CHAPTER 2 Strategic Planning and the Marketing Process Objective: Selecting the company strategy for long-run survival and explaining the marketing management process. Strategic Planning The overall company strategy for long-run survival and growth is called strategic planning. Strategic planning is the process of developing and following a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities. Strategic Planning include, 1. 2. 3. 4. Defining the company mission Setting company objectives and goals Deciding what portfolio of businesses and products is best for the company Developing detailed marketing plans for each product 1. Defining The Company Mission A mission statement is a statement of the organization’s purpose - what it wants to achieve in the larger environment. It is an “invisible hand” that guides people in the organization. E.g. Walt Disney Company “making people happy”; Microsoft “information at your fingertips” 2. Setting Company Objectives and Goals The company’s mission needs to be turned into detailed supporting objectives for each level of management. E.g. increasing sales or reducing cost to increase profit; sales can be increased by improving the company’s share in the home country or entering a new foreign market; market share can be increased by increasing productivity, promotion or cutting prices. The objectives should be specific. E.g. “increasing the market share to 15 percent by the end of the second year.” 3. Designing the Business Portfolio Management must plan its business portfolio - the collection of businesses and products that make up the company. The best business portfolio is the one that best fits the company’s strengths and weaknesses and to the opportunities in the environment. The company must (1) analyze its current business portfolio and decide which businesses should receive more, less, no investment, and (2) develop growth strategies for adding new products or businesses to the portfolio. 1. Step: Analyzing the Current Business Portfolio The major activity in strategic planning is business portfolio analysis, where management evaluates the businesses making up the company. The reason for this analysis is that to put strong resources into the company’s more profitable businesses and phase down or drop its weaker ones. Strategic Business Unit (SBU): The first step in the business portfolio analysis is to identify the key businesses making up the company. The company’s key businesses (a company division, a product line, or a single product or brand) are called strategic business units (SBU). The next step in business portfolio analysis is to evaluate each strategic business unit, in order to understand how much support they need. In portfolio analysis, SBUs are evaluated from two ways; (a) The attractiveness of the SBU’s market (market growth) and (b) the strength of the SBU’s position in that market (market share). Star Market High growth share Question Mark Cash Cow Dog High Low Low The BCG growth-share matrix Relative market share The Boston Consulting Group Approach (BCG) In BCG approach, the company classifies all its SBUs according to the growth-share matrix which can distinguish four types of SBUs. Stars; are high-growth, high-share businesses or products. They often need heavy investment to finance their rapid growth. Eventually, their growth will slow, and they will turn into cash cows. Cash cows; are low-growth, high-share businesses or products. These established and successful SBUs need less investment to keep their market share. They produce a lot of cash to the company. Question marks; are low-share business units in high-growth markets. They need a lot of cash to keep and increase their share. Management must decide which question mark it should build into stars and which should be phased out. Dogs; are low-growth, low-share businesses and products. They can only generate enough cash for themselves. Once the company classifies its SBUs, it must determine what to do with them. There are four strategies. The company can; 1. invest more in the business unit in order to build (increase) its share. 2. invest just enough to hold (keep) the SBU’s share at the current level. 3. it can harvest the SBU, milking its short-term cash flow regardless of the long-term effect . 4. divest (kill) the SBU by selling it or phasing it out and using the resources elsewhere. 2. Step: Developing Growth Strategies Besides evaluating current businesses (SBUs), the business portfolio involves finding businesses and products that the company should consider in the future. In order to identify growth opportunities, product/market expansion grid is used. The product/market expansion grid is a portfolio-planning tool through market penetration, market development, product development or diversification. Product/Market Expansion Grid Existing markets Existing products 1. Market penetration New products 3. Product development New markets 2. Market development 4. Diversification Product/Market expansion grid is used to identify growth opportunities for the company. Market penetration; is the idea to make more sales to present customers without changing the products. To increase sales, the company can cut prices, increase advertising or use more distributors. Market development; is the idea of identifying and developing new markets for its current products. To increase the market share, the company may try to attract some other people or some other places. Product development; is the idea of offering modified or new products to current markets. The company may offer new lines or brands of its products. Diversification; is the idea of staring up or buying businesses outside of its current products and markets. 4. The Marketing Process Marketing process is the process of ; 1. 2. 3. 4. analyzing marketing opportunities selecting target markets developing the marketing mix managing the marketing effort (marketing mix). Target consumers stand in the center of this process. The company; identifies the total market divides it into smaller segments selects the most promising segments focuses on serving and satisfying these segments by designing marketing mix factors under the control of the company - product, price, place, and promotion analyzes, plans, implements, and controls to put the marketing mix into action which are required to adapt to the marketing environment Target Consumers In order to be successful, the companies must understand the needs and wants of the consumers to satisfy them. But it is impossible to satisfy all consumers in a given market. Because, there are too many different types of consumers with too many different types of needs. That is why, companies must; (1) divide up the total market, (2) choose the best segments, and (3) design strategies to attract and keep these segments better than the competitors. This process involves three steps: market segmentation, market targeting, and market positioning. Market Segmentation: Dividing a market into distinct groups of buyers with different needs, characteristics, or behavior (e.g. sex, age, income level…) who might require separate products or marketing mixes is called market segmentation. After segmenting the market, the company must determine which segments offer the best opportunity for achieving company objectives (making profit). Market Targeting: Evaluating each market segment’s