Chapter 2 Company and Marketing Strategy: Partnering to Build Customer Relationships

Learning Objectives 1. Explain companywide strategic planning and its four steps. 2. Discuss how to design business portfolios and develop growth strategies. 3. Explain marketings role under strategic planning and how marketing works with its partners to create and deliver customer value. 4. Describe the elements of a customer-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 return on marketing investment. Chapter Overview In the first chapter, we explored the marketing process by which companies create value for consumers in order to capture value in return. In this chapter, we look at designing customer-driven marketing strategies and constructing marketing programs. First, we look at the organizations overall strategic planning, which guides marketing strategy and planning. Next, we discuss how marketing partners closely with others inside and outside the firm to create value for customers. We then examine marketing strategy and planninghow marketers choose target markets, position their market offering, develop a marketing mix, and manage their marketing programs. Finally, we will look at the step of measuring and managing return on marketing investment (marketing ROI). Chapter Outline 1.0 INTRODUCTION The Olympic Games are arguably the most watched televised event offering huge marketing opportunities to businesses that have a developed a visible relationship with it. After the huge success of the Chinese Olympics in 2008, the next event held in London in 2012 again offers partners enormous opportunities. The London Olympic organizers have positively sought to involve smaller businesses to provide a range of products and services for the event. Whilst the big brands such as Nike and Visa are present along with the Beijing Olympics sponsor Adidas, smaller and more British based businesses have not been excluded from the opportunities. The huge commercial possibilities of being associated in some way with the Olympic brand cannot be underestimated. Businesses need to make sure that they make the most of their associations, at the top end the full sponsorship and at the lower end a chance to be recognized as an Olympics authorized supplier. At the same time, it is essential that any relationship forged with the Olympic brand is protected from abuse from other businesses seeking to spring ambush marketing campaigns to cash in. Opening Vignette Questions

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1. What might association with the Olympic brand be so valuable to the sponsors? How can it help to build customer relationships? 2. What is the IOC and its mission? 3. If you worked as a operations manager, financial analyst, IT specialist, or human resources manager, would it be important for you to understand marketing strategy? Why? Is a business customer-focused strategy and mission just a marketing thing, or are they a companywide thing? 4. How does the chapter-opening story relate to what comes later in the chapter? Outstanding marketing organizations employ customer-driven marketing strategies and programs that create customer value and relationships. However, to understand these strategies and programs, we must first understand the overall strategic planning process. 2.0 COMPANYWIDE STRATEGIC PLANNING: DEFINING MARKETINGS ROLE Each company must find the game plan for long-run survival and growth that makes the most sense given its specific situation, opportunities, objectives, and resources. This is the focus of strategic planningthe process of developing and maintaining a strategic fit between the organizations goals, capabilities, and changing market opportunities. Strategic planning sets the stage for the rest of the planning in the firm. Companies typically prepare annual plans, long-range plans, and strategic plans. As Figure 2.1 in your textbook shows (p. 63), strategic planning is a process: defining the companys mission, setting company objectives and goals, designing the business portfolio, and planning functional strategies. 2.1 Defining a Market-Oriented Mission An organization exists to accomplish something, and this purpose should be stated clearly. A mission statement presents the organizations purposewhat it wants to accomplish in the larger environment; that is, a mission statement is an invisible hand that guides people in the organization. An effective mission statement is market oriented and defined in terms of satisfying basic customer needs. Moreover, it is meaningful and specific, yet motivating, and it emphasizes the companys strengths in the marketplace. Finally, an effective mission statement does not focus on sales and profits; instead, it must focus on customers and the customer experience the company seeks to create. 2.2 Setting Company Objectives and Goals The companys mission needs to be turned into detailed supporting objectives for each level of management. Each manager should have objectives and be responsible for meeting them. The mission leads to a hierarchy of objectives, including business objectives and marketing objectives. Broad marketing strategies and programs must be developed to support these marketing objectives. Then, each broad marketing strategy must be defined more clearly; thereby, translating the firms mission into a set of objectives for the current period. 2.3 Designing the Business Portfolio A business portfolio is the collection of businesses and products that make up the company. The best portfolio is the one that best fits the companys strengths and weaknesses to opportunities in the environment. Business portfolio planning involves two

