CHAPTER 1
Foundations of Strategic
Marketing Management
2013 Pearson Education, Inc. publishing as Prentice Hall
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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.
2013 Pearson Education, Inc. publishing as Prentice Hall
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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.
2013 Pearson Education, Inc. publishing as Prentice Hall
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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
Direct day-to-day operations
Make strategic decisions
Chart the organizations direction
Create and sustain a competitive
advantage
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
Increased popularity of strategic
marketing management
Half of Fortune 1000 have CMOs
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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 marketing strategies
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SKILL SET OF CMOs
Analytic abilities
Intuitive sense
Creativity
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STRATEGIC MARKETING
MANAGEMENT PROCESSES
Define business, mission, and goals
Identify/frame growth opportunities
Formulate product-market strategies
Budget 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
Outlines the scope of operations
Is neither obvious nor easy to define
An firm defines its business by:
The customers served and their needs
The means or technology used to satisfy needs
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
Reflects managements vision of
the organization
Describes an organizations purpose
Crystallizes the organizations
long-term direction and character
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BUSINESS MISSION
Consists of a written statement that:
Helps identify and evaluate
product-market opportunities
Inspires employees
Provides direction for goal-setting
Applies to not-for-profit organizations
as well
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BUSINESS MISSION
American
Red Cross
XEROX
Do great work
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Provide for
victims of
disaster
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BUSINESS GOALS OR OBJECTIVES
Convert the mission into tangible
actions and results to be achieved
by a specified time frame
Are divided into three categories:
Production
Objectives
Financial
Objectives
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Marketing
Objectives
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BUSINESS GOALS OR OBJECTIVES
Production
Objectives
Financial
Objectives
Marketing
Objectives
Manufacturing and service capacity
Product and service quality
Return on investment
Profit
Return on sales
Cash flow
Shareholder wealth
Market share
Customer satisfaction
Sales volume
Customer value creation
Profit
Customer lifetime value
Marketing productivity
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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?
Environmental
Opportunities
What do we do best?
Distinctive
Competencies
What must we do?
Success
Requirements
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WHAT MIGHT WE DO?
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?
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?
Distinctive Competency
Two criteria must be satisfied:
Competitors cannot imitate it
Provide customers with superior value
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WHAT DO WE DO BEST?
Success Requirements
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
Weaknesses
What an organization lacks or
does poorly relative to other
organizations
Opportunities
Developments or conditions in the
environment that have favorable
implications for the organization
Threats
Pose dangers to the welfare of the
organization
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EXHIBIT 1.1: SAMPLE SWOT
ANALYSIS FRAMEWORK
Internal
Factors
Strengths
Weaknesses
External
Factors
Management
Economic
Marketing
Competition
Manufacturing
Consumer
R&D
Technology
Finance
Legal/Regulatory
Offerings
Industry/Market
Structure
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Opportunities
Threats
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SWOT ANALYSIS
Questions to ask after a SWOT
analysis:
Which strengths represent distinctive
competencies?
Which weaknesses disqualify the
organization from pursuing certain
opportunities?
Does a pattern emerge from the SWOT?
2013 Pearson Education, Inc. publishing as Prentice Hall
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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
Existing
New
Market
Penetration
Market
Development
New Offering
Development
Diversification
Offerings
New
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PRODUCT-MARKET STRATEGIES
Market Penetration Strategy
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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PRODUCT-MARKET STRATEGIES
Market Penetration 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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PRODUCT-MARKET STRATEGIES
Market Penetration Strategy Considerations
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
Market Development Strategy
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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PRODUCT-MARKET STRATEGIES
Market Development 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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PRODUCT-MARKET STRATEGIES
Market Development Strategy Involves
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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PRODUCT-MARKET STRATEGIES
Market Development Strategy International Forms
Exporting
Licensing
Joint Venture/
Strategic Alliance
Direct
Investment
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PRODUCT-MARKET STRATEGIES
Exporting
Involves marketing the same offering in
another country through sales offices or
intermediaries
Is a popular option for entering foreign
markets because it:
Easy to initiate
Requires minimal capital investment
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PRODUCT-MARKET STRATEGIES
Licensing
Is a contract where a firm (licensee) is given
the rights to patents, trademarks, etc. by the
owner (licensor) in turn for a royalty or fee
Is a low-risk, quick, and capital-free entry
into a foreign market
Limits the control of the licensor over
production and marketing by the licensee
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PRODUCT-MARKET STRATEGIES
Joint Venture/Strategic Alliance
Creates a new entity in the host country from an
investment by both a foreign and a local company
Allows the two firms share ownership, control, and
profits of the entity
Is popular because one firm may not have the
required resources to enter a market
Ensures against trade barriers
May cause disagreements between the partners
regarding how the new entity should be run
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PRODUCT-MARKET STRATEGIES
Direct Investment
Involves investing in a manufacturing and/or
assembly facility in a foreign market
Is the most risky and requires the most
commitment
Brings the firm closer to its customers
May be the most profitable market-entry option
Often follows the other three options
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PRODUCT-MARKET STRATEGIES
New Offering Development Strategy
A product- (new offering-)
development strategy dictates
that an organization create new
offerings existing markets.
