Downsizing and divesting older business

Marketing Final Exam

CHAPTER 2: SUMMARY
DEVELOPING MARKETING STRATEGIES AND PLANS

The value delivery process (marketing) involves choosing (or identifying), providing (or delivering), and communicating superior value to the consumer. The value chain is a tool for identifying key activities that creates value and costs in a specific business.

Strong companies develop superior capabilities in managing core business processes by managing core processes effectively to create a marketing network from suppliers to consumers. Managing these core processes effectively, means creating a marketing network in which the company works closely with all parties in the production and distribution chain, from suppliers of raw materials to retail distributors. Companies no longer compete— marketing networks do.

Holistic marketing maximizes value exploration by understanding the relationships between the customer’s cognitive space, the company’s competence space, and the collaborator’s resource space. It maximizes value creation by identifying new customer benefits from the customer’s cognitive space; utilizing core competencies from its business domain, selecting and managing business partners from its collaborative networks. Maximized value is delivered by becoming proficient at customer relationship management, internal resource management, and business partnership management.

Market-orientated strategic planning is the managerial process of developing and maintaining a viable fit between the organization’s objectives, skills, and resources and its changing market opportunities. The aim of strategic planning is to shape the company’s businesses and products so that it yields target profits and growth. Strategic planning takes place at four levels: corporate, division, business unit, and product.

The corporate strategy establishes the framework within which the divisions and business units prepare their strategic plans. Setting a corporate strategy entails four activities: defining the corporate mission, establishing strategic business units (SBUs), assigning resources to each SBU based on its market attractiveness and business strength, and planning new business and downsizing older businesses.

Strategic planning for individual businesses entrails the following activities: defining the business mission, analyzing external opportunities and threats, analyzing internal strengths and weaknesses, formulating goals, formulating strategy, formulating supporting programs, implementing the programs, gathering feedback, and exercising control.

Each product level within a business unit must develop a marketing plan for achieving its goals. The marketing plan is one of the most important outputs of the marketing process. A key ingredient of the marketing management process is insightful, creative marketing strategies, and plans that can guide marketing activities.

See the example of a Marketing Plan for a skate company found on pages 61-65.

MARKETING AND CUSTOMER VALUE

Marketing involves satisfying consumers’ needs and wants. The task of any business is to deliver customer value at a profit.

The Value Delivery Process

The traditional view of marketing is that the firm makes something and then sells it.

A) Will not work in economies where people face abundant choice.

B) New belief: marketing begins with the planning process.

C) Value creation and delivery consists of three parts:

1) Choosing the value (segment the market, define target market, develop “offering”).

2) Providing the value (product features, prices, and distribution channels).

3) Communicating the value (sales force, advertising, and promotional tools).

Each of these “values” involves a cost component to the company.

D) The Japanese use:

1) Zero customer feedback time.

2) Zero product-improvement time.

3) Zero purchasing time.

4) Zero set-up time.

5) Zero defects.

E) Nirmalya Kumar’s 3 “Vs” approach to marketing:

1) Define the value segment or segments.

2) Define the value proposition.

3) Define the value network.

F) Frederick Webster views marketing in terms of:

1) Value defining process.

2) Value developing processes.

3) Value delivering processes.

The Value Chain

Michael Porter’s Value Chain identifies nine strategically relevant activities that create value and costs (five primary and four support activities).

Review Key Definition here: value chain

A) Primary activities:

1) Inbound logistics (material procurement).

2) Operations (turn into final product).

3) Outbound logistics (shipping and warehousing).

4) Marketing (marketing and sales).

5) Servicing (service after the sale).

B) Support activities:

1) Procurement.

2) Technology development.

3) Human resource management.

4) Firm infrastructure.

The firm’s task is to examine its costs and performance in each value-creating activity and to look for ways to improve performance.

C) Core business processes:

1) The market sensing process (marketing intelligence).

2) The new offering realization process (research and development).

