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CHAPTER 2 Company and Marketing Strategy: Partnering to Build Customer Engagement, Value, and Relationships Strategic Planning • Strategic planning involves adapting the firm to take advantage of opportunities in its constantly changing environment. • Strategic planning helps a firm to maintain a strategic fit between its goals and capabilities and its changing marketing opportunities. • Understanding strategic planning helps one understand the marketing planning process. Strategic Planning Mission Statement • Statement of the organization’s purpose – What it wants to accomplish in the larger environment • Market oriented and defined in terms of satisfying basic customer needs • Emphasizes the company’s strengths • Focuses on customers and the customer experience the company seeks to create Setting Company Objectives and Goals • The mission should be converted to supporting objectives at each level of management. • The mission leads to setting a hierarchy of objectives. – Business/Company objectives – Marketing objectives Hierarchy of Objectives Company Objectives Finance Objectives Marketing Objectives Production Objectives Management Objectives Product Objectives Place Objectives Promotion Objectives Price Objectives Sales Objectives Advertising Objectives Public Relations Objectives Effective Goals/Objectives When developing a goal or objective, one should follow the SMART format. 1) It should be specific as to what is to be achieved such as profit, sales, awareness, return on investment. 2) It needs to be measurable such as a dollar amount or percentage. However only using a quantitative approach does not always tell the entire story and qualitative measures should be included when analyzing the objective. For example, an objective for a store might be to “increase sales $500 more this month than last month.” But by the end of the month, sales are $500 less than last month. By only looking at numbers (quantitative), we would conclude the manager of the store is not doing their job. However construction on the road in front of the store was being done during the month impeding customer flow into the store, thus causing sales to decline (qualitative). Effective Goals/Objectives 3) It should be attainable. If it is too hard, people will not try. If it is too easy, people will stop trying once it has been achieved. So it needs to be achievable but challenging. 4) It should be relevant to the mission of the organization. 5) It should have a time frame so people know how long they have to achieve it and gives the organization a chance to evaluate the outcome. Effective Goals/Objectives Specific: precise description of what is to be achieved Measurable: quantitative value to show attainment Attainable: achievable but challenging Relevant: pertinent to the organization’s mission Time-based: have a deadline for completion SMART Portfolio Analysis • Evaluation of the products and businesses that make up the company by the management • The purpose is to direct resources toward more profitable businesses/products while phasing out or dropping weaker ones. • Techniques used in developing a strategic plan: Boston Consulting Group’s Growth-Share Matrix The Product/Market Expansion Grid SWOT Analysis BCG Matrix Strategic business units (SBUs) are key business units within diversified firms. Each SBU has its own managers, resources, objectives, and competitors. A division, product line, or single product may be an SBU. Each SBU has its own distinct mission, and each is planned independently of other units in the organization. To evaluate SBUs, marketers need some type of performance framework. The most widely used framework was developed by the Boston Consulting Group (BCG), a fourquadrant matrix. Sometimes the “Question Marks” quadrant is referred to as the “Problem Child” quadrant. The BCG Growth-Share Matrix BCG Matrix Dog Quadrant – Indicates market growth is low and the business or product has low relative market share. Although the business or product may generate enough cash to maintain themselves, the business or product do not show much promise. When a SBU falls in this quadrant, companies usually harvest (suck as much cash out of it as possible) or divest (selling it off or phasing it out). BCG Matrix Question Mark (Problem Child) Quadrant – Indicates market growth is high but the business or product has low relative market share. Sometimes people refer to this quadrant as a Problem Child, you just don’t know what to do. The market is growing but you are not getting your fair share of the market. Management doesn’t know what the problem is. At this point, a “Go/No Go” has to be made. Should more resources be pumped into the business or product to make it a star? Or should management cut its lost and let it become a dog? OR BCG Matrix Stars Quadrant – Indicates market growth is high and the business or product has high relative market share. Although the business or product is generating large amounts of cash, heavy investment is needed for the business or product to maintain its market share within a growing market. Eventually the business or product will become a Cash Cow. BCG Matrix Cash Cows Quadrant – Indicates market growth is low but the business or product has high relative market share. The business or product is well established and does not take as much investment to maintain market share. Money can be used to pay bills and support other SBU’s. The Product/Market Expansion Grid The Product/Market Expansion Grid Market Penetration – This strategy involves increasing sales to present customers with the original product. Sometimes this strategy can be difficult because a company may be required to take away market share from one of its competitors. Market Development – This strategy involves finding new markets for a current product. Gatorade is a sports drink marketed to adults. The company used market development by marketing its sports drinks towards kids. “Little people get thirsty too!” Rogaine is a hair product marketed toward men. The company used market development by marketing its hair product toward women. The Product/Market Expansion Grid Product Development – This strategy involves modifying or slightly changing the product for a current market. Sometimes these products are called “Flanker Brands.” Smucker’s has a variety of favored jellies and preserves. By introducing Smucker’s “Sugar Free” jellies and preserves, the original product was modified