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PRODUCT-MARKET STRATEGIES
New Offering Development Strategy Involves
Product
Innovation
Developing totally new offerings
Product
Augmentation
Enhancing the value to
customers of existing offerings
through bundling or improving
functional performance
Product
Line Extension
Adding different features, sizes,
etc. to broaden the existing line
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PRODUCT-MARKET STRATEGIES
New Offering Development Strategy Factors
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 (cannibalism)
The capacity of the organization to deliver the
offerings to the market(s)
The presence of significant points of difference
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PRODUCT-MARKET STRATEGIES
Cannibalism
Occurs when sales of a new offering come
at the expense of sales of existing offerings
the firm already markets
Is common in product development
programs
Key issue: Does the new offering detract
from the overall profitability of the firms
total offering mix
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PRODUCT-MARKET STRATEGIES
Diversification Strategy
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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PRODUCT-MARKET STRATEGIES
Diversification Strategy Considerations
Many firms have adopted this strategy to
take advantage of growth opportunities
Is very risky because both the offerings and
markets served are new to the organization
Can be successful if the organization
applies its distinctive competencies to
reaching new markets with new offerings
2013 Pearson Education, Inc. publishing as Prentice Hall
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PRODUCT-MARKET STRATEGIES
Strategies are evaluated based on:
The organizations business definition,
mission, and capabilities
Market capacity and behavior
Environmental forces
Competitive activities
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PRODUCT-MARKET STRATEGIES
Strategy analysis depends on:
Availability and evaluation of relevant
market information
Data collected should include :
Market size
Consumer buying behavior and requirements
Environmental forces
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STRATEGY SELECTION
Strategies are chosen based on:
Costs and benefits of a strategy
Probabilities of success for a strategy
Competitive structure, market
dynamics, and opportunity costs
The offering itself
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EXHIBIT 1.3: DECISION-TREE FORMAT
Action
A1
A2
Response
Outcome
R1
O1
R2
O2
R1
O3
R2
O4
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EXHIBIT 1.4: SAMPLE DECISION-TREE
Action
Marketpenetration
strategy
Marketdevelopment
strategy
Response
Outcome
Aggressive
competition
Estimated profit
of $2 million
Passive
competition
Estimated profit
of $3 million
Aggressive
competition
Estimated profit
of $1 million
Passive
competition
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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CUSTOMER VALUE PROPOSITION
A cluster of Aggressive
benefits that an
competition
organization promises
customers to satisfy their
Aggressive
needs.
competition
Wal-Mart
Passive
competition
Michelin
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FORMULATING THE MARKETING MIX
Depends on the success
requirements of the market
Must be consistent with:
Estimated profit
of$3 million
The needs ofAggressive
the markets served
competition
The organizations capacity
Estimated profit
of $4 million
The marketing mix activities
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IMPLEMENTING THE MARKETING MIX
Is an art and a science
Requires an understanding of:
Estimated profit
of$3 million
Markets
Environmental forces
Organizational
Aggressive
competition
capacity
Marketing mix activities
Estimated profit
of $4 million
Competitor reactions
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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.
Financial
Budget
Focuses on the effect the operating
budget has on the organizations
cash position.
Special
Budgets
Focuses on developing advertising,
sales, and other budgets that
support the master budget.
2013 Pearson Education, Inc. publishing as Prentice Hall
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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
Operational
Are we doing the right things?
Are we doing things right?
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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.
2013 Pearson Education, Inc. publishing as Prentice Hall
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MARKETING PLAN
Consists of:
Business
Plan
Marketing
Plan
Product
Plan
Each has these time dimensions:
Short-term
Focus: 1-year period
Long-term
Focus: 3- to 5-year period
2013 Pearson Education, Inc. publishing as Prentice Hall
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CHAPTER 1: FOUNDATIONS OF STRATEGIC
MARKETING MANAGEMENT
MARKETING ETHICS AND
SOCIAL RESPONSIBILITY
2013 Pearson Education, Inc. publishing as Prentice Hall
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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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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
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