Lecture 2 Strategic Analysis (Company + Competitors) (Chapter 1 3)

Strategic Planning Process

Two critical decisions to be made at the beginning of the strategic planning process:

1. Choosing the right strategic style

2. The organisations mission and vision

- The objective is ensure that the organisations core values and core purpose are
brought to the forefront of the strategic planning processes.
- The mission statement defines the fundamental, unique purpose of the
organisation that sets it apart from its competitors.
- A vision statement is a means of communicating managements view of the
futuristic world the organisation will compete in and how it should compete in that
world.
Situation analysis

The situation analysis is process of assessing the current situation facing the organisation, arriving
at a set of assumptions about the future, and identifying key strategic issues that are likely to
confront the organisation. The aim is to:

identify forces that are the potential drivers of change

determine the likely impact of these forces of change and to make assumptions about the
future
determine how our organisation is positioned to compete successfully in that future
Part 1: Corporate Appraisal

Reviewing the organisation to develop an understanding of its readiness to interact successfully

with the external environment in which it operates and HOW it can best go about doing this.

What is corporate appraisal?

Developing a strategic understanding of your client:

what it has done in the past, and what it is doing currently

why it has performed as well as it has to date
(& not better)
how ready it is currently to perform successfully in the future
what it has and has not going for it (Strengths & Weaknesses)
Very similar to analysing the performance of top sporting teams and professionals.

Elements of Corporate Appraisal

Five areas:

1. Senior Management Skills, Values and Attitudes

- Control the resources and direction of the company
- Their personal values, beliefs, relationships, experiences directly determine the strategic
action of a company
- Their goals & objectives in terms of profits, markets, levels of acceptable risk, style of
operations etc. largely become those of the organisation under their control
- Must understand exactly what game they want to play and why they are playing it.
2. Corporate Culture
- The organisations core values and attitudes
- Affect the entire perspective with which an organisation operates
o proactivity, innovation, risk-aversity, customer-focus, quality-orientation, pricing
policies etc etc
- Gives employees a sense of purpose & direction, of how to behave
- Ultimately, a companys culture directly determines how effectively it interacts and takes
advantage of the environment in which it operates
- Any significant changes in an organisations direction MUST be able to be reflected in
actual changes in the corporate culture of the organisation (BUT 5-7 yr timeframe)
3. Corporate Publics / Stakeholders
- Stakeholders: people with a significant interest in the companys ongoing success
- Includes owners, employees and their families, customers, suppliers, financiers,
government (local, state, federal), local community, general society, etc
- Each stakeholder groups importance depends on its impact on the businesss ongoing
operations
- Different corporate publics have different interests, often directly conflicting with others -
must be managed (PR)
- Profit and market-share are NOT the only objectives of a company - corporate publics
dictate what these others are e.g. quadruple bottom line (4BL) reporting Economic,
Social, Environmental, Governance/Cultural
- Increased recognition of stakeholders other than shareholders
4. Corporate Resources
- The firms capabilities and strengths
- More than just physical assets it owns
- Other resources it has access to or controls also provide additional capabilities and
strengths
o CEO, employees, marketing, production, personal networks/contact and
intangibles (e.g. culture, knowledge, brand equity)
 - Resources provide basic boundaries for the strategies a firm can develop & implement
with any hope of success.
o (Like Lego - if you dont have the pieces, you cant build the spaceship you want
to)
- MUST work within resource constraints, corporate culture, acceptability to senior
management and likely reaction of corporate publics when developing ANY strategy
5. Review of Past Performance
- MUST work within resource constraints, corporate culture, acceptability to senior
management and likely reaction of corporate publics when developing ANY strategy
- Past performance, and reasons for this, provide best guidelines to a firms:
- Efficiency
o outputs of operations vs. inputs, esp. resources
o what it has achieved, given what it has required
o is it doing things the most efficient way?
- Effectiveness
o success compared to the competition
o is focus on appropriate issues, or ignoring critical ones?
- Adaptability
o how proactively has the business responded to change in its environment over
time?
- How to measure these?
o Financial and Market performance
Absolute, % growth over time (3-5 years)
Relative to competitors
- Identifying the changes it has effectively / successfully coped with and the changes that
it missed that its competitors took better advantage of.
Part 2: Competitive Analysis

Why is competitor analysis important?

The better you understand your competitors, the more effective the marketing decisions you
make
o How to obtain their customers?
o How to stop them getting your customers?
o Hamstringing their strategies to stop their effectiveness
o Protecting your own marketing strategies from their efforts to derail them
Competitor analysis allows you to understand:
o your competitive advantage
o your competitors competitive advantages
o your competitors strategies
Strategies can then be tailored to
o maximise the likelihood of success by :
strengthening your own competitive advantage
weakening or removing competitors edge(s)
Identifying your competitors

But which firms are you competing with?

Depends on whether you take a brand, product or industry perspective
Who are the competitors of The Australian newspaper?
o Other major Aust. newspapers (brand)
o Information: magazines and journals (product)
o Entertainment: TV, radio, cable (industry)
Significant Competitors

Which competitors do you need to focus on?

 From a practical viewpoint (and useful for your own SMP), an easy way of identifying the
most important competitors is
1. Which competitors would your client MOST like to go out of business tomorrow? (to
achieve increased sales, market share, profitability, long term strategic gains etc.)
2. If your client closed down, which competitors would benefit most?
Pareto Principal - the 80/20 rule: spend 80% of your time on 20% of the competition
(usually a strategic group containing 3-4 competitors)
Competitive Intelligence

Businesses NEED information on their competitors for long-term survival.

Three broad types of intelligence:
1. Passive intelligence - gathering information about competition when relevant to a
specific plan or decision or strategy to be made
eg. The Star in Malaysia wants to offer a new section specifically on
computers - checks to see what Berita Harian etc are currently offering, to see
what they will be competing against
2. Defensive Intelligence - systematically monitoring information about your competitors
eg. Straits Times regularly collecting information on the performance and
strategies adopted by the Singapore Business Times (advertising, content,
channel strategies etc.)
3. Offensive Intelligence - gathering information to proactively take advantage of an
opportunity
eg. South China Morning Post undertaking market research to establish areas
where readers of other Hong Kong newspapers are not being satisfied.
Sources of Competitive Information

What competitors say about themselves

o Published info - Websites, magazines, speeches, research papers, brochures,
catalogues
What others say about them
o Suppliers, customers, past employees, published info, market research, magazines,
other newspapers, industry analysts, consultants etc
o Employees of the client firm and competitors
Observation
o First-hand use and analysis of services/products
Scanning the Environment

Environmental forces & trends significantly impact on the success of an SBU, in how
successfully it serves its customers, out-performs its competitors or leverages its own
assets
Concept of macro vs micro-environment
o Microenvironment - forces close to the SBU that affect its ability to serve its
customers.
o Macroenvironment - larger societal forces that affect the whole microenvironment,
and raises opportunities and threats for the SBU.
Internal analysis of the company reveals S & W, an external analysis of the environment
reveals O & T (Hence the SWOT analysis)
Demographic environment

Changing Age Structure

o Population is getting older (baby boomers - WWII)
Changing Family Structure
o Marrying later, fewer children, working women, and nonfamily households
Consider: defacto relationships, increasing no. of Mr Moms
Geographic Shifts
o Urbanization - inner city living
Increased Education
o Increased college attendance and white-collar workers
Growing Ethnic and Racial Diversity
o Eg. some organizations (like banks) have brochures in foreign languages
Economic Environment
Natural Environment

Technological Environment

Political Environment

protect companies from each other (anti competitive laws, trade practices act)
protect consumers (trade practices act, package labels)
protect society as a whole (censorship acts)
Government agencies set up to enforce these laws
growth and power of public interest groups increased
Cultural Environment

Responding to the Marketing Environment

The environment is not totally uncontrollable.

