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Marketing Management Notes Unit I

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Marketing Management Notes Unit I

  1. 1. Marketing Management <ul><li>Definition: </li></ul><ul><ul><li>One marketer said that marketing’s role is to “deliver higher standard of living.” </li></ul></ul><ul><li>Social Definition of Marketing: </li></ul><ul><ul><li>Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others. </li></ul></ul>
  2. 2. Managerial definition of Marketing: Marketing has often been described as “ the art of selling products”, but people are surprised when they hear that the most important part of marketing is not selling; selling is only the tip of marketing iceberg. Peter Drucker, a leading management theorist, puts it this way: “ There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.
  3. 3. American Marketing Association defines marketing as: Marketing is a process of planning and executing the conception, pricing, promotion and distribution of ideas, goods & services and to create exchanges that satisfy individual and organizational goals. Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties. We see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering and communicating superior customer value.
  4. 4. Scope of Marketing Management: <ul><li>Decision regarding the medium of distribution. </li></ul><ul><li>Decision regarding sales promotion and advertisements. </li></ul><ul><li>Decision regarding after sales service. </li></ul><ul><li>Decision and researches pertaining to customers. </li></ul><ul><li>Decisions regarding the commodity. </li></ul><ul><li>Decision regarding price determination. </li></ul>
  5. 5. <ul><li>Importance of marketing management </li></ul><ul><li>Uses to the society: </li></ul><ul><li>a) Protecting the economy against evil effects of depression: </li></ul><ul><li>b) Employment to People: </li></ul><ul><li>c) Availability of various products for use: </li></ul><ul><li>2) Uses to Producers: </li></ul><ul><li>a) Reduction in distribution cost: </li></ul><ul><li>b) Helpful in earning more profits: </li></ul><ul><li>c) Getting information regarding demand and planning production accordingly: </li></ul>
  6. 6. <ul><li>3) Uses to Middlemen: </li></ul><ul><li>4) Use to the Nation: </li></ul><ul><li>Marketing as a managerial function: </li></ul><ul><li>Marketing as a managerial activity involves analyzing the market opportunities, implementing marketing plans, and setting control mechanisms in such a way that organizational objectives are accomplished at minimum cost. In other words marketing is: </li></ul><ul><li>Understanding customer needs. </li></ul><ul><li>Environmental scanning and market opportunity analysis. </li></ul><ul><li>Development of competitive marketing plan and strategy. </li></ul><ul><li>Implementation of the marketing plan and development of tactical plans to overcome problems at the market-place. </li></ul><ul><li>Development of control mechanism. </li></ul>
  7. 7. Horizons of Marketing to Non-Profit and social causes: Today business is not only confined to business firms. Rather, it has been also adopted by non-profit organizations for social causes also. We can see that Government of India has started using the marketing principles for propagating for causes like family planning, child care, immunization of children against diseases like tetanus, thyroid, polio, cholera and also child marriage and dowry. Cause Marketing: This is another area where marketing tools are used for promotion of social causes. In a country like India, where ignorance and illiteracy still continues to be high, it is critical that the marketer lends support to the Government to market these causes.
