Developing marketing strategies- chapter 2.1
- 1. Chapter 2.1 Developing Marketing Strategies Marketing Management
- 2. The Value Delivery Process The Value Delivery Process The task of any business is to deliver customer value at a profit. A company can win only by fine-tuning the value delivery process and choosing, providing, and communicating superior value to increasingly well-informed buyers. 2
- 3. … …The Value Delivery Process The Value Delivery Process 1. Traditional Physical Process Sequence: The traditional view of marketing is that the firm makes something and then sells it. In this view, marketing takes place in the selling process. – Make the product Make the product – Sell the product Sell the product 2. Value Creation and Delivery Sequence: Instead of emphasizing making and selling, companies now see themselves as part of a value delivery process. In this view, marketing takes place at the beginning of planning. The value creation and delivery sequence can be divided into three phases: – Choose the value Choose the value: Here marketers do their “homework” to segment the market, select the appropriate target, and develop the offering’s value positioning. – Provide the value Provide the value: Entails selecting specific product features, prices, and distribution. – Communicate the value Communicate the value: This phase is accomplished by utilizing the sales force, sales promotion, advertising, the Internet, and other communication tools to announce and promote the product. 3
- 4. Marketing Process Analyzing marketing opportunities Researching and selecting target markets Designing marketing strategies Planning marketing programs Organizing, implementing, & controlling marketing effort Figure: The Marketing Process
- 5. 1. Analyzing Marketing Opportunities To evaluate its marketing opportunities, a company should operate a reliable marketing information system. The marketing information system only works properly if the company can conduct accurate marketing research. Through research, the company can gather information about its customers' needs and wants, their behavioral motives, their purchasing patterns and so on. Moreover, the company should gather significant information about its marketing environment. The company's micro environment includes suppliers, channel members, customers, competitors, and various publics. The macro environment of the company will consist of demographic, economic, physical, technological, political, legal, natural, social, and cultural forces. The company should also pay close attention to its competitors.
- 6. 2. Researching and Selecting Target Markets The company at this stage needs to know how to measure and forecast the attractiveness of any given market. This requires the company estimating the market's overall size, growth, profitability, and risk. These estimations will help the company identify the right market segment to focus on.
- 7. 3. Designing Marketing Strategies The company now needs to develop a differentiating and positioning strategy for the chosen target market. In this regard, the company can develop a product-positioning map to describe the position of its competitors currently selling in the market. Based on the competitors' position in the market, the company has to select its own positioning strategy. It may choose cost leadership, or differentiation, or focus strategy. Choice of strategy will also depend on whether the company wants to play the role of a leader, challenger, follower, or nicher. After choosing a specific strategy, the company will initiate new product development, testing, and launching. The company should also modify its initially developed product as it passes through the different stages of its life cycle.
- 8. 4. Developing the Marketing Program Marketing strategy must be transformed into marketing programs. It has to decide on its product aspects, price aspects, channel aspects, and promotion aspects. Regarding product, the company has to deal with the product-mix decisions, line stretching decisions, and branding decisions. With respect to price, the firm will set its price objectives and accordingly determine the pricing methods and strategies. Regarding channel arrangement, the company should identify, recruit, and link various middle-men and marketing facilitators so that its products and services are efficiently supplied to the target market. The company also has to set up communication and promotion programs consisting of advertising, direct marketing, sales promotion, public relations, and personal selling. During the decision-phase of all these mix elements, the company must determine what level of marketing expenditure is necessary to achieve its marketing objectives. The company also has to decide how to divide the total marketing budget among the various tools in the marketing mix.
- 9. 5. Organizing, Implementing, and Controlling the Marketing Effort The final step in marketing process is organizing the marketing resources, and implementing & controlling the marketing plan. The company can exercise four types of controlling systems, such as annual-plan control, efficiency control, profitability control, and strategic control
- 10. 3V Approaches to Marketing • Define the value segment • Define the value proposition • Define the value network
- 11. What is a Marketing Plan? A marketing plan is the central instrument for directing and coordinating the marketing effort. It operates at a strategic and tactical level.
