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A Strategic Marketing Framework Chapter Two Key Learning Points The elements of a complete marketing strategy Developing a value proposition Developing a sustainable competitive advantage Positioning products and services The product life cycle and how it affects marketing strategies Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-2 Figure 2.1 A Complete Marketing Strategy Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-3 Marketing Strategy Objectives: Mission statements Corporate objectives Business unit / divisional objectives Objectives geared towards increasing profit AND increasing market share require trade-offs. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-4 Activity At which strategic level would you expect to find the following objectives: Achieve a 2% coupon redemption rate for Product X by June 30th of this year Maximize shareholder wealth Increase market share within the detergent product category by 1% for the 2011 fiscal year Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-5 Marketing Strategy Characteristics of well-written objectives: Lists a quantified standard of performance. Designates a clear time frame. States goal in measurable terms. Should be challenging but realistic. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-6 Marketing Strategy Customer and competitor targets: Which customer group should be targeted? Select a general strategy. Define targeted group in more precise terms. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-7 Figure 2.2 Strategic Alternatives Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-8 Marketing Strategy Market penetration strategy: Targeting the firm’s own customers is a high priority. Targeting customers of the competition is riskier and more expensive strategy. Common in slow growth markets. Price promotions are key. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-9 Discussion Pricing promotions encourage people to switch brands, at least temporarily. Give an example of a pricing promotion that may result in longerterm switching behavior, and explain why. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-10 Marketing Strategy Market development strategies: Targeting new customers in new segments. Will it require the introduction of new or modified products? Targeting nonbuying customers in currently served segments. Is it profitable? Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-11 Discussion Question Many products have successfully used packaging innovations, such as the squeeze container, to appeal to new markets by providing a functional benefit. 1. What are other examples of packaging innovations that have been used to attract new users to a brand? 2. Give an example of how a particular product could be modified to attract new users. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-12 Marketing Strategy Market Development Strategies: Entering Foreign Markets: Requires decisions related to The choice of country or countries to enter. The timing of the entry. How to operate in the chosen countries. Five factors should be considered when deciding how to enter a foreign market. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-13 Figure 2.3 Factors Affecting Mode of Entry Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-14 Table 2.1 Global Purchasing Power Indices (U.S. = 100) Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-15 Marketing Strategy The value proposition: Summarizes into a single paragraph The customer. The competitive targets. The customer’s reason for buying your brand. Forms the basis for the marketing mix. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-16 Model of a Value Proposition For (target segment n), the (product/ brand name) is a (product category) that unlike (competitor targets), (statement of primary differentiation). For men aged 20–29, Thums Up is a cola that unlike Coke and Pepsi, has Indian heritage, tastes spicier, and tastes just as good warm as it does cold. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-17 “Competitive advantage – the strategic development of some basis on which customers will choose a firm’s product or service over its competitors.” - Russell S. Winer Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-18 Marketing Strategy Differentiation: Competitive advantages (CA) should have three characteristics: Competitive advantage should generate customer value. Increased value must be perceived by the consumer. Competitive advantage should be difficult to copy. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-19 Marketing Strategy General Approaches to Creating Competitive Advantage Cost-based or price-based advantage Quality-based or differentiation advantage Perceived quality or brand-based advantage Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-20 Marketing Strategy Cost- or Price-Based Advantage: Managers choose whether or not to compete on basis of price. Difficult to achieve, but two primary methods exist: Becoming the largest producer and benefiting from economies of scale. Taking advantage of the experience curve. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-21 Figure 2.4 Learning Curves for Software and Hardware Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-22 Marketing Strategy Cost- or Price-Based Advantage: Firms who are not industry leaders or who lack experience can also succeed. Strict cost control and flexible manufacturing can help to develop a cost-based advantage. Examples: IKEA Jiffy Lube Vanguard Group Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-23 Marketing Strategy Quality-Based Differentiation: Develops an observable difference that is valued by customers. Typically implies higher costs. Allows for both higher prices and higher margins. Differentiation can occur at any point within the value chain. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-24 Illustration Sun Microsystems differentiates its products by having its own operating system, Solaris. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-25 Marketing Strategy Differentiation Opportunities Within the Value Chain Inbound Logistics Operational Advantages Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Outbound Logistics Marketing & Sales Services 1-26 Marketing Strategy Perceived Quality or Brand-Based Differentiation: Appropriate when actual differences are small, hard to achieve, or difficult to sustain. Marketing mix decisions contribute to brand-based differentiation. Perceptual maps can help in understanding consumer perceptions. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-27 Figure 2.5 Perceptual Map for Retail Banks Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-28 Activity Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Dimension A What two attributes or dimensions did YOU consider most important when comparing competing Universities? Dimension B 1-29 “One of the key ways to define a perceptual differential advantage is through the brand name. The value of a brand name in communicating quality or other aspects of the product is called brand equity.” - Russell S. Winer Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-30 Illustration Bayer’s strong brand name provides differentiation against generics and private label (store) brands. Strength of brand name relates to which element within the value chain? Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-31 Marketing Strategy Core Strategy: Positioning A point of differentiation must be selected for communication. Positioning creates a clear image in the mind of the consumer of what the product stands for and how it is different from competitive offerings. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-32 Marketing Strategy Formulating the positioning strategy requires knowledge of: The dimensions used by consumers to evaluate products. The importance of each dimension. Comparisons of the brand and competition. The decision processes used by consumers. Sometimes repositioning is necessary. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-33 Marketing Strategy Marketing Mix: Implementation of the marketing mix makes the strategy operational. Consistency between strategy and the actual implementation is critical. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-34 Figure 2.6 Ensuring a Segment-Focused Strategy Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-35 Discussion Dell manufactures products for the home user segment, small and medium business market, the public sector (government, education), and for large enterprise. In what ways might the core strategy or marketing mix differ when catering to each segment? Explain. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-36 Figure 2.7 The Product Life Cycle Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-37 Marketing Strategies Over the Product Life Cycle The Product Life Cycle (PLC) sketches the sales history of a product category over time. This conceptual tool is best applied to product categories and not to specific brands. Strategy options and the importance of marketing mix variables vary across each stage of the PLC. Not all product categories follow the standard PLC curve. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-38 Figure 2.8 VCR Deck Sales to Dealers Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-39 Marketing Strategies Over the Product Life Cycle Introduction Stage Market size and growth rate are low. Product: one brand that pioneered the category Selling & advertising: focuses on generic product Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Pricing: penetration or skimming Distribution: limited as product is unproven Often offers a firstmover advantage 1-40 Marketing Strategies Over the Product Life Cycle Growth Stage Competition grows. Price pressures increase. Communications stress differentiation. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Distribution pressures increase. Market segmentation becomes necessary. 1-41 Marketing Strategies Over the Product Life Cycle Growth Stage Strategic Options Market Leader: Fight (maintain) Fight (enhance) Flee (give up market leadership) Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Market Follower: Exit the market Imitate the leader Fortify position Leapfrog the competition 1-42 Marketing Strategies Over the Product Life Cycle Maturity Stage Few new buyers Sophisticated consumers Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Well-defined segments Differential advantage sought 1-43 Marketing Strategies Over the Product Life Cycle Maturity Stage Strategic Options Market Leader Invest enough to maintain position Harvest cash for short-term Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall Market Follower Depends, but may: Pursue #1 Stay #2. Exit category 1-44 Marketing Strategies Over the Product Life Cycle Decline Stage Strategic Options Strategically revive by applying strategies during maturity phase. Serendipity may revive the category. Consciously decide to be the “Last Iceman”. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-45 “There are no mature markets, only tired marketers.” - Campbell Soup CEO, David Johnson Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-46 Figure 2.9 Beer Market Evolution for Selected Countries and Regions Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-47 Executive Summary Marketing strategies contain many parts. Value propositions should be concise. Three key methods can lead to differential advantage. Product positioning is essential. Strategic alternatives vary with the stage of product life cycle. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-48 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 1-49