978-0134292663 Chapter 3 Lecture Notes

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Part 1: Understand the Value Proposition

Chapter 3

Strategic Market Planning

I. CHAPTER OVERVIEW

The title of Chapter 3 implies that businesses need to plan for a wide amount of factors in the

marketplace in order to be successful and achieve an advantage in the marketplace. In today’s

dynamic environment, strategic planning certainly does provide better tools and resources to help

survive, compete, and thrive in the marketplace.

In this chapter, students learn that ethically sound strategic planning can take place at both the

corporate and the strategic business unit (SBU) level in large firms and in a single stage in

smaller businesses. Businesses conduct functional (including marketing) and operational

planning. Successful businesses continually scan the organization’s internal environment and

external business environment. By carefully following these strategies in an ethical manner,

undeniably businesses can create their own advantage.

II. CHAPTER OBJECTIVES

Explain business planning and its three levels.

Describe the steps in strategic planning.

Describe the steps in market planning.

III. CHAPTER OUTLINE

►MARKETING MOMENT INTRODUCTION

Give students a few moments to consider the following scenario. You are the CEO of a

company that produces whole-wheat pasta. What are opportunities in the external environment

for this product (diabetics eat whole wheat pasta; South Beach diet promotes whole wheat

consumption; whole wheat is healthier than white flour)? What are environmental threats to

whole-wheat pasta (low-carb diets; less popular taste; less appealing to children)?

p. 67 REAL PEOPLE, REAL CHOICES—HERE’S MY

PROBLEM AT ORACLE.

Oracle needs to make important adjustments in its strategic

planning to move to where the market is going. Oracle needs to

win in the emerging cloud-based market but also to retain the

loyalty of its existing client base. The company needs to convince

CMOs that it still has the ability to solve their most pressing

database marketing challenges and that Oracle’s solutions will

help them acquire, upsell, and retain customers as the business

world continues to move to the cloud.

Part 1: Understand the Value Proposition

Stephanie considered these three new options:

1. Stay the course with marketing clients. Oracle is

extremely successful as a premise-based solutions

provider.

2. Acquire companies that already offer new SaaS

marketing technologies. Go to market with a dedicated

sales team that focuses only on selling cloud solutions to

current and new clients

3. Stick to your knitting. Continue to promote the Siebel

system for basic data management function. “Deinvest” in

the marketing solutions category, where it will be

expensive to compete against the numerous other

companies that were gearing up to swoop into this

market.

The vignette ends by asking the students which option they

would choose and why.

Stephanie chose option #2.

Web link: www.oracle.com

p. 68 1. BUSINESS PLANNING: COMPOSE THE BIG

PICTURE

Planning is the key to prosperity. Business planning is an

ongoing process of making decisions that guides the firm both in

the short term and for the long term. Planning identifies and

builds on a firm’s strengths, and it helps managers at all levels

make informed decisions in a changing business environment.

A business plan is a plan that includes the decisions that guide

the entire organization.

A marketing plan is a document that describes the marketing

environment, outlines the marketing objectives and strategies,

and identifies how the company will implement and control the

strategies imbedded in the plan.

Chapter 3 includes a pullout template of a marketing plan students can use as they make their

way through the book. The template provides a framework that will enable students to organize

marketing concepts by chapter and create a solid marketing plan of their own. The back of the

template has a world map. Encourage students to keep this pullout as a handy reference after the

class.

Use Appendix A at the end of the book to show students a sample marketing plan.

If your students have not been exposed to financial analyses in other courses, consider covering

Appendix B at the end of the book. This Appendix includes a review of the income statement

and balance sheet as well as some basic performance ratios. It also includes an explanation of

some of the specific calculations marketers use routinely in setting prices for their goods and

Chapter 3: Strategic Market Planning

services.

p. 69

p. 70

p.70

p. 70

1.1 The Three Levels of Business Planning

Business planning occurs at three levels: strategic, functional,

and operational. The top level is “big picture” stuff, while the

bottom level specifies the “nuts-and-bolts” actions the firm will

need to take to achieve these lofty goals.

Strategic planning is the managerial decision process that

matches the firm’s resources (such as its financial assets and

workforce) and capabilities (the things it is able to do well

because of its expertise and experience) to its market

opportunities for long-term growth.

Strategic business units (SBUs)—individual units representing

different areas of business within a firm that are different enough

to each have their own mission, business objectives, resources,

managers, and competitors.

The next level of planning is functional planning. This level

gets its name because the various functional areas of the firm,

such as marketing, finance, and human resources get involved.