Environmental Management Perspective
o Taking a proactive approach to managing the microenvironment and the macro
environment to affect changes that are favorable for the SBU.
o How? Hire lobbyists (smoking in hotels), run advertorials (editorials that shape
public opinion), file law suits and complaints, and form agreements with
suppliers/distributors to increase control and certainty.
Can deal with change in 4 ways
o Primitively (oh, I fell down a hole)
o Ad hoc (oh, look there is a hole lucky I spotted it! Id better go round it)
o Reactive (This is a badly maintained path, I had better walk carefully)
o Proactive (I will carry a ladder and a mobile phone in case I fall down a hole)
SWOT Analysis

Based on ability to identify the significant and relevant internal strengths and weaknesses,
and external opportunities and threats
One of the most basic yet most widely used planning concepts
CRITICAL to identify the causes NOT the symptoms
E.g. declining sales is just a symptom of an underlying weakness.
Strengths & Weaknesses internally focussed on:
o The organisation and its existing strategies & capabilities
o Comparison with capabilities of competitors
o Readiness to adapt to macro & micro environment
Opportunities and Threats are more externally generated:
o Changes & trends in macro-environment (beyond firms control) or micro-
environment (within firms control)
o Remember: this is all relative to the capabilities of its competitors
Strengths

Strengths - competitive advantage and other aspects of the firms operations that it does
particularly well
Identified by asking: What are the key reasons why the firm has been as successful as it
has been to date?
Weaknesses

Weaknesses - restraints that hinder the firms performance and choice of alternatives
compared to competition
Identified by asking: What are the key reasons why the firm has not been more successful
than it has been to date?
Opportunities

An opportunity results from dynamic changes in market situation or within the industry,
which give a firm a chance to improve its performance.
Because of its existing strengths or flexibility, the firm is well-placed to take advantage of
the changes/trends
Concept of strategic fit determines whether change creates an opportunity or a threat.
Threats

A threat emerges from an existing market situation or changes & trends within the industry
or market, which may result in the firms performance worsening.
Because of its weaknesses, it is NOT well-placed to deal with the new market situation or
changes/trends
Concept of strategic fit determines whether change creates an opportunity or a threat.
Managing Strengths and Weaknesses

Seek to leverage and build the strengths this increases its performance as well as the
opportunities it can take advantage of.
o Eg, Coles offering fuel coupons and buying up Shell Fuel Stations
Seek to address and minimise the weaknesses - therefore removing restrictions to the
firms ongoing success, and reducing the threats to its performance
o Eg1, Qantas launching Jetstar to counter Virgin Blue
o Eg2, Qantas lobbying the aviation authority to restrict International carriers servicing
domestic routes
Managing SWOT forms the basis of strategies
Everything is relative, no such thing as an absolute Strength or Weakness
eg. the local Under 12s versus Universitys basketball team versus the WildCats versus the
US Dream Team
Strategic Use of SWOT

Current & potential changes in the firms competitive environment generate opportunities
and threats
If companys strengths enable exploitation of an opportunity, a strategic window of
opportunity exists
Often a threat is viewed as such because of a Weakness within the company. Rectifying
this Weakness can transform a Threat into an Opportunity.
Used for comparison with competitors
Focuses on future choices and capability of organisation to support them
Need to anticipate and be proactive
Problems of SWOT analysis

Can generate long lists: need to focus on key issues

Danger of over-generalisation: not a substitute for rigorous strategic analysis
TOWS Analysis

What does TOWS stand for?

Another SWOT type of analysis
However, it goes a step further and can be used to formulate strategy

Problems and Opportunities Statement

The final stage of the situation analysis the preparation of a problems and opportunities
statement.
Problem and opportunities statement includes:
1. Assessment of the organisations capabilities
2. Identification of current opportunities
3. Identification of future opportunities
4. Identification of threats facing the organisation
5. Strategic implications - the strategic issues/challenges confronting the organisation
Lecture 3 Strategy Development and High-Level Decision Making (Chapter 2 4)

Sustainable Competitive Advantage

Every firm that continues to operate has some form of competitive advantage over its rivals
 o eg. the corner deli versus Coles supermarkets
A competitive advantage is any form of superiority over the rivals of a firm those targeting
the same market
Key is to focus on the most important / significant competitors ONLY can always change
this if others arise, but dont want to be distracted from them
Different sources of competitive advantage
o structural advantages cost leadership, location, access to raw materials /
resources
o responsive advantages - ability to respond more effectively to the market, and to
changes in the environment, industry and market
Ultimately, Strategic Marketing seeks to develop longer-term competitive advantages
through better decisions on structure and maximising responsiveness to the market
- ie. building long-term bases for success
BUT not just wanting to have an advantage over the competition, but to sustain this
advantage over time
o No point in developing short-term advantages that are easily copied by the
competitors
Achieve sustainable competitive advantages (SCAs) through erecting barriers to
competition, to hinder rival firms copying your advantage or reducing its impact
Barriers to competition include:
o Economies of scale
o A strong brand or customer loyalty.
o Significant financial resources to establish research and development facilities,
production facilities, customer credit or inventories.
o Securing distribution channels that are serving established players
o Cost advantages independent of scale include proprietary technology, favourable
access to raw materials, favourable locations, government subsidies, learning curve.
Four generic strategies or routes to competitive advantage:
o At an industry-wide level of competition
Cost leadership
Differentiation
o At a focus or market niche level of competition
Cost leadership
Differentiation
Strategy options based on relative costs and differentiation alternatives

Most SCAs based on either cost leadership, differentiation or niche marketing

However, increasingly based on brand, distribution, information management, etc.
eg. category killers such as Walmart or Home Depot in the USA or Bunnings in Australia
Three Conditions for a Sustainable Competitive Advantage

A SCA is meaningful only when all three of the following conditions are met:
1. The SCA causes customers to perceive the firms product as superior in value
2. The perceived difference is the result of an actual capability gap between the firm &
rivals
3. Difference in perceptions and capability gap can be expected to endure over time.
What is a Strategy?

Simply, a strategy is the tool management develop and use to generate targeted change.
Success is dependent on using the right tool for the job. And selecting the right tool is one
of the key requirements of managers.
The Strategic Gap

Develop strategies to address the Strategic Gap

o Gap between where we want to be at a certain time, compared to where we will be if
we dont change way we currently do things.
o Each strategy closes the strategic gap a little bit more.

Strategy Selection

Generating strategic alternatives or options is usually not that difficult - experts within the
company and industry usually develop these as a matter of course whilst doing business
Key to success is selecting the RIGHT strategy for the RIGHT situation BUT its very easy to
get wrong.
Determining the attractiveness of a potential strategy
o Is it suitable i.e. does it use or create a SCA?
o Are the accompanying assumptions realistic i.e. are they valid?
o Will the company be able to actually implement the strategy given its resources,
skills, and likely reaction i.e. is it feasible?
o Does the strategy make common sense - what sort of internal consistency does it
have?
o What are the associated risks and contingencies involved with the strategy?
o Does the strategy allow the company to continue to respond to other changes and
developments in an effective manner or does it negatively impact on overall
flexibility?
o Timing
Portfolio Analysis

An organisations portfolio or mix of SBUs is critical to its long term success

o different SBUs have different levels of current attractiveness
 o different SBUs have different levels of future potential
o different SBUs have different roles to play within the organisation
Similarly, a SBUs mix of products is also critical - need success today, and to be working
towards being successful tomorrow
Developing strategies - planning for tomorrow by making decisions today - requires an
organisation to compare and establish the roles each of its SBUs will play currently and in
the future.
This also applies to the product portfolio within each SBU
Different SBUs have different missions. Different products have different missions / roles to
play.
Product Life Cycle (PLC)

The PLC provides the basis to the portfolio approach

Sales of each product assumed to follow a life cycle - moving from Introduction to Growth
to Maturity to Decline.
Depending on where the product is within its life-cycle, different strategies are appropriate,
and different demands are placed on the organisation
An organisation seeks to develop a portfolio of SBUs that are at different stages of their life
cycles, which means the organisation has a good match of current performance and future
potential, in keeping with the organisations capabilities. ($, time and skills)

To say that a product has a life cycle asserts four things:

1. Products have a limited life.
2. Product sales pass through distance stages, each posing different challenges,
opportunities, and problems to the seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing, purchasing, and
human resource strategies in each life-cycle stage.
Sales and profits over the products life from introduction to decline
Introduction Stage of PLC

Product mode: new

Price policy: use skimming or penetration strategies
Place: rapidly building distribution network
Promotions: build general demand
Profits: expected losses
Growth Stage of PLC

