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PART III
ANSWERS TO END–OF–CHAPTER
QUESTIONS
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CHAPTER 1
1. Discuss some of the reasons why managing in an environment of continuing change will be necessary
in the future.
In a dynamic business arena, marketing strategies must constantly be evaluated in order to keep up with
environmental changes. As the average age of the U.S. population increases, customer needs will alter
as well. As other demographic changes are made due to increased mobility and lifestyles of
consumers, businesses must create marketing strategies that will reach these customers. The U.S. is
also faced with a new global environment. Foreign competition has permeated the American arena.
Global strategies must be directed to compete on international levels. With the aid of computer
technology and telecommunications, time has been compressed so that businesses have greater access
to information, and decisions can be made faster.
2. Explain the logic of pursuing a market–driven strategy.
The concept of the market–driven strategy is that the customers in a particular market should be the
starting and focal point of the business strategy formulation. By obtaining information about
customers, competitors, and markets, a company can react to changing market demands quickly and
effectively before the competition. Viewing information from a total business perspective allows every
function, not just marketing, to be aware of and respond effectively to customer needs. An
organization’s market orientation helps management to identify distinctive capabilities and customers
whose value requirements provide the best match with the company’s capabilities. Research has also
shown what successful market driven strategy leads to superior performance for an organization.
3. Explain the use of market orientation as a guiding philosophy for a social service organization, giving
particular attention to user needs and wants.
Students may choose many different organizations such as Boy Scouts, Girl Scouts, Salvation Army,
and the United Way. The following analysis examines a religious organization.
A religious organization must identify the needs and wants of the customers that are the users of the
organization’s service. A customer may use the services of the religious organization for many
reasons. For example, a person may wish:
a. To receive spiritual guidance and direction.
b. To instill ethics and discipline in one’s children.
c. To participate in social activities.
d. To conform to social norms or peer pressure.
e. To be “saved” from punishment of sins.
Many religious groups have experienced declines in attendance due to their failure to stay current with
regard to their congregations’ needs.
Marketing research could be used to identify the primary set of needs of the user group. The
organization can then decide which need(s) should be satisfied, basing its decision on competitive
advantage or a need unmet by other organizations.
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The religious organization must then identify exactly how these needs can be satisfied. For example,
the organization may decide to satisfy the needs of social affiliation and spiritual guidance. It can then
determine the content of social activities and lecture topics. This should be a team effort of all
members of the organization.
Finally, the religious organization must deliver customer satisfaction. The needs of the customers must
be satisfied by the organization through the religious programs, or customers will discontinue use of the
service.
Customer satisfaction can also occur through the use of value–added services such as child–care
facilities, bilingual services, or flexible scheduling of programs.
4. How do an organization’s distinctive capabilities contribute to developing market–driven strategy.
Organizational capabilities play a significant role in developing market–driven strategies. A
company’s capabilities enable the organization to compete in new markets, provide significant value to
customers, and create entry barriers to potential competitors. By centering business processes on what
the company can do best, a company can offer a customer superior value in a substantially more cost–
effective manner. A capability should be better than the competition and difficult to duplicate so that
other companies cannot adopt the same competency.
5. Discuss the relationship between customer value and a company’s distinctive capabilities.
An organization must match its capabilities to value opportunities. A market–oriented company uses
its market sensing processes, shared diagnosis, and cross–functional decision making to identify and
take advantage of superior value opportunities. An organization must determine where and how it can
offer superior value and direct these capabilities to market segments that result in a favorable
competency/value match.
6. What role does product/service innovation play in providing superior customer value?
Innovation is a key to providing superior customer value. Customers form value expectations and
decide to purchase goods and services based on their perceptions of products’ benefits less the total
costs incurred. Quality service, like products, are important influences on a customer’s perception of
value. Service organizations must be equally or more focused on innovation than manufacturing firms.
Due to environmental fluctuations and dynamic changes in the market place, products and services
must be innovative and resourceful. Indeed, innovation in a service firm must permeate all functions of
the business and is a continuous process aimed at staying ahead of a customer’s changing needs.
Companies must constantly analyze customer needs and provide quality products in the ever–changing
environment in an effort to maximize customer value. The importance of innovation is clearly
demonstrated by Western Union’s failure to offer equivalent benefits to FAX communications.
7. How would you explain the concept of superior customer value to a new finance manager?
Value, which is perceived by the buyer, can be thought of as the customer’s benefits less the total costs
he/she incurred. The benefits include the product, supporting services, personnel involved in the
purchase and use experience, and the product’s perceived image. Costs include the price of purchase,
the time and energy involved, and the psychic costs (e.g. perceived risk). Superior customer value
results from a very favorable use experience compared to expectations and value offerings of
competitors. To create value, a company can differentiate the product offer, offer lower prices relative
to competing brands, or use a combination of both differentiation and low cost.
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8. Suppose you have been appointed to the top marketing post of a corporation and the president has
asked you to explain market–driven strategy to the board of directors. What will you include in your
presentation?
Customer satisfaction is needs driven.
Getting closer to the customer means understanding his needs and wants.
Identifying customers’ key product and service attributes and responding to them improves
customer satisfaction.
Satisfaction creates competitive advantage.
Competitive advantage leads to superior performance.
Customer satisfaction is the responsibility of everyone in the organization.
The strategic role of marketing is coordinating the organization’s efforts to satisfy customers.
9. Discuss the importance of developing a strategic vision about the future for competing in today’s
business environment.
Vision is critically important in charting the course of the enterprise. Deciding where to compete,
when to compete, and how to compete requires a concept of the important trends that are likely to
influence the business environment. For example, some observers criticized Jack Welch, CEO of
General Electric, for moving the firm out of several of its business areas such as television and small
appliances. By the early 1990s, Welch’s strategy seemed to be working. The business areas eliminated
from GE’s portfolio did not offer the performance potential that management required for the 1990s .
10. Discuss the issues that are important in transforming a company into a market–driven organization.
To be an effective market oriented organization, a company must focus on customer satisfaction.
Focusing on the customer starts with considering the customer’s needs and wants when designing new
or modifying existing products. Developing a distribution system that will get products to consumers
in a timely manner at an appropriate location is another factor that market oriented organizations must
address. Product and service quality also have an important impact on customer satisfaction. Above
all, customer satisfaction must be the focus of the entire organization, from production to marketing,
for a company to become a market oriented.
11. How is the Internet likely to contribute to an organization’s market-driven strategy in the future?
The Internet provides companies various capabilities which can be used to improve customer value.
Examples include the following:

Companies can gain knowledge about customers’ interests and concerns.

The Internet provides a powerful communications capability with end-user
consumers and value chain members.

Companies are able to respond quickly in processing orders and other inquiries.
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
The Internet can be used to support existing distribution channels and/or create new
channels.

