A visionary organization must specify its foundation, set a direction, and formulate

2

Developing Successful Organizational and Marketing Strategies

LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO 2-1Describe three kinds of organizations and the three levels of strategy in them.

LO 2-2Describe core values, mission, organizational culture, business, and goals.

LO 2-3Explain why managers use marketing dashboards and marketing metrics.

LO 2-4Discuss how an organization assesses where it is now and where it seeks to be.

LO 2-5Explain the three steps of the planning phase of the strategic marketing process.

LO 2-6Describe the four components of the implementation phase of the strategic marketing process.

LO 2-7Discuss how managers identify and act on deviations from plans.

STARTING A BUSINESS BY GETTING AN “A” IN AN ICE CREAM-MAKING COURSE!

Ben & Jerry’s started in 1978 when longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to start an ice cream parlor business in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 Penn State correspondence course in ice cream making, Ben and Jerry were off and scooping. Their first flavor? Vanilla—because it’s a universal best seller.1

The two founding entrepreneurs of Ben & Jerry’s have successfully implemented some highly creative organizational and marketing strategies over the years. These include:

•Caring Dairy. Their milk and cream are bought from a cooperative that guarantees its supplies are bovine growth hormone free.

•PartnerShops. Their “social entrepreneurship” PartnerShop programs enable community-based nonprofit organizations to own and operate Scoop Shops that help employ at-risk youth and young adults to better their lives.

•Fair Trade. Their belief that “people should get their fair share of the pie” has led them to practice Fair Trade-certified sourcing of key ingredients—cocoa, coffee, and vanilla—for their deliciously unique flavors like Chocolate Therapy. These items are purchased from producers in developing countries who practice sustainable farming techniques.

•B-Corp Certified. Their social mission has earned them “B-Corp” certification. This is a designation from B-Lab, a nonprofit organization whose purpose is to “use the power of business to solve social and environmental problems” in order to positively impact the community and environment within which the organization operates.2

As you can see, Ben & Jerry’s Homemade Holdings, Inc., links its three-part mission statement to social causes designed to improve humanity by offering consumers delicious products with creatively funky names.

Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is expected to reach $68 billion by 2015.3 While customers love Ben & Jerry’s rich premium ice cream, many buy its products to support its social mission. As a testament to its success, Ben & Jerry’s has over 7 million fans on Facebook—the most of any premium ice cream marketer!

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Chapter 2 describes how organizations set goals to provide an overall direction to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented and then evaluated so deviations can be exploited or corrected based on the marketing environment.

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TODAY’S ORGANIZATIONS

In studying today’s visionary organizations, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels of structure found in many large organizations.

LO 2-1Describe three kinds of organizations and the three levels of strategy in them.

Kinds of Organizations

An organization is a legal entity that consists of people who share a common mission. This motivates them to develop offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants.4 Today’s organizations are of three types: (1) for-profit organizations, (2) nonprofit organizations, and (3) government agencies.

A for-profit organization, often called a business firm, is a privately owned organization such as Target, Nike, or Cree that serves its customers to earn a profit so that it can survive. Profit is the money left after a for-profit organization subtracts its total expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings.

Cree is an example of a for-profit organization. Its Cree LED light bulb, launched In 2013, replaces the traditional incandescent bulb. The Cree LED 60w bulb Is 84 percent more energy efficient, lasts for 25,000 hours, and Initially sold for about $12.

In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Social entrepreneurs like Teach For America and SightLife, described in the Making Responsible Decisions box, seek to solve the practical needs of society and are usually structured as nonprofit organizations.5 For simplicity in the rest of the book, the terms firm, company, and organization are used interchangeably to cover both for-profit and nonprofit organizations.

Lastly, a government agency is a federal, state, county, or city unit that provides a specific service to its constituents. For example, the Census Bureau, a unit of the U.S. Department of Commerce, is a federal government agency that provides population and economic data.

Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry.6 As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance.7 Much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.

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Cree LED Bulb Ad

What Is Strategy?

An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists. For our purpose, strategy is an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals.8 All organizations set a strategic direction. And marketing helps to both set this direction and move the organization there.

The Structure of Today’s Organizations

Large organizations are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as shown in Figure 2–1.

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Making Responsible Decisions

social responsibility

Using Social Entrepreneurship to Help People

What do Teach For America and SightLife have in common?

The answer: They are “social entrepreneurs” that are actively practicing—you guessed it!—social entrepreneurship. In a nutshell, social entrepreneurship applies innovative approaches to organize, create, and manage a venture to solve the practical needs of society. These usually are nonprofit organizations and focus on issues facing people who lack the financial or political means to solve their own problems. Let’s look at the two social entrepreneurs mentioned above, models of creative nonprofit organizations.

Launched by college senior Wendy Kopp, Teach For America is the national corps of outstanding recent college graduates who commit to teach for two years in urban and rural public schools and become lifelong leaders in expanding educational opportunity. In 2013, more than 10,000 corps members taught 750,000 students, while nearly 28,000 Teach For America alumni continue working from inside and outside the field of education for the fundamental changes necessary to ensure educational excellence and equity.

The mission of SightLife is incredibly clear and specific: “To end cornea blindness.” Cornea blindness, affecting 10 million people globally, can be cured by transplanting a donated, healthy cornea to replace a diseased one. Seattle-based SightLife finds cornea donors and prepares the tissues for surgery. SightLife works with eye surgeons and health organizations in about 30 countries. In 2012, SightLife provided almost 14,000 corneas for transplant—improving the lives of their recipients.

Corporate Level The corporate level is where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing the organization’s overall strategy.

The president or chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills ranging from overseeing the organization’s daily operations to spearheading strategy planning efforts that may determine its very survival.

FIGURE 2–1

The board of directors oversees the three levels of strategy in organizations: corporate, strategic business unit, and functional.

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In recent years, many large firms have changed the title of the head of marketing from vice president of marketing to chief marketing officer (CMO). These CMOs have an increasingly important role in top management because of their ability to think strategically. Most bring multi-industry backgrounds, cross-functional management expertise, analytical skills, and intuitive marketing insights to their job. These CMOs are increasingly called upon to be their organizations’ “visionaries for the future” by staying in touch with consumers’ needs and wants.9

Strategic Business Unit Level Some multimarket, multiproduct firms, such as Prada and Johnson & Johnson, manage a portfolio or group of businesses. Each group is a strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined target market. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge.

Prada manages a portfolio or group of businesses—including perfume, leather goods, and luggage—each of which may be viewed as a strategic business unit (SBU).

Functional Level Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (see Figure 2–1). At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level.

A key role of the marketing department is to look outward by listening to customers, developing offerings, implementing marketing program actions, and then evaluating whether those actions are achieving the organization’s goals. When developing marketing programs for new or improved offerings, an organization’s senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.

learning review

2-1. What is the difference between a for-profit and a nonprofit organization?

2-2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS

To be successful, today’s organizations must be forward-looking. They must anticipate future events and then respond quickly and effectively to those events. A visionary organization must specify its foundation (why does it exist?), set a direction (what will it do?), and formulate strategies (how will it do it?), as shown in Figure 2–2.10

LO 2-2Describe core values, mission, organizational culture, business, and goals.

Organizational Foundation: Why Does It Exist?

An organization’s foundation is its philosophical reason for being—why it exists. Successful visionary organizations use this foundation to guide and inspire their employees through three elements: core values, mission, and organizational culture.

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FIGURE 2–2

Today’s visionary organizations use key elements to (1) establish a foundation and (2) set a direction using (3) strategies that enable them to develop and market their products successfully.