Product mode: differentiated products

 Price policy: maintain stable pricing policy
Place: solidify distribution channels and network
Promotion: generate secondary demand
Profits: start of profits
Maturity Stage of PLC

Product mode: modify product or product usage

Price policy: price reduction
Place: increase distribution efforts
Promotion: concentrate on product positioning
Profits: highest profits (peak)
Product revitalisation achieved by:
o Market Modification: finding new users (eg. Playstation for teenage girls), uses (eg.
Cornflakes & Anzac cookies) or increase usage
o Product Modification: change features, quality, design, to attract new users &
increase usage (eg. Gillette razors)
o Marketing Mix Modification: sales promotion, price cuts, new ads etc.
Decline Stage of PLC

Product mode: maintain a basic product

Price policy: maintain pricing or rise prices
Place: limit distribution efforts
Promotion: cut-back on advertising and sales promotions
Profits: reduced profits
Product strategies include:
o Product Deletion: eliminate unprofitable products (The only big companies that
succeed will be those that obsolete their own products before somebody else does
B. Gates)
o Product Harvesting: slowly phasing product out by reducing expenditure
o Product Revitalisation: bringing products back to life through new ads, brands
Limitations of PLC

Product sales do not always follow symmetrical S-curve.

Difficult to determine products position in lifecycle.
Length of cycle may vary.
Portfolio Analysis

An organisations portfolio or mix of SBUs is critical to its long term success

Different SBUs have different levels of current attractiveness
Different SBUs have different levels of future potential
Different SBUs have different roles to play within the organisation
Similarly, a SBUs mix of products is also critical - need success today, and to be working
towards being successful tomorrow
Developing strategies - planning for tomorrow by making decisions today - requires an
organisation to compare and establish the roles each of its SBUs will play currently and in
the future.
This also applies to the product portfolio within each SBU
Different SBUs have different missions. Different products have different missions / roles to
play.
Boston Consulting Group (BCG) Matrix

The BCG assigns a role to each product within an SBU, (or SBU within an organisation)
based on its attractiveness to the firm.
Based on 2 factors;
 o Profitability of the product in its market
as per Profit Impact of Marketing Strategy (PIMS), the more power a product
has in its market, the greater its profitability
power is assumed to be determined by the companys market share
compared to the market share of its leading competitor - its relative market
share (RMS)
o Attractiveness of the market
attractiveness assumed to be proportional to markets growth rate
Assumptions
o Increased market share will result in increased cash generation
o Growing markets require additional investment
o The additional investment needed for growing, high market share businesses can be
taken by more mature, slower growth businesses
o Each business unit is independent from the others
4 quadrants
o Stars - high growth and Relative Market Share (RMS). Generate large profits and
have high long-term potential to make profits in the future
o Cash Cows - low growth and high RMS - generate large profits but little potential for
the long-term future
o Question Marks - high growth but low RMS - generate low profits currently but
potential for future profitability if can increase market share
o Dogs - low growth and RMS - low profits currently and little future potential for profits
The process for placing SBUs onto an organisations BCG matrix, or products onto an
SBUs matrix:
1. Determine the market shares of each SBU to be included
2. Determine market share of leading competitor
3. Calculate RMS for each SBU; RMS = Your market share / leading competitors
market share
4. Find the growth rate of each SBUs market
5.
A. Identify each SBUs sales for previous period
B. Add all SBUs sales together to determine organisations total sales
C. Determine each SBUs contribution to overall organisations sales: SBU
contribution = SBU sales / Total sales
D. Draw circles to represent the relative contribution made by each SBU Circle
for SBU contributing 10% of firms sales 2X size of SBU making 5%
contribution, and 0.5X SBU making 20%
6. Determine mid-points for x- and y-axes
7. Position the centre of each SBU circle onto the BCG matrix at the intersection point
of that SBUs growth rate and relative market share
8. Analyse the BCG matrix and develop relevant strategies for each SBU and for the
organisation as a whole
BCG Matrix useful tool because
o Highlights that a balanced portfolio is needed for ongoing success
o Importance of cash flows within business planning is highlighted
o Graphical in nature - large amounts of information communicated very simply
o Senior management review each SBU as an individual entity, and recognise each
SBUs individual role within the overall corporation
o Useful guide to acquisitions & divestments, marketing expenditure, marketing
strategy, human resource planning etc etc etc.
BUT there are definite problems associated with it;
o Assumptions on which the BCG matrix are based are overly simplistic
o No consideration of ROI of different SBUs or levels of risk
o No indication or importance placed on level of customer satisfaction
o High potential for misinterpretation / quite subjective in nature


Strategic Implications of BCG Matrix

For each SBU in turn (In approximate order of priorities)

o Secure the CASH COWS - generating the positive cash flows to pay your bills today.
Invest to maintain (not increase) relative market share. ie. do NOT allow to become
DOG
Surplus cash flow directed to STARS then QUESTION MARKS
o Invest heavily in STARS - these are the future cash cows of the company - generally
revenue neutral Already generating large cash flows - continue to invest where cost-
effective to increase relative market share
o QUESTION MARKS generally revenue negative - where potential to become STARS
invest heavily to increase relative market share, using surplus cash not required by
STARS or CASH COWS. Otherwise divest
o DOGS - either divest, wait and see or niche market, depending on what occurs
within the SBU market BUT check to see if Sacred Cow before divesting.
Balancing a portfolio using the BCG Matrix

SEEKING A BALANCED PORTFOLIO

o Do NOT want all CASH COWS or STARS or QUESTION MARKS or DOGS - need
to balance requirements for success and cashflow today with the need for future
success and cashflows (i.e. need all four quadrants to some extent)
o Must balance CASH FLOWS - both today and in the future
o The experience curve is a very important concept to large organisations as it
provides the basis for many strategic alternatives
o Must focus on long-term future through continuing growth
Unbalanced portfolios may be classified into four types:
o Too many losers: due to inadequate cash flow/profits/growth
o Too many question marks: due to inadequate cash flow and inadequate profits
o Too many profit producers: due to inadequate growth and excessive cash flow
o Too many developing winners: due to excessive cash demands and demands on
management and unstable growth/profits
Portfolio Matrix: Strategic Outcomes

Relationship between BCG Matrix and PLC

GEC Matrix (General Electric Company)

GEC Matrix developed in recognition that what the BCG was attempting to do was
important, but the BCG assumptions were too simplistic
So GEC Matrix developed, based on a multi-factor portfolio matrix (NB. multi-factor
modelling approach)
Based on similar assumptions on power & attractiveness
o the higher the industry quality the better
o the higher the companys strength in the market the better
Recognises that a multitude of different factors determine these
 X axis = Companys strength / competitive position
Y axis = Industry quality / market attractiveness
Companys strengths determined by?
o market share
o sales effectiveness
o price competitiveness
o profit margin
product quality
o R& D
o and whatever other factors management selects
Industry quality determined by?
industry growth rate
o technology reqs
o degree of regulation
o workforce availability
o barriers to entry
o market size
o and whatever other factors management selects
The process is similar to the BCG matrix
1. Identify the factors that determine market attractiveness and companys strength
2. Assign a weighting to each factor
3. Rate how the company performs in relation to each one
4. Multiply weighting x rating
5. Positioning each SBU on the matrix based on the above
Quite possible to get different strategic recommendations arising from the different models
More sensitive / comprehensive than BCG, but still only a tool to assist managerial decision
making, not instead of it
Lecture 4 Segmentation, Targeting and Positioning Strategies & The Customer Value
Creation Mix (Chapter 5 and 6)

Defining the market

Its like figuring out where to throw your net so that you throw your net over as many
good fish as possible.
Throw your net too narrowly and you miss out on good fish.
Throw your net too wide requires lots of net and lots of manpower, and you end up with a
lot of waste that detracts from your ability to catch the right fish.
Use organisations scarce resources effectively, to maximise benefits generated from its
marketing efforts.
Must clearly establishing the boundaries that enable us to identify our competition, our
customers, and the key market issues and trends that we need to continually monitor.
Three key dimensions to defining a market:
1. By customer benefit / product function
2. By customer group / level
3. By technology used to deliver benefits
For example, Dominos Pizza in WAs market definition is:
1. By customer benefit / product function
tasty food, quick, someone else does the work, (hopefully) enjoyable eating
experience
2. By customer group / level
friends, families, workers, catered groups
3. By technology used to deliver benefits
takeaway, home-delivered, driver tracker, different payment options
The process of developing high-level marketing strategies

