978-0134058498 Chapter 2 Lecture Notes

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LEARNING OBJECTIVES

In this chapter, we will address the following questions:

1. How does marketing affect customer value?

2. How is strategic planning carried out at the corporate and divisional levels?

3. How is strategic planning carried out at the business unit level?

4. What does a marketing plan include?

CHAPTER SUMMARY

1. The value delivery process includes choosing (or identifying), providing (or

delivering), and communicating superior value. The value chain is a tool for identifying

key activities that create value and costs in a specific business.

2. Strong companies develop superior capabilities in managing core business

processes such as new-product realization, inventory management, and customer

acquisition and retention. In today’s marketing environment, managing these core

processes effectively means creating a marketing network in which the company works

closely with all parties in the production and distribution chain, from suppliers of raw

materials to retail distributors. Companies no longer compete—marketing networks do.

3. Market-oriented strategic planning is the managerial process of developing and

maintaining a viable fit between the organization’s objectives, skills, and resources and

its changing market opportunities. The aim of strategic planning is to shape the

company’s businesses and products so they yield target profits and growth. Strategic

planning takes place at four levels: corporate, division, business unit, and product.

4. The corporate strategy establishes the framework within which the divisions and

business units prepare their strategic plans. Setting a corporate strategy means defining

the corporate mission, establishing strategic business units (SBUs), assigning resources to

each, and assessing growth opportunities.

5. Marketers should define a business or business unit as a customer-satisfying

process. Taking this view can reveal additional growth opportunities.

6. Strategic planning for individual businesses includes defining the business

mission, analyzing external opportunities and threats, analyzing internal strengths and

weaknesses, formulating goals, formulating strategy, formulating supporting programs,

implementing the programs, and gathering feedback and exercising control.

7. Each product level within a business unit must develop a marketing plan for

achieving its goals. The marketing plan is one of the most important outputs of the

marketing process.

C H A P T E R

2DEVELOPING MARKETING

STRATEGIES AND PLANS

OPENING THOUGHT

This introduces several perspectives on planning and describes how to draw up a formal

marketing plan. The formal marketing plan sample is an excellent resource because it

provides an overview of the types of decisions a marketer might make in an effort to

create customer value. Provide sufficient class time covering the distinctions between

strategy and tactics. Finally, this chapter contains a case analysis using Marketing Plan

Pro software that may present some difficulties to students unfamiliar with its use. It is

important to note that the objective of the inclusion of this software is to familiarize

students with the many aspects of the marketing plan—not for them to become experts in

the use of this specific software. The instructor may want to emphasize its usage at his or

her discretion.

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS

1. For the semester-long project, with this chapter, we continue the formation of groups; first

presentation of “product” to instructor for approval; review of process; and calendar of

“due dates.”

2. As a group presentation project, have each group present their Pegasus Sports

International marketing plan to the class. Non-presenting groups should be ready to

evaluate the accuracy of the numbers presented, critique, refute, and/or debate the findings

of the other groups. Each group presentation should be followed by a written presentation

of their marketing plan.

3. Students should be encouraged to review selected companies’ annual reports to collect

from these reports the corporations’ mission statements, strategy statements, and target

market definitions. The collected material can be discussed in class comparing the

company’s overall business, marketing, and customer strategies.

4. Sonic PDA Marketing Plan. Every marketing plan must include the company mission,

analysis of strengths, weaknesses, opportunities, and threats and state the marketing and

financial objectives for the plan period. Sonic is a start-up company that will soon

introduce a new multi-function personal digital assistant (PDA) to compete with

established products made by Palm, Hewlett Packard, Sony, and others. As an assistant to

Jane Melody, Sonic’s chief marketing officer, you have been assigned to:

Draft a mission statement for Sonic’s senior management to review.

Prepare a summary of strengths, weaknesses, opportunities, and threats (SWOTs).

List the marketing and financial objectives the company has for the new PDA being

developed by Sonic.

As your instructor directs, enter Sonic’s mission statement, SWOTs, and financial and

marketing objectives in a written marketing plan, or type them into the Mission, SWOT, and

Objectives sections of Marketing Plan Pro.

ASSIGNMENTS

Each student is in effect a “product.” Like all products you (they) must be marketed for

success. Have each of your students’ write their own “mission statement” about their career

and a “goal statement” of where they see themselves in 5 years, 10 years, and after 20 years.

Have students read Jon R. Katzenbach and Douglas K. Smith, The Wisdom of Teams:

Creating the High-Performance Organization (Boston: Harvard Business School Press,

1993); Hammer and Champy, Reengineering the Corporation and report on their findings

in a written and/or oral presentation.

Select a local firm or have the students select firms in which they are familiar (current

employers or past employers, for example) and have them answer the questions posed by the

Marketing Memo, Marketing Plan Criteria regarding the evaluation of a marketing plan.