Core Values An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time.11 A firm’s founders or senior management develop these core values, which are consistent with their essential beliefs and character.12 They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and guide the organization’s conduct. To be effective, an organization’s core values must be communicated to and supported by its top management and employees; if not, they are just hollow words.13

Mission By understanding its core values, an organization can take steps to define its mission , a statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statementshould be clear, concise, meaningful, inspirational, and long-term.14

Medtronic is a world leader in producing heart pacemakers and other electrical stimulation devices to treat diabetes, Parkinson’s disease, and chronic back pain.15 Medtronic almost died in infancy when it was trying to raise start-up capital. A world-renowned consulting company surveyed doctors and “concluded there was no foreseeable market for pacemakers.”16 Earl Bakken, its founder, wrote this mission statement for Medtronic when it was launched a half century ago (and which today remains virtually unchanged):

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Medtronic Video

To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.

Similar inspiration and focus appear in the mission statements of other for-profit organizations, as well as nonprofit organizations and government agencies:

•Southwest Airlines: “To be dedicated to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”

•American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.”17

At Medtronic, senior executives give each new employee worldwide this medallion. On the front is a rising figure along with a motto that reads, “Medtronic: Alleviating Pain—Restoring Health—Extending life.” On the back is Medtronic’s abridged mission statement. What does this medallion signify to employees? For Insights, see the text.

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Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future.18

Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile. This is what Ben & Jerry’s social mission statement shows in the chapter opener. Stakeholders, particularly customers, employees, and now society, are asking organizations to be exceptional citizens by providing long-term value while solving society’s problems.

Organizational Culture An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them. Medtronic presents every new employee with a medallion depicting a “rising figure” on one side and the company’s mission statement on the other. And each December, several patients describe to a large employee holiday celebration how Medtronic devices have changed their lives.19 These activities send clear messages to employees and other stakeholders about Medtronic’s organizational culture —the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

In the first half of the 20th century, what “business” did railroad executives believe they were in? The text reveals their disastrous error.

Organizational Direction: What Will It Do?

As shown in Figure 2–2, the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals.

Business A business describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions, “What do we do?” or “What business are we in?”

Professor Theodore Levitt saw that 20th century American railroads defined their business too narrowly, proclaiming, “We are in the railroad business!” This myopic focus caused them to lose sight of who their customers were and what they needed. So railroads failed to develop strategies to compete with airlines, barges, pipelines, and trucks. As a result, many railroads merged or went bankrupt. Railroads should have realized they were in “the transportation business.”20

With today’s increased global competition, many organizations are rethinking their business model, the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. American newspapers are looking for a new business model as former subscribers now get their news online.21 Bookstore retailer Barnes & Noble, too, is rethinking its business model as e-book readers like Amazon’s Kindle and Apple’s iPad have gained widespread popularity.22

The Marketing Matters box describes how Rovio Entertainment Ltd., the Finnish developer of the Angry Birds video games, has defined the business it is in. Taking a lesson from Theodore Levitt, Rovio sees itself as being an “entertainment company,” not a “gaming company.” Time will tell whether the Angry Birds brand and image that works so well with its video games will carry over to amusement parks, clothing, toys, soda, candy, and movies!23

Why is Rovio altering its business model by developing an Angry Birds Land amusement park in Finland? See the text and the Marketing Matters box for the answer.

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Marketing Matters

entrepreneurship

Angry Birds: Discovering Its “Business” and … Business Model!

By 2008, three Finnish 20-somethings had developed 50 video games for Rovio Entertainment Ltd. without much success. Then in 2009, along came their Angry Birds video game, which skyrocketed to success. Rovio wondered how to build on that very success.

What Business Are We In?

Looking for growth opportunities, one clear strategy was to launch spin-offs of the original Angry Birds video game. In April 2012, Rovio introduced Angry Birds Space, which set a record by becoming the first app to hit 50 million downloads in only 35 days. By then, across all platforms, Angry Birds could boast of over 700 million downloads.

