Market-Oriented Strategic Planning “The company without a strategy is willing to try anything.” Michael Porter “If you know the enemy and know yourself you need not fear the results of a hundred battles.” Sun Tzu

Strategic Marketing Planning Companies should look ahead and develop long-term strategies ğ to meet changing conditions in their industries and ensure long-term survival The task of selecting an overall company strategy for long-run survival and growth ğ “strategic planning” Marketing’s key role in strategic planning

Strategic Planning Strategic Planning ğ Managerial process of developing and maintaining a match between the organization’s resources, goals and capabilities and the changing market opportunities. The aim ğ to shape and reshape company’s businesses and products in order to reach to targeted profits and growth. Top-management job Part of a broader process: strategic management

Strategic Planning, Implementation, and Control Process Corporate planning Division Business Product Organizing Implementing Measuring results Diagnosing Taking corrective action

Steps in Strategic Planning C o r p o r a t e L e v e l Business unit, product, and market level Planning marketing and other functional strategies Setting Company Objectives and Goals Defining the Company Mission Designing the Business Portfolio

Corporate and Division Strategic Planning All corporate headquarters undertake four planning activities: Defining the corporate mission Establishing the strategic business units (SBUs) Assigning resources to each SBU Planning new businesses, downsizing or terminating older businesses.

Steps in Strategic Planning: Company Mission Statement A mission statement ğ a statement of the organization’s purpose --- what it wants to accomplish in the larger environment A clear mission statement ğ acts as “invisible hand” that guides employees to work toward realizing the organization’s goals.

Company Mission A mission statement should be: Fundamental questions: Neither too narrow nor too broad Fitting of market environment Based on distinctive competencies An “invisible hand” Motivating Fundamental questions: What is our business? Who is the customer? What do consumers value? What should our business be?

Company Mission (cont.) Limited number of goals Stress major policies & values Good mission statements have 3 major characteristics: First,.... The statetement “we want to produce the highest quality products, offer the most service, achieve the widest distribution, and sell at the lowest prices” claims too much. Second, mission statetemnts emphasize the major policies and values of the company. Third, they define the major competititve scopes within which the company will operate. For ex: Industry scope (operate in one or several industries Products scope (the range of products that a company will supply.) Market-segment scope (the type of customers that a company will serve) Geographical scope (the range of regions, countries in which a company will operate) Define competitive scopes

Company Mission (cont.) “Market-oriented definitions” of a business ğ better than product or technological definitions A market-oriented mission statement ğ defines the business in terms of satisfying basic customer needs (see examples) Mission statement ğ to be guided by a “vision” - an almost “impossible dream” that provides a direction for the company for the next 10 to 20 years Product or technologies can become outdated, but basic market needs may last forever. Only one decade ago; if you’d asked top managers of IBM what business they were in; they might answered: “we sell computer hardware and software.” Working under mktg myopia, and being heavily product-focused, IBM lost sight of its customer needs. As customer needs changed, IBM did not and by the early 1990s, it faced with falling market share. Then IBM has undergone a remarkable transformation: new CEO brought a renew ed customer focus to IBM. He realized that in this new, high tech, connected age, companies must master info.technologies to serve their customers (and suppliers, distributors and employees as well). And he saw that customers are buying much more from IBM than computer hardware and software; they are buying solutions to confusing IT problems. This realization led to a fundamental redefinition of business for IBM. Now, they define their mission as “We deliver solutions to customers’ info.technology problems!” The new customer focus ğ has promoted the role of services relative to hardware and software in IBM’s mix. (The company now offers an expanded set of IT consulting, strategic outsourcing, and e-business services.....services become their main growth area! Vision ğ Sony’s former president wanted everyone to have access to “personal portable sound”, so his company created Walkman and portable CD player.