Vice presidents or functional directors usually do this. We refer to

what the functional planning marketers do as marketing

planning.

Operational planning focuses on the day-to-day execution of

the functional plans and includes detailed annual, semiannual, or

quarterly plans.

All business planning is an integrated activity. This means that

the organization’s strategic, functional, and operational plans

must work together for the benefit of the whole, always within

the context of the organization’s mission and objectives.

Figure 3.1

Snapshot:

Levels of

Business

Planning

p. 71

2. STRATEGIC PLANNING: FRAME THE PICTURE

Listed below are typical steps followed in strategic planning.

2.1 Step 1: Define the Mission

Questions asked in this stage include: What business are we in?

What customers should we serve? How should we develop the

firm’s capabilities and focus its efforts? Answers to these

questions become part of the mission statement, a formal

document that describes the organization’s overall purpose and

what it hopes to achieve in terms of its customers, products, and

resources. The ideal mission statement is not too broad, too

narrow, or too shortsighted.

Figure 3.2

Process: Steps in

Strategic

Planning

Part 1: Understand the Value Proposition

►Marketing Moment In-Class Activity

Can you identify the brand/product/company for these mission statements?

To inspire and nurture the human spirit–one person, one cup and one

neighborhood at a time (Starbucks— www.starbucks.com )

If you have a body, you are an athlete (Nike— www.nike.com)

Web link: http://www.madd.org/about-us/mission/ (Mothers Against Drunk Driving– mission

statement)

Troubleshooting Tip: The ideal mission statement is not too broad, too narrow, or too

shortsighted. However, there is no absolute formula for creating the “ideal” mission statement.

Therefore, you could ask students to research mission statements from various companies and

bring in what they perceive as “ideal” (or as close to ideal) mission statements to discuss in

class.

p. 71

p. 72

2.2 Step 2: Evaluate the Internal and External

Environment

This is referred to as a situation analysis, environmental analysis,

or sometimes a business review. The analysis includes a

discussion of the firm’s internal environment, which can identify

a firm’s strengths and weaknesses, as well as the external

environment in which the firm does business so the firm can

identify opportunities and threats.

The internal environment is all controllable elements inside a

firm that influence how well the firm operates. Examples include

the firm’s people, its technologies, physical facilities, financial

stability, and relationships with suppliers.

The external environment consists of elements outside the firm

that may affect it either positively or negatively. The external

environment for today’s businesses is global, so managers

/marketers must consider elements such as the economy,

competition, technology, law, ethics, and sociocultural trends.

Unlike elements of the internal environment that management

can control to a large degree, the firm cannot directly control

these external factors, so management must respond to them

through its planning process.

A SWOT analysis, a summary of the ideas developed in the

situation analysis, allows managers to focus clearly on the

meaningful strengths (S) and weaknesses (W) in the firm’s

internal environment and opportunities (O) and threats (T)

coming from outside the firm (the external environment).

Exhibit:

Southwest

Airlines

Table 3.1:

Example of a

Partial SWOT

Analysis for

McDonald’s

Discussion question: At the moment, which external environment factors seem the most

Chapter 3: Strategic Market Planning

influential across all types of product categories?

Troubleshooting tip: Students often misconceive and mislabel their various ideas for factors in a

SWOT analysis. The key to correctly identifying various SWOT components is to categorize

each idea for a factor in the SWOT analysis by whether that factor is controllable (“SW” –

internal environment) or not directly controllable (“OT” – external environment) by the

company. Make sure that you go over the various example categories for the internal

environment (e.g., the firm’s people, its technologies, physical facilities, financial stability, and

relationships with suppliers) and for the external environment (the economy, competition,

technology, law, ethics, and sociocultural trends).

p. 72 2.3 Step 3: Set Organizational or SBU Objectives

Organizational or SBU objectives are a direct outgrowth of the

mission statement and broadly identify what the firm hopes to

accomplish within the general time frame of the firm’s

long-range business plan. Objectives need to be specific,

measurable, attainable, and sustainable. Objectives may relate to

a number of elements such as revenue and sales, profitability, the

firm’s standing in the market, return on investment, productivity,

product development, customer satisfaction, social responsibility,

and many other attributes.

Exhibit:

Samsung

Web link: www.pg.com Explore Procter & Gamble’s family of products

p. 73

2.4 Step 4: Establish the Business Portfolio

For companies with several different SBUs, strategic planning

includes making decisions about how to best allocate resources

across these businesses to ensure growth for the total

organization. Each SBU has its own focus within the firm’s

overall strategic plan, and each has its own target market and

strategies for reaching its objectives.