If you are traveling in Finland, you can expect to see at least one of more than 30 Angry Birds amusement parks. These came about through Rovio partnering with a Finnish playground equipment maker, putting Rovio clearly outside the video game business. “We stopped looking at ourselves as a gaming company a long time ago,” says Peter Vesterbacka, Rovio’s chief marketing officer. “We are an entertainment company.”

Dreaming Big: Angry Birds—the Movie?

So what’s next? Some of the companies that Rovio has partnered with so far include a Swedish clothing manufacturer, an American toy maker (Has-bro), and a Finnish beverage company. By 2013, the round birds with big eyebrows and orange beaks were showing up on T-shirts, soda cans, flip flops, toys, hoodies, and candy—not only in Finland but around the world. On the horizon for a 2016 summer release is an Angry Birds movie. The Angry Birds animated film will be targeted at kids, while also hoping to entertain their parents.

Will this entertainment business model succeed? The answer depends on whether the powerful Angry Birds brand and image can cross diverse product categories without offending existing customers.

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Angry Birds Video

Goals Goals or objectives (terms used interchangeably in this book) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals:

•Profit. Most firms seek to maximize profits—to get as high a financial return on their investments (ROI) as possible.

•Sales (dollars or units). If profits are acceptable, a firm may elect to maintain or increase its sales even though profits may not be maximized.

•Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.

•Quality. A firm may offer the highest quality, as Medtronic does with its implantable medical devices.

•Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints.

•Employee welfare. A firm may recognize the critical importance of its employees by stating its goal of providing them with good employment opportunities and working conditions.

•Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits.

Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good.

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Organizational Strategies: How Will It Do It?

As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and the organizational direction sets the “what.” To convert these into actual results, the organizational strategies are concerned with the “how.” These organizational strategies vary in at least two ways, depending on (1) a strategy’s level in the organization and (2) the offerings an organization provides to its customers.

Rovio, the maker of Angry Birds, is altering its “business model,” which requires entirely new organizational strategies.

Variation by Level Moving down the levels in an organization involves creating increasingly specific, detailed strategies and plans. So, at the corporate level, top managers may struggle with writing a meaningful mission statement; while at the functional level, the issue is who makes tomorrow’s sales call.

Variation by Product Organizational strategies also vary by the organization’s products. The strategy will be far different when marketing a very tangible physical good (a Medtronic heart pacemaker), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross). This is Rovio’s challenge as it tries to extend its new business model of becoming an “entertainment company” to encompass stuffed toys, amusement parks, and movies.

Most organizations develop a marketing plan as a part of their strategic marketing planning efforts. A marketing plan is a road map for the marketing actions of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later) usually results in a marketing plan that directs the marketing actions of an organization. Appendix A at the end of this chapter provides guidelines for writing a marketing plan.

learning review

2-3. What is the meaning of an organization’s mission?

2-4. What is the difference between an organization’s business and its goals?

LO 2-3Explain why managers use marketing dashboards and marketing metrics.

Tracking Strategic Performance with Marketing Dashboards

Although marketing managers can set strategic directions for their organizations, how do they know if they are making progress in getting there? One answer is to measure performance by using marketing dashboards.

Car Dashboards and Marketing Dashboards A marketing dashboard is the visual computer display of the essential information related to achieving a marketing objective.24 Often, active hyperlinks provide further detail. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new TV advertising campaign is on a product’s sales.25

The idea of a marketing dashboard really comes from the display of information found on a car’s dashboard. On a car’s dashboard, we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table and makes a decision whether to take action or to analyze the problem further.26

Dashboards, Metrics, and Plans The marketing dashboard of Sonatica, a hypothetical hardware and software firm, appears in Figure 2–3. It shows graphic displays of key performance indicators linked to its product lines.27 Each display in a marketing dashboard shows a marketing metric , which is a measure of the quantitative value or trend of a marketing action or result.28 Choosing which marketing metrics to display is critical for a busy manager, who can be overwhelmed with irrelevant data.29

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FIGURE 2–3

An effective marketing dashboard, like this one from Sonatica, a hypothetical hardware and software firm, helps managers assess a business situation at a glance.