to appeal to customers in the current market (jellies and preserves). Diversification – This strategy has the most risk. It involves creating a new product or buying a business that is not associated with the company’s present products or markets. SWOT Analysis: Strengths (S), Weaknesses (W), Opportunities (O), and Threats (T) SWOT Analysis Examples SWOT Analysis Goal is to match the company’s strengths to opportunities in the environment while eliminating or overcoming weaknesses and minimizing threats. Strengths Skilled management, positive cash flow, brands, cost advantages, financial resources, customer loyalty, patents, modern production facilities. Weaknesses Lack of spare production capacity, absence of reliable suppliers, too narrow a product line, weak market image, too narrow a product line, lack of management depth, inadequate financing capabilities, high cost operation due to high labor costs and obsolete production facilities. Opportunities New technology that improves efficiency, new market niche, add to product line, enter new markets, acquire firms with needed technology. Threats Competitors’ entrance into niche market once the niche proves profitable, changing buyer tastes, adverse government policies, likely entry of new competitors. STRATEGIC WINDOW One opportunity organizations should look for is a strategic window, a limited period during which the firm sees an optimal fit between the key requirements of a market and its own particular competencies. The process involves three steps: (1) analysis of current and projected external environmental conditions, (2) analysis of current and projected internal company capabilities, and (3) how, whether, and when it will be feasible to reconcile the two by implementing one or more marketing strategies. For example, a company produces buggy whips for a small market. A trend in society slowly begins to develop where people decide to stop driving cars and go back to horse pulling carriages. The change in the external environment and the company’s ability to produce buggy whips present an opportunity for the company. Marketing Strategy • Marketing logic by which the company hopes to create customer value and achieve profitable customer relationships • Marketing mix: Integration of product, price, place, and promotion strategies • Activities for best marketing strategy and mix involve: – Marketing analysis – Planning, implementation, and control Market Implementation • Turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives • Addresses the who, where, when, and how of the marketing activities Marketing Control • Measuring and evaluating the results of marketing strategies and plans • Operating control ensures that the company achieves the sales, profits, and other goals set out in its annual plan. • Strategic control involves looking at whether the company’s basic strategies are well matched to its opportunities. SELF CHECK Answer the following questions 1. Cosmetics firm SatinSilk is revamping its mission statement and advertising strategy. The CEO stresses that the new mission statement should be market-oriented rather than product-oriented. Which of the following mission statements will best suit the company? A. To create the best possible products and sell them at the best possible prices. B. To sell hypoallergenic cosmetics products made only from the finest organic ingredients. C. To give customers the complexion they dream about by providing products suited to their needs. D. To become a market leader in every cosmetics product category. E. To increase our market share in the cosmetics segment and increase profit margins. 2. Which of the following is the BEST goal or objective? A. To increase sales in 5 years. B. To be number one in the country. C. To make $10,000 in one year. D. To increase market share by 5000% in one week. E. None of the above is the best goal or objective. 3. Using the BCG matrix, which quadrant has low market share and low market growth? A. Dogs B. Question Marks C. Stars D. Cash Cows E. Elephants 4. A situation analysis consist of all the following EXCEPT __________. A. Weaknesses B. Resources C. Opportunities D. Threats E. Strengths 5. Which of the following products would the electronics company CypressSound classify as a cash cow in its BCG matrix? A. Cyan–a cell phone that is designed for music lovers and has a very low market share in a market that is growing steadily. B. Boosh–a home entertainment system that has a strong market share in a market that is likely to expand in the future. C. AutoPlay–a car audio system that has a high market share in a market that has been growing constantly. D. Unipress–a CD player that has a very low market share in a market that is shrinking rapidly. E. Xpress–an MP3 player that has a high market share in a market that is not expected to grow significantly. 6. Thunder Beverages developed a flanker brand for its Pop Fizz drink. Thunder Beverages used the __________ opportunity. A. Market Penetration B. Product Development C. Market Development D. Diversification E. Customer Demand 7. Which of the following statements is true in the context of the BCG growth-share matrix? A. Stars often need heavy investment to finance their rapid growth in a market. B. The positions of SBUs in the growth-share matrix rarely change over time. C. The income from one SBU cannot be used to support other business units. D. Dogs promise to be large sources of cash. E. Cash cows typically turn into stars. 8. Using the BCG matrix, which quadrant generated large amounts of cash? A. Dogs B. Question Marks C. Stars D. Cash Cows E. Elephants 9. EcoBean, a chain of cafes, has introduced a Special Shopper Card that allows customers to pay in advance for coffee and snacks. This effort by EcoBean management is most likely an example of __________. A. market development B. product development C. diversification D. product adaptation E. market penetration 10. Which of the following best describes the value chain of a company? A. The collection of businesses and products that make up the company. B. Profits earned by the cash cows and stars in the company's business portfolio. C. Touchpoints at which a company or brand interacts with its consumers. D. The series of departments that design, produce, market, deliver, and support the company's products. E. A network made up of the company, its suppliers, and its distributors working together to deliver customer value. ANSWERS 1. C 2. C 3. A 4. B 5. E 6. B 7. A 8. D 9. E 10. D