Just as we call the collection of different stocks an investor owns

a portfolio, the range of different businesses that a large firm

operates is its business portfolio.

Portfolio analysis is a tool management uses to assess the

potential of a firm’s business portfolio. It helps management

decide which of its current SBUs should receive more—or less—

of the firm’s resources, and which of its SBUs are most

consistent with the firm’s overall mission.

The BCG growth-market share matrix is one model managers

use to assist in the portfolio management process. The BCG

model focuses on determining the potential of a firm’s existing

successful SBUs to generate cash that the firm can then use to

invest in other businesses.

Figure 3.3

Snapshot: BCG

Matrix

Part 1: Understand the Value Proposition

p. 74 SBUs are categorized as:

Stars are SBUs with products that have a dominant market

share in high-growth markets.

Cash cows have a dominant market share in a low-growth

potential market.

Question marks—sometimes called “problem children”—are

SBUs with low market shares in fast-growth markets.

Dogs have a small share of a slow-growth market.

Exhibit: Disney

retail stores

Exhibit: Marvel

Comics

►Marketing Moment In-Class Activity

In small groups, have students identify various drinks sold by the Coca-Cola Company and

have them classify these drinks into the Boston Consulting Group Matrix. (Students will learn

the challenges of estimating market share) (e.g., Coke=cash cow; Tab=dog; Dasani=star;

PowerAde=question mark)

See www.virtualvender.coca-cola.com for a display of all Coke products

p. 75 2.5 Step 5: Develop Growth Strategies

Part of the strategic planning at the SBU level entails evaluating

growth strategies. The product-market growth matrix is used to

analyze different growth strategies. The matrix provides four

different fundamental marketing strategies.

Market penetration: increasing sales of existing

products to existing markets.

Market development: introducing existing products

to new markets.

Product development: selling new products in

existing markets.

Diversification: emphasizing both new products and

new markets to achieve growth.

Figure 3.4:

Snapshot:

Product-Market

Growth Matrix

Exhibit: Cuba

Ripped from the

Headlines:

Ethical/Sustaina

ble Decisions in

the Real World

►Marketing Moment In-Class Activity

Using a relatively new product (such as Propel Enhanced Water (vitamin enhanced bottled

water) or a cola/coffee energy drink), have students brainstorm ideas for product growth using

each of the categories in the product market matrix. (e.g., Penetration—sell Propel in gallon

jugs; New Market—sell to Mom’s trying to get children to take vitamins; New Products—

develop Propel gum; Strategy Diversification—develop line of Propel sportswear.)

Find out what other students taking this course would do and why at www.mymktlab.com

Are marketers to blame for America’s obesity epidemic?

p. 77 3. MARKETING PLANNING: DEVELOP AND EXECUTE

MARKETING STRTEGY

An important distinction between strategic planning and

marketing planning is that marketing professionals focus much of

their planning efforts on issues related to the marketing mix—the

Chapter 3: Strategic Market Planning

p. 78

firm’s product, its price, promotional approach, and distribution

(place) methods.

The following steps are involved in the marketing planning

process:

3.1 Step 1: Perform a Situation Analysis

The first step in developing a marketing plan is for marketing

managers to conduct an analysis of the marketing environment.

To do this, managers build on the company’s SWOT analysis by

searching out information about the environment that specifically

affects the marketing plan.

3.2 Step 2: Set Marketing Objectives

Marketing objectives are more specific to the firm’s brands,

sizes, product features, and other marketing-mix elements.

3.3 Step 3: Develop Marketing Strategies Target Markets

and the Marketing Mix

Marketing mix decisions identify how marketing will accomplish

its objectives in the firm’s target markets by using product, price,

promotion, and place.

Product strategies include decisions such as product

design, packaging, branding, support services (such as

maintenance), if there will be variations of the

product, and what product features will provide the

unique benefits targeted customers want.

The pricing strategy determines how much a firm

charges for a product. In addition to setting prices for

the final consumer, pricing strategies usually establish

prices the company will charge to wholesalers and

retailers. A firm may base its pricing strategies on

costs, demand, or the prices of competing products.

A promotional strategy is how marketers

communicate a product’s value proposition to the

target market. Marketers use promotion strategies to

develop the product’s message and the mix of

advertising, sales promotion, public relations and

publicity, direct marketing, and personal selling that

will deliver the message.

Distribution strategies outline how, when, and where

the firm will make the product available to targeted

customers (the place component). In developing a

distribution strategy, marketers must decide whether

to sell the product directly to the final customer or to

sell through retailers and wholesalers.