Source: Dundas Data Visualization, Inc.

Today’s marketers use data visualization, which presents information about an organization’s marketing metrics graphically so marketers can quickly (1) spot deviations from plans during the evaluation phase and (2) take corrective actions.30 This book uses data visualization in many figures to highlight in color key points described in the text. The Sonatica marketing dashboard in Figure 2–3 uses data visualization tools like a pie chart, a line or bar chart, and a map to show how parts of its business are performing as of December 2013:

•Website Traffic Sources. The color-coded perimeter of the pie chart shows the three main sources of website traffic (referral sites at 47 percent, search engines at 37 percent, and direct traffic at 16 percent). These three colors link to those of the circles in the column of website traffic sources. Of the 47 percent of traffic coming from referral sites, the horizontal bullet graphs to the right show that Sonatica’s Facebook visits comprise 15 percent of total website traffic, up from a month ago (as shown by the vertical line).

•Sales Performance by SBU. The spark lines (the wavy lines in the far left column) show the 13-month trends of Sonatica’s strategic business units (SBUs). For example, the trends in electronics and peripherals are generally up, causing their sales to exceed their YTD (year to date) targets. Conversely, both software and hardware sales failed to meet YTD targets, a problem quickly noted by a marketing manager seeing the red “warning” circles in their rows at the far right. This suggests that immediate corrective actions are needed for the software and hardware SBUs.

•Website Visits by State. The U.S. map shows that the darker the state, the greater the number of website visits for the current month. For example, Texas has close to 20,000 visits per month, while Illinois has none.

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Using Marketing Dashboards

How Well Is Ben & Jerry’s Doing?

As the marketing manager for Ben & Jerry’s, you need to assess how it is doing within the United States in the super-premium ice cream market in which it competes. For this, you choose two marketing metrics: dollar sales and dollar market share.

Your Challenge Scanner data from checkout counters in supermarkets and other retailers show the total industry sales of super-premium ice cream were $1.25 billion in 2013. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit In 2013. A “unit” In super-premium ice cream is one pint.

Your Findings Dollar sales and dollar market share can be calculated for 2013 using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows:

Dollar sales($)

=Average price × Quantity sold

= $5.00 × 50 million units

= $250 million

Your dashboard displays show that from 2012 to 2013 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent.

Your Action The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. This will lead to marketing actions.

The Ben & Jerry’s dashboard in the Using Marketing Dashboards box shows how the two widely used marketing metrics of dollar sales and dollar market share can help the company assess its growth performance from 2012 to 2013. The Using Marketing Dashboard boxes in later chapters highlight other key marketing metrics and how they can lead to marketing actions.

SETTING STRATEGIC DIRECTIONS

To set a strategic direction, an organization needs to answer two difficult questions: (1) Where are we now? and (2) Where do we want to go?

LO 2-4Discuss how an organization assesses where it is now and where it seeks to be.

A Look Around: Where Are We Now?

Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors.

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Competencies Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies, and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to success.31

Medtronic’s competencies include world-class technology, training, and service that respond to life-threatening medical needs. Bloomberg Businessweek magazine has called Medtronic “the standard setter for quality.”32 Competencies should be distinctive enough to provide acompetitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.33

Lands’ End’s unconditional guarantee for its products highlights its focus on customers.