Efficiency can be improved in moving goods and services from sources of supply to end
users.
It is also important to avoid conflicts between Internet access to customers and existing distribution
channels. This issue is addressed and illustrated in several chapters and cases. Internet Application A
asks students to consider how Dell Inc’s., website contributes to its market-driven strategy.
12. Develop a list of the personal challenges confronting the marketing executive, and consider the
qualities and capabilities that may be most relevant to meeting these challenges.
Perhaps the most pervasive challenge is managing in an organizational and external environment of
constant and often turbulent change. Moreover, change pressures are global in scope. These changes
impact markets and customers, competition, and collaborative relationships with other organizations.
Specific challenges include:
Global economic challenges
Demands and opportunities of new technologies and innovations
Coping with disruptive innovations
Global branding challenges
The qualities most relevant in meeting these challenges include leadership, cross-functional
cooperation, and ethical standards and behavior.
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CHAPTER 2
1. Top management of companies probably devoted more time to reviewing (and sometimes changing)
their corporate vision (mission) in the last decade than in any other period. Discuss the major reasons
for this increased concern with the vision for the corporation.
The corporate mission statement defines the nature and scope of the business, and therefore is the
guiding force behind the firm. The mission is responsible for what is occurring presently and what may
occur in the future. The corporate mission statement should be reviewed and updated as shifts in the
strategic directions of the enterprise occur over time. Many shifts in strategic direction are caused by
changes in the environment of the firm. Environmental changes may be political, social, technological,
or economic in nature.
The changes in corporate mission during the past were due, in large part, to environmental occurrences.
Factors such as inflation, employment rate, commodity prices, and disposable income levels affected
the environment in which businesses operate. Since the turbulent environment also affected the
competition, unforeseen competitive strategy changes surprised many companies. Impending future
threats and opportunities were enormous, and companies were forced to continually re–evaluate and
change their corporate mission.
2. Discuss the role of organizational capabilities in corporate strategy.
The premise of capabilities is concentrating business operations on what it does best. Management
needs to determine those capabilities that are capable of providing superior customer value and are
difficult for competitors to duplicate. Intuit’s capability in offering user–friendly financial
management software is illustrative.
3. What is the relationship between the corporate strategy and the strategies for the businesses that
comprise the corporate portfolio?
The relationship between the corporate strategy and the strategies for its strategic business units (SBU)
is a reinforcing one. The decision markers for each SBU must select strategies for implementing the
corporate strategy and producing the results that corporate management expects. Corporate level
management, on the other hand, should assist SBUs in achieving their objectives. Corporate strategy
and resources should help a SBU to compete more effectively than if the unit operates on a completely
independent basis. Corporate resources and synergies help the SBU establish its competitive
advantage. The strategic focus and priorities of corporate strategy guide SBU strategies. Finally, top
management’s expectations for the corporation indicate the results expected from a SBU, including
both financial and nonfinancial objectives. In effect, the SBUs are the action centers of the
corporation.
4. Discuss the major issues that top management should consider when deciding whether or not to expand
business operations into new business areas.
A single product–market offers the advantage of specialization: the company can become very
experienced in the environment, competition, and market situations facing the core business. However,
remaining with the core business may be risky, since the company is totally dependent on a single set
of customer needs.
If the customer needs change, the company may be unable to respond. Therefore, many companies
eventually expand business operations into new business areas.
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A company can expand in three ways: 1) new markets for existing products, 2) new products for
existing markets, and 3) diversification. Each alternative can give the company a broad and safer base.
Diversification is a popular option for corporate development. Diversification can take place through
internal development or acquisition. Internal development may be expensive, and dangerous, if the
company is inexperienced in the new area. Acquisition may also be costly, but the principal risk is the
integration of management teams and strategies. The major risk in diversification is that once the new
business is established and operational, there is the risk that the new business will not be a success, thus
the large expenditure of resources will be wasted.
However, the diversification of the business means less risk for the business, provided it has the
capabilities and resources available. If the core business suffers a bad year, the losses are partially
cushioned by the success of the diversification. A diversification, if successful, is an attractive avenue
for growth since it reduces the dependencies of the core business on a single set of consumer needs.
5. Discuss the environmental factors that should be assessed on a regular basis by a large retail
corporation like the Target Corporation.
The Target Corporation (formerly the Dayton Hudson Corporation) is a retail conglomerate which
operated several chains of department stores—Target stores, Mervyn’s, Marshall Field’s and other
retail businesses. Interestingly, in 2004 Target disposed of Mervyn’s and Marshall Field’s and its
current retail formats are Target, Super Target and Target Greatland, as well as its online business
Target.com. Clearly, strategic planning has been a top priority for this company, leading to major
disposals and realignment of its retail formats. One major issue in strategic planning is the assessment
of present and potential environmental factors that may affect corporate strategy. Care must be taken
to identify relevant environmental factors, but not to track too many influences. Some of the
environmental factors that Target may consider are:
a. Economic
1. Inflation/cost of living
2. Unemployment/amount of disposable income
b. Technical
1. Shopping via home computer
2. Direct withdrawal from customer accounts
3. Inventory control systems to track needs/wants by location
c. Legal
1. Regulation of selling practices
2. Trademarks, patents, etc.
d. Political
1. Issues affecting people’s desire for certain product
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2. An election year
e. Social
1. Changing age mix in America
2. Family lifestyle changes
a. Single parents
b. Working couples
3. Changing tastes due to fashion or fad
4. Increase in education
6. Discuss what you consider to be the major issues in trying to divide a corporation into strategic
business units, indicating for each problem suggestions for overcoming it.
The corporation must first consider the needs and wants of the end–user customers, and the
product/service offering when grouping similar product–market activities. Should the business unit be
divided according to a single product–market? A target customer group? A conglomerate of product–
markets? A product line? Grid analysis is a useful starting tool in defining boundaries of strategic
planning units.
A fundamental problem in dividing a corporation into strategic planning units is deciding how large or
small each unit should be. This would be answered by the capabilities, financial, facilities, and
manpower of the firm. Few capabilities indicate that the firm will only be able to handle a couple of
small units. The number of units that a corporation can handle is also based on its capabilities.
Although it is desirable to have distinct units with distinct strategies, economic considerations may
force a combination of units.
A second problem could be information needs. If a company needs large quantities of detailed
information on all aspects of its individual products, a proliferation of units may be desirable.
Otherwise, the expense of such a move may make it disadvantageous. An additional problem is the fact
that more units mean additional activities which must be managed.
Management must evaluate the trade–offs in planning unit formation and then decide on an appropriate
design that meets company needs in a cost–effective way. Management styles may have an important
influence on the decision in certain firms.
7. Develop an outline of how you would explain the marketing strategy process to an inventor that is
forming a new business to develop, produce, and market a new product.
The following is an outline of the components of the marketing strategy process followed by a brief
description. This process would be essential for the inventory to understand and follow for his new
business to be successful.
I.
Situation Analysis
A. Market and Competitor Analysis
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Markets need to be defined so that buyers and competition can be analyzed. For a market to
exist, the inventor must identify people with particular needs and products. He must then fulfill
these needs with his product. Buyers must be willing and able to purchase this product.
B. Market Segmentation
Looks at the nature and extent of diversity of buyers’ needs and wants in a market. The
inventor’s objective is to examine differences in needs and wants of customers and to identify
the segment’s sub groups within the product–market of interest.
C. Continuous learning about markets
The inventor must be able to sense what is happening in the market and what is likely to occur
in the future according to competitive threats beyond industry boundaries. He must develop
strategies to seize opportunities and counter threats, and to anticipate what the market will be
like in the future.
II. Designing marketing strategy
A. Customer targeting strategies
The inventor must select the people that he wishes to serve in the product–market. This
decision is the focus of the marketing strategy since targeting guides the setting of objectives
and developing a positioning strategy.
B. Customer positioning strategies
The inventor must choose a combination of product, channel of distribution, price, and
promotion strategies to position himself against his key competitors in meeting the needs and
wants of the target market.
C. Marketing relationship strategies
The driving force underlying these relationships is that the inventor may enhance its ability to
satisfy customers and cope with a rapidly changing business environment through a
collaboration of his suppliers, distributors, and customers.
D. Planning for new products
The inventor must closely coordinate new product planning since it is essential to satisfy
customer requirements and product products with high quality at competitive prices. New
product decisions include finding and evaluating ideas, selecting the most promising for
development, designing marketing programs, market testing the products, and introducing
them to the market.
III. Marketing program development
The inventor must shape each of the following strategies into a coordinated plan of action in order
to be effective.
A. Product
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B. Distribution
The inventor needs to decide the type of channel organization to use, the extent of channel
management, and the intensity of distribution appropriate for his product.
C. Price
The inventor must choose the role of price in his positioning strategy, including the desired
positioning of the product or brand as well as the margin necessary to satisfy and motivate
distribution channel participants.
D. Promotion
The inventor must choose activities, such as advertising, sales promotion, salesforce, direct
marketing, and public relations that perform an essential role in communicating the strategy to
buyers.
IV. Strategy implementation and management
A. Organizational design
The inventor’s organizational design must match people and work responsibilities in a way
that is best for accomplishing the marketing strategy.
B. Marketing strategy implementation and control
The inventor must prepare the marketing plan and budget, implement the plan, and use the
plan to manage and control the strategy on an ongoing basis. The marketing plan includes
action guidelines for the activities to be implemented, who does what, the dates and location of
implementation, and how implementation will be accomplished.
8. Discuss the role of market targeting and positioning in an organization’s marketing strategy.
The purpose of the market targeting strategy is to select the people (or organizations) that management
wishes to serve in the product–market. When buyers’ needs and wants vary, the market target is
usually one or more segments of the product–market. Once the segments are identified and their
relative importance to the firm determined, the targeting strategy is selected. This decision is the focal
point of marketing strategy since targeting guides the setting of objectives and developing a positioning
strategy. The positioning strategy is the combination of product, channel of distribution, price, and
promotion strategies a firm uses to position itself against its key competitors in meeting the needs and
wants of the market target. The positioning strategy seeks to position the product in the eyes and mind
of the buyer and distinguish the product from the competition.
9. What is the relationship between the strategic plan for a business in the corporate portfolio and the
marketing plan for the business?
The strategic plan for a business constitutes the action agenda for that unit in the marketing plan.
Strategic analysis is conducted to diagnose business units’ strengths and limitations, and select
strategies for maintaining or improving performance. The SBU’s strategy indicates market target
priorities, available resources, financial constraints, and other strategic guidelines needed to develop
marketing plans. Depending upon the size and diversity of the SBU, marketing plans may either be
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included in the SBU plan or developed separately. Plans may be developed to obtain financial support
for a new venture or to articulate internal business and marketing strategies. The business plan and
marketing plan may be separately developed or combined into a single plan. The marketing portion of
the business plan will represent half or more of the business plan. In a small business, the marketing
portion of the plan will account for most of the plan.
10. You have been asked to develop a marketing plan for a metro–bank that has six branch offices. How
would you approach this assignment?
While marketing plans vary greatly in detail and scope, there are certain components that every annual
marketing plan should contain. The plan should include expected results (objectives), market targets,
actions, responsibilities, schedules, and dates. The plan indicates details and deadlines, market
introduction program, advertising and sales promotion actions, and employee training. The plan needs
to answer a series of questions—what, when, where, who, how, and why—for each action targeted for
completion during the planning period. It is important to gather information from all six branch offices
of the bank to include the different customer profiles, market targets, competition, and distribution
channels for each branch area. The following comprises the marketing plan.
Strategic Situation Summary—describes the market and its important characteristics, size estimates,
and growth projections. Market segmentation and competitor analysis indicate the segments to be
targeted as well as actual and potential competition. This section must consider all six branches of the
bank to get an accurate reading of the bank’s entire market.
Market Target Description—Describe each market target, including customer profiles, customer
preferences and buying habits, size and growth estimates, distribution channels, analysis of key
competitors, and guidelines for positioning strategy. Since the bank might have several targets among
its six branches, it is helpful to indicate priorities for guiding resource allocation.
Objectives for the Market Target—This part of the plan sets objectives for the market target (such as
market position, sales, and profits). It also states objectives for each component of the marketing
program and indicates how each objective will be measured.
Market Program Positioning Strategy—This part of the plan states how the bank wants to be
positioned relative to competition in the eyes and mind of the buyer. Specific strategies for product,
distribution, price, and promotion are explained in this part of the plan. Actions to be taken,
responsibilities, time schedules, and other implementation information are included at this point in the
plan. Marketing research is also included at this stage of the plan. This should identify information
needs and planned projects, objectives, estimated costs, and a timetable. There should also be a plan to
coordinate with other business functions. It should specify the responsibilities and activities of other
departments that have an important influence upon the planned marketing strategy.
Forecasts and Budgets—The bank must include financial planning which consists of forecasting
revenues and profits and estimating the costs necessary to carry out the marketing plan. Comparative
data on sales, profits, and expenses for prior years is useful to link the plan to previous results.
Contingency Plans—This final part of the marketing plan should indicate planned actions if events
differ from those assumed in the plan.
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CHAPTER 3
1. Discuss the important issues that should be considered in defining the product–market for a totally new
product.
There are several important factors that should be considered when trying to introduce a new product
and hence define a product–market. First of all, is the product really new, or is it a new substitution for
something already on the market? Remember, the product is what it does; if the new item performs the
same generic function as existing products, the product is not really new. For example, a “new”
chemical formula may be introduced that relieves pain. This formula, however, will compete with
other aspirin and non–aspirin pain relievers.
The company should also use marketing research to determine if brand switching will take place or if a
totally new market will be formed. If the product is merely a substitution for existing products,
research could be used to determine the price level at which brand switching would take place, or
whether additional benefits that the product might have would induce consumer preference for the
product. If the product is really an innovation, it could have many different uses and appeal to a broad
range of customers. In order to understand the different use situations, an end–user study could be
conducted.
The key to defining the product–market for any product is to link the product’s functions or benefits to
the needs that it is intended to satisfy. Then categories of potential users having these needs can be
identified. The more varied the product uses and customer needs, the more difficult the product–
market definition will be. Also note that several product–markets can exist for a single product.
2. Under what product and market conditions is the end–user customer more likely to make an important
contribution to product–market definition?
Consumer knowledge and experience are essential to participation in the definition of product markets.
However, the consumers that have the knowledge and experience with the product or service must be
located in order that their input be tapped. If consumers do not recognize the need for a particular
product or have no experiences in the use of the product, then they are not likely to be very helpful in
the definition process. Additionally, without some frame of reference for answering questions,
consumer responses can be misleading. Often, consumers will not admit ignorance of questions and
will answer to avoid embarrassment (except for sensitive questions).
For these reasons, a consumer base should be easy to identify, reach, analyze, and understand. Care
must be taken that research dollars are not wasted on contacting a large percentage of consumers that
have not had contact with the product or service. The consumer is more likely to make a contribution
to the product–market definition if the product–market has narrow generic, specific, and brand levels
with the same end–users. A narrow customer base would also aid in a sound product–market
definition. Thus, consumers are more useful when analyzing existing product–markets that require
more specific definition.
3. What recommendations can you make to the management of a company competing in a rapid growth
market to help it identify new competitive threats early enough so that counterstrategies can be
developed?
Competitive threats may develop in various ways. Strategic mapping of the product–market
competitive arena may indicate firms in the industry that have the skills and resources to become direct
competitors. For example, the movement of IBM into the personal computer industry was not
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surprising to industry observers. Analysis of customer needs and wants may suggest alternative
technologies that present potential competition. Western Union’s failure to anticipate the competitive
threat of FAX machines is illustrative.
4. There are some dangers in concentrating product-market analysis only upon a firm’s specific brand
and those brands that compete directly with a firm’s brand. Discuss.
By concentrating product–market analysis on directly competing brands only, the product–market
analysis becomes too narrow. Important brand areas that are competing for the same needs as the
firm’s product may be ignored; these other brand areas may greatly change the product–market analysis
and hence the potential of the product in question.
It is important to look deeper than just the specific brand level. Other levels (specific, generic) of the
product–market should be analyzed as well: other products or services may have similar characteristics,
and possibly the same end–users. The firm should also make sure that they look at the entire product
line instead of a specific brand within the line. The product line should be compared to specific–level
product–market; this will be important later on when niche analysis is undertaken. The product–market
should also be broad enough to allow the firm sizable room to introduce the product. Because of
customers’ broad mixes of needs and wants, the product–market should also be defined at the generic
level.
One of the best examples of the dangers of being too near–sighted regarding competing products and
services is the financial industry. Banking institutions tended to focus only on other banks or savings
and loans as competition. However, almost overnight stockbrokers attracted huge amounts of savings
from banks, S&Ls, and credit unions with money market funds. Today, banks are facing competition
from a broad array of firms, including Merril Lynch, Sears, Prudential, and many others. Banks have
begun to retaliate by offering broker services, insurance, and other financial services.
5. Using the approach to product-market definition and analysis discussed in the chapter, select a brand
and describe the generic, product-type and brand product-markets of which the brand is a part.
The student should keep in mind the following guidelines:
Generic product-market: This level includes all products or services that can satisfy a particular need.
Since people with the same need may not satisfy the need in the same manner, the product-market is
often comprised of different end-user groups.
Specific product-market: This level represents all brands of a particular product type. This level also
often contains user groups with dissimilar needs.
Brand product-market: The various brands that compete on a direct basis form a brand product-market.
It is often comprised of a subset of brands from the same product type product-market that can satisfy
the needs of people that comprise a particular market segment.
Take, for instance, Schwab stockbroker services. At the generic level, this company would fall within
the area of financial services that meet the various needs of investors. One specific product-market
(there are many) is meeting a need for short-term savings. Many companies, including the federal
government, seek to meet this need with a variety of products (e.g., money market funds). These
companies would all be trying to gain the consumers’ money by providing them with a “good” return
on investment. Each of these different services could expose the user to different investment risks,
hence an array of buyer decision factors. The brand level would focus on specific companies such as
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Merril Lynch, Quick & Reilly, Citicorp, and the U.S. government. The brand level is highly
competitive in this industry, with service and performance playing a key role in customer satisfaction.
New laws have made the competitive market open to banks and other financial institutions who can
now offer services they could not offer before.
6. For the brand you selected in question 5, indicate the kinds of information needed for a complete
product–market analysis. Also, suggest sources for obtaining each type of information.
When conducting a product–market analysis, one would want to know about the market target, key
competitors, brand positioning strategy, and basic sales and profit forecasts. Fortunately, Schwab is a
well known, publicly held company that is traded on the NYSE; a great deal of information is available
to analyze the company. Customer data could come from trade association journals and reports done
by government and financial trade associations on the investment market. Competitor data can be
found in Standard and Poor’s Industry Reports along with Value Line’s look at the entire industry.
These sources would tell about different competitors and how Bache is doing against the market. Sales
and profit forecasts are developed from past data (available in company annual reports). The growth
outlook can also be developed from past data as well as the current outlook of the industry and the firm.
Much of this information is also developed internally from management judgment and experience.
Brand positioning can be observed from historic data where one can observe areas of the financial
community that Bache is after (i.e., institutional investors, private investors, etc.). These data will
enable one to see trends in end user positioning and help in product–market development. Additional
information on companies, industries, product, or services are available in such publications as Forbes,
Business Week, Financial World, Advertising Age, Wall Street Journal, or Barrons.
7. Select an industry and describe its characteristics, participants, and structure.
As an example, the suntan oil and lotion industry (part of the cosmetics industry or health and beauty
aid industry) is examined. The elements of the analysis may be used for any industry chosen.
Characteristics. The suntan oil/lotion industry is characterized by growth and increased competition.
The growth stage in the product cycle, after outward signs of a mature industry has been spurred by the
increased emphasis on looking “fit and healthy” (which include looking tan) and the increased
consumer concern for protection from skin cancer and other sun related skin problems. From 1978 to
1984, sales increase by 50%, and attracted many new entrants into the market.
Participants. The industry leader is Plough, Inc., makers of Coppertone products (Tropical Blend,
Ultimate Oil, QT, and Coppertone oils and lotions, Shades, and For Faces Only) and La Solaire.
Hawaiian Tropic, Sea & Ski, Charles of the Ritz’ Bain de Soleil, Presun, and Johnson & Johnson’s
Sundown are also major contenders. There are several companies that provide generic tanning
products for store branding as well as dozens of small, local companies that provide such products as
Panama Jack (Texas) and Tiki Tan (Florida). In addition cosmetic companies such as Bonne Bell,
Noxzema, and Estee Lauder have introduced tanning products.
Industry Structure. The market form of the suntan lotion/oil industry is that of monopolistic,
competition. Many firms of differing sizes compete and offer products that differ to some degree.
Degree of Product Differentiation. Suntan products are differentiated by:
a. Formula: light oils, heavy oils, creams, lotions, gels.
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b. Sun Protection Factor: ranging from 0 (no protection) to 25 (maximum sunscreen) by increments of
2.
c. Fragrance: coconut, fruits, perfumed, unscented.
d. Special Ingredients: PABA, aloe vera, exotic oils.
e. Price/Image: higher price usually commands a more exclusive image.
Competitive/Environmental Forces
a. Substitutes for suntans: tanning salons, topical skin dyes, tanning “pills.”
b. Increased government regulation and testing of formulas.
c. Constant threat of new entrants.
Other considerations that could be taken into account in an industry analysis are channel of distribution
structure, market targets/general customer profiles, market trends, and product–market structure.
8. A competitor analysis of the 7/UP soft–drink brand is being conducted. Management plans to position
the brand against its key competitors. Should the competitors consist of only other noncola drinks?
Every brand must be concerned not only with competition from similar brands (i.e., the noncola soft
drinks), but also competition from other product types (e.g., the colas). To the extent that different
product types compete for the same market segments, as they do in the soft drink business, then key
competitors may be one of more brands of a different product type. Thus, 7 UP may very well consider
soft drinks other than the noncolas as key competitors.
9. Outline an approach to competitor evaluation, assuming you are preparing the analysis for a regional
bank holding company.
Once key competitors have been identified and described, evaluation can take place. Description
should include business scope and objectives, market position, market targets and consumer base,
marketing program positioning strategy, financial, technical, and operating capabilities, management
experience and capabilities, and any special capabilities.
Extent of Market Coverage
a. Geographic spread of competitor chains, branches, or local banks, savings and loans, and credit
unions
b. Which market targets competitors are focusing on.
c. Relative market shares.
Customer Satisfaction
a.
What criteria do consumers use to evaluate banks?
(1) Variety of financial service offered
(2) Location
(3) Interest rates
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(4) Physical aspects of bank and staff
(5) Other
b. How well is the competition meeting these customer needs?
Past Performances of Key Competitors
(1) Market share
(2) Amount of deposits
(3) Amount of loans
(4) Average size of deposits and loans
(5) Cash flow
(6) Profits
(7) Stockholder dividends
Current Capabilities: key strengths and weaknesses
(1) Management capabilities and limitations
(2) Market position
(3) Trends in market position
(4) Profitability
(5) Financial strength
(6) Product mix
(7) Technological capabilities
(8) Cost outlook
(9) Quality
(10) Service developments
(11) Marketing plans
10. Discuss how a small company (less than $1 million in sales) should analyze its competition.
To analyze its competition, a small firm could define the competitive area, (i.e., identify current or
potential competitors and sources of competition). The company could also examine the industry
structure such as the economic environment, (e.g., number, size and economic classifications of competing
firms), and competitive forces that determine industry performance. The firm should also look at the stage
of the product life cycle in which it is currently operating to determine the type of competition in the
industry. Next, strategic dimensions could be identified to describe the strategies of industry members.
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This preliminary work should be the foundation in analyzing the competition. Competitors should then be
described, market share and past performance determined for each competitor and an evaluation made of the
current capabilities, strength and weaknesses of members in the firm’s industry.
11. Many popular forecasting techniques draw from past experience and historical data. Discuss some of
the more important problems that may occur in using these methods.
The key problem with using historical data or past experience as a basis for a forecasting model is that
there is no rule that says things that occur in the past will occur in the future. Often, new trends or
unusual seasonal variations can occur and send the forecast off track. This is why it is unwise to
forecast more than three or four periods into the future: forecasts become very inaccurate after this
time. Changes in the environment can change historical data and experiences. Buyers or end users
might change, new products or competitors may enter the market due to new technology, the economy
can affect the demand for a product or service, government politics may regulate or deregulate the
product or service, as well as countless other influential changes.
Forecasting is particularly dangerous when involved with a new product or firm. A new company
enjoying explosive growth rates for the first few years cannot expect the trend to continue indefinitely
into the future. Likewise, new products can be involved in a growth phase for many years and then as
they mature, the trends in the past no longer hold. As new products and competitors move into the
product–market, different mixes occur and forecasts are likely to be affected, particularly if new
variables become an important influence on sales.
Most forecasting techniques rely on historical data. Some techniques can account for early growth of
new products, seasonal variation, and influences by economic indicators. Even so, it is important to
recognize that one cannot be wholly dependent on forecasting techniques. Firms must continue to
monitor environmental influences that may affect the life of the product or the company.
12. What are the relevant issues a cross–functional team should consider in developing a strategic vision
about the future for the organization’s product–market(s)?
Because market development and competitive processes do not follow predictable paths, several
questions can be asked to indicate the possibility of the market changing in the future. These questions
include:

Are industry boundaries clear and static? Are customers and competitors identifiable? Or are
industry boundaries blurring and evolving?

Do firms compete as “distinct entities” or as families of suppliers and end product firms?

Is there competition for managing migration paths?

Is competition taking place at product line, business, and corporate levels? Do these levels of
competition influence each other?

Can there be competition between clusters of firms to influence standards and industry evolution?
Information needed to anticipate the future also includes:

What are the influences (discontinuities) present in the product–market that have the potential to
profoundly transform market/competitor structure?
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
Investigate each discontinuity in substantial depth. (How the trend will impact customers,
economic impact, how fast it is developing, who is exploiting the trend, who has the most to
gain/lose).

What new product opportunities will be created by this discontinuity.

