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CHAPTER 1 Foundations of Strategic

Marketing Management
2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-1
AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:
1. Define an organizations business,

mission, and goals.
2. Identify and frame organization
growth opportunities.
3. Formulate product-market
strategies.
4. Budget marketing, financial, and
production resources.
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AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:
5. Develop reformulation and recovery

strategies.
6. Draft a marketing plan.
7. Emphasize marketing ethics and
social responsibility.
CHAPTER 1: FOUNDATIONS OF STRATEGIC

MARKETING MANAGEMENT
INTRODUCTION
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Plans are nothing,

planning is everything.
- Dwight D. Eisenhower
Plans are the outcome of planning

In order to come up with a plan you go through the planning stages
consisting of thinking, researching, strategizing, and reaching
conclusions about how to pursue opportunities.

Even if you are on the right track, youll

get run over if you just sit there.
- Will Rodgers
Stresses the importance of strategic plan that takes into account

all changes in customer value preferences, competitive situations,
business models, disruptive innovation and technology, new
regulations, etc.
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If you dont know where you are

going, you might end up
somewhere else.
- Casey Stengel
Stresses the importance of

setting goals and objectives on
which marketers craft strategies
PURPOSE OF MARKETING
To create long-term, mutually beneficial

exchange relationships between an entity
and the publics (individuals and
organizations) with which it interacts.
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WHY IS MARKETING DIFFICULT?
No formula for marketing success
Requires considerable interaction with customers
Customers often cannot accurately describe

their needs
Difficult to predict competitive action
Ever changing customer tastes and societal trends
Difficult to implement strategy precisely
RESPONSIBILITIES OF
MARKETING MANAGERS
Not only direct day-to-day operations

but also make strategic decisions
Expanded responsibilities include:
Set the organizations direction
Create and sustain CA that will affect the firms
LT performance
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RESULTS OF THE EVOLUTION

OF THE MARKETING MANAGER
From being only an implementer of

strategy to being a maker of strategy
CMO position in most companies
SMM has gained in popularity as a course of
study and practice
Half of Fortune 1000 companies have CMOs
RESPONSIBILITIES OF CMOs
Play leadership role:

Define the business mission
Analyze environmental, competitive, and

business situations
Develop business objectives and goals
Define CV propositions and related marketing

strategies
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SKILL SET OF CMOs
Analytic abilities to interpret extensive

market and operational information
Intuitive sense of customer and competitor

motivations
Creativity in framing and implementing

strategic marketing initiatives
STRATEGIC MARKETING
MANAGEMENT PROCESSES
1. Define organizations business, mission,

5 complex and interrelated processes
and goals
2. Identify and frame organizational growth
opportunities
3. Formulate product-market strategies
4. Budget resources
5. Develop reformulation and recovery
strategies
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DEFINING THE
ORGANIZATIONS BUSINESS,
MISSION, AND GOALS
BUSINESS DEFINITION
A written statement that outlines the

scope of operations
Neither obvious nor easy
Define from a customer/market perspective
A firm can define its business by:

The types of needs it addresses
The types of customers it serves
The means or technology used to satisfy needs
What business is the Encyclopedia Britannica in?
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BUSINESS MISSION
A written statement that describes a firms

purpose, LT direction, and character
Reflects managements vision of the firm
Provides direction for goal-setting
Underscores the firm's scope of operations
Helps identify and evaluate product-market opportunities
Inspires employees
Applicable to not-for-profit firms
BUSINESS MISSION
American
XEROX
Red Cross
Do great work Provide for

victims of
disaster
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BUSINESS GOALS OR OBJECTIVES
Convert the mission into tangible actions

and results to be achieved by a time frame
Are divided into three categories:
Production Financial Marketing

Objectives Objectives Objectives
Production Manufacturing and service capacity

Objectives Product and service quality
Return on investment Profit

Financial Cash flow
Return on sales
Objectives
Shareholder wealth
Market share Customer satisfaction

Marketing Sales volume Customer value creation
Objectives Profit Customer lifetime value
Marketing productivity
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Goal setting should be problem-centered

and future-oriented
Make a situation analysis for goal setting
Situation analysis is an appraisal of operations to
determine the reasons for the gap between what was
expected and what has happened

IDENTIFYING AND FRAMING

ORGANIZATIONAL GROWTH
OPPORTUNITIES
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THREE QUESTIONS DETERMINE WHETHER

ENVIRONMENTAL OPPORTUNITIES REPRESENT
VIABLE ORGANIZATIONAL OPPORTUNITIES
Entrepreneurial phase
Environmental
What might we do? Opportunities
Distinctive
What do we do best? Competencies
Success
What must we do? Requirements
WHAT MIGHT WE DO?
Sources of Environmental
Opportunities
Unmet or changing consumer needs
Unsatisfied buyer groups
New means or technologies for delivering

value to prospective buyers
Mere presence of an environmental opportunity does not mean that an
organizational growth opportunity exists.
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WHAT DO WE DO BEST?
Distinctive Competency
Describes a firms unique strengths or

qualities including skills, experiences,
technologies, or resources, that distinguish
it from other firms
WHAT DO WE DO BEST?
Distinctive Competency
Criteria must be satisfied:

Competitors cannot replicate it easily
Makes significant contribution to customer

benefits and provides superior value
Can be applied to multiple settings
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WHAT DO WE DO BEST?
Success Requirements
Basic tasks that a firm must perform in a

market or industry to compete
successfully.
What must be done should be consistent what can be done
SWOT ANALYSIS
SWOT analysis is a formal framework

for identifying and framing a firms growth
opportunities.
- Type of Factor -
Organization Favorable Unfavorable
Internal
Strengths Weaknesses
Capabilities
External
Opportunities Threats
Environment
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SWOT ANALYSIS
Focuses on the growth opportunity

Growth opportunity results from a GOOD FIT
between an firms internal capabilities and its
external environment
SWOT ANALYSIS
What the organization is good at doing

Strengths or some characteristic that gives it an
important capability
What an organization lacks or

Weaknesses does poorly relative to other
organizations
Developments or conditions in the

Opportunities environment that have favorable
implications for the organization
Pose dangers to the welfare of the

Threats organization
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EXHIBIT 1.1: SAMPLE SWOT

ANALYSIS FRAMEWORK
Internal External
Strengths Weaknesses Opportunities Threats
Factors Factors
Management Economic
Marketing Competition
Manufacturing Consumer
R&D Technology
Finance Legal/Regulatory
Offerings Industry/Market
Structure
SWOT ANALYSIS
After a SWOT analysis, ask:
Which strengths represent distinctive

competencies?
Which weaknesses disqualify the firm from

pursuing certain opportunities?
Does a pattern emerge from the SWOT?
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FORMULATING
PRODUCT-MARKET
STRATEGIES
PRODUCT-MARKET STRATEGY
PMS involves selecting specific

markets and profitably reaching them
through an integrated marketing
program called a marketing mix
Existing/
MATCH
Needs of
Potential Markets
Offerings
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EXHIBIT 1.2:
PRODUCT-MARKET STRATEGIES
Markets
Existing New
Existing
Market Market
Penetration Development
Offerings
New Offering
New Diversification
Development
Market Penetration Strategy
Dictates that a firm seek to gain greater

dominance in a market in which it already
has an offering (existing offerings
existing markets)
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Market Penetration Strategy Involves
Increasing buyers usage or consumption

rates of the offering
Attracting buyers of competing offerings
Stimulating product trial among potential

customers
Market Penetration Strategy Considers
Examining market growth
Assessing competitive reaction

Analyzing the capacity of the market and
the availability of new buyers
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Market Development Strategy
Dictates that a firm introduce its existing

offerings to markets other than those it is
currently serving (existing offerings
new markets).
Geographic development
Demographic development
Market Development Strategy Involves
Adjusting the marketing mix

Analyzing competitors S/Ws, and retaliation
Identifying the number, motivation, and
buying patterns of new buyers
Determining the firms ability to adapt to new
markets
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Market Development Strategy International Forms
Exporting Licensing
Joint Venture/ Direct

Strategic Alliance Investment
Exporting
Involves marketing the same offering in

another country through sales offices or
intermediaries
A popular option to enter foreign markets
because it:
Is easy to initiate
Requires minimal capital investment
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Licensing
A contract where the licensee is given the

rights to patents, trademarks, etc. by the
licensor in turn for a royalty or fee
A low-risk, quick, and capital-free entry into
a foreign market
Limits the control of the licensor over
production and marketing
Joint Venture/Strategic Alliance
Creates a new entity in the host country

Allows the two firms to share ownership, control,
and profits
A firm lacking resources can enter a foreign market
Ensures against trade barriers
Disagreements regarding how the new entity should
be run may arise
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Direct Investment
Involves investing in a manufacturing and/or

assembly facility in a foreign market
Needs most commitment and huge capital
Most risky but most profitable market entry
option
Brings the firm closer to its customers
Often follows the other three options
New Offering Development Strategy
Dictates that a firm create new offerings

existing markets.
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New Offering Development Strategy Involves
Product
Developing totally new offerings
Innovation
Enhancing the value of existing

Product offerings to customers through
Augmentation bundling or improving functional
performance
Product Adding different features, sizes,

Line Extension etc. to broaden the existing line
New Offering Development Strategy Considers
The market size and volume for profitability

The magnitude and timing of competitors
responses
The impact on the sales of existing offerings
(cannibalism)
The capacity of the firm to deliver the offerings to
the market(s)
The presence of significant PoD
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Cannibalism
Occurs when sales of a new offering come

at the expense of sales of existing offerings
Common in product development programs
Key issue: Does the new offering detract
from the overall profitability of the firms
total offering mix
Diversification Strategy
Involves the development or acquisition of

offerings new to the firm and new to
publics (new offerings new markets)
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Diversification Strategy Considerations
Firms can take the advantage of growth

opportunities
Very risky because both the offerings and

markets served are new
Can be successful if the firm applies its

distinctive competencies
Strategies are evaluated based on:

The firms business, mission, and capabilities
Market capacity and behavior
Environmental forces
Competitive activities
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STRATEGY SELECTION
Strategies are chosen based on:

Costs and benefits of a strategy
Probabilities of success for a strategy
Competitive structure, market dynamics, and

opportunity costs
The offering itself
GROWTH STRATEGY OF STARBUCKS

Designed an ambitious, multi-pronged growth
strategy to maintain its phenomenal growth
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GROWTH STRATEGY OF STARBUCKS

Market penetration: Make How? Add new stores in current
more sales to current market areas; improve
customers without advertising, prices, menu,
changing products service.
Market development: How? Review new demographic
Identify and develop new (seniors/ethnic consumers) or
markets for current geographic (Asian, European, &
products South American) markets.
Product development: How? Add food offerings, sell
Offer modified or new coffee in supermarkets, co-brand
products to current markets products
Diversification: Start up or How? Make and sell CDs, testing
buy businesses outside restaurant concepts, or branding
current products and casual clothing
markets
EXHIBIT 1.3: DECISION-TREE FORMAT
Action Response Outcome
R1 O1
A1
R2 O2
R1 O3
A2
R2 O4
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EXHIBIT 1.4: SAMPLE DECISION-TREE
Action Response Outcome
Aggressive Estimated profit

Market- competition of $2 million
penetration
Passive Estimated profit
strategy competition of $3 million
Aggressive Estimated profit

Market- competition of $1 million
development
strategy Passive Estimated profit
competition of $4 million
THE MARKETING MIX
Communication
Aggressive
Strategy
competition
Product Channel
Customer
Strategy Aggressive Strategy
competition
Passive
competition
Price
Strategy
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CUSTOMER VALUE PROPOSITION
A cluster of benefits that a firm promises

its customers to satisfy their needs.
Wal-Mart Michelin
FORMULATING THE MARKETING MIX
The rightness depends on the success

requirements of the market
Must be consistent with:

The needs of the markets served
The firms capacity
The marketing mix activities
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IMPLEMENTING THE MARKETING MIX
Is as much an art as a science

Successful implementation requires an
understanding of:
Markets
Environmental forces
Organizational capacity
Marketing mix activities
Competitor reactions

BUDGETING MARKETING,
FINANCIAL, AND PRODUCTION
RESOURCES
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BUDGETING
A budget is a formal, quantitative

expression of a firms planning and
strategy initiatives expressed in financial
terms.
A well-prepared budget meshes and balances a
firms financial, production, and marketing
resources to achieve its overall goals
BUDGETING
A master budget consists of:

Focuses on the income statement.
Operating
Also referred to as a pro forma
Budget
income statement or profit plan.
Financial Focuses on the effect the operating

Budget budget on the firms cash position.
Focuses on developing adv., sales,

Special
and other budgets that support the
Budgets
master budget.
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DEVELOPING
REFORMULATION AND
RECOVERY STRATEGIES
REFORMULATION AND RECOVERY

STRATEGIES
Strategies are rarely timeless

Changing markets, economic conditions, and
competitive behavior require periodic adjustments
in marketing strategy
Marketing audit and control procedures are
fundamental to the development of reformulation
and recovery strategy
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MARKETING AUDIT
A comprehensive, systematic, independent,

and periodic examination of a firms
marketing environment, objectives,
strategies, and activities to determine
problem areas and opportunities and
recommend a plan of action to improve the
firms marketing performance.
MARKETING AUDIT
Addresses two synoptic questions:
Strategic
Are we doing the right things?
Is there strategic fit of the firm with its environment?
Operational Are we doing things right?
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REFORMULATION AND
RECOVERY STRATEGIES
Have the following purposes:

Forces marketing managers to ask
What if? questions
These strategies lead to faster reaction time in

implementing remedial actions

DRAFTING A
MARKETING PLAN
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MARKETING PLAN
A formal, written document that describes

the context and scope of an firms
marketing effort to achieve defined goals
or objectives within a specific future time
period.
MARKETING PLAN
Different names of marketing plans

Business Product Brand
marketing Marketing Marketing
Plans Plans Plans
Each has these time dimensions:
Short-term Focus: 1-year period
Long-term Focus: 3- to 5-year period
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A SAMPLE MARKETING PLAN

1. Executive Summary (sells 5. Product-Market Focus (contains
the document to the reader) 5-year marketing and product
objectives, target markets, CV
2. Company Description proposition, PODs, and positioning
(highlights the recent history of lines)
and successes)
6. Marketing Program (4 marketing-
3. Strategic Focus (covers 3 mix elements in terms of revenues
aspects of corporate and expenses)
strategies: mission, goals, and
core competence) 7. Financial Data and Projections
(contains past 5-year sales
4. Situation Analysis (a revenue and 5-year projections)
snapshot of where we are
now. Make SWOT analysis, 8. Implementation plan
industry analysis, competitor 9. Evaluation and control
analysis, company analysis,
and customer analysis) 10. Appendices

MARKETING ETHICS AND

SOCIAL RESPONSIBILITY
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ETHICS AND SOCIAL RESPONSIBILITY
Most marketing decisions involve

some degree of moral judgment
Marketers should take actions that are

legal, ethical, and socially responsible
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mechanical, photocopying, recording, or otherwise, without the prior written
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CHAPTER 1 Foundations of Strategic

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-1

AFTER READING THIS CHAPTER

1. Define an organizations business,

AFTER READING THIS CHAPTER

5. Develop reformulation and recovery

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-3

CHAPTER 1: FOUNDATIONS OF STRATEGIC

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-4

CHAPTER 1: FOUNDATIONS OF STRATEGIC

Plans are nothing,

Plans are the outcome of planning

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-5

CHAPTER 1: FOUNDATIONS OF STRATEGIC

Even if you are on the right track, youll

Stresses the importance of strategic plan that takes into account

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-6

CHAPTER 1: FOUNDATIONS OF STRATEGIC

If you dont know where you are

Stresses the importance of

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-7

To create long-term, mutually beneficial

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-8

WHY IS MARKETING DIFFICULT?

No formula for marketing success

Requires considerable interaction with customers

Customers often cannot accurately describe

Difficult to predict competitive action

Ever changing customer tastes and societal trends

Difficult to implement strategy precisely

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-9

Not only direct day-to-day operations

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-10

RESULTS OF THE EVOLUTION

From being only an implementer of

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-11

Play leadership role:

Analyze environmental, competitive, and

Develop business objectives and goals

Define CV propositions and related marketing

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-12

SKILL SET OF CMOs

Analytic abilities to interpret extensive

Intuitive sense of customer and competitor

Creativity in framing and implementing

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-13

1. Define organizations business, mission,

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-14

CHAPTER 1: FOUNDATIONS OF STRATEGIC

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-15

A written statement that outlines the

A firm can define its business by:

What business is the Encyclopedia Britannica in?

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-16

A written statement that describes a firms

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-17

Do great work Provide for

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-18

BUSINESS GOALS OR OBJECTIVES

Convert the mission into tangible actions

Are divided into three categories:

Production Financial Marketing

2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-19