Mktng Dip III

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Unit 3: Marketing Strategies

STRATEGY AND PLANNING:

Philip Kotler said of planning that it was deciding in the present what to do in the

future.

It involves both the determination of a desired future and the steps necessary to bring

it about.

Three levels of planning have been identified:

a) Corporate or visionary planning: Mission and structure for evaluating andallocating resources to business

b) Business planning: Long-range planning for positioning the company and itsproducts to best serve its target markets.

c) Functional planning: Marketing planning which is generally annual planning

involving specific goals and plans over one year.

Strategic Planning for Marketing (Adapted from Gilligan & Fifield, 1997)

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Strategy & strategic levels:

In marketing:

"Strategy" can be used to describe the means of achieving an objective; or

"Strategy" can be used to describe an approach, stance or long-term plans. So

"strategic planning" means a higher level of planning. Wilson, Gilligan and Pearson in Strategic Marketing Management, readily admit that

there is no standard definition of "strategy", but highlight three "levels" of strategy:

Corporate strategy dealing with the allocation of resources throughout the entire

organisation, covering all of the various businesses or divisions

Business strategy which exists at the individual business or division level and is

concerned with the question of competitive positioning

Functional-level strategy which is limited to the actions of specific functions within

specific businesses.

CORPORATE STRATEGY

Strategies are formulated as a response to the various factors in the company's environment and these may come from both external and internal sources.

(a) External

Nature of the competition and the products which are on offer in the marketplace

Political, economic, social and technological pressures

Needs and requirements of the buyers

Changes which are, or are likely to be, taking place in the environment

(b) Internal

Corporate objectives

Size and power of the company

Availability of resources

Current and past practices

Expectations of stakeholders

Position of the firm in the marketplace

Nature of the firm's business (leader/follower)

Managerial stance and attitude (aggressive/or not)

Organisational Stance and Positioning

Managerial stance and attitude can have a big influence on strategy formulation.Organisations can be categorised as being any one of the following:

Leaders:

These are innovative companies who are regularly first into the marketplace with new

products.

They tend to be powerful companies who will have major market shares and the

benefit of abundant resources.They must adopt strategies which will:

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Protect their current market share by using the mix, or

Encourage current customers to use more, or

Attract and retain new users and/or customers, or

Redesign the product/service for new and existing users, or

Introduce new products to new markets.

Companies can carry out these strategies by adopting a stance of:

Innovation always being in front of the competition

Fortification activities aimed at keeping the competition down

Confrontation aggressive promotion, price wars

Harassment pressure on distributors, criticising competition

(b) Followers:

These are the companies who do not invest heavily in research and development (R

& D) but "copy" what the leaders do.

This type of company will never get the initial major market share, but they do not

have to invest money in development or in making the target market "aware", as theleaders will have already done this

Followers are often referred to as "me-too" marketers in that they do not come up

with original ideas or practices

(c) Nichers:

These types of organisation are those that are, to one extent or another, providing a

"specialised" product offering.

They will have some kind of USP (unique service proposition) which they can offer to

their customers.

Niche marketers are often left alone by the market leaders

Attack Strategies

(a) Direct Challenge Differential Advantage:

This is a high-risk strategy but one with potentially high pay-off.

Such a policy requires sufficient working capital and management determination to

last out a long campaign

(b) Direct Attack Distinctive Competence:

Removing the distinctive competence from the market leader by innovation isextremely effective providing that the advantages are valued by the target marketand communicated effectively.

A classic example is Xerox, who took the copying market away from 3M by

introducing a better process.

(c) Direct Attack Market Share:

Introducing the smaller firms strongly in the market can build market share very

quickly providing that it is possible to retain

Normally there will be loss of trade as old brands change to the new, but the

promotional stimulus may well shake a few percentage points from the market leaderin exchange for what is lost.

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(d) Flank Attack:

This involves the location of a position which is not open and which it is possible to

occupy and hold.

