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Marketing Strategies • This section considers the development of marketing strategies for larger businesses through a scientific approach to decision making. It builds upon AS Marketing materials Understanding Marketing Objectives Students should be able to: assess internal and external influences on marketing objectives AQA: • Internal influences on marketing should include finance, HR, operational issues and corporate objectives. External influences should include competitors' actions, market factors and technological change Marketing objectives • Defined as: marketing ‘goals’ that the business must achieve in order to meet its wider business objectives Welcome Marketing Director of Facebook • We welcome you today with your fresh, new, innovative ideas for our social media platform. • In the next 5 minutes can you present to the rest of the board your marketing objectives for Facebook’s future. LA fitness • Using business models evaluate their strategy of moving up market. • Use financial data to support your views • Explain the internal and external factors that might affect the marketing objectives of the business ( 12 marks) Marketing objectives Main ones for most businesses tend to be: 1. Growth in market share 2. Clearer product differentiation 3. Long term brand value to customers 4. Creating and launching new products / services – ‘Innovation’ Objectives into marketing targets • Going from big picture into smaller pictures • Targets are ‘milestones’ on the road to achieving the objectives • Targets are usually short and medium term Limitations on objectives • There are always barriers to achieving objectives • Some internal – e.g. available resources • Some external – e.g. changing market with competitor actions • These may prevent all or some of the objectives being achieved External factors Internal factors Marketing & decisions over other objectives Finance available Skills & ability of workforce Capabilities of plant, equipment • To create an effective marketing strategy you need to have clear objectives – it will probably fail without them! • Objectives are different to strategy In 2 groups • Facebook want to expand their user base and as marketing director you have to help this vision occur. Mark Zuckerberg has asked you compile a proposal for the marketing element of this corporate objective. • Can you decide what their marketing objectives would be? • How are the internal and external factors going to impact on these marketing objectives? • Do you have any strategies for achieving these objectives and over come the internal and external factors? Activity • • • • Peter has started a self defence class. He has a marketing budget of £ 100 He has decided to spend £ 80 on leaflets He is confident that his business will be a success. Do you agree? Task for the lesson (Q3) • Amina believes that a significant marketing budget would be necessary for her marketing plan to achieve its objectives. • To what extent do you agree with this view? • OPINIONS?? • Relevant answers might include the following: • A marketing budget is the amount of money allocated for the marketing strategy. Possible themes for application: • • • • • • • the business is repositioning itself and needs to create awareness of its new strategy it is up against strong competitors, such as the online retailers and supermarkets it is targeting the 15–24 year old market (rather than the 25–34 year old market) there are 300 music stores that will require a new store format potential operational issues with the new warehouse and distribution centre potential HR issues resulting from the store closures and centralisation worsening ROCE and acid test figures. Possible lines of analysis: • There are many chains of argument that can be used. Some examples are: • competitors have an established reputation and large marketing budgets • effective market research is essential • operational issues could result in inventory and distribution problems • HR issues could result in poor customer service • financial issues could affect the funds available for the marketing budget. Points for Evaluation might include: • • • • • a recognition that the budget is only one element of a successful marketing plan it is not the size of the budget but how effectively it is spent the actual product/service is key ultimately, it is the reaction of the target market that will determine whether or not the marketing plan has achieved its objectives. Marketing budgets • A marketing budget is an estimate of projected costs to market your products or services. A typical marketing budget will take into account all marketing costs e.g. marketing communications, salaries for marketing managers, cost of office space etc • Marketing Budget – A marketing budget sets out the costs and revenues that are allocated to the marketing department. The marketing budget will influence the promotional tools that a business is able to utilise. Number of companies increasing marketing budgets hits 13-year high • Net balance of 12.3% of companies said they spent more in the third quarter, according to IPA's Bellwether report the number of companies increasing marketing budgets hit a 13-year high • The report indicates that the UK economy is on the rise again," said Paul Bainsfair, director general of the Institute of Practitioners in Advertising. "This optimism will send a continued upbeat message to the advertising industry and the wider economy". • The report confirms a swell of optimism being felt across the industry with ITV, the UK's biggest free-to-air commercial broadcaster, hitting a new record high share price of 192p Marketers waste 20% to 30% of their budgets, says efficiency expert • on average 20% to 30% of overall marketing spend is frittered away through