- 12. The contents of a marketing plan are as follows: 1. Executive summary 2. Current marketing situation 3. Threats & opportunity analysis 4. Objectives and issues 5. Marketing strategy 6. Action programs 7. Budgets 8. Controls Contents of a Marketing Plan
- 13. Executive Summary Presents a brief summary of the main goals and recommendations of the plan for management review, helping top management to find the plan’s major points quickly. Current Marketing Situation Describes the target market and company’ position in it, including information about the market, product performance, competition, and distribution. Threats and Opportunity Analysis Assesses major threats and opportunities that the product might face, helping management to anticipate important positive or negative developments that might have an impact on the firm and its strategies. Objectives and Issues States the marketing objectives that the company would like to attain during the plan’s term and discusses key issues that will affect their attainment.
- 14. Marketing Strategies Outlines the broad marketing logic by which the business unit hopes to achieve its marketing objectives and the specifics of target markets, positioning, and marketing expenditure levels. Action Programs Spells out how marketing strategies will be turned into specific action programs that answer the following questions: What will be done? When will it be done? Who is responsible for doing it? How much will it cost? Budgets Details a supporting marketing budget that is essentially a projected profit-and-loss statement. Controls Outlines the control that will be used to monitor progress and allow higher management to review implementation results and spot products that are not meeting their goals.
- 15. The strategic marketing planning is a process of developing and maintaining a strategic fit between the organisation’s goals and capabilities and its changing marketing opportunities. It relies on developing a clear company mission, supporting objectives, a sound business portfolio, and coordinated functional strategies. Strategic Marketing Planning
- 16. The Strategic Marketing Planning Process
- 17. The Strategic Marketing Planning Process Defining the company mission Setting company objectives and goals Designing the business portfolio Segmenting, Targeting, and Positioning the market & Developing the marketing mix Corporate Level Business Unit, Product and Marketing Level Managing the marketing effort
- 18. 1. Defining the Company Mission Mission is the statement of an organisation’s purpose – what it wants to accomplish in the larger environment. It acts as an ‘invisible hand’ that guides people in the organisation so that they can work independently and yet collectively toward overall organisational goals. Mission should be Realistic, Specific, Coping the market environment, and Motivating Good Mission statement should focus on limited number of goals define major competitive scopes/ spheres take a long-term view/ perspective be short, memorable, and meaningful
- 19. Industry Market segment Geographical Competence Vertical channels Products Major Competitive Scopes/ Spheres
- 20. Company Product Market Missouri-Pacific Railroad We run a railroad We are a people- and-goods mover Xerox We make copying equipment We improve office productivity Standard Oil We sell gasoline We supply energy Columbia Pictures We make movies We entertain people Product Orientation vs. Market Orientation
- 21. 2. Setting the Company Objectives and Goals Mission is turned into detailed supporting objectives for each level of management. Example :- • We want to increase our market share (vague objective) • We want to increase our market share in Rajshahi Division to 15% by the end of this quarter. (specific)
- 22. 3. Designing the Business Portfolio Business portfolio is the collection of businesses and products that make up the company. The best business portfolio fits the company’s strengths and weaknesses to opportunities in the environment. Portfolio analysis is a tool by which management of a company identifies and evaluates the various businesses that make up the company. An SBU (strategic business unit) is a business portfolio of a company. The SBU of the company has a separate mission and objectives and can be planned independently from other company businesses.
- 23. Characteristics of SBUs • It is a single business or collection of related businesses • It has its own set of competitors • It has a leader responsible for strategic planning and profitability
- 24. The Strategic Planning Gap
- 25. • Market penetration • Market development • Product development • Diversification Strategies Suggested by Ansoff’s Product-Market Expansion Grid
- 26. BCG Matrix 3 2 1 4 5 6 8 7 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 10x 5x 4x 3x 2x 1x .8x .5x .3x .1x 0x Relative Market Share M a r k e t G r o w t h R a t e
- 27. The eight circles in the matrix represent the current sizes and positions of eight businesses making up a hypothetical company. The dollar- volume size of each business is proportional to the circle’s area: thus, the two largest businesses are 5 and 6. The location of each business indicates its market growth rate and relative market share. The market growth rate on the vertical axis indicates the annual growth rate of the market in which the business operates; in the figure, it ranges from 0% to 20%, although a larger range could be shown. A market growth rate above 10% is considered high. The horizontal axis, relative market share, refers to the SBU’s market share relative to that of the largest competitor. It serves as a measure of the company’s strength in the relevant market. A relative market share of 0.1 means that the company’s sales volume is only 10% of the leader’s sales volume; and 10 means that the company’s SBU is the leader and has ten times the sales of the next strongest company in that market.