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steps: (1) analyzing the current business portfolio to determine which business should receive more, less, or no investment, and (2) shaping the future portfolio by developing strategies for growth and downsizing. 2.3.1 Analyzing the Current Business Portfolio

The major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses that make up the company. Managements first step is to identify the key businesses that make up the company, called strategic business units (SBUs). A strategic business unit (SBU) is a unit of the company that has a separate mission and objectives and that can be planned independently from other company businesses. Next, the company assesses the attractiveness of its various SBUs and decides how much support each deserves. Most standard portfolio-analysis methods evaluate SBUs on two important dimensions the attractiveness of the SBUs market or industry and the strength of the SBUs position in that market or industry. The Boston Consulting Group developed the best-known portfolio-planning method. The Boston Consulting Group Approach. This method applies the growth-share matrix (Figure 2.2, p. 67 in your textbook). The growth-share matrix defines four types of SBUs: Stars: High-growth market, high-share product Cash cows: Low-growth market, high-share product Question marks: Low-share product, high-growth market Dogs: Low-share product, low-growth market

Once it has classified its SBUs, the company must determine what role each will play in the future. The company can invest more in the business unit in order to build its share. It can invest just enough to hold the SBUs share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest the SBU by selling it or phasing it out. Problems with Matrix Approaches. The BCG and other formal methods of strategic planning have limitations. First, they can be difficult, time-consuming, and costly to implement. In addition, management may find it difficult to define SBUs and measure market share and growth. Finally, these approaches focus on classifying current businesses but provide little advice for future planning. Because of such problems, many companies have dropped formal matrix methods in favor of more customized approaches that are better suited to their specific situations. 2.3.2 Developing Strategies for Growth and Downsizing

Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products the company should consider in the future. Marketing has the main responsibility for achieving profitable growth for the company; therefore, marketing must identify, evaluate, and select market opportunities and lay down strategies for capturing them.

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One useful device for identifying growth opportunities is the product/market expansion grid (see Figure 2.3, p. 68 in your textbook). This grid consists of four elements. Market penetration involves making more sales to current customers without changing its products. Market development involves identifying and developing new markets for its current products. Product development offers modified or new products to current markets. With diversification, a company starts up or buys businesses outside of its current products and markets. Companies must also develop strategies for downsizing their businesses. When a firm finds brands or businesses that are unprofitable or that no longer fit its overall strategy, it must carefully prune, harvest, or divest them. 3.0 PLANNING MARKETING: PARTNERING TO BUILD CUSTOMER RELATIONSHIPS A companys strategic plan establishes what kinds of businesses the company will operate and its objectives for each. Then, within each business unit, more detailed planning takes place. The major functional departments in each unit must work together to accomplish strategic objectives. Marketing plays a key role in the companys strategic planning in several ways. First, it provides a guiding philosophythe marketing conceptthat suggests that company strategy should revolve around building profitable relationships with important customer groups. Second, it provides inputs to strategic planners by helping to identify attractive market opportunities and by assessing the firms potential to take advantage of them. Third, within individual business units, marketing must design strategies for reaching each units objectives, and for carrying them out profitably, once those objectives are set. A key ingredient in the marketers formula for success is customer value. However, marketers cannot produce superior value for customers alone. In addition to customer relationship management, therefore, marketers must also practice partner relationship management. 3.1 Partnering with Other Company Departments Each company department is a link in the companys value chainthe series of departments that carry out value-creating activities to design, produce, market, deliver, and support the firms products. A companys value chain is only as strong as its weakest link. Success depends on how well each department performs its work of adding customer value and on how well the activities of various departments are coordinated. Ideally, a companys different functions should work in harmony to produce value for customers. In practice, departmental relations are full of conflicts and misunderstandings. Even so, marketers must find ways to get all departments to think customer and develop a smoothly functioning value chain. 3.2 Partnering with Others in the Marketing System The firm needs to look beyond its own value chain and into the value chains of its suppliers, distributors, and ultimately, its customers. More companies today are collaborating with other members of the supply chain to improve the performance of the

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customer value-delivery network. Increasingly, todays competition no longer takes place between individual competitors. Rather, it takes place between the entire valuedelivery network created by these competitors. 4.0 MARKETING STRATEGY AND THE MARKETING MIX The strategic plan defines the companys overall mission and objectives. Marketings role is shown in Figure 2.4, which summarizes the major activities involved in managing marketing strategy and the marketing mix (see p. 72 in your textbook). Customers are the center, so creating value for customers and building profitable customer relationships are crucial. Next comes marketing strategythe marketing logic by which the company hopes to achieve these profitable relationships. Then guided by this strategy, the company designs an integrated marketing mix made up of factors under its control; i.e., product, price, place, and promotion (the four Ps). 4.1 Customer-Driven Marketing Strategy Successful companies are customer centered. However, those companies also know that they cannot profitably serve all consumers in a given marketat least not all consumers in the same way. Therefore, each company must divide the total market, choose the best segments, and design strategies for serving its chosen segments profitably. This process involves market segmentation, market targeting, differentiation, and positioning. 4.1.1 Market Segmentation

A market segment consists of many types of customers, products, and needs. Hence, the marketer must determine which segment offers the best opportunities. 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). A market segment consists of consumers who respond in a similar way to a given set of marketing efforts. Companies are wise to focus their efforts on meeting the distinct needs of individual market segments. 4.1.2 Market Targeting

After a company has defined its market segments, it can enter one or many of them. Market targeting involves evaluating each market segments attractiveness and selecting one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain it over time. 4.1.3 Market Differentiation and Positioning

After a company has decided which market segments to enter, it must decide how it will differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. A products position is the place the product occupies relative to competitors in consumers minds. Marketers want to develop unique market positions for their products. Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target customers. When positioning its

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products, a company must first identify possible customer value differences that provide competitive advantages on which to build the position. Therefore, effective positioning begins with differentiationactually differentiating the companys market offering so that it gives consumers more value. 4.2 Developing an Integrated Marketing Mix After determining its overall marketing strategy, the company is ready to begin planning the details of its marketing mix: the set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the target market. In order to do this, a company must consider four variables. Product means the goods-and-services combination the company offers to the target market. Price is the amount of money customers pay to obtain the product. Place includes company activities that make the product available to target consumers. Promotion means activities that communicate the merits of the product and persuades target customers to buy it. An effective marketing program blends all of the marketing mix elements into an integrated marketing program designed to achieve the companys marketing objectives by delivering value to consumers. Some critics feel that the four Ps may omit or underemphasize certain important activities. From the buyers viewpoint, in this age of customer relationships, the four Ps could be described more effectively as the four Cs: customer solution, customer cost, convenience, and communication. 5.0 MANAGING THE MARKETING EFFORT Managing the marketing process requires four marketing management functions: analysis, planning, implementation, and control. 5.1 Marketing Analysis Managing the marketing function begins with a complete analysis of the companys situation. The company must analyze its markets and marketing environment to find attractive opportunities and avoid environmental threats. The marketer should conduct a SWOT analysis, by which it evaluates the companys overall strengths, weaknesses, opportunities, and threats. The goal is to match the companys strengths to attractive opportunities in the environment, while eliminating or overcoming the weaknesses and minimizing the threats. 5.2 Marketing Planning Marketing planning involves deciding on marketing strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is needed for each business, product, or brand. For the elements of a typical brand or marketing plan, see Table 2.2 in your textbook. A marketing strategy consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels. Additional sections of the marketing plan present an action program for implementing the marketing strategy along with the details of a supporting marketing budget. 5.3 Marketing Implementation