We cannot appeal to all consumers because they are all different

It is better to produce a product that somebody likes a lot rather than everybody likes a little
Segmentation and Targeting

Target market selection is based on market segmentation the partitioning of a market into
segments of existing and potential customers who have similar characteristics and similar
needs.
 Market segmentation:
o Grouping customers with similar wants and buying requirements.
Seeking to gain a competitive advantage by better being able to meet the needs of a
specific group (market segment) of target customers.
Market segmentation is an art NOT a science.
Segmentation Bases

Geographic Nations, states, regions or cities

Demographic age, gender, family size and life cycle, or income
Psychographic Social class, lifestyle or personality
Behavioural Occasions, benefits, uses or responses
Geodemographics demographics of groups in geographic areas
Relationship Segmentation

Desirable characteristics of segments

Evaluating Market Segments

Segment Size and Growth

o Analyze sales, growth rates and expected profitability.
o Bigger is not better - depends on company capabilities
Segment Structural Attractiveness
o Consider effects of: Competitors, Availability of Substitute Products and, the Power
of Buyers & Suppliers.
SBU Objectives and Resources
o SBU skills & resources relative to the segment(s).
o Look for Competitive Advantages.
o Does it match your current strategy? Products?
o Can you develop a SCA?
Criteria for Target Market Selection

Similarity (homogeneity) of customer needs within the segment

Distinctiveness (heterogeneity) between segments
Segment size and profitability
Growth potential
Accessibility channels
Responsiveness to marketing stimuli
Intensity of existing and future competition
Barriers to entry
Level of customer satisfaction with existing products
Potential for the introduction of a game-changer new product
The Customer Value Creation Mix

Strategies designed to create, communicate and deliver value to the organisations targeted
customers
Based on a deep understanding of the customer value proposition
An extension of the traditional concept of the marketing mix to include a number of
organisation-wide or cross-functional activities conducted along the value chain or value
network
Market Segmentation and Decision-Making Aids

Two aids for segmenting markets

o Perceptual maps - Pictures or maps of consumer perceptions of a market or product
category.
o Conjoint analysis - A research technique that shows individuals make overall
judgements about brands or products by considering together two or more attributes.
Perceptual Maps

Two techniques:
o Attribute rating method respondents are required to rate a selection of potential
brand attributes. The data is analysed either by factor analysis or multiple
discriminate analysis to produce a perceptual map.
o Overall similarity method respondents are required to assess the degree of
similarity or dissimilarity between matched pairs of competitive brands. The data is
analysed using multidimensional scaling technology to map the distance between
brands.
Marketers must:
o Plan positions to give products the greatest advantage
o Develop marketing mixes to create planned positions
 e.g. Lexuss position on exclusivity must be followed by premium product,
high price, exclusive distribution, classy promotions, excellent after sales
service.

Positioning Strategies

Problems to avoid when positioning

Under positioning: nothing special about it

Over positioning: too narrow an image may restrict future diversification e.g. Levi Jeans
Confused positioning: confused image resulting from too many claims or taking too many
positions. Can avoid by creating new brands e.g. Lexus
Doubtful positioning: buyers doubt the brands claims. its unbelievable. e.g. Super
creamy, super tasting fat free ice-cream
Conjoint Analysis (CA)

A number of attributes are identified and then sorted into bundles of two or more, so that
respondents can conjointly rank or rate their preferences, ranging from least liked to most
liked.
CA provides a basis for segmenting a market into groups of people with similar needs who
are seeking similar benefits for various products. It is also a tool for developing brand
positioning strategies.
What do Customers Value?

Functional / instrumental value the extent to which a product has the desired
characteristics, usefulness and performance capabilities
Experiential / hedonistic value the extent to which a product creates appropriate customer
emotions, feelings, experiences, sensory or epistemic values
Symbolic / expressive value the extent to which customers attach or associate
psychological meanings to a product
Cost / sacrifice value the extent to which customers seek to maximise or at least realise
the benefits derived from a product
Developing Value Creation Mix Strategies
 Strategies designed to create value product management strategies
o Product portfolio decisions and pricing decisions
Strategies designed to communicate value brand management and IMC strategies
o Brand positioning and integrated marketing communication strategies
Strategies designed to deliver value customer engagement and distribution strategies
o Strategies to reach and engage customers across the range of internal and external
customer touchpoints and strategies concerning distribution channel length and
intensity
Lecture 5 - Market Penetration Strategies (Chapter 7)

Market Penetration Strategies

In a broad sense, Market Penetration Strategies are designed to win and retain individuals
and/or organisations as customers as they enter the market during the various post-
introductory phases of market evolution.
Market Penetration Strategies examine customer acquisition and customer retention
strategies during each of the following four phases of market evolution:
o Growth
o Competitive turbulence
o Maturity, and
o Decline

Strategies for Growth Markets

Strategies for Market Leaders

o The goal should be to build or maintain market share in absolute terms
o However, sometimes due to increasing competitive intensity and/or market
fragmentation, this may be unrealistic
o A more realistic goal may be to maintain relative market share leadership
o To achieve this, a market leader would need to
1. Retain its existing customers
and
2. Win the largest share of new customers entering the market
o The market leader could considering strategies designed to increase primary
demand for the product category as a whole
Strategies for Market Challengers
o A market challenger has two broad strategic options:
to win the largest share of new customers as they enter the market
 and
to win customers away from the market leader
o Strategies to do this include (but are not limited to):
Leapfrog strategy a superior product offering
Frontal attack lower prices and/or superior product attributes
Flanking attack targeting a new and uncontested market segment
Encirclement develop new market segments
Guerrilla attack market-niche strategy based on cost leadership or
differentiation
Strategies for Competitive Turbulence

A market characterised by industry over-capacity, intensified competition and price wars

Can be called Red Ocean
Competitors without a clear competitive advantage struggle to survive (as they are in no-
mans land), and are often taken over or exit the market
The winners are those who have created a differentiated competitive advantage (but they
need to ensure it stays ahead)
Strategies for Mature Markets

A stage where the market peaks with a significant decline in the rate of growth
Few 1st time buyers enter the market (the late majority)
Firms rely on repeat purchases to maintain sales
The rule of three and four typifies this market
o This states that a stable and competitive industry never has more than 3 significant
competitors, with market share ratios of 4:2:1
o The rule applies for some industries (car rental, household appliances etc.), but not
others (investment banking, life insurance etc.)
o Another study found that in nearly all industries three full line competitors dominated
the market, controlling 70-90% of the market.
Strategic options include:
o Customer acquisition
converting non-users
targeting new or underdeveloped market segments
new geographical markets
o Product strategies
increasing product usage
developing new uses for the product
new ways to use the product
o Customer retention (SCA is important here)
Strategies for declining markets

Characterised by declining sales as the competitive products are superseded either by new
technology, alternative product forms or changing customer values, tastes and preferences.
In some markets, the declining stage for the leading competitors can be profitable as
marketing and distribution costs are reduced.
Lecture 6 - Market development Strategies (Chapter 8)

Market Development Strategies

Top-line growth is essential for an organisations survival

McKinsey found large organisations whose revenue increased less than GDP were 5 times
more likely to go out of business or be acquired than faster growing organisations
The Market Development Strategies examine strategies for existing product lines in new
markets
 Market development strategies are trategies designed to expand the total market served by
a product or a product line including:
o Entry into new geographic markets
o New market segments, including
The identification of emerging market segments
The conversion of non-users of the product category
The development of new applications for new customers
o New marketing channels designed to reach unserved customers
Geographic Expansion

Domestic market expansion

Local to National
What geographic area(s) should we target?
Can either be:
o Local (eg. Local deli, butcher or chiropractor)
o Regional (eg. WA only, such as a restaurant chain)
o National (eg. Coles)
o International (eg. QANTAS / McDonald's)
How do you determine if your firm is adopting the right geographic strategy?
Over 90% of Australias 45,000 exporting firms are SMEs with 50 or less employees!
International market expansion
o Exporting
o Licensing agreement
o Joint venture
o Mergers and acquisition (M&A) strategy
o Wholly owned subsidiary
Foreign-Market Opportunity Analysis