3) The customer acquisition process (defining target markets and consumers).

4) The customer relationship management process (deeper understanding of consumers).

The fulfillment management process (receiving, shipping, and collecting payments).

Strong companies develop superior capabilities in these core business processes. Strong companies also reengineer the workflows and build cross-functional teams responsible for each process. Many companies have partnered with suppliers and distributors to create a superior value-delivered network.

D) Value-delivery network (supply chain).

To be successful today, a firm must look for competitive advantages beyond its own operations—to its suppliers and distributors to create a superior value-delivery network (supply chain).

Review Key Definitions here: value-delivery network or supply chain

Core Competencies

A) Companies need resources (labor, materials, energy, etc.)

1) Own or nurture the resources and competencies that make up the essence of the business—outsource if competency is cheaper and available.

2) Competitive advantage accrues to companies that possess distinctive capabilities (excellence in broader business processes).

3) Competitive advantage derives from how well the company fits its core competencies and distinctive capabilities into tightly interlocking “activity systems.”

Review Key Definitions here: core competency and distinctive capabilities

Competitive advantage ultimately derives from how well the company “fits” its core competencies and distinctive capabilities into tightly interlocking “activity systems.”

A Holistic Marketing Orientation and Customer Value

Can provide insight into the process of capturing customer value

Review Key Definitions here: holistic marketing orientation and customer value

Figure 2.3 shows the interaction between customers, company, collaborators, and value-based activities (value exploration, value creation, and value delivery) to create, maintain, and renew customer value

A) Holistic marketing addresses three key management questions:

1) Value exploration—identify new value opportunities.

2) Value creation—create more promising new value offerings.

3) Value delivery—deliver the new value offerings more efficiently.

Developing strategy requires the understanding of the relationships and interactions among these three spaces.

Value Exploration

A) Customer’s cognitive space (reflects existing and latent needs and includes participation, stability, freedom, and change).

B) Company’s competence space (broad versus focused scope of business and depth physical versus knowledge-based capabilities).

C) The collaborator resource space (horizontal and vertical partnerships).

Value Creation

A) Marketer’s need to:

1) Identify new customer benefits from the customer’s view.

2) Utilize core competencies.

3) Select and manage business partners from its collaborative networks.

4) Business realignment may be necessary to maximize core competencies.

a. (Re)defining the business concept—big idea.

b. (Re)shaping the business scope—lines of business.

c. (Re)position the company’s brand identity.

Value Delivery—What Companies Must Become?

Often requires an investment in infrastructure and capabilities.

A) Proficient at customer relationship management.

1) Who the customers are, and respond to different customer opportunities.

B) Internal resource management.

1) Integrate major business processes within a single family of software modules.

C) Business partnership management.

1) Allow the company to handle complex relationships with its trading partners.

The Central Role of Strategic Planning

A) Calls for action in three areas:

1) Managing a company’s businesses as an investment portfolio.

2) Assessing each business’s strength by the market’s growth rate and the company’s position and fit in that market.

3) Establish strategy.

B) Most large companies consist of four organizational levels:

1) Corporate level.

2) Division level.

3) Business unit level.

4) Product level.

C) The marketing plan is the central instrument for directing and coordinating the marketing effort.

Review Key Definition here: marketing plan

The marketing plan operates on two levels: strategic and tactical.

1) The strategic marketing plan lays out target markets and the value proposition.

2) The tactical marketing plan specifies the product, promotion, merchandising, pricing, sales channels, and service.

Review Key Definitions here: strategic marketing plan and tactical marketing plan

Figure 2.4 shows the strategic complete planning, implementation, and control process.

CORPORATE AND DIVISION STRATEGIC PLANNING

A) All corporate headquarters undertake four planning activities:

1) Defining the corporate mission.

2) Establishing strategic business units (SBUs).

3) Assign resources to each SBU.

4) Assessing growth opportunities.

Defining the Corporate Mission

A) Key questions to ask:

1) What is our business?

2) Who is the customer?

3) What is of value to the customer?

4) What will our business be?

5) What should our business be?

Mission statements are best when guided by a “vision” that provides direction for the company.

Review Key Definition here: mission statements

Mission statements.

B) Good mission statements have three major characteristics:

1) Focused on a limited number of goals.

2) Stresses the company’s major policies and values.

3) Defines the major competitive spheres within which the company will operate by defining the:

a. Industry.

b. Products and applications.

c. Competence.

d. Market-segment.

e. Vertical.

f. Geographical.

4) They take a long term view.

5) They are as short, memorable, and meaningful as possible.

Defining the Business

Redefine the definition of businesses in terms of needs and not products.

Table 2.2 gives several examples of companies that have moved from product to market definition of their businesses.

A) A target market definition tends to focus on selling a product or service (Pepsi® and all who drink cola sodas).

B) A strategic market definition is broader and more encompassing (Pepsi redefines its strategy to everyone who has a “thirst”).

1) A business can be defined in terms of three dimensions:

a. Customer groups.

b. Customer needs.

Technology.

Review Key Definitions here: strategic business units

Assessing Growth Opportunities

A) Involves planning for new businesses.

B) Downsizing or terminating old businesses.

Intensive Growth

Corporate manager’s first course of action should be a review of opportunities for improving existing businesses.

Ansoff’s “product-market expansion grid.”

A) Market-penetration strategy (gain more market share).

B) Market-development strategy (new markets for current products).

C) Product-development strategy (new products for current markets).

D) Diversification strategy (new products for new markets).

Integrative Growth

A) Sales and profits may be increased through:

1) Backward integration.

2) Forward integration.

3) Horizontal integration.

Diversification Growth

When opportunities are found outside the present business and the company has the right mix of business strengths to be successful.

A) Several types are possible:

1) New products that have technological or marketing synergies with existing product lines.

2) New products unrelated to the current industry.

3) New businesses unrelated.

Downsizing and Divesting Older Businesses

A) Focus on businesses that provide growth opportunities.

B) Weak businesses require a disproportionate amount of managerial time/talent.

Organization and Organizational Culture

Review Key Definition here: organization

A) Organization consists of:

1) Structures.

2) Policies.

a. Corporate culture defined as “the shared experiences, stories, beliefs, and norms that characterize an organization.”

Review Key Definition here: corporate culture

b. Sometimes corporate culture develops organically and is transmitted by the CEOs personality.

Review Key Definition here: scenario analysis

B) Scenario analysis consists of developing plausible representations of a firm’s possible future that make different assumptions about forces driving the market and include different uncertainties.

1) What will we do if it happens?

2) Watch for signposts that might confirm or disconfirm the scenarios.

BUSINESS UNIT STRATEGIC PLANNING

Business Mission

A) Each business unit needs to define its specific mission within the broader company mission.

SWOT Analysis

A) The evaluation of a company’s strengths, weaknesses, opportunities, and threats is called SWOT analysis. It involves monitoring the external and internal marketing environment.

External Environment (Opportunity and Threat) Analysis

A) A business unit must monitor key macroenvironment forces:

1) Demographic-economic.

2) Natural.

3) Technological.

4) Political-legal.

5) Social-cultural.

6) And significant microenvironment actors:

a. Customers.

b. Competitors.

c. Suppliers.

d. Distributors.

e. Dealers.

A major purpose of environmental scanning is to discern new opportunities.

A marketing opportunity is an area of buyer need and interest in which there is a high probability that a company can profitably satisfy that need.

Review Key Definition here: marketing opportunity

B) There are three sources of market opportunities:

1) First is to supply something in short supply.

2) Second is to supply an existing product or service in a new or superior way.

3) There are several ways to uncover possible product or service improvements:

a. By asking customers for their suggestions (problem detection method).

b. By asking consumers to imagine an ideal version of the product or service (ideal method).

c. By asking consumers to chart their steps in acquiring, using, and disposing of a product (consumption chain method).