Customers Ben & Jerry’s customers are ice cream and frozen yogurt eaters who have different preferences (form, flavor, health, and convenience). Medtronic’s pacemaker customers include cardiologists and heart surgeons who serve patients that need this type of device. Lands’ End communicates a remarkable commitment to its customers and its product quality with these unconditional words:

Guaranteed. Period.®

The Lands’ End website points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers, it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have a satisfying experience.34

Competitors In today’s global marketplace, the distinctions among competitors are increasingly blurred. Lands’ End started as a catalog retailer. But today, Lands’ End competes with not only other clothing catalog retailers but also traditional department stores, mass merchandisers, and specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing in any of these stores directly competes with Lands’ End offerings, all of these retailers have websites to sell their offerings over the Internet. This means there’s a lot of competition out there.

Growth Strategies: Where Do We Want to Go?

Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis.

Business Portfolio Analysis Successful organizations have a portfolio or range of offerings (products and services) that possess different growth rates and market shares within the industry in which they operate. The Boston Consulting Group (BCG), an internationally known management consulting firm, has developed business portfolio analysis . It is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ strategic business units (SBUs) as though they were a collection of separate investments.35 The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash to fund the organization’s growth opportunities.

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Marketing Matters

technology

Filling the Shoes of Apple CEO Tim Cook: Where Will Apple’s Projected Future Growth for Its Major SBUs Come From?

Every CEO of a for-profit organization faces one problem in common: trying to find ways to increase future sales and profits to keep it growing!

Put yourself in Tim Cook’s shoes. One of his jobs is to search for new growth opportunities. Using your knowledge about Apple products, do a quick analysis of its four SBUs shown below to determine where Apple should allocate Its time and resources. Rate these growth opportunities from highest to lowest in terms of percentage growth in unit sales from 2013 to 2016:

We’ll walk you through possible answers. You then can evaluate your performance over the next two pages and decide whether you’re really ready for Mr. Cook’s job!

As described in the Marketing Matters box, let’s assume you are filling the shoes of Apple CEO Tim Cook. Based on your knowledge of Apple products, you are currently conducting a quick analysis of four major Apple SBUs through 2016. Try to rank them from highest to lowest in terms of percentage growth in expected unit sales. We will introduce you to using business portfolio analysis as we look at the possible future of the four Apple SBUs.

The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is therelative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of l0 × (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1 × (at the right end of the scale) means it has only 10 percent of the share of its largest competitor.

What can Apple expect in future growth of sales revenues from its Mac Pro/iMac/MacBook products…

The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization:

•Cash cows are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.

•Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.

•Question marks are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest.

•Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they may not become real winners for the organization. Dropping SBUs that are dogs may be required if they consume more cash than they generate, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.36

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FIGURE 2–4

Boston Consulting Group (BCG) business portfolio analysis for four of Apple’s consumer-related SBUs. Starting in 2013, the lines show where the sales revenues for each SBU are projected to be by 2016.

An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on the market growth rate, its main objective is to try to change its relative dollar or unit market share. To do this, management decides what strategic role each SBU should have in the future and either injects cash into or removes cash from it.

According to Interbrand, a leading brand management consulting firm, Apple has been consistently cited as one of the top global brands over the past decade in its annual Best Global Brands survey. What has made Apple so iconic is not only its revolutionary products but also its commitment to infusing the “human touch” with its technology such that its customers connect with the brand on both a cognitive and an emotional level. The late Steve Jobs was instrumental in creating Apple’s organizational culture and core values that will continue to guide its future.37

Using the BCG business portfolio analysis framework, Figure 2–4 shows that the Apple picture might look this way from 2013 to 2016 for its four strategic business units:38

…or its iPad/iPad mini tablet devices?