  8. 8. <ul><li>Cause marketing, therefore, has become an important area requiring expertise of the same magnitude as that of FMCG marketing. It is use of marketing skills to effect social changes which benefit individuals and the society. </li></ul><ul><li>Some areas where marketing has been used to impact the target customers or consumer attitudes relate to: </li></ul><ul><li>Preservation of the environment. </li></ul><ul><li>Acceptance of the girl child. </li></ul><ul><li>Abolishing gender bias. </li></ul><ul><li>Avoiding use of plastic bags which are likely to damage the environment. </li></ul><ul><li>Avoid or discontinue unhealthy habits like smoking, Alcoholism, drug abuse, etc. </li></ul><ul><li>Assisting the police in controlling crime. </li></ul>
  9. 9. <ul><li>Causes marketing can also help create or change public policy. </li></ul><ul><li>Core concepts of marketing: </li></ul><ul><li>Target markets and Segmentation </li></ul><ul><li>Marketplace, Market space, and Meta market. </li></ul><ul><li>Marketers and Prospects. </li></ul><ul><li>Needs, Wants and Demands. </li></ul><ul><li>Product, Offering and Brand. </li></ul><ul><li>Value and Satisfaction. </li></ul><ul><li>Exchange and Transaction. </li></ul><ul><li>Relationships and Networks. </li></ul><ul><li>Marketing Channels: </li></ul><ul><li>a) Communication Channels: </li></ul><ul><li>b) Distribution Channels: </li></ul><ul><li>c) Service Channels: </li></ul>
  10. 10. 10) Supply Chain. 11) Competition: a) Brand Competition: b) Industry Competition: c) Form Competition: d) Generic Competition: 12) Marketing Environment: 1) Task Environment: 2) Broad Environment: a) Demographic Environment. b) Economic Environment. c) Natural Environment. d) Technological Environment. e) Political or Legal Environment. f) Social or Cultural Environment.
  11. 11. <ul><li>13) Marketing Program: The marketing program consists of numerous decisions on the mix of marketing tools to use. The marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into 4 broad groups that he called the 4 P’s of marketing. </li></ul><ul><li>Product, </li></ul><ul><li>Price, </li></ul><ul><li>Promotion, and </li></ul><ul><li>Place. </li></ul><ul><li>Note that the 4 P’s represent the sellers view of marketing tools available for influencing buyers. From the buyers point of view, each marketing tool is designed to deliver a customer benefit. Robert Lauterborn suggested that the sellers 4P’scorrespond to the customers 4C’s: </li></ul>
  12. 12. <ul><li>Four P’s Four C’s </li></ul><ul><li>Product 1) Customer Solution </li></ul><ul><li>Price 2) Customer Cost. </li></ul><ul><li>Place 3) Convenience. </li></ul><ul><li>Promotion 4) Communication. </li></ul><ul><li>Winning companies will be those that can meet customer needs economically and conveniently and with effective communication. </li></ul>
  13. 13. <ul><li>Marketing Task: </li></ul><ul><li>Demand generation for a product is just one of the several tasks of a marketing manager. In fact the task of the marketer is to match the demand with the supply position of the company. </li></ul><ul><li>Three stages of marketing practice: </li></ul><ul><li>The 3 stages are: </li></ul><ul><li>Entrepreneurial Marketing: </li></ul><ul><li>Formulated Marketing: </li></ul><ul><li>Intrapreneurial Marketing: </li></ul>
  14. 14. <ul><li>Response of Marketing to Change: </li></ul><ul><li>Company’s response to change and adjustments: </li></ul><ul><li>1) Reengineering: </li></ul><ul><li>2) Outsourcing: </li></ul><ul><li>3) E-commerce: </li></ul><ul><li>4) Benchmarking: </li></ul><ul><li>5) Alliances: </li></ul><ul><li>6) Partner-Suppliers: </li></ul><ul><li>7) Market Centered: </li></ul><ul><li>8) Global and Local: </li></ul><ul><li>9) Decentralized: </li></ul>
  15. 15. <ul><li>Marketer’s response to change and adjustments: </li></ul><ul><li>1) Customer Relationship Marketing: </li></ul><ul><li>2) Customer Lifetime Value: </li></ul><ul><li>3) Customer Share: </li></ul><ul><li>4) Target Marketing: </li></ul><ul><li>5) Customization: </li></ul><ul><li>6) Customer Database: </li></ul><ul><li>7) Integrated Marketing Communications: </li></ul><ul><li>8) Channels as Partners: </li></ul><ul><li>9) Every employee a Marketer: </li></ul><ul><li>10) Model-Based decision making: </li></ul>
