MKT389电子版书

STRATEGIC
MARKETING
DECISION MAKING & PLANNING
4th EDITION
STRATEGIC
MARKETING
DECISION MAKING & PLANNING
PETER REED
v
BRIEF CONTENTS
PART 1 INTRODUCTION
1 THE CHANGING WORLD OF MARKETING 2
2 STRATEGIC THINKING AND STRATEGIC DECISION MAKING 34
PART 2 IDENTIFYING STRATEGIC OPPORTUNITIES

3 STRATEGIC ANALYSIS 59
PART 3 STRATEGY DEVELOPMENT – HIGH-LEVEL

DECISION MAKING
4 STRATEGY DEVELOPMENT – HIGH-LEVEL DECISION MAKING 99
5 SEGMENTATION, TARGETING AND POSITIONING STRATEGIES 141
6 THE CUSTOMER VALUE CREATION MIX 169
PART 4 STRATEGY DEVELOPMENT – PRODUCT-MARKET

STRATEGIES
7 MARKET PENETRATION STRATEGIES 185
8 MARKET DEVELOPMENT STRATEGIES 199
9 INCREMENTAL INNOVATION STRATEGIES 211
10 RADICAL INNOVATION STRATEGIES 227
PART 5 STRATEGY IMPLEMENTATION, EVALUATION

AND CONTROL
11 MANAGING THE STRATEGIC MARKETING PROCESS 243
12 WRITING THE STRATEGIC MARKETING REPORT 259
vi
CONTENTS
PREFACE ix
ABOUT THE AUTHOR x
ACKNOWLEDGEMENTS xi
RESOURCES GUIDE xii
PART 1 INTRODUCTION
1 THE CHANGING WORLD OF MARKETING 2
Focus of this chapter 3
The evolution of marketing thought and practice 3
The evolution of a new marketing paradigm – customer value
creation, communication and delivery 25
Summary and conclusion 27
2 STRATEGIC THINKING AND STRATEGIC DECISION MAKING 34

Strategy planning and strategic management – an overview 37
The new era of strategy development 46
What has been learnt? 49
The strategic marketing management process – a framework 50
PART 2 IDENTIFYING STRATEGIC OPPORTUNITIES

3 STRATEGIC ANALYSIS 59
Getting started 60
Situation analysis 64
Sources of marketing information 88
Appendix to Chapter 3: Financial analysis 94
PART 3 STRATEGY DEVELOPMENT –

HIGH-LEVEL DECISION MAKING
4 STRATEGY DEVELOPMENT – HIGH-LEVEL DECISION MAKING 99
Strategy development 101
Contents vii
Product-market strategies 107

Appendix to Chapter 4: Strategy tools and concepts 115
5 SEGMENTATION, TARGETING AND POSITIONING

STRATEGIES 141
High-level marketing strategies 143
Segmentation 144
Targeting 149
Positioning 149
The customer value creation mix 159
Appendix to Chapter 5: Market segmentation and positioning
decision-making aids 163
6 THE CUSTOMER VALUE CREATION MIX 169

What do customers value? 171
PART 4 STRATEGY DEVELOPMENT –

PRODUCT-MARKET STRATEGIES
7 MARKET PENETRATION STRATEGIES 185
Product-market strategies 187
Strategies for the various stages of market evolution 188
8 MARKET DEVELOPMENT STRATEGIES 199

Geographic expansion 200
New marketing channels 207
viii Contents
9 INCREMENTAL INNOVATION STRATEGIES 211

The challenge for marketers – new-product development 213
The seven key dimensions of NPD best practice 213
10 RADICAL INNOVATION STRATEGIES 227

Radical innovation 228
Big ‘I’ innovation – the fuzzy front end of innovation 229
Strategies for new-to-the-world innovations 231
Strategies for new-to-the-firm innovations 234
PART 5 STRATEGY IMPLEMENTATION, EVALUATION

AND CONTROL
11 MANAGING THE STRATEGIC MARKETING PROCESS 243
Resource allocation 245
Implementation 247
Evaluation and control of performance 250
12 WRITING THE STRATEGIC MARKETING REPORT 259

The role of the strategic marketing report 260
Strategic marketing documents and reports 261
Choosing the most appropriate format 261
Suggestions for writing strategic marketing papers or reports 263
Guidelines for preparing formal strategic marketing plans 265
The process of crafting marketing strategies 270
Avoiding the pitfalls 271
GLOSSARY 275
INDEX 285
ix
PREFACE
Strategic Marketing: Decision Making and Planning is written for those involved in the processes of
developing and implementing marketing strategies. The book emphasises the role of marketing as
an organisation-wide process rather than as a standalone organisational function. Accordingly,
Strategic Marketing: Decision Making and Planning focuses on providing a framework for marketing
decision making as part of a broader-based or holistic approach to strategic management. The
framework provides for decision-making processes that are made both within and outside of formal
strategic-planning processes.
The guiding principle of Strategic Marketing: Decision Making and Planning is to provide
strategists with the ability to develop and implement effective marketing strategies by drawing on
relevant concepts and analytical tools. It is a book that emphasises the practical application of
marketing and other strategy related theories, concepts, tools and techniques. It is designed to be
used by practising managers and students alike, ranging from the first-timer to the experienced
strategist. It is particularly appropriate for business students studying marketing in subjects such as
strategic marketing, strategic marketing planning and strategic marketing management.
The emphasis on the application of relevant marketing concepts, tools and techniques provides
the basis for organising this book. Chapter 1 provides an overview of the dynamic nature of
marketing thought and practice, serving either as a refresher for those who have completed a
marketing introductory course or as an introductory discussion for others. Likewise the aim of
Chapter 2 is to provide an overview of the strategic planning processes and the role of marketing
within the context of these organisation-wide processes of strategic thinking and decision making.
Chapters 3 to 11 discuss in detail the three main phases of strategic management: strategic analysis
(Chapter 3), strategy development (Chapters 4 to 10) and strategy implementation, evaluation and
control (Chapter 11). The final chapter (Chapter 12) provides guidelines for writing and presenting
strategic marketing plans and reports.
The strategy development phase (Chapters 4 to 10) commences with an examination of high-
level corporate and strategic business-unit decision-making processes (Chapter 4). This is followed
in Chapter 5 with an examination of the processes involved in the development of three
interrelated high-level marketing strategies: segmentation, targeting and brand positioning.
The next five chapters are new to this edition. Chapter 6 introduces the concept of the
customer value creation mix, and examines activities and processes that are used for the purpose of
creating, communicating and delivering customer value. Chapters 7 to 10 examine the activities
and processes involved in the development of market penetration strategies, market development
strategies, incremental innovation strategies and radical innovation strategies.
x
ABOUT THE AUTHOR

Dr Peter Reed is the former MBA Director at Monash University and Associate Professor of
Marketing. His areas of expertise cover strategic marketing, marketing planning, brand positioning
and integrated marketing communications. He has extensive experience in the marketing field as a
marketing practitioner and consultant, and as an academic. In 2004 Peter was awarded the Monash
University Faculty of Business and Economics Dean’s Teaching Award, and in 2005 the University’s
Vice-Chancellor’s Award for Distinguished Teaching. In 2009, under Peter’s leadership, the Monash
MBA was ranked number 1 in the world in the category of personal development and educational
experience in The Economist worldwide survey of MBAs.
xi
ACKNOWLEDGEMENTS
This edition of Strategic Marketing: Decision Making and Planning, and the editions that have
preceded it, have benefited greatly from the feedback I have received from the hundreds of MBA
and marketing students I have taught over the years, along with feedback from colleagues and
business managers. In particular, I sincerely appreciate the thoughtful comments from Professors
Francis Farrelly, Mike Ewing and Steve Worthington along with the most constructive feedback
received from the following reviewers of the book: Dr Lynda Andrews – Queensland University of
Technology, Dr Paul Chad – University of Wollongong, Dr Linda Hollebeek – University of
Waikato, Dr Raechel Johns – University of Canberra, Mr Bill Proud – Queensland University of
Technology, Dr Janine Wong – Curtin University of Technology, Associate Professor John Basch –
Bond University, Professor Peter Thirkell – Victoria University of Wellington and Dr Christopher
White – RMIT University.
I also greatly appreciate the encouragement and support provided by the Cengage Learning
team including Michelle Aarons, senior publishing editor; Stephanie Heriot, publishing assistant;
Nathan Katz, senior project editor; and Frith Luton, copy editor.
Every effort has been made to trace and acknowledge copyright. However, if any infringement has
occurred, the publishers tender their apologies and invite the copyright holders to contact them.
PART
1
INTRODUCTION
Chapter 1 The changing world of marketing
Chapter 2 Strategic thinking and strategic decision making
In the digital age, the old ways of practising marketing are gone forever. New organisational processes
and capabilities are called for, along with a new way of thinking about the role of marketing in the
contemporary business organisation.
Part 1 discusses the changes that have occurred in the way marketing is practised and
conceptualised (Chapter 1) and the role of marketing within the broader organisational context of
strategic planning (Chapter 2).
CHAPTER
1
THE CHANGING WORLD
OF MARKETING
No organization can avoid coming to grips with the rapidly evolving behavior of consumers and
business customers. They check prices at a keystroke and are increasingly selective about which
brands share their lives. They form impressions from every encounter and post withering online
reviews … these changes present significant organizational challenges, as well as opportunities. The
biggest is that all of us have become marketers: the critical moments of interaction, or touch points,
between companies and customers are increasingly spread across different parts of the
organization, so customer engagement is now everyone’s responsibility.
Tom French, Laura LaBerge and Paul Magill1
During a Sunday morning church service in 1879 In December 1881 P&G placed an ad for
Harley Procter had a ‘Eureka moment’. Harley, Ivory soap in weekly religious newspapers
the son of one of the co-founders of Procter & featuring its lightness (it floats) and purity
44
Gamble, a candle and soap manufacturer, had (99 100 % pure). In 1882 P&G launched a
been pondering what to do with a new soap national advertising campaign leading the way for
developed by James Procter (also the son of one what was to become a major shift in the power
of the two co-founders) – a pure white soap that dynamics of the supply chain. Advertising
floated on water. At that point in time provided P&G with the means of communicating
manufacturers such as P&G were largely a directly to the end user, thereby bypassing the
subservient player in the supply chain, producing power of the wholesaler and the retailer. The
commodity no-name products for wholesaling early 1900s saw the rapid growth of mass
organisations who marketed and distributed a production, mass consumption and mass
range of products to thousands of small grocery advertising. P&G was an early adopter of
businesses that had sprung up around America in newspaper advertising and, in the 1920s and 1930s,
the 1800s. Harley’s Eureka moment, inspired by sensing the growing popularity of radio, P&G
the 45th Psalm, was to name this freakish new sponsored the production of a number of radio
soap ‘Ivory’. programs that became known as ‘soap operas’.
Chapter 1 The changing world of marketing 3
In 1931 P&G introduced and pioneered the force in the supply chain structure until round
practice of brand management. about the beginning of the current century when
During the first half of the twentieth century the rapid development of the Internet changed
P&G grew from strength to strength, diversifying the tide, this time in favour of the consumer. In
into many new product categories on the strength recognition of the rapid changes that were taking
of brands they launched into the market: such as place at the time P&G embarked on a major
Crisco (a shortening–pastry mix product) in 1911, organisational restructuring program in 1999.
Tide (laundry detergent) and Prell (shampoo) in In 2003 the company invested heavily in IT
1946. Much of P&G’s success was underwritten with the objective of making P&G the most
by its marketing prowess and, in particular, its technologically enabled business in the world. As
brand management capabilities and its ability to the CEO, Robert McDonald, stated: ‘With
harness the power of advertising. The introduction digital technology, it’s now possible to have a
of television in the 1950s provided P&G with an one-on-one relationship with every consumer in
even more powerful way of building its brands. the world. The more intimate the relationship,
However, the dominance of manufacturers the more indispensable it becomes. We want to
in distribution channels changed when retail be the company that creates those indispensable
chains began to assert their presence in the relationships with our brands, and digital
marketplace. Retailers remained a dominant technology enables this’.2
Focus of this chapter

There is a well-known saying that those who do not study history are doomed to repeat it. This
chapter is written for the purpose of providing you with the contextual background to better
understand the changing marketing world at a time of fundamental economic and social change.
Specifically, after studying this chapter you will have gained an understanding of:
• the changes that have occurred over the years in the way marketing is conceptualised and practised
• the forces that have driven these changes
• the new value creation paradigm that has revolutionised marketing thought and practice
• the impact of the digital revolution on marketing thought and practice.
The evolution of marketing thought and practice

It is a common erroneous understanding that the field of marketing is a relatively recent business
phenomenon that came to life sometime in the 1950s. This is far from the truth as it can be seen that
the theoretical underpinning of marketing can be traced back to the time of the Industrial Revolution.
In this brief overview of the historical context of marketing four stages of evolution are discussed:3
• the formative years of marketing thought and practice (late eighteenth century to 1950s)
• the evolution of the marketing management school of thought (1950s to late 1980s)
• the evolution of marketing as an integrated organisational process (late 1980s to late 1990s)
• the digital era (early 2000s to current).
4 Part 1 Introduction
The formative years of marketing thought and practice

(late eighteenth century to 1950s)
In this section a brief overview of the early history of contemporary marketing is given, commencing
with the evolution of marketing thought. Next, the development of marketing as a field of study is
discussed followed by a brief overview of the early practice of marketing.
The underlying theory of marketing

At the heart of the philosophy of marketing is the notion of market exchange, a theory that can be
traced back to the seventeenth- and eighteenth-century doctrine of economic liberalism – the
foundation of modern economics. Economic liberalists believed that national wealth and social
order depended on individual initiative and competitive market forces. This was the basic social
philosophy of Adam Smith, who systemised economic liberalism and is credited as the founder of
the discipline of economics. In his landmark 1776 book An Inquiry into the Nature and Causes of the
Wealth of Nations,4 Smith argued that the greatest wealth for both individuals and society as a whole
would be brought about by individuals being left free to advance their own interests. He stated: ‘It is
not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,
but from their regard to their own interest. We address ourselves, not to their humanity but to their
self-love, and never talk to them of our necessities but of their advantages’.5 This was the premise of
Smith’s concept of the invisible hand. That is, self-seeking humans unknowingly and unintentionally
are led by a driving force of self-interest. In striving to become wealthy, individuals need to exchange
what they own or produce with others who sufficiently value the product offering. Accordingly, this
process of market exchange works to advance the interest of society as a whole. Smith also believed
that competition would act as a protective mechanism to regulate an economy. He argued that,
because human beings have an inherent passionate desire to better their condition (‘a desire which
comes from the womb, and never leaves us to the grave’), competition among producers leads to the
lowering of prices to a ‘natural level’. Finally, Smith argued that, because human beings have a
‘propensity to truck, barter and exchange one thing for another’, they are therefore dependent on
one another. That is, the process of exchange is driven by individual wants and needs.
Exchange theory extends beyond just market exchange as anthropologists and sociologists have also
been interested in the central role of exchange in social life. Malinowski,6 for example, argued that
mutual exchange forms the basis of social cohesion, while Mauss7 emphasised the obligatory and
interested nature of gifts and other forms of exchange. Blau8 emphasised the role of exchange in the
creation of power relationships. Exchange theorists conceptualise social interaction as an exchange of
tangible and intangible goods and services, ranging from food and shelter to social approval or sympathy.
Market exchange in economics and social exchange in sociology belong to an overall class of
theories known as ‘theories of rational choice’. Sociologists Wallace and Wolf argue that there are
four basic propositions underlying rational choice theory:
• Individuals are rational profit-maximisers, making decisions on the basis of their tastes and
preferences.
• The more of something an individual has, the less interested he or she will be in yet more of it.
• The prices at which goods and services will be sold in the free market are determined directly
by the tastes of prospective buyers and sellers. The greater the demand for a good, the more
‘valuable’ it will be and the higher its price will be. The greater the supply, the less valuable it
will be and the lower will be its price.
• Goods will generally be more expensive if they are supplied by a monopolist than if they are
supplied by a number of firms in competition with each other.9
In summary, the underlying assumption of marketing, known as the ‘marketing concept’, can be
traced back to theories developed by early economists in the seventeenth and eighteenth centuries.
Tosdal made this point succinctly over 80 years ago in a 1933 Harvard Business Review article:
The first, and one of the most significant and striking changes in the last dozen years,
stressed particularly since 1929, is the increased emphasis placed upon consumer
wants and needs as a guide to good marketing management. While serious students of
marketing have continuously recognized this viewpoint, there is good reason to agree
with Wallace B. Donham in his recent statement that manufacturers as a whole have
been giving only lip service to the consideration of consumer wants and needs. This
indictment should be broadened, however, to include other producers, as well as
wholesalers, retailers, and other middlemen … Superficially, at least, the idea that
consumer needs and wants should be the starting point for business thinking is
certainly not revolutionary. For a century or more, economists have made assertions
that the aim of our economic and business structure and its functioning was the
satisfaction of consumer needs. The change which is occurring today is in the nature
of a long delayed translation of theory into practice.10
Marketing as an academic discipline

Another popular misconception is that marketing is a relatively new academic discipline. This is
also far from the truth. Indeed, as research by marketing historians Jones and Monieson reveals,
the University of Berlin offered marketing subjects in its curriculum as far back as 1912.11 Even
before that, there was a considerable body of academics in German and American universities
conducting research into various aspects of marketing during the late 1800s. The American
academics were part of a large wave of US higher education scholars who travelled to Germany
during the nineteenth century. It is estimated that 10 000 Americans studied in Germany between
1820 and 1920, many of whom studied economics. Dissatisfied with the emphasis of the American
college system on uniformity and discipline and the lecture-and-recitation method of instruction,
these scholars were attracted by the professional school approach of the German universities. In
these universities there was much less formality, and economics students often went on field trips
to gain real world experience of economic problems.
The American students studying in Germany came under the influence of the German
historical school of economics, which evolved in the 1850s as a counter force to the classical
school of economics. The emphasis of the historical school was on solving real world economic
problems, and as Jones and Monieson point out, it was distinctive for its historical perspective, the
use of statistical methodology, its pragmatism and its emphasis on ideals rather than theoretical or
conceptual ideas. Jones and Monieson argue:
The German historical school developed a particular version of a positivistic philosophy
of science. Their approach to economics might well be considered as a paradigm or a
research tradition. That research tradition was an inductive-statistical version of
positivism. It combined the exploratory, descriptive, process orientation of nineteenth
century German Idealism with a faith in the objectivity of facts and a concern with
problem-solving. Together, these intellectual threads were woven into a relatively
sophisticated vision of science, one that was used by scholars at the University of
Wisconsin and at Harvard to intellectualize marketing practices.12
Throughout the formative years of the evolution of marketing as an academic discipline,

scholars initially pursued a number of different approaches to the scientific study of marketing.
According to Shaw and Jones13 three schools of thought were pursued during the early 1900s. The
first, described as the marketing functions school, was concerned with the work or functions such
as the activities performed by distributors that would be regarded as ‘marketing’.14 The second
school of thought, the commodities school, concentrated on classifying the characteristics of goods.
The most prominent classification was that of Copeland (1924) who identified three categories of
goods: convenience goods, shopping goods and emergency goods.15 The third school of thought,
the institutional school, focused on the activities of marketing middlemen, which was described by
Clark (1922) as the ‘channels of distribution’.16
The early practice of marketing

