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Foundations of Strategic AFTER READING THIS CHAPTER

CHAPTER 1 YOU SHOULD BE ABLE TO:
Marketing Management
1. Define an organization‟s business,
mission, and goals.
2. Identify and frame organization
growth opportunities.
3. Formulate product-market
strategies.
4. Budget marketing, financial, and
production resources.
© 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-1 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 1-2
AFTER READING THIS CHAPTER CHAPTER 1: FOUNDATIONS OF STRATEGIC

YOU SHOULD BE ABLE TO: MARKETING MANAGEMENT
5. Develop reformulation and recovery

strategies.
6. Draft a marketing plan.
7. Emphasize marketing ethics and INTRODUCTION
social responsibility.
CHAPTER 1: FOUNDATIONS OF STRATEGIC CHAPTER 1: FOUNDATIONS OF STRATEGIC

MARKETING MANAGEMENT MARKETING MANAGEMENT
“Successful business strategy is

about actively shaping the game
“Strategy is choosing what not you play, not just playing the
to do.” game you find.”
—Michel Porter —Adam Brandenburger and Barry Nalebuff
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“All birds find shelter during a “The essence of strategy lies in

rain. But eagle avoids rain by creating tomorrow‟s competitive
flying above the clouds.” advantages faster than
—APJ Abdul Kalam Azad competitors can mimic the ones
you possess today.”
—Gary Hamel & C.K. Prahalad

“Even if you are on the right track, you‟ll “Plans are nothing,
get run over if you just sit there.” planning is everything.”
—Will Rodgers —Dwight D. Eisenhower
Thinking
Researching
Strategizing
Reaching conclusions
CHAPTER 1: FOUNDATIONS OF STRATEGIC

MARKETING MANAGEMENT
PURPOSE OF MARKETING
“If you don‟t know where you are

going, you might end up
somewhere else.” To create long-term, mutually beneficial
—Casey Stengel exchange relationships between an entity
and the publics (individuals and
organizations) with which it interacts.
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RESPONSIBILITIES OF
WHY IS MARKETING DIFFICULT?
MARKETING MANAGERS
 No “formula” for marketing success

 Conduct not only day- Set the firm‟s
 Requires considerable interaction with customers to-day operations but direction
 Customers often cannot accurately describe also make strategic
Create and sustain
their needs decisions competitive
 Difficult to predict competitive action  Expanded advantage that will
responsibilities affect the firm‟s LT
 Ever changing customer tastes and societal trends performance
include:
 Difficult to implement strategy precisely
RESULTS OF THE EVOLUTION

RESPONSIBILITIES OF CMOs
OF THE MARKETING MANAGER
Play leadership role:

 From being only an implementer of  Define the business mission
strategy to being a maker of strategy  Analyze environmental, competitive, and
CMO position in most companies business situations
SMM as a course of study and practice  Develop business objectives and goals
CMOs in half of Fortune 1000 companies
 Define CV propositions and related marketing
strategies
STRATEGIC MARKETING
SKILL SET OF CMOs
MANAGEMENT PROCESSES
1. Define organization‟s business, mission,

5 complex and interrelated processes
 Analytic abilities to interpret extensive and goals

market and operational information 2. Identify and frame organizational growth
opportunities
 Intuitive sense of customer and competitor
motivations 3. Formulate product-market strategies
 Creativity in framing and implementing 4. Budget resources

strategic marketing initiatives
5. Develop reformulation and recovery
strategies
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BUSINESS DEFINITION
 A written statement  A firm can define

that outlines the its business by:
scope of operations The types of needs it
DEFINING THE When operating many addresses
ORGANIZATION‟S BUSINESS, businesses, it is difficult to The types of
determine what business customers it serves
MISSION, AND GOALS a firm is in
The means or
Define business from a technology used to
customer/market satisfy needs
perspective
BUSINESS MISSION BUSINESS MISSION
Reflects management‟s
 Describes a firm‟s vision of the firm
purpose with Provides direction for
goal-setting
American
reference to its XEROX
customers, offerings, Describes the character
Red Cross
markets, philosophy, Underscores the firm's
and technology scope of operations
“Do great work” “Provide for
Helps identify and
 Applicable to „not-for- evaluate product-market victims of
profit firms‟ opportunities disaster”
Inspires employees
BUSINESS GOALS OR OBJECTIVES BUSINESS GOALS OR OBJECTIVES
Production • Manufacturing and service capacity

