salesperson activities, and customer satisfaction.
Management should establish a procedure for analyzing selling situations so it is efficient and effective in
meeting the company’s goals.
2. Suppose an analysis of sales force size and selling effort deployment indicates that a company has a
salesforce of the right size but that the allocation of selling effort requires substantial adjustment in
several territories. How should such deployment changes be implemented?
The firm needs to determine what the objectives of sales are (profit, market share, etc.) and then the weak
territories need to be analyzed in terms of these objectives. The allocation of sales effort must be done with
care so as not to disrupt the profitable and effective territories. The fact that this company has the correct
number of sales people allows management to concentrate upon deployment. Issues to be considered in
redeployment are:
 Effective communication of the need for redeployment
 Minimizing the number of disruptions with accounts
 If commissions are paid, avoiding sudden pay cuts due to reassignment
 Concentrating on adjustments that do not require major geographical relocations of salespeople
 Obtaining the cooperation of the salesforce in making the changes
 Providing any necessary training
 Communicating with customers affected by the changes
3. What questions would you want answered if you were trying to evaluate the effectiveness of a
business unit’s sales force strategy?
Evaluation of the effectiveness of a business unit’s selling strategy could be evaluated using the following:
 Cost per sales call
 Number of new customers annually
 Sales per salesperson
 Sales and profit per region and smaller units
 Number of salespersons per region
 Sales per call
 Calls per day by region
 Profit margin per product
 Profit contribution per salesperson
 Lost customers annually
 Market potential
Other issues to be considered are the functions that the salesperson should be performing and time
allocations. For example, how much time should be allocated to locating new prospects versus servicing
existing customers?
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4. Discuss some of the advantages and limitations of recruiting salespeople by hiring the employees of
companies with excellent training programs.
The objective of selecting salespeople is to hire those that will become high performers, yet, not be
overqualified. Many companies hire employees from other companies who have a reputation for excellent
training programs. They see this as a way to avoid high training costs while getting the benefit of it. (Costs
include time of the trainee and trainer during which time neither is contributing to the profitability of the
firm). Of course, these people will likely demand a higher salary and may be overqualified. Overqualified
people can become dissatisfied and feel unchallenged, resulting in greater turnover. On the other hand, a
well-trained person can be a tremendous asset since they are past the “trial and error” period and have
experienced successful selling techniques. Also, highly trained personnel may have been exposed to a number of
industries and situations which could be very beneficial to a company hiring these people. They also may be able
to assist in developing an appropriate training problem for their new company.
5. Is incentive compensation more important for salespeople than for product managers? Why?
Salespeople are on the front line of a business. They are the driving force in the selling situations. The sales
they generate are essential to the business. Salespersons may need incentive compensation because:
 it encourages salespeople to obtain sales.
 it is difficult to measure their effectiveness and efficiency (it is somewhat intangible).
 they usually work alone.
 they may lose important orders after putting in large amounts of time.
 their hours are irregular.
 they are in a frustrating position of being repeatedly turned down.
 the occupation requires self starters.
 the supervision is geographically separate from the salesperson.
Product managers’ goals are typically more controllable. It does not usually take as great an amount of
energy against numerous obstacles to accomplish their objectives. They operate in a more controllable
environment that is less frustrating. Incentive compensation is not as critical for product manager as a
salesperson, though incentives may be used for product managers provided useful measures of their
contribution can be determined.
The expanded use of selling teams for complex industrial products and services complicates incentive
compensation planning. Some companies are basing incentive compensation on team results.
Incentive compensation may be based on both behavior (e.g., account management practices) as well as
outcomes (e.g., sales).
6. Select a company and discuss how sales management should define the selling process.
The selling process is concerned with the planning and execution of the selling stages and activities
between the salesperson and a customer or prospect. In some instances, heavy emphasis must be placed on
the activities in the selling process which preceded the culmination of the sale. For example, expanding the
product mix, increasing the scope of the market, and entering into strategic alliances may call for
intensified efforts to locate new customers, learn new ways to secure appointments with prospects, or to
modify the tasks of planning sales presentations. On the other hand, a repositioning strategy may call for
changing the basic sales message delivered. In other instances, such as with an integrative channel strategy,
the overall objective may be to generate more volume by concentrating on the latter stages of the selling
process, i.e., confirming the sale, and building enduring customer relationships by providing valuable post–
sale service.
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Defining the selling process for a company like Boeing (commercial aircraft) requires analysis of the stages
that the buyer-seller move through from initial need determination to purchase and post purchase sales
support. The stages may include:
 Prospecting to determine needs
 Targeting opportunities
 Testing of software compatibility
 Formal presentations to technical and management personnel
 Further needs analysis
 Presentation focusing on solution to high priority needs and capabilities analysis
 Purchase commitment
 Post purchase contacts
This process may span several years, resulting in a multi-million dollar order.