C) Third is a totally new product or service.

D) To evaluate opportunities, companies can use Market Opportunity Analysis (MOA) to determine attractiveness and probability of success:

1) Can the benefits involved in the opportunity be articulated convincingly to a defined target market(s)?

2) Can the target market(s) be located and reached with cost-effective media and trade channels?

3) Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?

4) Can the company deliver the benefits better than any actual or potential competitors can?

5) Will the financial rate of return meet or exceed the company’s required threshold for investment?

Example: opportunity matrix for a TV—lighting equipment company.

E) An environmental threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to lower sales or profit.

Example: the treat matrix facing the TV—lighting equipment company.

Internal Environment (Strengths/Weaknesses) Analysis

It is one thing to find attractive opportunities and another to be able to take advantage of them. Each firm must evaluate its internal strengths and weaknesses.

A) George Stalk suggests that winning companies are those that have achieved superior in-company capabilities, not just core competencies. Stalk calls this capabilities-based competition.

Goal Formulation

Once the company has performed a SWOT analysis, it can proceed to develop specific goals for the planning period. This stage of the process is called goal formulation. Managers use the term “goals” to describe objectives that are specific with respect to magnitude and time.

A) The firm sets objectives, and then manages by objectives (MBO). For MBOs to work they must meet four criteria:

1) They must be arranged hierarchically, from the most to least important.

2) Objectives should be stated quantitatively whenever possible.

3) Goals should be realistic.

4) Objectives must be consistent.

Strategic Formulation

Every business must design a strategy for achieving its goals, consisting of a marketing strategy, and a compatible technology strategy, and sourcing strategy.

Porter’s Generic Strategic

A) Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking:

1) Overall cost leadership.

2) Differentiation.

3) Focus.

B) According to Porter, firms pursuing the same strategy to the same target market constitute a strategic group.

Strategic Alliances

A) Companies are discovering that there is a need for strategic partners if they hope to be effective.

B) Many strategic alliances take the form of marketing alliances. These fall into four major categories:

1) Product or service alliances.

2) Promotional alliances.

3) Logistics alliances.

4) Pricing collaborations.

C) To keep strategic alliances thriving, corporations have begun to develop organizational structures for support and have come to view the ability to form and manage partnerships as core skills (called Partner Relationship Management, PRM).

Program Formulation and Implementation

A) A great marketing strategy can be sabotaged by poor implementation.

B) Marketing must estimate its costs.

C) In implementing strategy, companies must not lose sight of the multiple stakeholders involved and their needs.

D) According to McKinsey & Company, strategy is only one of seven elements in successful business practice.

1) The first three—strategy, structure, and systems are considered the “hardware” of success.

2) The next four—style, skills, staff, and shared values are the “software”

a. “Style” means that company employees share a common way of thinking and behaving.

b. “Skills” means that the employees have the skills necessary to carry out the company’s strategy.

c. “Staffing” means that the company has hired able people, trained them well, and assigned them to the right jobs.

d. “Shared values,” means that the employees share the same guiding values.

Feedback and Control

A) As it implements its strategy, the firm needs to track the results and monitor new developments. A company’s strategic fit with the environment will inevitably erode because the market environment changes faster than the company’s 7Ss. Organizations are subject to inertia and are set up as efficient machines and it is difficult to change one part without adjusting everything else.

PRODUCT PLANNING: THE NATURE AND CONTENTS OF A MARKETING PLAN

A) Each product level (product line, brand) must develop a marketing plan for achieving its goals. A marketing plan is a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives.

Review Key Definition here: marketing plan

B) Marketing plans are becoming more customer and competitor orientated. The plan draws more input from all the business functions and is team developed.

C) Contents of the marketing plan:

1) Executive summary and table of contents.

2) Situation analysis.

3) Marketing strategy.

4) Financial projections.

5) Implementation controls.