While the underlying theory of marketing first evolved at least two centuries ago and the field of
marketing began to develop as an academic discipline almost a century ago, it can be contended
that relatively sophisticated marketing practices have been employed by at least some organisations
since the time of the Industrial Revolution. Marketing historians McKendrick, Brewer and Plumb17
argue that the Industrial Revolution (which started in the 1770s) succeeded because production
and marketing worked in tandem. In supporting this argument Fullerton contends that famous
pioneers of production, such as Mathew Boulton and Josiah Wedgwood, ‘were also pioneers of
modern marketing, cultivating large-scale demand for their revolutionary inexpensive products with
techniques usually considered to have been post-1950 American innovations: market segmentation,
product differentiation, prestige pricing, style obsolescence, saturation advertising, direct mail
campaigns, reference group appeals, and testimonials among others’.18
In the second half of the nineteenth century many of today’s modern marketing practices were
established.19 The use of trademarks as a means of branding evolved in the 1860s (for example,
Pears Soap in Great Britain and Ivory Soap in the USA). Advertising agencies were well established
(in Great Britain since 1786, USA since 1841 and Germany since the 1850s) and in 1882 Procter &
Gamble started to systematically advertise Ivory Soap.20 From the early 1900s American advertising
agencies, in addition to creating and placing advertisements for their clients, provided services such
as marketing advice, the conducting of marketing research studies, and assistance in product and
packaging design. Personal selling had become increasingly sophisticated in its approach, and formal
training in selling was practised in Germany during the latter part of the nineteenth century. A
similar approach was adopted by US manufacturing firms around the turn of the twentieth century.
What is described today as database marketing was practised in Germany in the 1870s by a
publishing firm, Bibliographisches Institut, who ‘used genealogical and nobility directories to compile
mailing and call lists for lifestyle-defined market[s]’.21 In addition to the use of these marketing
functions Drucker argues that Cyrus McCormick, the inventor of the mechanical harvester, was ‘the
first man to see marketing clearly as a unique and central function of the business enterprise’.22
According to Drucker, prior to 1850 McCormick ‘invented the basic tools of modern marketing:
market research, market analysis, the concept of market standing, modern pricing policies, the
modern service-salesman, parts and service supply to the customer and instalment credit’.23
The marketing management school of thought

(1950s to late 1980s)
As the above discussion highlights, the genesis of contemporary marketing thought and practice has
a long history. However, prior to the 1950s business functions that are considered today to be the
domain of marketing, particularly advertising and selling, were largely conducted separately and
independently. Moreover, while the theoretical underpinning of the marketing concept (the notion
that consumer wants and needs should act as a starting point for business thinking) might have
been recognised by some academics (for example, Tosdal in 1933) and some leading edge
companies, the concept was not universally recognised or practised in the world of business.
Indeed, during the 1930s, in the aftermath of the Great Depression and the lead-up to the Second
World War, difficult times were experienced by many businesses. Survival was generally a more
important priority than the adoption of a new type of business concept.
At the conclusion of the Second World War, pent-up demand for manufactured goods and a
scarcity of supply meant that manufacturers, generally, focused on the production aspect of their
businesses. However, by the early 1950s competition had started to intensify in some industries
and attention once again started to focus on the demand side of the business equation.
A seminal event came in 1952 when the General Electric Company, one of America’s largest
corporations, publicly declared in its Annual Report:
Our philosophy introduces the marketing man at the beginning rather than the end of
the production cycle and would integrate marketing into each phase of the business.
Thus marketing, through its studies and research, will establish for the engineer, the
designer and the manufacturing man what the customer wants in a given product,
what price he is willing to pay, and where and when it is wanted. Marketing would
have authority in product planning, production scheduling and inventory control, as
well as in sales distribution and servicing of the product.24
This was the start of the promotion of a new managerial philosophy that two years later was
labelled, by Drucker, as the ‘marketing concept’. General Electric made it quite clear that
marketing was now going to be accorded a central role in its business operations. Drucker
reaffirmed this view in 1954 in The Practice of Management and, from then on, the marketing
concept was promoted loudly and clearly to business America, and for that matter to businesses
throughout the Western world. Drucker argued that a firm has two purposes: to create a customer
and to be innovative. Moreover, he contended that the role of management is to build a company
by creating customers:
If we want to know what a business is we have to start with its purpose. And its
purpose must lie outside of the business itself. In fact, it must lie in society since a
business enterprise is an organ of society. There is only one valid definition of business
purpose: to create a customer …
It is the customer who determines what a business is … Because it is its purpose
to create a customer, any business enterprise has two – and only these two – basic
functions: marketing and innovation. They are the entrepreneurial functions …
Marketing is not only broader than selling, it is not a specialized activity at all. It
encompasses the entire business. It is the whole business seen from the point of view
of its final result, that is, from the customer’s point of view. Concern and responsibility
for marketing must therefore permeate all areas of the enterprise.25
Drucker’s book was an all-time bestseller in the field of business and over the next few years
several other major articles and books were published promoting the marketing concept. Most
prominent among these publications was work by McKitterick (1957), Levitt (1960), Keith (1960),
McCarthy (1960 onwards) and Kotler (1967 onwards).
Drucker’s view that marketing should be a general management responsibility was supported by
McKitterick, then manager of marketing research and services at General Electric. Writing to a
marketing practitioner audience, McKitterick26 pointed out that the use of advanced marketing
techniques was not enough:
If business enterprises are to compete successfully in the quicksilver of modern
markets, something more than sophistication in means of doing marketing work is
going to be required. Indeed, to plan at all, and think adequately of what the
competition might do and its possible effects before committing multi-million dollar
resources, requires knowledge of the customer, which penetrates the level of theory.
So the principal task of the marketing function in a management concept is not so
much to be skilful in making the customer do what suits the interests of the business
as to be skilful in conceiving and then making the business do what suits the interests
of the customer.27
However, McKitterick’s work was overshadowed in 1960 by the publication of what was to
become the most reprinted article in the history of the Harvard Business Review, Theodore Levitt’s
famous ‘Marketing myopia’.28 In this article Levitt argued that every business should be defined in
terms of satisfying its customer needs rather than in terms of the products it sells. That is,
customer needs must be the central focus of an organisation’s business definition:
The entire corporation must be viewed as a customer-creating and customer-satisfying
organism. Management must think of itself not as producing products but as providing
customer-creating value satisfactions. It must push this idea (and everything it means
and requires) into every nook and cranny of the organization. It has to do this
continuously and with the kind of flair that excites and stimulates the people in it.
Otherwise, the company will be merely a series of pigeonholed parts, with no
consolidating sense of purpose or direction.29
He supported his argument by citing the example of railroad companies in the USA. These
companies failed to realise that they were in the business of satisfying their customer needs for
transportation (passenger and freight). By defining their business in terms of their existing product
offering, they considered new technology (in the form of trucks, buses and later aeroplanes) to be
competitive products rather than as being a more efficient means of satisfying their customer
needs. Therefore, rather than embracing the new technology, the railroad companies fought it and
lost out in the long term.
In the same year Robert Keith, then executive vice president of consumer products and a
director of the Pillsbury Company, published a four-page Journal of Marketing article30 that in some
ways rivals ‘Marketing myopia’ for the impact it has made on the marketing world. For many
decades, marketing students throughout the world have been taught that business thinking has
evolved over a number of ‘economic eras’. Pillsbury, Keith argued, started out as a ‘production
oriented’ company when it commenced operations in 1869. From the 1930s to the 1950s
management recognised that customers were important to their business, and from the 1950s to
the 1960s there was recognition that the marketing function should direct and control all other
functions. However, at that point in time (1960) Keith declared that a marketing revolution was
taking place. Drawing on the analogy of the Copernican revolution, Keith declared that companies
were no longer at the centre of the business universe – customers had taken their place. Pillsbury,
Keith proclaimed, was entering a fourth era of evolution where ‘marketing will become the basic
motivating force for the entire corporation’.31 The point needs to be made that Keith’s notion of a
marketing revolution and the existence of economic eras was, as Marion points out, ‘at best a
hypothesis for an empirical process seeking to check it out, at worst a mythical construction, and
not the representation of real practices’.32 The problem is that Keith’s hypothesis has been
accepted as a major contribution to marketing thought despite a lack of empirical evidence

to support it, and despite the almost universal generalisation of this single case to not only
the entire American economy but also to just about every Western economy. Worse still, as
Fullerton argues,33 the notion of a catastrophic model of marketing development ignores
the historical antecedents of marketing thought and practice. It is, therefore, misleading to state
that all companies existing in a specific period of time could be categorised in terms of being
production-oriented, sales-oriented or marketing-oriented. However, the notion that individual
organisations can be classified in these terms is a more reasonable proposition and indeed can play
a useful role in describing the overall business philosophy of an organisation.
The publication of the above works (annual reports, articles and a book) were essentially
one-off landmark events that significantly promoted the marketing concept. Textbooks written
by E. Jerome McCarthy and Philip Kotler provided a continuous form of promotion of the
importance of marketing. Since the publication of McCarthy’s first edition of his textbook in
196034 and Kotler’s first edition in 1967,35 hundreds of thousands of marketers and marketing
educators throughout the world have learnt marketing the McCarthy or Kotler way – that is,
based on the underlying theory of the marketing concept. Kotler defined marketing in the
following terms:
Marketing is human activity directed at satisfying needs and wants through exchange
processes.36
With the benefit of hindsight it can be seen that the promotion of the marketing concept in the
1950s was a landmark event in the field of marketing. The underlying theory of the marketing
concept might not have been a new or revolutionary proposition but the application of the concept
was. The marketing concept was essentially an articulation of a new marketing managerial school of
thought positioning marketing as a general management responsibility. The marketing concept
called for managers to focus on their customers rather than on the products that they sold. It
emphasised a long-term strategic orientation based on customer satisfaction, rather than
emphasising current sales volume. In the main, companies responded to this challenge by
establishing marketing departments, in many cases based on the Procter & Gamble product
management structure originally introduced in the 1930s. Marketing assumed responsibility for
functions such as advertising, sales and market research. During the 1960s its domain was defined
with the development of the marketing mix concept, particularly the 4Ps model (product, price,
place and promotion). Moreover, as Kelly and Lazer emphasised in 1958, marketing planning was
expected to become a most important area of responsibility for marketing managers:
The entire marketing system is designed to serve consumer needs in companies
operating under the marketing concept … It is assumed that marketing activity which
serves consumers’ needs can be planned, and corporate destinies shaped to a large
extent, by planned marketing efforts … Short and long range planning of company
activities on a continuing basis, and the development of consistent strategies and
tactics resulting in an integrated system of marketing action, are seen as the key to
marketing management’s tasks.37
The marketing management school of thought focused primarily on the role of marketing
managers with particular emphasis on how an organisation should market its products and services.
At the same time a great deal of scholarly work was being undertaken in what Shaw and Jones have
described as the marketing systems, consumer behaviour, macro marketing, exchange and
marketing history schools of thought.38 As the name suggests, marketing systems scholars viewed
marketing from a systems theory perspective, exploring macro issues such as how the marketing
system was integrated into society and micro aspects such as channel interrelationships. Consumer
behavioural scholars were most productive during this era drawing on concepts from fields such as
psychology and sociology to develop models of buyer behaviour, and concepts such as attitude
formation and change, learning and personality. Macro marketing scholars were instrumental in
exploring macro issues such as industry structure and channels of distribution rather than micro
marketing study of the firm.
Marketing as an integrated organisational process

(late 1980s to 2000s)
The launch and introduction of the marketing concept during the mid 1950s to late 1960s was
timely. This was a period when mass markets and mass communication were reaching their peak.
This was also a period of rapid economic growth for most Western countries, and organisations
adopting the marketing concept generally prospered. As the saying goes, ‘Nothing succeeds like
success’, and it was more or less taken for granted, at least by marketers, that this success was due
to the organisation’s adoption of the marketing concept. There was very little debate and very little
research conducted to determine whether the adoption of the marketing concept equated to
success. The marketing concept was floated more as an article of faith rather than as a matter of
fact. Little if any empirical evidence was provided to support the argument that adoption of the
marketing concept would improve business performance. At best the evidence was largely
anecdotal.
But during the 1970s the economic good times were starting to come to an end. Rising inflation
and the energy crisis of 1973 heralded a period of stagflation and economic discontinuity. This was
underlined in the early 1980s when a sharp economic recession occurred. But this was just the tip
of the economic iceberg. A changing economic order was taking place with the emergence of Japan
as a major economic force and a concomitant decline in American supremacy. South-East Asia was
emerging as a low-cost manufacturing base, and the evolution of a global economy was starting to
unfold. Global competition had become a reality and, in Australia, the lowering of traditional tariff
protection in the 1970s and the early 1980s brought about a rapid increase in foreign competition.
On a longer-term basis the economies of most Western countries were shifting away from
manufacturing to become service-based economies. In Australia, for example, gross domestic
product (GDP) was fairly evenly divided between goods and services from the early 1900s until the
mid 1960s. However, this changed fairly rapidly from the mid 1960s on. In 1960 services
represented 47 per cent of GDP, in 1970 the percentage grew to 52 and, in 1980, to 59 per cent.
Deregulation of industries such as airlines, banking and financial services and telecommunications,
along with privatisation of public utilities such as energy and railways, spurred much of this growth.
By 1996 the services percentage share of GDP had risen to 65 per cent. Information technology
has driven a good deal of this shift towards services. The significance of the role of technology and
information technology (IT) in underpinning many of these changes cannot be overestimated.
Technology in the form of the printing press, radio and television had underwritten the
development of mass communication and the evolution of mass markets during the first half of the
twentieth century. The introduction of bar code scanners in the 1980s facilitated the introduction
of the concept and process of supply chain management – a technique for linking a manufacturer’s
operations to those of its suppliers, its key intermediaries and its end-user customers with the aim
of enhancing efficiency and effectiveness. At around the same time the introduction of personal
computers facilitated the evolution of the information age. This gained momentum in the early
1990s with the introduction of networking computing. Since that time information technology has
transformed the way business is done and indeed the very nature of society. Electronic commerce
(e-commerce), or electronic business (e-business) as it is alternatively termed, has enabled
organisations to share information and information processing across and beyond their
organisational boundaries, thereby reshaping the nature of their relationships with their customers,
suppliers and competitors. The rapid growth of the Internet and the World Wide Web (www) since
the mid 1990s has shaped the way organisations and individuals work, communicate with one
another, and obtain and synthesise information. It has enabled the emergence of electronic retailing
(e-tailing) in the business-to-consumer area (B2C) and the formation of a virtual marketspace39 as
distinct from the traditional physical marketplace. A marketspace is an informational marketplace
where goods and services are exchanged ‘via computer interaction where value is extracted from
information’.40 Information technology has also enabled the development of tools such as customer
relationship management (discussed in the next section) and enterprise resource planning (ERP)
technology – a system that links financial, manufacturing, human resources, distribution and order
management systems into an integrated single system.41 Technology had also enabled a great deal
of change in the service sector such as the introduction of ATMs, electronic banking, and
e-ticketing for flights and sporting and entertainment events.
The 1990s was a decade of unprecedented extension and intensification of globalisation
driven by financial liberalisation, technological advances and reduction of transportation and
communication costs. It was also a decade that saw a major realignment of economic activity with
the emergence of Asian countries, particularly China and India, as economic powerhouses. During
this period of strong economic growth, inflation and interest rates were low and consumer demand
was strong. Equity and property markets experienced boom conditions and the business
environment was relatively stable.
Demographic shifts have also played a major part in the changes that occurred from the 1980s.
The spending power of ageing baby boomers, the increasing influence of Generation Y (people born
between 1976 and the late 1980s), rising affluence in developing economies, easy access to credit,
cultural change and global population increase contributed to what is described as a consumer
society. Generation Y grew up in an era of economic prosperity and the rapid evolution of the
Internet and, as their approach to life was markedly different from the generations who came
before them, they have had a significant impact in helping to shape social attitudes and behaviours.
S T R AT E G Y I N P R A C T IC E
From doom and gloom to a marketing-led economic revival
It’s not often that marketing can be credited with over 50 per cent in the 1960s to just 15 per cent.
saving an entire industry let alone helping to rescue Worse still, the success of the Japanese and Hong
a country from economic disaster. This was the Kong competitors was largely due to their use of
situation facing the Swiss watchmaking industry in quartz technology – an invention introduced by the
the late 1970s. Faced with a dramatic increase in Swiss Horological Electronic Center, but basically
the Swiss franc and intense competition from ignored by Swiss watchmaking firms.
Japanese and Hong Kong competitors the Swiss The sudden decline in the Swiss watchmaking
share of the world watch market had plunged from industry had major ramifications for the entire Swiss
economy. In 1970 there were over 1600 Swiss reputation of the high-end Swiss watches. The
watch companies employing over 90 000 people. possibility of selling the new product was discussed
By the late 1970s the number of companies had but Hayek soon put a stop to those discussions, as
plummeted to 600 with fewer than 30 000 he could see the enormous potential that such a
employees. If that wasn’t enough, two of the largest watch had.
Swiss watchmaking firms, AUSAG and SSIH, were The rest, as the saying goes, is history. The new
facing bankruptcy. Nicolas Hayek, a Swiss-based product Swatch went on to become a runaway
management consultant, was asked by a group of success. From 1983 to 1993 SMH (renamed
Swiss bankers to oversee the liquidation of the two Swatch Group Ltd in 1985) sold over 100 million
companies and their eventual merger in 1983 to Swatches. The company’s revenues had grown to
form SMH – the Swiss Corporation for just under $2 billion with earnings around $US300
Microelectronics and Watchmaking Industries. million. The investors who paid Sfr100 a share back
Hayek oversaw the restructuring of the new in 1985 were rewarded with their shares trading at
company and in 1985 with a group of Swiss investors Sfr1500 in 1993. The success of Swatch played a
took a majority shareholding in the new company. decisive role in the recovery of the Swatch Group
The restructuring of SMH coincided with the as a whole and also for the entire Swiss watch
launch in 1983 of a new product that had been industry, which regained its leading worldwide
developed by a team of watch engineers at ETA SA, position in 1984.
a subsidiary of AUSAG. Under the direction of ETA The success of the Swatch can be contributed
SA’s CEO, Dr Ernst Thomke, the team headed by to a number of factors but, undoubtedly, the
Elmar Mock and Jacques Muller had developed and number 1 driver was brilliant marketing. Lower-end
launched at the 1979 Basel Watch Fair a luxury quartz watches had traditionally been marketed on
high-priced gold watch named the Delerium the basis of their functionality, fulfilling a basic
Tremens – the world’s slimmest quartz watch. The psychological need for safety – that is, the ability to
team had then set its sights on using the technology tell the time accurately. The Swatch changed all that
they had developed to produce a low-cost plastic by appealing to higher-order needs. The Swatch was
quartz watch. The result was a technological a reflection of the wearer’s identity, fulfilling needs
masterpiece, a watch made totally from synthetic of self-esteem and belongingness – a different
materials that reduced the number of parts in the Swatch for a different day. It was positioned as a fun
watch to just 51 as opposed to over 100 for a fashion accessory.
traditional quartz watch. Most importantly, the Swatch invested heavily in advertising,
production process was able to be fully automated promotion and sponsorship of youth-oriented
which lowered the cost of production by over 80 events such as snowboarding, skateboarding, skiing,
per cent. Nichole Lopez devised a name for the new motocross, beach volleyball, and break dancing. The
product – Swatch, a contraction of the words company also supported avant-garde musicians,
‘Second Watch’. fashion events and art exhibitions. A Swatch
Despite the technological breakthrough and the members club was developed to foster brand loyalty
attractiveness of the Swatch’s design, some of the and it became so successful that limited editions of
managers of SMH were worried that competing at Swatch models became highly sought-after
the low-end of the market would damage the collectors’ items.
The impact of these driving forces of change on marketing

practice and theory
In many ways the 1980s and 1990s were decades of awakening. Driven by converging economic,
demographic-sociological-cultural, political-legal, technological and natural environment forces,
organisations – indeed entire industries – were forced to change the way that they operated.
Radical change was the order of the day as all types of organisations struggled to come to grips with
rapidly changing business conditions that were characterised by globalisation, intense competition,
a preponderance of mature to declining markets, ‘me too’ product marketing, price warfare and, in
many industries, changing power structures in the distribution channels. As a consequence of these
driving forces of change, a number of new concepts and business approaches have revolutionised
business thinking and practice since the 1980s. The more significant of these concepts and
approaches are discussed in the rest of this section.
Total quality management

