Strategic Market Planning: Take the Big Picture Chapter 2 Strategic Market Planning: Take the Big Picture

Chapter Objectives Explain the strategic planning process Describe the steps in marketing planning Explain operational planning Explain the key role of implementation and control on marketing planning Discuss some of the important aspects of an organization’s internal environment Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Real People, Real Choices: Decision Time at PaperBackSwap Which trend should Richard latch onto in order to launch his new service into the limelight? Option 1: Market the site as a way to help the environment Option 2: Use PaperBackSwap as a vehicle to promote literacy Option 3: Position the site as a cheap source of entertainment Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Business Planning: Compose the Big Picture Business Planning: Ongoing process of making decisions that guide the firm both in the short term and for the long haul Identifies/builds on firm’s strengths Helps managers make informed decisions Develops objectives before action is taken Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ethics and Marketing Planning Unethical marketing decisions damage the firm, society, and various stakeholders Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

It’s Debatable Class Discussion Question Adjustable rate mortgages (ARMs) are loans that offer lower monthly payments initially than do fixed rate mortgages. ARMS allow many consumers to purchase homes they might not otherwise be able to afford. However, monthly payments can increase significantly over time—even if interest rates don’t change. Is it ethical for mortgage bankers to offer such products to consumers? Where do you stand? Visit the Federal Reserve Board to learn more Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ethics and Marketing Planning Business ethics: Rules of conduct for an organization Code of ethics: Written standards of behavior to which everyone in the organization must subscribe The Web site, “How to Write a Code of Ethics for your Organization” (www.ethicsweb.ca/codes/) is an excellent resource for students or faculty who wish to enhance their knowledge of the subject. The site provides information on why organizations should have a code of ethics, general guidelines on writing ethical codes, bibliographic references, and two short one question interactive quizzes that query users to reveal whether their firms have a code of ethics, and what they feel the primary barrier to creating an ethical code might be. After answering the survey, the results are displayed in a simple bar chart. The site also offers several links to sample ethical codes available on line for corporations, professional organizations, and student organization. How to Write a Code of Ethics Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Figure 2.1 Three Levels of Business Planning Corporate management typically includes the chief executive officers (CEOs), president, chief financial officers (CFOs), and other top level planners. Planning done at the strategic level is long range (3–5 years). The mission, objectives, business portfolio, and growth strategy decisions set at this level “set the stage” and FLOW THROUGH to the functional and operational planning levels; both functional and operational plans need to be consistent with the corporate strategic plan, and further the mission and goals of the organization following the growth strategies set forth in the corporate plan. Functional level is performed by either Vice Presidents or top level functional area managers (VP Sales for many industrial or business-to-business firms; VP of Marketing for many consumer goods firms). Operational planning flows from the marketing plan, and is further developed by supervisory managers who might be product or brand managers, advertising managers, sales managers for particular products, divisions, or geographic territories, publicists, specialists in marketing research, etc. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Planning Managerial decision process that matches firm’s resources and capabilities to its market opportunities for long-term growth and survival Top management defines firm’s purpose and objectives Example: increase firm’s total revenues by 20% over next five years Strategic Business Units (SBUs) Self-contained divisions Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Functional (Tactical) Planning Accomplished by various functional areas of firm, such as marketing Typically includes: A broad 5-year plan to support strategic plan A detailed annual plan Example: marketing plan objective: to gain a 40% share of a particular market with three new products during coming year Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Operational Planning First-line managers focus on day-to-day execution of functional plans Such planning includes detailed annual, semiannual, or quarterly plans Example: an objective may be set in terms of units of a product a particular salesperson needs to sell per month (sales quota) Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

All Business Planning Is an Integrated Activity Strategic, functional, and operational plans must work together to benefit the whole firm Marketers must fully understand how they fit with the organization’s direction and resources Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Planning: Frame the Picture Very large multiproduct firms may have divisions called strategic business units (SBUs) SBUs operate like separate businesses with their own mission, business objectives, resources, managers, and competitors Strategic planning is done at both the corporate and SBU levels Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Business Units (SBUs) Large firms like the Walt Disney Company usually operate several SBUs. Disney SBUs include theme parks, movie studios, TV networks, and cruise line Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Planning Step 1: Define the Mission Answer three key questions: What business are we in? What customers should we serve? How do we develop firm’s capabilities and focus its efforts? Mission statement: A formal document that describes the firm’s overall purpose and what it hopes to achieve in terms of its customers, products, and resources Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 1: Define the Mission Examples of mission statements MADD: “to stop drunk driving, support the victims of this violent crime, and prevent underage drinking” National Book Swap: “to become the nation’s largest book club and in the process bring a lifetime of reading material to every American” Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 2: Evaluate the Internal and External Environments Situational analysis (business review) An assessment of a firm’s internal and external environments Internal environment: Controllable elements inside of an organization External environment:Uncontrollable elements outside of an organization that may affect its performance either positively or negatively Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Internal Environment Controllable elements inside a firm that influence how well the firm operates include: People (human capital), physical facilities, financial stability, corporate reputation, quality products, strong brands, technologies, etc. These elements represent key strengths and weaknesses of the firm Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