Make sure the students are specific in their answers.

As a group presentation project, have the students read: Peter Lorange and Johan Roos,

Strategic Alliances: Formation, Implementation and Evolution (Cambridge, MA: Blackwell,

1992); Jordan D. Lewis, Partnerships for Profit: Structuring and Managing Strategic

Alliances (New York: The Free Press, 1990); John R. Harbison and Peter Pekar, Smart

Alliances: A Practical Guide to Repeatable Success, (San Francisco, CA: Jossey-Bass, 1998)

and have each group present their findings.

DETAILED CHAPTER OUTLINE

Opening Vignette: Hewlett-Packard has been challenged in recent years, and is an

example of how firms must constantly improve their strategies to adjust to changes in the

marketplace.

I. Marketing and Customer Value

A) The Value Delivery Process

i. Deliver customer value at a profit by fine-tuning the value delivery

process

ii. The traditional view of marketing where a firm makes something and

sells it only applies in economies with goods shortages

iii. Marketing is placed at the beginning of business planning in

economies with different consumer needs and wants

iv. Three phases to the value creation and delivery sequence:

1. Choosing the value: homework; market segmentation, target

market selection, value positioning

2. Providing the value: identification of features, prices,

distribution

3. Communicating the value: use the Internet, advertising, sales

force and other communication tools

B) The Value Chain

i. Every firm is a synthesis of activities performed to design, produce,

market, deliver and support its product.

ii. Primary activities

1. Inbound logistics: bringing materials into the business

2. Operations: converting materials into final products

3. Outbound logistics: shipping out final products

4. Marketing (includes sales)

5. Service

iii. Support activities

1. Procurement

2. Technology development

3. Human resource management

4. Firm infrastructure

iv. Firms examine costs and performance in each value-creating activity

and benchmark against competitors to look for ways to improve

v. Core business processes (increasingly reengineered and assigned

cross-functional teams):

1. The market-sensing process: gathering and acting upon

information about the product

2. The new-offering realization process: researching, developing,

and launching new high-quality offerings quickly and within

budget

3. The customer acquisition process: defining target markets and

prospecting for new customers

4. The customer relationship management process: building

deeper understanding, relationships, and offerings to individual

customers

vi. Companies often partner with specific suppliers and distributors to

create a superior value delivery network, or supply chain

C) Core Competencies

i. Three characteristics

1. Sources of competitive advantage that make a significant

contribution to perceived customer benefits

2. Have applications to a wide variety of markets

3. Are difficult for competitors imitate

ii. Accompanied by distinctive capabilities, or excellence in broader

business processes

1. Market sensing

2. Customer linking

3. Channel bonding

iii. Opportunities and threats often begin as weak signals from the

periphery of a business

iv. Businesses may need to realign themselves to maximize core

competencies, using three steps

1. Redefine the business concept or big idea

2. Reshape the business scope, sometimes geographically

3. Reposition the company’s brand identity

v. Panasonic streamlined business units and emphasized profit, not just

revenue growth, as part of its restructuring efforts

D) Central Role of Strategic Planning

i. Master marketers like Amazon.com and Ritz-Carlton focus on the

customer and are organized to respond effectively to changing needs,

have well-staffed marketing departments, successful CMOs, and other

departments accept customer is king.

ii. Successful CMOs have strong quantitative and qualitative skills, work

well with others but have an entrepreneurial attitude, understand the

bottom line and listen to the voice of the customers.

iii. Successful CMOs are risk takers, problem solvers, change agents and

results-oriented with global experience, multichannel expertise,

cross-industry experience, digital focus and operational knowledge.

iv. Three driving forces are expected to change CMO role

1. Predictable marketplace trends

2. Change role of the C-suite

3. Uncertainty about the economy and organizational design

v. Five priorities for a successful CMO

1. Act as the visionary for the future of the company.

2. Build adaptive marketing capabilities.

3. Win the war for marketing talent.

4. Tighten the alignment with sales.

5. Take accountability for returns on marketing spending.

vi. Marketers must prioritize strategic planning in three key areas

1. Managing the businesses as an investment portfolio

2. Assessing the market’s growth rate and the company’s position

in that market

3. Establishing a strategy

vii. Most large companies consist of four organizational levels

1. Corporate: designs corporate strategic plan to guide enterprise

2. Division: establishes plan covering allocation of funds to each

business unit

3. Business unit: develops strategic plan for the unit

4. Product: each product level develops a marketing plan

viii. A marketing plan operates on a strategic level and a tactical level

ix. The strategic marketing plan lays out the target markets and the firm’s

value proposition, based on an analysis of the best market

opportunities.

x. The tactical marketing plan specifies the marketing tactics, including

product features, promotion, merchandising, pricing, sales channels,

and service.