The decision to enter an international market is made at the highest level of corporate
management
The process typically begins with a study called a Foreign-Market Opportunity Analysis
This involves a:
o Preliminary study
o Short-list of potential markets
o Detailed market analysis
Predictors of Success in Market Entry

Horn, Lovallo and Viguerie developed a checklist for the strategists to determine the factors
most relevant for a specific situation:
o Size of entry relevant to minimum efficient scale
o Relatedness of the market entered
o Complementary assets
o Order of entry
o Industry life cycle stage
o Degree of technological innovation
By studying the factors that have underpinned market-entry successes and failures,
strategists are then in a position to develop a balanced view of the factors necessary for
success
New Market Segments

Markets do not stand still

Market fragmentation - proliferation of new customer segments
The digital revolution has encouraged this
Danger of becoming stuck-in-the-middle between low-frills and high-end competitors
So what is the point of this?
 Strategists must look for the emergence of potential new market segments
Steps for finding new market segments
o Develop a deep understanding of your customers
o Current/future attractiveness of the market segment Go/No go
o Develop customer value creation mix strategies
Potential of disruptive innovation in low-end market segments
Definitions:
o Disruptive innovation: those that lead to the creation of an entirely new market
through the introduction of a new kind of product or service.
o Are generally simpler, more convenient and less expensive.
o Sustaining innovation: incremental year-by-year product or service improvements or
the development of a breakthrough new product for an existing market. Makes a
product or service perform better in ways that customer in the mainstream market
already value.
Today, many businesses face a challenge: How to stay ahead and/or have an early
warning system for disruptive innovation in their industry?
The textbook discusses 3 potential strategies:
o Create a new organisation structure, one that develops change
o Create an independent organisation to achieve this
o Acquire an organisation that can achieve the task
New Marketing Channels/Distribution

A set of activities and processes involved in the transfer of title and the movement of goods
and services from the point of production to the point of consumption
Essentially Distribution (or Place)
Emergence of digital marketing channels
Multi-level distribution structures offline and online
Getting the right product to the right customers in the right place at the right time.
Distribution Channels

Channel-Structure Strategy:
o DIRECT CHANNELS sell straight from manufacturer to end-consumer of good i.e.
no third parties.
i.e. manufacturer retains all control, profits, risk
o INDIRECT CHANNELS sell through intermediaries
e.g. resellers, wholesalers, retailers, agents, etc.
i.e. manufacturer shares profit, control, risk
Channel Levels and Intermediaries

Channel Level - A Layer of Intermediaries that Perform Some Work in Bringing the Product and its
Ownership Closer to the Buyer.
Distribution Strategies

Q. WHY HAVE DIFFERENT CHANNELS EMERGED?

Channel(s) of distribution evolve in an industry to minimise risk, uncertainty and costs
involved in supplying the end-user of their product, whilst providing the market with the
product in a waiting period acceptable to them.
2 philosophies governing the choice of distribution strategy
o Postponement
o Speculation
Postponement

Postponement involves postponing production until a confirmed order (and ideally pre-
payment) is received (This includes not ordering the raw materials etc.)
o Eg. Low volume items, such as a drilling rig for drilling offshore
Eliminates risk that what is produced will not be sold
o But producing one order at a time means no economies of scale, big time lag,
opportunity costs when not utilising resources, high ordering / admin costs for each
order
Speculation

Speculation involves producing in anticipation of sales. ie, speculating that what you
produce will be in demand
o therefore economies of scale, low ordering / admin costs
o BUT storage and warehousing costs, high risk of obsolescence / no market demand
emerging
IKEA has a successful speculation strategy: Stores commit to stock months in advance,
allowing low-cost production via subcontractors, quality control and centralised
warehousing & distribution
Combination Postponement & Speculation

Channels may evolve with different elements of postponement and speculation

o Speculative stock levels are dependent on how long customers are prepared to wait
for order (e.g. milk vs. car)
o risks and cash flow implications involved in maintaining inventories determine
appropriateness and level of postponement or speculation
Ford Motor Co combines postponement with speculation strategy: A Single Item Dealer
Order system facilitated by Extranet for ordering JIT parts supplies; production planning;
and supply chain re-engineering for joint planning with suppliers; co-location of plants with
suppliers, and JIT ordering. Ford also builds speculative stock to ensure fast delivery, and
for special promotion periods e.g. model run-out.
Distribution Scope

How many parties should be involved with the distribution of particular product in a
particular region?
EXCLUSIVE DISTRIBUTION - one retailer in a particular region is granted sole rights to a
product e.g. Rolls Royce distributed by Chellingworth Motors
o good for developing win-win team approach
o both parties work closely together to develop mktg initiatives
o can monitor closely how well the retailer is performing
BUT
o May lose sales because outlets not convenient (e.g. How far prepared to travel?)
o Highly dependent on the one retailer, who is quite powerful
INTENSIVE DISTRIBUTION - when the product is made available in multitude of locations
e.g. Coke or Pepsi, other impulse or convenience goods
 o Good for maximising sales (so economies of scale), wide customer recognition /
brand awareness, high potential for impulse buying
o BUT must be a high volume product to be profitable
o loss of control over marketing effort - reliant on large no. of unrelated parties who are
also dealing with your competition
SELECTIVE DISTRIBUTION - several competing retailers distribute the product in a
particular region e.g. Fender guitars in selected music stores in WA only
o Good in that it generates a high degree of competition, and can select the best
retailers for the product
o Very effective where high sales volumes can be generated by a few retailers (dont
miss out on much of the potential market)
o BUT must have adequate market coverage, and retailers must match the product
and work closely with the supplier to cost-effectively promote and service the product
Multiple channels of distribution

Two or more channels of distribution are used simultaneously

o Net effect is greater product sales than if a single channel used
Complementary channels of distribution expand the size of the market targeted e.g.
o Additional channels for differing segments & buying criteria
o Additional channels for geographic coverage e.g. Myer Stores and Myer online,
reaching rural & expat people
In a saturated market, adding a channel of distribution may generate additional sales
growth through expanding the size of the market being targeted
Competing channels of distribution - when a product is being distributed by channels of
distribution in direct competition with each other
o Country Road in own stores, David Jones, Myer
Aims to increase sales through the additional efforts of the retailers, forcing them to
maximise sales of your brand (otherwise competitors will get these brands)
Also have advantage of competing retailers being more successful with different groups of
customers
BUT retailer resentment & control problems may arise
o Consider how the Avon ladies felt when Avon decided to start retail stores in the
US in the 1990s and more recently Online sales
Innovation in Distribution Strategy

Creativity in distribution can have huge impact:

o Rise of Vertical Marketing Systems
o Hyperstores for major chains in FMCG, DIY and home furnishing
o E-commerce impact on books, airlines, etc
o Coffee on the go drive-through coffee bars
o Concept stores within department stores
o M-Commerce Mobile data services emerging
o Horizontal marketing systems --- banks and supermarkets, newsagents and post
office
Lecture 7 Incremental Innovation Strategies (Chapter 9)

Incremental Innovation Strategies

In todays business environment an organisation must continuously innovate and evolve to

create and maintain value for its customers and to stay ahead of the competition
Incremental Innovation, or sustaining innovation, are strategies that are based on
modifications or improvements to existing products and the introduction of new products
within existing product lines for existing customers
Brand leveraging is included in Incremental Innovation Strategies
 Strategies based on the introduction of either a new product (product line extension) or a
modified product within the existing product line (revisions, improvements and cost
reductions)
Product modification is also referred to as product adaption
Product Scope Strategy

Single product enables focus, economies of scale and experience BUT company then lives
or dies by this.
Multiple products offer greater growth, revenue and profit potential BUT need greater
resources, better mgt., should complement each other in some way.
System of products is offering a target market a complementary range of products
o e.g. QANTAS offering airfares and also accommodation bookings, flight lounges,
hire car bookings, travel insurance, duty free, loyalty programs, range of luggage etc.
o i.e. A system of integrated products meeting complementary needs that
synergistically meet the overall need e.g. travel
New Product Strategy