In the wake of the success of Japanese industry in the 1970s and the concomitant demise of
American industry, the 1980s marked a beginning of a search to do better: a search for excellence,
as Peters and Waterman expressed it.42 Therefore, when W. Edwards Deming appeared on a
television documentary in June 1980, not surprisingly great interest was paid to his message about
Japanese quality management methods. Total quality management (TQM) was one of the underlying
reasons for the transformation of post–Second World War Japanese industry. The process
originated with the US army introducing statistical quality control between 1946 and 1950. It was
enhanced and refined by Deming and other American pioneers in this field, including Joseph Jurien
and General Electric’s Armand Feigenbaum, during the 1950s. In the late 1950s, Japanese experts
including Kaoru Ishikawa, Genichi Taguchi and Shigeo Shingo further modified and developed the
American methodologies for the Japanese industry environment. The wheel turned full circle when
the quality movement took hold of American industry during the 1980s.
TQM is a management philosophy that extends statistical methodologies of measuring and
controlling production quality to provide a company-wide awareness and focus on all quality issues
from supply to production to marketing, selling and distribution of goods and services. It
emphasises teamwork, the imperative of satisfying customer needs and establishing excellent
supplier relationships. The impact of the TQM movement is highly significant. TQM facilitates
organisational change: a focus on teamwork led to the formation of cross-functional work teams.
The recognition that customer satisfaction needs to be a company-wide activity led to the customer
service revolution of the 1980s. The need to inform and motivate employees to focus on quality and
customers led to a need for internal communication and the recognition of the existence and
importance of internal customers (to be targeted with internal marketing).
Customer service revolution and customer satisfaction measurement

An extension of the TQM philosophy is the customer service movement, which was popularised
during the 1980s. Tom Peters, one of the leading American proponents of this ‘management
revolution’, captures the essence of the customer service approach well in the third of his
best-selling books, Thriving on Chaos:
The customer, in spirit and in flesh, must pervade the organisation – every system in
every department, every procedure, every measure, every meeting, every decision …
Make a customer-obsessed revolution. Routinely look at the smallest nuance of the
tiniest program through the customer’s eyes – that is, as the customer perceives it, not
you. Make champions of change in support of the customer, not guardians of internal
stability, the new corporate heroes in every function.43
The hallmark of the customer service revolution was accountability. Customer satisfaction
measurement (CSM) became the key focus for all types of organisations during the 1980s. Over
15 000 academic and business press articles were published on the subject during the 1980s and
1990s, and customer satisfaction surveys became the fastest growing area of market research.
Customer satisfaction was generally defined in terms of the customers’ perceptions of the
organisation’s product or service usually in relation to its expected performance. A typical CSM
would require customers to rate the organisation or its product or service on a 5-point scale so that
satisfaction performance levels could be assessed and tracked over time. The achievement of a high
percentage of very satisfied and/or satisfied customers was considered to be so important that it was
invariably stated as a key performance indicator. The underlying belief was that achieving a high
level of customer satisfaction was the key to marketing success. Customer satisfaction was
considered to be a leading indicator of customer purchase intentions and loyalty. It was also
considered to be a leading indicator of customer retention.
However, towards the end of the 1980s the initial enthusiasm for CSM was tempered by some
disappointing results experienced by some companies. American Telephone & Telegraph (AT&T),
for example, experienced a steep decline in market share despite consistently achieving satisfaction
scores of 90 per cent or more.44 Research by Bain and Company found that the defection rate for
customers who claimed to be satisfied or completely satisfied could be as high as 60 to 80 per cent
depending on the industry.45 The first response by many of the CSM experts to address this
problem was to add questions about issues such as ‘willingness to repurchase’ (as an indicator of
customer retention) or ‘willingness to recommend’ (as an indicator of customer loyalty) to their
customer satisfaction survey instruments. But the real answer lay elsewhere.
Puzzled by the disconnection between satisfaction and market share AT&T’s Raymond
Kordupleski led a team of researchers to investigate the issue more thoroughly. Using market
survey data rather than just AT&T customer satisfaction information Kordupleski experienced a
Eureka moment when he discovered that the search for a leading indicator of market share could
be narrowed down to just one key question: ‘How would you rate [insert vendor]’s [insert product]
on being worth what you paid for it?’46
This discovery was the catalyst for the development of a measurement system that AT&T
named customer value added (CVA). Kordupleski presented the concept of CVA at an American
Marketing Association (AMA) Customer Satisfaction Conference in 1991 and from then on there
was a rush by market research companies and large organisations to develop their own
measurement systems, which came to be known as either relative customer value (RCV) or
customer value ratio (CVR) systems.
Services marketing revolution

Marketing had traditionally been concerned with physical goods, a point that was articulated by
Shostack in what has become a seminal article in the services marketing literature.47 During the
1980s a number of articles started to appear in the marketing literature with their major emphasis
on defining services marketing, specifying the characteristics of services and pointing out the
differences between the marketing of tangibles and intangibles.48
Academic interest in services marketing coincided with the rapid growth of the services sector
and the adoption of marketing practices in services organisations. Textbooks devoted to services
marketing started to appear and services marketing courses were added to the curriculum for MBA
and specialised marketing and executive programs. By the 1990s services marketing had evolved
from being a niche area of study within mainstream marketing to become a distinct area of study.
During the 1980s a profusion of new service-based concepts and models were developed as
academic interest in services marketing and the related area of relationship marketing intensified.49
A most significant outcome was the growing realisation of how significant the difference was
between the marketing of services and the marketing of goods. Researchers within the Nordic
School of thought contended that the process nature of services – the simultaneous consumption
and production of a service – is the distinguishing factor. Customers therefore participate as

co-producers of the service. Based on this phenomena, researchers such as Grönroos and
Gummesson argued that customer preferences were influenced by a number of physical resources
and systems and by interactions with employees throughout the organisation, not just with those in
the marketing department. They concluded that marketing should therefore be considered to be an
organisation-wide process, not a separate business function. They also argued that the focus of
marketing should be geared towards facilitating interactions with customers during the
consumption process rather than focusing on the exchange process.50 They concluded that a new
marketing perspective was needed.
The services marketing movement challenged the traditional goods-based logic of marketing. As
Vargo and Lusch (2004) argued, marketing had moved from a ‘goods-dominant view, in which
tangible output and discrete transactions were central, to a services-dominant view, in which
intangibility, exchange processes, and relationships are central’.51 This led to the creation of service-
dominant logic (S-D logic).
Just-in-time (JIT) inventory management

Based on the Japanese concept of kanban, US companies, initially in the automotive industry in the
early 1980s, adopted a revolutionary system of inventory management. Just-in-time (JIT) inventory
management depends on close cooperation between buyer and seller and the sharing of information.
Buying organisations carry minimal inventory, relying on their suppliers to provide virtually
immediate delivery. The widespread adoption of JIT inventory management throughout industry in
most Western countries during the 1980s brought about major changes in relationships between
buying and selling organisations: a shift from adversarial negotiation based on single transactions
towards an emphasis on establishing long-term relationships. Towards the middle of the 1980s, quick
response (QR) technology further underlined the need for close cooperation between buyer and
seller. QR combines the JIT system with high-speed communication technology (product bar coding,
point-of-sale scanning and electronic data interchange, and online computer linkage between the
buying and selling organisations) to maximise ordering and delivery efficiency. The consequences of
the adoption of JIT and QR impacted the business world in several ways. First, there was a massive
shift in the inventory-carrying function as buyers passed this function on to their suppliers. Second,
logistics management became a major concern for senior management of supplier organisations as
they grappled with the challenge of meeting their customer needs for fast and accurate delivery of
small inventory lots, often with pressure towards reduced margins. Third, JIT emphasised the need
for suppliers to establish and maintain outstanding customer service as a major means of competitive
advantage. Finally, JIT’s emphasis on supplier and buyer relationships contributed to the evolution of
a new emphasis in marketing, which became known as relationship marketing.
Relationship marketing
Alternatively termed ‘one-to-one marketing’, relationship marketing evolved in response to the
adoption of JIT and a concomitant shift in emphasis on buyer–supplier relationships. Up to this
point in time the emphasis had been on a win/lose adversarial relationship. The objectives of the
buyer and seller were directly opposed as each strived to beat his or her opponent in what was
essentially a series of one-off transactions. The new way of thinking was for buyers to de-emphasise
transaction-based marketing and to develop long-term relationships with a few, rather than many,
suppliers with both parties working towards a more cooperative long-term relationship. At the same
time, because of a trend towards a number of markets reaching the end of their growth phase,
there was increasing recognition of the importance of customer retention. That is, existing
customers were just as, or more, important (or more profitable) than new customers. For many
organisations, developing a long-term relationship with their existing customers became a more
intense focus. The introduction of loyalty programs or frequent purchaser schemes was an outcome
of this new strategic focus.52 Another consequence of this move towards relationship marketing
was a growing incidence of the formation of strategic alliances and network organisation
relationships. In a strategic alliance or in a network relationship, traditional means of hierarchical
reporting control were generally forgone and as a consequence managers had to start developing
ways of influencing their strategic alliance or network partners to operate in a desired way.
The emergence of the concept of relationship marketing also had important consequences
concerning the fundamental philosophy of marketing. Academics working in this field of work started
to raise fundamental criticisms of the 4Ps concept of marketing mix. They argued that the 4Ps
approach overlooks the importance of human interactions in the exchange process and the need for
building long-term customer relationships.53 They contended that customers of service and B2B
organisations interact with personnel other than those in marketing departments and that these
interactions play a crucial role in the development of long-term customer relationships. As Grönroos
explained, ‘In relationship marketing interactive marketing becomes the dominant part of the
marketing function’.54 As he argued, the 4Ps is a clinical approach to marketing that assumes that
the seller plays an active role in the exchange process, with the buyer and consumer playing a passive
role. Marketing deserves new perspectives ‘which are more market-oriented and less manipulative,
and where the customer is the focal point as suggested by the marketing concept’.55
Customer relationship management

This newfound focus on customer relationships gained further momentum during the 1990s with
the rapid advances in database technology that were taking place. Harnessing the power of the
personal computer and database software, a new tool that came to be known as customer
relationship management (CRM) evolved in the early to mid 1990s that provided marketers with the
ability to collect and accumulate data about customer buying patterns – on an individual or one-to-
one basis. CRM provided marketers, without the need for an IT department, with the ability to
develop a learning relationship with their customers and a means for differentiating individual
customers’ needs and worth to the organisation. CRM or permission marketing, as it is also
described, provides an organisation with an ability to interact with its customers on a one-to-one
basis and to customise its products and services for each individual.56 CRM has in turn given rise to
a concept known as mass customisation – the provision of custom-tailored products and services.57
Strategic alliances and networks

Another Japanese model adopted by American business was the concept of zaibatsu. Believed to be
another reason for Japan’s success vis-à-vis American business, zaibatsu involves the formation of a
family of enterprises organised around a single controlling parent, usually a bank. Spurred on by the
quality movement and its focus on production (and therefore supply quality), JIT emphasises
buyer–seller interdependency and the need for organisations to be flexible and responsive to change
in a dynamic and competitive environment. As a consequence, new forms of organisation evolved
during the 1980s such as strategic alliances between organisations and their suppliers and resellers.
Strategic alliances were also formed between competitors: for example, Ford and Mazda, General
Motors and Toyota, and Apple and IBM. The characteristics of strategic alliances are shared
objectives and a commitment of resources by both parties.58 Another form of strategic alliance was
a joint venture whereby a new firm was created for perpetuity or for a finite period such as for a
joint research and development (R&D) project. In other cases networks were formed where
confederations of organisations were brought together by multiple strategic alliances, with each of
the parties providing functional specialisation expertise. With strategic alliances and networks, the
traditional form of line management control is removed, and the focus is on the management of
relationships between the various parties rather than on formalised hierarchical mechanisms. As a
result of this changing organisational structure, relationship marketing evolved as a critical
marketing activity for the 1980s and 1990s.
Organisational culture
Addressing a feeling of despair that had developed in corporate America during the 1970s when the
Japanese successfully challenged for business leadership, the concept of organisational culture
evolved. Popularised by Ouchi (1981), Peters and Waterman (1982) and Deal and Kennedy
(1982),59 attention was focused on management style and the development of an effective
organisational culture – the shared meanings and understandings held by organisational members.
Ouchi, for example, contended that a strong homogeneous culture and a set of values, beliefs and
norms specifying individual behaviour was the secret of success for Japanese companies.
The importance of organisational culture for marketing was first articulated in the late 1980s.
Deshpandé and Webster60 argued that the marketing concept, by placing the customer as the
centrepiece of strategy and operations, serves to define a distinct organisational culture. Hunt and
Morgan61 extended this argument by pointing out that the cultural status of the marketing concept
makes it more permanent and more foundational than strategy selection. An organisation
implementing the marketing concept was described as being market-oriented.
Organisational change
During the 1980s new forms of business organisations evolved that were designed to respond
quickly and flexibly to the accelerating changes in technology, competition and customer
preferences. This resulted in the formation of ‘leaner and meaner’ organisations – the removal of
layers of middle management by downsizing (later labelled ‘rightsizing’). In 1990 organisational
change took on a new meaning when Hammer launched the concept of business process
re-engineering (BPR),62 calling for radical rather than incremental organisational change. BPR is a
revolutionary process that attempts to reinvent organisations rather than trying to merely improve or
enhance them. The aim of BPR is to achieve large gains in productivity and organisational
performance by thorough analysis and redesign of work flows and processes, usually enhanced by IT,
by which organisations deliver value to their customers. BPR focuses on processes rather than
functions and on the establishment of cross-functional work teams to replace traditional hierarchical
functional structures and the barriers that invariably exist between the various functions.
Strategic planning and strategic management

At about the same time that the marketing concept was being promoted to the business world,
during the 1960s, another powerful management discipline was starting to evolve: strategic
planning, initially referred to as ‘corporate planning’. While the origins of strategic planning can be
seen in the 1957 work of Selznick63 and the 1962 work of A.D. Chandler,64 the 1965 publication of
Igor Ansoff’s Corporate Strategy65 is generally considered to be the starting point for the rapid rise of
strategic planning. During the latter part of the 1960s and throughout the 1970s, strategy planning
dominated management practice in the USA. Strategy planning became a centralised, head office
process in many large American conglomerates, and a clear delineation between strategy
development and implementation evolved. Strategy planners took responsibility for strategy decision
making, while line managers were excluded from this process and required to concentrate on the
implementation of the strategic plans. Marketing was not immune from this process and in many
cases higher-level marketing decisions were made by head office strategy planners rather than the
marketing line managers located ‘out there’ at the operational end of the business (in strategic
business units – SBUs). During the early 1980s a number of organisations that had eagerly adopted
strategic planning processes during the 1970s started to realise the maxim of ‘paralysis by analysis’.
In many cases strategic planning had become cumbersome, time-consuming and much too
far-removed from the operational side of their businesses. Leading-edge strategy planning companies
such as General Electric started to cut back on their planning departments and to push planning
responsibilities out to their operating business units. The concept of strategic management evolved
to add strategic implementation and strategic control to the four stages of strategic planning (goal
setting, environmental analysis, strategy development and evaluation of strategic options).66 The role
of marketing in the strategic management process is discussed in considerable depth in Chapter 3.
Emphasis on competitive strategies

The field of strategic planning and management in general was dominated by the work of Harvard
Business School’s Michael Porter during the 1980s.67 Porter’s highly acclaimed concepts of
competitive advantage (generic strategies), industry analysis (five-forces model) and the value chain
were significant contributions to management thinking during the 1980s and remained so during
the 1990s. His concept of the value chain was particularly important for the role it played in laying
a foundation for the evolution of the customer value-based paradigm discussed later in this chapter.
A focus on beating competitors was also advocated by Kotler and Singh who, in 1982, popularised
the notion of developing marketing strategies based on principles of military warfare.68 This theme
was further popularised by Ries and Trout69 as business and marketing strategists looked to
principles devised by famous military strategists such as the British military historian B. Liddell
Hart (1895–1970), the Prussian general Carl von Clausewitz (1780–1831) and the Chinese general
Sun Tzu (fifth century BCE).
Corporate social responsibility and stakeholder theory

The genesis of the concept of corporate social responsibility (CSR) – the notion that a business has
an obligation to protect the interests of society at large – can be traced back to at least the early
1930s. However, the concept gained traction in 1953 with the publication of Howard R. Bowen’s
landmark book Social Responsibilities of the Businessman.70 Interest in the concept increased during
the 1960s and 1970s with much of the emphasis extended towards definitional aspects. During the
1980s attempts were made to measure and conduct research on CSR but gradually the entire
concept started to morph into alternative themes such as stakeholder theory, business ethics,
corporate citizenship and corporate social performance.71
Stakeholder theory was born in 1984 with the publication of a book, Strategic Management: A
Stakeholder Approach, written by R. Edward Freeman, a management academic. At that point in
time, despite the evolution of the concept of CSR, the traditional view of the firm was that
companies had a legal requirement to look after the interests of their shareholders and to increase
value for them. Freeman argued that shareholders were not the only stakeholders of a business
organisation. He defined a stakeholder as, ‘any group or individual who can affect or is affected by
the achievement of the organisation’s objectives’.72 He argued that, for a business to be successful,
it has to create value for its customers, suppliers, employees, communities, financiers, shareholders,
banks and others who can affect or be affected by it. Stakeholders, he added, should not be
considered in isolation but collectively as their interests are mutually self-supporting. The challenge
for management is to create and maintain value for each stakeholder group.
Stakeholder theory gained momentum during the 1980s, capturing the attention of academics
and others working in a variety of fields including strategic management, accounting, finance,
business ethics, law, public policy, heath care and marketing. In the field of marketing it has been
influential in providing a foundation for the broadening of the marketing concept. It has helped
marketers think about how value is created, and about how different stakeholders affect or are
affected by marketing activities. The interests of different stakeholders can be categorised as
primary and secondary. Primary stakeholders are those upon which the organisation depends for its
survival and continued success such as their customers, shareholders, debt-holders, trade unions,
suppliers and government. Secondary stakeholders are those who either impact or are impacted by
the organisation but are not essential for its survival. Secondary stakeholders include competitors,
mass media, social media, trade associations and special interest groups such as advocacy groups.
The relationships between an organisation and these secondary stakeholders range from being
collaborative to confrontational.73
(Note: In 2011 corporate social responsibility was extended with the introduction of a concept
developed by Michael Porter and Mark Kramer known as creating shared value (CSV).74 This
concept is discussed in further detail in Chapter 4.)
Brand equity
The 1980s marked a turning point in the recognition of the role played by brands in an overall
business context. While marketers had long since recognised the importance of brand
management, as was discussed earlier in this chapter, the financial value of brands came under
increasing attention during the 1980s. Driven by a realisation that size and scale of operation were
prerequisites for success in the fast-evolving globalised world of business, a wave of takeovers,
mergers and acquisitions took place during this decade and has continued through to present
times. Many of the acquiring companies were willing to pay price earnings ratios much higher than
those that had traditionally been the norm, not just to acquire bricks and mortar and other tangible
assets, but also to obtain brands that were established household names. Nestlé, for example,
bought Rowntree for 26 times its earnings and Groupe Danone bought Nabisco Europe for a price
earnings ratio of 27 when the norm up to that point in time had been a scale of eight to 10 times
earnings. The reason for the high prices? The strength of the company’s brands.75
Brand equity is a concept that attempts to place the marketplace value of a brand based on its
reputation and goodwill. In addition to establishing the financial worth of a brand, marketers since
the late 1980s have devoted considerable attention to conceptualising and researching how brand
equity can be created and maintained. However, conceptualisations of brand equity vary
considerably, ranging from models that seek to measure brand equity outcomes in terms of
customer assessment of a brand’s intangible qualities, to hard data such as sales, profit and market
capitalisation value. Despite this, the emphasis on brand equity – the correlation of brand strength
and company value – in the late 1990s became one of the main priorities for marketing managers to
address. Brand equity models became increasingly important to assist in the processes of
developing marketing strategies (and branding strategies in particular) in a business environment
where product commoditisation was frequently occurring. Lower priced private label (retailer)
brands and generics were gaining in popularity during the 1990s and, as a consequence, margins for
national brand marketers decreased significantly. Managers in consumer goods companies cited
pricing pressure and declining brand loyalty as their number one concern.76
Customer lifetime value (CLV) and customer equity

During the 1980s as interest in services marketing was gathering pace, the issue of customer
retention became a major focus for several researchers working in this field. The significance of
customer retention was first quantified by Reichheld and Sasser in 1990.77 The focus of this
research and other studies conducted by Reichheld, a fellow of Bain & Company, was on the
impact of customer retention on company profitability.78 From this work the concept of customer
lifetime value (CLV)79 took hold as researchers directed their attention to identifying linkages
between customer retention and customer satisfaction, service quality and market share.
The work on customer lifetime value became the catalyst for the development of the concept of
customer equity, a term first coined by Robert Blattberg and John Deighton in 1996.80 Blattberg and
Deighton argued that growing a business should be framed in the context of ‘getting customers and
keeping them so as to grow the value of the customer base – to its fullest potential. In these terms,
setting a marketing budget becomes the task of balancing what is spent on customer acquisition
with what is spent on retention’.81 They supported this argument in their 1996 Harvard Business
Review article by providing details of how optimal levels of acquisition spending and retention
spending could be calculated.
The CLV and customer equity concept according to Rust, Lemon and Zeithaml has challenged
the brand equity concept, which they argue is ‘a fundamentally product-centred concept’.82 They
define customer equity as ‘the total of the discounted lifetime values summed over all the firm’s
current and potential customers’.83 They argue that customers and customer equity are more
central to many firms than brands, representing a shift from a product-based strategy to a more
appropriate customer-based strategy.
Emphasis on measurement and accountability

The 1990s was a period when shareholders put considerable pressure on organisations to maximise
their returns. In turn, CEOs stared to demand greater accountability from their marketing
operations. The response from the marketing world was the development of the concept of return
on investment (ROI) marketing – the use of sophisticated techniques to measure marketing
performance and to facilitate rigorous marketing decision-making processes. As a consequence,
marketing activities that were found to be costly and ineffective were eliminated. As a result,
traditional marketing expenditure in areas such as advertising has come under close scrutiny.
Procter & Gamble, for example, shifted 20 per cent of its global marketing budget away from
television advertising into alternative marketing communication approaches. At the same time, the
company implemented a policy of remunerating its communication agencies on the basis of
performance rather than on media commission.
Marketing in the first decade of the 2000s became more fact-based and focused on return on
investment, with pressure being applied to marketing departments to deliver returns on the
organisation’s marketing investment. As a consequence, there has been a flurry of activity to
develop new marketing metrics often based on sophisticated financial tools and techniques to meet
expectations demanded of marketers to justify marketing expenditure.84
Market orientation
In the light of these driving forces of change, the role for marketing started to change in many
organisations during the 1990s. The total quality movement (TQM) and the customer service
revolution broadened the involvement of personnel other than those in marketing and selling to pay
active attention to looking after the wellbeing of customers. Marketing was no longer to be the only
department concerned about customers. The fact that all employees were now expected to be
customer service-oriented led to the development of internal marketing as a new concept. Here it
was realised that an organisation’s employees needed to be informed and motivated about the
organisation’s marketing activities and therefore should be targeted for communication just like any
other target audience.
The 1990s was also a decade when many organisations attempted to re-engineer themselves
by replacing or supplementing their ‘functional silos’ (departments) with cross-functional or
process-focused teams. In many cases this led to the formation of a matrix type of organisational
structure with various individuals reporting to several managers rather than to just one
departmental manager. Marketing people in this type of process management or team-based
management structure were then required to develop process skills in addition to the traditional
functional skills of being a ‘marketer’.
With all of the changes going on in the business world, questions were being raised about how
companies could compete more effectively in the marketplace or, in some cases, how they could
merely survive. Marketing came under the microscope and marketers were asked to go beyond
the rhetoric and to demonstrate the relationship between a market orientation and superior
performance. This was a period of soul searching for marketers as prominent articles with titles
such as ‘What the hell is market oriented?’ and ‘The rediscovery of the marketing concept’85 began
to appear in the marketing literature. New labels started to appear that attempted to differentiate
the new way of thinking from the old, including ‘the new marketing concept’, ‘market-driven
organisations’ and ‘customer-value driven organisations’.86 The term ‘market orientation’ came into
prominence with the publication of two landmark articles in 1990. Kohli and Jaworski, and Narver
and Slater published articles that defined and conceptualised the process of market orientation
along with providing scales that could be used to measure market orientation.
Kohli and Jaworski set out a comprehensive framework that conceptualised the antecedents
and effects of an organisation adopting a market orientation. The thrust of their argument is that
a market-oriented organisation exhibits three behavioural characteristics: an organisation-wide
generation of market intelligence pertaining to current and future customer needs; the dissemination
of that market intelligence to organisational decision makers; and an organisation-wide responsiveness
to that market intelligence. To achieve these behaviours, Kohli and Jaworski argued that there are
three antecedents: senior management factors (to foster a market orientation in their organisations);
interdepartmental dynamics (interdepartmental connectedness as opposed to conflict that impedes a
market orientation); and organisational systems (organisational structure, decision making, communication
and reward systems). It can be seen that information processing is a critical component of this concept of
market orientation.87
Narver and Slater similarly constructed a model that exhibits three behavioural outcomes, with
the main difference being the inclusion of competitor orientation in their model. Their three
behavioural constructs are: a customer orientation (sufficient understanding of an organisation’s
buyers so as to be able to create superior value for them continuously); competitor orientation (to
understand the short-term strengths and weaknesses, and the long-term capabilities and strategies
of current and potential competitors); and interfunctional coordination (the utilisation of company
resources to create superior value for the organisation’s targeted customers).88 A most important
feature of both models is that scales were developed to facilitate the measurement of the level of
an organisation’s market orientation. These scales have been widely accepted by marketing
scholars, and during the 1990s numerous research studies were undertaken investigating various
aspects of market orientation. Several of these studies were designed to refine the scale properties
while others set out to investigate the relationship between market orientation and a range of
antecedents and effects, including the linkage between market orientation and performance,
market orientation and innovation, and market orientation and competitive advantage.89
It is important to note that the inclusion of a competitor orientation in Narver and Slater’s
model represents a view that differed from the traditional view that a market consists of a collection
of buyers. Kotler, for example, defines a market as ‘the set of all actual and potential buyers of a
product’.90 Deshpandé, Farley and Webster in support of this viewpoint argue that the terms
‘customer’ and ‘market orientations’ are synonymous and are ‘distinguishable from a competitor
orientation’.91 However, the broader point of view that a market comprises both customers and
competitors is also well supported in the literature. This perspective is exemplified in an article
written by Jaworski, Kohli and Sahay that sets out to refine the earlier Kohli and Jaworski concept
of market orientation. They argue that there are two dimensions of a market: market structure and
market behaviour. Market (or industry) structure is defined as ‘a set of players and the roles played
by them in what Porter (1985) calls ‘‘value chain’’ … Market behaviour refers to the behaviour of all
players in the industry value chain. Note that this definition is not limited to the customers but
rather focuses on the behaviour of any player in the industry value chain, including competitors,
suppliers, distributors, and complementors’.92
Jaworski, Kohli and Sahay argue that there are two approaches to market orientation: a
market-driven approach and a driving-markets approach. Organisations that react to the preferences
and behaviours of players within a given market structure are said to be market-driven. On the
other hand an organisation with a driving-markets approach influences the structure of a market
and/or the behaviour of the players in the market ‘in a direction that enhances the competitive
position of the business’.93 Jaworski, Kohli and Sahay contend that highly successful organisations
would be able to pursue both of these market-oriented approaches, although they do admit that to
do this would be very challenging.
The market orientation concept emphasises the need to practise marketing at an organisation-
wide level, rather than just at a (marketing) department or functional level. This school of thought
supports the view espoused by Drucker, Levitt and others that marketing should be considered as a
business philosophy and not as a specialised function within a business. That is, marketing should
be viewed as an organisation-wide process. However, while this business philosophy was easy to
espouse, it was not so easy to put it into practice.
The digital era (early 2000s to current)

The year 2004 was also a most significant turning point for not only marketing but for society as a
whole. This was the year when interest in the Internet recovered from the loss of faith experienced
in the wake of the 2000/2001 dot-com crash. At that time the Web was evolving from a Web-as-an
information source (Web 1.0) to a participatory platform (Web 2.0). Whereas Web 1.0 was mainly a
read-only information source with limited interaction between the creators of the content and the
receivers, Web 2.0 facilitated interactivity and collaboration amongst users. The term Web 2.0 was
essentially a marketing based term that represented changes in the way the Web was being used
rather than technical innovation. Content was becoming user generated rather than just company
generated, and social media sites were just beginning to take hold with the launch of sites such as
Friendster (2002), LinkedIn (2003), MySpace (2003), Facebook (2004), YouTube (2005) and
Twitter (2006).
The development of digital media has been a catalyst for disruptive innovation – where new
business models have evolved to challenge the traditional structure of many industries. For
example, the launch by Apple of iTunes in 1991 was a game changer for the music industry,
impacting on both the retailing of music and the sale of CDs. The long-term survival of print media
industries such as newspapers, magazines and books has been severely challenged by digital media.
For example, Wikipedia (launched in 2001) brought about the eventual end in 2012 of the print
production of Encyclopedia Britannica – after 244 years of production. Newspaper readership

throughout the world has declined significantly and, to compound the problem for many
newspapers, their so-called ‘rivers of gold’ (revenue from classified advertising) dried up when Web-
based competitors such as carsales.com.au and realestate.com.au were launched.
Apple was the catalyst for another game-changing play in 2007 when it launched the iPhone
using touch screen technology and Internet connectivity via mobile network operators such as
Telstra or Optus or via wi-fi. The mobile-phone market was at a mature to saturation stage of its life
cycle then and a new segment of smart phones had only recently began to evolve dominated by two
main competitors, Nokia and BlackBerry. Apple’s game-changing innovation was to position the
iPhone as a user-friendly multipurpose mobile device providing instant communication,
entertainment and information access for people on the go. The iPhone was a mini laptop, mobile
phone, PDA and entertainment all-in-one unit.
In 2010 the launch of Apple’s iPad proved to be another game changer. At first the iPad,
thought to be nothing more than an ‘iPhone on steroids’, was an instant hit, igniting flagging
interest in both the e-reader and tablet markets and wreaking considerable damage to the netbook
and desktop segments of the computer market. In just one year Apple recorded sales of nearly eight
million iPads.
By 2012 the centre of the digital universe had shifted from desktops to mobile devices such as
smart phones and tablets, changing the way individuals were able to access the Internet.
Individuals were now able to access the Internet at anytime and anywhere including access to their
own private and business information via cloud storage and computing services.
The Internet has transformed the marketing communication process from what was previously
a one-way sender–receiver (company–consumer) flow of information. Consumers were passive
receivers of advertising messages that were created for them by marketing organisations. At first,
during the 1980s and 1990s, the Internet was mainly an information provider enabling individuals
to search widely for information about products and services they were interested in, including
company-produced sources (company websites) and moderated newsgroups (discussion forums
under the control of a small group or an individual). During the 1990s, web logs (blogs and
podcasts) started to gain popularity and, in the early 2000s, user-generated content websites such
as Trip Advisor entered the scene followed by social media network websites such as Friendster,
LinkedIn, My Space, Facebook, YouTube and Twitter (as mentioned above).
The marketing communication model had now become a multi-way process of interactions
between companies and consumers, consumers and other consumers, consumers and online and
offline communities, consumers and social networks, and consumers and company collaborators
(value chain partners) such as retail salespeople. Driven by the emerging concept of co-creation (as
discussed above) the emphasis for marketing organisations had changed from creating and
maintaining satisfied customers to that of enhancing the customer experience (the experience
customers have during the purchase and post-purchase processes) and customer engagement (high-
quality interactions that achieve an ongoing relationship between a consumer and a company or its
brands). It was recognised that customers were increasingly demanding a much more intense
relationship with the brands that they purchased and that there were numerous points of contact
defined as touchpoints or moments of influence where customers and potential customers interacted
with the marketing organisation. Touchpoints span the entire value chain of an organisation,
including both internal and external points of contact. They include both traditional and new media
forms of customer contact with the organisation and its brands such as advertising, sales
promotion, publicity, in-store salespeople, word-of-mouth, viral messages (online word-of-mouth
generated by person–person via emails and social networks); the organisation’s salespeople, call
centre, customer service; the organisation’s website, email and social media. There are literally
hundreds of touchpoints where a customer or potential customer will interact with the organisation
and its brands. These can be identified and prioritised in order of importance by a process of
touchpoint analysis.
The challenge for marketing organisations is how to develop strategies and structures that will
enable them to compete effectively in this new environment. This will be the subject of discussion
throughout this book, but briefly, for now, the following four interrelated challenges are apparent:
Value creation, communication and delivery. The way organisations can create value has
changed significantly as new business models and new business frameworks (coalitions of
organisations) have emerged in the digital age. The former focus on mass production and mass
consumption is now shifting towards a focus on the individual. The old organisation-focused logic
of creating value based on economies of scale, central control, asset and concentration has given
way to a new logic that starts from the perspective of an individual end-user. The challenge for
organisations is how to develop strategies based on this perspective.94 (Value creation, communication
and delivery are discussed in the following section.)
Organisational structure and touchpoint management. Deep customer engagement requires
commitment from the entire organisation. As discussed earlier in this chapter, this is what leading
marketing academics and practitioners have been advocating for many years; that is, ‘an
organisation-wide’ approach to marketing, not a functional silo (function-by-function) approach.
Marketing and media ecosystem. This concerns the relationships between marketers and their
advertising agencies and media companies. Decisions need to be made about the mix of marketing
communication agencies to be used and the role that each is expected to play. Is it preferable to
use a one-stop full-service advertising agency or a combination of advertising, digital, brand and
publicity agencies? Should the organisation in-source some of these services, in particular the
digital communication function?
Brands as meaning makers. As discussed at the beginning of this chapter, the importance of
branding and brand management has long been recognised by marketers. The underlying belief was
that marketers could create a brand image or personality that consumers would relate to. However,
that is a sender–receiver concept of branding, which has now become obsolete. Co-creation
theorists argue that brand meanings are formed by a three-way co-creation process involving
consumers, culture (the way individuals make sense of their world) and marketing organisations.
Brand meanings are shaped from the experiences consumers have with brands ranging from the
way they interpret advertising messages to product usage, online and/or face-to-face discussions
with other consumers and a from a myriad of touchpoints. According to research conducted
by McKinsey up to two-thirds of these touchpoints are consumer-driven and only one-third is
company-driven. For example, purchasers of cosmetics typically seek more information about the
brands they have purchased and go online to visit company websites and most importantly social
media websites. Admirers of brands may join a brand community to interact with others online or
face to face. Marketers now have to face the reality that individual consumers now have the power
to shape perceptions of their organisations and their brands both positively and negatively. A
consumer complaint, for example, can quickly go viral on websites such as Facebook, Twitter,
YouTube and change.org to inflict serious brand damage within a matter of hours. Accordingly,
brand management and social media management has now been elevated in importance in many
leading companies. Some have created a new position of chief branding officer (CBO).
The evolution of a new marketing paradigm –