II. Corporate and Division Strategic Planning

A) Corporate headquarters undertake four planning activities

i. Define the corporate mission

ii. Establish strategic business units

iii. Assign resources to each strategic business unit

iv. Assess growth opportunities

B) Defining the Corporate Mission

i. Over time, the mission may change to respond to new opportunities or

market conditions

ii. Classic questions: What is our business? Who is the customer? What

is of value to the customer? What will our business be? What should

our business be?

iii. Companies often define themselves in terms of products

iv. Market definitions of a business describe the business as a

customer-satisfying process, which is preferred because products are

transient but basic needs and customer groups endure forever.

v. Example of market definition: Steelcase describes itself as “the global

leader in furnishing the work experience in office environments.”

vi. A target market definition tends to focus on selling a product or

service to a current market.

vii. A strategic market definition, however, also focuses on the potential

market.

C) Crafting a Mission Statement

i. Developed collaboratively with and shared with managers, employees,

and often customers

ii. Provides a shared sense of purpose, direction, and opportunity

iii. Good mission statements have five major charactertistics

1. They focus on a limited number of goals

2. They stress the company’s major policies and values

3. They define the major competitive spheres within which the

company will operate

4. They take a long-term view

5. They are short, memorable and meaningful as possible

iv. Mission statements can be used to define competitive territory and

boundaries (e.g. Industry, Products and applications, Competence,

Market segment, Vertical, Geographical)

D) Strategic Business Units

i. Established using three characteristics

1. Single business or collection of related businesses that can be

planned separately from the rest of the company

2. Own set of competitors

3. Manager responsible for strategic planning and profit

performance and controls most factors affecting profit

ii. Resources assigned using shareholder value analysis; value assessed

on potential of business based on growth opportunities from global

expansion, positioning or retargeting and strategic outsourcing

iii. Growth assessment may result in new businesses, downsizing or

terminating older businesses.

iv. Firms can fill a gap between future desired sales and projected sales

via intensive opportunities, integrative opportunities, and

diversification opportunities.

v. Intensive growth: within current businesses; product-market expansion

grid is helpful

1. Market-penetration strategy: more market share with current

products in current markets

2. Market-development strategy: develop new markets for current

products

3. Product-development strategy: develop new products for

current markets

4. Diversification strategy: develop new products for new markets

vi. Integrative growth: acquire related businesses

1. Use backward, forward or horizontal integrations within the

industry

2. May not reach desired sales volume; challenges with

integration

vii. Diversification growth: identify opportunities for growth from adding

attractive, unrelated businesses

viii. Downsize or divest older businesses: Prune, harvest or divest to

release resources or reduce costs

E) Organization and Organizational Culture

i. A company’s organization is its structures, policies, and corporate

culture, all of which can become dysfunctional in a rapidly changing

business environment.

ii. Corporate culture is “the shared experiences, stories, beliefs, and

norms that characterize an organization.”

1. Company’s culture is very hard to change

2. Adapting the culture is often the key to successfully

implementing a new strategy

3. Customer-centric culture can affect all aspects of an

organization

F) Marketing Innovation

i. Senior management should identify and encourage fresh ideas from

three generally underrepresented groups: employees with youthful or

diverse perspectives, employees far removed from company

headquarters, and employees new to the industry.

ii. Scenario analysis develops plausible representations of a firm’s

possible future using assumptions about forces driving the market and

different uncertainties.

III. Business Unit Strategic Planning

A. Develop a specific mission for the strategic business unit

B. Conduct a SWOT analysis

a. External environment (opportunity and threat) analysis: monitor key

macroenvironmental forces

i. Opportunity: area of buyer need and interest that a company

has a high probability of satisfying

1. Offer something in short supply

2. Supply existing product or service in a superior way

a. Problem detection: ask consumers for

suggestions

b. Ideal method: ask consumers to imagine an

ideal version of the product or service

c. Consumption chain method: chart steps in

acquiring, using, disposing of product

3. Benefit from converging industry trends/introduce

hybrid products or services to the market

4. Make buying process more convenient or efficient

5. Meet the need for more information and advice

6. Customize a product or service

7. Introduce a new capability

8. Deliver a product or service faster

9. Offer product at a much lower price

ii. Market opportunity analysis questions

1. Can we articulate the benefits convincingly to a defined

target market(s)?

2. Can we locate the target market(s) and reach them with

cost-effective media and trade channels

3. Does our company possess or have access to the critical

capabilities and resources we need to deliver the

customer benefits?

4. Can we deliver the benefits better than any actual or

potential competitors?