7. What are the unique capabilities offered by the Internet to business users of the communications
medium?
The Internet has become an important and expanding avenue of direct contact between customers and
companies selling goods and services. The Internet is replacing salespeople in transactional selling,
whereas it may be used to provide support for relationship-type selling roles. Business-to-business use of
the Internet is far more extensive than consumer adoption of the Internet, although consumer use of the
Internet for information on products and actual purchase is expanding rapidly. The impacts of the Internet
on business organizations in the future are expected to continue to be both transformational as well as
incremental in scope. The impact of digital change is expected to be much greater for companies and
organizations that are very dependent on the flow of information.
The Internet has encouraged the development of “consumer-generated content” for some advertising. The
communications features of the Internet include the following:
 Advertising on the Internet offers important advantages to many companies. The opportunity for
global exposure provides a compelling brand-building capability.
 Providing product, application, and company information via the Internet is essential in the
competitive marketplace. This capability offers an opportunity for direct one-on-one contact.
 It offers a very cost-effective means of obtaining information.
 Access to users provides an opportunity to build a brand that is unique compared to other media.
 It provides an important avenue of after-the-sale customer contact.
The volume and repeated nature of business purchases offer major opportunities for increasing the
efficiency of value chain processes. The Internet, Intranet, and Extranet can be utilized. Websites can be
developed to meet the needs of different business customers. There are opportunities to link applicable
business process systems to suppliers’ systems.
8. Discuss whether the Internet may replace conventional catalogs and direct mail methods of
promotion.
There are many examples of the use of the Internet to perform similar functions provided by catalogs and
direct mail. These trends are expected to continue. However, there is no strong evidence that the Internet
will lead to the demise of conventional catalogs and direct mail methods of promotion during the next
several years. Long term impact of the Internet on conventional direct marketing methods will likely be
influenced by advances in technology, costs of alternative methods of direct contact, and buyer preferences.
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9. Direct marketing is similar in many ways to advertising. Why is it important to view direct
marketing as a specific group of promotion methods?
The purpose of direct marketing is to make direct contact with end-user customers through alternative
media. The popularity of direct marketing methods is driven by a combination of factors such as:
 Socioeconomic trends:
Several trends make the availability of direct marketing purchases attractive to many buyers. For
example, having two working spouses imposes major time constraints on households, so purchase
via direct channels is a useful way of saving time as well as making contact at the convenience of the
customer.
 Low access cost:
While the cost per contact varies according to the method of direct contact, costs are often much
lower than face-to-face sales contract. The availability of databases that can target specific customer
groups enables companies to selectively target buyers.
 Database management:
The availability of computerized databases is an important determinant of successful direct
marketing. The customer and prospect information contained in the databases can be used to
generate mailing lists and prospect lists and to identify market segments.
 Value:
The shopping information provided via direct marketing, convenience, reduced shopping time, rapid
response, and competitive prices gives buyers an attractive bundle of value in many buying
situations. Effective database management enables marketing to identify buyers who purchase on a
continuing basis.
Other reasons include:
 The growing number of niches with heterogeneous needs
 The continuous upgrading of the world’s telecommunications infrastructure
 Fast growth of 1-800 numbers offering easy and free access to merchants, and their acceptance of
credit card orders
 The burgeoning usage of the Internet
 Quick delivery made possible by companies such a Federal Express
Most importantly, direct marketing enables a company to achieve higher response rates due to better
selection and targeting methods. Furthermore, a company using direct marketing can avoid the use of
intermediaries, such as retailers, thereby lowering distribution costs and maintaining more control over the
inventory. It enables selective reach and segmentation opportunities. It provides considerable flexibility in
accessing potential buyers. Timing contact can be managed and personalized. It allows a business to
maintain a continuous relationship with its customer. Importantly, its effectiveness can be measured from
direct response.
10. Discuss the reasons why many companies are interested in the marketing potential of the
Internet.
The booming telecommunications industry and technological advances have certainly increased the interest
of companies in marketing their products or services over the Internet. This trend is expected to continue.
The Internet is a relatively cheap distribution and promotion vehicle. It is available to the world (where the
telecommunications infrastructure is in place) and is coming easier to use every day. Much of the interest in
the Internet arises from the growth of the World Wide Web, which provides multimedia capability (sound,
graphics, etc.). This multimedia capability is improving daily and is drawing in a larger market due to its
audiovisual appeal and ease of use. Thus, usage and potential of the World Wide Web (www) is
particularly interesting to marketers. Perhaps most importantly, the Internet offers the opportunity to
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effectively target certain segments of the market. For example, one company may advertise as product on
user discussion lists, or advertise its product on a popular web site.
11. Select one of the direct marketing methods and discuss the decisions that are necessary in
developing a strategy for using the method.
The major direct marketing methods are:

 Catalogs and direct mail
 Mobile devices
 Telemarketing
 Direct response media (television, radio, print media)
 Online shopping
 Kiosk shopping
A student may choose any one of the above direct marketing methods and discuss the decisions that are
necessary in developing a strategy for using the method.
For example, if a student chooses catalogs and direct mail, he or she may highlight that:
 Contact by mail with potential buyers may generate orders by phone or mail, or instead encourage
buyers to visit retail outlets to view goods and make purchase.
 Companies use catalogs alongside websites to provide tangibility to customers.
 Catalogs may be about brand building and attracting customers, while the website is the ideal place
to place orders.
12. Suppose you have been asked to evaluate whether a regional camera and consumer electronics
retailer should obtain Internet space. What criteria should be used in the evaluation?
Many criteria should be examined. A manager may consider the following:

 What are my competitors doing?
 What is the nature of my product?
 What are the habits and traits of my target market? Do my customers use computers?
 What other information can we gather from the customer by using the Internet?
 Can we locate prospective customers on the Internet?
 Can we gain a competitive advantage by using the Internet (ex: if not a good page—bad image for
company)
After considering these and performing a cost/benefit analysis, a manager should conclude whether or not
the company should be investing in an Internet site.
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CHAPTER 14
Designing Market-Driven Organizations
1. The chief executive of a manufacturer of direct-order personal computers is interested in

establishing a marketing organization in the firm. A small salesforce handles sales to mid-sized
businesses and advertising is planned and executed by an advertising agency. Other than the CEO,
no one inside the firm is responsible for the marketing function. What factors should the CEO
consider in designing a marketing organization?
The first question one would want to ask is why does the CEO want a marketing organization? This is an
important question because as the text explains, the marketing organization must fit into the overall
company structure. Integration is a key component. There are many ways that the marketing organization
could be designed. For example, if the CEO is concerned about the sales effort then the market structure
could be controlled under a sales manager. The sales manager would then decide what type of structure fits
the objectives of the firm and the marketing effort. Factors to be considered are:
 How to coordinate marketing functions and activities
 Costs of alternative organizational schemes
 Number and characteristics of customers
 Organizational approaches used by key competitors
 Link between strategic marketing and organization structure
 Moves to enhance the alignment of organizations with their markets
 Role of marketing as an organizational process owner as well as functional specialization
 Cross-functional role of marketing in achieving internal partnerships and integration of company
resources around customer value
 Emphasis on products versus markets
Regardless of the organizational design utilized, coordination and control of the sales/marketing force and
advertising agency will be essential.
2. Of the various approaches to marketing organization design, which one(s) offers the most
flexibility in coping with rapidly changing market and competitive situations? Discuss.
All of the basic organizational approaches have their advantages. But the combination approach seems to
offer the most flexibility in a changing environment by responding to different influences in designing the
organization. With this organization one gets the benefits of both a product approach and market approach.
Hence, the total resources for the marketing organization cover all the important areas from the product to
customer. Also, the combination approach offers marketing specialization by functional area or by product.
Thus, if one enters a new market or new product, expertise can be shifted to suit the goals of the firm and
marketing organization. The market type of organization also has some strong flexibility benefits. One
important aspect is the ability to be attuned to and change with the customers, hence the firm can stay on
top. The end-user is important and the ability to change with him is what makes this market approach better
than the product approach.
3. Discuss the conditions where a matrix-type marketing organization would be appropriate,

indicating important considerations and potential problems in using this organizational form.
A matrix type marketing organization might be set up when:

 The complexity of the environment is high (many products)
 The interconnectedness of the environment is unstable or unpredictable
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 Emphasis on two different factors such as products and marketing functions is desired (It could be
the combination of a functional and product organization.)
 The company is reorganizing for global competition
A matrix design utilizes a cross-classification approach to emphasize two different factors, such as products
and marketing functions. It requires coordination between the product managers and other marketing
functions for their products. Other matrix schemes are also possible.
Combination approaches are effective in that they respond to important influences on the organization and
offer more flexibility than the other traditional approaches. A major difficulty with these designs is
establishing lines of responsibility and authority. Product and market managers frequently complain that
they lack control over all marketing functions even though they are held accountable for results. Well-
defined lines of responsibility may help to alleviate this feeling.
4. Assume that you have been asked by the president of a major transportation services firm to
recommend a marketing organizational design. What factors should you consider in selecting the
design?
Factors to consider are:

 Types of customer relationships
 Top management attitudes toward the marketing function
 Direction of the company into related or diverse areas
 Amount of new growth
 Complexity of and turbulence in the environment
 Unpredictability, interconnectedness of the environment
 Degree of integration of any newly acquired businesses into the corporate structure
 Need for specialization of marketing activities
 Whether the design will correspond to the strategic marketing plan
 Whether the design can be so structured that responsibility for results will correspond to a manager’s
influence on results
 Whether the design will result in the loss of flexibility
5. Discuss some of the important issues related to integrating marketing into an organization such as
a regional womens’ clothing chain compared to accomplishing the same task in Limited Brands.
Limited Brands shows how marketing is integrated into a national company. The company is extremely
marketing oriented because its president strongly supports this attitude. With a national company, it must
have a marketing network set up to be sensitive to a variety of national needs and styles. For example, the
Midwest’s styles may be more conservative than California’s styles. The ability to make quick decisions in
the marketing framework is critical to Limited Brands’ continued success. The company may be
functioning in a somewhat decentralized environment. A national company runs into the problem of
disseminating its marketing philosophy down through the organization and then seeing that it is
accomplished.
A regional firm will have more control over its organization to integrate the marketing function. Integration
can be achieved more easily. Furthermore, it will not likely have to deal with so many customer differences
making its marketing function somewhat easier. Top management support is still critical. The importance
of marketing may have to be stressed more in a regional company than, for example Limited Brand,
because a national firm which is setting trends may better understand the impact of marketing. A regional
firm may also have to depend more heavily on external organizations which may represent major
challenges when they actively participate in marketing activities.
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6. What are possible internal and external changes that may require changing the marketing
organization design?
Various external factors that influence the organizational design include the environment, government
influence, industrial changes, and rapidly changing competitive forces. Certain internal factors entail
horizontal relationships, and speed of response necessary to compete in the industry.
Market targets, product scopes, distribution channels, and sales force considerations also influence
organizational design. Geographical factors have a heavy influence on organization design because of the
need to make the field supervisory structure correspond to how the sales force is assigned to customers.
7. Is a trend toward more organic organizational forms likely in the future?
Firms in the last decade were heavily influenced by the trend toward decentralized management. Indeed,
the marketing function was moved from the corporate level to the business unit level. This trend will likely
continue as industries change and international competition becomes more prevalent. Organic organizations
should correspond to the strategic marketing plan and adapt to changing conditions.
The trend toward organic forms depends on implementation of the structure, management style, long term
effectiveness, and corporate culture. Although this form is not as efficient, nor process-focused, it is useful
when a firm is market oriented. Organic organizational forms are appropriate when:
 There are conditions of market failure
 There is high environmental uncertainty
 The tasks to be carried out are infrequent, difficult to assess, and require highly specialized
investment
 The firm needs to be highly adaptive
8. Summarize and chart the current and future impact of the Internet on marketing processes and
organization.
The goal of this question is to emphasize the pervasiveness of the Internet and the need to include “e-
thinking” in all aspects of marketing, rather than to arrive at an exhaustive listing. In particular, there is a
need to avoid both cynicism after the crash of many of the “dot.com” businesses in recent years, but also
unrealistic optimism about the Internet and its impact on customer value. Enabling technology provided by
the Internet and collaboration software facilitates the operation and management of global teams. The
diverse and growing impacts of the Internet on marketing could be categorized in several ways. They might
be considered in the following groupings. Each grouping is capable of considerable expansion and
elaboration.
 Impact on customers—issues include brand consistency with conventional channels and fulfillment
questions, but also changing buyer-seller relationships through mechanisms like online exchanges,
and reverse auctions
 Impact on collaborative strategies—the Internet provides the communication framework for
managing conventional partnering more effectively, but also the opportunity to develop new types of
alliances
 Impact on value chains—in particular, the Internet is the basis for changing the relationships between
organizations participating in the value chain all the way from raw material to finished product, and
providing the basis for collaborative operations
 Impact on competition—the Internet provides the opportunity for existing competitors to develop
new channels that may gain market share, but also the potential for entry by new types of competitor
with different value propositions and business models
 Impact on marketing programs—the traditional marketing program needs to accommodate the
impact on the Internet, e.g., on customer price awareness and product knowledge; as a new venue for
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advertising and promotion activities; in providing a new, direct channel to market, which may
displace traditional approaches like personal selling.
 Impact on marketing strategy—the real impact of these changes is in identifying new business
models and new ways of delivering customer value
 Impact on internal processes—the Internet provides the basis for a global intranet linking all
employees and diverse parts of the organization and for the use of collaborative software in planning
and executing marketing strategies, information resources are richer than ever before but must be
managed better.
9. Discuss the important organizational design issues in establishing an effective strategic alliance
between organizations.
Strategic alliances are important strategies for various firms entering the international arena. This type of
strategy presents a complex organizational challenge. Indeed, the formation of strategic alliances increased
tremendously in the last decade. The issues important to establishing and maintaining an effective strategic
alliance include:
 Knowing the objectives
 Agreeing how the alliance should be run and who will manage it
 Agreeing in advance on how to resolve disagreements
 Establishing and managing the relationship on an on-going basis
 Each partner should make provision in their own structures for the relationship
10. What are the major approaches to organizing the marketing function for international
operations? Discuss the factors that may affect the choice of a particular organization design.
The marketing organization design in international operations may take one of three possible forms: (1) a
global product division; (2) geographical divisions, each with product and functional responsibilities; or (3)
a matrix design incorporating (1) or (2) in combination with centralized functional support or instead a
combination of area operations and global product management. The marketing scope can be multi-
national, global, or in a single country.
Factors that affect the choice of a particular organizational design include language and distance barriers,
budgets, the product life cycle, government relations, the competition, and the environment. For instance,
the global form corresponds to rapid growth situations for firms that have a broad product portfolio. The
geographic form is used to obtain a close relationship with national and local governments. The matrix
form is utilized by companies reorganizing for global competition.
11. As companies begin to replace functions with processes, what are the possible effects on
organizational designs?
The trend in organizational design is moving away from vertical structures, characterized by many