How we can learn more about this trend.
Anticipating the future requires searching beyond the existing competitive arena, for influences that
promise to impact product–market boundaries. The process requires the involvement of the entire
organization, and it demands a substantial amount of time. A company with a marketed–oriented and
multifunctional process should be able to utilize these processes for anticipating the future. Also, it is
apparent that developing a vision about the future needs to be an on–going process.
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CHAPTER 4
1. Competing in the unified European market raises some interesting market–segment questions. Discuss
the segmentation issues regarding the market.
There are distinct differences in preferences and tastes between the people in the participating
countries. Segmentation may take two forms. For products where customer differences are significant
segmentation within country boundaries may be important to gaining competitive advantage. Products
that display strong national differences may require within country segmentation. For other products
(e.g., airline services), Pan–European segmentation may be appropriate. Some authorities believe that
preferences may become more similar between consumers over time. However, these shifts will
require several years to develop.
2. Why are there marketing strategy advantages in using demographic characteristics to break out
product–markets into segments?
Demographic information may assist in identifying potential targeted niches. Logical segments are
fairly easy to see as the demographic data is clearly delineated. One significant advantage is that the
demographic information is readily available through a variety of published sources, thus making it
relatively inexpensive.
Several examples will illustrate the use of demographic targeting. The shifting of the age of the
population was a key in the Limited’s success as it also shifted its targeted niche to satisfy a slightly
older customer base. Many companies are now targeting the “yuppie” market which focuses on age
and lifestyle. Furthermore, the entire lines of convenience foods are based on the changes in the
American family where both parents are more likely to be working.
Demographics also relate to other segments such as geographic and population groups. For example,
we can locate middle-aged people in geographic areas using U.S. census data. Although, demographics
have not been found to be extremely useful in segmenting, it may be beneficial for some products, and
certainly cannot be ignored.
3. The real test of a segment formation scheme occurs after it has been tried and the results evaluated.
Are there ways to evaluate alternative segmenting schemes without actually trying them?
One can test market a niche formation and run research on the results to see if the market is worth
approaching. Management’s knowledge of customers needs and its experience at satisfying their needs
may be valuable in evaluating a viable segment. Competitor analysis could reveal similar niches to the
one formulated and this analysis could yield valuable data as to the success of the niche in the market.
Some forecast models could be developed to analyze alternative niche schemes although this method
would just give insights and might not yield reliable data. Financial analysis which can be constructed
from forecasts can assist in identifying attractive segments. Unfortunately, all of these methods
provide only a partial indication of what will happen when the niche scheme is implemented. Since
niche schemes often evolve over time, the initial decision should not be considered fixed. In fact,
changing conditions over time may call for changing a firm’s basis of segmentation.
4. Suggest ways of obtaining the information needed to conduct a market–segment analysis.
Information for product–market niche segment can be obtained from financial reports and industry
data. Much of the niche information will need to be determined internally since annual reports will
normally not provide a breakdown into niches. The company must set up a system to generate this
35
data. Niche position data would be more difficult to obtain, especially niche attractiveness.
Attractiveness would have to be determined from company market opportunity analyses that are
developed for each niche. Information may be gathered from salespeople and other representatives of
the company who work in the “field.” Marketing analysis by consultants, who are exposed to a wide
range of companies may provide useful insight. Present business strength data might be obtained from
market share measures or subjective measures provided by management.
5. Why may it become necessary for companies to change their market segmentation identification over
time?
As customer needs/wants change, segments may change. Many marketing professionals anticipate an
environment of constant change in the 1990s. New segments may emerge and old segments may form
into product–markets. These product markets may contain two or more segments. Constant
monitoring of buyers’ preferences will be essential to anticipating segment dynamics. Markets that
experience rapid technological change are good prospects for changes in segment structure. Movement
from growth to market maturity may also cause segment changes.
6. Is considering segments of one buyer a reality or a myth? Discuss.
The ability to consider a segment of one depends on several factors. These factors include:
1. the capabilities of companies to offer cost effective, customized offerings
2. the desires of buyers for highly customized products
3. the organizational advantages of close customer relationships
For a company to offer customized offerings, it must have several capabilities including extensive
information flow and comprehensive data bases, computerized manufacturing systems, and integrated
value chains. At the center of these capabilities to offer customers a customized product is information
technology, database knowledge, computer–aided product design and manufacturing, and distribution
technology.
Segmenting of one also relies on customers’ needs and wants. Buyers must want customized products.
The requirements of an increasingly diverse customer base for many products are apparent. Companies
such as Boeing and Lutron Electronics as well as global competitors seek to offer unique products.
Finally, the ability of a company to form close customer relationships is imperative for segmenting of
one. By identifying value opportunities and developing cost effective customized offerings,
relationships can be profitable and effective in creating competitive barriers.
7. Is it necessary to use a unique positioning strategy for each market segment targeted by an
organization?
The unique marketing program utilizes the four P’s (product, place, price, and promotion) specifically
directed toward one market target. On the other hand, an overlapping market strategy involves the
overlap of some program components between niches, such as the same product serving both targets.
An airline is a good example of overlapping niche approach. You have different sales efforts and they
are directed towards business and pleasure travelers niches. Many times a product–market is such that
many of the promotional efforts get picked up by different niche areas resulting in a natural overlap.
36
The separate niche approach is also important in that sometimes the firm only wants its efforts directed
toward one and only one niche.
The Godiva Chocolatier and Daimler–Benz are good examples of consumer goods that use a separate
niche program. These companies only want the luxury market (because they are the only people in the
market that can justify the high prices).
8. Under what circumstances may it not be possible to break up a product–market into segments? What
are the dangers of using an incorrect segment formation scheme?
It may not be possible to break up a product–market into segments if the product or market is new or if
the users needs are difficult to understand or to separate into a meaningful division. If response
differences do not exist, or if the differences are not identifiable, actionable, or stable, it would be
useless to segment a market. As with any strategy a cost/benefit analysis is important to perform. The
dangers with incorrect segmenting involve high costs that do not translate into profits, poor
performance, and/or loss of market share to competitors who have achieved the correct type of
strategies with regard to targeting.
9. What are some of the advantages of using mass customization technology to satisfy the needs of
buyers?
Mass customization offers the advantage of giving individual buyers unique product features at
reasonable prices. The technology, which is operated using sophisticated computer software, has the
capacity to meet the needs of microsegments. The technology increases both the power and importance
of market segmentation.
10. Does the use of mass customization eliminate the need to segment a market?
Mass customization is a type of segmentation that focuses on customized and individual needs. There
are two common forms of mass customization. One uses standard components to configure a
customized product offering. The other uses a flexible process. Through system design, a variety of
products can be achieved at low costs. Thus, mass customization can theoretically satisfy individual
customers’ needs. However, management needs to ensure that the customer does not view the variety
as confusing.
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CHAPTER 5
1.
Discuss how an organization’s marketing information skills and resources contribute to its distinctive
capabilities.
In the current business environment, firms must utilize all available assets to accomplish their strategic
mission. Information is a resource that provides the foundation for the firm to recognize opportunities,
exploit strengths and correct weaknesses. Identifying the market that the company can best serve with
its distinctive capabilities requires information. Efficient and effective information, collection and
organization allows the firm to target the market that would obtain the most value from its capabilities.
Without the information, the firm is ignorant of its ability to offer a high value service.
2. How would you explain to a group of top–level executives the relationship between market–orientation
and continuous learning about markets?
A market orientation is both a culture and a process committed to achieving superior customer value.
This includes information acquisition, broad information dissemination, a shared diagnosis of the
environment, and a coordinated action plan that best suits this diagnosis. A market orientation view
needs to incorporate all of the relevant sources of knowledge and ideas.
Likewise, an organization utilizing market sensing (continuous learning about markets) is:



guided by a shared vision that focuses on creating superior customer value
willing to break paradigms regarding its core business
able to leverage knowledge based on experience, experimentation, and information from
customers, suppliers, competitors, and other sources
A market orientation enables a company to use its communication and coordination to reach a shared
interpretation of the information so it can act quickly and decisively to exploit opportunities and diffuse
problems. The members of the market–oriented organization recognize the importance of market
sensing and coordinated interpretation of market intelligence to guide strategies. For example,
Hewlett–Packard did an excellent job scanning the computer printer environment and used the
information it gathered to preempt and beat its competitors in the inkjet printer market.
3. Outline an approach to develop an effective market sensing capability for a regional full–service bank.
a. Open–Minded Inquiry
(1) Recognize importance of market sensing in strategic decision making
(2) Willing to invest in information for decision making
b. Synergistic Information Distribution
(1) Encourage widespread distribution of information in the organization.
(2) Use teams to communicate across functional barriers.
c. Mutually Informed Interpretations
(1) Reach a shared vision about the market.
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(2) Have a shared mental model on how to react to gathered information.
(3) Evaluate results of decisions based on the shared vision.
d. Accessible Memory
(1) Recognize importance of keeping and gaining access to prior learning.
(2) Continue to gain market feedback to guide new product decisions.
e. Information, Analysis, and Action
(1) Determine what information is needed based on cost–benefit analysis.
(2) Gather information.
(a) marketing research studies
(b) standardized information services
(c) management information systems
(d) database systems
(e) decision support systems
(f) competitor intelligence systems
(3) Cooperation among departments in sharing information (synergistic distribution).
(4) Perform routine and complete evaluation of the company’s information situation.
Open–Minded Inquiry for a bank would include exploring what their target market wanted out of
banking service, i.e., convenience, low rates as well as what other competing banks were offering their
customers. Synergistic Information Distribution would include spreading information across all
functions of the bank and perhaps forming a task force to be responsible for communicating across
functional barriers. The bank should also have a shared vision of how to react to the information that it
gathers. The mutually informed interpretations should be shared across all functions as well. The bank
would want to be sure that it retains information even when employees leave the bank; it needs to
maintain its accessible memory. The bank would have to determine what information is needed by
doing a cost–benefit analysis and gathering the information. Finally, the bank would share information
through all functions of the bank (marketing, finance, etc.).
4. Compare and contrast the use of standardized information services as an alternative to special
research studies for tracking the performance of a new packaged food product.
Sometimes many of the same types of information can be gathered from a standardized information
service and a special research project. New product studies could be the subject of a standardized
service, thus eliminating the need for a more costly special research project. Basically, if the new
product is just a rehashing of an old idea there will be past information on these types of products. If
the product is truly new, a special research study will need to be done. As an example, Market
Research Corporation of America offers a standardized information service for food and drug products.
39
A diary is used by a panel of consumers to record food and drug purchases. New products in these
categories would be included in the information recorded by consumers. Standardized information is
often not as specific as one would want, whereas a special project is custom designed for one’s needs.
Also, data used to describe elements about new packaging for food products could be outdated with a
standardized information source. Cost is another major difference between primary and secondary
information. Management must weigh the cost–benefit of each alternative.
5. Discuss the probable impact of cable television on marketing research methods during the next decade
as this medium penetrates an increasing number of U.S. households and closer relationships are
developed with telecommunications companies.
Cable TV will be an injection of new “life” into the maturing TV medium. Cable is a new ad channel
and a more direct way to target an audience on special characteristics of interest. This is due to cable’s
diverse programming abilities. It is estimated that 75% of the U.S. is hooked into cable TV—this is
really a great opportunity for marketing. Systems are already being used to take customer surveys on
topics through the use of cable. Results can be calculated at record speed by computer. This is very
important in this “information” age. Assuming there are no unforeseen legal restrictions regarding the
use of cable TV for marketing research, this medium is likely to open major new avenues for
researchers. For example, controlled experiments aimed at measuring cause and effect will be feasible.
6. Comment on the usefulness and limitations of test market data as a source of marketing information.
Test marketing is very expensive and represents the final step in new product development before full–
scale introduction into the market. The test market can tell a company many things about a new
product, such as characteristics of buyers, response to the marketing program, and various other aspects
of marketing strategy before a company incurs the expense of full production and marketing.
However, the test market can sometimes show false results, either positive or negative, because
competition will try to sabotage test markets to mix up results. Also, no city or group of a few cities is
a perfect representation of a national market or even a regional market.
Though market tests have limitations, they can produce good estimates of ultimate market success
when properly designed and implemented. Running the tests over a sufficient time period is important.
For additional material on the topic see Judith Waldrop, “All American Markets,” American
Demographics, January 1992, 24–28.
7. Suppose the management of a retail floor covering (carpet, tile, wood) chain is considering a research
study to measure household awareness of the retail chain, reactions to various aspects of floor
covering purchase and use, and identification of competing firms. How could management estimate
the benefits of such a study in order to determine if the study should be conducted?
First, management should see if any secondary data or standardized information already exists on the
topic. This would aid in a benefit analysis. Next, management should identify possible strategies for
obtaining other information. An exploratory study would be relatively inexpensive and might be used
in defining the problem(s) and establishing specific objectives. Management should also set priorities
regarding the information that is needed. It is possible that the exploratory research will generate
enough information so that more extensive primary research will not be necessary. For example, it is
likely that adequate information about competitors can be obtained from secondary sources. The chain
would need to estimate sales and profit data in order to figure any benefit from the research, and how
much should be paid for this research. Doing a less expensive exploratory study to get a sample of
information could be useful in determining the value of the research. Finally management must
determine how much research information is worth to the success of the chain and to the bottom line.
40
This is essentially determining the approximate magnitude of the impact this new information will have
on the firm’s strategic decisions.
8. Are there similarities between marketing strategic intelligence and the operations of U.S. Central
Intelligence Agency? Do companies ever employ business spies?
There are many similarities between marketing strategic intelligence (MSI) and the CIA. The CIA and
MSI are both concerned with monitoring the entire environment around their specific area of interest.
MSI’s environment deals with information that affects the business of marketing the product, including
the economic, social, technological, governmental, and physical factors. The CIA is also concerned
with changes in the factors listed; however, its emphasis is primarily on political and military matters
versus private business matters. Both are looking for change, and how this change will affect
performance in the future. If the change is likely to cause problems, it can be identified early enough
for the company or government to adjust.
It is a fact that some firms employ spies. In late April of 1982, the FBI caught Japanese spies stealing
valuable information from IBM on its new generation computer systems. Apparently, the spies had
found a source for this top secret information. IBM worked with the FBI on this case for months, and
its internal controls helped eliminate the problem. This type of spying can involve even big companies,
and it is feared the condition could worsen because of increased competition in the world markets. As
competition intensifies, MSI and spying will take on greater importance. The day–to–day activities of
intelligence gathering of MSI and CIA are essentially marketing research activities. Both are
concerned with obtaining information, analyzing it, and determining what actions to take based on the
analysis.
9. Discuss how manufacturers of U.S. and Swiss watches could have used market sensing to help avoid
the problems that several firms in the industry encountered as Seiko and other Japanese companies
entered the watch market.
If watch makers had designed strategic marketing intelligence programs they would have seen that new
electronic technological breakthroughs were occurring and that the population as a whole was more
technologically–oriented. Economical, innovative watch products that made life easier were becoming
popular.
As microchips become smaller and faster, innovative firms began to develop new uses for the chips,
and some watch makers found they could make cheaper, attractive, and durable watches with the aid of
this technology. At the same time, consumer preferences evolved leading to the popularity of digital
watches. Watches no longer were considered solely a piece of jewelry. During this period, practicality
and technological advances became important considerations to the consumer. Environmental
scanning signaled these trends to Seiko. Its management successfully forecasted the career impact of
Quartz–crystal technology, invested heavily in research and development, and became the worldwide
leader in dollar sales of watches. Many watch makers were just not attuned to the significant changes
taking place in their environment. Companies like Timex found themselves competing against firms
like Sharp and Casio who had never made watches. If Timex would have had intelligence systems it
would have seen the changes in the market early enough to adjust its strategy. Perhaps the most
significant point is that this competitive threat (or opportunity) originated outside the traditional watch
industry.
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10. Examine the strategic implications for small independent retailers and regional chains concerning the
expanding strategic use of information technology by large retailers like Wal–Mart.
The large retailers have used information systems in an attempt to create a competitive advantage over
smaller firms. For the smaller firms to retain a presence in their communities, they must differentiate
their firms in some manner. If it is not economically feasible for smaller firms to employ sophisticated
information technology, then these firms must make the most of the information available to them.
Smaller firms may not be able to compete in the same manner and may need to explore a different
strategic direction. These firms may be able to capitalize on personal involvement with the
community, thereby gathering information that cannot be captured by information technology.
11. Data mining from databases is receiving increased attention in many companies. Discuss the
underlying logic of data mining.
Data mining assists in diagnosing patterns in databases. One of the challenges of using databases is
identifying these patterns in huge accumulations of information. This power of data mining enables the
analysis of as many as 10,000 customer attributes to help identify key patterns of customers. This
helps the company to know patterns of their customers’ buying behavior, and it allows them to keep the
best customers. MCI Communications Corp. and Victoria’s Secret both use data mining to keep
profiles of customers.
12. What are the relevant issues that need to be considered when obtaining the services of an outside
supplier for a marketing research project?
One relevant issue to be considered is how companies and research suppliers should respond to ethical
issues. Is it ethical for a potential client to share a supplier’s detailed project proposal with a competing
supplier? A second important issue deals with cost, specifically which organization pays for the cost of
preparing the proposal. If the supplier covers the costs for the proposal, it is the property of the
supplier, and it may be a breach of ethics to share the proposal with a competing supplier. Sharing
information with research suppliers often contains highly confidential materials, and many situations
may involve a potential breach of confidentiality. While some companies sign confidentiality
agreements, it is usually left up to the ethics of the individual participants.
42
CHAPTER 6
1
Discuss why it may be necessary for an organization to alter its targeting strategy over time?
The marketplace is very dynamic and ever changing. Elements of the product–market constantly
change over time causing a segment to either adapt to change in the market or lose its market position.
Technological changes can cause the product in the niche to become obsolete or allow competitors to
come in and take away market share. Also, changes in forecasts, along with changes in the economy
require strategy changes and new forecasts developed for the future. Sometimes the niche is eliminated
totally because of factors that were not built into the market strategy. New competitors or changing
fads may result in a company withdrawing from a niche. Segmentation is a continuing responsibility of
management. Market and competitor dynamics require a continuing assessment of niche strategy.
2. What factors are important in selecting a market target?
In selecting a market target, a company must first examine exogenous and endogenous factors
influencing that firm. It must look at the stage of the product life cycle. For instance, many market
segmentation strategies occur in the maturity stage of the product market. The extent of buyer
differentiation influences the market target selection because when buyers’ needs are similar, less
opportunity exists for extensive segmentation.
Market position is also important, for if a firm is in a position of low market share, it can strengthen its
position by finding a segment which values its products. The structure and intensity of the competition
are crucial when examining the market. When several firms are competing in an industry, selective
targeting is often an appropriate targeting strategy.
3. Discuss the considerations that should be evaluated in targeting a macromarket segment whose
buyers’ needs vary versus targeting three microsegments within the macro segment.
When buyers’ needs are similar across a product market, little opportunity exists for extensive
segmentation. However, single segment targeting may gain competitive advantage more easily than
targeting multiple segments. When buyers’ needs vary in a macro–market, the effort to response will
vary as well. As consumers’ needs vary, a firm can only meet certain needs of its single segment, and
buyers’ needs may not be met. The objective of targeting a single macro–market segment is not to
meet all needs, but to appeal to all or most of the buyers to gain high market share. On the other hand,
when a firm targets multiple or micro–segments, it is determined that the needs within these segments
will be mostly the same. Multiple targets can expand a firm’s market opportunity and also eliminate
dependence on a single target. The positioning strategy will vary among the different segments. The
extent of buyer differentiation will be a determining factor in selecting the market target.
4. How might a medium–size bank determine the major market targets served by the bank?
A bank could determine the major market targets it serves by examining and categorizing the types of
transactions its customers utilize. The bank could also examine the demographics of its customers
according to geographic location, lifestyle, profession, and/or age. Accounts could be divided and
customers profiled to further examine this customer base. Future trends of the bank could be estimated
to determine who would most likely use those services.
43
5. Select a product and discuss how the size and composition of the marketing program might require
adjustment as the product moves through its life cycle.
A product such as “Miller Light Beer” has seen some fantastic growth in the last few years. A great
deal of money has been spent on trying to communicate to the market the benefits of light beer.
Almost every beer manufacturer has entered the light market in some form. As the market started to
mature Miller has changed its advertising by adding more creative TV ads including famous sports
figures. At the introduction phase, Miller seemed to position itself to mainly the younger “health set”
until the beer gained growth in other markets. Miller still is directing its efforts towards the younger
set but has expanded efforts to include the sporty bar crowd. Miller still has significant market share in
the light market, and with maturity, advertising can be changed to add new creativity. The only catch
is that other companies have strongly entered the “light” market with their own innovative advertising
such as Bud light—“Give me a light” and Coors Light—“The Silver Bullet,” etc.
6. Suggest an approach that can be used by a regional family restaurant chain to determine the firm’s
strengths over its competitors.
One method the restaurant could use would be a customer survey. The restaurant also could select
popular menu items and offer coupon specials on these items to see how sales react after the specials
have been run. If customers like the items and come back this could indicate a strength. The restaurant
could try to evaluate itself and its competitors using such factors as location, volume, menu,
atmosphere, etc. More points are given to the restaurant if they occupy a successful niche.
Additionally, the restaurant chain could develop its strategy around an item or series of items like a
burger, hot dog, or any other area. Then the chain could build up this item(s) and establish its own
niche of position against competitors in the market. Market share data could be used (if available) to
gauge the chain’s position against key competitors. This should be done over a time period of at least 3
to 5 years to determine if the chain’s position is increasing or decreasing.
7. Select a company/brand and discuss a strategy that corresponds to each of these three positioning
approaches: functional, experiential, and symbolic.
Dell, Inc. utilizes functional positioning by emphasizing customization and
incorporation of the latest technology in its personal computers.
BMW emphasizes the exciting experience of driving its automobiles, backed by
the brand’s German heritage.
Louis Vuitton is positioned as a symbol of luxury, a brand to be desired.
8. Discuss some of the more important reasons why test market results may not be a good gauge of how
well a new product will perform when launched in the national market.
Test markets can mislead a firm into believing that good results indicate that a full scale introduction
will be successful. The opposite is also true, in that bad test–markets can cause the firm to think the
product would not make it in the market. One of the major problems with a test market is that
competitors come into the market and try to disrupt test results. They will lower prices on competitive
brands, or step–up ads, or increase promotional efforts to push the product through the test market.
Also the actual test market area can bias results and the method of test marketing the product can show
misleading results. Customers may try the product and communicate this liking to the firm, but they
may not continue to buy this product. Finally, environmental conditions may change during the
national introduction.
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9. “Evaluating marketing performance by using return–on–investment (ROI) measures is not appropriate
because marketing is only one of several influences upon ROI.” Develop an argument against this
statement.
Marketing is a key business activity that influences ROI. When you break down ROI and look at the
basic components, you see that all of the variables are highly influenced by marketing. Sales, profits,
and the investment are generally the responsibility of the marketing department and ROI really makes
an excellent measure of performance in the marketing function. It is true that the variables that make
up ROI are important to the other parts of the organization but marketing generates the variables. The
other business functions simply use the variables.
Additionally, one must remember that many businesses are basically marketing organizations such as
retail firms. For these firms, ROI is an excellent measure of performance. With manufacturing firms
the variables included in the ROI formula become more difficult to separate into pure marketing
variables.
10. Two factors complicate the problem of making future projections as to the financial performance of
marketing programs. First, the flow of revenues and costs is likely to be uneven over the planning
horizon. Second, sales may not develop as forecasted. How should we handle these factors in
financial projections?
When developing budgets for financial plans it is beneficial to keep flexibility and adaptability in mind.
The unevenness of flows should be expected and analyzed periodically. For example, the flows may
not be level each quarter of the year, but end up evening out when reviewed in terms of a year.
Obviously, revenues and costs are going to change drastically in the beginning stages of any product.
Sales are very difficult to forecast and many times management’s experience is the only basis of
making a sales forecast. One way to prepare for misstated future forecasts is to evaluate the budget
periodically. Making financial projections is a continuous process requiring revisions when changes to
the original plan are expected. One must strive to meet the objectives of the financial plan, and hence it
must be determined why the plan of revenues and costs is not being met. There also can be problems
that are external to the firm and thus not under control of management.
11. Discuss the relationship between the positioning concept and positioning strategy.
The positioning concept relates how the firm desires its target market to perceive it. Positioning
concepts can be functional: solves specific needs; symbolic: relates to the buyer’s need for self–
enhancement; or experiential: provides sensory pleasure or stimulation. The concept also guides
positioning decisions over the life of the product. The positioning strategy is the combination of the
marketing mix actions that transform the positioning concept into a specific position with targeted
buyers.
12. Select a product–type product–market (e.g., ice cream). Discuss the use of functional, symbolic, and
experiential positioning concepts in this product category.
In the product–market of athletic court shoes, Converse canvas basketball shoes would probably be
viewed as functional. They serve the purpose of just meeting the need of having to wear shoes on the
court. New Balance shoes are perceived as experiential. They provide pleasure when worn because of
the superior quality and cushion while on the court. On the other hand, Nike Air court shoes would be
symbolic. Buyers’ feel self–enhanced by wearing the athletic shoe Michael Jordan wears. Consumers
would also feel that they perform better by identifying with Michael Jordan while wearing the Nike
Air’s.
45
13. Discuss the conditions that might enable a new competitor to enter a mature product–market.
A new competitor can enter a mature product market when certain conditions are prevalent at the time
of entry. For instance, when buyers’ needs are differentiated, new entrants could find segments, or
niches, whose needs have not been satisfied. New technology could also ease the entry of a new
competitor, which could render the existing technology in that market obsolete. Substitutes are more
prevalent in mature product markets. Indeed, buyers are more experienced in a mature market and
have differentiated needs. Thus, they could become dissatisfied with specific or major brands,
therefore making it possible for a company to enter the market with a new brand or product. Most
competitive situations in a mature market are on the basis of cost, because of the price sensitivity of
consumers.
Normally, new competitors must be fairly large, because of the capital investment required. Some can
even enter the market through acquisitions, either domestically or internationally.
14. Competing in the mature market for air travel promises to be a demanding challenge in the 21st
century. Discuss the marketing strategy issues facing Delta Airlines during the next decade.
Delta must face several marketing strategy issues in the future. For instance, the decade of the 90s has
been one of much consolidation. Most of the smaller and larger unstable firms will be bought out or
bankrupt. Those with no strategic direction will not be able to handle the pressure in such a
competitive, volatile industry. Indeed, the industry will still be very dynamic and constantly changing.
Also, competition will grow to a global scale, with airlines responding to rapid international demands.
Delta must utilize its marketing strategy to niche certain segments of the market and meet those needs
in a specific way. As competitors compete in this oligopolistic environment, creativity will be
important to reach certain targets. Customers will still be price sensitive. Delta must establish
operating guidelines encompassing all components of the market mix to capture these markets and to
compete domestically and internationally.
15. Assume you are assisting Motorola in determining information needs for monitoring its cell phone
targeting and positioning strategies. What are your recommendations?





