Chapter 2 A Strategic Marketing Framework

Copyright 2007, Prentice-Hall, Inc.2-2 Key Learning Points  Elements of a complete marketing strategy.  Developing a value proposition.  Developing competitive advantage.  Positioning products and services.  The product life cycle and how it affects marketing strategies.

Copyright 2007, Prentice-Hall, Inc.2-3 Figure 2.1: A Complete Marketing Strategy

Copyright 2007, Prentice-Hall, Inc.2-4 Marketing Strategy  Different kinds of objectives exist: – Mission statements describe the customer orientation or business philosophy. – Corporate objectives state the overall goals to be achieved in financial terms. – Business units, divisions, brands, products, and programs such as advertising also have objectives.  Objectives related to increasing market share and profits may require trade-offs.

Copyright 2007, Prentice-Hall, Inc.2-5 Marketing Strategy  An objective is defined as: – The criterion by which the success or failure of the strategy is measured.  Characteristics of well-written objectives: – Lists a quantified standard of performance. – Designates a clear time frame. – States goal in measurable terms. – Should be challenging but realistic.

Copyright 2007, Prentice-Hall, Inc.2-6 Marketing Strategy  Customer and competitor targets – Which customer group should be targeted?  Select a general strategy (refer to Figure 2.2).  Define targeted group in more precise terms.

Copyright 2007, Prentice-Hall, Inc.2-7 Figure 2.2: Strategic Alternatives

Copyright 2007, Prentice-Hall, Inc.2-8 Marketing Strategy  Market Penetration  Market Development  Targeting the firm ’ s own customers: – Should be a high priority.  Targeting customers of the competition: – Riskier and more expensive strategy. – Common in slow growth markets. – Price promotions are key. Key Strategies:

Copyright 2007, Prentice-Hall, Inc.2-9 Marketing Strategy  Market Penetration  Market Development  Targeting nonbuying customers in currently served segments – Is it profitable?  Targeting new customers in new segments – Will it require the introduction of new or modified products? Key Strategies:

Copyright 2007, Prentice-Hall, Inc.2-10 Marketing Strategy  Market Development Strategies: Entering Foreign Markets – Requires decisions related to:  The choice of country or countries to enter.  The timing of the entry.  How to operate in the chosen countries. – Five factors should be considered when deciding how to enter a foreign market.

Copyright 2007, Prentice-Hall, Inc.2-11 Figure 2.3: Factors Affecting Mode of Entry

Copyright 2007, Prentice-Hall, Inc.2-12 Discussion Question Many products have successfully used packaging innovations, such as the squeeze container, to appeal to new markets by providing a functional benefit. 1.What are some other examples of packaging innovations that have been used by manufacturers to attract new users to a brand? 2.In what way could the product itself be modified to attract new users?

Copyright 2007, Prentice-Hall, Inc.2-13 Marketing Strategy  The Value Proposition  Differentiation  Product Positioning Core Strategy

Copyright 2007, Prentice-Hall, Inc.2-14 Marketing Strategy  The Value Proposition  Differentiation  Product Positioning  Summarizes into a single paragraph: – The customer – The competitive targets – The customer ’ s reason for buying your brand.  Forms the basis for the marketing mix. Core Strategy

Copyright 2007, Prentice-Hall, Inc.2-15 Value Proposition For (target segment n), the (product/ brand name) is a (product category) that unlike (competitor targets), (statement of primary differentiation). For men aged 20 – 29, Thums Up is a cola that unlike Coke and Pepsi, has Indian heritage, tastes spicier, and tastes just as good warm as it does cold.

Copyright 2007, Prentice-Hall, Inc.2-16 Marketing Strategy  The Value Proposition  Differentiation  Product Positioning  Competitive advantages (CA) should have three characteristics: – CA should generate customer value. – Increased value must be perceived by the consumer. – CA should be difficult to copy. Core Strategy

Copyright 2007, Prentice-Hall, Inc.2-17 Marketing Strategy General Approaches to Creating Competitive Advantage  Cost-based or price-based advantage  Quality-based or differentiation advantage  Perceived quality or brand-based advantage

Copyright 2007, Prentice-Hall, Inc.2-18 Marketing Strategy  Cost-Based or Price-Based Advantage – Enables managers to choose whether or not to compete on basis of price. – Difficult to achieve, but two primary methods exist:  Becoming the largest producer and benefiting from economies of scale.  Taking advantage of the experience curve. – Strict cost control and flexible manufacturing can also help smaller firms or those with less experience to develop a cost-based advantage.

Copyright 2007, Prentice-Hall, Inc.2-19 Figure 2.4: Learning Curves for Software and Hardware

Copyright 2007, Prentice-Hall, Inc.2-20 Marketing Strategy  Quality-Based Differentiation – Develops of an observable difference that is valued by customers.  Typically implies higher costs.  Allows for both higher prices and higher margins. – Differentiation can occur at any point within the value chain.

Copyright 2007, Prentice-Hall, Inc.2-21 Marketing Strategy Differentiation Opportunities Within the Value Chain  Inbound Logistics  Operational Advantages  Outbound Logistics  Marketing & Sales  Services

Copyright 2007, Prentice-Hall, Inc.2-22 Marketing Strategy  Perceived Quality or Brand-Based Differentiation – Used when actual differences are small, hard to achieve, or difficult to sustain. – Price, distribution, and marketing communications all contribute to brand- based differentiation. – Requires a thorough understanding of consumers ’ perception of the brand compared to competitive offerings.

Copyright 2007, Prentice-Hall, Inc.2-23 Figure 2.5: Perceptual Map: Retail Banking

Copyright 2007, Prentice-Hall, Inc.2-24 “ One of the key ways to define a perceptual differential advantage is through the brand name. The value of a brand name in communicating quality or other aspects of the product is called brand equity. ” - Russell S. Winer

Copyright 2007, Prentice-Hall, Inc.2-25 Marketing Strategy  The Value Proposition  Differentiation  Product Positioning  Positioning creates a clear image in the mind of the consumer of what the product stands for and how it is different from competitive offerings.  Repositioning can be difficult when the brand has high awareness. Core Strategy

Copyright 2007, Prentice-Hall, Inc.2-26 Marketing Strategy  Formulating the positioning strategy requires knowledge of the following: – What dimensions do consumers use to evaluate product offerings?  Actual and perceived differences are both important. – How important is each dimension in the decision process? – How does the brand the competition compare on each dimension? – What decision processes do consumers use?

Copyright 2007, Prentice-Hall, Inc.2-27 Figure 2.6: ANA Airlines Ad The ad at right attempts to position the airline as an innovator by promoting the airline as the first to offer Internet service. The positioning is closely related to the value proposition.

Copyright 2007, Prentice-Hall, Inc.2-28 Marketing Strategy  Marketing Mix – Implementation of the marketing mix makes the strategy operational. – Consistency between strategy and the actual implementation is critical.

Copyright 2007, Prentice-Hall, Inc.2-29 Figure 2.7: Ensuring a Segment-Focused Strategy

Copyright 2007, Prentice-Hall, Inc.2-30 Figure 2.8: The Product Life Cycle

Copyright 2007, Prentice-Hall, Inc.2-31  The Product Life Cycle (PLC) sketches the sales history of a product category over time. – This conceptual tool is best applied to product categories and not to specific brands.  Strategy options and the importance of marketing mix variables vary across each stage of the PLC.  Not all product categories follow the standard PLC curve. Marketing Strategies Over the Product Life Cycle

Copyright 2007, Prentice-Hall, Inc.2-32 Figure 2.9: The PLC for VCRs

Copyright 2007, Prentice-Hall, Inc.2-33 Marketing Strategies Over the Product Life Cycle  Introduction  Growth  Maturity  Decline  Market size and growth rate are low.  Product: one brand that pioneered the category.  Selling & advertising: focuses on generic product.  Pricing: penetration or skimming.  Distribution: limited as product is unproven.  Often offers a first-mover advantage. PLC Stages

Copyright 2007, Prentice-Hall, Inc.2-34 Marketing Strategies Over the Product Life Cycle  Introduction  Growth  Maturity  Decline  Characteristics: – Growing competition – Price pressure – Distribution pressure – Communications stress differentiation – Market segmentation.  Strategic options vary according to whether firm is a market leader or a market follower. PLC Stages

Copyright 2007, Prentice-Hall, Inc.2-35 Marketing Strategies Over the Product Life Cycle Growth Stage Strategic Options  Fight (maintain)  Fight (enhance)  Flee (give up market leadership)  Exit the market  Imitate the leader  Fortify position  Leapfrog the competition Market Leader Market Follower

Copyright 2007, Prentice-Hall, Inc.2-36 Marketing Strategies Over the Product Life Cycle  Introduction  Growth  Maturity  Decline  Characteristics: – Few new buyers – Sophisticated consumers – Differential advantage obtained through:  Intangibles  Perceived qualities  Packaging, service, or distribution innovation. – Well-defined segments. PLC Stages

Copyright 2007, Prentice-Hall, Inc.2-37 Marketing Strategies Over the Product Life Cycle Maturity Stage Strategic Options  Invest enough to maintain current position  Harvest cash for short-term  Depends on leader ’ s strategy, but may: – Pursue #1 position – Stay in #2 slot – Exit category Market Leader Market Follower

Copyright 2007, Prentice-Hall, Inc.2-38 Marketing Strategies Over the Product Life Cycle  Introduction  Growth  Maturity  Decline  Many strategies for reviving mature product categories can be applied to those in decline.  Sometimes product categories revive due to serendipity.  Being the “ last iceman ” in a truly dying market can be profitable. PLC Stages

Copyright 2007, Prentice-Hall, Inc.2-39 Figure 2.10: Beer Market Evolution for Selected Countries & Regions