management levels and strictly defined reporting relationships, toward a flatter structure focused on
processes. The processes are major clusters of strategically important activities, such as new product
development and order generation and fulfillment. This move toward a process-based design is
characterized by fewer levels and fewer managers, greater emphasis on building distinctive capabilities
using multifunctional teams, customer-value-driven processes and capabilities, and continuously changing
organizations that reflect market and competitive environment changes.
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12. What characteristics would you seek in a candidate for a global account management position?
To a considerable degree the definition of desirable characteristics and attributes in a global account
manager (GAM) will depend on the industry type and the product type—there will be major differences
between the GAM requirements in a dominant, high-technology supplier and in a relatively unknown new
entrant in a consumer goods market. Nonetheless, they will still share certain requirements related to the
need to manage relationships effectively with global customers.
Importantly, the GAM’s role is increasingly seen not as a sales role, but as a management one. Skills in
working across functions, business units and divisions to deliver value to the global customer are at a
premium. Evidence suggests that GAMs spend most of their time in their own organizations achieving
integrated responses to customer requirements than with the customer. They are frequently “facing
upwards” in gaining the cooperation of senior managers in responding to global customer needs, as well as
working between central corporate managers and local operations executives.
In addition to the managerial characteristics to undertake these organizational processes, the GAM by
definition requires an international perspective. This may be indicated by overseas working experience,
foreign language skills, and links to the countries where global customers are headquartered.
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CHAPTER 15
Strategic Marketing Implementation and Control
1. Discuss the similarities and differences between strategic marketing planning and evaluation.
Planning is determining goals and possible courses of action, and predicting results under alternative
actions. Evaluation, on the other hand, is determining if planned results are being accomplished. It is a type
of performance measure that provides feedback on results. Thus, both focus upon the same areas and
activities but with a different orientation. During the development of plans, consideration should be given
to how plans will be evaluated. Evaluation is part of the execution of a planning process. Planning and
evaluation are essential parts of a complete management process.
The differences are that the strategic plan is a set of objectives that are outlined to meet a future task, where
as the evaluation is an audit of the plan to determine if the objectives have been met. If the objectives have
not been met, then evaluation provides information to discover how to correct or solve the problem. The
plan is deciding what to do while the evaluation sees that the planning results stay on course.
2. What is involved in managing marketing planning as a process? What issues should be addressed
in managing planning process in a company manufacturing high-technology components for the
automotive sector?
Managing marketing planning as a process suggests the need to plan and design the key issues in the
analytical, behavioral and organizational dimensions of the process. The analytical dimension of planning
process consists of the tools for systematic planning—analytical techniques, formal procedures and
systems—that are needed to develop robust and tested plans and strategies. The behavioral dimension of
planning is concerned with how managers perceive planning activities and the strategic assumptions they
make, as well as the degree and extent of participation in planning. The organizational dimension of
planning is concerned with the organizational structure in which planning is carried out, along with the
associated information resources and corporate culture. One challenge to management is to manage all
these aspects of the planning process in a consistent way—the conduct of planning should fit with other
organizational characteristics, executives should be trained and supported in developing plans.
In a company manufacturing high-technology components for the automotive sector, the issues to be
addressed might include: choosing models of analysis appropriate to a sector dominated by a small number
of large customers, and possibly developing plans and strategies separately for each of them; focusing on
the end-user markets for major customers and the added-value opportunities that can be offered; building
planning teams that combine technological and marketing understanding as a way of balancing what can be
done with what needs to be done; developing structures that allow the implementation of strategies around
major customers (e.g., key account management approaches); working to gain top management support for
customer-led marketing strategies, possibly by involving them in the planning process and interactions with
key customers.
3. Selecting the proper performance criteria for use in tracking results is a key part of a strategic
evaluation program. Suggest performance criteria for use by a fast-food retail chain to monitor
strategic marketing performance.
One of the best measures of performance would be average daily sales compared to the industry. Store
traffic would also be an appropriate and easy-to-measure performance criteria. Profitability is, of course, a
necessary measure. Overhead cost is a measure of efficiency and can be used to compare other stores in a
chain. Average advertising or promotional expenditures per customer sold would be another viable
performance measure. Performance criteria can be very detailed or general depending on management and
the size of company. Adding more criteria raises the cost complexity of the evaluation task. Management
Part III-70
should identify five to ten key elements which are addressed key areas. On a less frequent basis, consumer
surveys (e.g., store image studies) may be appropriate to gauge how the chain is doing against its
competition.
4. What justification is there for conducting a marketing audit in a business unit whose performance
has been very good? Discuss.
There is as much justification in conducting an audit for a good business unit as for a poorly performing
unit. All one has to do is open the financial pages and look at all the bankrupt companies. At one time many
of these companies had good business performances. Then changes occurred, and the firms failed to adjust
its strategy when products did not sell as expected. Thus, the roof fell in. Therefore, all companies should
have some form of a marketing audit to go along with the strategic plan for the same reasons that all
publicly held companies have external audits—to make sure things are going as planned and expected. A
company that spends so much time on a plan and does not have a complimenting audit is only looking for
trouble. Every company in business has a potential for problems in marketing its products or services. In
the fast changing environment an audit provides flexibility, protection, and acts as a control feature.
5. Examination of the various areas of a strategic marketing audit shown in Exhibit 15.6 would be
quite expensive and time-consuming. Are there any ways to limit the scope of the audit?
Yes, one might want to focus on a specific segment of the marketing effort such as, salesforce, or sales
management and expand on this area. This could be done on a more frequent basis than a complete audit.
Specific audit requirements can also be evaluated on a rotating basis. As long as the audit covers the
important segment of the plan, a specific or rotating audit can aid in the reduction of cost and time. The
most important thing the firm needs to look at is what the plan is geared towards, and then develop the
audit around the plan. If used on a periodic basis, the audit can be used to help develop yearly plans. The
objective of the audit must be kept in mind when it is planned and this becomes important in the final
design. Some firms place less reliability on an audit and find themselves with problems later in the future of
the plan. On some periodic basis all of the areas shown on the checklist should be audited if they are
applicable to the firm. Management should select an audit frequency considering the type of business,