customer value creation, communication
and delivery
With the emergence of the plethora of new marketing practices and concepts during the 1980s and
1990s the marketing discipline was suffering a major identity crisis. As early as 1992, leading
academics in marketing such as Frederick Webster drew attention to a need for a change in
thinking. In a leading Harvard Business Review article Webster argued that the ‘historical marketing
management function, based on the microeconomic maximisation paradigm, must be critically
examined for its relevance to marketing theory and practice in the 1990s. A new conception of
marketing will focus on managing strategic partnerships and positioning the form between vendors
and customers in the value chain with the aim of delivering superior value to customers. Customer
relationships will be seen as the key strategic resource of the business’.95
The call for change was repeated by other marketing thought leaders during the 1990s. As
discussed earlier in this chapter concepts developed during the 1980s and 1990s in areas such as
services marketing, relationship marketing, total quality management (TQM), customer satisfaction
measurement (CSM), value chain management, networks and market orientation challenged the
traditional marketing concept philosophy of marketing. In 1997 two articles published in the
October edition of the influential Journal of the Academy of Marketing Science served as a catalyst
to stimulate the debate – in particular the need for a shift from the exchange paradigm to value
creation. Bob Woodruff, the author of the first article, argued that customer value would be the
next main source of competitive advantage. As he maintained:
Driven by more demanding customers, global competition, and slow-growth economies
and industries, many organizations search for new ways to achieve and retain a
competitive advantage. Past attempts have largely looked internally within the
organization for improvement, such as reflected by quality management, reengineering,
downsizing, and restructuring. The next major source for competitive advantage likely
will come from more outward orientation toward customers, as indicated by the many
calls for organizations to compete on superior customer value delivery.96
In supporting Woodruff’s call for a change in marketing thinking Stanley Slater, the author of
the second article, argued that marketing scholars had overlooked the importance of organising
their theoretical frameworks into a comprehensive theory of the firm – the foundation and focal
point for marketing dialogue and research. Marketers, he contended, ‘should be committed to the
proposition that the creation of customer value must be the reason for the firm’s existence and
certainly for its success’.97
The Woodruff and Slater articles served as a catalyst to focus the debate within marketing
circles on the need to shift the worldview of marketing away from the prevailing exchange/
marketing mix/customer satisfaction philosophy to the creation and delivery of customer value. In
2000 this point of view gained further traction when highly influential management academics,
C.K. Prahalad and Venkat Ramaswamy, introduced the concept of co-creation.98 They argued that
organisations must no longer think of individuals as passive receivers of value but actively seek to
engage those individuals as active co-creators of value everywhere in the system. As they stated:
Consumers have become increasingly engaging themselves in an active and explicit
dialogue with manufacturers of products and services. What’s more the dialogue is no
longer controlled by corporations … The market has become a forum in which consumers
play an active role in creating and competing for value … Customers are stepping out of
their traditional roles to become co-creators as well as consumers of value.99
In 2004 Prahalad and Ramaswamy elaborated on the concept in the publication of what was to
become a top-selling book, The Future of Competition,100 and in the Journal of Interactive
Marketing article ‘Co-creation experiences: The next practice in value creation’.101 In the same year
Stephen Vargo and Robert Lusch introduced a concept that has become known as the service-
dominant logic (S-D logic) view of marketing. They argued that a new logic, a fundamental shift in
the worldview of marketing, had taken place where the focus was shifting away from tangibles
‘toward intangibles such as skills, information, and knowledge, and toward interactivity and
connectivity and ongoing relationships. The orientation has shifted for the producer to the
consumer’.102
By 2004 the AMA responded to the call for change with the introduction of a new definition of
marketing. As Gregory Gundlach argued in a special section of the AMA’s Journal of Public Policy
and Marketing the importance of a definition is the role it plays in defining the scope and content
of the field, fixing its boundaries and describing its subject matter.103 As the leading marketing
body in the marketing world, the AMA plays an immensely important role in providing scholars and
practitioners with a clear understanding of the term ‘marketing’.
The following definition was unveiled at the AMA’s Summer Conference in Boston in August
2004:
Marketing is an organisational function and a set of processes for creating,
communicating and delivering value to customers and for managing customer
relationships in ways that benefit the organisation and its stakeholders.104
As can be seen exchange was missing from the new definition and in its place a new emphasis
on value creation. The publication of this definition created considerable debate in the marketing
world and critics lined up bemoaning the deletion of the long held belief in exchange theory.
Others argued that the definition was too marketing management or department focused, that
there was little regard for societal issues and that customer relationship was inappropriately
elevated in importance. In response to the debate that was generated a modified definition was
introduced just four years later, in 2008:
Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers,
clients, partners and society at large.105
This new definition restored the exchange concept (to capture the historical focus of marketing
albeit acknowledging that it is no longer a central focus), deleted the reference to customer
relationships and added ‘society at large’ to acknowledge the importance of societal issues.106
While the debate about the definition of marketing is ongoing, the most important conclusion,
which can be reached from both the 2004 and 2008 versions, is the recognition of the importance
of the customer value paradigm. In recognising the shift away from the satisfaction of customer
needs to the creation of customer value it is argued here that the concept of the marketing mix
should be replaced with a concept to be labelled the customer value creation mix. This new concept
extends the activities traditionally covered by the 4Ps and 7Ps version of the marketing mix by
incorporating all of the activities conducted throughout the organisation, and its value chain
partners that are concerned with creating, communicating and delivering value for the
organisation’s targeted customers.
SUMMARY AND CONCLUSION

While marketing activities such as promotion the development of new business models that
and distribution can be traced back to ancient have transformed the structural landscape of
times, the development of contemporary many industries.
marketing thought is a relatively recent Since the early 2000s, there has been a
phenomenon. Marketing evolved as an major paradigm shift away from the exchange/
academic discipline in the late 1890s, a time of customer satisfaction/marketing mix paradigm
great economic and social change brought to a customer value-based philosophy that
about by the Industrial Revolution. focuses on the creation, communication and
Mass production, mass consumption and delivery of value for the organisation’s targeted
mass advertising was starting to gather customers. In this new paradigm the concept of
momentum. At the heart of marketing theory in the marketing mix is replaced with the
the early 1900s was the notion of exchange broadened concept of the customer value
theory and the need to satisfy consumer wants creation mix that incorporates all activities along
and needs. Marketing academics in these the value chain that are involved in the creation,
formative years were mainly concerned to communication and delivery of customer value.
define the activities or functions of marketing The challenge for organisations is to develop
such as the role of middlemen, market strategies, processes and systems that will
distribution, sales and advertising. create and maintain value for their customers
In the 1950s this underpinning theory was and other stakeholders in what has become a
embellished and branded ‘the marketing rapidly changing market environment.
concept’. This was the start of a new era in Organisations will need to:
marketing that has been categorised the • develop a marketing oriented organisational
marketing management school of thought, culture – a customer value-based focus
which prevailed until the 1980s. The early • break down traditional organisational silos
pioneers were almost evangelical in their and develop cross-functionality such as by
approach to promote the importance of forming a Marketing Council comprising
marketing, and for managers to be customer key personnel in functions throughout the
focused rather production or sales focused. organisation for the purpose of developing
This was also a prominent time for the ways of serving the organisation’s customers
introduction of models of buyer behaviour and more effectively
the introduction in a marketing context of • develop a deep understanding of customer
concepts developed in the fields of psychology, expectations – a process of continuous
sociology and other social science disciplines. learning about customers
During the 1980s, strategic planning • embrace the digital age and develop new
evolved as both a business and academic ways of engaging with the organisation’s
discipline and as a consequence marketing customers and potential customers
organisations became increasingly relegated to • become data driven – the use of big data and
having a functional or departmental status business analytics to guide decision making
rather than being a driver of organisational is poised to become a key strategic tool for
strategy. However, by the early 1990s, it was organisations to gain a competitive advantage
becoming clear that the industrial age was • develop a commitment to innovation
giving way to a new era that at first was labelled including the development of new products,
the information age and later the digital age. improvement of existing products and the
The impact of digital technology cannot be development of processes and systems for
overstated. It has driven economic, societal and creating, communicating and delivering
political change and has provided the means for customer value.
DISCUSSION QUESTIONS
1 What is the difference between the 4 In many fast-growing industries, small start-
marketing concept of the 1960s and the up companies often succeed despite being
contemporary concept? more production-oriented than market-
2 Managers at General Electric coined the driven. Does this mean the marketing
phrase: ‘Marketing is too important to be left concept is more applicable to large firms
to marketing people’. What did they mean than small businesses?
by this statement? Do you agree with it? 5 What are the personal skills or traits
3 What role should line managers, who are required to be an effective marketer?
not marketing managers, play in the
marketing strategy and planning processes?
ETHICAL ISSUE
Is marketing a force for good or for evil? Discuss.
STRATEGIC MARKETING PROJECT