Size and structure of the product-market, market segments, and growth projections.
Competitors’ strengths and weaknesses in each segment of interest (including financial
performance).
Marketing priorities
Positioning strategies of each competitor in targets of interest.
Potential disruptive innovations.
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CHAPTER 7
1. Discuss the major factors that encourage the formation of strategic partnerships among companies.
There are two broad categories of contingencies which would encourage the formation of cooperative
relationships: 1) environmental turbulence and diversity; and 2) skill and resource gaps. The formation
of the relationship is intended to be strategic in nature and to exist for the long–term.
Environmental turbulence and diversity may encourage cooperative relationships because the
organization may need to deal with a variety of issues on either a global or purely domestic basis.
Turbulence is generally much more prevalent on a global rather than domestic basis, yet this is not
always the case. Diversity includes such differences between the elements of an environment which is
comprised of people, organizations and social forces which may affect resources. Environmental
diversity considers the relationship between the organization and other organizations. This diversity
makes it difficult to respond to customers’ needs in a timely manner, and hinders new product
development. Similarly, an organization may not be able to respond to changes in technology or
obsolescence. A cooperative relationship allows the organization to respond to this type of turbulence
more quickly.
Cooperative relationships also allow the organization to acquire skills or resources from other firms.
This is often the case in technology dependent industries, or in industries where research and
development is particularly important. Or, an organization may desire to produce a product where it
lacks the complete compilation of skills necessary to manufacture the product. This skill gap could
also apply to gaps in information technology. Organizations may pursue collaborative relationships to
obtain resources necessary to access markets or to overcome financial constraints.
In summary, an organization often finds that it cannot accomplish everything, particularly on a global
basis. The complexities of the environment and the limitations within the organization itself often
make it prudent to consider a cooperative relationship with another organization to share the risks to
accomplish a common strategic goal.
2. Compare and contrast vertical and horizontal strategic relationships between independent companies.
Vertical and horizontal relationships differ primarily in the position of the partners in the alliance
process and their potential contribution to the alliance effort. Vertical relationships arise due to the
functional specialization of participants in the value chain. This includes product development and
design, manufacturing, marketing, distribution and even customer service. The vertical channels of
distribution link the areas of supply and demand. Vertical relationships may involve customer/supplier
relationships or relationships among participants in the distribution channel. The distribution channel
includes wholesalers, manufacturers, retailers and end–users.
In contrast, horizontal relationships occur with strategic alliances or joint ventures. The relationship
partners are not linked primarily by their position in the value chain process which involves creating
goods or services. Horizontal relationships exist primarily between organizations which manufacture a
good or provide a service. Strategic alliance and joint venture cooperative relationships involve
partners at the same level in the distribution channel. This makes the relationship horizontal.
47
3. Discuss the similarities and differences between strategic alliances and joint ventures.
Strategic alliances and joint ventures are similar and differ primarily in one respect. An alliance does
not result in the formation of a formal SEPARATE entity. Both cooperative relationships may be
formed to cooperate to receive one or more strategic objectives. An alliance refers more to the sharing
of control concurrently with the existence of the two (or more) separate partners. A joint venture
makes this sharing more separate and distinct. Both joint ventures and alliances may be formed in
response to developing a new market opportunity, accessing an international market, sharing costs and
financial risks, gaining a share of local manufacturing profits, or acquiring knowledge of the core
business. However, joint ventures are more likely in response to environmental turbulence and risk,
rather than to deal with a skill or resource gap.
4. A German electronics company and a Japanese electronics company are discussing the formation of a
strategic alliance to market the other firm’s products in their respective countries. What are the
important issues in making this relationship successful for both partners?
First of all, the two companies should consider their motivation in forming the strategic alliance. This
will determine the objective(s) of the alliance and thus influence the means by which a successful
alliance can be identified. The next step is to consider what factors will promote the success of the
alliance in terms of achieving the objective(s).
In this particular situation, the partners seek access to global markets. Both partners should have strong
marketing capabilities and/or a strong market position within their own markets. In other words, the
partners must be a “good match” to establish the foundation for a successful alliance.
The next stage of the process involves the management of the alliance. Both firms will now be faced
with the complexities of managing a situation which is a hybrid of two separate companies. The
alliance is an inter–organizational relationship where the management skills developed for single
organizations may not apply or may not need to be adapted. In general, the companies may follow
these eight guidelines for the management of the alliance to enhance the opportunity of success for the
alliance partners:
a. Planning is imperative.
b. Trust and cooperative communication must exist between the partners.
c. Conflicts are inevitable, and plans must be made to resolve them rapidly.
d. The leadership structure for the alliance must be explicitly defined.
e. Each partner must be flexible enough to adapt to the other partner’s needs and to changing
conditions.
f.
Cultural differences must be acknowledged and resolved.
g. Technology transfer between the partners must be carefully orchestrated and implemented.
h. Each partner must be willing to learn from the other partner’s strengths.
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5. Establishing successful interorganizational relationships is difficult, according to authorities. Will the
success record improve in the future as more companies pursue this strategy?
As more companies pursue interorganizational relationships, we will be able to learn more about what
factors influence and create a successful relationship. In addition, the environment will change and
provide increased opportunities. For example, the increasing advancement in technology continues to
improve communication among alliances partners, and do so in a more cost efficient manner.
Similarly, as firms gain more experience with these relationships, they will be better able to handle
problems and resolve conflicts. The experience of the firms also may allow problems to be avoided
more often. Firms may also increase the amount of attention given to the type of partner selected and
critically examine the overall motivation for the relationship. More of this advance planning should
increase the likelihood of success. Firms should be more interested in this type of “pre–planning” once
they have seen or participated in interorganizational relationships.
6. Are vertical relationships more likely to be successful than horizontal relationships? Discuss.
Vertical relationships link together participants in the value chain of manufacturing products or
services. This may include a supplier/manufacturer cooperation, or a distribution channel relationship.
These relationships may be transactional or collaborative.
In contrast, horizontal relationships describe strategic alliances or joint ventures which join partners at
the same level in the distribution channel. It is not the type of the relationship which determines the
chances for success. What is more important in predicting success is: 1) how well the partners are
matched; 2) how committed the partners are to the relationship; 3) the degree of definition of the
alliance objectives for all partners; 4) the amount of effective communication between the partners; 5)
the mechanism in place for managing the relationship and resolution of conflict; 6) the cultural
(national and corporate) similarities of the partners; 7) the degree of dependence of the partners on each
other for overall corporate success, or how important the relationship is to each of the partners in the
context of the organizational objectives; and 8) the degree of similarities in the overall corporate
philosophies of the partners. To the extent that a vertical or horizontal relationship can positively
influence all of these factors, then one form would be more likely to be successful.
While it is difficult to make broad generalizations, vertical relationships appear to provide the
situations which most often lead to successful interorganizational relationships. The vertical
relationship links partners together which are more dependent on each other for overall corporate
success. Also, the relationship is more likely to be critical to the organization’s success overall. This is
especially true of customer supplier relationships. Vertical relationships may provide easier
communication, and often the corporate philosophies of the participants are similar. Similarly, the
participants may be a part of a common distribution chain where it is not necessary to divulge any
proprietary information. It may be easier for vertical partners to trust each other, and thus
communicate more effectively. The reason for the formation of the relationship often tends to be
related to achieving efficiencies in the value chain process. Again, this imposes the need for a
cooperative relationship among the partners. The relationship is thus perhaps more destined from the
start to be successful.
This is not to say that horizontal relationships cannot be successful. Participants in horizontal
relationships must be aware of the situations which might make management of the relationship more
difficult and less likely to succeed than a vertical relationship.
49
7. Suppose you are seeking a Japanese strategic alliance partner to market your French pharmaceutical
products in Asia. What characteristics are important in selecting a good partner?
Perhaps the two most important criteria in selecting an alliance partner are compatible philosophies of
doing business and similar commitment to the attainment of a common strategic objective. Successful
alliances are particularly difficult to achieve due to: 1) shifting strategic requirements resulting from
changing conditions and market and technological uncertainties; 2) the lack of clear decision–making
responsibility determination; 3) conflicts concerning objectives, cultural differences and styles of
making decisions, and 4) the decline of long–term commitment and interest by one of the alliance
partners. Therefore, the French firm should be careful to select a partner which avoids encountering
the above difficulties. The Japanese firm will come from a different national culture, yet could have a
similar corporate culture to the French firm and may possess a comparable approach to decision
making. The Japanese firm should be as committed to the alliance as the French firm and should be
willing to rapidly resolve conflicts. The partners should agree as to the formal structural management
arrangement of the alliance. In summary, the Japanese firm should expect to gain from the alliance the
same strategic benefits that the French firm seeks. The alliance may still be successful even if the
partners differ according to size, functional specialization, resource capabilities or even culture.
8. Discuss how alliances may enable foreign companies to reduce the negative reaction that is anticipated
if they tried to purchase companies in other countries.
A strategic alliance avoids the need for direct foreign investment in another country. An alliance
allows a company to enter a foreign market through one of the existing host country companies. The
foreign country host partner retains its independence. The foreign partner is a partner and not an
investor which may exploit citizens and resources of the host country. The host country is not as afraid
of giving up its sovereignty and exposing its markets to foreign intervention. Citizens and the
government have an incentive to support the alliance since the other partner in the alliance is from their
own host country. The product which may be sold is also not perceived as foreign due to this
partnership.
9. Discuss how government may participate in helping domestic companies develop their competitive
advantages in an industry such as aerospace products.
Governments may cooperate in an active manner to promote the success of a domestic aerospace
products company. The government may join with the company in any of three types of government
and private industry relationships: 1) a single nation partnership; 2) a multiple nation partnership; or 3)
governmental corporations. In addition, the government may enact legislation which makes it easier
for the domestic company to compete with foreign rivals. The government may provide financial as
well as informational support. In the single nation partnership, the government may help foster
cooperation among several firms in the industry to achieve global objectives for the companies.
Multiple nation partnerships may be created with other countries to expose the domestic firm to
advantages possessed by foreign competitors. Or, the government may directly participate in
ownership of a company providing financial and other support for the benefit of the entire country.
10. Identify and discuss important issues in deciding whether to create internal cross–functional
relationships.
The intent of cross–functional relationships is to encourage and facilitate cooperation rather than
specialization. Internal processes such as new product development benefit from cross–functional
cooperation in areas such as research and development, marketing, purchasing, finance, and operations
working together to commercialize new product concepts.
50
The success of internal relationships requires developing strong internal collaboration that cuts across
functional boundaries. Several guidelines for developing effective relationships are:
1. Demonstrate management support.
2. Start with a pilot team.
3. Keep the teams small—and together.
4. Link the teams to the strategy.
5. Seek complementary skills for the team—and look for potential.
6. Educate and train.
7. Address the issue of team leadership.
8. Motivate and reward team performance, not just individual performance.
The relationship strategy requires attention to the internal structure. The starting point is building a
collaborative customer–driven internal culture.
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CHAPTER 8
1. Discuss the relationship between customer satisfaction and customer value.
Value and satisfaction are closely related. Customer value is the trade-off of benefits less the costs
involved in acquiring a product. Superior customer value results when the benefits are substantially
greater than the costs. When the buyer’s use experience exceeds both his/her expectations and the
value offerings of competitors, superior value is achieved. Customer satisfaction is an indication
of how well the use experience corresponds to the value expectations.
2. In many consumer products companies, marketing executives seem to play the lead role in new–
product planning, whereas research and development executives occupy this position in firms with very
complex products such as electronics. Why do these differences exist? Do you agree that such
differences should occur?
Many times these organizational differences exist because management believes that high technology
products need technical personnel to market the product because they understand the complex nature of
the product. In consumer products companies’ management does not feel complex R&D people should
be involved when the product’s marketed to the layman consumer. These organizational differences
come from the premise that a high technical product is positioned at a high technical consumer and
therefore needs to be controlled by R&D people who design the product, whereas the opposite case is
true for a consumer product firm. This is not to say that R&D people should not be involved in
planning (many times they must because they know so much about the new product) but the overall
planning strategy is the role of marketing. The product manager’s form of marketing–product
organization is sometimes used where a manager is held responsible for one product and under him a
staff qualified in different product areas (R&D, advertising, etc.) support the product planning function.
In technical product firms, the product manager may have a technical background in addition to
marketing training and experience.
3. Discuss the features and limitations of focus group interviews for use in new product planning.
Focus group interviews have been beneficial in identifying and evaluating new product concepts. An
experienced moderator guides a small group such as consumers into discussion about products. From
the discussions, new ideas may be generated or product concepts may be evaluated. Although the
groups are selected to represent the target market of the firm, the group may not actually be a
representative one. As a result, such a group may not be productive in identifying or evaluating
products targeted to a particular group. Also the moderator may have a difficult time in generating an
insightful discussion. A group of 8–12 is also limited by their own experiences and creative abilities.
Although these focus groups have proved to be fruitful, their limitations must be evaluated.
4. Identify and discuss the important issues in selecting an organizational approach for new–product
planning.
An organizational approach for new product planning involves:
a. Developing an operating philosophy that decides whether to produce products internally or
externally and follows a formal new product planning process.
b. Develop organization structures that incorporate formal structures of R&D with close involvement
of marketing.
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c. Matching management styles to new product planning needs.
The company also needs to develop an environment that encourages the generation of new ideas.
Management must be supportive of the planning process. The approach has to correspond to the level
of risk management is willing to take.
5. Discuss the issues and trade–offs of using tight evaluation versus loose evaluation procedures as a
product concept moves through the planning process to the commercialization stage.
Due to the huge cost of developing a new idea and commercializing it, a tight policy may seem to be
indicated to reduce costs. However, a somewhat loose (or not overly tight) screening procedure will
help to prevent the rejection of a good idea. Management needs to develop a level of risk it is willing
to take in prescribing its screening procedures. Of course, the essential issue is to reject the least
promising ideas as early as possible to reduce costs.
The degree of tightness or looseness at the screening level must be based on the compatibility or
feasibility of the idea with the company. The company’s mission and objectives play a dominant role
in defining the screening boundaries. Screening is the critical stage of evaluation because expenditures
increase from the idea stage to commercialization whereas the risks of a bad product declines as more
information is received.
6. What factors affect the length of the new–product planning process?
The following factors affect the length of the new product planning process:
a. whether it is an industrial or consumer good
b. corporate environment
c. corporate risk factor
d. number of new products to screen
e. fit of the product with the company’s objectives
f.
amount of time required for product development (Exhibit 11–9)
g. amount of time for testing
h. necessary revisions for successful testing
i.
amount of marketing research required (i.e., is it a new market?)
j.
time to produce a prototype
At each step along the way the product must be reevaluated and either revised or rejected if necessary.
53
7. Compare and contrast the use of scanner tests and conventional market tests.
The scanner testing is less expensive than the conventional testing because it employs electronic
marketing testing. The scanner testing enables the use of controlled advertisement testing.
Furthermore, with this method a large number of people can be tested nationally. As the information
boom continues this type of testing will grow and likely cost less as new technologies are used.
