CHAPTER

1
Foundations of Strategic Marketing Management
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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1. Define an organizations business, mission, and goals.
2. Identify and frame organization growth opportunities. 3. Formulate product-market strategies. 4. Budget marketing, financial, and production resources.
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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 5. Develop reformulation and recovery strategies.
6. Draft a marketing plan. 7. Emphasize marketing ethics and social responsibility.

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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

INTRODUCTION

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PURPOSE OF MARKETING

To create long-term and mutually beneficial exchange relationships between an entity and the publics (individuals and organizations) with which it interacts.
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RESPONSIBILITIES OF MARKETING MANAGERS

Direct day-to-day operations Make strategic decisions

Chart the organizations direction Create and sustain a competitive advantage

Affect the organizations long-term performance
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RESULTS OF THE EVOLUTION OF THE MARKETING MANAGER

Created the Chief Marketing Officer (CMO) position

Increased popularity of strategic marketing management

Half of Fortune 1000 have CMOs
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RESPONSIBILITIES OF CMOs
Define the business mission
Analyze environmental, competitive, and business situations Develop business objectives and goals

Define customer value propositions and their marketing strategies

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SKILL SET OF CMOs

Analytic abilities Intuitive sense

Creativity

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STRATEGIC MARKETING MANAGEMENT PROCESSES

Define business, mission, and goals Identify/frame growth opportunities

Formulate product-market strategies

Budget resources Develop reformulation and recovery strategies
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DEFINING THE ORGANIZATIONS BUSINESS, MISSION, AND GOALS

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BUSINESS DEFINITION
Outlines the scope of operations Is neither obvious nor easy to define

An firm defines its business by:

The customers served and their needs

The means or technology used to satisfy needs

What business is the Encyclopedia Britannica in?

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BUSINESS MISSION Consists of a written statement that:

Underscores the scope of an organizations operations

Reflects managements vision of the organization Describes an organizations purpose

Crystallizes the organizations long-term direction and character
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BUSINESS MISSION Consists of a written statement that:

Helps identify and evaluate product-market opportunities Inspires employees Provides direction for goal-setting Applies to not-for-profit organizations as well
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BUSINESS MISSION

XEROX

American Red Cross Provide for victims of disaster

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Do great work

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BUSINESS GOALS OR OBJECTIVES Convert the mission into tangible actions and results to be achieved by a specified time frame Are divided into three categories:
Production Objectives Financial Objectives Marketing Objectives

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BUSINESS GOALS OR OBJECTIVES

Production Objectives Manufacturing and service capacity Product and service quality

Return on investment

Profit Cash flow

Financial Objectives

Return on sales Shareholder wealth

Market share

Customer satisfaction Customer value creation Customer lifetime value

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Marketing Objectives

Sales volume Profit Marketing productivity

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BUSINESS GOALS OR OBJECTIVES

A situation analysis is an appraisal of operations to determine reasons for the gap between what was or is expected and what has happened or will happen.
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES

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CONVERTING ENVIRONMENTAL OPPORTUNITIES INTO ORGANIZATIONAL OPPORTUNITIES

Ask three questions:

What might we do? What do we do best? What must we do?
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Environmental Opportunities Distinctive Competencies Success Requirements

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WHAT MIGHT WE DO?

Environmental Opportunities Unmet or changing consumer needs Unsatisfied buyer groups New means or technologies for delivering value to prospective buyers

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WHAT DO WE DO BEST?
Distinctive Competency

Describes an organizations unique strengths or qualities, including skills, technologies, or resources, that distinguish it from other organizations.
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WHAT DO WE DO BEST?
Distinctive Competency

Two criteria must be satisfied:

Competitors cannot imitate it Provide customers with superior value

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WHAT DO WE DO BEST?
Success Requirements

Basic tasks that an organization must perform in a market or industry to compete successfully.
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SWOT ANALYSIS
SWOT analysis is a formal framework for identifying and framing organizational growth opportunities.
- Type of Factor Organization Favorable Unfavorable

Internal Capabilities External Environment

Strengths

Weaknesses

Opportunities

Threats

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SWOT ANALYSIS
Strengths
What the organization is good at doing or some characteristic that gives it an important capability What an organization lacks or does poorly relative to other organizations Developments or conditions in the environment that have favorable implications for the organization Pose dangers to the welfare of the organization
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Weaknesses