overplanning, overpaying, and non-value-added activities. The top 25 CPG companies spend about $50 billion annually on global marketing, so their total marketing waste is roughly $10 billion to $15 billion Factors affecting the size of marketing budgets the amount of finance available. • The amount of money and finance that is available for the whole business will clearly affect the amount of planned expenditure within each department. The biggest source of expenditure within the marketing department is often the promotional campaigns. previous years' budgets • Some businesses will set the forthcoming year's marketing budget based on last year's figures, including a small percentage change in each category. Based on the budgets of competitors. • In very competitive industries (such as supermarkets) the amount spent on advertising and other promotional campaigns may be in relation to that spent by your main rivals. Based on the sales levels from previous years. • It may be the case that a business will use a set percentage of last year's sales revenue figure for its budgetary expenditure figure for the forthcoming year. the expected size of the product portfolio this year. • If a business is planning to expand its product portfolio this forthcoming year, then the marketing expenditure budget will probably need to be set at a significantly higher level to reflect the extra money spent on the launch and advertising of the new products Starter: consider the following adverts. Explain the use of colour in each. Analysing Markets • • • • • Explain the reasons for market analysis Assess the value of market analysis Analyse market data and trends Use correlation to analyse markets Discuss the difficulties in analysing marketing data. Analysing Markets • Reasons for analysing markets should include gathering evidence for devising a new strategy, identifying significant patterns in sales. • Students should be familiar with moving averages, test markets and extrapolation as methods of measuring and forecasting sales. Students should understand how correlation can be used in analysing markets. Analysing Markets and Marketing • * reasons for, and the value of, market analysis * methods of analysing trends * the use of information technology in analysing markets * difficulties in analysing marketing data • marketing is about identifying, anticipating and satisfying customers needs and wants. • this should also fit with the corporate objectives. To have a good understanding of customers, firms use primary and secondary market research, practical experience and a detailed market analysis. The size of the market • can be measured in terms of value- How much is spent in the market as a whole (by all companies operating in the market) and by volume? How many items are sold? These statistics may be available from the Office for National Statistics at www.statistics.gov.uk and are important because a firm must be sure that the market is big enough to be worth competing in. Growth in the market • is also important as it gives an indication of future activity and potential profits. For example in 2007 www.greencarsite.co.uk announced that sales of hybrid cars in the UK had doubled in the previous 12 months, making cleaner cars the fastest growing sector in the industry, Year-to-date results for the hybrid market showed an increase in sales from 3,117 to 6,568 carsor 11% Is the market divided into segments • so that easily identifiable groups of consumers with similar wants and needs can be targeted? • Gathering evidence for devising a new strategy- It might be that an existing marketing strategy has to be changed. This could be because the corporate objectives have changed as a result of a takeover or merger, leading to new marketing objectives. It could also be because of changes in competition behaviour, technological developments or market conditions. • Identifying patterns in sales: This is a process where past and current trends are used as the basis for making predications about future sales. Businesses try to identify the underlining trend, whether this is upwards, downward or constant. This information can then be used as part of the strategic decision-making Selecting Marketing Strategies • * low cost versus differentiation * market penetration * product development and market development strategies • Diversification assessing effectiveness of marketing strategies Marketing strategies • This section considers the development of marketing strategies for larger businesses through a scientific approach to decision making. It builds upon AS Marketing materials Selecting Marketing Strategies • Marketing strategy is defined as a process that can allow an organization to concentrate its resources on the optimal opportunities with the goals of increasing sales and profits • Marketing strategy includes all basic and longterm activities in the field of marketing that deal with the analysis of the strategic initial situation of a company and the formulation, evaluation and selection of market-oriented strategies and therefore contribute to the goals of the company and its marketing objectives What should a marketing strategy achieve? • strategy will depend on where you want your business to go - it forms part of the overall business aims. • The following are examples of what your overall business aim might be, and marketing strategies that you could use to achieve it: – – – – – – Increase sales Bring in new customers Get existing customers to buy more Introduce a new product or service Increase market share Better establish your brand What should a strategy achieve? – Improve customer loyalty – Launch an advertising campaign – Launch a PR campaign – Encourage word of mouth – Increase market share – Retain existing profitable customers – Make customers feel more