Improvement = introducing a better version

o Digital camera introduced by Sony replacing film
Imitation = introducing a cheaper version
o LG releases a digital camera
Innovation = introducing a different product to meet the same need
o Nokia offers digital camera in a mobile phone
Benefits to each approach which to use depends on strategic situation of a company
o Tends to be based on ongoing SCA of the company i.e. consistent with its existing
strengths
New Product Development (NPD)

NPD is one of the greatest challenges for all types of

B2C and B2B organisations
Research shows that approx. half of all new products fail
There is a significant difference in new-product success rates from organisation to
organisation
Top-performing organisations have a commercial success rate of 68%
Low-performing organisations have a 45% success rate
Why?
Could be down to top-performing organisations having more rigorous criteria for passing
new products, and hence they are more likely to kill the product before its market release
The Strategy Dimension

Strategy is at the heart of NPD best practice

NPD is considered within the context of the organisations mission and vision and long-term
strategic planning processes
Considered to be an ongoing process
A focus on striking and maintaining the right balance for the units innovation portfolio
Company Culture and Project Climate

Company Culture
o A focus on fostering innovation
o Innovation a core and continuous process
o Top-management support
o Cross-company alliances
o Collaborative partnerships and alliances
Project Climate
o Intra-company and project-specific
o Appointment of dedicated, accountable and empowered
o cross-functional teams
o Teams are typically specialists in R&D, engineering, manufacturing/ production and
marketing
The Process Dimension

Idea of a well-established, robust idea-to-launch system

Stage-Gate is one such model
Stage-Gate is virtually the universal model of product innovation
The model has stages and gates; the stages are best practice activities, while the gates are
Go/Kill checkpoints

Research and Commercialisation and Metrics/Performance

Research
o Best practice orgs employ research techniques through all stages of the NPD
process
o Use of a combination of traditional and new market research techniques:
o Brainstorming, focus groups, Delphi, customer visits, conjoint analysis ethnography,
lead user processes, crowdsourcing and open innovation
o These days this is called co-creation
 Commercialisation
o Activities associated with the communication and delivery of customer value
o Commercialisation is often the single most expensive stage of NPD
o Three phases of activities
Pre-launch (create buzz)
Launch (awareness and demand)
Post-launch (maintain momentum)
Metrics & Performance
o The way NPD is tracked, reported, recognised and rewarded
o A focus on performance goals:
Metrics for each of the Go/Kill gate stages
Post-launch performance reviews
o Should be done for the entire NPD process at timely intervals
Lecture 8 Radical Innovation Strategies (Chapter 10)

Radical Innovation Strategies are the most extreme of the product-market options in the
table on the next slide
Radical Innovation means doing something different the creation of a new product,
product line, process, system or business model that is significantly different from the
business units current product offerings but within the scope of its business mission
It is the riskiest of the four product-market options and has the longest ROI payout
The failure to develop and introduce radical innovations puts established organisations at
risk
Strategies used by a market pioneer in the development of a new-to-the world product to
create a new (or blue ocean) market, or by a market challenger/follower in the development
of a new product in a market that is new for them
The market challenger/follower may pursue a strategy based on innovative imitation or
product adaptation (these both involve a degree of newness to the market, not just the
organisation)
There are 4 broad types of innovation:
o New-to-the-world innovations
Breakthrough innovations the creation of a product that enables the creation
of a market that did not exist before
Transformational innovations discontinuous, game-changing or radical new
products that disrupt entire industries
Blue ocean or value innovations products that are designed to capture an
untapped market space by creating something that is fundamentally new
o New-to-the-firm innovations
Market follower strategies products developed by a market follower to enter
a market or new form of a market that is in the embryonic stage of
development
Innovative imitation umlauting new products that are significantly
different in at least one aspect from the competitive products or
products
Product adaptation modifying or improving on the product innovation
of others
First-in Strategy

Can provide definite advantages

o Experience curve implications
o Brand recognition/association potential Sony walkman, Rollablades
o Opportunity for patents / copyrights giving SCAs
o Threat of the above if NOT first in
o BUT major resource requirement to stay ahead, or later entrants may do it better
 o Must generate generic or primary market demand, not just demand for own product.
Must educate market, take initial losses whilst sales start to grow etc.
Early-entry strategy

Second-in but better strategy

Superior marketing strategy and resources wins over first-in every time
Lower risk, able to offer better product based on experience of first-in
MUST have necessary resources for dogfight
Other firms may also enter seeking niches within this rapidly growing market
Firm able to achieve cost leadership often wins
o E.g. Microsofts Windows vs. Apples OS
Laggard-entry strategy

Entering the market in the late growth stage

Niche marketing opportunities as majors establish their territories
Either as imitator (me too) or initiator (better product) e.g. Taiwan electronics companies
vs Japanese
Must have an SCA to be able to compete in long-term
Less resources required
o Potentially lower per unit cost than major players, particularly if experience curve
effects can be transferred (No R&D required; access to skilled employees and
suppliers; efficient distribution channels for industry already exist)

How does a firm achieve lower costs than the competition?

Economies of Scale
o The bigger you are, the cheaper everything becomes e.g. bulk discounts
Experience / Expertise
o The more you do something, the better at it you get e.g. experienced vs.
inexperienced salesperson, use of technological innovations in production
Source of Cost Reductions

Many different examples including:

o Labour efficiencies e.g. use of assembly lines
 o Work specialisation e.g. Model-T Ford
o New processes developed e.g. Aluminium cans not steel
o Finetuning machinery e.g. intimate knowledge
o Standardising products and processes
e.g. Globe Meats reducing product lines by 80%
o Forming strategic relationships
e.g. Coles and Shell
Strategic Implications

As more and more of these sources of cost reductions are utilised by the firm, the cost of
each unit produced (Cost Per Unit or CPU) will decrease as production increases (eco. of
scale)
BUT research into the airline industry showed that it is NOT total annual sales that
generates cost advantages
Cost advantages are determined by a firms cumulative production - its total experience in
producing that product (experience effects)

Economies of Scale Effect

Increased total output improves the per unit costs by:

o Recovering high capital costs
o Improved Marketing unit costs
o Improved Distribution unit costs
o Volume discounts on inputs
o Distribution, Sales Forecasting and Inventory Management become vital to avoid
oversupply and obsolescence.
Experience Curve Effect

Experience shows that practice makes perfect

As growth continues, we anticipate greater efficiency and more productive output
Theory suggests that.
o When production (total ACCUMULATED) volume doubles.
o Costs may fall substantially
Better methods, familiarity with techniques, accumulated experiences of personnel.
 Based on research, every time cumulative production doubles, the CPU will fall by between
5% - 30%.
Experience curve concept very useful if:
o the industry has significant cost advantages generated by experience, or through
large-scale production (must have a standardised product)
o significant market segment purchasing on the basis of lower price (demand is
elastic)
o the firm is already a low-cost producer
How the experience curve works in reality:
the more you produce the lower your CPU
o therefore, selling for the same Price as your competitors,
o youll make more profit
o BUT note: experience curve seeks volume NOT profit margin
o THEREFORE: increase demand by either decreasing Price or increasing marketing
expenditure
o therefore sell more (where demand is elastic), gain market share
o so have to produce more to meet increased demand
o so gain experience curve benefits through increased production
o therefore obtain further reductions in CPU
o therefore for the same Price, make even more profit
o and so the cycle continues to achieve cost leadership
Strategic Implications

Especially in new industries, must seize the initiative and strive for cost leadership by
selling as much product as possible
o NB penetration pricing rather than price skimming
When entering the market at late growth stage or maturity and target market is price
sensitive, must have source of experience curve advantage to counter existing firms cost
advantages
Can transfer experience curve benefits from other SBUs of the firm
o e.g. Toshiba, from laptops to TVs & DVDs - not starting from scratch (where
diversification is based on some core competence)
During growth stage, better to focus on increasing market share and sales growth rather
than on profits then have cost advantage when market reaches maturity move from
Question Mark to Star to Cash Cow as per the BCG Matrix
 Experience Curve concept not so relevant for strategy development when:
1. Product is in later stages of the PLC
2. One competitor already holds a dominant position in the marketplace
3. The competitors in the market segment compete mainly in non-price ways e.g. by
product differentiation/niche marketing and brand image => demand is more inelastic
Therefore better to use the Experience Curve concept when:
1. Product is in earlier stages of growth in the PLC
2. There is no dominant competitor
3. The product is not amenable to non-price competition e.g. emotional appeals,
packaging
4. Competitors are relatively equal in their cost structures
Strategies for New-to-the-Firm Innovations