Production
Objectives Objectives • Product and service quality
 Convert the mission into
tangible actions and
results to be achieved by • Return on investment • Profit
Financial Financial • Return on sales • Cash flow
a time frame Objectives
Objectives • Shareholder wealth
 Are divided into 3
categories • Market share • Customer satisfaction
Marketing Marketing • Sales volume • Customer value creation
Objectives Objectives • Profit • Customer lifetime value
• Marketing productivity
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BUSINESS GOALS OR OBJECTIVES MARKETING MANAGEMENT
Situation analysis is
 Goal setting should an appraisal of
be problem-centered operations to
and future-oriented determine the reasons IDENTIFYING AND FRAMING
 Make a situation
for the gap between
what was expected
ORGANIZATIONAL GROWTH
analysis for goal and what has OPPORTUNITIES
setting happened
THREE QUESTIONS DETERMINE WHETHER

ENVIRONMENTAL OPPORTUNITIES REPRESENT WHAT MIGHT WE DO?
VIABLE ORGANIZATIONAL OPPORTUNITIES
Entrepreneurial phase Sources of Environmental Opportunities

Environmental
 What might we do? Opportunities  Unmet or changing consumer needs
Distinctive  Unsatisfied buyer groups

 What do we do best? Competencies
 New means or technologies for delivering
Success value to prospective buyers
 What must we do? Requirements
Mere presence of an environmental opportunity does not mean that an
organizational growth opportunity exists.
WHAT DO WE DO BEST? WHAT DO WE DO BEST?
Distinctive Competency Distinctive Competency
Criteria must be satisfied:

Describes a firm‟s unique strengths or
qualities including skills, experiences,  Competitors cannot replicate it easily
technologies, or resources, that distinguish
it from other firms  Makes significant contribution to customer
benefits and provides superior value
 Can be applied to multiple settings
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WHAT DO WE DO BEST? SWOT ANALYSIS
Success Requirements SWOT analysis is a formal framework for

identifying and framing a firm‟s growth
opportunities.
Basic tasks that a firm must perform in a
- Type of Factor -
market or industry to compete
Organization Favorable Unfavorable
successfully.
Internal
Strengths Weaknesses
Capabilities
What must be done should be consistent what can be done
External
Opportunities Threats
Environment
SWOT ANALYSIS SWOT ANALYSIS
What the organization is good at doing

Strengths or some characteristic that gives it an
important capability
Focuses on whether a firm‟s growth What an organization lacks or
opportunity results from… Weaknesses does poorly relative to other
organizations
….a GOOD FIT between an firm‟s internal
capabilities (S/W) and its external environment Developments or conditions in the
(O/T) Opportunities environment that have favorable
implications for the organization
Pose dangers to the welfare of the

Threats organization
EXHIBIT 1.1: SAMPLE SWOT

SWOT ANALYSIS
ANALYSIS FRAMEWORK
Internal
Factors
Strengths Weaknesses
External
Factors
Opportunities Threats After a SWOT analysis, ask:
 Management  Economic
 Marketing  Competition  Which strengths represent distinctive

 Manufacturing  Consumer competencies?
 R&D  Technology
 Finance  Legal/Regulatory  Which weaknesses disqualify the firm from

 Offerings  Industry/Market pursuing certain opportunities?
Structure
 Does a pattern emerge from the SWOT?
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PRODUCT-MARKET STRATEGY
 Involves selecting specific markets

and profitably reaching them through
FORMULATING an integrated marketing program,
called a marketing mix
PRODUCT-MARKET
STRATEGIES Existing/
MATCH
Needs of
Potential
Markets
Offerings
EXHIBIT 1.2:
PRODUCT-MARKET STRATEGIES
PRODUCT-MARKET STRATEGIES
Market Penetration Strategy