5. Will the financial rate of return meet or exceed our

required threshold for investment?

iii. Environmental threat is a challenge posed by an unfavorable

trend or development that, in the absence of defensive

marketing action, would lead to lower sales

b. Internal analysis identifies strengths and weaknesses

C. Goal formulation

a. Goals are objectives that are specific with respect to magnitude and

time

b. Management by objectives meets four criteria

i. They must be arranged hierarchically, from most to least

important

ii. Objectives should be quantitative whenever possible

iii. Goals should be realistic

iv. Objectives must be consistent

c. Trade-offs include short-term profit versus long-term growth, deep

penetration of existing markets versus development of new markets,

profit goals versus nonprofit goals, and high growth versus low risk.

D. Strategic formulation

a. Strategy is a game plan for getting what you want to achieve

b. Porter’s generic strategies

i. Overall cost leadership

ii. Differentiation

iii. Focus

c. Competing firms directing the same strategy to the same target market

constitute a strategic group

d. There is a distinction between operational effectiveness and strategy:

operationally effectiveness can be copied; strategy develops a unique

and valuable position

e. Strategic alliances complement a firm’s capabilities and resources

i. Product or service alliances

ii. Promotional alliances

iii. Logistics alliances

iv. Pricing alliances

f. Firms use partner relationship management to form and manage

partnerships

E. Program Formulation and Implementation

a. Marketers must estimate their costs

b. Businesses need to nurture other stakeholders

c. Strategy is one of seven elements of business success:

i. Hardware: strategy, structure, and systems

ii. Software: style, skills, staff and shared values

F. Feedback and Control

a. Organizations need to keep up with changes in the environment

b. Organizations must adopt goals and behaviors to adjust to new

marketing realities

IV. The Nature and Contents of a Marketing Plan

A) A marketing plan is a written document that summarizes what the marketer

has learned about the marketplace and indicates how the firm plans to meet its

marketing objectives

i. Provides direction and focus for a brand, product or company

ii. Informs and motivates key constituents inside and outside an

organization about its marketing goals and how these can be achieved

B) The most frequently cited shortcomings of current marketing plans, according

to marketing executives, are lack of realism, insufficient competitive analysis,

and a short-run focus

C) Here are some questions to ask in evaluating a marketing plan.

i. Is the plan simple and succinct? Is it easy to understand and act on?

Does it communicate its content clearly and practically? Is it not

unnecessarily long?

ii. Is the plan complete? Does it include all the necessary elements? Does

it have the right breadth and depth? Achieving the right balance

between completeness and lots of detail and simplicity and clear focus

is often the key to a well-constructed marketing plan.

iii. Is the plan specific? Are its objectives concrete and measurable? Does

it provide a clear course of action? Does it include specific activities,

each with specific dates of completion, specific persons responsible,

and specific budgets?

iv. Is the plan realistic? Are the sales goals, expense budgets, and

milestone dates realistic? Has a frank and honest self-critique been

conducted to raise possible concerns and objections?

D) Smaller businesses may create shorter or less formal marketing plans;

corporations generally require highly structured documents.

E) A marketing plan usually contains the following sections

i. Executive summary and table of contents

ii. Situation analysis (relevant background data on sales, costs, the

market, competitors and the macroenvironment)

iii. Marketing strategy (mission, marketing and financial objectives, needs

the marketing offering is intended to satisfy and its competitive

positioning)

iv. Marketing tactics (marketing activities that will be undertaken to

execute the marketing strategy)

1. The product or service offering section describes the key

attributes and benefits that will appeal to target customers.

2. The pricing section specifies the general price range and how it

might vary across different types of customers or channels,

including any incentive or discount plans.

3. The channel section outlines the different forms of distribution,

such as direct or indirect.

4. The communications section usually offers high-level guidance

about the general message and media strategy. Firms will often

develop a separate communication plan to provide the detail

necessary for agencies and other media partners to effectively

design the communication program.

v. Financial projections include a sales forecast, an expense forecast, and

a break-even analysis.

1. The break-even analysis estimates how many units the firm

must sell monthly (or how many years it will take) to offset its

monthly fixed costs and average per-unit variable costs

2. Risk analysis obtains three estimates (optimistic, pessimistic,

and most likely) for each uncertain variable affecting

profitability, under an assumed marketing environment and

marketing strategy for the planning period.

vi. Implementation controls

1. Outlines the controls for monitoring and adjusting

implementation of the plan

2. Spells out the goals and budget for each month or quarter so

management can review each period’s results and take

corrective action as needed.

F) The Role of Research

i. Up-to-date information is needed about the environment, competition

and selected market segments

ii. Research helps marketers learn about customers’ requirements,

expectations, perceptions, satisfaction and loyalty

G) The Role of Relationships

i. The marketing plan influences how marketing staff work with each

other and with other departments to deliver value and satisfy

customers

ii. The marketing plan affects how the company works with suppliers,

distributors, and partners to achieve the plan’s objectives

Sample Marketing Plan: Pegasus Sports International