1. Mac Pro/iMac/MacBook (desktop and laptop personal computers or PCs). By mid-2013, Apple offered three lines of desktops (Mac Pro, iMac, and Mac mini) and two lines of laptops (MacBook Pro and MacBook Air). Global PC unit sales have declined during the past few years due to the growth of tablet devices. However, Apple’s Macs have bucked this trend, increasing its global unit market share from 10 to 12 percent. By 2016, global PC unit sales are expected to fall dramatically due to the explosion in tablet device sales. As a result, Apple’s Mac PC SBU appears to be a dog (low market share in a low-growth market).39

2. iPod (MP3 music players). Apple entered the MP3 player market with its iPod device in 2001. Today, Apple sells four iPod product lines (classic, nano, shuffle, and touch). As of mid-2013, Apple had a 70 percent share of this market! However, global MP3 music player unit sales are falling and are expected to decline further by 2016. Why? Smartphones will continue to replace MP3 devices, and the launch of additional wearable digital watches may impact sales. For Apple, its iPod SBU is a cash cow (high market share in a low-growth market) and is likely to remain one for the near future.40

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3. iPhone (smartphones). Apple launched its revolutionary iPhone in 2007, the first smartphone that used a multi-touch user interface. iPhone unit sales skyrocketed but have since leveled off. By 2017, the smartphone market is expected to grow at a compound annual rate of l3 percent due to dropping average smartphone prices. Apple’s iPhone had a 15 percent share of the global smartphone market in mid-2013—second to Samsung, whose share was 41 percent. Apple’s iPhone is on the question mark-star borderline and may remain so for the next few years unless or until it introduces new, compelling models such as the rumored iPhone 5S and iPhone 6.41

4. iPad/iPad mini (tablet devices). In 2010, Steve Jobs once again revolutionized an industry when he launched the iPad. Unit sales reached an astonishing 40 percent market share by mid-2013—leading both Samsung’s Galaxy (18 percent) and Amazon’s Kindle (4 percent). Global tablet unit sales are expected to more than double by 2016 as consumers switch from desktop and laptop PCs to tablet devices, with Apple still the market share leader. As these products mature, Apple’s iPad/iPad mini SBU may move from a star toward a cash cow as its growth begins to subside after 2016.42

So, how did you—as Tim Cook—rank the growth opportunity for each of Apple’s four SBUs for the future? In terms of priority, perhaps Apple will “milk” the cash generated from the Mac Pro/iMac/MacBook PC SBU [1] and iPod MP3 player SBU [2] to fund the investments needed to exploit the growth opportunities projected for the iPhone smartphone SBU [3] and the iPad/iPad mini tablet devices SBU [4]. Is Apple concerned? With its history of pulling exotic new-product “rabbits out of its hat,” let’s wait and see!

The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.43

How can Ben & Jerry’s develop new products and social responsibility programs that contribute to its mission? The text describes how the strategic marketing process and its SWOT analysis can help.

QR 2-4

B&J’s Bonna· roo Buzz Ad

Diversification Analysis Diversification analysis is a technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products.44 For any market, there is both a current product (what the firm now sells) and a new product (what the firm might sell in the future). And for any product there is both a current market (the firm’s existing customers) and a new market (the firm’s potential customers). As Ben & Jerry’s seeks to increase sales revenues, it considers all four market-product strategies shown in Figure 2–5:

•Market penetration is a marketing strategy to increase sales of current products in current markets, such as selling more Ben & Jerry’s Bonnaroo Buzz Fair Trade–sourced ice cream to U.S. consumers. There is no change in either the basic product line or the markets served. Increased sales are generated by selling either more ice cream (through better promotion or distribution) or the same amount of ice cream at a higher price to its current customers.

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•Market development is a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news and bad news for this strategy: As household incomes of Brazilians increase, consumers can buy more ice cream; however, the Ben & Jerry’s brand may be unknown to Brazilian consumers.

•Product development is a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States. This strategy is risky because Americans may not see the company’s expertise in ice cream as extending to children’s clothing.

•Diversification is a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s if it decides to try to sell Ben & Jerry’s branded clothing in Brazil. Why? Because the firm has neither previous production nor marketing experience from which to draw in marketing clothing to Brazilian consumers.

FIGURE 2–5

Four market-product strategies: alternative ways to expand sales revenues for Ben & Jerry’s using diversification analysis.