Markets
Existing New
Market Market Dictates that a firm seek to gain greater

Existing
Penetration Development dominance in a market in which it already
Offerings has an offering (existing offerings →
New Offering
existing markets)
New Diversification
Development
PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES
Market Penetration Strategy Involves Market Penetration Strategy Considers
 Increasing buyers‟ usage or consumption  Examining market growth

rates of the offering
 Assessing competitive reaction
 Attracting buyers of competing offerings
 Analyzing the capacity of the market and
 Stimulating product trial among potential the availability of new buyers
customers
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Market Development Strategy Market Development Strategy Involves
Dictates that a firm introduce its existing  Adjusting the marketing mix
offerings to markets other than those it is  Analyzing competitors‟ S/Ws, and retaliation
currently serving (existing offerings →
new markets).  Identifying the number, motivation, and
buying patterns of new buyers
 Geographic development
 Demographic development
 Determining the firm‟s ability to adapt to new
markets
Market Development Strategy International Forms Exporting
 Involves marketing the same offering in

Exporting Licensing another country through sales offices or
intermediaries
 A popular option to enter foreign markets
because it:
Joint Venture/ Direct
Strategic Alliance Investment • Is easy to initiate
• Requires minimal capital investment
Licensing Joint Venture/Strategic Alliance
 A contract where the licensee is given the  Creates a new entity in the host country
rights to patents, trademarks, etc. by the  Allows the two firms to share ownership, control,
licensor in turn for a royalty or fee and profits
 A low-risk, quick, and capital-free entry into  A firm lacking resources can enter a foreign market
a foreign market  Ensures against trade barriers
 Limits the control of the licensor over  Disagreements regarding how the new entity should
be run may arise
production and marketing
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Direct Investment
New Offering Development Strategy
 Involves investing in a manufacturing and/or
assembly facility in a foreign market
 Needs most commitment and huge capital Dictates that a firm create new offerings
→ existing markets.
 Most risky but most profitable market entry
option
 Brings the firm closer to its customers
 Often follows the other three options
New Offering Development Strategy Involves New Offering Development Strategy Considers
 The market size and volume for profitability
Product
Developing totally new offerings  The magnitude and timing of competitors‟
Innovation
responses
Enhancing the value of existing
Product offerings to customers through
 The impact on the sales of existing offerings
Augmentation bundling or improving functional (cannibalism)
performance  The capacity of the firm to deliver the offerings
Product Adding different features, sizes,
to the market(s)
Line Extension etc. to broaden the existing line  The presence of significant POD
Cannibalism
Diversification Strategy
 Occurs when sales of a new offering come at
the expense of sales of existing offerings
Involves the development or acquisition of
 Common in product development programs offerings new to the firm and new to
 Key issue: Does the new offering detract from publics (new offerings → new markets)
the overall profitability of the firm‟s total offering
mix
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Diversification Strategy Considerations

Strategies are evaluated based on:
 Firms can take the advantage of growth
 The firm‟s business, mission, and capabilities
opportunities
 Market capacity and behavior
 Very risky because both the offerings and
markets served are new  Environmental forces
 Can be successful if the firm applies its  Competitive activities
distinctive competencies
STRATEGY SELECTION GROWTH STRATEGY OF STARBUCKS