When segmentation analysis reveals a niche that is not being served, it is first

necessary to ask why. If the answer is not "because it is untenable"then it becomesavailable as an attack base from which to build market presence and share.

(e) Encirclement:

An encirclement attack endeavours to overwhelm a competitor by simultaneous

attack on every front: an expensive strategy, but one extremely difficult (andexpensive) to resist.

Casio's approach to the calculator market is a typical example of encirclement. Theyoverwhelmed the opposition by a constant stream of ever better, ever cheaperproducts until they achieved dominance.

(f) Bypass:

The most indirect assault involves broadening a resource base over a period whilst

avoiding confrontation until strategically prepared.

In 1971 Colgate was underdog to Proctor and Gamble; by 1976 it was well placed in

75% of its markets, and out of contact with P & G in the remainder.

(g) Guerrilla:

A relatively small competitor cannot attack aggressively on a broad front but can

choose where and when to hit in the knowledge that the big competitor is likely to beslow in response.

Profits are therefore taken before response comes by which time the smaller firm is

striking elsewhere.

This is unlikely to defeat the market leader but it can take a substantial amount of

profits from the market.

The Hoppa buses introduced in UK cities have become a serious nuisance to the

established major companies operating traditional buses on fixed routes.

Defence Strategies

(a) Position Defence:

Based upon a clear positioning that is established over years of effort (as the Mars

Bar has been), a position defence consists of flexible consolidation.

Promotional innovation is needed to keep the product alive, healthy and active in the

minds of its customers and consumers.

An innovative leader will usually have massive cost advantages and be able to

withstand sustained attack

(b) Pre-emptive Defence

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Nestl are past masters at this type of market strategy from comparatively few

production lines they now produce many branded versions of the same canned milk,and not all are intended to be market leaders.

(c) Counter-offensive:

This is an aggressive response to an attack in order to prevent loss of market share.

Responses involve using mix elements.

When Cadbury's attacked Mars they were immediately faced with an overwhelming

counter-offensive. They withdrew from the confrontation.

(d) Mobile Defence

This is good marketing policy even without the threat of an attacker on the horizon

because it involves constant moving, through innovation, market broadening anddiversification into new territory.

It requires a willingness to "go where no-one has gone before"

Richard Branson and his Virgin Empire exemplify the entrepreneurial approach to

growth through mobility.

(e) Flanking Defence

The American car giants exemplify failure in attempts to erect effective flank

defences.

Alert to the threat from Japan, which was focused on small cars, they attempted to

protect their overall position with hastily designed American compacts.

These were no competition for the very efficient Japanese competition, and the

flanking defence turned out to be a major distracter

(f) Contraction Defence

Pulling back to a position of strength to be better able to mount a counter-attack is

sometimes a good policy.

The British motor-cycle industry contracted before each successive wave of

Japanese imports until there was no effective British motor cycle left.

MARKETING STRATEGIES

The marketing strategy is the means of achieving the corporate objectives.

It gives messages to the stakeholders, or publics. It says:

"This is where we are going", and

"When we will get there", and

"This is our stance".

Types of Marketing Strategy

One of the most fundamental issues which a company must decide on is the type of

marketing strategy, or approach, that they will adopt.

There are three basic marketing strategies which any company can follow:

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Undifferentiated marketing

Differentiated marketing

Concentrated marketing.

Undifferentiated Marketing:

Here there is a standard, unchanged product and a standard, unchanged marketing

effort.

This strategy can reduce costs (e.g. marketing, production) but will encounter

wastage in promotional activity and possibly in distribution.

Differentiated Marketing

Here the company segments its markets and offers modified products to different

segments.

The marketing mix elements will also be modified to suit the requirements of the

chosen segments.

Concentrated Marketing

Here the total marketing effort is aimed at one market segment.

This strategy is really aimed at the exploitation of a limited market area and tends to

be used by those companies who have highly specialised products. It is "nichemarketing" by another name.