Learning by doing is one of the most effective from business media, case studies, academic
ways to master new concepts and to develop journals, industry and company reports such as
new skills. It is one thing to read about the published by IBISWORLD, stockbroking and
processes involved in developing a strategic other financial institutions. In some cases the
marketing recommendation or strategic company you have selected may also be willing
marketing plan but another thing to actually to provide some additional information.
prepare such a recommendation or plan. It is However, in the past students have developed
therefore common practice for instructors to some very well-prepared strategic marketing
include in their course design such an action- plans based entirely on public domain
learning project for teams of students to information. The information that you will need
complete over an extended period of time. to obtain is discussed in detail in Chapter 3
In most cases the project would need to be which addresses the requirements for the first
based on a simulated real world situation where stage of the strategic marketing management
a student would develop a strategic marketing process: strategic analysis.
plan or paper for a selected company. The The second factor to consider is the
student team would role-play being a strategic strategic scope of the project. As a general rule
marketing team that is required to develop a it is more productive for you to choose a
strategic marketing plan or paper for the company, or more specifically a product line of
company. That is, the student team will the company, facing intense competition and/or
assume the role of either a company based a major marketing challenge such as a
strategic marketing team or of a marketing declining market, a dramatic loss of market
consultant. share, impending product obsolescence or
There are two key factors for students to changing consumer buying behaviour. A
consider for choosing a company. The first is product line rather than a single product
access to public domain information. A search provides scope for you to consider options such
of the Web will reveal in a very short time the as extending the product line, brand leveraging,
amount of useful information that can sourced entering new markets or developing a new
product either for an existing or new market for Once the company has been selected and
the company. the format of the strategic marketing document
After selecting a company, the next stage is has been decided (and in most cases approved
to come to a decision concerning the format of by your instructor) you are then ready to
the strategic marketing plan or document. In commence work on the project. Strategic
Chapter 2 you will find, under the heading ‘The Marketing has been designed to take you
strategic marketing management process – a progressively through each stage of the process.
framework’, a brief discussion about the You will find further information about the
different ways that marketing strategies are requirements for each stage in the strategic
developed and different types of formats for marketing project section at the end of each
preparing strategy recommendations. The chapter.
format alternatives are discussed in much
further detail in Chapter 12: Writing the
strategic marketing report.
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ENDNOTES
1 McKinsey & Company: Tom French, Laura LaBerge, and vol. 54, January 1990, p. 111; S.L. Vargo and R.F. Lusch,
Paul Magill, ‘Five ‘‘no regrets’’ moves for superior ‘Evolving to a new dominant logic for marketing’, Journal of
customer engagement’, McKinsey Quarterly, Marketing, vol. 68, 2004, pp. 1–2; and E.H. Shaw and
www.mckinsey.com/insights/mckinsey_quarterly, July D.G.B. Jones, ‘A history of marketing thought’, Marketing
2012. Theory, vol. 5, no. 3, 2005, pp. 239–81.
2 M. Chui and T. Fleming, ‘Inside P&G’s digital revolution’, 4 A. Smith, An Inquiry into the Nature and Causes of the
McKinsey Quarterly, November 2011. See also, M. Bloch Wealth of Nations, Strahan and Cadell, London, 1776.
and E.C. Lempres, ‘From internal service provider to
strategic partner: An interview with the head of 5 A. Smith, An Inquiry into the Nature and Causes of the
Global Business Services at P&G’, McKinsey Wealth of Nations, University of Chicago Press, Chicago,
Quarterly, July 2008. Ill., 1976, p. 18.
3 Several publications have categorised the evolution of 6 B. Malinowski, Argonauts of the Western Pacific,
various schools of marketing thought. The most prominent Routledge and Kegan Paul, London, 1922.
are (in chronological order): J.N. Sheth, D.M. Gardner 7 M. Mauss, The Gift, The Free Press, Glencoe, 1954.
and D.E. Garrett, Marketing Theory: Evolution and
evaluation, John Wiley & Sons, New York, 1988; D.G.B. 8 P. Blau, ‘Interaction IV: Social exchange’, in D.L. Sillon
Jones and D.D. Monieson, ‘Early development of the (ed.), International Encyclopedia of the Social Sciences,
philosophy of marketing thought’, Journal of Marketing, Macmillan Free Press, New York, 1968.
9 R.A. Wallace and A. Wolf, Contemporary Sociological 28 T. Levitt, ‘Marketing myopia’, Harvard Business Review,
Theory, Prentice-Hall, Englewood Cliffs, NJ, 1991. July–August 1960, pp. 45–56.
10 H.R. Tosdal, ‘Some recent changes in the marketing of 29 Levitt, ‘Marketing myopia’, p. 41.
consumer goods’, Harvard Business Review, vol. XI, no. 2,
January 1933, p. 157. 30 R.J. Keith, ‘The marketing revolution’, Journal of
Marketing, vol. 24, January 1960, pp. 35–8.
11 Refer to Jones and Monieson, ‘Early development of the
philosophy of marketing thought’, p. 111. The authors cite 31 Keith, ‘The marketing revolution’, pp. 35–8.
a course description in a University of Berlin 1912–13 32 Marion, ‘The marketing management discourse: What’s
catalogue that includes reference to the availability of new since the 1960s?’, pp. 143–68.
marketing subjects.
33 Fullerton, ‘How modern is marketing?’.
12 Jones and Monieson, ‘Early development of the
philosophy of marketing thought’, p. 110. 34 E.J. McCarthy and W.D. Perreault Jr, Basic Marketing,
Irwin, Homewood, Ill., 1960.
13 Shaw and Jones, ‘A history of marketing thought’,
pp. 239–81. 35 P. Kotler, Marketing Management: Analysis, planning,
implementation and control, Prentice-Hall, Englewood
14 In 1912 Arch Shaw identified five functions of Cliffs, NJ, 1967.
‘middlemen’. Refer to A.W. Shaw, ‘Some problems in
market distribution’, Quarterly Journal of Economics, 36 P. Kotler, ‘A generic concept of marketing’, Journal of
vol. 26, 1912, pp. 706–65. Marketing, April 1972, p. 49.
15 M.T. Copeland, Principles of Merchandising, A.W. Shaw, 37 E. Kelly and W. Lazer (eds), Managerial Marketing:
Chicago, Ill., 1924. Perspectives and Viewpoints, Richard D. Irwin,
Homewood, Ill., 1958, pp. 9–10.
16 F. Clark, Principles of Marketing, Macmillan, New York,
1922. 38 Shaw and Jones, ‘A history of marketing thought’,
Marketing Theory, vol. 5, no. 3, 2005, pp. 239–81.
17 N. McKendrick, J. Brewer and J.H. Plumb, The Birth of a
Consumer Society, Indiana University Press, Bloomington, 39 Refer to J.F. Rayport and J.J. Sviokla, ‘Managing in
1982. marketspace’, Harvard Business Review, vol. 72, no. 6,
1994, pp. 141–50.
18 R.A. Fullerton, ‘How modern is marketing?’, Journal of
Marketing, vol. 52, January 1988, p. 112. 40 R.T. Watson, P. Berthon, L.F. Pitt and G.M. Zinkhan,
‘Marketing in the age of the network: From marketplace
19 The main source of information cited in this section is to U-space’, Business Horizons, vol. 47, no. 6, 2004, p. 36.
Fullerton’s excellent article. Refer to Fullerton, ‘How
modern is marketing?’, pp. 108–25. 41 Refer to C.X. Escall and M.J. Cotteleer, ‘Enterprise
Resource Planning (ERP)’, Technology Note, Harvard
20 As stated by G. Marion, ‘The marketing management Business School Publication, 9-699-020, 11 February
discourse: What’s new since the 1960s?’, in M.J. Baker 1999.
(ed.), Perspectives on Marketing Management, vol. 3, John
Wiley & Sons, 1993, footnote 1, p. 149. 42 T.J. Peters and R.H. Waterman Jr, In Search of
Excellence, Harper & Row, New York, 1982.
21 Fullerton, ‘How modern is marketing?’, p. 114.
43 T. Peters, Thriving on Chaos, Pan Books, London, 1989,
22 P. Drucker, The Practice of Management, Harper & Row, p. 184.
New York, 1954, p. 53.
44 B.T. Gale, Managing Customer Value, Free Press, New
23 Drucker, The Practice of Management, p. 53. York, 1994, pp. 77–8.
24 General Electric Company, Annual Report, New York, 45 Cited in F.F. Reichheld, ‘Loyalty-based management’,
1952, p. 21. Harvard Business Review,1993, vol. 71, no. 2, pp. 64–73.
25 Excerpt from pp. 52–4 of The Practice of Management by 46 W.J. Feuss, ‘Customer value and competitive position’,
Peter F. Drucker. Copyright by Peter F. Drucker. Current Issues in Technology Management, Howe School
Copyright renewed ª 1982 by Peter F. Drucker. Preface of Business, vol. 13, no. 1, 2009; R.E. Kordupleski and
copyright ª 1986 by Peter F. Drucker. Reprinted by W.C. Vogel, ‘The right choice – what does it mean?’,
permission of HarperCollins Publishers. AT&T White Paper, 24 October 1988.
26 J.B. McKitterick, ‘What is the marketing management 47 L.G. Shostack, ‘Breaking free from product marketing’,
concept?’, in F.M. Bass (ed.), The Frontiers of Marketing Journal of Marketing, vol. 41, 1977, pp. 73–80.
Thought and Science, American Marketing Association,
1957, pp. 71–82. 48 Examples of articles of this nature can be found in the
following: C. Grönroos, ‘A service-oriented approach to
27 McKitterick, ‘What is the marketing management marketing of services’, European Journal of Marketing,
concept?’, p. 78. vol. 12, no. 8, 1978, p. 588–601; V.A. Zeithmal, A.
Parasuraman and L. Berry, ‘Problems and strategies in 60 R. Deshpandé and F.E. Webster Jr, ‘Organizational
services marketing’, Journal of Marketing, vol. 49, 1985, culture and marketing: Defining the research agenda’,
pp. 33–46; M.R. Solomon, C. Surpreant, J.A. Czepiel and Harvard Business Review, vol. 53, 1989, pp. 3–15.
E.G. Gutman, ‘A role theory perspective on dynamic
interactions: The service encounter’, Journal of Marketing, 61 S.D. Hunt and R.M. Morgan, ‘The comparative advantage
vol. 49, 1985, pp. 99–111. theory of competition’, Journal of Marketing, vol. 59, 1995,
pp. 1–15.
49 The following article provides a good overview of the
development of service marketing concepts from a Nordic 62 Refer M. Hammer, ‘Reengineering work: Don’t automate,
School perspective: C. Grönroos, ‘Adopting a service logic obliterate’, Harvard Business Review, July–August 1990,
for marketing’, Marketing Theory, vol. 6, no. 3, 2006, pp. 104–12. This was Hammer’s original article where the
pp. 317–33. term ‘business process re-engineering – BPR’ was coined.
The concept, however, was more widely publicised with
50 See, for example, C. Grönroos, ‘A service-oriented the publication of a book that became a landmark
approach to marketing of services’, European Journal of reference in this newly developing field: refer to M.
Marketing, vol. 12, no. 8, 1978, pp. 588–601; and E. Hammer and J. Champy, Reengineering the Corporation:
Gummesson, ‘The marketing of professional services: An A manifesto for business transformation, Nicholas Brealey
organisational dilemma’, European Journal of Marketing, Publishing, London, 1993.
vol. 13, no. 5, 1979, pp. 308–18.
63 P. Selznick, Leadership in Administration: A sociological
51 S.L. Vargo and R.F. Lusch, ‘Evolving to a new dominant interpretation, Row, Peterson, Evanston, Ill., 1957.
logic for marketing’, Journal of Marketing, vol. 68, no. 1,
2004, p. 2. 64 A.D. Chandler Jr, Strategy and Structure: Chapters in the
history of the industrial enterprise, MIT Press, Cambridge,
52 An excellent discussion of these changes can be found in Mass., 1962.
F.E. Webster, ‘The changing role of marketing in the
corporation’, Journal of Marketing, vol. 56, October 1992, 65 H.I. Ansoff, Corporate Strategy, McGraw-Hill, New York,
pp. 1–17. 1965.
53 See, for example, L.L. Berry, ‘Relationship marketing’, in 66 This is a six-part process advocated by D.E. Schendel and
L.L. Berry, G.L. Shostack and G.D. Upah, G. (eds), C.W. Hofer (eds), Strategic Management: A new view of
Emerging Perspectives of Services Marketing, American business policy and planning, Little Brown and Company,
Marketing Association, Chicago, Ill., 1983, pp. 25–8. Boston, 1979.
54 C. Grönroos, ‘From marketing mix to relationship 67 Refer M.E. Porter, ‘How competitive forces shape
marketing: Towards a paradigm shift in marketing’, industry’, Harvard Business Review, vol. 57, March–April
Management Decision, vol. 32, no. 2, 1994, p. 11. 1979, pp. 137–45; M.E. Porter, Competitive Strategy:
Techniques for analyzing industries and competitors, The
55 C. Grönroos, ‘From marketing mix to relationship Free Press, New York, 1980; and M.E. Porter,
marketing: Towards a paradigm shift in marketing’, p. 14. Competitive Advantage: Creating and sustaining superior
performance, The Free Press, New York, 1985.
56 For further information concerning customer relationship
marketing refer to D. Peppers, M. Rogers and B. Dorf, ‘Is 68 P. Kotler and R. Singh, ‘Marketing warfare in the 1980s’,
your company ready for one-to-one marketing?’, Harvard The Journal of Business Strategy, Winter 1982.
Business Review, January–February 1999, pp. 151–60; and
Professional Marketing, August–September 1999, p. 1 69 A. Ries and J. Trout, Marketing Warfare, McGraw-Hill,
(editorial) and pp. 10–14. New York, 1986.
57 The concept of mass customisation was anticipated in 70 H.R. Bowen, Social Responsibilities of the Businessman,
1970 by Alvin Toffler in Future Shock, but defined and Harper & Row, New York, 1953.
named by Stan Davis in Future Perfect. A good reference 71 The following article provides an excellent overview of the
is B.J. Pine, Mass Customization: The new frontier in evolution of the definitions of corporate social
business competition, Harvard Business School Press, responsibility: A.B. Carroll, ‘Corporate social
Cambridge, Mass., 1993 (hardback) and 1999 responsibility’, Business & Society, vol. 38, no. 3, 1999,
(paperback). pp. 268–95.
58 F.E. Webster, ‘The changing role of marketing in the 72 R.E. Freeman, Strategic Management: A stakeholder
corporation’, Journal of Marketing, vol. 56, October 1992, approach, Pitman Publishing Inc., Marshfield, 1984,
pp. 1–17. p. 46.
59 Refer W. Ouchi, Theory Z: How American Business Can 73 For further information about stakeholder marketing see
Meet the Japanese Challenge, Addison-Wesley, Reading, G.T.M. Hult, J.A. Mena, O.C. Ferrell and L. Ferrell,
1981; Peters and Waterman, In Search of Excellence; and ‘Stakeholder marketing: A definition and conceptual
T.E. Deal and A.A. Kennedy, Corporate Cultures: The rites framework’, Journal of the Academy of Marketing Science,
and rituals of corporate life, Addison-Wesley, Reading, 19 May 2011, pp. 44–65. This article provides an
1982. excellent discussion of the development of stakeholder
theory and the implications it has had for marketing. It marketing concept in perspective’, Business Horizons,
includes an extensive review of the marketing literature May–June 1988, pp. 40–5.
concerning stakeholder theory and a conceptual
framework of the processes involved. 86 Refer to F.E. Webster Jr, ‘Defining the new marketing
concept: Forget about being market-driven! The future
74 M.R. Kramer and M.E. Porter, ‘Creating shared value: belongs to companies that are customer-value driven’, an
How to reinvent capitalism – and unleash a wave of article adapted from his book: F.E. Webster Jr, Market-
innovation and growth’, Harvard Business Review, Driven Management: Using the new marketing concept to
January–February 2011, pp. 62–77. create a customer-oriented company, John Wiley & Sons,
New York, 1994. Refer also to G.S. Day, ‘The capabilities
75 An excellent review of the development of the concept of of market-driven organizations’, Journal of Marketing, vol.
brand equity can be found in D.A. Aaker, Managing Brand 58, October 1994, pp. 37–52.
Equity: Capitalizing on the value of a brand name, The
Free Press, New York, 1991. 87 A.K. Kohli and B.J. Jaworski, ‘Market orientation: The
construct, research propositions, and managerial
76 L.M. Lodish and C.F. Mela, ‘If brands are built over implications’, Journal of Marketing, vol. 54, April 1990,
years, why are they managed over quarters?’, Harvard pp. 1–18.
Business Review, July–August 2007, pp. 104–12.
88 J.C. Narver and S.F. Slater, ‘The effect of a market
77 F.F. Reichheld and W.E. Sasser Jr, ‘Zero defections: orientation on business profitability’, Journal of Marketing,
Quality comes to services’, Harvard Business Review, vol. 54, October 1990, pp. 20–35.
September–October 1990, pp. 105–11.
89 For further information refer to J. Darroch, M.P. Miles,
78 See, for example, the following articles: F.F. Reichheld A. Jardine and E.F. Cooke, ‘The 2004 AMA definition of
and D.W. Kenny, ‘The hidden advantages of customer marketing and its relationship to a market orientation:
retention’, Journal of Retail Banking, vol. 12, no. 4, 1990; An extension of Cooke, Rayburn and Abercombie (1992)’,
P. Dawkins and F.F. Reichheld, ‘Customer retention as a Journal of Marketing Theory, vol. 12, no. 4, 2004,
competitive retention’, Directors and Boards, vol. 14, 1990, pp. 29–38.
pp. 42–7; and F.F. Reichheld, ‘Loyalty based
management’, Harvard Business Review, March–April 90 P. Kotler, Principles of Marketing, Prentice-Hall,
1996, pp. 64–73. Englewood Cliffs, NJ, 1980, p. 16.
79 The term ‘customer lifetime value’ was first introduced 91 R. Deshpandé, J.U. Farley and F.E. Webster Jr,
by Shaw and Stone in the field of direct marketing. See: ‘Corporate culture, customer orientation, and
R. Shaw and M. Stone, Database Marketing, Gower, innovativeness in Japanese firms: A quadrad analysis’,
London, 1988. Journal of Marketing, vol. 57, 1993, p. 27.
80 R.C. Blattberg and J. Deighton, ‘The customer equity 92 B. Jaworski, A.K. Kohli and A. Sahay, ‘Market-driven
test’, Harvard Business Review, July–August 1996, versus driving markets’, Journal of the Academy of
pp. 136–44. Marketing Science, vol. 28, no. 1, 2000, pp. 46–7.
81 Blattberg and Deighton, ‘The customer equity test’, p. 137. 93 Jaworski, Kohli and Sahay, ‘Market-driven versus driving
markets’, p. 45.
82 R.T. Rust, K.N. Lemon and V.A. Zeithaml, ‘Return on
marketing: Using customer equity to focus marketing 94 Based on an article by Shoshana Zuboff. See Z. Zuboff,
strategy’, Journal of Marketing, vol. 68, 2004, p. 110. ‘Creating value in the age of distributed capitalism’, The
McKinsey Quarterly, September 2010.
83 Rust, Lemon and Zeithaml, ‘Return on marketing: Using
customer equity to focus marketing strategy’, p. 137. 95 F.E. Webster (Jr.), ‘The changing role of marketing in the
corporation’, Harvard Business Review, October 1992, p. 1.
84 For further information refer to the following articles: See also the following articles relating to the declining
‘When art meets science: The challenge of ROI influence of marketing: G.S. Day, ‘Marketing’s contribution
marketing’, strategy þ business, www.strategy- to the strategy dialogue’, Journal of the Academy of
business.com, 2002, pp. 1–6; J. Bussman, G. Harter and Marketing Science, vol. 20, 1992, pp. 323–9; R.A. Kerin,
E. Hirsh, ‘Results-driven marketing: A guide to growth ‘Marketing’s contribution to the strategy dialogue revisited’,
and profits’, strategy þ business enews, Booz Allen Journal of the Academy of Marketing Science, vol. 20, 1992,
Hamilton, 2006, pp. 1–7. pp. 331–4; and P.R. Varadarajan, ‘Marketing’s contribution
85 Prominent 1988 articles are: B.P. Shapiro, ‘What the hell to the strategy dialogue: The view from a different looking
is market oriented?’, Harvard Business Review, November– glass’, Journal of the Academy of Marketing Science, vol. 20,
December 1988, pp. 119–25; and F.E. Webster Jr, ‘The 1992, pp. 335–44.
rediscovery of the marketing concept’, Business Horizons, 96 R.B. Woodruff, ‘Customer value: The next source of
May–June 1988, pp. 29–39. Refer also to articles such as competitive advantage’, Journal of the Academy of Marketing
F.S. Houston, ‘The marketing concept: What it is and Science, vol. 25, no. 2, 1997, p. 139. With kind permission
what it is not’, Journal of Marketing, vol. 50, April 1986, from Springer ScienceþBusiness Media, ª 1997 by
pp. 81–7; and L.W. McGee and R.L. Spiro, ‘The Springer, Part of Springer ScienceþBusiness Media.
97 S.F. Slater, ‘Developing a customer value-based theory of 103 Refer to G.T. Gundlach, ‘The American Association’s
the firm’, Journal of the Academy of Marketing Science, 2004 definition of marketing: Perspectives on its
vol. 25, no. 2, 1997, p. 166. implications for scholarship and the role and responsibility
of marketing in society’, Journal of Public Policy and
98 The theory had its roots in the early 1990s in a paper Marketing, vol. 26, no. 2, 2007, pp. 243–50.
written by Normann and Ramirez in the Harvard
Business Review in 1993. Normann and Ramirez argued 104 As reported by L. Keefe, ‘What is the meaning of
that successful companies do not focus on themselves ‘‘marketing’’?’, Marketing News, 15 September 2004,
but on what the authors termed a ‘value-creating system’. pp. 17–18.
Refer to R. Normann and R. Ramirez, ‘From value
chain to value constellation: Designing interactive 105 The Board of Directors of the American Marketing
strategy’, Harvard Business Review, July–August 1993, Association approved this definition in October 2007.
pp. 65–77. Refer to www.marketingpower.com/AboutAMA/Pages/
DefinitionofMarketing.aspx; press release issued by the
99 C.K. Prahalad and V. Ramaswamy, ‘Co-opting customer American Marketing Association, 14 January 2008.
competence’, Harvard Business Review, January–February
2000, p. 80. Copyright ª 2000 by Harvard Business 106 Further information concerning the AMA’s definitions of
Publishing. Used by permission. marketing can be found in the following articles: G.T.
Gundlach and W.L. Wilkie, ‘The American Marketing
100 C.K. Prahalad and V. Ramaswamy, The Future of Association’s new definition of marketing: Perspectives
Competition, Harvard Business Review Press, Watertown, and commentary on the 2007 definition’, Journal of Public
Mass., 2004. Policy and Marketing, vol. 28, no. 2, 2009, pp. 259–64;
J.N. Sheth and C. Uslay, ‘Implications of the revised
101 See C.K. Prahalad and V. Ramaswamy, ‘Co-creation definition of marketing: From exchange to value creation’,
experiences: The next practice in value creation’, Journal of Public Policy and Marketing, vol. 26, no. 2,
Journal of Interactive Marketing, vol. 18, no. 3, 2004, 2007, pp. 303–7; W.L. Wilkie and E.S. Moore, ‘What
pp. 5–14. does the definition of marketing tell us about ourselves?’,
102 S.L. Vargo and R.F. Lusch, ‘Evolving to a new dominant Journal of Public Policy and Marketing, vol. 26, no. 2,
logic for marketing’, Journal of Marketing, vol. 68, no. 1, 2007, pp. 269–76.
2004, p. 2.
CHAPTER
2
STRATEGIC THINKING AND
STRATEGIC DECISION MAKING
Strategic thinking … is about synthesis. It involves intuition and creativity.
Henry Mintzberg1
Bruce Henderson, Clayton Christensen, Tom research and consulting services for the
Peters and Kennichi Ohmae are four of the most American chemical industry. In just a few years
influential thought leaders in the field of he found that client demand for his expertise
management and strategy. They all have one extended beyond technical analysis to providing
thing in common. They were members of one of research services designed to help managers
the two top management consulting firms in the solve their business problems. Booz, a graduate in
world: Henderson and Christensen of the Boston economics and psychology from Northwestern
Consulting Group (BCG) and Peters and University’s Kellogg School of Management,
Ohmae of McKinsey & Company. By having began his consulting career as an analyst. His
access to confidential client information across a first venture, The Business Research Service, was
large variety of industries, management founded in 1914 but was interrupted when he was
consulting firms occupy a privileged and central drafted into the army in 1917 to work in
position in the ‘management knowledge personnel systems. He rose to the rank of major,
industry’.2 They have been at the forefront of helping the army to reorganise its business
developing many of the major concepts, tools methods. In 1919 he returned to the business
and techniques that have advanced the theory world and established the company Edwin G.
and practices of management over the last Booz Business Engineering Service, providing
100 years. business surveys and recommendations for a
Arthur D. Little and Edwin G. Booz are variety of clients. He expanded the work of his
generally acknowledged to be the pioneers of the company to provide executive recruitment
management consulting industry. In 1909 Little, services.
a chemical engineer, founded, Arthur D. Little During the 1920s both firms grew rapidly
Inc., with the objective of providing technical and in 1925 a new competitor entered the scene
Chapter 2 Strategic thinking and strategic decision making 35
when James O. McKinsey, a professor of The 1950s and 1960s were a period of
accounting at the University of Chicago, founded expansion for the industry and several of the
McKinsey & Company. McKinsey’s objective was larger firms started to open offices in Europe
to provide finance and budgeting consulting and other parts of the world. In 1963 another
services for his clients, but he was frequently notable new player entered the market when
called on to provide advice on management and Bruce Henderson, the head of Arthur D. Little
organisational issues. During the next decade the Inc., was headhunted by the Boston Safe
fledgling management consulting industry grew Deposit and Trust Company to start up a new
rapidly largely because of legislation introduced management consulting company, the Boston
in 1933 that changed the dynamics of the Consulting Group (BCG). In common with the
banking and finance industry. In that year the view held by Marvin Bower, Bruce Henderson
Glass-Steagall Banking Act was enacted, which emphasised the importance of recruiting
prohibited banks from engaging in consulting and graduates from the top business schools. Due to
reorganisational work. At about the same time Henderson’s efforts, the BCG very quickly
the US Securities and Exchange Commission established a very strong reputation for
(SEC) took action to prevent accountants, excellence to become a major challenger to
lawyers and engineers from acting as consultants. McKinseys at the top end of the market. In
As a result, several new management consulting 1966 Henderson developed the concept of the
firms entered the market, while established firms experience curve (based on the notion that unit
expanded rapidly. costs of production decrease over time) and, in
McKinsey’s policy during this time of rapid 1968, the famous BCG Product Portfolio
expansion was to hire experienced business Model. Not to be outdone, in 1971, McKinsey
managers aged in their mid forties for his firm. developed an alternative portfolio model,
He also hired a number of academics, with one a nine-box matrix that was to become known as
of the early appointments being Andrew Thomas the McKinsey GE Multifactor Portfolio Model.
Kearney, a former associate professor of This was followed in 1980 with the introduction
marketing at Pennsylvania State University. of the 7-S framework of organisation
Kearney was appointed to the position of partner effectiveness developed by Bob Waterman, Tom
and head of the firm’s Chicago office. In 1937 Peters and Julien Phillips.
James McKinsey died unexpectedly and in 1939 McKinsey and BCG both devoted
the company split. Kearney formed his own considerable time and resources to the
company A.T. Kearney & Associates, operating dissemination of knowledge. In 1964 McKinsey
out of the Chicago office, while another partner, launched the McKinsey Quarterly, while BCG
Marvin Bower, continued the operations of started to mail a series of essays that were the
McKinsey in New York. Bower had a different forerunner of the publication Perspectives. Staff
philosophy to his predecessor and introduced of both companies had numerous articles
what was then a radical new approach for the published in business magazines such as the
hiring of staff, by recruiting recent graduates Harvard Business Review. In the 1980s McKinsey
from America’s top business schools. He argued consultants turned their hands to book writing. In
that consulting was a ‘thinking activity’ and that 1982, Peters and Waterman’s In Search of
therefore education smarts were more important Excellence was a runaway success, occupying the
than just street smarts. Under Bower’s leadership top spot in the New York Times bestseller list for
McKinsey rose to become the most respected more than two years. In the same year Kennichi
and well-known management consulting firm in Ohmae’s The Mind of the Strategist was also
the USA. highly acclaimed, as, later in the decade, were
Richard Foster’s 1986 book Innovation, and legally separated from their parent companies.
Ohmae’s 1987 book Beyond National Borders. PricewaterhouseCoopers decided to quit the
During the 1980s, the management management consulting industry in 2002,
consulting industry grew rapidly, driven by a selling its consulting arm off to IBM Global
demand by companies to help develop and Business Services. The Enron disaster also
implement their national and global strategies. marked a time when the management consulting
The demand continued in the 1990s driven by industry came under increasing public attack.
the need for information technology consulting. Management consultants’ brought about
In 1992 IBM seized on this opportunity and numerous job losses due to their lack of
established the IBM Consulting Group, later accountability and tendency to recommend
rebranded IBM Global Business Services. The downsizing strategies. Even more damaging was
Big Eight (now the Big Four) accounting firms a growing discontent about the close personal
also developed management consulting offshoots relationships that existed between management
during this decade. However, in the wake of the consultants and business leaders and politicians.3
Enron and other corporate and accounting This was highlighted in 2011 when two high-
scandals in the late 1990s and the subsequent profile former employees of McKinsey, Anil
enactment of the Sarbanes–Oxley Act in 2002 Kumar and Rajat Gupta, were found guilty of
the consulting divisions were required to be insider trading.4