Advantages of being a market follower:

o The potential to capitalise on the market pioneers inability to create an FMA due to:
Inadequate resources failure to build volume and achieve economies of
scale
Ineffective targeting and positioning
Failure to take up technological improvements
Product problems poor quality or lack of sought product attributes
Customer value creation mix problems such as overpricing, distribution
problems, ineffective marketing communication strategies and unsatisfactory
customer service
Potential strategies for a market follower:
o Capitalise on the mistakes made by the market pioneer
o Enter the market on a larger scale than the market pioneer achieve greater
economies of scale
o Leapfrog the pioneer with:
a technologically superior product
superior product positioning value proposition
superior product quality
vastly superior customer service
Lecture 9 Managing the Strategic Marketing Process/Implementation (Chapter 11)

Managing the Strategic Marketing Process / Implementation

The last stages of the strategic marketing management process are:

o resource allocation the decision-making processes involved in the allocation of
financial resources to fund the proposed marketing strategies
o implementation the processes and activities that transform marketing strategies
into action
o evaluation and control of marketing performance processes concerning evaluating
marketing performance, and for taking corrective action when plans go awry
Resource Allocation

The first step for transforming marketing strategies into action is presenting the strategy
recommendations for approval
Marketing is expensive!
Marketing expenditure is often one of the largest expenditures for many organisations
This inevitably draws the interest of the senior management and board of directors
Two part process
o High level decisions
Total budget size
Resource allocation
o Strategic Marketing
 Allocation of resources to enable marketing related activities
Marketing accountability and measurement
o As the figure below shows, marketing has mainly been concerned about the
measurement of immediate outcomes such as an increase in brand awareness
(customer reactions) and sales or market share (product-market impact) attributed to
a particular marketing action

o This, however, is no longer good enough!

o Rust, Lemon and Zeithaml propose measuring changes in the organisations
customer equity and financial return in response to marketing actions using the
customer lifetime value model (CLV)

o The CLV model provides a means for the strategists to determine the return on each
of the key strategic investments or drivers of customer equity, and accordingly, to
determine which of these investments yields the greatest return
o The investment leads to an improvement in each driver, which in turn results in
improved customer perceptions
o An improvement in customer perceptions then results in increased customer
attraction and retention that leads to increased CLV and customer equity
o The increase in customer equity less the cost of marketing investment results in the
final computation of return on marketing investment
Implementation

Without successful implementation, the most amazing marketing strategy in the world is
worthless
Consider a single print ad in a national magazine:
o Choosing the right magazine for the target audience and the right place for the ad
o Negotiating price for this space
o Contents of ad objective, message, art direction
o Ensuring organisational support and approval for the ad
o How to evaluate the effectiveness of the ad
o Ads consistency with other marketing communications
o Who will take responsibility for the above functions
o Timeframes for the above
The first stage of transforming a strategy plan into reality is to prepare a comprehensive
action plan
What is required is a project management approach specifying what has to be done, who is
responsible for its completion and when it is required to be completed
Link Between Planning and Implementation

Interdependency
o Implementation depends on strategy; strategy depends on implementation
Evolution
o Planning and implementation must evolve over time because environmental factors
constantly change.
o There is no single, correct way to implement a strategy.
Separation
o While planning is often done at the top of the organizational hierarchy,
implementation occurs at the frontline of the firm.

Elements of Marketing Implementation

Shared Goals and Values

o The glue of successful implementation
Marketing Strategy
o How the firm plans to meet its goals and objectives
Marketing Structure
o Formal lines of authority; how the firm is organized
Centralization vs. decentralization
o Systems and Processes
 Work activities that absorb inputs to create information and communication outputs that
ensure the firms operation
Resources
o The firms tangible and intangible assets that can be used to implement the
marketing strategy
People (Human Resources)
o Employee selection and training
o Employee evaluation and compensation
o Employee motivation, satisfaction, and commitment
Leadership
o The art of managing others; how managers communicate with employees and
motivate their employees to implement the strategy

Approaches to Marketing Implementation

Implementation by Command
o Adv: Makes decision making easier; reduces uncertainty
o Dis: Does not consider feasibility; divides the firm; employee motivation
Implementation Through Change
o Adv: Considers the relationship between planning and implementation
o Dis: Clings to power-at-the-top mentality; can take a long time
Implementation Through Consensus
o Adv: Incorporates multiple viewpoints; can make implementation easier
o Dis: Slows the strategy/implementation process; potential for groupthink
Implementation as Organizational Culture
o Adv: Eliminates barriers; can lead to a strong corporate vision
o Dis: Increases employee costs; can be painful and time consuming
Evaluation and Control of Marketing Performance

Evaluation and control processes are essential for strategic marketing planning
Performance needs to be evaluated against the marketing objectives that were established
The task is to determine what is to be evaluated, how it is to be evaluated, who is to supply
the data and when it is to be evaluated
Determining what is to be measured
Differentiate between leading and lagging indicators:
o Lagging indictors are mainly concerned with efficiency metrics measuring past
performance
o Leading indicators are mainly concerned with effectiveness metrics measuring
future performance
 Why are the intended strategy and the realized strategy different?
o The marketing strategy was inappropriate or unrealistic.
o The implementation was inappropriate for the strategy.
o The implementation process was mismanaged.
o The internal and/or external environments changed substantially between the
development of the marketing strategy and its implementation.
Marketing Audit Framework

Identification of Marketing Activities

Review of Standard Procedures for Each Marketing Activity
Identification of Performance Standards for Each Marketing Activity
Identification of Performance Metrics for Each Marketing Activity
Review and Evaluation of Marketing Personnel
Evaluation of Customer Support Systems
Scheduling Marketing Activities

1. Identify the specific activities to be performed

2. Determine the time required to complete each activity
3. Determine which activities must precede others
4. Arrange the proper sequence and timing of all activities
5. Assign responsibility

Lecture 10 - Ethics and Social Responsibility in Marketing Strategy (Chapter 10)

Grown in importance recently due to firms having problems in these areas

Have become necessities due to:
o Stakeholder demands (especially customers)
o Ethical issues can become legal issues
Improve marketing performance and profits
Are important to the development of marketing strategy
Social Responsibility and Marketing Ethics

Social Responsibility
o A broad concept that relates to an organizations obligation to maximize its positive
impact on society while minimizing its negative impact
Marketing Ethics
o Principles and standards that define acceptable marketing conduct as determined by
the public, government regulators, private interest groups, competitors, and the firm
itself
The Pyramid of Corporate Social Responsibility (CSR)

Economic responsibility of making a profit

Legal responsibility of obeying laws and regulations
Ethical responsibility to uphold principals and standards
Philanthropic responsibility to increase the firms positive impact on society
Sustainability

Programs designed to protect and preserve the natural environment

o Eco-friendly business practices
Waste reduction
Reduction in greenhouse gas emissions
LEED building certification
Green sourcing
Green Marketing
o Creating customer relationships while also enhancing the natural environment
o Greenwashing misleading consumers about the eco-friendly nature of products
Marketing Ethics and Strategy

The most basic ethical standards have been codified into law
Require that organizations and individuals accept responsibility
Can lead to violations of public trust
Are intertwined with respect to a firms reputation
Challenges include:
o Business decisions involve complex decisions in which correctness may not be
apparent
Internet privacy, copyright, intellectual property, advertising claims
o Ethical conflict may emerge from an inconsistency between personal values and the
values held by members of the work group
Ethical Issues in the Marketing Program