  16. 16. <ul><li>Customer Value and Expectation: </li></ul><ul><li>1) Customer Perceived Value (CPV): </li></ul><ul><li>2) Total Customer Satisfaction (TCS): </li></ul><ul><li>3) Customer Expectation: </li></ul><ul><li>Delivering High Customer Value: </li></ul><ul><li>Measuring Satisfaction: Cles Fornell has developed the American Customer Satisfaction Index (ASCI) to measure the perceived satisfaction consumers feel with different firms, industries, economic sectors, and National economies. Some companies and brands with high ASCI scores in 2001 include: </li></ul>
  17. 17. <ul><li>H.J. Heinz company (89), Colgate-Palmolive (85), Cadillac (88), and Dell (78). </li></ul><ul><li>Companies need to be especially concerned today with customer satisfaction level because the internet provides a tool for consumers to spread bad word of the mouth as well as good word of the mouth to the rest of the world. </li></ul><ul><li>Tools for Tracking and Measuring Customer Satisfaction: </li></ul><ul><li>Complaint and Suggestions System: </li></ul><ul><li>Customer Satisfaction Surveys: </li></ul><ul><li>Ghost Shopping: </li></ul><ul><li>Lost Customer Analysis: </li></ul>
  18. 18. <ul><li>Value Chain: </li></ul><ul><li>Michael Porter of Harvard proposed the Value Chain as a tool for identifying ways to create more customer value. Every firm is a synthesis of activities that are performed to design, produce, market, deliver and support its products. The value chain identifies 9 strategically relevant activities that create value and cost in a specific business. These 9 value creating activities consist of 5 primary activities and 4 support activities which are as follows: </li></ul><ul><li>Bringing materials into the business (Inbound logistics) </li></ul><ul><li>Converting them into final products (Operations). </li></ul><ul><li>Shipping out Final products (Outbound logistics). </li></ul><ul><li>Marketing them (Marketing and sales). </li></ul><ul><li>Servicing them (Service). </li></ul>
  19. 19. <ul><li>Support Activities: </li></ul><ul><li>6) Procurement (materials and manpower). </li></ul><ul><li>7) Technology Development. </li></ul><ul><li>8) Human Resource Management (HRM). </li></ul><ul><li>9) Firms infrastructure. </li></ul><ul><li>For a firm to be successful it needs to follow these core processes: </li></ul><ul><li>Market sensing process: </li></ul><ul><li>The new offering realization process: </li></ul><ul><li>Customer acquisition process: </li></ul><ul><li>Customer Relationship Process (CRM): </li></ul><ul><li>Fulfillment management process: </li></ul>
  20. 20. <ul><li>Market-Oriented Strategic Planning </li></ul><ul><li>Philip Kotler Says: </li></ul><ul><li>“ It is more important to do what is strategically right than what is immediately profitable.” </li></ul><ul><li>Strategic planning calls for action in 3 key areas which are: </li></ul><ul><li>Managing a company’s business as an investment portfolio. </li></ul><ul><li>Assessing each business’s strength by considering the market growth rate and the company’s position and fit in that market. </li></ul><ul><li>Establishing a strategy. For each business the company must develop a game plan for achieving its long run objectives. </li></ul>
  21. 21. According to General Electric (GE): “ The marketing manager is the most significant functional contributor to the strategic planning process, with leadership roles in defining the business mission; analysis of the environmental, competitive, and business situations; developing objectives, goals, and strategies; and defining product, market, distribution, and quality plans to implement the business’s strategies. This involvement extends to the development of programs and operating plans that are fully linked with the strategic plan.” STRATEGIC PLANNING: Most large companies consist of 4 organizational levels: 1) The Corporate Level:
  22. 22. Corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enterprise. It makes decisions on amount of resources to allocate to each division as well as on which businesses to start or eliminate. 2) At Division Level: Each division establishes a division plan covering the allocation of funds to each business unit within the division. 3) At Business-Unit Level: Each business-unit develops a strategic plan to carry that business unit into a profitable future. 4) Product Level: Finally each product level (product line, brand) within a