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It is common for organisations with a diverse product range to use a combination ofall three strategies for different parts of their product mix

CORPORATE OBJECTIVES

Corporate objectives relate to the entire organisation and are essentially longer termand broad in their coverage.

Objectives should be SMART:

Specific Measurable Achievable Realistic Timed.

These overall corporate objectives will represent the expectations of seniormanagement and other important stakeholders, and may be expressed in eitherquantitative orqualitative terms.

(a) Quantitative

Quantitative objectives (in terms of numbers) can relate to money, percentages,periods of time, output figures, etc. Examples are:

"To achieve 5% year-on-year growth in profit after tax for the next five years."(b) Qualitative

Qualitative objectives (in terms of "ideals") can relate to service levels to beachieved, image, position, ethics, etc.

The following is an excerpt from a statement of objectives published in the annualstatement of a police force in northern England:

"Within five years, or as soon as is practicable, to have a police force which:

Is more open, relaxed and honest with ourselves and the public;

Is more aware of our environment, sensitive to change and positioning ourselves torespond to change;

Is more closely in touch with our customers, puts them first and delivers what theywant quickly, effectively and courteously;

Is the envy of all other forces."

MARKETING OBJECTIVES

Nature and Purpose of Marketing Objectives

Marketing objectives, in exactly the same way as corporate objectives, can beexpressed in eitherqualitative orquantitative terms, e.g.

"To increase market share by 5% each year for the next five years."

"To be recognised as the leading supplier of pre-packed meals to the airline

industry by the end of 1999."

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The main purpose of marketing objectives is to achieve the corporate objective(s).

Over and above that prime function, marketing objectives should give direction

Defining Marketing Objectives

Gilligan et al, in Strategic Marketing Management(1992) present two published viewpointsof researchers who have identified possible marketing objectives:

(a) McKay (1972)

McKay suggested that there were only three possible marketing objectives:

To enlarge the market

To increase market share

To improve profitability.

(b) Gultinan and Paul (1988)

Gultinan and Paul argued that six objectives should be given consideration:

Market share growth

Market share maintenance

Cash flow maximisation

Sustaining profitability

Harvesting

Establishing an initial market position.

Gilligan et al then go further to suggest that the supportive thinking for both of theseviewpoints can be said to reflect the thinking of Ansoff on marketing objectives.

(c) Ansoff (1968)

Ansoff argued that marketing objectives can only ever be about:

Products, and

Markets

And that products and markets are either

Existing, or

New.

This means that, according to Ansoff, marketing objectives should always be expressed interms of existing or new products or markets or a combination of all four factors, asexpressed in the following model.

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Factors Influencing Marketing Objectives

The influences on marketing objectives can be related to the external and internalforces

The external environment:

A rapidly changing environment

Government legislation

Uncertainty on competitive activity or actions

Changes taking place in technology, in particular internet based technologies such asSMS, downloads, broadband etc

Different patterns of population or buying behaviour

Recessionary economics, etc.

The internal environment:

Unrealistic corporate objectives

Poor planning skills

Narrow viewpoint of the planners

Lack of resources

Fear of failure to achieve limiting creativity

Lack of knowledge of the market environment, etc.

Maintaining the Competitive Edge

Every company that is in business for a reasonable length of time must do somethingbetter than its competitors at least in the opinion of a number of customers.

That something better may involve various factors, ranging from location and deliveryto product performance and marketing.

Service industries need to consider how competitive advantage is gained through thedelivery of the service and how process improvements can be made to add value

So what can the marketing manager do to maintain the competitive edge?

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(a) Product/Service Quality(b) Availability(c) Price(d) Promotion(e) People(f) Processes(g) Physical Evidence

Benefits of Marketing Objectives

Providing marketing objectives are defined clearly and communicated correctly, they canbring many advantages:

They give a clear direction to the personnel involved

They can create unity

They allow for measurement of achievement

They can reduce risk

They can improve decision-making

Problems in Formulating Marketing Objectives

Despite the fact that so many advantages can be gained, it is a sad fact that manyorganisations find it almost impossible to define good marketing objectives. There can beseveral reasons for this.