Designed an ambitious, multi-pronged growth
strategy to maintain its phenomenal growth
Strategies are chosen based on:
 Costs and benefits of a strategy
 Probabilities of success for a strategy
 Competitive structure, market dynamics,
and opportunity costs
 The offering itself
GROWTH STRATEGY OF STARBUCKS EXHIBIT 1.3: DECISION-TREE FORMAT
 Market penetration: Make  How? Add new stores in current

more sales to current market areas; improve Action Response Outcome
customers without advertising, prices, menu,
changing products service.
 Market development:  How? Review new demographic R1 O1
Identify and develop new
markets for current
(seniors/ethnic consumers) or
geographic (Asian, European, &
A1
products South American) markets. R2 O2
 Product development:  How? Add food offerings, sell
Offer modified or new coffee in supermarkets, co-brand
products to current markets products
R1 O3
 Diversification: Start up or  How? Make and sell CDs, testing A2
buy businesses outside restaurant concepts, or branding
current products and casual clothing R2 O4
markets
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EXHIBIT 1.4: SAMPLE DECISION-TREE THE MARKETING MIX
Action Response Outcome Communication

Aggressive
Strategy
competition
Aggressive Estimated profit
Market- competition of $2 million
penetration
Passive Estimated profit
strategy competition of $3 million
Product Channel
Customer
Strategy Aggressive Strategy
competition
Aggressive Estimated profit
Market- competition Passive
of $1 million
development competition
strategy Passive Estimated profit
competition of $4 million Price
Strategy
CUSTOMER VALUE PROPOSITION FORMULATING THE MARKETING MIX
 The rightness depends on the success

A cluster of benefits that a firm promises requirements of the market
its customers to satisfy their needs.
 Must be consistent with:
• The needs of the markets served
Wal-Mart Michelin • The firm‟s capacity
• The marketing mix activities

IMPLEMENTING THE MARKETING MIX MARKETING MANAGEMENT
 Is as much an art as a science

 Successful implementation requires an
understanding of:
• Markets BUDGETING MARKETING,
• Environmental forces FINANCIAL, AND PRODUCTION
• Organizational capacity RESOURCES
• Marketing mix activities
• Competitor reactions
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BUDGETING BUDGETING
A master budget consists of:
 A budget is a formal, Must mesh and Operating

Focuses on the income statement.
Also referred to as a pro forma income
quantitative balance a firm‟s Budget statement or profit plan.
financial, production,
expression of a firm‟s and marketing
planning and strategy resources to achieve Financial Focuses on the effect the operating
initiatives expressed its overall goals Budget budget on the firm‟s cash position.
in financial terms
Focuses on developing adv., sales, and
Special
other budgets that support the master
Budgets budget.
CHAPTER 1: FOUNDATIONS OF STRATEGIC REFORMULATION AND RECOVERY

MARKETING MANAGEMENT STRATEGIES
 Strategies are rarely timeless

DEVELOPING Periodic adjustments due to changing markets,
economic conditions, and competitive behavior
REFORMULATION AND
Two fundamentals:
RECOVERY STRATEGIES
― Marketing audit
― Control procedures
MARKETING AUDIT MARKETING AUDIT
Addresses two synoptic questions:

A comprehensive, systematic, independent,
and periodic examination of a firm‟s
Are we doing the right things?
marketing environment, objectives, Strategic
strategies, and activities to determine Is there strategic fit?
problem areas and opportunities and
recommend a plan of action to improve the
Operational Are we doing things right?
firm‟s marketing performance.
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REFORMULATION AND CHAPTER 1: FOUNDATIONS OF STRATEGIC

RECOVERY STRATEGIES MARKETING MANAGEMENT
Have the following purposes:

 Forces marketing managers to ask DRAFTING A
“What if…?” questions
MARKETING PLAN
 These strategies lead to faster reaction
time in implementing remedial actions
MARKETING PLAN MARKETING PLAN
 Different names of marketing plans

Business Product Brand
marketing Marketing Marketing
A formal, written document that Plans Plans Plans
describes the context and scope of an
firm‟s marketing effort to achieve  Each has these time dimensions:
defined goals or objectives within a
specific future time period. Short-term Focus: 1-year period
Long-term Focus: 3- to 5-year period