  23. 23. <ul><li>business unit develops a marketing plan for achieving its objectives in its product market. </li></ul><ul><li>The marketing plan operates at 2 levels: </li></ul><ul><li>Strategic Level: Lays out target markets and value propositions that will be offered based on an analysis of the best market opportunities. </li></ul><ul><li>Tactical Level: This specifies the marketing tactics, including product features, promotion, merchandizing, pricing, sales channels and service. </li></ul>
  24. 24. <ul><li>Corporate and Division Strategic Planning: </li></ul><ul><li>By preparing statements of mission, policy, strategy, and goals, headquarters establishes a framework within which the divisions and business-units prepare their plans. </li></ul><ul><li>Some corporations give a lot of freedom to their business-units to set their own sales and profit goals and strategies. </li></ul><ul><li>Others set goals for their business-units but let them develop their own strategies; </li></ul><ul><li>Still others set the goals and participate in developing individual business unit strategies. </li></ul><ul><li>All corporate headquarters undertake 4 planning activities: </li></ul><ul><li>Defining Corporate Mission: </li></ul>
  25. 25. <ul><li>A corporation exists to accomplish something for which it starts with a mission. Overtime the mission may change, to take advantage of new opportunities or respond to new market conditions. Amazon.com changed its mission from being the worlds largest online bookstore to aspiring to become the world’s largest online store. </li></ul><ul><li>To define its mission the company should address Peter Drucker’s classic questions: </li></ul><ul><li>What is our Business? </li></ul><ul><li>Who is the Customer? </li></ul><ul><li>What is of value to the customer? </li></ul><ul><li>What will our business be? </li></ul><ul><li>What should our business be? </li></ul>
  26. 26. <ul><li>These simple sounding questions are among the most difficult the company will ever have to answer. Successful companies continuously raise these questions and answer them thoughtfully and thoroughly. Organizations develop mission statements to share with managers, employees and (in many cases) customers. A clear, thoughtful mission statement provides employees with a share sense of purpose, direction and opportunity. </li></ul><ul><li>Good mission statements have 3 characteristics: </li></ul><ul><li>They focus on limited number of goals; </li></ul><ul><li>Mission statement stress the major policies & values the company wants to honour. </li></ul><ul><li>They define the major competitive scopes within which the company will operate. These scopes are: </li></ul>
  27. 27. <ul><li>Industry Scope: The range of industries in which a company will operate. </li></ul><ul><li>Product and Application Scope: The range of products and applications that a company will supply. </li></ul><ul><li>Competence Scope: The range of technological and other competencies that a company will master and leverage. </li></ul><ul><li>Market-segment Scope: The type of market or customers a company will serve. </li></ul><ul><li>Vertical Scope: The number of channel levels from raw materials to final product and distribution in which a company will participate. </li></ul><ul><li>Geographical Scope: The range of regions, countries, or country groups in which a company will operate. </li></ul>
  28. 28. <ul><li>2) Establishing Strategic Business Unit: </li></ul><ul><li>Most companies operate several businesses. They often define their businesses in terms of products. But Levitt argued that market definitions of a business are superior to product definitions. </li></ul><ul><li>Large companies normally manage quite different businesses, each requiring its own strategy. GE classified its businesses into 49 Strategic Business Units (SBUs). An SBU has 3 characteristics: </li></ul><ul><li>It is a single business or collection of related businesses that can be planned separately from the rest of the company. </li></ul><ul><li>It has its own set of competitors. </li></ul><ul><li>It has a manager who is responsible for strategic planning and profit performance and who controls most </li></ul>
  29. 29. <ul><li>Who controls most of the factors affecting profit. </li></ul><ul><li>The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding. Two of the best know business portfolio evaluation models are: </li></ul><ul><li>Boston Consulting Group Model. </li></ul><ul><li>General Electric Model. </li></ul><ul><li>Boston Consulting Group: </li></ul><ul><li>The Boston Consulting Group (BCG), a leading management consulting firm, developed and popularized the Growth-share matrix. </li></ul><ul><li>BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1969. </li></ul>
  30. 30. <ul><li>According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share. </li></ul><ul><li>History of the BCG Matrix </li></ul><ul><li>1960’s – diversification of businesses </li></ul><ul><li>Need for universal management tool </li></ul><ul><li>First implementation in 1969 by Boston Consulting Group </li></ul><ul><li>The BCG Model is a portfolio planning model which is based on the observation that a company’s business units can be classified into four categories: </li></ul><ul><li>1) Question mark: Business that operates in high-growth markets but have a low relative market share. </li></ul>
  31. 31. 2) Stars: The market leaders in a high-growth market. A star does not necessarily produce a positive cash flow for the company. The company must spend substantial funds to keep up with the high market growth, and to fight off competitors attack. 3) Cash Cows: Stars with a falling growth rate that still have the largest relative market share and produce a lot of cash for the company. The company does not have to finance expansion because the market’s growth rate has slowed. 4) Dogs: Businesses that have weak market shares in low-growth markets. The company should consider whether it is holding on to these businesses for good reasons.
  32. 32. The BCG Matrix with Cash Flow
  33. 33. <ul><li>BCG Matrix: </li></ul><ul><li>The horizontal axis is the Relative Market Share shown in a log scale: </li></ul><ul><li>Vertical line is usually set as 1.0 Relative Market Share </li></ul><ul><li>An SBU to the left of this line means it is the market leader in the industry or segment in which it operates </li></ul><ul><li>Conversely, an SBU to the right of this line (1.o RMS) means it is not the leader </li></ul><ul><li>The vertical axis is the growth rate: </li></ul><ul><li>5 levels may be used: product, product lines, market segment, </li></ul><ul><li>SBU and business growth rate </li></ul><ul><li>Horizontal line is usually set as 10% Growth Rate </li></ul><ul><li>SBUs above the set value (10% line) represents high growth </li></ul><ul><li>rates </li></ul><ul><li>Conversely, SBUs below this value depicts slower growth rate </li></ul>
  34. 34. Basis of the BCG Portfolio Matrix: Time Introductory Phase “?” Growth Phase “Star” Sales Volume Maturity Phase “Cash Cow” Decline Phase “Dog” BCG MATRIX
  35. 35. <ul><li>After plotting its various businesses in the growth-share matrix, a company must determine whether its portfolio is healthy. An unbalanced portfolio would have too many dogs or question marks and too few stars and cash cows . </li></ul><ul><li>SBU Strategies: The company’s task is to determine what objective, strategy, and budget to assign to each SBU. Four Strategies can be pursued: </li></ul><ul><li>Build, </li></ul><ul><li>Hold, </li></ul><ul><li>Harvest or </li></ul><ul><li>Divest. </li></ul>
  36. 36. <ul><li>The General Electric (GE) Model: </li></ul><ul><li>The SBU’s appropriate objectives cannot be determined solely by its position in the growth-share matrix. In the GE model each business is rated in terms of 2 major dimensions: </li></ul><ul><li>Market Attractiveness: </li></ul><ul><li>Business Strength: </li></ul><ul><li>These 2 factors make excellent marketing sense for rating a business. Companies are successful to the extent that they can enter attractive markets and possess the required strengths to succeed in those markets. If one of these factors is missing, the business will not produce outstanding results. </li></ul><ul><li>To measure these 2 dimensions, strategic planners must identify the factors underlying each dimension and find </li></ul>
  37. 37. <ul><li>A way to measure them and combine them into an index (each company has to decide on its own list of factors). For any business, market attractiveness varies with market size, annual market growth rate, historical profit margins, and so on. Business strength varies with company’s market share, product quality, and so on. </li></ul><ul><li>How does company arrive at the data? </li></ul><ul><li>Management rates each factor from 1 (very unattractive) to 5 (very attractive). </li></ul><ul><li>The ratings are then multiplied by weights reflecting the factors relative importance to arrive at the values which are summed for each dimensions. </li></ul><ul><li>The analyst places a point representing this business in the multifactor matrix and draws a circle around it </li></ul>
  38. 38. Whose size is proportional to the size of the relevant market. Eg: GE’s Hydraulic Pump’s business: Market Attractiveness: Dimensions Weight Rating(1-5) Value overall market size 0.20 4 0.80 Annual Market growth rate 0.20 5 1.00 Historical Profit Margin 0.15 4 0.60 Competitive Intensity 0.15 2 0.30 Technological Requirements 0.15 4 0.60 Inflationary Vulnerability 0.05 3 0.15 Energy Requirements 0.05 2 0.10 Environmental Impact 0.05 3 0.15 1.00 3.70
  39. 39. Business Strength: Dimension Weight Rating(1-5) Value Market Share 0.10 4 0.40 Share Growth 0.15 2 0.30 Product Quality 0.10 4 0.40 Brand Reputation 0.10 5 0.50 Distribution Network 0.05 4 0.20 Promotional Effectiveness 0.05 3 0.15 Productive Capacity 0.05 3 0.15 Productive Efficiency 0.05 2 0.10 Unit Costs 0.15 3 0.45 Material Supplies 0.05 5 0.25 R&D Performance 0.10 3 0.30 Managerial Personnel 0.05 4 0.20 1.00 3.40
  40. 40. <ul><li>The GE matrix is divided into 9 cells which in turn fall into 3 zones: </li></ul><ul><li>The 3 cells in the upper left corner indicate strong SBU’s in which the company should Invest or Grow. </li></ul><ul><li>The diagonal cells stretching from the lower left to the upper right indicate SBU’s that are medium in overall attractiveness. The company should pursue selectivity and manage for earnings in these SBU’s. </li></ul><ul><li>The 3 cells in the lower right corner indicate SBU’s that are low in overall attractiveness. The company should give serious thought to harvesting or divesting on these SBU’s. </li></ul>
  41. 41. Business Unit Strategic Planning: SWOT Analysis: External Environment Analysis (Opportunity and Threat) In general a business has to monitor key macro environment forces, and significant micro environment actors that affect the ability to earn profits. The business unit should setup a marketing intelligence system to track trends and important developments. For each trend or development, management needs to identify the associated opportunities and threats . The major purpose of environmental scanning is to adopt new marketing opportunities. A marketing opportunity is an area of buyer need or potential interest in which a company can perform profitably . Opportunities can take many forms and marketers have to be good in spotting them
  42. 42. <ul><li>A company may make a buying process more convenient or efficient. </li></ul><ul><li>A company can meet the need for more information and advise. </li></ul><ul><li>A company can customize a product or service that was formerly offered only in standard form. </li></ul><ul><li>A company can introduce a new capability. </li></ul><ul><li>A company maybe able to offer a product at a much lower price. </li></ul><ul><li>Some developments in the external environment represent threats. An environmental threat is a challenge that is posed by an unfavourable trend or development that would lead in the absence of defensive marketing action, to deterioration in sales or profit . Threats should should be classified according to seriousness and probability of </li></ul>
  43. 43. <ul><li>Occurrence. </li></ul><ul><li>Once management has identified the major threats and opportunities facing a specific business unit; it can characterize the business’s overall attractiveness. Four outcomes are possible: </li></ul><ul><li>An ideal business is high in major opportunities and low in major threats. </li></ul><ul><li>A speculative business is high in both major opportunities and threats. </li></ul><ul><li>A mature business is low in major opportunities and low in threat. </li></ul><ul><li>A troubled business is low in opportunities and high in threats. </li></ul>
  44. 44. Internal Environment Analysis ( Strengths/Weaknesses) It is one thing to adopt attractive opportunities and another to be able to take advantage of these opportunities. Each business needs to evaluate its internal strengths and weaknesses. The company does not have to correct all its weaknesses, nor should it boast about all its strength. The big question is whether the business should limit itself to those opportunities where it possesses the required strength or whether it should consider better opportunities where it might have to acquire or develop certain strengths.
  45. 45. <ul><li>Goal Formulation: </li></ul><ul><li>Once the company has performed a SWOT analysis, it can proceed to develop specific goals for a planning period. This stage of the process is called goal formulation. Managers use the term goals to describe objectives that are specific with respect to magnitude and time. </li></ul><ul><li>Most business units pursue a mix of objectives including profitability, sales growth, market share improvement, risk containment, innovation, and reputation . The business units sets these objectives and then manages by objectives (MBO). For an MBO system to work, the unit’s various objectives must meet four criteria: </li></ul><ul><li>They must be arranged hierarchically, from the most to the least important. </li></ul>
  46. 46. 2) Objectives should be stated quantitatively whenever possible. 3) Goals should be realistic. They should arise from an analysis of the business unit’s opportunities and strengths, not from wishful thinking. 4) Objectives must be consistent. It is not possible to maximize both sales and profits simultaneously. Other important trade-offs include short-term profit versus long-term growth, deep penetration of existing markets versus developing new markets, profit goals versus nonprofit goals, and high growth versus low risk . Each choice in this set of trade-offs calls for a different marketing strategy.
  47. 47. <ul><li>Strategic Formulation: </li></ul><ul><li>Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there. Every business must design a strategy for achieving its goals, consisting of a marketing strategy , and a compatible technology strategy , and sourcing strategy . </li></ul><ul><li>Porter’s Generic Strategies: </li></ul><ul><li>Michael Porter has proposed 3 generic strategies that provide a good starting point for strategic thinking. These are as follows: </li></ul><ul><li>Overall Cost Leadership: </li></ul><ul><li>Differentiation: </li></ul><ul><li>Focus: It is also called a segmentation strategy or niche strategy </li></ul>
  48. 48. Operational Effectiveness and Strategy : According to Porter , firms pursuing the same strategy directed to the same target market constitute a strategic group. The firm that carries out that strategy best will make the most profits. Firms that do not pursue a clear strategy and try to be good on all strategic dimensions do the worst. Porter defines strategy as “the creation of a unique and valuable position involving a different set of activities.” A company can claim that it has a strategy when it “performs different activities from rivals or perform similar activities in different ways.” Porter's five forces : NEXT SLIDE
  49. 49. Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competences, business model or network to achieve a profit above the industry average.
  50. 50. <ul><li>Porter's five forces include three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers. </li></ul><ul><li>Model/framework: </li></ul><ul><li>The threat of substitute products: The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). </li></ul><ul><li>Buyer propensity to substitute </li></ul><ul><li>Relative price performance of substitutes </li></ul><ul><li>Buyer switching costs </li></ul><ul><li>Perceived level of product differentiation </li></ul><ul><li>2) The threat of the entry of new competitors : Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. </li></ul>
  51. 51. <ul><li>Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition). </li></ul><ul><li>The existence of barriers to entry (patents, rights, etc.) </li></ul><ul><li>Economies of product differences </li></ul><ul><li>Brand equity </li></ul><ul><li>Switching costs or sunk costs </li></ul><ul><li>Capital requirements </li></ul><ul><li>Access to distribution </li></ul><ul><li>Absolute cost advantages </li></ul><ul><li>Learning curve advantages </li></ul><ul><li>Expected retaliation by incumbents </li></ul><ul><li>Government policies </li></ul><ul><li>3) The intensity of competitive rivalry : For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. </li></ul>