costs, past experience, and other relevant factors.
6. Why would senior managers concerned with strategic marketing review marketing metrics
concerned with internal processes?
Marketing metrics help evaluate marketing’s contribution. Both internal and external information provide a
structure for monitoring the effectiveness of marketing activities and strategies. The ability to measure
marketing performance, through appropriate systems and metrics, is significantly and positively related to
company performance, profitability, stock returns, and to marketing’s stature within the organization.
Metrics concerned with internal processes help monitor characteristics like innovation health, employee-
based equity, and internal process performance. Internal metrics also reflect strategic priorities and the
issues most closely linking marketing investments with profits. The characteristics of employees and
internal processes are important to developing and sustaining brand equity and marketing performance with
customers. For example, employee customer-brand empathy may be a key driver of the brand experience as
it is perceived by the customer. Indeed, the internal measurement may be a lead indicator—you may see a
change in the internal market before you see one in the external market: employees losing faith in the brand
may be an antecedent to weakening brand equity with the external consumer. Similarly, key internal
processes like innovation may be regarded as critical precursors of improved performance in the
marketplace. Internal communications impacting on integration may also have an important effect on the
ability to deliver the desired customer experience. Nonetheless, it is important to note that attention should
Part III-71
be given to the metrics judged most important in a given situation, which may not include internal process
metrics.
7. One of the more difficult management control issues is determining whether a process is
experiencing normal variation or is actually out of control. Discuss how management can resolve this
issue.
Quality control theory suggests that some processes may fluctuate rather widely and still be under control.
If under control, the variation is normal. Reducing variation and/or improving average performance
requires changing the process. A performance band of plus or minus three standard deviations typically is
used in quality control applications. An increasing number of companies are recognizing that precise
measures of employee performance may not be feasible. Instead, they are evaluating most employees’
performance as acceptable and measuring exceptional performance and unsatisfactory performance as
major differences from the average.
Management should set limits on the acceptable range of strategic performance. Statistical process-control
concepts and methods are useful in determining when operating results are fluctuating normally or instead
are out of control. Quality-control charts can be used to analyze and improve results in marketing
performance measures such as the number of orders processed, customer complaints, and territory sales.
Control-chart analysis indicates when the process is experiencing normal variation and when the process is
out of control.
The basic approach to control-chart analysis is to establish average and upper and lower control limits for
the measure being evaluated. Examples of measures include order-processing time, district sales, customer
complaints, and market share. Control boundaries re set using historical data. Future measures are plotted
on the chart to determine whether the results are under control or instead fall outside the acceptable
performance band determined by the upper and lower control limits. The objective is to continually
improve the process that determines the results.
If the process is out of control, management may exit the product-market, plan for a new product, change
the target-market strategy, adjust market strategy, or improve efficiency.
8. What role can internal marketing play in enhancing effectiveness of both planning and
implementation?
Internal marketing should be understood and implemented as more than simply internal communications
(important though communications may be). If internal marketing is seen as the deployment of the
analytical tools and frameworks of marketing in the internal marketplace (employees, managers, partner
organizations), then its strategic role becomes clearer. Internal marketing programs provide a structure for
addressing implementation processes. They can enhance implementation of strategy by providing a
framework for analyzing and addressing the change requirements of a market strategy (new skills, changed
processes, different structures) and the costs of changing the supporting infrastructure to achieve effective
implementation. Considering these issues as part of the planning process offers advantages both in
understanding the barriers to strategic change and identifying ways to overcome them. If used as part of the
planning process, analysis of the internal marketplace can isolate organizational change requirements,
implementation barriers, and new opportunities. In some instances, internal marketing may actually be
needed to gain manager buy-in to the planning process itself. Planning is often seen as bureaucratic ritual
rather than the opportunity to create new strategies. Moreover, planning which visibly and credibly
addresses implementation issues as part of the plan, is likely to gain more support and commitment from
executives. Internal marketing provides the structure and framework to achieve these enhancements.
Internal marketing is a promising way of identifying and resolving some of the implementation issues
associated with the move from functional to process-based organizational designs.
Part III-72
9. How can the “balanced scorecard” methods assist managers in their implementation efforts?
One comprehensive way to deal with difficulty in the implementation of the marketing plan is to employ
the balanced scorecard method. This process is a formalized management control system that implements a
given business unit strategy by means of activities across four areas: financial, customer, internal business
process, and learning and growth (or innovation).
The balanced scorecard was created in reaction to the difficulties that many managers experienced when
trying to implement a particular strategy. A strategy is often not defined in a manner that describes how it
might be achieved. Merely communicating the strategy to employees does not provide any instruction as to
what actions they must take to help achieve the strategy. More importantly, managers might even take
action to the detriment of other areas in an organization when attempting to implement the strategy. The
balanced scorecard provides a framework to minimize such an occurrence by encouraging implementation
of a common strategy, which is communicated and coordinated across all major areas of the organization.
The “balanced” component of the balanced scorecard reflects the need to consider how all areas of the
organization function together to achieve a common goal of strategy implementation.
The major benefit of the balanced scorecard is that an often aggregate, broadly defined strategy is translated
to very specific actions. Through execution and monitoring of these actions, management can assess the
success of the strategy and also modify and adjust the strategy if necessary. Another benefit of the balanced
scorecard methodology is that it is feasible for any business unit level strategy and provides a means to link
performance evaluation to strategy implementation.
10. Discuss how management control differs for a strategic alliance compared to internal operations.
In internal operations, managers control by continually monitoring performance and, when necessary,
revising their strategies to accommodate changing market conditions. Many companies competing in the
1990s have created strategies to deal with the continued pressure of reducing costs. One way to do this is to
establish strategic alliances with other companies. In a strategic alliance, management has to share the
control of monitoring and evaluating the strategy with the partner company. Coordination between
management of both companies must exist so those executives from both companies participate in strategic
evaluation and control. Roles and relationships should be established and communicated so that there is no
ambiguity as to the responsibilities of each party.
11. What are the important factors that managers should take into account to improve the
implementation of strategies?
Some of the factors that facilitate the implementation process are:

 Organizational design:
Certain types of organizational designs aid implementation. For example, product managers and
multifunctional coordination teams are useful implementation methods. Management may create
implementation teams consisting of representatives from the business functions and/or marketing
activities involved. The flat, flexible organization designs offer several advantages in
implementation, since they encourage interfunctional cooperation and communication. Such designs
are responsive to changing conditions.
 Incentives:
Various incentives may help achieve successful implementation. For example, special incentives
such as contests, recognition, and extra compensation are used to encourage salespeople to push a
new product. Since implementation often involves teams of people, creation of team incentives may
be necessary. Performance standards must be fair, and incentives should encourage something more
than normal performance. Focusing incentives on the achievement of overall plan goals rather than
individual efforts is particularly relevant.
 Effective communications:
Part III-73
Rapid and accurate movement of information through the organization is essential in

implementation. Both vertical and horizontal communications are needed in linking together the
people and activities involved in implementation. Meetings, status reports, and informal discussions
help to transmit information throughout the organization. Computerized information and decision-
support systems like corporate intranets help to improve communications’ speed and effectiveness.
12. How would the marketing dashboard differ between a business-to-business company marketing
computer software and a producer of packaged consumer products?
In both cases the choice of metrics will reflect competitive and market situation as well as product type, and
management judgments and preferences regarding the most critical drivers of the business. Nonetheless,
certain differences are likely to reflect the business-to-business situation compared to the consumer product
case. These differences are likely to occur in each area of strategic marketing, although the exact form is
subject to debate:
Metrics Business-to-business company Producer of packaged consumer