Like the scanner testing, conventional testing is attempting to measure the consumers’ response to a
product by testing a sample of the population. Although it is more expensive than scanner testing, it is
not as artificial. The environment may not be as controlled, but it is real. The key to this type of
testing is the selection of the test site(s). The company must make sure it is a representative city. The
conventional testing has greatly improved the success/failure odds. Again, both types of test marketing
try to predict the success of a product during full scale commercialization.
8. Is the use of single city test market appropriate? Discuss.
The use of a single city test market may be a very risky venture. By testing only one city, the company
is maintaining that the city is representative of its target market. If the product is intended to go
national, this may be an extremely bold statement. In reality, a company can only “hope” to find a
reasonable match between the test and the commercial market. A single city test is a limited sample
resulting in problems in predicting regional and national responses and trends. Also, the necessary
requirements of a test city (isolation, comparability representative, media mix, diversified socio–
economic cross section, etc.) may be difficult to find in one city. Finally, the competition could more
easily taint a company’s results in one city.
Yet, the motivation behind using one test city is probably cost. This conventional type of testing is
very expensive, although it produces rather successful results. Therefore, companies may want to
perform some useful testing (one city) but cannot afford to do multiple cities testing. In this case, the
cost/benefit analysis must carefully be performed. Alternative evaluation methods may be a better
option to a single city market test (e.g., simulated mall tests).
9. Examine the new product planning process (Exhibit 8–3), assuming a platform strategy is being used
by the organization. How does the platform strategy alter the planning process?
A platform strategy entails the organization developing a capability that can be used to generate other
products. This capability is leveraged to develop many products. Thus, the new product planning
process would not begin with a customer needs analysis as it does in Exhibit 8–3. It would instead
begin with the company’s distinct capability. The company would also not be required to go through
the idea generation, screening and evaluation stages. Instead, the processes of the products would all
start with the available platform.
10. Analyze the potential role of the Internet in the new product planning process.
The communications capabilities of the Internet can be utilized in various ways in new product
planning. At the idea evaluation stage, customer feedback may help identify potential new product
ideas. The Internet Feature, “Friendly Spies on the Net,” describes how Coca-Cola, Hallmark Cards,
Kraft Foods, and Stonyfield Farm are using the Internet to generate new product ideas, evaluate
new products, guide taste tests, and improve existing products. The Internet has the potential to
contribute to all stages of the new product planning process (Exhibit 8-3).
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CHAPTER 9
1. Eli Lilly & Company manufactures a broad line of pharmaceuticals with strong brand positions in the
marketplace. Lilly is also a manufacturer of generic drug products. Is this combination branding
strategy a logical one? If so, why?
This is a sound strategy for two main reasons: (1) there has been a big increase in demand for generic
drugs in the last five years, and (2) generic products can be highly profitable while using up excess
capacity. If Eli Lilly failed to move into this market, it would be missing a big piece of the market for
all drugs and allow its competitors to have a chance at a significant and profitable market. Consumers
in the U.S. have purchased generic products in many product areas. They provide good quality at
substantial price savings. In the troubled times of 1980–1981 people became very cost conscious and
increased the number of generic products they bought. Generic drugs have done well. Much of the
reason is due to consumer reports and generic studies that indicate that most drugs have the same
ingredients. One example of this is a recent aspirin study that says all aspirin contains about the same
ingredients; therefore, K–Mart brand is just as good as Bufferin at half the cost. So as long as Eli Lilly
can maintain good sales growth and profits in generics without damaging sales in their brand lines then
it is felt this is a very logical strategy. An important consideration in the generic market is developing
strong middlemen which is something Eli Lilly has already done. Also, one must observe the retailers
who sell the products, as long as a demand for generics increases, will allocate more shelf space for
these products.
2. Discuss the advantages and limitations of following a branding strategy of using brand names for
specific products.
An important advantage of using a brand name strategy is to build brand identity with either the
product or mix of products in the line. Another critical advantage is that branding offers a way to
distinguish a company’s product, thus, providing a competitive advantage. Many times the name
supplies information to the customer as to quality, reputation, etc. Brand names are important elements
used in advertising and promotion. Of course the company must decide their reasons why a brand
name should be used. Brand names for specific products identifies the product’s use to the customer.
Instead of the customer thinking, “I need something to clean my ear,” he thinks, “I need a Q–Tip.”
This is obviously the ideal situation for the marketer—where the customer has a need and identifies
that need to your specific product by name. One of the best examples of this is Coke. Many people
ask for Coke when they want a cola drink even if an establishment has another brand such as R/C Cola.
The limitations of a brand name strategy for a specific product is that you may form a good solid brand
identity and a competitor will come in with a private label product they claim does the same thing at a
cheaper price. They play on the image you have built in the consumer’s mind. Also, sometimes the
brand name confuses the customer and turns the customer away because the name is too complex or
does not mean anything. Sometimes brand names are associated with high cost in relation to private
names. The economies of scale in promoting many products under one name (e.g., Craftsman) are not
possible when using a different name for each brand. Finally, some brand names become so associated
with a product they become “public property.” In other words, the name is associated with a product
and not a company.
3. What is the role of strategic brand analysis in building strong brands?
Strategic brand analysis performs a vital role in providing information essential in managing the
organization’s brand portfolio. The activities include market and customer, competitor, and brand
analysis. Information is needed on how each brand is performing, competitive strengths and
55
weaknesses, market trends, and changes in competitors’ brand strategies. Brand analysis supports all
of the brand management activities (Exhibit 9-3).
4. To what extent are the SBU strategy and product strategy interrelated?
The SBU can be viewed as a separate product company which has a product or line of products that
will be marketed to a target market. The way in which the SBU markets its products is through one or
more product strategies. Basically, the SBU and product strategies are very much interrelated. The big
step in directing the SBU is determining how management wants to position the SBU products against
key competitors. The product strategy will also provide valuable marketing research information for
the SBU. This information is of key importance in designing the positioning strategy for the product(s)
as well as guiding the SBU’s mission. The interrelationship between the SBU and the product strategy
becomes more complex as multiple products and markets are added to the firm. Priorities must be
established as to the importance of each of the product categories in the SBU. This aids in planning for
new products, and guides resource allocations for the overall firm.
5. Suppose that a top administrator of a university wants to establish a product–management function
covering both new and existing services. Develop a plan for establishing a product planning program.
The important first step for the administrator is to decide how much of a management function the
university wants. Much of this will come from the objectives set by the administrator. Next, a review
of existing services should be done, focusing attention on how well they are performing. This
necessitates the establishment of criteria for use in evaluation. Doing this is not simple since there is
likely to be wide variation across academic areas (e.g., music versus journalism). A guide to tracking
is as follows:
ESTABLISH PRODUCT
PERFORMANCE
OBJECTIVES
PRODUCT REVIEW
SYSTEM
STRATEGY
ELIMINATING
THE PROBLEM
IDENTIFICATION
OF PROBLEM
PRODUCTS
It is important to eliminate services before consideration is given to new services. Next, university–
wide research should be done, perhaps in the form of a survey, covering all services the university
provides its students and faculty. This survey would vary in length and form depending on the size of
the school. This would set the stage for new product ideas, and help develop a starting point for the
planning process. If the survey is done properly, the administrator will have more service ideas than is
economically feasible; therefore, the evaluation stage is crucial to developing a beneficial new product
(service) plan. Obviously, the administrator will evaluate the new service ideas against the school’s
objectives. Once some new services are developed a marketing strategy should be built around the
services in the same manner as with a product. It is much easier to test a service than a product, and
less costly, the testing phase could be beneficial to the administrator to gauge the real importance of the
new service. After testing, the new services that look best are introduced and traced as to performance.
Tracking is especially important in this service example because many times a university service is not
56
successful, yet it continues to consume the school’s resources. One added problem with a university is
that needs change so suddenly (student bodies tend to be so trendy), and many times university services
compete directly with non–university services, such as, food outlets, movies, and other entertainment
activities. This makes the new service decision more difficult.
6. Many products like Jell–O reach maturity. Discuss several ways to give mature products new vigor.
How can management determine whether it is worthwhile to attempt to salvage products that are
performing poorly?
First, management must decide whether the mature product is meeting the objectives set down and if
these objectives have changed say since they were last determined. Objectives such as, profitability,
market share, sales growth, etc., should be easy to verify. These figures will be a part of the product
tracking strategy.
Management should have been analyzing the product all along. Second, if objectives are not being met
or management desires to change these objectives the first thing to consider is ways to restate the
product’s position or give it new life. Typically, advertising or new promotional methods are used.
Many times the product is put in a new package, or given a “new” branding. Actual improvements to
the product may be useful in stimulating sales. These strategies are very effective, and have helped
many old products contribute profitability to a product line. Additionally, new shelf space designs can
be added along with contests. Other ways to expand an aging brand are to convert nonusers, enter new
market segments, find new uses for the product, obtain competitor’s customers as they leave the
market, and increase usage. It is important to remember that this product could still be providing
benefit to the overall product line, and to the image of the company. The decision to remove it from
the shelf should be done with caution. Old customers may use the product along with others in the line
so changes in availability could hurt other line sales.
NOTE: If competition is the reason for a lack of products performance one fast way to restore sales is
by lowering the price, or offering two–for–one type deals. But, one must be careful not to destroy the
quality image of the product if price is dropped. An excellent example of this is Xerox Company,
which has had to drop price (even 45%) to compete with the Japanese producers. This strategy could
hurt the company’s image of high quality and competitive advantage.
7. How does improving product quality lower the cost of producing a product?
Product quality is a critical factor when competing on a national or global scale. Producing a high
quality product can establish a strategic advantage for the firm. Uniformity of the product occurs when
all processes of the business are improved to increase quality. This in turn reduces the necessity to
rework the product. Labor, machine hours and materials used are ultimately reduced as well by
producing the product correctly the first time. These reductions in operating and rework costs lead to
higher efficiency, productivity and increased competitive position. Thus, improving the quality of a
product can, in effect, lower the costs of production.
A large percent of production costs during the 1970s and 1980s in the United States was made of the
costs of reworking products with defects and scrapping unsatisfactory products. The experience of
firms adopting quality improvement programs indicates that improving the processes that produce
products, lowers costs by eliminating costly rework and rejects. Implementation of quality programs
requires a substantial time and resource commitment but the returns from cost reduction and improved
quality are substantial.
8. Why do some products experience long successful lives while others have very short life cycles?
57
Products last as long as they meet buyers’ needs and wants. When these requirements change or
alternative product forms are made available, the product life cycle may move into the decline stage.
Continued success of some products may also be due to management’s efforts to extend the life cycle
by improving the product. A continuing effort to improve product benefits and lower costs is important
to maintaining and strengthening competitive advantage. Early identification of the end of a product’s
life cycle enables management to plan for new product replacements.
Products can experience short life cycles due to changes in technology. For instance, a product in the
computer industry could be rendered obsolete within six months of its introduction, due to technology
advancing at an increasing rate. Also, as customers’ needs change, the product life cycle could begin to
change as well. Furthermore, if substitute products are prevalent, other products’ life cycles could be
shortened drastically. On the other hand, if technology remains constant, customers’ needs stay the
same, or no substitutes are found in that industry, a product could have a long product life cycle.
9. How can a company combine the strengths of global brands with the need to adapt to local market
requirements in a multinational operation?
There can be enormous strengths in ownership of a “master brand” – a brand identification that extends
across national and cultural boundaries. The global brand appeals to common values across different
countries and regions, not what is different. They may appeal to certain types of buyers whose needs
and requirements vary little between different countries. Examples of such brands might include, Coke,
Pepsi, Toyota, and Intel. Strong global brands enable the brand owner to negotiate on more equal terms
with international purchaser like powerful retailers, and may offer substantial economies in marketing
costs, as well as competitive advantages against smaller local brands. However, increasing pressure
from many markets is towards local identity not global. The emphasis on a global brand which varies
little between different international markets may be a barrier to gaining a strong position in local
markets, which require adaptation and differentiated approaches. The challenge to combine global
brand management with local adaptation may emphasize the management of a brand portfolio with
global, regional and local brands, with management decision making focused at each of these levels.
Current pressures mandate greater diversity in brand offerings to meet local market requirements,
possibly replacing the “master brand” with the brand portfolio as the important issue in strategic brand
management.
10. Discuss the underlying logic of managing brand systems.
Many times, new products alone cannot generate sales and profits that are essential to the vitality of the
business. A contributing factor to the firm’s success is their portfolio of products at various stages of
maturity. Managing brand systems strategically is the key to performing well in the market place.
Firms offering a wide variety of brands across a variety of markets need to manage them collectively.
If managed separately or on an ad hoc basis, resource allocation may be less than optimal. If firms do
not strategically manage their brands as a cohesive portfolio, then decisions made for individual
products may end up hurting the company.
A brand system perspective encourages the use of brands to support the brand system. That is, the
brands work to support each other. A key concept is that specific brands play different roles in the
portfolio. A key issue to consider is how many brands should comprise a portfolio.
11. What are the strengths and limitations in moving the Marriott brand vertically upward and downward
in terms of price and quality?
Marriott has an array of hotel and lodging properties ranging from luxury hotels to less expensive
lodging. Many of its chains are associated in some way with the
Marriott name (e.g. Courtyard by
58
Marriott). Vertically extension of a brand name
has potential risks such as brand damage by
moving a high quality/price brand to a lower position. Marriott was successful in downward extension
to create Courtyard by Marriott. An association with Marriott was indicated but the core brand identity
focus was on Courtyard. Marriott has not linked the Marriott brand name with its super-luxury Ritz
Carlton chain
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CHAPTER 10
1. In the late 1990s, several airlines started selling tickets through the Internet. Discuss the implications
of this method of distribution for travel agencies.
This method of distribution is a potential threat for travel agencies since the dispenser takes the agency
out of the loop. Internet ticket sales as well as ticketless travel are likely to be used most by low cost
carriers like Southwest. The agencies must work aggressively to show customers that they benefit from
an agency relationship. Savings from ticketless travel and Internet sales may be $20 or more per ticket.
Similar savings are possible via dispensers, so there is an incentive for the airline to use these methods
of distribution.
2. Distribution analysts indicate that costs for supermarkets equal about 98 percent of sales. What
influence does this high break–even level have on supermarkets’ diversification into delis, cheese
shops, seafood shops, and flowers?
The maturing food industry has seen its margins on basic food items narrowing for a long time. Stores
such as Kroger have diversified their store offering to develop new opportunities and to provide one
stop shopping. In this age of convenience shopping, one stop shopping is becoming a strong desire of
the consumers. This one stop shopping enables food stores to offer higher margin goods such as deli
items, and hard goods. Non foods, for example, carry as much as four times the margins of food items.
Once you have the customer in the store buying regular staple items, it does not take that much more
effort to get them interested in more expensive diversified items. It may eliminate any extra trip to
another store; therefore, they are willing to pay higher margins. To illustrate, many customers used to
obtain food items at one place and hardware at another place. This costs time and money and in the
fast pace world people prefer a one stop shop atmosphere. There is also a novelty in the diversified
areas of a store. Cheese shops sell expensive cheese, and people will buy it because it is different and
is the “in” thing.
3. Why do some large, financially strong manufacturers choose not to own their dealers but instead
establish contractual relationships with them.
One reason is that serving your dealers takes a great deal of capital and using this capital to buy dealers
limits expansion. Although a big manufacturer might have the capital to buy a dealer network,
expanding operations may be a better investment. Also, cost–benefit analysis might indicate that
establishing a contractual relationship is the most profitable way to run the channel (i.e., similar to a