Opportunities

Threats

EXHIBIT 1.1: SAMPLE SWOT ANALYSIS FRAMEWORK

Internal Factors
Management Marketing Manufacturing R&D Finance Offerings

Strengths

Weaknesses

External Factors
Economic Competition Consumer Technology Legal/Regulatory Industry/Market Structure

Opportunities

Threats

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SWOT ANALYSIS Questions to ask after a SWOT analysis:

Which strengths represent distinctive competencies? Which weaknesses disqualify the organization from pursuing certain opportunities? Does a pattern emerge from the SWOT?
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

FORMULATING PRODUCT-MARKET STRATEGIES

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PRODUCT-MARKET STRATEGY

A product-market strategy involves selecting specific markets and profitably reaching them through an integrated program called a marketing mix.
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EXHIBIT 1.2: PRODUCT-MARKET STRATEGIES

Markets
Existing New

Existing

Market Penetration New Offering Development

Market Development

Offerings
New

Diversification

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PRODUCT-MARKET STRATEGIES
Market Penetration Strategy

A market-penetration strategy dictates that an organization seeks to gain greater dominance in a market in which it already has an offering (existing offerings existing markets).
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PRODUCT-MARKET STRATEGIES
Market Penetration Strategy Involves

Increasing present buyers usage or consumption rates of the offering Attracting buyers of competing offerings Stimulating product trial among potential customers
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PRODUCT-MARKET STRATEGIES
Market Penetration Strategy Considerations

Examine market growth

Assess competitive reaction Analyze the capacity of the market to increase usage or consumption rates and the availability of new buyers
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PRODUCT-MARKET STRATEGIES
Market Development Strategy

A market-development strategy dictates that an organization introduce its existing offerings to markets other than those it is currently serving (existing offerings new markets).
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PRODUCT-MARKET STRATEGIES
Market Development Strategy Involves Adjusting the marketing mix, such as:
Modifying the basic product offering
Using different distribution outlets Changing the sales effort or advertising

Analyzing competitors strengths, weaknesses, and potential for retaliation

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PRODUCT-MARKET STRATEGIES
Market Development Strategy Involves

Identifying the number, motivation, and buying patterns of new buyers

Determining the organizations ability to adapt to new markets to evaluate success

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PRODUCT-MARKET STRATEGIES
Market Development Strategy International Forms

Exporting

Licensing

Joint Venture/ Strategic Alliance

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Direct Investment
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PRODUCT-MARKET STRATEGIES
Exporting

Involves marketing the same offering in another country through sales offices or intermediaries Is a popular option for entering foreign markets because it:
Easy to initiate Requires minimal capital investment
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PRODUCT-MARKET STRATEGIES
Licensing

Is a contract where a firm (licensee) is given the rights to patents, trademarks, etc. by the owner (licensor) in turn for a royalty or fee Is a low-risk, quick, and capital-free entry into a foreign market Limits the control of the licensor over production and marketing by the licensee
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PRODUCT-MARKET STRATEGIES
Joint Venture/Strategic Alliance Creates a new entity in the host country from an investment by both a foreign and a local company Allows the two firms share ownership, control, and profits of the entity Is popular because one firm may not have the required resources to enter a market Ensures against trade barriers May cause disagreements between the partners regarding how the new entity should be run
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PRODUCT-MARKET STRATEGIES
Direct Investment

Involves investing in a manufacturing and/or assembly facility in a foreign market Is the most risky and requires the most commitment

Brings the firm closer to its customers

May be the most profitable market-entry option Often follows the other three options
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PRODUCT-MARKET STRATEGIES
New Offering Development Strategy

A product- (new offering-) development strategy dictates that an organization create new offerings existing markets.

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PRODUCT-MARKET STRATEGIES
New Offering Development Strategy Involves
Product Innovation

Developing totally new offerings Enhancing the value to customers of existing offerings through bundling or improving functional performance Adding different features, sizes, etc. to broaden the existing line
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Product Augmentation Product Line Extension

PRODUCT-MARKET STRATEGIES
New Offering Development Strategy Factors
The market size and volume needed for profitability The magnitude and timing of competitors responses The impact of the new product on the sales of existing offerings (cannibalism) The capacity of the organization to deliver the offerings to the market(s) The presence of significant points of difference
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PRODUCT-MARKET STRATEGIES
Cannibalism Occurs when sales of a new offering come at the expense of sales of existing offerings the firm already markets Is common in product development programs Key issue: Does the new offering detract from the overall profitability of the firms total offering mix
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PRODUCT-MARKET STRATEGIES
Diversification Strategy