marketing computer software goods
Marketing operations Emphasize Share of Wallet and Emphasis on consumer metrics
heavy users. Customer to understand market share
profitability of major accounts. performance. Profitability with
Emphasis on salesforce metrics. retailer customers. Emphasis on
Pricing metrics for major channel metrics. Pricing metrics
customers. for major retailers. Promotion
and advertising metrics.
Brand equity Limited importance. Brand equity metrics important.
Innovation Innovation health metrics Limited importance in short
critically important. term.
Internal process Metrics to monitor process Metrics to monitor process
performance in delivering performance in meeting retailer
customer value. requirements.
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Part III – Answers to End-of-Chapter Questions

Strategic Marketing 10th Edition Cravens

ANSWERS TO END–OF–CHAPTER QUESTIONS

New-challenges for Market-Driven Strategy

2. Discuss the role of organizational capabilities in corporate strategy.

7. Explain the logic of pursuing a market–driven strategy.

9. How do the organization’s distinctive capabilities contribute to developing market–driven

Identifying an organization’s distinctive capabilities (competencies) is a vital part of market-driven

Markets and Competitive Space

New competitors may come from four major sources:

 Companies competing in a related product-market

The student should keep in mind the following guidelines:

7. Select an industry and describe its characteristics, participants, and structure.

 Degree of Product Differentiation: Suntan products are differentiated by:

Strategic Market Segmentation

6. Is considering segments of one buyer a reality or a myth? Discuss.

 The organizational advantages of close customer relationships

Strategic Customer Management: Systems, Ethics, and Social Responsibility

1. How should CRM be defined to provide a complete strategy perspective?

2. Discuss the value of considering CRM at different organizational levels.

3. What is involved in estimating customer lifetime value (CLV)?

4. Discuss the process of developing a CRM strategy.

The major steps in developing a CRM strategy are:

5. What are the important issues in CRM implementation?

6. Discuss how CRM creates value for the firm’s stakeholders.

7. What is the relationship between CRM and market segmentation?

8. Discuss the role of the cross-functional CRM team.

Capabilities for Learning about Customers and Markets

Strategic agility, demanded by rapidly changing markets, mandates strategic sensitivity—awareness of

8. Why would a company consider observational or ethnographic research in preference to

Market Targeting and Strategic Positioning

2. What factors are important in selecting a market target?

Market targeting approaches fall into two major categories:

9. “Evaluating marketing performance by using return-on-investment (ROI) measures is not

Nokia should pay attention in the following areas:

7. Establishing successful interorganizational relationships is difficult, according to authorities. Will

Innovation and New-Product Strategy

1. Explain the relationship between customer satisfaction and customer value.

An organizational approach for new product planning involves:

8. Is the use of a single city test market appropriate? Discuss.

Strategic Brand Management

This is a sound strategy for two main reasons:

3. What is the role of strategic brand analysis in building strong brands?

5. Suppose that a top administrator of a university wants to establish a product-management

ESTABLISH PRODUCT PRODUCT REVIEW

10. Discuss the underlying logic of managing brand portfolio.

8. Why might a manufacturer choose to enter a conventional channel of distribution?

Promotion, Advertising, and Sales Promotion Strategies

3. What are the important considerations in determining a promotion budget?

The important issues in promotion budget determination are identifying:

4. Under what conditions is a firm’s promotion strategy more likely to be advertising/sales

Sales, Digital, and Direct Marketing Strategies

1 What information does management require to analyze the selling situation?

The major direct marketing methods are:

Many criteria should be examined. A manager may consider the following:

Designing Market-Driven Organizations

1. The chief executive of a manufacturer of direct-order personal computers is interested in

3. Discuss the conditions where a matrix-type marketing organization would be appropriate,

A matrix type marketing organization might be set up when:

Factors to consider are:

7. Is a trend toward more organic organizational forms likely in the future?

Strategic Marketing Implementation and Control

Some of the factors that facilitate the implementation process are: