Marketing Strategy

By

Prof. RAVI NAGARAJAN

MARKETING STRATEGY

What is a strategy?
A Strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors and other environmental factors. A Strategy should specify (1) what (objectives to be accomplished), (2) where (on which industries and product-markets to focus), and (3) how (which resources and activities to allocate to each product-market to meet environmental opportunities and threats and to gain a competitive advantage.

THE COMPONENTS OF STRATEGY

1. Scope. The scope of an organization refers to the breadth of its strategic domain the number and types of industries, product lines, and market segments it competes in or plans to enter. Decisions about an organizations strategic scope should reflect managements view of the firms purpose or mission. Goals and objectives. Strategies also should detail desired levels of accomplishment on one or more dimensions of performance such as volume growth, profit contribution, or return on investment over specified time periods for each of those businesses and product-markets and for the organization as a whole.

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Resource deployments. Every organization has limited financial and human resources. Formulating a strategy also involves deciding how those resources are to be obtained and allocated, across businesses, product-markets, functional departments, and activities within each business or product-market. Identification of a sustainable competitive advantage. One important part of any strategy is a specification of how the organization will compete in each business and product-market within its domain. Synergy. Synergy exists when the firms businesses, product-markets, resource deployments and competencies complement and reinforce one another.

The Hierarchy of Strategies

The three major levels of strategy in most large, multiproduct organizations are 1. Corporate Strategy, 2. Business-level strategy, and 3. Functional Strategies.
Corporate Strategy At the corporate level, managers must coordinate the activities of multiple business units and in the case of conglomerates, even separate legal business entities. Marketing Strategy The primary focus of marketing strategy is to effectively allocate and coordinate marketing resources and activities to accomplish the firms objectives within a specific product market.

Business Level Strategy How a business unit competes within its industry is the critical focus of business-level strategy. A major issue in a business strategy is that of sustainable competitive advantage.

Another important issue a business-level strategy must address is appropriate scope: how many and which market segments to compete in, and the overall breadth of product offerings and marketing programs to appeal to these segments.

RECENT DEVELOPMENTS AFFECTING THE STRATEGIC ROLE OF MARKETING Globalization

International markets account for a large and growing portion of the sales of many organizations. But while global markets represent promising opportunities for additional sales growth and profits, differences in market and competitive conditions across country boundaries can require firms to adapt their competitive strategies and marketing programs to be successful.

Increased Importance of Service

A service can be defined as any activity or benefit that one party can offer another that is essentially intangible and that does not result in the ownership of anything. Its production may or may not be tied to a physical product.

Information Technology

The computer revolution and related technological developments are changing the nature of marketing management in two important ways. First, new technologies are making it possible for firms to collect and analyze more detailed information about potential customers and their needs, preferences, and buying habits. Thus, information technology is making it possible for many firms to identify and target smaller and more precisely defined market segments sometimes segments consisting of only one or a few customers and to customize product features, promotional appeals, prices and financing arrangements to fit such segments. A second impact of information technology has been to open new channels for communications and transactions between suppliers and customers.

MAJOR OPPORTUNITY ANALYSIS A major factor in the success of failure of strategies at all three levels is whether the strategy elements are consistent with the realities of the firms external environment and its own capabilities and resources. Understanding Market Opportunities:

Understanding the nature and attractiveness of any opportunity requires conducting an examination of the external environment, including the markets served and the industry of which the firm is a part.

Measuring Market Opportunities

Understanding the overall attractiveness of a market opportunity is one thing. Preparing an evidence-based forecast of the sales that can be achieved over the short and intermediate term is quite another, and is a particularly difficult task for new products, especially those of the newto-the-world variety. Market Segmentation, Targeting and Positioning Decisions Not all customers with similar needs seek the same products or services to satisfy those needs. Their purchase decisions may be influenced by individual preferences, personal characteristics, social circum-stances. The manager must decide how to position the product or service offering within a target segment, that is, to design the product and its marketing program so as to emphasize attributes and benefits that appeal to customers in the target segment and at once distinguish the companys offering from those of competitors.

CORPORATE STRATEGY DECISIONS AND THEIR MARKETING IMPLICATIONS The Target Market Consistent with the firms new strategic mission, it targeted its marketing efforts at a more selective segment of potential customers.
Corporate Strategy Components and Issues

Strategy Component Key Issues Scope, mission and What business(es) should the firm intent be in? What customer needs, market segments, and/or technologies should be focused on? What is the firms enduring strategic purpose or intent?

Objectives

What performance dimensions should the firms business units and employees focus on? What is the target level of performance to be achieved on each dimension? What is the time frame in which each target should be attained? What human, technical, or other resources or competencies available to the firm provide a basis for a sustainable competitive advantage? How can the firm achieve a desired level of growth over time? Can the desired growth be attained by expanding the firms current businesses? Will the company have to diversify into new businesses or product-markets to achieve its future growth objectives?

Source of competitive advantage

Development Strategy

Resource Allocation

How should the firms limited financial resources be allocated across its businesses to produce the highest returns? Of the alternative strategies that each business might pursue, which will produce the greatest returns for the dollars invested? What competencies, knowledge, and customer based intangibles (e.g., brand recognition, reputation) might be developed and shared across the firms businesses? What operational resources, facilities or functions (eg., plants, R&D, sales force) might the firms businesses share to increase their efficiency?

Sources of Synergy

Allocating Corporate Resources Diversified organizations have several advantages over more narrowly focused firms. They have a broader range of areas in which they can knowledgeably invest, and their growth and profitability rates may be more stable because they can offset declines in one business with gains in another. Two sets of analytical tools have proven useful in making such decisions: Portfolio models and value-based planning.

The Boston Consulting Groups (BCG) GrowthShare Matrix One of the first-and best known of the portfolio models is the growth-share matrix developed by the Boston Consulting Group. It analyzes the impact of investing resources in different businesses on the corporations future earnings and cash flows.

The vertical axis indicates the industrys growth rate and the horizontal axis shows the businesss relative market share.

The growth-share matrix assumes that a firm must generate cash from businesses with strong competitive positions in mature markets. Thus, the market growth rate on the vertical axis is a proxy measure for the maturity and attractiveness of an industry. This model represents businesses in rapidly growing industries as more attractive investment opportunities for future growth and profitability. Similarly, a businesss relative market share is a proxy for its competitive strength within its industry.
Resource Allocation and Strategy Implications Question marks. Businesses in high-growth industries with low relative market shares are called question marks or problem children Stars.

Strategic Decisions at the business-unit level The components of a firm engaged in multiple industries or businesses are typically called strategic business units. How should Strategic Business Units Be Designed?

1.A homogeneous set of markets to serve with a limited number of related technologies. 2.A unique set of product-markets, in the sense that no other SBU within the competes for the same customers with similar products. 3.Control over those factors necessary for successful performance, such as production, R&D and engineering, marketing, and distribution. 4.Responsibility for their own profitability.

Markets and Industries: Whats the Difference? We define a market as being comprised of individuals and organizations who are interested and willing to buy a good or service to obtain benefits that will satisfy a particular need or want and who have the resources to engage in such a transaction. An industry is a group of firms that offer a product or class of products that are similar and are close substitutes for one another.

PORTERS FIVE COMPETITIVE FORCES The Major Forces that Determine Industry Attractiveness
Threat of new entrants

Bargaining power of buyers

Rivalry among present competitors

Bargaining power of suppliers

Threat of substitutes

Rivalry among Present Competitors

Rivalry occurs among firms that produce products that are close substitutes for each other, especially when one competitor acts to improve its standing or protect its position. Thus, firms are mutually dependent. Threat of New Entrants A second force affecting industry attractiveness is the threat of new entrants. New competitors add capacity to the industry and bring with them the need to gain market share, thereby making competition more intense.

Bargaining Power of Suppliers The bargaining power of suppliers over firms in an industry is the third major determinant of industry attractiveness.

Bargaining Power of Buyers

An industrys customers constantly look for reduced prices, improved product quality and added services and thus can affect competition within an industry. Threat of Substitute Products Substitutes are alternative product types (not brands) that perform essentially the same functions.

Statistical and Other Quantitative Methods Statistical methods use past history and various statistical techniques, such as multiple regression or time series analysis, to forecast the future based on an extrapolation of the past.

Observation
Another method for preparing an evidence-based forecast is to directly observe or gather existing data about what real consumers do in the product-market of interest.

Surveys or Focus Groups

Another common way to forecast sales or estimate market potential is to conduct surveys or focus groups. Analogy An approach often used for new product forecasting where neither statistical methods nor observations are possible is to forecast the sales or market potential for a new product or product class by analogy.

Judgment

While he hesitate to call this a forecasting method of its own, since capable and informed judgment is required for all methods, sometimes forecasts are made solely on the basis of experienced judgment, or intuition.
Market Tests

Market tests of various kinds are the last of our most commonly used methods. Used largely for new products, market tests such as experimental test markets may be done under controlled experimental conditions in research laboratories, or in live test markets with real advertising and promotion and distribution in stores

Marketing Research: A Foundation for Strategic Decision Making

We now turn briefly to the marketing research task: the design, collection, analysis and reporting of research intended to gather data pertinent to a particular marketing challenge or situation.

Steps in the Marketing Research Process

Steps:
1. Identify managerial problem and establish research objectives. Determine data sources (primary or secondary) and types of data and research approaches (qualitative or quantitative) required. Design research: type of study, data collection approach, sample, etc. Collect data Analyze data Report results to the decision maker

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3. 4. 5. 6.

Market Segmentation
Market segmentation is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and marketing program. These three decision processes-market segmentation, target marketing, and positioning are closely linked and have strong interdependence. All must be well considered and implemented if the firm is to be successful in managing a given product-market relationship.

Most Markets Are Heterogeneous

Because markets are rarely homogeneous in benefits wanted, purchase rates, and price and promotion elasticities, their response rates to products and marketing programs differ. How Are Market Segments Best Defined? Identify a homogeneous segment that differs from other segments. Specify criteria that define the segment. Determine segment size and potential.

Demographic Descriptors 1. 2. 3. Age Sex Income

Consumer Needs

Customer needs are expressed in benefits sought from a particular product or service. The product that provides the best bundle of benefits given the customers particular needs is most likely to be purchased. Choice Criteria. Marketers can defined segments according to these different choice criteria in terms of the presence or absence of certain characteristics and the importance attached to each.

Product-Related Behavioral Descriptors

Product usage is important because in many markets a small proportion of potential customers makes a high percentage of all purchases.
Market segmentation based on sources of purchase influence for the product category is relevant for both consumer and organizational markets. Many products used by various family members are purchased by the wife, but joint husband-wife decisions are becoming more common.

Lifestyle Segmentation by lifestyle, or psychographics, segments markets on the basis of consumers activities, interest, and opinions in other words, what they do or believe, rather than who they are in a demographic sense. Social Class Every society has its status groupings based largely on similarities in income, education, and occupation.

Choosing Attractive Market Segments: A Five-Step Process Most firms no longer aim a single product and marketing program at the mass market. Instead, they break that market into a number of homogeneous segments on the basis of meaningful differences in the benefits sough by different groups of customers. But not all segments represent equally attractive opportunities for the firm. To prioritize target segments by their potential, marketers must evaluate their future attractiveness and their firms strengths and capabilities relative to the segments needs and competitive situations. One useful analytical framework managers or entrepreneurs can use for this purpose is the marketattractiveness/competitive-position matrix.

Select Market Attractiveness and Competitive Position Factors An evaluation of the attractiveness of a particular market or market segment and of the strength of the firms current or potential competitive position in it builds naturally on the kind of opportunity analysis developed.

1. Choose criteria to measure market attractiveness and competitive position

2. Weigh market attractiveness and competitive position factors to reflect their relative importance

3. Assess the current position of each potential target market on each factor.

4. Project the future position of each market based on expected environmental, customer, and competitive trends.

5. Evaluate implications of possible future changes for business strategies and resources requirements.

Different Targeting Strategies Suit Different Opportunities

Three common targeting strategies are niche-market, mass-market and growth market strategies.
Niche Market Strategy This strategy involves serving one or more segments that, while not the largest, consist of substantial numbers of customer seeking some what specialized benefits from a product or service.

Mass Market Strategy

A business can pursue a mass-market strategy in two ways. First it can ignore any segment differences and design a single product and marketing program that will appeal to the largest number of consumers. A second approach to the mass market is to design separate products and marketing programs for the differing segments. This is often called differentiated marketing.

Growth Market Strategy

Businesses pursuing a growth market strategy often target one or more fast-growth segments, even though they may not currently be very large.

GLOBAL MARKET SEGMENTATION

The traditional approach to global market segmentation has been to view a country or a group of countries as a single segment comprising all consumers.
More and more companies are approaching global market segmentation by attempting to identify consumers with similar needs and wants reflected in their behavior in the market place in a range of countries.

PREPARING THE FOUNDATION MARKETING STRATEGIES:

THE POSITIONING PROCESS

FOR

Positioning a new product in customers minds or repositioning a current product involves a series of steps.

1. Identify relevant set of competitive products serving a target market 2. Identify the set of determinant attributes that define the product space in which positions of current offerings are located 3. Collect information from a sample of customers and potential customers about perception of each product on the determinant attributes

4. Determine products current location (positioning) in the product space and intensity thereof.

5. Determine customers most preferred combination of determinant attributes.

6. Examine the fit between preferences of market segments and current position of product (market positioning)

Identify positions where additional new products might be placed.

7. Write positioning statement or value proposition to guide development and implementation of marketing strategy.

THE PRODUCT LIFE CYCLE The product life cycle is concerned with the sales history of a product or product class. At the beginning (the introductory stage), a new products purchase is limited because members of the target market are insufficiently aware of its existence; also the product often lacks easy availability. As more people learn about the product and it becomes more readily available, sales increase at a progressively faster rate (the growth stage). Growth slows as the number of buyers nears the maximum and repeat sales become increasingly more important than trial sales. Just before the advent of maturity the shakeout or competitive turbulence stage occurs. The mature state is reached when the net adoption rate holds steady that is, when adopters approximate dropouts. The sales rate declines and the product is said to have reached its final or decline stage. Fads, such as per rocks and hula hoops, enter suddenly, experience strong and quick enthusiasm, peak early, and enter the decline stage shortly thereafter.

Market and Competitive Implications of Product Life Cycle Stages Marketing Mix in the Introductory Stage Basic strategy choices involve skimming and penetration. Skimming is designed to obtain as much margin per unit as possible. Penetration pricing enables the firm to strive for quick market development and makes sense when there is a steep experience curve, which lowers costs; a large market; and strong potential competition. The importance of distribution and channel intermediaries varies substantially from consumer to industrial goods. During the introductory period, promotion expenditures involving advertising and sales force are a high percentage of sales, especially for a mass-market, small-value product. Some dot-coms spent themselves to failure for promotional purposes. For industrial goods, personal selling costs are apt to be much higher than advertising costs.

Growth Stage This stage starts with a sharp increase in sales. Important product improvements continue in the growth stage. Marketing Mix Changes While the product line expands to attract new market segments, the quest for competitive advantage shifts to differentiation from other entrants in the product class. Prices tend to decline during the growth period and price differences between brands decrease.

Shakeout Stage The advent of this period is signaled by a drop in the overall growth rate and is typically marked by substantial price cuts. As weaker competitors exit the market, the stronger firms gain share. During shakeout the firm must rationalize its product line by eliminating weaker items, emphasize creative promotional pricing, and strengthen its channel relationships. Mature Stage

When sales plateau, the product enters the mature stage, which typically lasts for some time.

Marketing Mix Changes Because of technical maturity, the various brands in the market place become more similar; therefore any significant breakthroughs by R&D or engineering that help to differentiate the product or redirect its cost can have a substantial payout. Promotion expenditures and prices tend to remain stable during the mature stage. Decline Stage Eventually most products enter the decline stage, which may be gradual (canned vegetables / hot cereals) or extremely fast (some prescription drugs). The sales pattern may be one of decline and then petrification as a small residual segment still clings to the use of the product (tooth powder versus toothpaste).

MARKET ENTRY STRATEGIES: IS IT BETTER TO BE A PIONEER OR A FOLOWER?

Pioneer Strategy

Successful pioneers are handsomely rewarded. It is assumed competitive advantages inherent in being the first to enter a new product-market can be sustained through the growth stage and into the maturity stage of the product life cycle, resulting in a strong share position and substantial returns. Some of the potential sources of competitive advantage available to pioneers are:
1. 2. 3. 4. 5. 6. 7. First choice of market segments and positions. The pioneer defines the rules of the game. Distribution Advantages Economics of Scale and Experience High switching costs for early adopters Possibility of positive network effects Possibility of preempting scarce resources suppliers.

and

In many cases a firm becomes a follower by default. It is simply beaten to a new product market by a quicker competitor. 1.
2. 3. 4. 5.

Ability to take advantage of the pioneers positioning mistakes.

Ability to take advantage of the pioneers product mistakes. Ability to take advantage of the pioneers marketing mistakes Ability to take advantage of the latest technology Ability to take advantage of the pioneers limited resources

OPPORTUNITIES MARKETS

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RISKS

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GROWTH

Why are followers attracted to rapidly growing markets?

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It is easier to gain share when a market is growing Share gains are worth more in a growth market than in a mature market. Price competition is likely to be less intense. Early participation in a growth market is necessary to make sure that the firm keeps pace with the technology.

GROWTH MARKET STRATEGIES FOR MARKET LEADERS For the share leader in a growing market, of course, the question of the relative advantages versus risks of market entry is moot. The leader is typically the pioneer, or at least one of the first entrants, who developed the product-market in the first place. Marketing Objectives for Share Leaders Share maintenance for a market leader involves two important marketing objectives. First the firm must retain its current customers, ensuring that those customers remain brand loyal when making repeat or replacement purchases. Second, the first must stimulate selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales.

Fortress, or Position Defense, Strategy The most basic defensive strategy is to continually strengthen a strongly held current position. Actions to Improve Customer Satisfaction and Loyalty The rapid expansion of output necessary to keep up with a growth market often can lead to quality control problems for the market leader. Actions to Encourage and Simplify Repeat Purchasing One of the most critical actions a leader must take a ensure that customers continue buying its product is to maximize its availability. Flanker Strategy

To defend against an attack directed at a weakness in its current offering (its exposed flank), a leader might develop a second brand (a flanker or fighting brand) to complete directly against the challengers offering.

Confrontation Strategy

Suppose a competitor choose to attack the leader head to head and attempts to steal customers in the leaders main target market. Market Expansion Strategy
A market expansion strategy aggressive and proactive version of strategy. Here the leader defends market share by expanding into a market segment. is a more the flanker its relative number of

Contraction, or Strategic Withdrawal, Strategy

In some highly fragmented markets, a leader may be unable to defend itself adequately in all segments.

STRATEGIC CHALLENGES ADDRESSED

Challenges in Mature Markets : Businesses that survive the shakeout face new challenges as market growth stagnates. As a market matures, total volume stabilizes; replacement purchases rather than first-time buyers account for the vast majority of that volume. Challenges in Declining Markets : Eventually, technological advances; changing customer demographics, tastes, or lifestyles; and development of substitutes result in declining demand for most product forms and brands.

Characteristics of the Transition Period : The transition from market growth to maturity typically begins when the market is still growing but the rate of growth starts to decline. This slackening of the growth rate either sparks or occurs simultaneously with other changes in the market and competitive environment.

STRATEGIC CHOICES IN MATURE MARKETS The maturity phase of an industrys life cycle is often depicted as one of stability characterized by few changes in the market shares of leading competitors and steady prices.

Organizational Structures
Three structural variables formalization, centralization and specialization are important in shaping both an SBUs and its marketing departments performance within the context of a given competitive strategy. Formalization is the degree to which formal rules and standard policies and procedures govern decisions and working relationships. Centralization refers to the location of decision authority and control within an organizations hierarchy. Specialization refers to the division of tasks and activities across positions within the organizational unit.

THE SITUATION ANALYSIS

Market Situation Here data are presented on the target market. Total market size and growth trends should be discussed, along with any variations across geographic regions or other market segments.

Competitive Situation
This section identifies and describes the products major competitors in terms of their size, market share, product quality, marketing strategies, and other relevant factors. Macro Environmental Situation This section describes broad environmental occurrences or trends that may have a bearing on the products future.

Past Product Performance If the plan is for an existing product, this part of the situation analysis discusses the products performance on such dimensions as sales volume, margins, marketing expenditures, and profit contribution for several recent years. Sales Forecast and Other Key Assumptions Finally, the assessment of the current situation also typically includes estimates of sales potential, sales forecasts, and other evidence or assumptions underlying the plan.

DESIGNING MARKETING METRICS STEP BY STEP

Setting standards of performance

Specifying the necessary feedback data

Obtaining the needed data

Evaluating feedback data explaining gap between actual and given standards of performance

Taking corrective action

PROFITABILITY ANALYSIS
Profitability analysis requires that analysis determine the costs associated with specific marketing activities to find out the profitability of such units as different market segments, products, customer accounts, and distribution channels (intermediaries).

In full costing, analysts assign both direct, or variable, and indirect costs to the unit of analysis. Indirect costs involve certain fixed joint costs that cannot be linked directly to a single unit of analysis.
Direct costing involves the use of contribution accounting. Contribution analysis is helpful in determining the yield derived from the application of additional resources (for instance, to certain sales territories)

CUSTOMER SATISFACTION As products and services become more alike in an already highly competitive marketplace, the ability to satisfy the customer across a variety of activities (of which the product is only one) will become an even greater success determinant.

THE MARKETING AUDIT

TYPES OF AUDITS Audits are normally conducted for such areas as the SBUs marketing environment, objectives and strategy, planning and control systems. Organization, productivity, and individual marketing activities such as sales and advertising.

1. The marketing environment audit requires an analysis of the firms present and future environment with respect to its macro components. 2. The objectives and strategy audit calls for an assessment of how appropriate these internal factors are, given current major environmental trends and any changes in the firms resources. 3. The units planning and control system audit evaluates the adequacy of the systems that develop the firms productmarket entry action plans and the control and reappraisal process. 4. The organization audit deals with the firms overall structure 5. The marketing productivity audit evaluates the profitability of the companys individual products, markets 6. The marketing functions audit examines, in depth, how adequacy the firm handles each of the marketing mix elements. 7. The companys ethical audit evaluates the extent to which the company engages in ethical and socially responsible marketing. 8. The product manager audit, especially in consumer goods companies, seeks to determine whether product managers are channeling their efforts in the best ways possible.