purchase versus lease decision). Motivation is often higher with independent dealers.
The automotive dealership generally is sold as a franchise. But the manufacturer still maintains control
over the dealership because under contract the dealer can only purchase from the specific manufacturer.
Also the dealer is generally strapped for financing and therefore, must borrow money from the
manufacturer to keep operations moving. So in the case of an automobile manufacturer, there is no
need for ownership because control can be maintained through contractual agreement. Additionally, by
not owning a dealer the manufacturer can spread some of the risk (and rewards) down through the
channel.
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4. What are the advantages and limitations of the use of multiple channels of distribution by a
manufacturer?
There has been a major trend toward the use of multiple channels of distribution during the last several
years. The major advantage is the ability to reach more customers, thus increasing sales and profits.
Another advantage is reducing the dependence upon one channel. Multiple channels allows more
flexibility in marketing strategies and provides more opportunities to increase sales. A limitation of the
strategy is the possible irritation of channel organizations if there are variations in price, advertising
support, and other actions by the manufacturer. Some manufacturers’ use of factory outlets has been a
source of retailer conflict. Selling the same or similar products at reduced prices through factory
outlets and discount malls may cause retailers to drop the manufacturer’s line.
5. Discuss some likely trends in the distribution of automobiles in the 21st century, including the shift
away from exclusive distribution arrangements.
One can observe some major changes underway in the automotive industry. For instance, dealers are
starting to sell more than one brand of car to increase volume and satisfy the consumer needs. This is
likely to continue. In the past this was unheard of because the major manufacturers had a tight grip on
dealers, but today dealers have been found to offer a more diverse product line because the customer
has become more picky in selection and the major manufacturers have not been able to offer a solid and
diversified line. The failure of many dealers has weakened the manufacturers’ hold on dealers. Cars
like Mercedes, or BMW will probably remain exclusive distribution arrangements because this
exclusiveness is part of their allure. It is possible that retail automobile supermarkets will develop,
offering a buyer multiple brands at large discounts and one stop shopping.
6. In the late 1990s, Radio Shack initiated co–branding strategies with Compaq computer and SPRINT.
Discuss the logic of this strategy, pointing out its strengths and shortcomings.
An obvious advantage to the co–branding would be that the three companies could share or merge their
distribution channels to target a specific market. The strengths of this collaborative relationship are
sharing information and higher economic performance if the channel systems are properly managed.
However, some shortcomings also exist. The participating firms in the channel must make certain
concessions and be willing to work toward overall channel performance. There are rules to be
followed, control is exercised in various ways, and generally, there is less flexibility for the channel
members. Also, some of the requirements of the shared distribution system may not be in the best
interests of a particular participant. However, competing in a collaborative distribution system is a
major competitive advantage that outweighs the costs associated with it.
7. Identify and discuss some of the factors that should increase the trend toward collaborative
relationships in vertical marketing systems.
Collaborative relationships in vertical marketing systems should increase the benefits associated with
vertical marketing systems. If set up properly, the vertical system can perform much more efficiently
than traditional channels. The most important factor in favor of the vertical structure is that the
customer is serviced better through a total integrated and coordinated system. Promotion flows better
through the chain, and service is given by the channel leader instead of someone with less
responsibility. As customers become more informed and demanding of the services they receive,
companies’ emphasis on vertical relationships will become more and more important. Collaboration
among vertical channel members will enhance the service delivered to the customer. As Just–In–Time
inventory programs and total quality management programs are implemented, collaboration between
suppliers and producers will become more necessary.
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8. Why might a manufacturer choose to enter a conventional channel of distribution?
The manufacturer might not be able or desire to service the customer through a vertical channel for
many reasons. One of the biggest factors is a firm might not have the financial resources for a vertical
arrangement. Also, the customer base could be impossible to service through a vertical channel. Some
industries work exclusively through brokers (like the food industry) and deviation from this strategy is
not expected. The manufacturer might not be interested in controlling the channel or taking
responsibility for selling throughout the channel. Also, there may be legal restrictions on a
manufacturer which forces the conventional system to be used. A manufacturer wanting greater
flexibility may look at a conventional channel. Finally, a manufacturer may be unable to enter a
vertical marketing system.
9. Suppose management of a raw material supplier is interested in performing a financial analysis of a
distribution channel comprising manufacturers, distributors, and retailers. Outline an approach for
doing the analysis.
The raw material supplier would first want to run the basic financial ratios on channel organizations,
such as, profitability ratios, solvency ratios, debt ratios, etc. Also, the supplier would want to look
closely at the debt structure of all channel firms. This will indicate if the members will be able to pay
their bills on a regular basis. Another good idea is to have required channel members provide letters of
recommendations from other suppliers (if possible). It is generally required to review the companies’
auditor’s report (if audit is performed) and to have bankers verify financial stability. All one is trying
to do is establish a record of good payment which is critical to the operations of a channel. If possible
it is valuable to see a long range financial plan of channel firms. This enables the suppliers to align
goals, and make the channel more efficient. Depending upon the number of firms involved, the
supplier could select a sample of channel organizations concentrating on those accounting for the bulk
of the supplier’s business.
10. Discuss some of the important strategic issues facing a drug manufacturer in deciding whether to
distribute veterinary prescriptions and over–the–counter products through veterinarians or
distributors.
A drug company would be faced with the following strategic issues when deciding to use veterinarians
or distributors in distributing its products:
Access to Market Target. In one regard, veterinarians have direct access to the customers of the drug
company’s products. However, distributors may provide wider distribution of the product.
Channel Functions. Distributors may be able to take over more channel functions, whereas, the
company would probably have to assume more of them with veterinarians.
Financial Considerations. Costs to reach veterinarians may be greater than distributors. Yet
distributors may add a higher price markup to cover costs.
Control Over Channel. This area must be evaluated in light of each intermediary.
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CHAPTER 11
1. Discuss the role of price in the marketing strategy for Rolex watches. Contrast Timex’s price strategy
with Rolex’s strategy.
Rolex markets its watches with a very high quality, high price strategy. Pricing is not active—it is
passive. People know that Rolexes are expensive but one is looking for quality, image, and looks. In
fact, price may serve as a proxy for quality to the buyer. Timex uses price as a major part of its
marketing strategy. Advertisements are centered around good quality (dependability) and low price.
Timex used this strategy to gain entry and market share in the watch market. Timex satisfied a need
that had not been met through its product pricing strategy. Timex has a low–active strategy.
2. The Toyota Camry and the Lexus ES 320 are very similar but the ES 300 is priced substantially higher
than the Camry. Discuss the features and limitations of this pricing strategy.
The use of common manufacturing components is not a new strategy. General Motors has followed
this practice for several years. An important issue is successfully positioning the Camry and ES300 as
two different bundles of value in the eyes and minds of buyers. While the cars look somewhat similar,
they also display differences. Importantly, the ES300 benefits from the image of the Lexus name. No
doubt part of the price differential between the two cars is accounted for by this image.
3. Indicate how a fast–food chain can estimate the price elasticity of a proposed new product such as a
chicken sandwich.
The price of the chicken sandwich could be varied at different locations (in different test market cities)
and then statistics could be generated on demand. If the higher priced sandwich location had the same
demand or more than the lower priced locations, then the chain might be able to determine that the
sandwich is fairly price inelastic within a range appropriate for sandwiches. It is doubtful that it could
continue to raise the price without a decrease in demand. However, if demand was much greater for
the sandwich priced at a low price, then the chicken sandwich may be quite price elastic. Of course in
order for the demand statistics to be significant the different test locations must be compatible on size,
traffic, customer characteristics, etc.
4. Real estate brokers typically charge a fixed percentage of a home’s sales price. Advertising agencies
follow a similar price strategy. Discuss why this may be sound price strategy. What are the arguments
against it from the buyer’s point of view.
This fixed commission strategy is an accepted practice because it makes pricing so easy. The selling
price of the home sets the sales price for the sales agent. Also, this strategy is nice for the broker
because high dollar sales do not require proportionately more effort compared to low dollar sales while
the brokers receive a larger commission. This is one of the biggest arguments from the buyer side.
Many buyers feel that a commission rate should be negotiable on each and every deal in order to let the
market forces take place. This is what happened in the stock market. For years the market had a fixed
commission strategy and then buyers discovered that brokers could sell 10,000 shares as easy as 100
shares and hence should not be paid a fixed rate. Fixed pricing is a very comfortable strategy for any
company and it facilitates easy planning. It may be unfair to the person/company who pays the
commission.
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5. Cite some examples of businesses to which the experience curve effect is not applicable. What
influence may this have on price determination?
Companies with very specialized products that are custom designed especially for a buyer’s needs
would not necessarily be subject to a learning curve. An example of these companies are defense
contractors, engineers, and oil drilling companies. Another example is custom home contracting. This
makes price determination difficult because it is hard to judge different project costs (you can use
similar historic cost but this is also difficult). In these businesses costs generally rise with inflation,
and innovation. Moreover, pricing is likely to be influenced more by demand and competition than by
cost and set accordingly.
6. In some industries prices are set low, subsidies are provided, and other price–reducing mechanisms
are used to establish a long–term relationship with the buyer. Utilities, for example, sometimes use
incentives to encourage contractors to install electric–or gas–powered appliances. Manufacturers may
price equipment low, then depend upon service and parts for profit contribution. What are the
advantages and limitations of this price strategy?
One advantage is that a company can be competitive with its main product while making up the
difference with high margins on supplies, etc. For example, the disadvantages are that competition
may be limited because they cannot meet the subsidized price and the strategy may be questioned on
ethical grounds. The underlying strategy is to lock the buyer into a company that supplies the auxiliary
items. Razor blade companies give away razors when you buy their blades (and many times only their
blades fit the razor). Hence, they can market higher margin blades to the fill razor customer, and the
buyer is happy. This strategy makes for nice profit potential and steady cashflow among other things.
Also, over the long run a service company can maintain a good relationship with the customer, and
hence promote this service to others.
7. Discuss why it is important to consider pricing from a strategic rather than
a tactical perspective.
Pricing decisions should be an integrated part of positioning strategy. Positioning strategy is guided by
how management wants the brand to be positioned by buyers. Pricing strategy works in combination
with product, distribution, and promotion strategies in seeking to position the marketing offer in the
eyes and minds of the buyers in the market target. Short-term tactics are important but these decisions
should be consistent with longer-term pricing strategy.
8. Discuss some of the ways that estimates of the costs of competitors’ products can be determined.
One could buy competitors products and take them apart and try to cost out the components parts.
Many of the parts might be built by the same vendor. Vendors themselves might be able to help a
company determine competitor costs. Sometimes, study of financial statements can give an indication
of costs, particularly when there are not too many different products lumped together. If a competitor
has a one product line financial statement, one can sometimes review cost data that can be helpful.
Finally, management experience and judgment can be used with high accuracy to sometimes predict
costs of competitors. A knowledge of wage rates, for example, is useful in some product categories.
9. Discuss how a pricing strategy should be developed by a new firm to price its business–analysis
software line.
The software product is one that is evaluated on the basis of features and performance. “Buyers have
difficulty evaluating the applicability and cost benefits of these products.” In this regard price may not
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seem to play an active role; however, there seems to be a certain range that non–business consumers
are willing to pay. For example, customers may show resistance to prices over $100 for personal use
soft–ware. Within this range, the price may be inelastic while elastic outside the range. Since this
technological market is very competitive, prices set must reflect the competitive environment. The
software could be distributed through retail outlets at a price below $100. The key to marketing this
product may be to emphasize its features and performance.
10. Suppose a firm is considering changing from a low–active price strategy to a high–active strategy.
Discuss the implications of this proposed change.
This policy may have a major impact on the success of product. Since both strategies are “active”, the
consumer would be extremely aware of the product’s “price”. Increasing the price may disturb the
consumer especially if price is again emphasized. Consumers may even discontinue the use of the
product. One way to counter such an attitude might be to increase the quality or status of a product.
This would be rather difficult though since people have a strong association of a low–price with the
product due to the “active” strategy. One example would be if a “discount” store (K mart) tried to
significantly raise its prices. People may not be willing to pay higher prices at a store that used to have a
“low–price” image.
11. Describe and evaluate the price strategy used for the Toyota Lexus 400 European–style luxury sedan.
Toyota markets the Lexus 400 as a very high quality, high priced luxury sedan providing a leather
interior, a very smooth ride, and ultimate comfort. Toyota has positioned the Lexus in the upper ranges
of the American sedan market. At the same time, it is priced at the low to mid ranges of the luxury
styled European cars. Americans have become a little more price sensitive and therefore, want quality
and comfort at a little lower price. Toyota, intent on increasing brand recognition and loyalty, markets
non–price factors of the Lexus when attracting its customers.
The entry of Honda (Acura), and the Toyota Lexus, slowed down price increases by European car
makers. The Lexus was “value” priced to offer comparable design and performance to the more
expensive BMW and Mercedes models. Lexus with extras averaged $40,000 plus when introduced in
1989. Ratings of the Lexus were very high by automobile magazines. The pricing strategy helped
Toyota gain a position in the luxury segment. The potential success of Nissan’s Infinity market entry is
less clear.
Base price comparisons for the various models in 1996 were:
Lexus LS 400
Infinity Q45
Mercedes E Class
BMW 740il
$52,900
53,000 to 59,000
40,000 to 50,000
62,500
From 1989 to 1996 the Japanese car prices increased and the German car price increases slowed
down—particularly Mercedes.
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CHAPTER 12
1. Compare and contrast the role of promotion in an international public accounting firm with promotion
by American Airlines.
CPA firms’ promotional strategies reflect their strategies of segmenting markets and developing new
products. The lifting of the ban on advertising (with some restrictions) resulted in a shift of
promotional strategies. Although advertising is now allowed, the firms are still somewhat conservative
in their advertising styles because they want to preserve their professional image. They tend to
advertise in trade journals or business magazines versus television. Personal selling is a key element in
promoting a CPA firm because potential clients are really “buying” the service based on their
confidence in the firm’s representatives. This is similar to the promotion of other professional services.
American Airlines’ promotional strategies rely heavily on advertising in all types of media. Radio,
newspaper, and television are all vital elements of an airline’s advertising strategies. Sales promotions
such as “Super– Savers” also play an important role and encourage higher volume levels. Since
advertising has not been restricted in the airlines, they have developed it to a greater degree and are not
faced with maintaining the “professional” image as CPAs are. Price wars are encountered by both
types of industries although with CPA firms it is more subtle. The airlines depend on promotion from
an intermediary—travel agents. Selling effort is targeted to travel agents and corporate accounts,
though selling also occurs via ticket agents.
2. Identify and discuss the factors that are important in determining the promotion mix for the following
products:
a. Video tape recorder/player.
b. Personal computer.
c. Boeing 7E7 Dreamliner commercial aircraft.
d. Residential homes.
(1) Competition has forced video tape recorder manufacturers and retailers to emphasize
advertising for quality and/or low prices. Video discounters for example, must generate high
volume from advertising to compensate for the low prices. Although personal selling is
important in the stores, its significance will decrease as video recorders become a commodity.
(2) Personal computers are generally expensive, complex, and in a competitive market. As a
result, personal selling is necessary to inform the public. Trade shows also help to disperse
information. National advertising is also used. As personal computers become more common,
advertising will become a more important component.
(3) Boeing, due to its complexity and limited market, relies primarily on executive selling. The
communication process needs to be tailored to the particular client. The high cost of the
aircraft also supports a strong personal selling strategy.
(4) Residential homes are an expensive purchase and therefore require personal selling. Personal
contact is critical because for most people this is their largest planned investment. Advertising,
however, may be used to bring people to a development. Developers use television,
newspapers, radio, and road signs to attract potential consumers’ attention.
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3. What are the important considerations in determining a promotion budget?
The important issues in promotion budget determination are identifying:

Market share

New products

Market growth

Plant capacity utilization

Unit price of public relations

Product purchases as a percent of total purchase

Product pricing

Product quality

Breadth of product line

Standard versus custom
Based on relationships between the various factors, budgeting techniques can then be developed to
estimate the promotional budget. The factors can then be averaged in simple or weighted terms.
4. Under what conditions is a firm’s promotion strategy more likely to be advertising/sales–promotion
driven rather than personal selling driven?
A promotional strategy will likely be advertising/sales promotion driven under some of the following
conditions:

Larger number of buyers

Less expensive products

Undifferentiated audiences

Stimulation for personal communication

Nonindustrial products

Simple type of products versus complex ones

Commodity type products (standard)

Introduce a new product

Exposure to numerous geographically dispersed consumers at a low cost
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Required

Stronger, quick response

Attention getting promotion needed (i.e., low prices)
Desired

Cost effectiveness

Premium priced product

High manufacture contribution margin
The key to using advertising/sales promotion driven strategy is when a firm needs to communicate to a
large group, consumers buying an understandable product or service, or when the consumers are trying
to gain information.
5. Discuss the advantages and limitations of using awareness as an advertising objective. When might
this objective be appropriate?
The greatest advantage of using awareness as an advertising objective is that research evidence
indicates that it leads to increased market share, and therefore, larger profits. Obviously, consumers
cannot buy a product they do not know about. Awareness may trigger a need or desire.
The problems with using awareness is that it is difficult to measure and the linkage between exposure
and purchase is precarious. A marketing manager will usually find it more useful to know that
advertising caused a measurable increase in sales instead of knowing that advertising exposed a
specific number to the company’s message. It is difficult to measure that “specific number” of
exposures and then know what portion of it can be translated into sales.
This objective may be ideal for a new product or concept. In such a case, sales are dependent on the
number of people that learn about the product and the speed in which they take action on a purchasing
decision (e.g., word–of–mouth may be to slow).
6. Identify and discuss the important differences between advertising and sales promotion strategies in
the marketing promotion strategy.
Sales promotion expenditures are substantially greater than those of advertising. Also, sales promotion
is a more personalized strategy than advertising. Sales promotion offers special communication
techniques and incentives that are customized to respond to a specific occasion or purchase. Sales
promotion directly interacts with customers through trade shows, contests, samples, point–of–purchase
displays, trade incentives, and coupons. Advertising, on the other hand, involves nonpersonal
communication concerning an organization, paid for by a specific sponsor. It cannot interact with
viewers and does not promise to hold customers’ attention. However, it can target communications to
specific buyers with more focus than the large networks. It also communicates through a large variety
of media channels.
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7. Coordination of advertising and selling strategies is a major challenge in large companies. Outline a
plan for integrating these strategies.
There are several ways to coordinate and integrate strategies. The development of formal plans that
require advertising and selling team participation is one effective integrating method. Some companies
assign these coordination responsibilities to product or market managers. Another method is holding
regular planning and coordination meetings. These meetings assemble the people responsible for the
various promotion activities. Importantly, responsibility should be assigned to a person or group and
the people responsible for implementation should participate in the planning process.
8. Discuss the role of sales–promotion methods in the promotion strategy of a major airline.
Sales promotion methods for a major airline fall into three broad categories—the general public, the
commercial traveler, and travel packages. For the general public, advertising is probably the main
communication device along with incentives like the “Super Saver” fares. This type of promotional
tool is meant to be an incentive to induce an immediate response from the consumer. Usually such
“deals” have tight time restrictions and limitations. Again, their thrust is to draw attention.
For the commercial traveler the “Frequent Flyer” program entices business travelers to use a particular
airline for their personal gain. Free trips or upgrades are great incentives to use a particular airline.
9. How and to what extent is the Internet likely to be useful in companies’ promotion strategies?
Internet initiatives regarding promotion strategy may range from comprising the entire promotion
strategy to providing support for any or all of the promotion components. Many conventional brickand-mortar companies have web sites that offer a wide range of information capabilities. Some of
these firms accept orders by Internet. Companies operating using only an Internet business design
perform all or many of their promotion activities via the Internet. Capabilities and costs need to be
evaluated in deciding the promotion role of the Internet. Also, important is to minimize conflict with
salespeople and to be consistent in communicating with market target customers and prospects.
Nonetheless, the Internet performs an important and rapidly escalating role in promotion strategy.
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CHAPTER 13
1
What information does management need to analyze the selling situation?
Information needed to evaluate the selling situation includes market potential, size and location of
customers, intensity of competition and company market position. This information may identify the
potential for sales in a territory. The sales potential can be compared against actual results to analyze a
particular selling situation. Revenue/cost and sales response information also provides other means for
evaluating the situation. Further review of the selling situation involves evaluation of the salesforce
performance, such as sales results, costs, and salesperson performance. Management should establish a
procedure for analyzing selling situations so it is efficient and effective in meeting the company’s
goals.
2. Suppose an analysis of sales force size and selling effort deployment indicates that a company has a
sales force of the right size, but the allocation of selling effort requires substantial adjustments in
several territories. How should such deployment changes be implemented?
The firm needs to determine what the objectives of sales are (profit, market share, etc.) and then the
weak territories need to be analyzed in terms of these objectives. The allocation of sales effort must be
done with care so as not to disrupt the profitable and effective territories. The fact that this company
has the correct number of sales people allows management to concentrate upon deployment. Issues to
be considered in redeployment are:

effective communication of the need for redeployment.

minimizing the number of disruptions with accounts.

if commissions are paid, avoiding sudden pay cuts due to reassignment.

concentrating on adjustments that do not require major geographical relocations of salespeople.

obtaining the cooperation of the salesforce in making the changes.

providing any necessary training.

communicating with customers affected by the changes.
3. What questions would you want answered if you were trying to evaluate the effectiveness of a business
unit’s sales force strategy?
Evaluation of the effectiveness of a business unit’s selling strategy could be evaluated using the
following:

cost per sales call

number of new customers annually

sales per salesperson

sales and profit per region and smaller units
70

number of salespersons per region

sales per call

calls per day by region

profit margin per product

profit contribution per salesperson

lost customers annually

market potential
Other issues to be considered are the functions that the salesperson should be performing and time
allocations. For example, how much time should be allocated to locating new prospects versus
servicing existing customers?
4. Discuss some of the advantages and limitations of recruiting salespeople by hiring the employees of
companies with excellent training programs.
The objective of selecting salespeople is to hire those that will become high performers, yet, not be
overqualified. Many companies hire employees from other companies who have a reputation for
excellent training programs. They see this as a way to avoid high training costs while getting the
benefit of it. (Costs include time of the trainee and trainer during which time neither is contributing to
the profitability of the firm). Of course, these people will likely demand a higher salary and may be
overqualified. Overqualified people can become dissatisfied and feel unchallenged, resulting in greater
turnover. On the other hand, a well–trained person can be a tremendous asset since they are past the
“trial and error” period and have experienced successful selling techniques. Also, highly trained personnel
may have been exposed to a number of industries and situations which could be very beneficial to a
company hiring these people. They also may be able to assist in developing an appropriate training problem
for their new company.
5. Is incentive compensation more important for salespeople than for product managers?
Salespeople are on the front line of a business. The sales they generate are essential to the business.
Salespersons may need incentive compensation because
a. it is difficult to measure their effectiveness and efficiency (it is somewhat intangible).
b. they usually work alone.
c. they may lose important orders after putting in large amounts of time.
d. their hours are irregular.
e. they are in a frustrating position of being repeatedly turned down.
f.
the occupation requires self starters.
g. the supervision is geographically separate from the salesperson.
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Product managers’ goals are typically more controllable. It does not usually take as great an amount of
energy against numerous obstacles to accomplish their objectives. They operate in a more controllable
environment that is less frustrating. Incentive compensation is not as critical for product manager as a
salesperson, though incentives may be used for product managers providing useful measures of their
contribution can be determined.
The expanded use of selling teams for complex industrial products and services complicates incentive
compensation planning. Some companies are basing incentive compensation on team results.
Incentive compensation may be based on both behavior (e.g., account management practices) as well as
outcomes (e.g., sales).
6. Select a company and discuss how sales management should define the selling process.
The selling process is concerned with the planning and execution of the selling stages and activities
between the salesperson and a customer or prospect. In some instances, heavy emphasis must be
placed on the activities in the selling process which preceded the culmination of the sale. For example,
expanding the product mix, increasing the scope of the market, and entering into strategic alliances
may call for intensified efforts to locate new customers, learn new ways to secure appointments with
prospects, or to modify the tasks of planning sales presentations. On the other hand, a repositioning
strategy may call for changing the basic sales message as delivered face–to–face with existing
customers and with prospective customers. In other instances, such as with an integrative channel
strategy, the overall objective may be to generate more volume by concentrating on the latter stages of
the selling process, i.e., confirming the sale, and building enduring customer relationships by providing
valuable post–sale service.
Defining the selling process for a company like Boeing (commercial aircraft) requires analysis of the
stages that the buyer–seller move through from initial need determination to purchase and post
purchase sales support. The stages may include:

prospecting to determine needs

targeting opportunities

testing of software compatibility

formal presentations to technical and management personnel

further needs analysis

presentation focusing on solution to high priority needs and capabilities analysis

purchase commitment

post purchase contacts
This process may span several years, resulting in a multi–million dollar order.
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7. What are the unique capabilities offered by the Internet to business users of the communications
medium?
Many of the capabilities of the Internet are relevant to consumers as well as business users. However,
the volume and repeated nature of business purchases offer major opportunities for increasing the
efficiency of value chain processes. The Internet, Intranet, and Extranet can be utilized. Web sites can
be developed to meet the needs of different business customers as illustrated by Dell Computer’s Web
initiatives. There are opportunities to link applicable business process systems to suppliers systems
(see, for example, American Express Case 6-23). Exhibit 13-6 describes several business-to-business
Internet applications.
8. Discuss whether the Internet may replace conventional catalogs and direct mail methods of promotion.
There are many examples of the use of the Internet to perform similar functions provided by catalogs
and direct mail. These trends are expected to continue. However, there is no strong evidence that the
Internet will lead to the demise of conventional catalogs and direct mail methods of promotion during
the next several years. Long term impact of the Internet on conventional direct marketing methods will
likely be influenced by advances in technology, costs of alternative methods of direct contact, and
buyer preferences.
9. Direct Marketing is similar in many ways to advertising. Why is it important to view direct marketing
as a specific group of promotion methods?
The usage of direct marketing has increased tremendously during the 1990s for good reason.
Environmental factors play a large role in the importance that direct marketing has obtained in a
marketer’s promotion mix. There are several reasons direct marketing is expanding in today’s
marketplace:

the growing number of niches with heterogeneous needs

the continuous upgrading of the world’s telecommunications infrastructure

fast growth of 1–800 numbers offering easy and free access to merchants, and their acceptance
of credit card orders

the increasing numbers of working women (less time for shopping in stores)

the burgeoning usage of the Internet

quick delivery made possible by companies such a Federal Express
Most importantly, direct marketing enables a company to achieve higher response rates due to better
selection and targeting methods. Furthermore, a company using direct marketing can avoid the use of
intermediaries, such as retailers, thereby lowering distribution costs and maintaining more control over
the inventory. Finally, direct marketing allows a business to maintain a continuous relationship with its
customer.
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10. Discuss the reasons why many companies are interested in the marketing potential of the Internet.
The booming telecommunications industry and technological advances have certainly increased the
interest of companies in marketing their products or services over the Internet. This trend is expected
to continue. The Internet is a relatively cheap distribution and promotion vehicle. It is available to the
world (where the telecommunications infrastructure is in place) and is coming easier to use every day.
Much of the interest in the Internet arises from the growth of the World Wide Web, which provides
multimedia capability (sound, graphics, etc.). This multimedia capability is improving daily and is
drawing in a larger market due to its audiovisual appeal and ease of use. Thus, usage and potential of
the World Wide Web (WWW) is particularly interesting to marketers. Perhaps most importantly, the
Internet offers the opportunity to effectively target certain segments of the market. For example, one
company may advertise as product on user discussion lists, or advertise its product on a popular web
site.
11. Select one of the direct marketing methods and discuss the decisions that are necessary in developing a
strategy for using the method.
Several options are available. For purposes of this discussion, we examine database marketing. The
intent of database marketing is effectively using a computerized customer database to facilitate a
significant and profitable communication with customers. Therefore, it allows a company to find and
develop strong relationships with the customer base that accounts for a large portion of a firm’s annual
sales. The database used in this type of marketing could include information from internal and external
sources that is computerized and used for customer and product analyses, mailing lists, and identifying
sales prospects.
Database marketing involves investing in central and remote computer hardware, data–processing
software, information–enhancement programs, communication links, personnel to capture data, user–
training costs, design of analytical programs, etc. The system itself should be user friendly and
available to various marketing groups to facilitate sharing. Furthermore, the information stored in the
database should be relevant and organized to correspond to the units of analysis used in the system.
The system needs to include:

a database

analytical capabilities

a strategy and structure for using the system

procedures for deploying system capabilities

controls for managing the database (design and updating are vital)
12. Suppose you have been asked to evaluate whether a regional camera and consumer electronics retailer
should obtain Internet space. What criteria should be used in this evaluation?
Many criteria should be examined. A manager may consider the following:

What are my competitors doing?

What is the nature of my product?
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
What are the habits and traits of my target market? Do my customers use computers?

What other information can we gather from the customer by using the Internet?

Can we locate prospective customers on the Internet?

Can we gain a competitive advantage by using the Internet (ex: if not a good page—bad image
for company)
After considering these and performing a cost/benefit analysis, a manager should conclude whether or
not the company should be investing in an Internet site.
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CHAPTER 14
1. The chief executive of a manufacturer of direct–order personal computers is interested in establishing
a marketing organization in the firm. A small sales force handles sales to mid–sized businesses and
advertising is planned and executed by an advertising agency. Other than the CEO, no one inside the
firm is responsible for the marketing function. What factors should the CEO consider in designing a
marketing organization?
The first question one would want to ask is why does the CEO want a marketing organization? This is
an important question because as the text explains, the marketing organization must fit into the overall
company structure. Integration is a key component. There are many ways that the marketing
organization could be designed. For example, if the CEO is concerned about the sales effort then the
market structure could be controlled under a sales manager. The sales manager would then decide
what type of structure fits the objectives of the firm and the marketing effort. Factors to be considered
are:

How to coordinate marketing functions and activities.

Costs of alternative organizational schemes.

Number and characteristics of customers.