Fear of Failure

Apathy

Success Organisational Culture

Lack of Knowledge

MODELS FOR FORMULATING MARKETING STRATEGIES

Ansoff Model:

Ansoff claimed that in marketing we can only ever be talking about products andmarkets, and that these can only be old, or existing, and new, or potential.

Thus marketers have:

Existing products which they can sell to existing markets

Existing products which they can sell to new markets

New products which they can sell to existing markets

New products which they can sell to new markets

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Strategy 1: Market Penetration (same product/same market)

This strategy will be appropriate when a market is growing and not yet saturated.Penetration can be achieved by:

Attracting non-users of a product

Increasing the usage, or purchasing rate, of existing customers.

Strategy 2: Market Development (same product/new market)

This strategy is often found when a regional business wishes to expand or if newmarkets are emerging because of changes in consumer habits.

It can also occur when a new use has been discovered for an existing product.Strategy 3: Product Development (new product/existing market)

With this strategy an organisation develops new products or services to appeal to itsexisting markets. It may simply be a product "refinement", e.g. change of packagingor taste, etc.

Product development is most prevalent when branding exists. Promotional aspectswill emphasise the added qualities of the "new" product and link it specifically to thesecurity of, and confidence in, the brand. This strategy builds on customer loyalty andthe benefits to be gained by purchase.

Strategy 4: Diversification (new products/new market)

This strategy is sometimes introduced so that a company does not become toodependent on its existing SBUs.

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It can be a form of "insurance" against potential disasters that could occur in theevent of drastic environmental changes.

Diversification means catering for market sectors which are also new to the firm. If anew product is developed for the existing market it is Product Development and notDiversification.

(a) Diversification by Integration

Vertical Integration

This involves the acquisition of some other enterprise in the chain of distributionbetween the manufacturer and the customer. It can be either "forward" or "backward"

Horizontal Integration

This is the acquisition of another organisation which has a feature that is desired, i.e.the acquired organisation may be using similar materials or components for which

they have a monopoly of supply.

(b) Diversification by Conglomeration

This strategy moves the firm away from its existing product-market situation into anentirely new area in order to satisfy a primary objective.

Quite often this is done as a short-term activity

For example, a company that produces garments may reap instant profits if it investsoil on the open market.

This type of activity can also be part of a longer-term strategy to spread risks.

Ansoff applied:

Ansoff's model as applied to Coca Cola, who use all four strategies (adapted from Evansand Berman (Marketing, 1990)).

(a) Market Penetration

More adults used in commercials "You can't beat the feeling" theme

Price discount and promotions (fun caps) to existing customers

Increasing sales through fast-food outlets

Strengthened distribution network

(b) Market Development

Greater emphasis on China, Eastern Europe, South America, Middle East, Africa

Appeal to men with Diet Coke

Changing image of soda from children to "family"

(c) Product Development

New brands/flavours

New containers.

(d) Diversification

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Manufacturer of water treatment and conditioning equipment

Acquiring Columbia Pictures, Embassy Communications

Licensing company name for clothing range

Ansoff's model is not perfect as it does not cover everything.

It takes no account of any environmental factors

It does not give any room for judgement on profitability

It can inhibit the creativity of planners

Porter's Generic Strategy Model

Michael Porter is a widely quoted authority. This model claims that there are only threemain strategies which a business can follow:

Cost leadership

Differentiation

Focus

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Strategy 1: Cost Leadership:

Company aims to produce in large quantities, at the lowest cost possible and sell at

lower prices.

Capitalise on economies of scale and keep prices to a minimum. Attract price-sensitive buyers

Strategy 2: Differentiation:

This strategy involves offering some unique selling (service) proposition (USP)

that the competition do not have.