Figure 3.5

Process: Steps in

Marketing

Planning

Exhibit:

Lee jeans

Part 1: Understand the Value Proposition

p. 80

p. 81

pp.

81-83

The target market is the market segment(s) a firm selects because

it believes its offerings are most likely to win those customers.

The firm assesses the potential demand—the number of

consumers it believes are willing and able to pay for its products

—and decides if it is able to create a sustainable competitive

advantage in the marketplace among target consumers.

3.4 Step 4: Implement and Control the Marketing Plan

In practice, marketers spend much of their time managing the

various elements involved in implementing the marketing plan.

During the implementation phase, marketers must have some

means to determine to what degree they are actually meeting

their stated marketing objectives. Often called control, this

formal process of monitoring progress entails three steps: (1)

measuring actual performance, (2) comparing this performance to

the established marketing objectives or strategies, and (3) making

adjustments to the objectives or strategies on the basis of this

analysis.

Return on marketing investment (ROMI) is the metric to

analyze how the marketing function contributes to the bottom

line. It is the revenue or profit margin generated by investment in

a specific marketing campaign or program divided by the cost

of that program at a given risk level.

3.5 Action Plans

How does the implementation and control step actually manifest

itself within a marketing plan? One very convenient way is

through the inclusion of a series of action plans that support the

various marketing objectives and strategies within the plan. We

sometimes refer to action plans as “marketing programs.” The

best way to use action plans is by including a separate action plan

for each important element involved in implementing the

marketing plan.

Four elements of the action plan form the overall implementation

and control portion of the marketing plan:

Assign responsibility

Create a time line

Set a budget

Decide on measurements and controls

Leading indicators: Performance indicators that provide

insight into the performance of current efforts in a way

that allows a marketer to adjust relevant marketing

Exhibit:

California

almonds

Chapter 3: Strategic Market Planning

p.82

activities (hopefully) resulting in performance

improvements against the current action plan.

Lagging indicators: Performance indicators that provide

insight into the performance of an action plan based on

outcomes realized.

►METRICS MOMENT

Is return on marketing investment (ROMI) always sufficient to

judge marketing’s effectiveness and efficiency?

Six common objections to relying exclusively on ROMI to

measure marketing success:

1. In a company’s accounting statements, marketing expenditures

tend to appear as a cost, not an investment.

2. ROMI requires the profit to be divided by expenditure, yet all

other bottom-line performance measures consider profit or

cash flow after deducting expenditures.

3. Calculating ROMI requires knowing what would have

happened if the marketing expenditure in question had never

taken place.

4. ROMI has become a fashionable term for marketing

productivity, yet much evidence exists that firms interpret how

to calculate ROMI quite differently.

5. ROMI ignores the effect of marketing assets of the

firm and tends to lead managers toward a more short-term

decision perspective.

6. ROMI focused on snapshot information often can lead to

actions by management to shore up short-term performance to

the detriment of a firm’s sustainability commitment.

Apply the Metrics

Review the six objections to ROMI above and discuss

them with your classmates.

Select any two of the objections and develop a specific

example of how they might lead to a bad decision in

market planning.

Table 3.1:

Action Plan

Template

Discussion question: Pick a favorite product category and discuss what types of target markets

reside in that product category.

Discussion question: Looking at Table 3.1, are there any listed metrics that seem more

important to a company? Why or why not?

p. 84 3.6 Operational Planning: Day-to-Day Execution of

Marketing Plans

The best plan ever written is useless if not properly carried out.

That is what operational plans are for. They put the pedal to the

Part 1: Understand the Value Proposition

p. 84

metal by focusing on the day-to-day execution of the marketing

plan.

The task falls to the first-line supervisors we discussed earlier,

such as sales managers, marketing communications managers,

and marketing research managers. Operational plans generally

cover a shorter period of time than either strategic plans or

marketing plans—perhaps only one or two months—and they

include detailed directions for the specific activities to be carried

out, who will be responsible for them, and time lines for

accomplishing the tasks.

3.7 Make Your Life Easier! Use the Market Planning

Template

Template for a

marketing plan

in the foldout

located in this

chapter

Real People, Real Choices: Here’s My Choice…

Stephanie selected option #2.

Use Brand You Chapter 3: Do you cringe when someone asks you, “What do you want to do

when you graduate?” Learn about yourself and what professions might be best for you in

Chapter 2 of the Brand You supplement. You will create a personal mission statement, complete

a skills inventory and identify your career objectives. It is never too early to plan your career.