CHAPTER

Foundations of Strategic Marketing Management

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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1. Define an organizations business, mission, and goals.
2. Identify and frame organization growth opportunities. 3. Formulate product-market strategies.

4. Budget marketing, financial, and production resources.

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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 5. Develop reformulation and recovery strategies. 6. Draft a marketing plan. 7. Emphasize marketing ethics and social responsibility.

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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

INTRODUCTION

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PURPOSE OF MARKETING

To create long-term and mutually beneficial exchange relationships between an entity and the publics (individuals and organizations) with which it interacts.

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RESPONSIBILITIES OF MARKETING MANAGERS

Make day-to-day decisions.
Chart the organizations direction. Create and sustain a competitive advantage and affect the organizations long-term performance.

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RESULTS OF THE EVOLUTION OF THE MARKETING MANAGER

Created the Chief Marketing Officer (CMO) position in many organizations.

Increased popularity of strategic marketing management.

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RESPONSIBILITIES OF CMOs
Define the business mission.
Analyze environmental, competitive, and business situations. Develop business objectives and goals. Define customer value propositions and their respective marketing strategies.

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SKILL SET OF CMOs

Interpret extensive market and operational information.

Sense customer and competitor motivations. Frame strategic marketing initiatives in light of implementation considerations and financial targets/results.

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STRATEGIC MARKETING MANAGEMENT PROCESSES

Define an organizations business, mission, and goals. Identify and frame organizational growth opportunities. Formulate product-market strategies. Budget marketing, financial, and production resources.

Develop reformulation and recovery strategies.

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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DEFINING THE ORGANIZATIONS BUSINESS, MISSION, AND GOALS

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BUSINESS DEFINITION
Answers the question, What business are we in?

What business an organization is in is neither obvious nor easy. An organization defines its business by:
The type of customer served and the specific needs to be satisfied The means or technology used to satisfy these customer needs
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BUSINESS DEFINITION

Customer groups and needs are more enduring than the offerings and means or technologies to produce and deliver them. What business is the Encyclopedia Britannica in?

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BUSINESS MISSION
Consists of a written statement that:
Underscores the scope of an organizations operations apparent in its business definition. Reflects managements vision of what the organization seeks to do.

Describes an organizations purpose regarding its customers, products/services, markets, philosophy, and technology.
Crystallizes managements vision of the organizations long-term direction and character.
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BUSINESS MISSION
Consists of a written statement that (continued):
Provides guidance in identifying, pursuing, and evaluating market-product opportunities. Inspires and challenges employees to do what is valued by the organization and its customers. Provides direction for setting goals or objectives. Also applies to not-for-profit organizations.

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BUSINESS MISSION

Our strategic intent is to help people find better ways to do great work by constantly leading in document technologies, products, and services that improve our customers work processes and business results.
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BUSINESS MISSION

To improve the quality of human life; to enhance self-reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies.

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BUSINESS GOALS OR OBJECTIVES

Convert the organizations mission into tangible actions and results that are to be achieved within a specified time frame.
Are divided into three major categories:
Production Financial Marketing

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BUSINESS GOALS OR OBJECTIVES

Manufacturing and service capacity Product and service quality

Production

Financial

Return on investment Return on sales

Profit Cash flow

Shareholder wealth
Market share Sales volume Profit Marketing productivity Customer satisfaction Customer value creation Customer lifetime value
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Marketing

BUSINESS GOALS OR OBJECTIVES

A situation analysis is an appraisal of operations to determine reasons for the gap between what was or is expected and what has happened or will happen.
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES

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CONVERTING ENVIRONMENTAL OPPORTUNITIES INTO ORGANIZATIONAL OPPORTUNITIES

Ask three questions:

What might we do? What do we do best?

What must we do?

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WHAT MIGHT WE DO? Sources of environmental opportunities:

Unmet or changing consumer needs. Unsatisfied buyer groups.

New means or technologies for delivering value to prospective buyers.

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WHAT DO WE DO BEST?

A distinctive competency describes an organizations unique strengths or qualities, including skills, technologies, or resources that distinguish it from other organizations.
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WHAT DO WE DO BEST?

Two criteria must be satisfied for a distinctive competency:

Competitors cannot replicate the skill easily or without a sizeable investment in time, effort, and money. It should make a significant contribution to the benefits customers perceive, thereby providing them with superior value.
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GILLETTE: WHAT ARE ITS DISTINCTIVE COMPETENCIES?