Prices may not be too important to buyers

Customers become brand or product loyal

For example smokers preferring specific brands or fashion designer companies etc.

Another example could be that of a fashion company producing a diverse range of

clothes to suit different requirements for different target sectors (military uniforms/work wear / leisure).

Strategy 3: Focus:

The company aims at very select market sectors and will be charging higher prices or

offer special USPs.

The company can concentrate on its key products for specific targets

Acquire a reputation for being "specialist"

They are, to some effect, niche marketers, e.g. Rolex watches, Rolls Royce cars

Portfolio Analysis Models(a) Boston Consultancy Group Matrix (BCG)

Using the variables of market share and market growth rates, planners can plot

their products/SBUs onto a grid which will then suggest certain strategies that can beused.

Boston Consultancy Group Matrix

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Knowing the age (stage) of the product in the market is not as simple as it sounds. To analyze this Boston Consulting Group (BCG) from the USA developed a well

known product portfolio which relates market growth to market share It is sometimes called Boston Matrix and ties closely with the product life cycle The matrix places products into four categories

DOGS

Products with low market share in low growth markets They do not generate cash; rather they tend to have high cash burn rate

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The most common strategy for dogs is to divest-this involves selling of the product orceasing production

The best example is low growth market of video recorders-overtaken in thetechnology and sales stakes by the DVD player

CASH COWS

Products with the high share of a low growth market These are often mature markets with well established products At this stage the product needs fresh injections of capital for example advertising and

promotion The generated funds are possibly used to support other products

PROBLEM CHILDREN

Also known as question mark & wild cats Products with low share of a high growth market

They consume marketing resources and generate little income. They may, because the market is growing, become the stars or cash cows of the

future if they can gain greater market share Increased marketing expenditures and attempting to build product awareness and

brand image may be needed.STARS

Products in high growth markets with a relatively high market share Stars often generate high amounts of income, but may need protecting from

competitors Market leadership may not have been established in these markets, and companies

will be fighting for market share and brand loyalty

Nokia 3210 was a star product during the rapid growth period in the mobile phonemarket

Portfolio Strategies

After positioning all products (SBUs) on the BCG matrix, the company must decide ifit has a balanced portfolio. (Too many of any one type means it is unbalanced.)

Strategies suggested by the BCG matrix can be one of four:

Build (for Question Marks) to increase share, even if it means giving up short-term profitHold (for strong Cash Cows) to preserve shareHarvest (for weak Cash Cows where the future is dim or for Question Marks and Dogs) to

increase short-term cash flow regardless of long-term effectsDivest (Dogs and Question Marks draining resources) to sell off, liquidate or delete anSBU or a product.

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BCG Matrix: Cash Position for Products

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Changes in Product/SBU Position

The solid arrow shows the ideal route for any product, or SBU and the dotted line

shows the possible route a Cash Cow can take.

Because the BCG plots the current position of an SBU, or product, it can be usedperiodically to assess any changes in position. It can also be used to project futurepositions, either likely or preferred.

Two products are shown as "planned" and two as "forecast". For "planned" positions,

strategists will be taking the initiative in one way or another; for "forecast" positions,defensive or remedial action may be necessary.

In either case it will be the marketing mix which is used to achieve the desired

objectives.

General Electric Business Matrix (GE)

The GE matrix is an improvement on the previous models

It takes into account not only the nature of the market, but also the capabilities of thecompany.

SBUs are assessed in terms of the Attractiveness of the Industry and the

Business Strengths of the company.

Typical aspects which are taken into account are:

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Planner will give a score to each of the factors under consideration and then the total

is taken as the point at which the SBU is placed on the grid.

General Electric Business Matrix

Here circles represent the overall market sales whereas BCG circles represent the

income for the company only.

The share held by the company is then shown as a proportion of the circle.

We can see the characteristics of various products in a company's portfolio. Thecompany has major shares in three markets:i) A highly attractive market, with a large overall market potential revenue; the

company has high business strengths. The company is in a very strong position

with this SBU.