  52. 52. <ul><li>Number of competitors </li></ul><ul><li>Rate of industry growth </li></ul><ul><li>Intermittent industry overcapacity </li></ul><ul><li>Exit barriers </li></ul><ul><li>Diversity of competitors </li></ul><ul><li>Informational complexity and asymmetry </li></ul><ul><li>Fixed cost allocation per value added </li></ul><ul><li>Level of advertising expense * Economies of scale </li></ul><ul><li>Sustainable competitive advantage through improvisation </li></ul><ul><li>4) The bargaining power of customers: Also described as the market of outputs. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. </li></ul><ul><li>Buyer concentration to firm concentration ratio </li></ul><ul><li>Degree of dependency upon existing channels of distribution </li></ul><ul><li>Bargaining leverage, particularly in industries with high fixed costs </li></ul><ul><li>Buyer volume </li></ul><ul><li>Buyer switching costs relative to firm switching costs </li></ul>
  53. 53. <ul><li>Buyer information availability </li></ul><ul><li>Ability to backward integrate </li></ul><ul><li>Availability of existing substitute products </li></ul><ul><li>Buyer price sensitivity. </li></ul><ul><li>Differential advantage (uniqueness) of industry products. </li></ul><ul><li>5) The bargaining power of suppliers: Also described as market of inputs. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. </li></ul><ul><li>Supplier switching costs relative to firm switching costs </li></ul><ul><li>Degree of differentiation of inputs </li></ul><ul><li>Presence of substitute inputs </li></ul><ul><li>Supplier concentration to firm concentration ratio </li></ul><ul><li>Employee solidarity (e.g. labour unions) </li></ul><ul><li>Threat of forward integration by suppliers relative to the threat of backward integration by firms. </li></ul>
  54. 54. This five forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.
  55. 55. <ul><li>Strategic Alliances: </li></ul><ul><li>Companies are also discovering that they need strategic partners if they hope to be effective. </li></ul><ul><li>Marketing Alliances: </li></ul><ul><li>Many strategic alliances take the form of marketing alliances. These fall into 4 major categories: </li></ul><ul><li>Product or Service Alliance : One company licenses another to produce its product, or two companies jointly market their complementary products or a new product. </li></ul><ul><li>Promotional Alliances: One company agrees to carry a promotion for another company’s product or service. </li></ul><ul><li>Logistics Alliances: One company offers logistical services for another company’s product. </li></ul><ul><li>Pricing Collaborations: One or more companies join in a special pricing collaboration. </li></ul>
  56. 56. Program Formulation and Implementation: Once the business unit has developed its principle strategies, it must work out detailed supporting programmes. If the unit has decided to attain technological leadership, it must plan programmes to strengthen its R&D department, gather technological intelligence, develop leading-edge products, train the technical sales force, and develop ads to communicate its technological leadership. A great marketing strategy can be sabotaged by poor implementation. According to McKinsey & Company, strategy is only one of seven elements in successful business practice. McKinsey’s 7-S framework of business is:
  57. 57. <ul><li>The first 3 elements - Strategy, Structure, and Systems – are considered the “hardware” of success. The next 4 – Style, Skills, Staff, and Shared Values – are the “software.” </li></ul><ul><li>Lets discuss the 4 soft elements: </li></ul><ul><li>Style: this means that the company employees share a common way of thinking and behaving. </li></ul><ul><li>Skills: This means that the employees have the skills needed to carry out company’s strategy. </li></ul><ul><li>Staff: This means that the company has hired able people, trained them well, and assigned them to the right job. </li></ul><ul><li>Shared Values: This means that the employees share the same guiding values. </li></ul>
  58. 59. Feedback and Control: As it implements its strategy, the firm needs to track the results and monitor new developments. Some environments are fairly stable from year to year. Other environments evolve slowly in a fairly predictable way. Still other environments change rapidly in major and unpredictable ways. Nonetheless, the company can count on one thing: The marketplace will change; and when it does the company will need to review and revise its implementation , programmes, strategies or even objectives.