A diversification strategy involves the development or acquisition of offerings new to the organization and the introduction of those offerings to publics not previously served by the organization (new offerings new markets).
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PRODUCT-MARKET STRATEGIES
Diversification Strategy Considerations Many firms have adopted this strategy to take advantage of growth opportunities Is very risky because both the offerings and markets served are new to the organization Can be successful if the organization applies its distinctive competencies to reaching new markets with new offerings
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PRODUCT-MARKET STRATEGIES Strategies are evaluated based on:

The organizations business definition, mission, and capabilities Market capacity and behavior

Environmental forces
Competitive activities
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PRODUCT-MARKET STRATEGIES

Strategy analysis depends on:

Availability and evaluation of relevant market information Data collected should include :
Market size
Consumer buying behavior and requirements Environmental forces
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STRATEGY SELECTION

Strategies are chosen based on:

Costs and benefits of a strategy
Probabilities of success for a strategy Competitive structure, market dynamics, and opportunity costs The offering itself
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EXHIBIT 1.3: DECISION-TREE FORMAT

Action Response Outcome

A1

R1 R2 R1 R2
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O1 O2 O3 O4
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A2

EXHIBIT 1.4: SAMPLE DECISION-TREE

Action
Marketpenetration strategy

Response
Aggressive competition
Passive competition

Outcome
Estimated profit of $2 million
Estimated profit of $3 million

Marketdevelopment strategy

Aggressive competition Passive competition

Estimated profit of $1 million Estimated profit of $4 million

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THE MARKETING MIX

Communication Aggressive Strategy
competition

Product Strategy

Customer

Aggressive competition Passive competition

Channel Strategy

Price Strategy
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CUSTOMER VALUE PROPOSITION

A cluster of Aggressive benefits that an competition organization promises customers to satisfy their Aggressive needs. competition
Wal-Mart
Passive competition

Michelin

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FORMULATING THE MARKETING MIX Depends on the success requirements of the market Must be consistent with:
competition Estimated profit of$3 million

The needs of the markets served Aggressive

The organizations capacity

The marketing mix activities

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Estimated profit of $4 million

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IMPLEMENTING THE MARKETING MIX

Is an art and a science Requires an understanding of: Estimated profit
Markets
Environmental forces
Aggressive competition Organizational capacity of$3 million

Marketing mix activities Competitor reactions

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Estimated profit of $4 million

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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

BUDGETING MARKETING, FINANCIAL, AND PRODUCTION RESOURCES

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BUDGETING

A budget is a formal, quantitative expression of an organizations planning and strategy initiatives expressed in financial terms.
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BUDGETING A master budget consists of:

Operating Budget Focuses on the income statement. Also referred to as a pro forma income statement or profit plan. Focuses on the effect the operating budget has on the organizations cash position. Focuses on developing advertising, sales, and other budgets that support the master budget.
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Financial Budget

Special Budgets

CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DEVELOPING REFORMULATION AND RECOVERY STRATEGIES

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MARKETING AUDIT

A marketing audit is a comprehensive, systematic, and periodic examination of a firms or business units marketing environment, objectives, strategies, and activities to determine problem areas and opportunities and recommend a plan of action to improve the firms marketing performance.
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MARKETING AUDIT

Addresses the following questions:

Strategic

Are we doing the right things? Are we doing things right?

Operational

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REFORMULATION AND RECOVERY STRATEGIES

Have the following purposes:
Forces marketing managers to ask What if? questions Allows for contingency plans, preplanning of reformulation and recovery strategies that lead to faster reaction time in implementing remedial action
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CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

DRAFTING A MARKETING PLAN

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MARKETING PLAN

A marketing plan is a formal, written document that describes the context and scope of an organizations marketing effort to achieve defined goals or objectives within a specific future time period.
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MARKETING PLAN
Consists of:
Business Plan Marketing Plan Product Plan

Each has these time dimensions:

Short-term

Focus: 1-year period

Focus: 3- to 5-year period
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Long-term

CHAPTER 1: FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT

MARKETING ETHICS AND SOCIAL RESPONSIBILITY

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ETHICS AND SOCIAL RESPONSIBILITY

Most marketing decisions involve some degree of moral judgment Marketers should take actions that are legal, ethical, and socially responsible

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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