- 28. The growth-share matrix is divided into four cells, each indicating a different type of business: Question marks Question marks are company businesses that operate in high-growth markets with almost no market share. Most businesses start off as a question mark in that the company tries to enter a high-growth market in which there is already a market leader. A question mark requires a lot of cast, since the company has to add plants, equipment, huge promotion, and personnel to keep up with the growing market demand. The term ‘question mark’ is well chosen because the company has to think hard about whether to keep pouring money into this business. The company in figure 2 operates three question-mark businesses, and this may be too many. The company might be better off investing more cash in one or two of these businesses, particularly the business encircled with 3, instead of spreading its cash thinly over all three businesses.
- 29. Stars If the question mark business is successful, it becomes a star. A star is the market leader in a high-growth market. This does not necessarily mean that a star produces a positive cash flow for the company. The company must spend substantial funds to keep up with the high market growth and fight off competitors’ attacks. Stars are usually profitable and become the company’s future cash cows. In the illustration, the company has two stars. The company would be highly tensed if it had no stars.
- 30. Cash cows When a market’s annual growth rate falls to less than 10%, the star becomes a cash cow if it still has the largest relative market share. A cash cow produces a lot of cash for the company. The company does not have to finance a lot of capacity expansion because the market’s growth has slowed down. And since the business is the market leader, it enjoys economies of scale and higher profit margins. The company uses its cash cows to pay its bills and support the stars, question marks, and dogs – which tend to be cash hungry. In the figure, the company has only one cash cow out of its eight businesses, which is a highly frustrating scenario for the company. The company should increase the number of its cash cows to generate profits for the group and comfortably support other businesses that are yet to become cash cows.
- 31. Dogs Dogs operate in a low growth market with poor market shares. They typically generate low profits or losses, although they may throw off some cash. The company in the figure manages two dog businesses, and this may be too many. The company should consider whether it is holding on to these businesses for good reasons (such as an expected turnaround in the market growth rate or a new chance at market leadership) or for sentimental reasons. Dogs often consume more management time than they are worth and need to be phased down or out.
- 32. Four alternative strategies can be pursued by the company in context of its business situation as observed in its growth-share matrix: • Build: Here the objective is to increase the SBU’s market share, even foregoing short-term earnings to achieve this objective. This strategy/objective is appropriate for question marks whose share have to grow if they are to become stars. • Hold: The objective is to preserve the SBU’s current market share. This is appropriate for strong cash cows if they are to continue to yield a large positive cash flow. • Harvest: The objective is to increase the SBU’s short-term cash flow regardless of the long-term effect. This strategy is perfect for weak cash cows whose future is dim & from whom more cash flow is needed. Question marks and dogs can use this strategy as well. • Divest: Here the objective is to sell or liquidate the business because resources can be too costly for the current business and can be better used elsewhere. This is an appropriate strategy for dogs and question marks that are acting as a drag on the company’s profits.
- 33. 4. Segmenting, Targeting, & Positioning the Market 4.1 Market Segmentation Dividing the market into distinct groups of buyers with different needs, characteristics, or behavior- who might require separate products or marketing mixes. 4.2 Market Targeting The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. 4.3 Market Positioning Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Easily distinguish the products from the competing brands and get strategic advantages in the market. ( leader, challenger, follower, or nicher).
- 34. 4.4 Developing the marketing mix The set of controllable tactical marketing tools (4P’s)– that the firm blends to produce a desired response in the target market. Product Product variety Quality Design Features Brand name Services Warranties, etc. Promotion Advertising Personal selling Sales promotion Public relations Target market Price List price Discounts Allowances Payment period Credit terms Place Channels Coverage Assortments Locations Inventory transportation
- 35. 5. Managing the Marketing Effort The company needs to implement the strategies in the physical market environment and see if there is any deviation from the overall plan. If the executed marketing functions produce the desired outcome, the company will continue with the program. If the executed marketing functions fail to produce the desired outcome, the company needs to revise its overall marketing objectives and relocate the necessary resources and skills to attain the expected goals.
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