Characteristics of a Good Mission Statement: Company Mission Characteristics of a Good Mission Statement: Market Oriented Realistic Fit Market Environment Distinctive Competencies Motivating Specific

Company Product-Oriented Definition Market-Oriented Definition Amazon.com We sell books, videos, CDs, toys, consumer electronics and other products online We make the Internet buying experience fast, easy, and enjoyable— we’re the place where you can find and discover anything you want to buy online Disney We run theme parks We create fantasies—a place where dreams come true and America still works the way it’s supposed to Nike We sell athletic shoes and apparel We bring inspiration and innovation to every athlete* in the world (* if you have a body, you are an athlete)

Steps in Strategic Planning: Company Goals and Objectives Company’s mission ğ needs to be turned into detailed, supporting objectives for each level of management Mission ğ hierarchy of objectives As specific as possible Marketing strategies ğ must be developed to support these marketing objectives

Hierarchy of Objectives

Steps in Strategic Planning: Business Portfolio Business portfolio ğ collection of businesses and products that make up the company Analyzing its current business portfolio and decide which business should receive more, less or no investment Developing growth strategies to add new products/businesses to the current portfolio

Business Portfolio (cont.) Portfolio Analysis ğ to identify and evaluate the various businesses that make up the company To identify key businesses ğ Strategic Business Units (SBUs) SBU: unit of the company (separate mission and objectives / can be planned independently from other company businesses) To assess the attractiveness of its various SBUs and decide how much support each deserves

The Boston Consulting Group’s Growth-Share Matrix 20%- 18%- 16%- 14%- 12%- 10%- 8%- 6%- 4%- 2%- Market Growth Rate Stars 5 4 3 ? Question marks 2 1 Cash cow 6 Dogs 8 7 2 best-known business portfolio evaluation models: Boston ConsAulting Group Model and General Electric Model Using the BCG Model ğ a company classifies all its SBUs according to the growth-share matrix: a)The vertical axis ğ mkt growth rate: provides a measure of mkt attractiveness (annual growth rate of the mkt in which business operates) b)The horizontal axis ğ relative mkt share: serves as a measure of company stregth in the mkt (This measure refers to the SBU’s mkt share relative to that of its largest competitor. For ex. A relative mkt share of 0.1 means that the company’s sales volume is only 10% of the leader’s sales volume / A relative share of 10 means that the SBUis the leader and has 10 times the sales of the next strongest competitor in the market.) The growth-share matrix is divided into 4 cells, each indicating a different type of business. 10x 4x 2x 1.5x 1x Relative Market Share .5x .4x .3x .2x .1x

Boston Consulting Group (BCG) Approach Stars High growth & share Profit potential May need heavy investment to grow Question Marks High growth, low share Build into Stars or phase out Require cash to hold market share ? Market Growth Rate Low High Cash Cows Low growth, high share Established, successful SBU’s Produce cash Dogs Low growth & share Low profit potential Question marks are low-share business units in high-growth markets (they require alot of cash to hold their share) If the quest.mark business is successful, it becomes a star Stars are high-growth, high-share businesses or products (they need heavy investment to finance their rapid growth potential) Cash-cows are low-growth, high-share businesses (they are established, successful, and need less investment to hold their share) Dogs are low-growth, low-share businesses (they may generate enough cash to maintain themselves, but do not have much future) Relative Market Share High Low

The BCG Growth-Share Matrix and Strategies After the classification of its SBUs ğ to determine what role each will play in the future Harvest ğ to increase the SBU’s short-term cash flow Good for weak cash cows, question marks and dogs Divest ğ to sell or to liquidate the business Good for dogs and question marks Build ğ to invest more in the SBU in order to build its share Increase market share Works well for question marks Hold ğ to invest enough just to hold at the current level Preserve market share Good for cash cow Build ğ to invest more in the SBU in order to build its share Hold ğ to invest enough just to hold at the current level Harvest ğ milking the SBU’s short-term cash flow regardless of the long-term effect Divest ğ by selling SBU or phasing it out and using the resources elsewhere

Problems With Matrix Approaches Can be Difficult, Time-Consuming, & Costly to Implement Difficult to Define SBU’s & Measure Market Share/ Growth Problems With Matrix Approaches Focus on Current Businesses; provide little advice for future planning Can Lead to Unwise Expansion or Diversification