External Environment Elements outside the firm that may affect it either positively or negatively: Economic, competitive, technological, legal/political/ethical, and sociocultural trends Trends manifest as opportunities or threats Firm cannot directly control external factors but can respond to them via planning Trendwatching.com offers a free monthly trend insight newsletter via monthly. Many of the articles posted on this Web site are of interest to marketers in general, and professors can often find current examples that demonstrate the integration of trends, products, and marketing communication campaigns. Visit Trendwatching.com Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Trends Present Opportunities Recent sociocultural trends influencing food marketing stem from consumer desires for low fat, low carb, and organic foods Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

SWOT Analysis An analysis of an organization’s strengths (S) and weaknesses (W) and the opportunities (O) and threats (T) in the external environment SWOT enables the firm to develop strategies that maximize strengths and capitalize upon opportunities A nice outside-the-class activity assigned prior to lecture might challenge half of the students to identify the internal and external strengths of a well-known local business (bar, restaurant, club) or the University itself, while the other half of class identifies current trends stemming from the external environment that are relevant to the business. Class time could then be devoted to demonstrating the SWOT process using the information gathered by the class. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 3: Set Organizational or SBU Objectives Organizational/SBU Objectives: What the firm hopes to accomplish with long-range business plan Need to be specific, measurable, attainable, and sustainable May relate to sales, profitability, product development, market share, productivity, ROI, customer satisfaction, or social responsibility Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Figure 2-2 SBUs and the Strategic Plan Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 4: Establish the Business Portfolio The group of different products or brands owned by a firm and having different income-generating and growth capabilities Portfolio analysis: Assessing the potential of a firm’s SBUs Helps make decisions regarding which SBUs should receive more or less of the firm’s resources Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Figure 2-3 Boston Consulting Group (BCG) Matrix The purpose of the BCG matrix is to aid management in decisions related to financial resource allocation by classifying the various SBUs into one of four categories based on the SBUs market growth rate and relative market share. The market growth rate is meant to provide an estimate of market attractiveness, while the relative market share serves as a proxy for company strength in the market. Market growth rate is usually measured in terms of the annual growth rate. Relative market share is typically measured by calculating the SBU’s market share relative to its’ largest competitor. Thus a relative share of .1 would mean that the SBU has only 1/10th of the share of its largest competitor (falling into the low relative market share cell), while a relative share of 2 would indicate that SBU is the market leader, with twice the market share of its largest competitor (falling within the high market share cell). Some caution should be exercised when discussing market growth rates, as this figure does not take into account the overall size of the market itself. The text describes each of the four subcategories adequately, but the build, hold, harvest, and divesture strategies might require additional explanation. Building is most appropriate for question marks, as their relative shares must grow if they are going to evolve into stars. Building requires substantial resource investment, and if resources are limited, funds may be better allocated to Stars. Stars require heavy investment so that their relative market share keeps pace with and capitalizes upon the market growth. Of course the market growth rate will eventually decline, and Stars eventually grow into Cash Cows. Cash cows need less investment to hold their market share, and consistently produce more money than they consume. Harvesting occurs when the decision is make to “milk the cash cow” which results in the elimination of R&D, reduced advertising and promotional expenses, and other cost cutting measures. However, too little resource investment (Harvesting) may result in a slippage of the relative market share to the point where a once profitable cash cow degrades into a dog. Companies face two alternatives with dogs: Divesting the business early in its life as a dog while it is in relatively good shape can make a decent return; harvesting the business decreases the future value of the dog when divested, but harvesting can also provide income in a steady stream over time. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 5: Develop Growth Strategies Product-market growth matrix: Characterizes different growth strategies according to type of market (new vs. existing) and type of product (new vs. existing). Matrix yields four potential strategies: Market penetration Product development Market development Diversification Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Figure 2-4 Product-Market Growth Matrix Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Planning: Step 1 Perform a situation analysis Builds on SWOT; identifies how environmental trends affect the marketing plan What trends impact the marketing plan for Netflix? Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Planning: Step 2 Set marketing objectives Specific to the firm’s brands and other marketing mix-related elements States what the marketing function must accomplish if firm is to achieve its overall business objectives The objective of the California almond growers is to increase consumption of almonds. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Planning: Step 3 Develop marketing strategies to achieve marketing objectives Select target market(s) where the firm’s offerings are best suited Develop marketing mix strategies: Marketing mix strategies: how marketing will accomplish its objectives in the firm’s target market by using product, price, promotion, and place (distribution) Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Mix Strategies Product strategies: Include product design, packaging, branding, support services, and product variations and features Pricing strategies: Include setting prices for final consumers, wholesalers, and retailers based on costs, demand, or competitors’ prices Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Mix Strategies Promotion strategies: Advertising, sales promotion, public relations, direct marketing, personal selling Distribution (place) strategies: How, when, and where the product is available to targeted customers Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Step 4: Implement and Control the Marketing Plan Measuring actual performance, comparing performance to the objectives, making adjustments Marketing metrics: Return on marketing investment (ROMI) Action plans: Support plans that guide implementation and control of marketing strategies Examples of metrics: cost of a prospect, customer acquisition cost, click through rate, response rate, (coupon) redemption rate, sales calls per day, customer retention rate, etc. Some metrics are based on survey data that requires systematic, ongoing marketing research (customer satisfaction, perceived product quality, perceived service quality, company/product reputation). Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Metrics Moment ROMI is the revenue or profit margin generated by investment in a specific marketing program divided by the cost of that program (expenditure) at a given risk level, as determined by management The key word “investment” is highlighted in this slide as it implies that marketers must think of marketing as an investment to accomplish goals, rather than simply as one of many expenses which provide little benefit/return to the firm. Although ROMI is a commonly used metric, there are several major objections to relying exclusively on ROMI, as discussed in the Metrics Moment for Chapter 2: Marketing expenditures aren’t treated as an investment in the firm’s accounting statements, which perpetuates the “marketing is an expense” mentality. ROMI requires the profit to be divided by the expenditure, yet all other bottom-line performance measures consider profit or cash flow after deducting expenses. Calculating ROMI requires knowing what would have happened if marketing expenditures had never taken place, a virtual impossibility. ROMI has become a fashionable term for marketing productivity in general, yet firms often calculate ROMI quite differently, which can cause confusion. ROMI ignores the effect of marketing assets of the firm such as brand equity (which is chiefly built via advertising), and tends to lead managers toward more short-term decision perspectives that focus on short-term incremental profits and expenses without looking at the longer-term effects of any change in brand equity. ROMI can be used properly if a firm uses an appropriate and consistent measurement process and combines the use of this metric with other critical marketing metrics, such as marketing payback (how quickly marketing costs are recovered). Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Creating and Working with a Marketing Plan Written marketing plans encourage concrete objectives and strategies Operational plans focus on the day-to-day execution of the marketing plan A firm’s corporate culture determines much of its internal environment—the values, norms, and beliefs that influence everyone in the firm Refer your students back to the tear-out marketing plan guideline, located between pages 50 and 51 of the text. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Corporate Culture The way employees dress reflects their organization’s corporate culture. Think about the way people dress at a firm that is familiar to you. What does the typical attire at that firm “say” about the culture of the organization? If you need to prompt students, you might ask them about firms that require uniforms vs. those that don’t. Another interesting question to raise deals with the impact of casual dress trends in the United States. It may also be worthwhile to discuss some other factors that manifest as symbols of corporate culture, such as work space arrangements (offices and cubicles vs. open arrangements with no barriers), pet friendly workplaces, flex-time, etc. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Real People, Real Choices: Decision Made at PaperBackSwap Richard chose both option 1 and 3 Richard felt that positioning the firm as a provider of inexpensive entertainment while doing something positive for the environment stood the best chance of success Implementation: Incorporated recycling symbol into corporate logo; encouraged use of Media Mail; members promoted to others Measuring success: Over 5 million books posted; usage increased by 55% Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Keeping It Real: Fast-Forward to Next Class Decision Time at eBay Meet Robert Chatwani, General Business Manager of eBay eBay is developing a new online marketplace to help small producers and artisans gain global access The decision to be made: Select a course of action that would maximize long-term revenue and social impact Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc.   Publishing as Prentice Hall Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall