Chapter 2 Company and Marketing Strategy: Partnering to Build Customer Engagement, Value and
Relationships
CHAPTER 2
COMPANY AND MARKETING STRATEGY: PARTNERING TO BUILD
CUSTOMER VALUE AND RELATIONSHIPS
PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES
1. Explain company-wide strategic planning and its four steps.
2. Discuss how to design business portfolios and develop growth strategies.
3. Explain marketing’s role in strategic planning and how marketing works with its
partners to create and deliver customer value.
4. Describe the elements of a customer value-driven marketing strategy and mix and the
forces that influence it.
5. List the marketing management functions, including the elements of a marketing
plan, and discuss the importance of measuring and managing marketing return on
investment.
JUST THE BASICS
CHAPTER OVERVIEW
In this chapter, we dig deeper into steps two and three of the marketing process—
designing customer value-driven marketing strategies and constructing marketing
programs.
First, we look at the organization’s overall strategic planning.
Next, we discuss how marketers partner closely with others inside and outside the firm to
serve customers.
We then examine marketing strategy and planning—how marketers choose target
markets, position their market offerings, develop a marketing mix, and manage their
marketing programs.
Finally, we look at measuring and managing return on marketing investment (marketing
ROI).
ANNOTATED CHAPTER NOTES/OUTLINE
FIRST STOP
Starbucks’ Customer Value-Driven Marketing Strategy: Delivering “The Starbucks
Experience”
Starbucks didn’t sell just coffee, it sold “The Starbucks Experience”— “an uplifting
experience that enriches people’s lives one moment, one human being, one extraordinary
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cup of coffee at a time.” Starbucks gave customers what it calls a “third place”—a place
away from home and away from work.
Over the next two decades, customers flocked to Starbucks cafés. By 2007, some 15,000
Starbucks stores dotted the nation and globe, and the company’s sales and profits rose
like steam off a mug of hot java.
The more Starbucks grew, however, the more it drifted away from the core mission and
values that had made it so successful. The company’s almost obsessive focus on growth
for growth’s sake began to take a toll on the prized Starbucks Experience.
Founder Howard Schultz, who had stepped down as CEO in 2000, expressed concern.
Schultz was right that something was wrong. By early 2008, when Schultz reassumed his
role as Starbucks president and CEO, the company found itself in hot water.
Within just the previous two years, Starbucks’s stock had tumbled nearly 80 percent.
According to one analyst, “The financial vultures circled. Obituaries were drafted.”
Instead of presiding over the brand’s demise, however, Schultz reacted quickly to restore
its luster. Starbucks needed to shift its focus back to customers—to “reignite the
emotional attachment with customers.”
To emphasize the point, Schultz transported 10,000 Starbucks store managers to a
morale-building reorientation in New Orleans. A short time later, Starbucks closed all of
its U.S. locations for three hours to conduct nationwide employee training on the basics
of producing satisfying customer experiences.
Today, a rejuvenated Starbucks is once again fully engaged with customers and delivering
the one-of-a-kind Starbucks Experience. And once again, sales and profits are really
perking. Over the past six years, revenues have increased 70 percent and profits have shot
up fivefold.
The moral of the Starbucks story: Good marketing strategy means keeping your eye
squarely on delivering customer value. The objective isn’t just growth or sales or profits;
it’s engaging customers in a meaningful way and creating value for them.
COMPANY-WIDE STRATEGIC PLANNING: DEFINING MARKETING’S
ROLE
Strategic planning is the process of developing and maintaining a strategic fit between
the organization’s goals and capabilities and its changing marketing opportunities.
Strategic planning sets the stage for the rest of the planning in the firm.
Companies usually prepare annual plans, long-range plans, and strategic plans.
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The annual and long-range plans deal with the company’s current businesses and how to
keep them going.
In contrast, the strategic plan involves adapting the firm to take advantage of
opportunities in its constantly changing environment.
The strategic planning process begins with the company defining its overall purpose and
mission.
The stages of the strategic planning process are outlined in Figure 2.1.
This mission is turned into objectives that guide the whole company.
Marketing planning occurs at the business-unit, product, and market levels.
Use Key Term Strategic Planning here.
Use Chapter Objective 1 here.
Use Figure 2.1 here.
Defining a Market-Oriented Mission
An organization exists to accomplish something, and this purpose should be clearly
stated.
A mission statement is a statement of the organization’s purpose—what it wants to
accomplish in the larger environment.
A clear mission statement acts as an “invisible hand” that guides people in the
organization.
Mission statements should be market oriented and defined in terms of customer needs.
A market-oriented mission statement defines the business in terms of satisfying basic
customer needs.
Mission statements should be meaningful and specific, yet motivating.
A company’s mission statement should not be stated as making more sales or profits;
profits are a reward for creating value for customers.
Use Key Term Mission Statement here.
Use Discussion Question 2-1 here.
Use Table 2.1 here.
Use Critical Thinking Exercise 2-8 here.
Use Online, Social Media, and Mobile Marketing here.
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Setting Company Objectives and Goals
The company turns its mission into detailed supporting objectives for each level of
management.
Each manager should have objectives and be responsible for reaching them.
Marketing strategies and programs must be developed to support these marketing
objectives.
Each broad marketing strategy must then be defined in greater detail.
Designing the Business Portfolio
A business portfolio is the collection of businesses and products that make up the
company.
The best business portfolio is the one that matches the company’s strengths and
weaknesses to opportunities in the environment.
Business portfolio planning involves two steps:
1. The company must analyze its current business portfolio and decide which
businesses should receive more, less, or no investment.
2. It must shape the future portfolio by developing strategies for growth and
downsizing.
Analyzing the Current Business Portfolio
The major activity in strategic planning is business portfolio analysis.
Use Key Term Business Portfolio here.
Use Marketing at Work 2.1 here.
Use Chapter Objective 2 here.
Portfolio analysis is where management evaluates the products and businesses making
up the company.
The steps in portfolio analysis are:
1. To identify the strategic business units (SBU). An SBU is a separately managed
unit of the company with its own missions and objectives.
2. To assess the attractiveness of its various SBUs and decide how much support
each deserves. Most companies are well advised to “stick to their knitting” when
designing their business portfolios.
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The purpose of strategic planning is to find ways in which the company can best use its
strengths to take advantage of attractive opportunities in the environment.
Most standard portfolio-analysis methods evaluate SBUs on two dimensions:
1. The attractiveness of the market or industry, and
2. The strength of the position in that market or industry.
The Boston Consulting Group Approach
A company classifies all its SBUs according to the growth-share matrix (see Figure
2.2).
The vertical axis: market growth rate provides a measure of market attractiveness.
The horizontal axis: relative market share provides a measure of company strength in the
market.
Use Key Terms Portfolio Analysis and Growth-Share Matrix here.
Use Figure 2.2 here.
The growth-share matrix defines four types of SBUs:
Stars. High-growth, high-share businesses or products. They will turn into cash
cows.
Cash cows. Low-growth, high-share businesses or products. They produce a lot of
cash that the company uses to pay its bills and support other SBUs that need
investment.
Question marks. Low-share business units in high-growth markets. They require
a lot of cash to hold their position.
Dogs. Low-growth, low-share businesses and products.
One of four strategies can be pursued for each SBU:
1. The company can invest to build its share.
2. It can invest just enough to hold its share.
3. It can milk its short-term cash flow, or harvest.
4. It can divest by selling it or phasing out.
As time passes, SBUs change their positions in the growth-share matrix. Each SBU has a
life cycle.
Problems with Matrix Approaches
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Difficult, time consuming, and costly to implement.
These approaches focus on classifying current businesses but provide little advice for
future planning.
Many companies have dropped matrix methods in favor of customized approaches better
suited to their specific situations.
Developing Strategies for Growth and Downsizing
A company’s objective must be “profitable growth.”
Marketing has the main responsibility for achieving profitable growth for the company.
The product/market expansion grid is used in identifying growth opportunities (see
Figure 2.3).
Market penetration—making more sales to current customers without
changing its products.
Market development—identifying and developing new markets for its current
products.
Product development—offering modified or new products to current markets.
Diversification—starting up or buying businesses outside of its current products
and markets.
Use Key Terms Product/Market Expansion Grid, Market Penetration, Market
Development, Product Development, and Diversification here.
Use Figure 2.3 here.
Use Critical Thinking Exercise 2-7 here.
Use Discussion Question 2-2 here.
Companies must also develop strategies for downsizing.
When a firm finds brands/businesses that are unprofitable or no longer fit the overall
strategy, it may prune, harvest, or divest them.
PLANNING MARKETING: PARTNERING TO BUILD
CUSTOMER RELATIONSHIPS
Marketing plays a key role in the company’s strategic planning.
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1. Marketing provides a guiding philosophy—the marketing concept.
2. Marketing provides inputs to strategic planners.
3. Marketing designs strategies for reaching the unit’s objectives.
Customer value is the key ingredient in the marketer’s formula for success.
In addition to customer relationship management, marketers must also practice partner
relationship management.
Use Chapter Objective 3 here.
Partnering with Other Company Departments
Each company department can be thought of as a link in the company’s internal value
chain.
Use Key Term Value Chain here.
Success depends on how well the various departments coordinate their activities.
A company’s value chain is only as strong as its weakest link.
Ideally, a company’s different functions should work in harmony to produce value for
consumers.
Other departments may resist marketing’s efforts because their actions can increase
purchasing costs, disrupt production schedules, increase inventories, and create budget
headaches.
Yet marketers must find ways to get all departments to “think consumer.”
Partnering with Others in the Marketing System
Firms need to look beyond their own value chains and into the value chains of their
suppliers, distributors, and customers.
Companies today are partnering with the other members of the supply chain to improve
the performance of the customer value delivery network.
Competition takes place between the entire value-delivery networks created by
competitors.
Use Key Term Value Delivery Network here.
Use Linking the Concepts here.
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Chapter 2 Company and Marketing Strategy: Partnering to Build Customer Engagement, Value and
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MARKETING STRATEGY AND THE MARKETING MIX
Figure 2.4 shows the major activities in managing marketing strategy and the marketing
mix.
Consumers are in the center. Profitable customer relationships are the goal.
Marketing strategy is next—this is the broad logic under which the company attempts
to develop profitable relationships.
Guided by the strategy, the company develops its marketing mix—product, price, place,
and promotion.
Use Key Term Marketing Strategy here.
Use Figure 2.4 here.
Customer Value-Driven Marketing Strategy
Marketing requires a deep understanding of customers.
There are many different kinds of consumers, and they exhibit many different kinds of
needs.
Companies cannot profitably serve them all.
Companies must divide up the total market, choose the best segments, and design
strategies for profitably serving chosen segments.
This process involves market segmentation, market targeting, differentiation, and
positioning.
Market Segmentation
Market segmentation is the process of dividing a market into distinct groups of buyers
who have different needs, characteristics, or behaviors and who might require separate
products or marketing programs.
Every market has segments, but not all ways of segmenting a market are equally useful.
A market segment consists of consumers who respond in a similar way to a given set
of marketing efforts.
Use Key Terms Market Segment, Market Segmentation,
Market Targeting, Differentiation, and Positioning here.
Use Chapter Objective 4 here.
Use Marketing Ethics here.
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