valued – Offer existing customers exclusive offers – Ensure business stays fresh and new How to develop a marketing strategy • Research. You need to carry out detailed analyses of these three areas: • Market analysis: the size of your market, how quickly its growing, your customers and their spending and lifestyle habits. • Competitor analysis: monitor both direct and indirect competition and how they compare with you on every aspect of sales and marketing (their customers, their brand, price, convenience of location, sales channels, and so on). • Company analysis: your overall business objectives, how you are going to achieve them, your strengths and weaknesses and those of your products or services example • Customers. Next you need to identify your target customers, using the information you've gathered from your research and, if needed, more detailed customer research. Then you have to: • Segment them: split your existing and target customers into groups, according to what they need from your business which will differ. Some will want cost-effectiveness, some quality, some great customer service, and so on. • Positioning: how you compare to your competitors for each of your customer segments - are you the fastest, do you have the best customer service, are you the third most popular, and so on. example • Product. Now you need to examine your product or service with the aim of working out how you're going to market it and outdo competitors, according to its: • USPs: what it can offer that no other product or business can. • Benefits to the customer: From your USPs, draw out what benefits your product or service offers to the customer. These may well vary between your various customer segments. You need to look very closely at what the customer actually sees: while Starbucks sells coffee, the benefit to the customer is a place to relax and have a chat with a friend or a place to sit with a laptop. A new range of Pies! • Product • USP • Customer benefits starter • 1. Who devised the 5 forces model? • 2. What are the 5 forces? • 3. Which of the 5 forces has the most impact on Starbucks, Tesco and Evian? Ansoff Market Penetration • Lesson Objectives To define market penetration To understand how market penetration as a strategy works To analyse the effectiveness of this strategy. Market Penetration • Definition When a firm increases the sales of its current products to existing customers or attracts new customers from its competitors in the market. Market penetration strategy aims to increase the sales of current products to existing customers to entice consumers away from competing brands. • The following slides show examples of way businesses and brands can try and penetrate the market. Selling the same product to the same people, but increase their sales revenue by selling more. Market Penetration Strategy Involves: • Reducing prices to encourage customers to buy more or entice consumers from other brands in the market. Increasing promotional spending to remind customers about the product range. Launching a loyalty scheme. Developing and Implementing Marketing Plans learning objectives: components of marketing plans assessing internal and external influences on marketing plans issues in implementing marketing plans. • Increasing the activity of the sales force. Making small changes to the products on offer, for example a greater range of sizes or different levels of services. Giving customers a greater range of buying options by increasing the places from which the product can be purchased. Risk of Strategy • This is the lowest risk strategy, because the business has experience of the market and should know the characteristics of the customers very well. However, if the market is large, assuming that customers share similar characteristics and will all respond in the same way, it may be dangerous. The existence of up-to-date market research will be invaluable. LA fitness Analytical exercise 10 mins • LA Fitness are worried about increased competition and a decline in sales growth. • They have asked you to list as many ideas as possible to develop their product range. • Identify the one you think will be the most successful and list the arguments for and against your idea Marketing strategies • Ansoff • Porter • Blue Ocean Blue Ocean • Blue Ocean Strategy is a business strategy book first published in 2005 and written by W. Chan Kim and Renée Mauborgne. (it is not in the book) • The model illustrates the best organizational strategy to generate growth and profits. • Blue Ocean Strategy suggests that an organization should create new demand in an uncontested market space, or a "Blue Ocean", rather than compete head-to-head with other suppliers in an existing industry The metaphor of red and blue oceans describes the market universe Red oceans • represent all the industries in existence today – the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Red Oceans • Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody; hence, the term red oceans Red Ocean • • • • Compete in existing market space Beat the competition Exploit existing demand Make the value-cost tradeoff (create greater value to customers at a higher cost or create reasonable value at a lower cost - Blue oceans • are all the industries not in existence today – the unknown market space, untainted by competition. Blue Oceans • In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored Blue Ocean • • • • • Create uncontested market space Make the competition irrelevant Focus on non-customers Create and capture new demand Break the value-cost tradeoff (Seek greater value to customers and low cost simultaneously) • There are three tiers of noncustomers that can be transformed into customers. They differ in their relative distance from your market. The first tier of customers minimally