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A brilliant marketing strategy counts for little if the company does not implement it properly. Marketing implementation is the process that turns marketing plans into marketing actions in order to accomplish strategic marketing objectives. Marketing planning addresses what and why in marketing activities, while implementation addresses who, where, when, and how. Many managers think that doing things right (implementation) is as important as, or even more important than, doing the right things. In fact, both are critical to success. In an increasingly connected world, people at all levels of the marketing system must work together to implement marketing strategies and plans. 5.4 Marketing Department Organization The company must design a marketing organization that can carry out marketing strategies and plans. In a small company, one person might do all the marketing work. A marketing department in a large company will contain many specialists. The most common form of marketing organization is the functional organization. Under this model, functional specialists head the various marketing activities. A company that sells across the country or internationally often uses a geographic organization. Its sales and marketing personnel are assigned to specific countries, regions, and districts. Companies with many very different products or brands often create a product management organization. A product manager develops and implements a complete strategy and marketing program for a specific product or brand. For companies that sell one product line to many different types of markets and customers that have different needs and preferences, a market or customer management organization might be best. This model is similar to the product management organization, and market managers develop marketing strategies and plans for specific markets and customers. Large companies that produce many different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product, and market organization forms. Marketing organization has become an increasingly important issue in recent years. More companies are shifting their brand management focus toward customer management, as they move away from managing only product or brand profitability and toward managing customer profitability and customer equity. 5.5 Marketing Control Marketing control involves evaluating the results of marketing strategies and plans, and taking corrective action to ensure that objectives are attained. Marketing control has four steps: setting specific goals, measuring marketplace performance, evaluating causes of any differences between expected and actual performance, and taking corrective action. Operating control involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. Strategic control involves looking at whether the companys basic strategies are matched well to its opportunities. Marketing programs and strategies can become outdated quickly, so each company must reassess its overall approach to the marketplace periodically.

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6.0 MEASURING AND MANAGING RETURN ON MARKETING INVESTMENT Marketing managers must ensure that their marketing dollars are being well spent. Many companies now view marketing as an investment rather than an expense. In the past, many marketers spent freely on expensive marketing programs, often without thinking about the financial returns on their spending. In todays constrained economy, however, all that is changing. According to a recent study, as finances have tightened, marketers see return on marketing investment as the second biggest issue after the economy. Marketers are developing better measures of return on marketing investment. Return on marketing investment (ROI) is the net return from a marketing investment divided by the costs of the marketing environment. It measures the profits generated by investments in marketing activities. A company can assess return on marketing in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Some companies are combining such measures into marketing dashboardsmeaningful sets of marketing performance measures in a single display. Looking beyond standard performance measures, an increasing number of marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer retention, customer lifetime value, and customer equity (see Figure 2.8). These measures capture not only current marketing performance but also future performance that will result from stronger customer relationships. Student Exercises 1. Key Term: Strategic Planning

For long-term survival, every company must engage in effective strategic planningthe process of developing and maintaining a strategic fit between the organizations goals, capabilities, and marketing opportunities. Consider the competitive U.S. athletic footwear market. How would you describe strategic planning at Nike (www.nike.com)? 2. Key Term: Mission Statement

A mission statement is a statement of the organizations purposewhat it wants to accomplish in the larger environment. Take a look at the mission statements of Starbucks coffee (www.starbucks.com), IBM (www.ibm.com), and John Deere (www.deere.com). How are their mission statements similar? How are they different? 3. Key Term: Business Portfolio

The collection of businesses and products that make up a company is known as its business portfolio. Visit the home page of Ford Motor Company (www.ford.com) and make a list of the products and/or businesses that comprise this company. 4. Key Term: Market Penetration

Market penetrationa strategy for company growth by increasing sales of current products to current market segments without changing the productis only one possible

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strategy for growth. Browse the Internet to locate a company with a market penetration strategy. What made you choose that company? 5. Key Term: Diversification

Another strategy for company growth is diversificationgrowth through the acquisition or starting of businesses outside of a companys current products and markets. Browse the Internet to find a company with a strategy that typifies diversification. What made you choose that company? 6. Key Term: Downsizing

Business unit growth is not always the most desirable or achievable option. Downsizing involves reducing the business portfolio by eliminating products or business units that are either not profitable or no longer fit the companys overall corporate strategy. Browse the Internet to identify two companies that have employed downsizing since the start of the Great Recession in 2008. 7. Key Term: Market Segment