Growth Strategies - Ansoff’s Product / Market Expansion Grid penetration Existing markets products 3. Product development New products 2. Market development New markets 4. Diversification Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products that the company should consider in the future. Companies need to grow if they want to comete more effectively and satisfy their stakeholders. One useful device for identifying growth opportunities for the future ğ product/market expansion grid 1)Making more sales to present customers without changing products in any way 2)identifying and developing new market segments for current company products 3)offering modified or new products to current market segments 4)starting up or acquiring businesses outside the company’s current products and markets

Product / Market Expansion Grid Market Penetration: making more sales to current customers without changing its products. Add new stores in current market areas, improve advertising, prices, service or store design. Market Development: develop new markets for its current products Identify new demographic or geographic markets. Product Development: offering modified or new products to current markets. New styles, flavors, colors, or modified products. Diversification: new products for new markets. Start up or buy new businesses.

Which strategy is this? Market penetration Market development Product development Diversification There are several potential answers to this categorization: Starbucks is appealing to the at-home coffee drinking market. This is market development. The answer could also be product development where Starbucks is offering coffee in areas where there are no Starbucks retail outlets. Some students might argue this is market penetration if it is selling ADDITIONAL coffee to current drinkers. 2 - 23

Downsizing Many reasons that a company might want to abandon products or markets: The market environment might change (making some of the company’s product or markets less profitable – economic recession) The company may have grown too fast or entered areas where it lacks experience Some of the company’s products or business units age and die.

Steps in Strategic Planning: Functional Planning The company’s overall strategic plan ğ establishes what kind of businesses the company will be in future & its objectives for each business. More detailed planning must take place within each business unit The major functional departments in each unit ğ must work together to accomplish strategic objectives Marketing plays a key role

Marketing’s Key Role in Strategic Planning Marketing’s Role in Strategic Planning Design effective strategies Inputs to Strategic Planners Provide a guiding philosophy Form superior value delivery networks Build strong value chains Identify attractive opportu- nities

Marketing’s Key Role: Partner Relationship Management working closely with partners in other departments (to form an effective “value chain” that serves the customer) & partnering effectively with other companies in the marketing system for a superior “value delivery network” to jointly bring greater value to customers

Marketing’s Key Role: Partner Relationship Management Each department in the company ğ as a link in the company’s value chain; Each dept.carries out value-creating activities The company’s overall success ğ depends also on how well the activities of various dept. are coordinated Departmental relations are full of conflicts Marketers must find ways to get all dept. to “think consumer” and to develop a smoothly functioning value chain

Marketing’s Key Role: Partner Relationship Management The company needs to look beyond its own value chain in order to create customer value: Value-delivery network ğ network made up of the company, suppliers, distributors, and customers who partner with each other to improve the performance of the entire sytem Competition today takes place between the entire value delivery networks!

Business Unit Strategic Planning The company’s overall strategic plan ğ establishes what kind of businesses the company will be in future & its objectives for each business. More detailed planning must take place within each business unit The major functional departments in each unit ğ must work together to accomplish strategic objectives Marketing plays a key role

Business Unit Strategic Planning Business Mission ğ each SBU needs to define its specific mission within the broader company mission External Environment Analysis ğ to build a MIS to monitor: Key external macroenvironment forces Significant microenvironment actors Trends and important developments ğ to identify the associated opportunities and threats

Business Unit Strategic Planning Internal Environment Analysis ğ Each business needs to evaluate its internal strengths and weaknesses periodically “Checklist for Performing Strengths/Weaknesses Analysis” Management or an outside consultant ğ reviews the business’s marketing, financial, manufacturing and organizational competencies and rates each factor as strength or weakness SWOT ANALYSIS

Business Unit Strategic Planning / Example of a Checklist

Marketing Analysis – SWOT Analysis 34

Business Unit Strategic Planning Goal Formulation (Goals ğ objectives that are specific with respect to magnitude and time) Turning objectives ğ into measurable goals ğ facilitates management planning, implementation and control Most businesses pursue a mix of objectives Objectives must be arranged hieararchically; from the most to the least important should be stated quantitatively whenever possible (e.g .“increase the ROI to 15% within two years”) should be realistic should be consistent

Business Unit Strategic Planning: Strategy Formulation: Porter Overall Cost Leadership Differentiation Strategy ğ A game plan for how to reach goals (while goals indicating what a business unit wants to achieve) 3 general type of strategy: Cost Leadership ğ to achieve the lowest production and distribution costs / to price lower than its competitors and win a large market share Differentiation ğ to concentrate on achieving performance in an important customer benefit area valued by a large part of the market Focus ğ on one or more narrow market segments rather than going after a large market Focus

The Marketing Process The task of any business is to deliver customer value at a profit. There are at least 2 views of the value-delivery process

Two Views of the Value Delivery Process Traditional Process Sequence Make product Sell product Value Creation and Delivery Sequence Choose the value Provide the value Communicate the value

The Value-Delivery Process

The Marketing Process The Marketing Process: Analyzing marketing opportunities Researching and selecting target markets Designing marketing strategies Planning marketing programs Organizing, implementing, controlling the marketing effort

The Marketing Process (cont.)

The Marketing Process (cont.) Strategy Customers grouped by: Geographic Demographic Psychographic Behavioral Market segment is a groups of consumers who respond in similar ways to marketing efforts. Market Segmentation Target marketing Market Positioning

Strategy Market Segmentation Target marketing Market Positioning Evaluation of each segment’s attractiveness Selection of segments with greatest long-term profitability A company can choose one or several segments to target Market Segmentation Target marketing Market Positioning

Strategy Market Segmentation Target marketing Market Positioning The place the product occupies in the consumer’s mind Products are positioned relative to competing products Marketers look for clear, distinctive and desirable place in positioning Market Segmentation Target marketing Market Positioning

The Marketing Process (cont.) Designing marketing strategies for competitive advantage Market leader strategies Market challenger strategies Market follower strategies Market nicher strategies

The Marketing Process (cont.) Planning marketing programs Decisions on: Marketing expenditures Marketing mix – 4Ps Marketing budget allocation The marketing mix includes controllable and tactical marketing tools known as the 4P’s

The Marketing Mix 2 - 47

The Marketing Process (cont.) Managing the marketing effort Marketing Analysis Marketing Planning Marketing Implementation Marketing Control

Managing the Marketing Effort Marketing Functions Begins with a complete analysis of the company’s situation Finding opportunities : the company must analyze its market & mktg environment company strengths & weaknesses current and possible mktg actions Avoiding threats Understanding strengths Analyzing weaknesses Analysis Planning Implementation Control Managing the marketing function ğ begins with a complete analysis of the company’s situation

Managing the Marketing Effort Marketing Functions Marketing plans include: Executive summary Analysis of current situation Objectives Targets and positioning Marketing mix Budget Controls Analysis Planning Implementation Control

Marketing Planning Through strategic planning ğ the company decides what it wants to do with each business unit Marketing planning ğ involves deciding on marketing strategies that will help the company reach its strategic objectives Marketing plan ğ 2 levels: Strategic mktg plan ğ develops the broad mktg objectives and strategy based on an analysis of the current market situation and opportunities Tactical mktg plan ğ outlines specific mktg tactics, including advertising, merchandising, pricing, channels, service, etc.

Contents of a Marketing Plan Executive Summary & Table of Contents Current Marketing Situation Threats and Opportunity Analysis Objectives and Issues Marketing Strategy Action Programs Budgets Controls

Managing the Marketing Effort Marketing Functions The process that turns mktg plans into mktg actions in order to achieve strategic mktg objectives Deals with “who”, “where”, “when”, “how” (while mktg planning dealing with “what” and “why”) Good implementation is a challenge Analysis Planning Implementation Control

Managing the Marketing Effort Marketing Functions Evaluation of the results of marketing strategies Checks for differences between goals and performance Analysis Planning Implementation Control

Measuring Effectiveness Return on marketing (marketing ROI) The net return from a marketing investment divided by the costs of the investments

The Relationship Between Analysis, Planning, Implementation, and Control 2 - 56