Product-Related Ethical Issues

o Failure to disclose risks, product design, counterfeit products
Pricing-Related Ethical Issues
o Price discrimination, price fixing, predatory pricing, superficial discounting
 Supply Chain-Related Ethical Issues
o Labour issues, raw material sources, quality control
Promotion-Related Ethical Issues
o False or misleading communication, ambiguous statements, bribery, direct marketing
fraud
Overall Issues
o Misrepresentation, manipulation, exploitation, abuse
Product Issues
o Misrepresentation, failure to disclose defects, counterfeit products
Pricing Issues
o Deception, reference pricing, price discrimination
Distribution (Supply Chain) Issues
o Opportunism, exclusive arrangements, slotting fees, tying contracts
Promotion Issues
o Misleading advertising, bait-and-switch, high-pressure sales, gift giving
Regulating Marketing Ethics

Firms prefer to regulate themselves through:

o Compliance with laws and regulations
o Trade associations
o Better Business Bureau
Benefits of self-regulation
o Less expensive
o Guidelines are more practical and realistic
o Reduce the need for expanded government bureaucracy
Codes of Conduct/Ethics

Code of Conduct (Code of Ethics)

o Formal statement that describes what an organization expects of its employees
o Not an effective means of controlling ethical behaviour unless integrated into daily
decision making
o Not effective unless the code has support of top management
Code must reflect managements desire for compliance with values, rules, and policies
It is impossible for a code of conduct to take every potential ethical situation into account
Codes should have six core values
o Trustworthiness
o Respect
o Responsibility
o Fairness
o Caring
o Citizenship
The code will not resolve every issue encountered in daily operations
The code can help managers deal with ethical dilemmas
Ethical Leadership

Ethical cultures emerge from strong leadership

Employees look to the leader as a model of acceptable behaviour
Great ethical leaders:
o Create a common goal or vision for the company
o Obtain buy-in or support from significant partners
o Motivate others to be ethical
o Use the resources that are available to them
o Enjoy their jobs and approach them with an almost contagious tenacity, passion, and
commitment
Connecting Ethics and Social Responsibility to Performance
 Ethical Climate
o Part of a corporate culture that relates to an organizations expectations about
appropriate conduct
A strong ethical climate leads employees to be:
o Motivated to serve customers
o Committed to the firm
o Committed to high quality standards
o Satisfied with their job
Stakeholder Orientation

The degree to which a firm understands and addresses stakeholder demands

o Organization-wide generation of data about stakeholder groups and the assessment
of the firms effects on these groups
o Distribution of this information throughout the firm
o The organizations responsiveness to this intelligence
A continuum that firms are likely to adopt to varying degrees
Ties to Marketing Financial Performance and Strategic Planning

A climate of ethics and social responsibility has many bottom-line benefits

o Creates trust with firms stakeholders
o Enhances the firms reputation
o Efficient supply chains
o Stronger customer loyalty and satisfaction
o Higher profits and market value
Typically done through ethical compliance programs or integrity initiatives
Vested in the marketing plan, based on an understanding of:
o Risks associated with misconduct
o Ethical and social consequences of strategic choices
o Values of organizational members and stakeholders
Manifested through actions not just words
Lecture 11 - Developing and Maintaining Long-Term Customer Relationships

Customer Relationship Management (CRM)

A business philosophy aimed at defining and increasing customer value in ways that
motivate customers to remain loyal
CRM is about retaining the right customers
o CRM Stakeholders
o Customers
o Employees
o Supply chain partners
o External stakeholders (government, media, advocacy groups)
Developing relationships in consumer markets

Goal is to move consumers through levels of increasing relationship intensity

Recognizes that not all customers have equal value to the firm (based on the lifetime value
of customers)
Focuses on building share of customer
o Fully serving the needs of current customers, rather than acquiring new customers
o Encourage current customers to do more business with the firm
Customer Relationship Strategies

Financial Incentives
o Using financial incentives to increase customer loyalty
o Examples: Coupons, frequent customer programs
o Adv: Easy to use, effective in the short term
o Dis: Easy to imitate, hard to end once started
Social Bonding
o Using social and psychological bonds to maintain a clientele
o Examples: Membership programs, customer-only events
o Adv: Difficult to imitate, reduces brand switching
o Dis: Takes time, must build customer trust
Enhanced Customization
o Using intimate customer knowledge to provide one-to-one solutions or mass
customization
o Examples: Reminder notices, personal shoppers
o Adv: Promotes brand loyalty, very hard to imitate
o Dis: Can be expensive, takes time to develop
Structural Bonding
o Creating customized product offerings that create a unique delivery system for each
client
o Examples: Contractual relationships; structured, lock-step programs
o Adv: Ultimate reduction in brand switching
o Dis: Time consuming and costly, customer resistance
Developing Relationships in Business Markets

Like CRM in consumer markets, involves moving buyers through increasing levels of
relationship intensity
Typically based on creating structural connections between partners
Creates win-win scenarios
Is more involving and complex than CRM in consumer markets
Changes in Business Relationships

Change in Buyers and Sellers Roles

o Shift from competitive negotiation to collaboration
Increase in Sole Sourcing
o Creates solutions at lower costs
Increase in Global Sourcing
o Easier to find partners that meet exacting needs
Increase in Team-Based Buying Decisions
o Better decisions come from diverse expertise
Increase in Productivity through Better Integration
o Reduces inefficiency and hard/soft costs; increases profitability
Understanding the Role of Quality

Quality is a relative term that refers to the degree of superiority of a firms goods or services
The Core Product
o Satisfies the basic customer need
o Core product in services (people, processes, and physical evidence)
Supplemental Products
o Goods or services that add value to the core product
Symbolic and Experiential Attributes
o Usually based on image, prestige, or branding
Delivering Superior Quality

Most firms struggle with improving quality

o Customers have very high expectations
o Most products compete in mature markets
o Very little differentiation among product offerings
Keys to improving quality
o Understand customers expectations
o Translate expectations into quality standards
o Uphold quality standards
o Dont overpromise
Understanding the Role of Value

Value is the subjective evaluation of benefits relative to costs to determine the worth of a
firms product offering relative to other product offerings
Value can be used to guide marketing strategy
o It balances the five types of utility
o It includes the concept of quality, but is broader in scope
o It takes into account every marketing program element
o It can be used to explicitly consider customer perceptions
A simple formula for value:

A more strategic formula for value:

 Core Product, Supplemental Product, and Experiential Quality
o Firms can create unique combinations to drive value perceptions
Monetary Costs
o Transactional costs include the immediate financial outlay that must be made to
purchase the product
o Life-cycle costs include additional costs that will be incurred over the life of the
product
Nonmonetary Costs
o Time, effort, risk, and opportunity costs
o Not as obvious as monetary costs, so customers sometimes ignore them
Customer Satisfaction: The Key to Customer Retention

Understanding Customer Expectations

o Range of customer expectations
Ideal expectations
Normative expectations
Experience-based expectations
Minimum tolerable expectations
Customer expectations can vary based on the situation
o Expectations increase during highly involving or important purchase situations
o Expectations decrease when customers are more tolerant of poor performance,
when they have few alternatives, or when performance is beyond the control of the
firm

The Zone of Tolerance

The difference between the upper and lower end of the range of possible customer
expectations
The width of the zone represents the degree to which customers recognize and are willing
to accept variability in performance.
Three potential outcomes
o Customer delight performance exceeds desired expectations
o Customer satisfaction performance falls within the zone
o Customer dissatisfaction performance falls below adequate expectations
Managing Customer Expectations

Why are Customer Expectations Unrealistic?

o Typically, customers are not unrealistic. They only want the basics of performance
Should We Delight the Customer?
o May not be worth the effort if:
 It does not increase loyalty or retention
It lowers performance for other customers
It increases expectations over time
Competitors can easily copy it
The firm should look for small ways to delight customers without it becoming an everyday
occurrence
Customer Satisfaction and Customer Retention

Understand what can go wrong

Focus on controllable issues
Manage customer expectations
Offer satisfaction guarantees
Make it easy for customers to complain
Create relationship programs
Make customer satisfaction measurement an ongoing priority
Metrics for Customer Satisfaction

Lifetime Value of a Customer (LTV)

Average Order Value (AOV)
Customer Acquisition/Retention Costs
Customer Conversion Rate
Customer Retention Rate
Customer Attrition Rate
Customer Recovery Rate
Referrals
Social Communication