buy an industry’s offering out of necessity. The second tier of noncustomers refuse to use your industries offerings. The third tier are noncustomers who have never thought of your market’s offerings as an option. • The cornerstone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. • The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. • The authors criticize Michael Porter's idea that successful businesses are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost. Some examples of companies that may have created new market spaces • Cirque du Soleil: Blending of opera and ballet with circus format while eliminating star performer and animals; • Netjets: fractional jet ownership; • Southwest Airlines: offering flexibility of bus travel at the speed of air travel using secondary airports; • Curves: redefining market boundaries between health clubs and home exercise programs for women; • Dyson: Cyclonic Vacuum Cleaners. Criticism • at the present there are few success stories of companies that applied their theories in advance. One success story that does exist is Nintendo, who first applied the Blue Ocean Strategy to create the Nintendo DS handheld game system which was the first portable gaming system to offer dual screen gaming and a touch screen in 2004. In 2006, Nintendo released the Wii, which redefined how video games are played by. The 3DS is Nintendo's third endeavour for its blue ocean strategy. Its first two attempts, the Nintendo DS and Wii, were wildly successful, becoming some of the biggest selling platforms in history. Nintendo revealed their Blue Ocean Strategy during an E3 press conference during the hype build-up of the Wii. • Ansoff's matrix should be used to assess marketing strategies in a national and an international context. Marketing strategies should consider the methods, risks and benefits involved in entering international markets Ansoff The Ansoff Growth matrix • is a marketing planning tool that helps a business determine its product and market growth strategy. • Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy. • • Opportunity = the matrix provides not only the opportunity to expand on an existing market but one can also explore the possibility to withdraw from the market or find new markets. • Risk = each strategy will have a different risk level. This risk increases proportionally with the level of change. Diversifying is more risky than increasing the penetration of a product on an existing market. Example Example orangina Market penetration is • where the business focuses on selling existing products into existing markets. • Maintain or increase the market share of current products • Restructure a mature market by driving out competitors; Increase usage by existing customers – for example by introducing loyalty schemes A market penetration • The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research. Market Development • Lesson Objectives To understand the concept of market development To apply market development to a variety of real life compnaies that operate and use this strategy. To assess and analyse the strengths and weaknesses of this marketing strategy. • Definition Market Development: finding new markets for existing products either by selling abroad or by identifying a new segment of the domestic market. Market development a growth strategy where the business seeks to sell its existing products into new markets. • New geographical markets; for example exporting the product to a new country • New product dimensions or packaging: for example • New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order) • Different pricing policies to attract different customers or create new market segments Market development • Market development is a more risky strategy than market penetration because of the targeting of new markets. Product development • This involves developing new products for existing markets. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors. • Definition: Product Development: offering new and improved products to existing markets. Characteristics of Product Development. • Higher risk strategy which involves selling new products to existing customers. Note that product development refers to significantly new product line, not minor changes to an existing product. • Strategy looks favourable, because it might allow the company to utilise excess production capacity, respond to a new product launch from a competitor, maintain the company’s reputation as a product innovator, exploit new technology or protect overall market share. Diversification • where a business markets new products in new markets. • This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. • A diversification strategy is the most likely risky option because it involves the firm moving into new markets with new products, which may or not be related to existing products and markets. There is often little opportunity to use existing expertise or achieve significant economies of scale in the short term. • Related, because it is some form of forward, backward or horizontal integration- the firm becomes involved in the activities of its customers, suppliers or competitors. Unrelated, the highest risk strategy- because the business has no experience or detailed knowledge of the key success factors in the market, although there is evidence that it can lead to the fastest growth. Strategies might include: • A new technology developed by the R&D department of the business or bought from an inventor- if there is evidence of significant potential, the risk is reduced. Buying an existing business in a completely different market- if the acquisition is successful, then the risk is reduced. • http://www.youtube.com/watch?v=Soi3s98CFA&feature=player_embedded • See 40 years of virgin Example Porter: 5 Forces Model