Strategic planning is arguably one of the most controversial and misunderstood management
concepts of all. Strategic planning was introduced in the 1960s and during the 1970s it became a
‘must have’ business process for most leading US business organisations. However, during the
1980s, strategic planning fell out of favour. The period of post-Second World War growth and
American industrial dominance had come to an end and the much-vaunted American management
style was being blamed for the country’s economic downfall. With the advantage of hindsight it can
be observed that the American style of management from the 1950s to the 1970s was primarily
based on the military model of ‘command and control’. Strategic planning was largely a top-down
process whereby the job for senior managers was to set a number of objectives for the organisation
to achieve and to formulate strategies for the next layers of management to implement.
The development of the concept and practice of strategic planning during the 1960s and 1970s
coincided with the growing popularity of the marketing concept (as was discussed in Chapter 1).
As a consequence, during the 1960s, the process of marketing became elevated in importance as
more and more organisations attempted to become ‘customer oriented’. However, marketing’s
moment of glory proved to be shortlived as testified by two pre-eminent marketing academics,
George Day and Robyn Wensley. In a 1983 article in the Journal of Marketing, Day and Wensley
observed:
In retrospect, the 1960s was the era of marketing’s greatest influence and promise,
when a marketing orientation was accepted as an essential element of profitable
progress in growing markets … During the 1970s the influence of marketing

noticeably waned, while strategic planning was in ascendance … Increasingly, the
marketing plan was restricted to a tactical support role at the brand level … (Hopkins
1981), and thereby lost its earlier strategic focus.5
During the 1980s marketing’s role was increasingly seen to be twofold: strategic (longer-term
and holistic decisions concerning the future direction for an organisation) and tactical (short-term,
such as quarterly or annual, decisions). In many organisations this meant that higher-level
marketing decisions such as product mix considerations, brand positioning, market segmentation
and targeting were made either by strategic planners or by a senior management team. Marketing
departments were required to provide specialist functional expertise in areas such as marketing
communication and market research. Marketing planning increasingly came to be seen to play a
tactical support role rather than being at the forefront of providing strategic direction for the
organisation.
Given that high-level marketing decision making and strategy development is no longer regarded
to be the exclusive domain of marketers, the objective of this chapter is to:
• provide you with an understanding of the role of marketing within the context of the broader
discipline of strategic planning or, as it is often referred to, strategic management
• provide you with a model of the strategic marketing management process. This model forms the
framework that underpins the structure of the remaining chapters of this book.
Strategy planning and strategic

management – an overview
The genesis of the concept and practice of strategic planning can be traced back to ancient times.
The term ‘strategy’ derives from the ancient Greek word strategos meaning the art of the general. In
this sense the term was used to describe the deployment of military forces by a commander. The
word had disappeared from usage until the eighteenth century, when it was revived by military
theoreticians such as the Prussian general Carl von Clausewitz (1780–1831). Clausewitz’s famous
book Vom Kriege (On War) became the bible of strategy and has significantly affected military
thinking since the time of its publication. He defined strategy as the employment of battles to gain
the end of war. Late in the nineteenth century, as society had grown to be more complex, the
concept of strategy was broadened to describe the management of national policy. Terms such as
‘grand strategy’ and ‘higher strategy’ were used in the early twentieth century to describe the art of
employing national resources for the achievement of national aims or objectives.
The term ‘plan’ originates from the Latin word planus meaning plane, referring to a level or flat
surface. It was adopted into the English language during the seventeenth century in reference to
maps, drafts, blueprints and drawings on flat surfaces.
However, while it can be seen that the terms ‘strategy’ and ‘planning’ were commonplace many
years ago, it was not until the late 1950s and early 1960s that strategic planning evolved as a business
process. During the Second World War planning became a highly developed field of endeavour, and
this expertise was transferred to business in America in the form of annual budgeting during the 1950s.
This form of planning provided a means for control whereby all facets of an organisation’s operations
were reduced to the level of a financial problem. The focus for these companies was on projected
earnings growth rate and other financial objectives. The next phase was the extension of annual
budgeting to long-range forecasting; five-year planning was popularised. Like budgeting, forecast-based
planning (also referred to as long-range planning) was essentially an extrapolation of past trends. Initially
these forecasts were internally focused, but by the 1960s advanced forecasting techniques such as
trend analysis and regression models were increasingly being used.
At about the same time managers were becoming increasingly aware of the impact of external forces
on organisational performance. In 1957 Philip Selznick, in a book that was to become the forerunner of
strategic planning, introduced the notion of distinctive competence and also the need for organisations
to match their internal states with external expectations. This concept was further popularised in the
early 1960s by Learned, Andrews and other academics associated with the Harvard Business School
with the introduction of the famous SWOT model (strengths, weaknesses, opportunities and threats),
which was to become a key platform in the evolution of strategic planning practices.
In the same period the word ‘strategy’ came into the vocabulary of business with the publication of
A.D. Chandler’s seminal book Strategy and Structure, in 1962. At that point in time various business
functions were conducted more or less independently from one another. Chandler argued that these
functions needed to be integrated and that organisations would need to adopt a long-term coordinated
strategy to provide structure, direction and focus. He captured this argument succinctly with three
words that have become one of the most quoted business mantras: ‘Structure follows strategy’.
Next came arguably the most significant early work of all – Igor Ansoff’s book Corporate Strategy
in 1965. This book became a bestseller and, very soon after its publication, strategy planning
became so popular that it was ‘a virtual religion’, observed Michael Porter several years later. As he
explained: ‘There was a general feeling that a new, important management discipline had been
created. Chief executives could say they practised strategic planning, corporate planners were in
demand, and strategic consultants thrived’.
Strategy planning became a centralised head office function in large conglomerate organisations
during this era, and implementation of the strategies devised by these ‘high priests of the business
world’ was typically left to managers of newly formed strategic business units (SBUs), a concept
that was developed during the late 1960s by McKinsey & Company in its work for General
Electric. The concept of the SBU built on the earlier divisional organisational structure that was
originally pioneered in 1921 by Alfred Sloan, the CEO of General Motors Corporation.6
B O X 2. 1
Strategic business unit defined
A strategic business unit was defined as a free- • to be able to manage resources in key areas
standing business within a larger organisation • to be large enough to justify senior
meeting the following criteria: management attention, but small enough
• to have a unique business mission to serve as a useful focus for resource
• to be independent of other SBUs allocation.7
• to have a clearly definable set of competitors In practice it was found that the designation of
who are competing in external markets a SBU was quite subjective and subsequently many
• to be able to carry out integrative planning organisations simply described their divisions or
processes relatively independently of other SBUs branches as SBUs.
Strategy planners in the 1960s and 1970s had a range of newly developed tools and techniques to
assist them in the formulation of their strategic recommendations. These included product life cycle
theory, product portfolio models (of which the BCG model developed in the 1960s and the GE/
McKinsey matrix developed in 1970 were the most popular), Ansoff’s product-market and strategic gap
analysis models and the PIMS study (which examined the link between profit and marketing strategies).
Peter Drucker’s concept of management-by-objectives (MBO) focused attention on the process of
setting objectives and monitoring the organisation’s performance from top to bottom.
The strategy planning models that evolved in these early years were highly prescriptive. Strategy
planning was considered to be a highly formalised process based on elaborate models and extensive
checklists and techniques. This approach was the dominant model throughout the 1970s but
questions were being raised about a number of premises underpinning the process of strategy
planning. Four problems with strategic planning were cited:
1 Rational processes of strategy formation. A starting point for what became a long-running
debate about how strategies are developed was Charles Lindblom’s often-cited article ‘The
science of muddling through’, published in 1959. Lindblom argued that rational/technical
approaches to organisational decision making were not possible and that, alternatively, strategic
decisions were made by ‘baby steps’ or by ‘muddling through’. He contended that, in most
circumstances, decisions were evolutionary rather than revolutionary. This issue was reignited
two decades later by James Brian Quinn in his 1978 journal article, ‘Strategic change: Logical
incrementalism’. Quinn argued that external or internal events, over which management had no
control, would often cause urgent piecemeal decisions to be made that would have major
impacts on the future direction of the organisation. He contended that:
The processes used to arrive at the total strategy are typically fragmented, evolutionary,
and largely intuitive … real strategy tends to evolve as internal decisions and external
events flow together to create a new, widely shared consensus for action among key
members of the top management team.8
The arguments put forward by Lindblom and Quinn were supported by a number of
longitudinal case studies and other research investigations during the 1970s and 1980s.9
2 The organisational structure. It was argued that strategy planning was structured as a
top-down planning process controlled by strategy planners who were often considered to have
the following characteristics: being arrogant and remote from the real work of running the
organisation’s business; lacking in business experience – particularly line-management
experience; lacking in industry-specific knowledge; being over-reliant on analytical techniques;
and lacking in creative skills.
It was also argued that centralised strategy planning emanating from a conglomerate head
office was too remote and detached from the day-to-day activities and realities of the various
businesses (SBUs) for which the plans were being developed. Line managers, who were given
the responsibility to implement strategic plans developed by strategic planners, had little if any
input into the strategy formation process. Accordingly, they often felt alienated or at least
without a sense of commitment to the strategic plans handed down to them. That is, strategy
planners were content to set a number of objectives and strategies for line managers to achieve
with little consideration given to the practicalities of implementation. Strategic plans invariably
lacked consideration of the aspects of implementation and performance evaluation.
3 Conceptual foundations. At the heart of strategic planning is a premise that the future is
predictable. Economic and market forecasts provide a foundation upon which strategies are
developed but as Mintzberg argues, ‘The evidence, in fact, points to the contrary. While certain
repetitive patterns, such as seasons, may be predictable, the forecasting of discontinuities, such
as technological innovation or a price increase, is virtually impossible’.10
This point was emphasised by Porter who pointed out that techniques used for strategic
planning such as the experience curve, product life cycle theory and portfolio planning were based
on oversimplified concepts of competition and quick-fix solutions.11 He also contended that
many of the important determinants for corporate success were often left out of considerations.
4 Creative thinking. A most damning criticism was that the process of strategic planning did not
promote strategic thinking. This was a major thrust of a highly publicised article, ‘The fall and
rise of strategic planning’ by Henry Mintzberg. He argued that ‘Strategic planning, as it has
been practiced, has really been strategic programming, the articulation of strategies, or visions,
that already exist’.12 That is, a distinction needs to be made between planning and strategic
thinking. He contended that planning is based on analysis, while strategic thinking is based on
synthesis. The grand fallacy of those who advocate a formal approach to strategic planning,
he argued, is that they fail to recognise the essential differences between the two processes.
As he stated:
Because analysis is not synthesis, strategic planning is not strategy formation [bold
emphasis as per original]. Analysis may precede and support synthesis, by defining
the parts that can be combined into wholes. Analysis may follow and elaborate
synthesis, by decomposing and formalizing its consequences. But analysis cannot
substitute for synthesis. No amount of elaboration will ever enable formal
procedures to forecast discontinuities, to inform managers who are detached from
their operations, to create novel strategies. Ultimately, the term ‘strategic planning’
has proved to be an oxymoron.13
Given the above criticisms it was no wonder that strategy planning fell out of fashion. In 1983
General Electric, a pioneer in establishing the strategic planning discipline, dismantled its highly
acclaimed planning department. However, in retrospect the 1980s was, in many ways, a tipping
point for the practice of strategic planning. A number of events were unfolding that would
eventually lead to a resurgence of interest in the discipline.
From doom and gloom to renewal

The 1970s was a decade of economic downturn for the Western world. The decade began with
rising rates of inflation, and in January 1973 one of the worst stock market crashes in modern
history followed by an oil crisis in October of that year (during which oil prices were tripled)
triggered a global recession that lasted until 1975. At the same time US post-Second World War
economic dominance was coming to an end. US productivity growth had declined both absolutely
and in comparison to European and Japanese growth, and American business confidence had been
shattered in the wake of Japanese car and consumer electronics companies usurping their US rivals
on a worldwide scale. The US car manufacturers simply could not match the more fuel efficient,
cheaper and better quality Japanese cars. As a consequence Japanese cars had gained over a third
of the US domestic market. In the consumer electronics industry the Japanese market supremacy
had a devastating effect to such an extent that of 25 US manufacturers of colour televisions only
three would survive into the 1980s. The Japanese international success came from continually
pushing miniaturisation and driving down manufacturing costs through innovations in the
manufacturing process.
Not surprisingly, the double whammy of a global economic slowdown and a rapid loss of
international competitiveness in the 1970s led to a period of soul searching in the US. Business
confidence was at an all-time low and critics were lining up to sound the death knell of US
industry. The most significant example of this was an article, ‘Managing our way to economic
decline’, published in the Harvard Business Review in July 1980. The authors, Robert Hayes and
William Abernathy, two Harvard Business School professors, argued that the root cause of the
problems lay with the failure of the US system of management. In their words:
American management, especially in the two decades after World War II, was universally
admired for its strikingly effective performance. But times change. An approach shaped
and refined during stable decades may be ill suited to a world characterized by rapid and
unpredictable change, scarce energy, global competition for markets, and a constant need
for innovation. This is the world of the 1980s and, probably, the rest of this century …
The conclusion is painful but must be faced. Responsibility for this competitive
listlessness belongs not just to a set of external conditions but also to the attitudes,
preoccupations, and practices of American managers. By their preference for servicing
existing markets rather than creating new ones and by their devotion to short-term returns
and ‘management by the numbers’, many of them have effectively forsworn long-term
technological superiority as a competitive weapon. In consequence, they have abdicated
their strategic responsibilities.14
‘Managing our way to economic decline’ served as a wake-up call for US industry. With the
problem of inappropriate management practices identified, attention was now firmly focused on
finding a solution. The scene had now been set and, in a very short time, two management books
hit the market to become bestsellers. Two of these books, published in 1981, set out to explain why
the Japanese had been so successful and as a corollary why the US was slipping so far behind.
Theory Z: How American Business Can Meet the Japanese Challenge, written by Professor William
Ouchi, proposed that a modified approach to management was called for that combined the best
characteristics of Japanese and US management practices. Ouchi argued that the Japanese style of
management that focused on a strong company philosophy, a distinct corporate culture, long-range
staff development, and consensus decision making should be incorporated into US management
practices. He contended that a strong homogeneous culture was the secret of success for Japanese
companies and he advised corporate America to redirect attention to the human relations side of
business. The Art of Japanese Management, by Richard Pascale and Anthony Athos, also pointed out
that the main reason for Japan’s success was their superior management techniques. This included
an emphasis on developing shared values, a holistic approach towards managing people and a long-
term vision for the direction of the business.
In 1982 Deal and Kennedy built on this theme in their book Corporate Culture, and in the
same year The Mind of the Strategist, written by Kennichi Ohmae, the head of McKinsey &
Company’s Tokyo office, captured the attention of US managers. Ohmae pointed out that Japanese
firms typically did not have formal processes for strategic planning and that their success was due
to the intuitive understanding that Japanese managers had of their markets. The emphasis was on
creativity and developing a competitive advantage.
But the best was yet to come. In 1982, a book that was to become one of the top-selling
management books of all time captured the attention of corporate America. In Search of Excellence:
Lessons from America’s Best Run Companies, written by two McKinsey & Co associates, Tom Peters
and Robert Waterman, was based on a research study of 43 of the best-run companies in the US.
The strength of the book was that it was inspirational as it showed that, despite the overall criticism
of US management practices, there were many companies that could be considered to be excellent.
These excellent companies exhibited eight common attributes and these attributes could be used
as a model for others to follow. Box 2.2 provides a summary of these characteristics.
B O X 2. 2
Eight attributes that characterise excellent companies
1 A bias for action. Getting on with it – active 6 Stick to the knitting. Stay close to the business
decision making. you know.
2 Close to the customer. Learn from the people 7 Simple form, lean staff. Simplify organisational
you serve. structures and minimise top-level staff.
3 Autonomy and entrepreneurship. Fostering 8 Simultaneous loose–tight properties. Push
innovation and encouraging practical risk autonomy down to the shop floor (loose control)
taking. but focus on core values (tight control).
4 Productivity through people. The rank and file Source: Excerpt from IN SEARCH OF EXCELLENCE: LESSONS
are the root source of quality and productivity. FROM AMERICA’S BEST RUN COMPANIES by T. Peters and
5 Hands-on, value-driven. Company values guide R. Waterman. Copyright ª 1982 by HarperCollins Publishers.
Reprinted by permission of HarperCollins Publishers.
everyday practice.
In Search of Excellence also included the famous McKinsey 7-S model, which was developed in
1980 by Peters and Waterman along with their fellow McKinsey & Co colleague, Julien Phillips, as
a diagnostic tool to examine organisational effectiveness.15 The 7-S model combines seven essential
forces: strategy, systems, structure, skills, style and staff, which are all united by shared values
(organisational culture). The model, discussed in further detail in Chapter 3, has proven to be one
of the most enduring management tools to this day, providing organisational strategists with a
framework for analysing organisational effectiveness.
During the 1980s, US management practices changed dramatically. As discussed in Chapter 1
new forms of business organisation started to evolve and processes such as BPR, JIT, TQM and
customer service delivery all encouraged a more integrative or holistic approach to management
including the removal of rigid hierarchical organisational structures. Decision making started to
become decentralised in line with a notion that became known as a ‘hierarchy of strategies’.16 It was
contended that in large and complex organisations (conglomerates), decision making and planning
should be made at three distinct organisational hierarchical levels: (1) the total organisational level
(usually described as the corporate level); (2) the SBU level; and (3) the functional level within each
SBU. As Webster observed, a trend had developed during the 1980s for conglomerates ‘to delegate
more of the strategic planning process from corporate headquarters to the individual business units’.17
Table 2.1 summarises these different areas of decision making and planning for each of these
hierarchical levels.
At the corporate level, strategy marketing’s role is: (i) to assess the current and future
attractiveness of the existing markets that the various SBUs of the corporation compete in and
potential new markets; (ii) to assist in the development of the organisation’s overall value
proposition; and (iii) to inculcate a customer orientation throughout the organisation. The focus for
T A B L E 2 . 1 Decision making for the three organisational hierarchical levels