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WHAT MUST WE DO?

Success requirements are basic tasks that an organization must perform in a market or industry to compete successfully.
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SWOT ANALYSIS
SWOT analysis is a formal framework for identifying and framing organizational growth opportunities.
- Type of Factor Organization Favorable Unfavorable

Internal Capabilities

Strengths

Weaknesses

External Environment

Opportunities

Threats

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SWOT ANALYSIS
Strengths What the organization is good at doing or some characteristic that gives it an important capability. What an organization lacks or does poorly relative to other organizations.

Weaknesses

Opportunities

Developments or conditions in the environment that have favorable implications for the organization.
Pose dangers to the welfare of the organization.
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Threats

EXHIBIT 1.1: SAMPLE SWOT ANALYSIS FRAMEWORK

Internal Factors Management Marketing Manufacturing R&D Finance Offerings External Factors Economic Competition Consumer Technology Legal/Regulatory Industry/Market Structure

Strengths

Weaknesses

Opportunities

Threats

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SWOT ANALYSIS Questions to ask after a SWOT analysis:

Which strengths represent distinctive competencies? Do they compare favorably with what are believed to be market or industry success requirements? Which weaknesses disqualify the organization from pursuing certain opportunities? Does a pattern emerge from the SWOT analysis?
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

FORMULATING PRODUCT-MARKET STRATEGIES

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PRODUCT-MARKET STRATEGY

A product-market strategy involves selecting specific markets and profitably reaching them through an integrated program called a marketing mix.
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EXHIBIT 1.2: PRODUCT-MARKET STRATEGIES

Markets
Existing New

Existing

Market Penetration New Offering Development

Market Development

Offerings
New

Diversification

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PRODUCT-MARKET STRATEGIES

A market-penetration strategy dictates that an organization seeks to gain greater dominance in a market in which it already has an offering (existing offerings existing markets).
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MARKET-PENETRATION STRATEGY

This strategy involves:

Increasing present buyers usage or consumption rates of the offering. Attracting buyers of competing offerings. Stimulating product trial among potential customers.

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MARKET-PENETRATION STRATEGY

Factors to consider when adopting this strategy:

Examine market growth.
Assess competitive reaction. Analyze the capacity of the market to increase usage or consumption rates and the availability of new buyers.
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PRODUCT-MARKET STRATEGIES

A market-development strategy dictates that an organization introduce its existing offerings to markets other than those it is currently serving (existing offerings new markets).
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MARKET-DEVELOPMENT STRATEGY

This strategy involves:

Adjusting the marketing mix, such as:
Modifying the basic product offering Using different distribution outlets Changing the sales effort or advertising

Analyzing competitors strengths, weaknesses, and potential for retaliation.

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MARKET-DEVELOPMENT STRATEGY

This strategy involves (continued):

Identifying the number, motivation, and buying patterns of new buyers. Determining the organizations ability to adapt to new markets to evaluate success.

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MARKET-DEVELOPMENT STRATEGY
Internationally, this strategy has four forms:

Exporting

Licensing

Joint Venture/ Strategic Alliance

Direct Investment

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MARKET-DEVELOPMENT STRATEGY
Exporting
Involves marketing the same offering in another country through sales offices or intermediaries.

Licensing

Is a contract where one firm (licensee) is given the rights to patents, trademarks, etc. by the owner (licensor) in turn for a royalty or fee. Involves investment by both a foreign firm and a local company to create a new entity in the host country. The two forms share ownership, control, and profits of the entity.

Joint Venture/ Strategic Alliance

Direct Investment

Involves investing in a manufacturing and/or assembly facility in a foreign market. Is the most risky and requires the most commitment.
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PRODUCT-MARKET STRATEGIES

A product- (new offering-) development strategy dictates that an organization create new offerings existing markets.

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PRODUCT-DEVELOPMENT STRATEGY

This strategy involves:

Product Innovation

Developing totally new offerings.

Product Augmentation

Enhancing the value to customers of existing offerings.

Product Line Extension

Adding different features, sizes, etc. to broaden the existing line.