attractiveness and then selecting one or more segments to enter is called market targeting. A company should target segments in which it can generate the greatest customer value and keep it in the long-run. There are three alternatives in market targeting. A company may decide to serve only one segment (because of its limited resources), several related segments or all market segments. Market Positioning: After a company has decided which market segments to enter, it must decide what positions it wants to occupy in those segments. A product’s position is the place that the product occupies in consumer’s minds relative to competitors. If a product is seen exactly the same as other products on the market, consumers have no reason to buy it. That is way, companies differentiate their products through positioning to offer more value to the consumers. E.g. Mercedes “engineered like no other car in the world” Developing The Marketing Mix Once the company has decided on its overall marketing strategy, it should plan its activities by using the controllable marketing tools, in other words, the marketing mix. Marketing mix is the controllable marketing tools (known as the 4Ps) - product, price, place, and promotion - that the company use to achieve its objectives. Product; means the “goods-and-service” combination the company offers to the target market. Price; is the amount of money that consumers have to pay to obtain the product. Place; includes company activities with the intermediaries that make the product available to target consumers. The intermediaries keep an inventory of the products, shows them to potential buyers, negotiate prices, close sales and give service after sales. Promotion; means activities that communicate the product and persuade target customers to buy it. Managing the Marketing Effort In order to put the marketing mix into action, four marketing management functions are used: Analysis Planning Implementation Control The company, first, makes the necessary analysis (analysis) to develop its strategic and marketing plans (planning), then put them into action (implementation) and last measure and evaluate results and if necessary take corrective action (controlling). All these functions are done under the “marketing planning”. Marketing Planning After the company decides what to do with each business unit (SBU) in its strategic plan, it must decide what actions (activities) to take to achieve the company objectives. The company’s marketing plan involves the following sections; (1) executive summary, (2) market picture analysis (PEST), (3) business situation analysis (SWOT), (4) objectives and issues, (5) marketing strategies, (6) action programs, (7) budgets, (8) control. Executive Summary; presents a brief overview of the plan for quick management review. Marketing Picture Analysis (PEST); Marketing function starts with the analysis of the market picture which is called PEST analysis. PEST analysis is an examination of the uncontrollable factors; Political (e.g. taxation, tourism policy), Economic (e.g. inflation, unemployment, fuel costs), Social (e.g. workforce change, lifestyle, values, education) and Technological (e.g. new systems like reservations, home technology) changes which may affect the company and the market. PEST analysis also includes; analysis of the total market (e.g. size, growth, extent of under- or overcapacity of supply, barriers), companies (e.g. level of investment, takeovers, promotion expenditure, profits), product development (e.g. trends, new product types), price (e.g. levels, range), distribution (e.g. patterns, policies), promotion (e.g. expenditure, types, messages) The above information should be gathered on the basis of how it affects the company. Business Situation Analysis (SWOT); Under the SWOT analysis, the major Strengths, Weaknesses, Opportunities, and Threats facing the company must be identified. Threats and Opportunities; identifies the major threats (negative impacts from the external environment that could decrease the company’s sales and profits) and opportunities (positive impacts from the external environment that a company could use to increase its sales and profits). The company should try to eliminate the negative impacts of the threats and use the opportunities in the best way. But the development of opportunities involve risk, that is why, managers must decide whether the expected returns justify the risks or not. Strengths and Weaknesses; is the analysis of the company’s internal environment which identifies the strengths (strong areas of the company relative to its competitors) and weaknesses (weak areas of the company relative to its competitors). The company should try to emphasize its strengths and correct weaknesses to use the opportunities. Objectives; After the business unit has defined its mission and examined its strengths/weaknesses/opportunities/threats (called SWOT analysis), it can proceed to develop specific objectives for the planning period. Objectives should be stated quantitatively. For example, increasing the return on investment to 15% within 2 years. Objectives should be specific with respect to amount and time. Quantitatively measurable objectives facilitates planning, implementation and control. Marketing Strategies; Objectives indicate what a business unit wants to achieve, on the other hand, strategy answers what to do to achieve those objectives (e.g. what should be done to increase the return on investment to 15% within 2 years). It consists of specific strategies for target markets (which segments the company will target), positioning and the marketing mix (specific strategies for each P). Action Programs; turns the marketing strategies into specific action programs that answer how to do. The action program also identifies when to do and who will be responsible. Budgets; projects the profit-and-loss statement. It shows both the forecasted revenues (number units to be sold average net price) and expenses (cost of production, distribution, etc.). The difference between revenues and expenses gives the projected profit. The budget is the basis for materials buying, personnel planning etc. Controls; outlines the controls that will be used to monitor progress. The management review the results each period and compare them with the goals and budgets. If the businesses or products do not meet with the goals, corrective actions must be taken. Marketing Department Organization The company must design a marketing department to carry out marketing strategies and plans. Common forms of marketing organization are; Functional organization; in which different activities are headed by a specialist e.g. sales manager, advertising manager, marketing research manager… Geographic organization; in which sales and marketing people are assigned to specific countries and regions to reach their customers in a more cost effective way, if the company is international. Product management organization; is used in companies with very different products or brands. Market management organization; is valid for companies that sell one product line to many different types of markets that have different needs and preferences. combination of the functional, geographic, product and market organization forms is used by the large companies that produce many different products in many different geographic and consumer markets.