A market segment is a group of consumers who respond in a similar way to a given set of marketing efforts. Check out Rolls-Royce (www.rolls-roycemotorcars.com) and Chery Automobile Company, Ltd. (www.cheryinternational.com). What market segment is each company attempting to reach? 8. Key Term: Positioning

Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Visit the websites of Burger King (www.bk.com) and McDonalds (www.mcdonalds.com) and determine the market positions of each brand. How do they differentiate their brands? What are their target markets? 9. Key Term: Marketing Mix

The marketing mix is the set of controllable, tactical marketing tools the firm blends to produce the responses it wants from the target market. These marketing tools can all be collected into four sets of variables known as the four Ps. Visit Southwest Airlines (www.southwest.com) and discuss the role of each one of the four Ps in Southwests marketing mix. 10. Key Term: SWOT Analysis

A complete analysis of the company situation is a key component in managing the marketing function. A SWOT analysis is central to this evaluation process. Think about your college or university. What are the primary strengths, weaknesses, opportunities, and threats it is facing? Marketing ADventure Exercises 1. Ad Interpretation Challenge: The Mission Statement Ad: The Olympics

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A mission statement embodies the purpose of an organizationwhat it wants to accomplish in the larger environment. Review the Olympics story on pp. 6061 in your textbook and identify the mission. What is the board doing to fulfill that mission? 2. Ad Interpretation Challenge: Customer-Focused Mission Ad: McDonaldsReal Marketing 2.1

McDonalds new mission is being our customers favorite place and way to eat. Read Real Marketing 2.1 article on pp. 6566 in your textbook and identify the elements of McDonalds Plan to Win. In your opinion, is McDonalds achieving its mission? Why or why not? 3. Ad Interpretation Challenge: Business Portfolio Ad: EntertainmentDisney

A business portfolio is the collection of businesses or products that make up the company. Visit the website of Disney (www.disney.com). What elements of Disneys business portfolio can you identify? 4. Ad Interpretation Challenge: Stars Ad: Student Choice

Stars are defined as being high-growth, high-share businesses or products. Browse the Internet to locate an advertisement that is promoting a star. Why did you select that advertisement? 5. Ad Interpretation Challenge: Market Penetration Ad: General RetailUnder Armour

The idea of market penetration is to increase sales of your current products to your current market segments without changing the product. Visit the website for Under Armour at (www.underarmour.com). What evidence do you see that Under Armour has used improvements in its marketing mix to spur growth? 6. Ad Interpretation Challenge: Value Chain Ad: RetailWalmart

A firms success depends not only on how well each department performs its work but also on how well the activities of various departments are coordinated. Click on www.walmart.com to visit Walmarts website. Choose a department that interests you, and select a product category from that department. Then, write down your ideas about the roles that marketing, purchasing, information technology, and operations play in the internal value chain for that product category. 7. Ad Interpretation Challenge: The Value-Delivery Network Ad: Cosmetics LOral

A value-delivery network is a network made up of the company, suppliers, distributors, and its customers who partner with each other to improve the performance of the entire system. Review the LOral visual and accompanying text on p. 71 in your textbook.

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How does its value delivery network contribute to making LOral a top performer and one of the worlds most respected companies? 8. Ad Interpretation Challenge: Product Positioning Ad: LogitechReal Marketing 2.2

Marketers use positioning to arrange for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Read the Real Marketing 2.2 feature on Logitech in your textbook (see pp. 7475). How does Logitech position its products to distinguish them from competing brands and give them the greatest advantage in their target markets? 9. Ad Interpretation Challenge: The Product Ad: Student Choice

All successful advertisements must make certain you can identify the product or service they are highlighting; otherwise, they have accomplished nothing. Sometimes, however, they may do this very subtly. Browse the Internet to locate an advertisement that is obviously selling a product or service, but that is not in your face. What made you choose that advertisement? 10. Ad Interpretation Challenge: Marketing Mix Ad: Burger King

The marketing mix is the set of tactical marketing tools that the firm blends to produce the response it wants in the target market. Burger Kings entire global marketing campaign is built around its have it your way positioning strategy. How does Burger King use the four Ps of its marketing mix to pursue its positioning strategy in its target markets?

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