A SAMPLE MARKETING PLAN MARKETING MANAGEMENT
1. Executive Summary (sells 5. Product-Market Focus (contains
the document to the reader) 5-year marketing and product
objectives, target markets, CV
2. Company Description proposition, PODs, and positioning
(highlights the recent history of lines)
and successes)
6. Marketing Program (4 marketing-
3. Strategic Focus (covers 3
aspects of corporate
mix elements in terms of revenues MARKETING ETHICS AND
and expenses)
strategies: mission, goals, and
core competence) 7. Financial Data and Projections SOCIAL RESPONSIBILITY
(contains past 5-year sales
4. Situation Analysis (a revenue and 5-year projections)
snapshot of „where we are
now. Make SWOT analysis, 8. Implementation plan
industry analysis, competitor 9. Evaluation and control
analysis, company analysis,
and customer analysis) 10. Appendices
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ETHICS AND SOCIAL RESPONSIBILITY
 Most marketing decisions involve

some degree of moral judgment
 Marketers should take actions that are All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
legal, ethical, and socially responsible mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
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5/7/2018

Foundations of Strategic AFTER READING THIS CHAPTER

AFTER READING THIS CHAPTER CHAPTER 1: FOUNDATIONS OF STRATEGIC

5. Develop reformulation and recovery

CHAPTER 1: FOUNDATIONS OF STRATEGIC CHAPTER 1: FOUNDATIONS OF STRATEGIC

“Successful business strategy is

CHAPTER 1: FOUNDATIONS OF STRATEGIC CHAPTER 1: FOUNDATIONS OF STRATEGIC

“All birds find shelter during a “The essence of strategy lies in

CHAPTER 1: FOUNDATIONS OF STRATEGIC CHAPTER 1: FOUNDATIONS OF STRATEGIC

CHAPTER 1: FOUNDATIONS OF STRATEGIC

“If you don‟t know where you are

 No “formula” for marketing success

RESULTS OF THE EVOLUTION

Play leadership role:

1. Define organization‟s business, mission,

 Analytic abilities to interpret extensive and goals

 Creativity in framing and implementing 4. Budget resources

CHAPTER 1: FOUNDATIONS OF STRATEGIC

 A written statement  A firm can define

BUSINESS MISSION BUSINESS MISSION

BUSINESS GOALS OR OBJECTIVES BUSINESS GOALS OR OBJECTIVES

Production • Manufacturing and service capacity

CHAPTER 1: FOUNDATIONS OF STRATEGIC

THREE QUESTIONS DETERMINE WHETHER

Entrepreneurial phase Sources of Environmental Opportunities

Distinctive  Unsatisfied buyer groups

WHAT DO WE DO BEST? WHAT DO WE DO BEST?

Distinctive Competency Distinctive Competency

Criteria must be satisfied:

 Can be applied to multiple settings

WHAT DO WE DO BEST? SWOT ANALYSIS

Success Requirements SWOT analysis is a formal framework for

SWOT ANALYSIS SWOT ANALYSIS

What the organization is good at doing

Pose dangers to the welfare of the

EXHIBIT 1.1: SAMPLE SWOT

 Marketing  Competition  Which strengths represent distinctive

 Finance  Legal/Regulatory  Which weaknesses disqualify the firm from

 Does a pattern emerge from the SWOT?

CHAPTER 1: FOUNDATIONS OF STRATEGIC

 Involves selecting specific markets

Market Penetration Strategy

Market Market Dictates that a firm seek to gain greater

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

Market Penetration Strategy Involves Market Penetration Strategy Considers

 Increasing buyers‟ usage or consumption  Examining market growth

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

Market Development Strategy Market Development Strategy Involves

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

Market Development Strategy International Forms Exporting

 Involves marketing the same offering in

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

Licensing Joint Venture/Strategic Alliance

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

PRODUCT-MARKET STRATEGIES PRODUCT-MARKET STRATEGIES

Diversification Strategy Considerations

STRATEGY SELECTION GROWTH STRATEGY OF STARBUCKS

GROWTH STRATEGY OF STARBUCKS EXHIBIT 1.3: DECISION-TREE FORMAT

 Market penetration: Make  How? Add new stores in current

EXHIBIT 1.4: SAMPLE DECISION-TREE THE MARKETING MIX

Action Response Outcome Communication