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PRODUCT-DEVELOPMENT STRATEGY
Factors to consider when adopting this strategy:
The market size and volume needed for profitability.
The magnitude and timing of competitors responses. The impact of the new product on the sales of existing offerings (cannibalization). The capacity of the organization to deliver the offerings to the market(s).
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PRODUCT-MARKET STRATEGIES

A diversification strategy involves the development or acquisition of offerings new to the organization and the introduction of those offerings to publics not previously served by the organization (new offerings new markets).
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DIVERSIFICATION STRATEGY Considerations regarding this strategy:

Many firms have adopted this strategy to take advantage of growth opportunities. Is very risky because both the offerings and pubic/market are new to the organization. Can be successful if the organization applies its distinctive competencies to reaching new markets with new offerings.
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STRATEGY SELECTION

Product-market strategies are evaluated based on:

The organizations business definition, mission, and capabilities. Market capacity and behavior.
Environmental forces. Competitive activities.
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STRATEGY SELECTION

Product-market strategies are chosen based on:

Costs and benefits of a strategy. Probabilities of success for a strategy. Analysis of competitive structure, market dynamics, and opportunity costs. The product itself.
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EXHIBIT 1.3: DECISION-TREE FORMAT

Action Response Outcome

A1

R1

O1

R2
R1

O2
O3

A2

R2

O4
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EXHIBIT 1.4: SAMPLE DECISION-TREE

Action Marketpenetration strategy Response
Aggressive competition Passive competition

Outcome
Estimated profit of $2 million Estimated profit of $3 million

Marketdevelopment strategy

Aggressive competition Passive competition

Estimated profit of $1 million Estimated profit of $4 million

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THE MARKETING MIX

Communication Aggressive Strategy
competition

Product Strategy

Customer

Aggressive competition

Channel Strategy

Passive competition

Price Strategy
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THE MARKETING MIX

Product Strategy

Kind of product, service, or idea offered.

Communication Strategy

How the product, service, or Estimated idea will be profit communicated to buyers. Informs and assures of$3 million buyers that the offering will meet their needs.
Method for distributing the product or service to buyers. Satisfies buyers shopping patterns and Aggressive purchase requirements. Provides information competition and offering availability. Estimated profit of $4 million Amount buyers will pay for the offering. Represents the value or benefits provided.
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Channel Strategy

Price Strategy

FORMULATING THE MARKETING MIX

Depends on the success requirements of the market.

Delivers customer value in market space , Estimated profit of$3 million the new interactive capabilities of the Internet.
Must be both the needs of the markets and the organizations Estimated profit of $4 million capacity. Is as much art and science.
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Aggressive consistent with competition

CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

BUDGETING MARKETING, FINANCIAL, AND PRODUCTION RESOURCES

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BUDGETING

A budget is a formal, quantitative expression of an organizations planning and strategy initiatives expressed in financial terms.
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BUDGETING

A master budget consists of:

Operating Budget Focuses on the income statement. Also referred to as a pro forma income statement or profit plan. Focuses on the effect the operating budget has on the organizations cash position.

Financial Budget

Special Budgets

Focuses on developing advertising, sales, and other budgets that support the master budget.
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DEVELOPING REFORMULATION AND RECOVERY STRATEGIES

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MARKETING AUDIT A marketing audit is a comprehensive, systematic, and periodic examination of a firms or business units marketing environment, objectives, strategies, and activities to determine problem areas and opportunities and recommend a plan of action to improve the firms marketing performance.
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MARKETING AUDIT

Addresses the following questions:

Strategic

Are we doing the right things? Are we doing things right?

Operational

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REFORMULATION AND RECOVERY STRATEGIES Have the following purposes:

Forces marketing managers to ask What if? questions.
Allows for contingency plans, preplanning of reformulation and recovery strategies that lead to faster reaction time in implementing remedial action.

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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DRAFTING A MARKETING PLAN

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MARKETING PLAN

A marketing plan is a formal, written document that describes the context and scope of an organizations marketing effort to achieve defined goals or objectives within a specific future time period.
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MARKETING PLAN
Consists of:
Business Plan Marketing Plan Product Plan

Each has these time dimensions:

Short-term

Focuses on a 1-year period. Focuses on a 3- to 5-year period.

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Long-term

CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

MARKETING ETHICS AND SOCIAL RESPONSIBILITY

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ETHICS AND SOCIAL RESPONSIBILITY Most marketing decisions involve some degree of moral judgment.

Marketers should take actions that are legal, ethical, and socially responsible.

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