Organizational approaches used by key competitors.

Relation of organization to strategic marketing plans.

Specialization.

Emphasis on products versus markets.
Regardless of the organizational design utilized, coordination and control of the sales/marketing force
and advertising agency will be essential.
2. Of the various approaches to marketing organization design, which one(s) offers the most flexibility in
responding to changing conditions? Discuss.
All of the basic organizational approaches have their advantages. But the combination approach seems
to offer the most flexibility in a changing environment by responding to different influences in
designing the organization. With this organization one gets the benefits of both a product approach and
market approach. Hence, the total resources for the marketing organization cover all the important
areas from the product to customer. Also, the combination approach offers marketing specialization by
functional area or by product. Thus, if one enters a new market or new product, expertise can be
shifted to suit the goals of the firm and marketing organization. The market type of organization also
has some strong flexibility benefits. One important aspect is the ability to be attuned to and change
with the customers, hence the firm can stay on top. The end–user is important and the ability to change
with him is what makes this market approach better than the product approach.
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3. Discuss the conditions where a matrix type marketing organization would be appropriate, indicating
important considerations and potential problems in using this organizational form.
A matrix type marketing organization might be set up when:
a. the complexity of the environment is high (many products),
b. the interconnectedness of the environment is unstable or unpredictable, and,
c. emphasis on two different factors such as products and marketing functions is desired. (It could be
the combination of a functional and product organization.)
A matrix organization requires coordination between the product managers and other marketing
functions for their products. Of course, other combinations can be put together. The combination
approach provides flexibility in handling the marketing function.
The major disadvantage is in establishing lines of responsibility and authority because overlaps result
in responsibility and gaps in authority. Some product and market managers feel that they lack control
over areas they are responsible for. Well–defined lines of responsibility may help to alleviate this
feeling.
4. Assume that you have been asked by the president of a major transportation services firm to
recommend a marketing organizational design. What factors should you consider in selecting the
design?
Factors to consider are:

Types of customer relationships

Top management attitudes toward the marketing function

Direction of the company into related or diverse areas

Amount of new growth

Complexity of the environment

Unpredictability, interconnectedness of the environment.

Degree of integration of any newly acquired businesses into the corporate structure.

Need for specialization of marketing activities.
5. Discuss some of the important issues related to integrating marketing into an organization such as a
regional women’s clothing chain compared to accomplishing the same task in The Limited, Inc.
The Limited, Inc. shows how marketing is integrated into a national company. The company is
extremely marketing oriented because its president strongly supports this attitude. With a national
company, it must have a marketing network set up to be sensitive to a variety of national needs and
styles. For example, the Midwest’s styles may be more conservative than California’s styles. The
ability to make quick decisions in the marketing framework is critical to The Limited’s continued
77
success. The company may be functioning in a somewhat decentralized environment. A national
company runs into the problem of disseminating its marketing philosophy down through the
organization and then seeing that it is accomplished.
A regional firm will have more control over its organization to integrate the marketing function.
Integration can be achieved more easily. Furthermore, it will not likely have to deal with so many
customer differences making its marketing function somewhat easier. Top management support is still
critical. The importance of marketing may have to be stressed more in a regional company than, for
example The Limited, because a national firm which is setting trends may better understand the impact
of marketing. A regional firm may also have to depend more heavily on external organizations which
may represent major challenges when they actively participate in marketing activities.
6. What are possible internal and external changes that may require changing the marketing organization
design?
Various external factors that influence the organizational design include the environment, government
influence, industrial changes, and rapidly changing competitive forces. Certain internal factors entail
horizontal relationships, and speed of response necessary to compete in the industry.
Other factors that could require a change in the organizational design include altered market targets and
product scopes, different distribution channels, and various sales force considerations. Geographical
factors heavily influence the organizational design in making the field supervisory structure correspond
to salesforce deployment.
7. Is a trend toward more organic organizational forms likely in the future?
Firms in the last decade were heavily influenced by the trend toward decentralized management.
Indeed, the marketing function was moved from the corporate level to the business unit level. This
trend will likely continue as industries change and international competition becomes more prevalent.
Requirements necessary for an organic organization include corresponding to the strategic marketing
plan and adapting to changing conditions.
The trend toward organic forms depends on implementation of the structure, management style, long
term effectiveness, and corporate culture. Although this form is not as efficient, nor process–focused,
it is useful when a firm is market oriented. Organic forms are best used in highly uncertain
environments, for specialized, non–routine tasks, and when a firm needs to be highly adaptive.
8. Summarize and chart the current and future impact of the Internet on marketing processes and
organization.
The goal of this exercise is more to emphasize the pervasiveness of the Internet and the need to include
“e-thinking” in all aspects of marketing, rather than to arrive at an exhaustive listing. In particular,
there is a need to avoid both cynicism after the crash of many of the “dot.com” businesses in recent
years, but also unrealistic optimism about the Web and its impact on customer value. The diverse and
growing impacts of the Internet on marketing could be categorized in several ways. They might be
considered in the following groupings. Each grouping is capable of considerable expansion and
elaboration.
Impact on customers – issues include brand consistency with conventional channels and fulfillment
questions, but also changing buyer-seller relationships through mechanisms like online exchanges, and
reverse auctions
78
Impact on collaborative strategies – the Web provides the communication framework for managing
conventional partnering more effectively, but also the opportunity to develop new types of alliances
Impact on value chains – in particular, the Web is the basis for changing the relationships between
organizations participating in the value chain all the way from raw material to finished product, and
providing the basis for collaborative operations
Impact on competition – the Web provides the opportunity for existing competitors to develop new
channels that may gain market share, but also the potential for entry by new types of competitor with
different value propositions and business models
Impact on marketing programs – the traditional marketing program needs to accommodate the impact
on the Internet, e.g., on customer price awareness and product knowledge; as a new venue for
advertising and promotion activities; in providing a new, direct channel to market, which may displace
traditional approaches like personal selling.
Impact on marketing strategy – the real impact of these changes is in identifying new business models
and new ways of delivering customer value
Impact on internal processes – the Web provides the basis for a global intranet linking all employees
and diverse parts of the organization and for the use of collaborative software in planning and
executing marketing strategies, information resources are richer than ever before but must be managed
better.
9. Discuss the important issues in establishing an effective strategic alliance between organizations.
Strategic alliances are important strategies for various firms entering the international arena. This type
of strategy presents a complex organizational challenge. Indeed, the formation of strategic alliances
increased tremendously in the last decade. The issues important to establishing and maintaining an
effective strategic alliance include:

Know the objectives

Agree how the alliance should be run and who will manage it

Each partner should make provision in their own structures for the relationship

Agree in advance on how to resolve disagreements

Establish and manage the relationship on an on–going basis
10. What are the major approaches to organizing the marketing function for international operations?
Discuss the factors that may affect the choice of a particular organization design.
The major approaches to organizing the marketing function for international operations entail arranging
marketing as a product division, geographic division, matrix design, or centralized functional support.
The marketing scope can be multi–national, global, or in a single country.
Factors that affect the choice of a particular organizational design include language and distance
barriers, budgets, the product life cycle, government relations, the competition, and the environment.
For instance, a global form is best used when an organization with a broad product portfolio is
79
responding to rapid growth. Geographic forms are used to obtain a close relationship with national or
local governments. Furthermore, matrix forms are used by a company to reorganize for global
competition.
11. As companies begin to replace functions with processes, what are the possible effects on organizational
designs?
The trend in organizational design is moving away from vertical structures, characterized by many
management levels and strictly defined reporting relationships, toward a flatter structure focused on
processes. The processes are major clusters of strategically important activities, such as new product
development and order generation and fulfillment. This move toward a process–based design is
characterized by a more horizontal structure that eliminates managerial levels. Also, there is greater
emphasis on building distinctive capabilities using multifunctional teams. Processes and capabilities
are customer value driven, and organizations are continuously changing to reflect market and
competitive environment changes.
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CHAPTER 15
1. Discuss the similarities and differences between strategic marketing planning and evaluation.
Planning is determining goals and possible courses of action, and predicting results under alternative
actions. Evaluation, on the other hand, is determining if planned results are being accomplished. It is a
type of performance measure that provides feedback on results. Thus, both focus upon the same areas
and activities but with a somewhat different orientation. During the development of plans,
consideration should be given to how plans will be evaluated. Evaluation is part of the execution of a
planning process. Planning and evaluation are essential parts of a complete management process.
The differences are that the strategic plan is a set of objectives that are outlined to meet a future task,
where as the evaluation is an audit of the plan to determine if the objectives have been met. If the
objectives have not been met, then evaluation provides information to discover how to correct or solve
the problem. The plan is deciding what to do while the evaluation sees that the planning results stay on
course.
2. What is involved in managing marketing planning as a process? What issues should be addressed in
managing planning process in a company manufacturing high-technology components for the
automotive sector?
Managing marketing planning as a process suggests the need to plan and design the key issues in the
analytical, behavioral and organizational dimensions of the process. The analytical dimension is about
the “tools for the job” – planners need to have access to the techniques of analysis and planning
procedures that allow the development of technically competent outputs. The behavioral dimension is
about the people involved in planning, their commitment, sense of ownership and team-working. The
organizational dimension concerns the context in which planning takes place – the culture,
management style, information systems, and so on. The goal in managing planning process effectively
is to achieve consistency between these process dimensions, such that planners and managers have
appropriate analytical tools, effective planning groups that develop commitment to implementation,
and that outcomes fit the organizational context.
In a company manufacturing high-technology components for the automotive sector, the issues to be
addressed might include: choosing models of analysis appropriate to a sector dominated by a small
number of large customers, and possibly developing plans and strategies separately for each of them;
focusing on the end-user markets for major customers and the added-value opportunities they can be
offered; building planning teams that combine technological and marketing understanding as a way of
balancing what can be done with what needs to be done; developing structures that allow the
implementation of strategies around major customers (e.g., key account management approaches);
working to gain top management support for customer-led marketing strategies, possibly by involving
them in the planning process and interactions with key customers.
3. Selecting the proper performance criteria for use in tracking performance is a key part of a strategic
evaluation program. Suggest performance criteria that could be used by a fast–food retail chain to
monitor strategic marketing performance.
One of the best measures of performance would be average daily sales compared to the industry. Store
traffic would also be an appropriate and easy–to–measure performance criteria. Profitability is, of
course, a necessary measure. Overhead cost is a measure of efficiency and can be used to compare
other stores in a chain. Average advertising or promotional expenditures per customer sold would be
another viable performance measure. Performance criteria can be very detailed or general depending
81
on management and the size of company. Adding more criteria raises the cost complexity of the
evaluation task. Management should identify five to ten key elements which are addressed key areas.
On a less frequent basis, consumer surveys (e.g., store image studies) may be appropriate to gauge how
the chain is doing against its competition.
4. What justification is there for conducting a marketing audit in a business unit whose performance has
been very good? Discuss.
There is as much justification in conducting an audit for a good business unit as for a poorly
performing unit. All one has to do is open the financial pages and look at all the bankrupt companies.
At one time many of these companies had good business performances. Then changes occurred, and
the firms failed to adjust its strategy when products did not sell as expected. Thus, the roof fell in.
Therefore, all companies should have some form of a marketing audit to go along with the strategic
plan for the same reasons that all publicly held companies have external audits—to make sure things
are going as planned and expected. A company that spends so much time on a plan and does not have a
complimenting audit is only looking for trouble. Every company in business has a potential for
problems in marketing its products or services. In the fast changing environment an audit provides
flexibility, protection, and acts as a control feature.
5. Examination of the various areas of a strategic marketing audit in Exhibit 15.9 would be quite
expensive and time consuming. Are there ways to limit the scope of the audit?
Yes, one might want to focus on a specific segment of the marketing effort such as, salesforce, or sales
management and expand on this area. This could be done on a more frequent basis than a complete
audit. Specific audit requirements can also be evaluated on a rotating basis. As long as the audit
covers the important segment of the plan, a specific or rotating audit can aid in the reduction of cost
and time. The most important thing the firm needs to look at is what the plan is geared towards, and
then develop the audit around the plan. If used on a periodic basis, the audit can be used to help
develop yearly plans. The objective of the audit must be kept in mind when it is planned and this
becomes important in the final design. Some firms place less reliability on an audit and find
themselves with problems later in the future of the plan. On some periodic basis all of the areas shown
on the checklist should be audited if they are applicable to the firm. Management should select an
audit frequency considering the type of business, costs, past experience, and other relevant factors.
6. Several kinds of information are collected for a strategic marketing evaluation. Develop a list of
information that would be useful, or a strategic evaluation in a life insurance company.
a. Competitive sales data
b. Population growth
c. Average ages of death
d. Sales force distribution
e. Sales per call
f.
Cost per call
g. Growth of industry per year
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h. New government regulations
i.
Existing market share and future shares
j.
Sales forecasts
k. Sales force growth
l.
Number of claims per customer base
m. Operating margins as a percent of sales
7. One of the more difficult management control issues is determining whether a process is experiencing
normal variation or is actually out of control. Discuss how this issue can be resolved by management.
An important issue is establishing the “normal” performance band. Quality control theory suggests that
some processes may fluctuate rather widely and still be under control. If under control, the variation is
normal. Reducing variation and/or improving average performance requires changing the process. A
performance band of plus or minus three standard deviations typically is used in quality control
applications. Even if quality control procedures are not used, the concept of “normal” variation should
be recognized by management. An increasing number of companies are recognizing that precise
measures of employee performance may not be feasible. Instead, they are evaluating most employees’
performance as acceptable and measuring exceptional performance and unsatisfactory performance as
major differences from the average.
8. What role can internal marketing play in enhancing effectiveness of both planning and
implementation?
Internal marketing should be understood and implemented as more than simply internal
communications (important though communications may be). If internal marketing is seen as the
deployment of the analytical tools and frameworks of marketing in the internal marketplace
(employees, managers, partner organizations), then its strategic role becomes clearer. Internal
marketing can enhance implementation of strategy by providing a framework for analyzing and
addressing the change requirements of a market strategy (new skills, changed processes, different
structures) and the costs of changing the supporting infrastructure to achieve effective implementation.
Considering these issues as part of the planning process offers advantages both in understanding the
barriers to strategic change and identifying ways to overcome them. Similarly, internal marketing can
enhance the effectiveness of planning in several ways. In some instances, internal marketing may
actually be needed to gain manager buy-in to the planning process itself. Planning is often see as
bureaucratic ritual rather than the opportunity to create new strategies. Moreover, planning which
visibly and credibly addresses implementation issues as part of the plan, is likely to gain more support
and commitment from executives. Internal marketing provides the structure and framework to achieve
these enhancements.
9. How can “balanced scorecard” methods assist managers in their implementation efforts?
The balanced scorecard implements a given business unit strategy by using activities across four areas:
financial, customer, internal business process, and innovation. Due to the lack of instruction given
when implementing a strategy, the balanced scorecard provides a framework that is communicated and
coordinated across all major areas of the organization. The balanced scorecard translates an aggregate,
broadly defined strategy to specific actions. By executing and monitoring these actions, management
83
can assess the success of the strategy and make adjustments as needed. Another advantage to the
balanced scorecard is that it is feasible for any business unit level strategy and provides a means to link
performance evaluation to strategy implementation.
10. Discuss how management control differs for a strategic alliance compared to internal operations.
In internal operations, managers control by continually monitoring performance and, when necessary,
revising their strategies to accommodate changing market conditions. Many companies competing in
the 1990s have created strategies to deal with the continued pressure of reducing costs. One way to do
this is to establish strategic alliances with other companies. In a strategic alliance, management has to
share the control of monitoring and evaluating the strategy with the partner company. Coordination
between management of both companies must exist so those executives from both companies
participate in strategic evaluation and control. Roles and relationships should be established and
communicated so that there is no ambiguity as to the responsibilities of each party.
11. What are the important factors that managers should take into account to improve the implementation
of strategies?
Three factors should be considered to facilitate the implementation process. They are organizational
design, incentives, and effective communications. Certain types of organizational designs aid
implementation. For example, product managers and multifunctional coordination teams are useful
implementation methods. This flat structure encourages interfunctional cooperation and
communications. Various incentives may also help achieve successful implementation. Special
incentives include contests, recognition, and extra compensation. Team incentives, such as tickets to
sporting events, may also be used. Finally, rapid and accurate communications are essential in
implementation. Meetings, status reports, and informal discussion move information throughout the
organization. Computerized information and decision–support systems help to improve
communications’ speed and effectiveness.
12. Discuss the role of Customer Relationship Management and data mining in improving marketing
planning, implementation, and control activities.
Data mining has become an important tool for many marketing strategies due to its penetrating and
revealing analysis of databases that can uncover important purchasing patterns and customer profiles.
Customer Relationship Management (CRM) systems enhance this potential by integrating up-to-date
data around individual customers from several sources. CRM technology is one of the largest
corporate IT spends in the early part of the 21st century as companies attempt to achieve this potential.
A business can use these data resources to pinpoint the best-selling products and geographic locations.
Furthermore a company can achieve optimal stocking levels without inventory increases, expand sales
by avoiding stockouts and missed sales opportunities, and avoid markdowns because of improved
stocking decisions. CRM technology has particular applications in identifying the costs of servicing
different customer types and providing the means to customize offers around different customers and
segments.
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