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ii) A market which is viewed as being mid position in attractiveness but the companyhas high business strengths. The overall market income is not major, in terms ofthe other SBUs, but activity could generate further interest which could increasethe attractiveness of the market. Given the share held, this SBU could potentiallybe a future high earner for the company.

iii) A market which is not seen as being highly attractive coupled with the fact thatthe company does not have any high degree of business strength in that field.The fact that the company has such a major share of the overall market mayindicate that the competition has withdrawn because of costs incurred, or someother reason, and the company has acquired share by default rather than activity.The market may be lucrative in terms of potential earnings but not attractive interms of size hence the classification as a "medium attractive market".

Strategic Options

Strategic options for SBUs placed on the GE matrix cover three types of marketing

management activity. Each strategy covers three of the nine cells as shown in Figure

General Electric Matrix Strategies

i) Investment for Growth

This is a strategy for use with strong products in markets with high or medium

attractiveness (similar to BCG Stars), where the company also has high or mediumbusiness strengths.

Full resources should be used: innovations, product-line extensions, product/brand

advertising, intensive distribution, good price margins, etc. Profitability expectations would be high.

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ii) Manage Selectively for Earnings

Strong position in weak market (like BCG Cash Cow); company uses marketing to

retain loyalty.

Moderate position in moderate market; company can identify underserved segments

and invest on a selective basis. Weak position in attractive market (like BCG Question Mark); company must decide

whether to increase investment, concentrate on the niche(s), acquire anotherbusiness or trim off activities.

iii) Harvest/Divest

Here the SBUs are similar to BCG Dogs. The strategy can be to minimise marketing

activities and concentrate on selected products rather than the whole range.

They can divest products from the range, closing down or deleting an SBU which is

seen as non productive or to have little future. Profits are "harvested" becauseinvestments are minimal.

Gap Analysis

The idea of gap analysis links up with portfolio analysis, which asks if you are offering

the right products to the specific market segment.

Markets change and it is usually necessary to change with them.

For example the home music industry, this has gone from records to tapes and then

to compact discs in a fairly short time.

If you run a company that is still making records there is going to be a big gap to fill!

New Product Development

New Market Development Evaluating Services

However, in order to develop marketing strategy, it is important for marketers to

evaluate the quality of services and a tool for doing this is call 'GAP'.

The GAP model identifies four levels of potential differences in expectations versusperceptionGAP 1 Difference between Customer Expectations and Managements Perception ofCustomer ExpectationsGAP 2 Difference between management's perception of customer expectations and theservice specification

GAP 3 Difference between the service specification and the delivered serviceGAP 4 Difference between what is the communicated to customers and what is delivered tocustomers

Measuring Customer Expectations

One of the difficulties with measuring customer expectations and perception of a

service is that the customers may value different aspects of a service

For example, of an airline customers may value the friendliness of the staff, the

punctuality of the flight or the ease of check-in etc.The SERVQUAL model, therefore, provides us with a model for evaluating customer

expectations. SERVQUAL assesses five dimensions of a service:

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(a) Reliability(i) Providing services as communicated(ii) Customer complaint handling(iii) Punctuality(iv) Getting things right first time(v) Keeping accurate records.

(b) Responsiveness(i) Customer communication about delivery(ii) Promptness of response(iii) Willingness to assist customers(iv) Readiness to respond to requests from customers.

(c) Assurance(i) Employees who instil confidence with customers(ii) Customers feeling safe during the transaction(iii) Courteousness of employees(iv) Knowledge of employees

(d) Empathy(i) Individual attention to customers(ii) Caring attitude of employees(iii) Understanding needs of customers(iv) Acting in best interests of customers(v) Convenience of delivery.

(e) Tangibles(i) Standard of equipment(ii) Standard of facilities(iii) Appearance of employees(iv) Standard of materials

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Mktng Dip III

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