CORPORATE LEVEL SBU LEVEL OPERATING OR FUNCTIONAL LEVEL
This level concerns the overall This level of strategy is primarily This level concerns strategies involving
business portfolio of a diversified concerned with the way in which each of the organisation’s functions
organisation. At this level of the business unit competes in its including production, finance,
strategy the main emphasis is on chosen industry. The main marketing, R&D and personnel (for a
building and maintaining a emphasis is the development of manufacturing organisation). The
portfolio of high-performing strategies concerning product- strategic emphasis at this level is on
businesses. This generally market positions and the the development of functional/
involves decisions regarding the establishment of a sustainable departmental strategies to support the
following: competitive advantage for the SBU level plan. A distinction needs to
• determination of a corporate SBU. Business (or SBU) be made at this level between
mission statement strategic plans generally include strategic plans (longer-term) and
(management’s vision of how business mission (focusing on annual or operational plans.
the organisation should the product markets the SBU
compete in the future) should compete in within its
• setting short- and long-term industry); performance
performance objectives (for objectives (including profit, ROI
the entire group, such as and cash flow); strategies to
profit, return on investment achieve those objectives;
(ROI) and earnings per share sources of sustainable
(EPS) and the profit, ROI competitive advantage (such as
and cash flow contributions low-cost leadership,
for each SBU) differentiation or focus
• determination of strategies to strategies); and resource
enhance performance of allocation (to functions and
existing SBUs product lines). A business
• determination of strategies to strategic plan might also include
maximise synergies between strategies concerning the
related SBUs establishment of joint ventures
• resource allocation or other forms of strategic
(investment priorities – for alliances.
existing and new SBUs)
• determination of strategies
for establishing and
maintaining a source of
sustainable competitive
advantage for the group
(such as financial strength)
• determination of corporate
development strategies
(including acquisitions,
mergers and divestments).
senior managers at the SBU level is how to compete in the organisation’s chosen industries. At this
level, the role for marketing is intensified, focusing on the development of value creation,
communication and delivery strategies, which concerns segmentation, targeting, positioning and
value creation mix decision making. At the functional level, marketing’s role is to implement these
decisions and to manage relationships with customers, suppliers and resellers.18
As a consequence of these organisational changes, managers down the line were given much
more responsibility and authority for developing and implementing strategies for their business
units. The concept of strategic planning was extended to become strategic management in
recognition that there was a need for a more holistic approach to strategy development and strategy
implementation. As Gluck, Kaufman and Wallack argued in their 1980 Harvard Business Review
article, ‘Strategic management for competitive advantage’:
As the economic system becomes more complex and the integration of single business
units into national, diverse organizations continues, ways must be found to restore the
entrepreneurial vigor of a simpler, more individually oriented company structure.
Strategic management, linking the rigor for formal planning to vigorous operational
execution, may prove to be the answer.19
Wesfarmer’s bet-your-company strategy
If the founding fathers of the Westralian Australia and past efforts to improve the performance of its
Farmer’s Co-operative were alive today they would companies had failed dismally. In 2001 the company
hardly recognise the organisation in its present form. had embarked on a five-year turnaround strategy
From a modest beginning as an agricultural but by 2007 sales growth had declined to a seven-
merchandising and exporting business in 1914, the year low on the back of the continuing poor
cooperative has evolved over the years to become performance of two of its largest companies, Coles
one of the 20 largest corporations in Australia. Supermarkets and Kmart. By this stage, the Coles
It is as if there is a penchant for growth in the Board was openly discussing the possibility of selling
DNA of this organisation. Within a few years of its off companies within the group or the group as a
founding the cooperative began to distribute oil, whole. The private equity giant Kohlberg Kravis
LPG and gas appliances throughout rural Western Roberts (KKR) had been stalking Coles for over a
Australia. It also became the proprietor of Western year and in early 2007 put forward a bid of $14.50
Australia’s first public radio station. per share to the Coles Board. This was rejected, as
In 1984 the organisation was restructured to was a subsequent offer of $15.25 per share. In May
become a publicly listed company, Wesfarmers Ltd. 2007 KKR announced that it was no longer
In the same year, the newly incorporated company interested in the takeover, leaving the way open for
acquired the fertiliser manufacturer and distributor Wesfarmers to go ahead with its takeover plans.
CSBP & Farmers Ltd, in what was then the largest Wesfarmer’s put forward an offer of $17.25 a share,
corporate takeover in Australian history. Over the which was accepted by the Coles Board. To finance
next two decades Wesfarmers continued its growth the deal Wesfarmers drew on $4.3 billion of its cash
by an acquisition program, moving into coal mining, reserves and an issue of 308 million new shares,
rail transport, insurance and hardware/home which at the close of trading on 2 July were priced
improvements (Bunnings), while at the same time at $45.73.
broadening its agricultural base. At the time of the takeover, investment analysts
By the 1990s, Westfarmers had grown to and some shareholders were critical of the cost of
become a significant mid-sized Australian company. the deal and the negative impact that it would have
But the biggest growth spurt was yet to come. On on shareholder value. However, the managing
2 July 2007 Wesfarmers struck a $22 billion deal to director of Wesfarmers, Richard Goyder, was
acquire Coles Group Ltd comprising Coles extremely confident that the Coles Group of
Supermarkets, Target, Kmart, Officeworks and companies could be turned around. He believed that
Harris Technology. The acquisition, the largest in the group was top-heavy and that its strategy of
Australia’s corporate history, was a massive ‘bet- centralisation of support services such as supply
your-company’ gamble. Wesfarmers took on chain management, IT and HRM was ineffective.
massive debt to finance the deal to acquire a group His first item on the agenda was to restructure the
of companies that were in almost total disarray. company, putting into place what he described as
Coles Group had been floundering for many years, the Wesfarmer’s independent management model –
a classical strategic business unit (SBU) approach. plummeted from their high of $45.73 at the time of
The underlying philosophy was to hire the right the Coles acquisition to a low of under $15.14 in
people to manage each division and to provide them February 2009. However, undaunted by this
with the resources to get on with the job. As setback the company went resolutely ahead with its
Goyder stated in a press interview: ‘If you are a strategy of strengthening existing businesses
divisional manager you will be well rewarded for through a combination of operational excellence and
good performance and there will be consequences providing value for its customers. By 2012, just five
for poor performance’. In total, eight autonomously years after the Coles Group acquisition,
managed SBUs were created comprising: Coles Wesfarmers posted earnings in excess of $2 billion
(food, liquor and petrol retailing); home on revenue of $86 billion. Much of the resurgence
improvements and office supplies (Bunnings and in Wesfarmers’ performance was due to the strong
Officeworks); Target; Kmart; insurance; resources; earnings performance of the once struggling Coles
chemicals, energy and fertilisers and industrial and division. Shares rose to $34 at the announcement
safety. The Wesfarmers Board and its executive of these results.
management team (comprising the chief operating In 2012, five years after the announcement of
decision makers) assumed responsibility for the Coles takeover, Wesfarmers had outperformed
monitoring the performance of each SBU and for the ASX All Ordinaries Index by over 40 per cent.
making decisions about resource allocation and Revenue ($86 billion) had increased almost sixfold
performance assessment. and net profit ($2.1 billion) had tripled. In what was a
Timing is everything, and for Wesfarmers textbook example of the effectiveness of deploying
trouble was just around the corner, in the form of a strategic business unit organisational structure,
the onset of the global financial crisis in 2008. At Westfarmers had succeeded in revitalising what had
the depth of the crisis Wesfarmers shares become a moribund group of companies.
The changes that were taking place removed some of the major problems that had led to the
widespread disillusionment with strategic planning that had surfaced towards the end of the 1970s.
However, a most significant problem remained. The conceptual foundations of strategic planning
such as SWOT analysis and Chandler’s strategy and structure framework lacked a substantive
analytical foundation. This paved the way for the entrance of Michael Porter who burst onto the
business scene in 1980 with the publication of the first of his epic works, Competitive Strategy:
Techniques for Analyzing Industries and Competitors. Porter extended the earlier concept of SWOT
analysis in this book by providing a detailed description of the steps involved in industry and
competitor analysis. In this book he introduced his famous five-forces model, which to this day is
one of the most widely used business tools. He also introduced his concept of competitive
advantage, which he elaborated on in his 1985 publication, Competitive Advantage: Creating and
Sustaining Superior Performance. Both of these books acted as a catalyst to revive interest in
strategic planning/management. The concepts Porter introduced of industry analysis, generic
competitive strategies and value-chain analysis were not only widely acclaimed and adopted by
industry, but also acted as a stimulus for researchers to systematically investigate the links between
effective strategies and business performance.
The net result of the changes that were taking place in the early 1980s was that strategy
planning was reborn in the form of strategic management. Senior managers of SBUs were
becoming increasingly involved in strategy development and implementation processes, and
strategic management was becoming a major field of study for academics from a diverse range of
disciplines including psychology, economics, political science and marketing, in addition to those
within the broad field of management.
The new era of strategy development

By the 1990s strategic management had matured as an academic discipline and as a business
process. In the formative years of the discipline there was a profusion of concepts developed by
academics and management consultants working with a variety of different and often opposing
paradigms or schools of thought. Mintzberg, for example, identified 10 separate schools of thought,
which are summarised in Box 2.3.
B O X 2. 3
Mintzberg’s 10 schools of thought
Group 1 – Prescriptive schools of thought originated in the much earlier work of
• The design school. This school evolved in the Schumpeter (1934), Strauss (1944) and Cole
late 1950s and early 1960s. Strategy is (1959), who argued that initiatives taken by
considered to be a conceptual process. This visionary leaders are the keys to economic
school of thought evolved out of the work of growth.21 In the 1980s this earlier work became
Selznick, Chandler and the Harvard SWOT the foundation for concepts such as strategic
model of strategy formation. The simple model vision22 and leadership in organisational start-up
of the design school gave way to the planning and turnaround life-cycle situations.
school. • The cognitive school. This school evolved in the
• The planning school. This school commenced in 1980s mainly owing to psychologically oriented
1965 with the publication of Ansoff’s book academics and practitioners who believe that
Corporate Strategy, which was to become a strategy formation is a mental process; for
major catalyst for the development of strategic example, they probe the mind of the strategist
planning as a management discipline. This school in order to understand strategic vision. The
of thought advocated strategy planning as a school draws on concepts in the field of
highly formalised process based on elaborate cognitive psychology relating particularly to
models and extensive checklists and techniques. perception (how strategists become informed),
It was the dominant school throughout the concept attainment (how strategy itself is
1970s but came under strong attack in the early formed), reconception (how strategy changes
1980s and was largely discredited in the 1990s. or why it doesn’t change) and strategic style
(how strategists differ in their cognitive
• The positioning school. This school commenced
orientation). The 3M Company, for example,
in 1980 with the launch of Michael Porter’s
uses strategic stories to underpin its business-
Competitive Strategy. While this school of
planning processes.23
thought was led by Porter, in the 1980s, two
other streams of work evolved within the • The learning school. In this school, strategy is
positioning school: military maxims (business viewed as an emergent process. Strategists learn
strategies based on the military strategies of over time and strategies emerge as strategists,
Sun Tsu, Clausewitz and Liddell Hart) and sometimes individually but more often
consulting imperatives (models such as the collectively, come to understand a context and
Boston Consulting Group and profit impact of their organisation’s capabilities in dealing with it.
market strategy – PIMS – developed in the Interest in ‘learning organisations’ and ‘intelligent
1960s which prescribed strategic behaviour).20 organisations’ heightened during the 1990s and
this continues to attract strong support.24
Group 2 – Descriptive schools of thought • The political school. This school of thought
• The entrepreneurial school. Although this school evolved during the 1970s and interest in it
of thought evolved during the 1980s, it remained through to the 1990s. Proponents of
this school of thought consider strategy culture remains high, particularly in the field of
formation as a power process (as politics is marketing with the growing emphasis on the
considered to be the exploitation of power). need to establish a market-oriented
They are particularly interested in the role of organisational culture.
bargaining and negotiation in the process • The environmental school. This school of
of strategy formation. Interest in this school of thought evolved in the late 1970s based on the
thought is moderate but it continues to grow notion that organisations are passive and
because of the impact of globalisation and strategy formation is dictated by external
resultant organisational change. conditions rather than internal processes.
• The cultural school. Proponents of this school
of thought focus on the influence of culture in
Group 3 – Holistic school of thought
maintaining strategy, indeed in actively resisting • The configurational school. In this school of
strategic change. Interest in organisational thought strategy formation is considered to be
culture evolved in the early 1980s in the wake a process of transforming an organisation from
of the enormous success the Japanese had in one type of decision-making structure to
competing with US businesses. Two top-selling another. An organisation adopts a particular
books, Theory Z by William Ouchi published in strategy configuration or style for a period of
1981 and Kennichi Ohmae’s The Mind of the time according to the context or strategic
Strategist in 1982, are prominent examples of situation at that point in time. The school
this approach.25 In the mid 1980s a small body recognises that periods of stability are
of literature (particularly by Scandinavian interrupted occasionally by some form of
academics and practitioners) began to appear transformation. This school of thought attempts
that focused on the relationship between to bring together the previous nine schools of
strategy and culture. Interest in organisational thought in a number of well-defined contexts.
Mintzberg’s categorisation of the various schools of thought was published in 1990 and since then
other schools of thought have evolved. Teece, Pisano and Shuen, for example, argue that towards the
end of the 1990s the field had narrowed to three main paradigms: the competitive forces approach,
the strategic conflict approach and the resource-based view of the firm (RBV). They also argue the
case for the development of a fourth paradigm, which they label dynamic capabilities.
Porter’s competitive forces concept, which was the dominant paradigm in the 1980s and early
1990s, was based on the notion that the structure of an industry is largely dictated by the
competitive rules of the game. As a consequence this dictates the strategic options that are
available for a firm to pursue.26 In 2004 and 2005, Kim and Mauborgne extended Porter’s
competitive forces approach with the introduction of their concept of blue ocean strategy.27 They
argued that, rather than focusing on ways of developing a competitive advantage in existing markets
(a red ocean strategy), an organisation should focus on creating a new market space (a blue ocean)
by identifying customers’ unmet needs.
The second paradigm, the strategic conflict approach, is based on game theory. Instead of
accepting market-defined rules of the game (as in the competitive forces approach), a competitor
should seek to rewrite the rules – based on its own particular strengths.28 Under this approach
strategists would focus their attention on devising ways in which their firm could influence the
behaviour and actions of its competitors. As a consequence of this action, the market environment
would also be changed.29 Game theory originated in a business context in the mid 1950s in the
field of industrial organisation but it wasn’t until the late 1980s that interest in it was reintroduced
as a new approach to business strategy.30 Interest in game theory grew during the 1990s into the
2000s as the stability of the business environment became increasingly stormy, characterised by
market upheavals, shakeouts and technology shifts.31 Game theory models seek to provide a range
of possible outcomes arising from actions taken by the firm and its existing or new competitors,
while taking into consideration a number of assumptions such as competitive cost structures,
customer demand, market growth and technological change. Different scenarios are constructed to
model the impact of competitive actions such as price cutting, a change of distribution or new
product introductions against a variety of changes to the external environment. While the game
theory modelling is still in an early stage of development, the main value of this approach is that it
provides a framework for strategists to focus on the dynamic nature of the markets in which they
compete and the possible outcomes of different strategies designed to influence the behaviour of
their competitors.32
The third paradigm, the resource-based view of the firm (RBV), is an extension of the earlier
concept of distinctive competence discussed earlier in this chapter and also Prahalad and Hamel’s
notions of core competence, strategic intent and strategic architecture.33 The RBV approach views
organisations that have superior systems and structures as able to achieve lower cost structures
than their competitors (due to such factors as economies of scale, supply chain efficiency or
operational efficiency) and/or to produce superior quality products or services. These firms may also
have superior resources such as strong intellectual property or a well-established and dominant
brand. Proponents of this approach consider that competitive advantage is achieved by virtue of
their superior resources rather than by competitive positioning. That is, the firm’s resources form
the basis for the development of a unique value-creating strategy.34
The fourth paradigm, dynamic capabilities, was developed in recognition that a resource-based
strategy is inappropriate for a firm competing in a rapidly changing business environment. The term
dynamic according to the authors of the concept, Teece, Pisano and Shuen, refers to the capacity
of an organisation to renew competences that are required to compete successfully for the
changing business environment. The term capabilities ‘emphasizes the key role of strategic
management in appropriately adapting, integrating, and reconfiguring internal and external
organizational skills, resources, and functional competences to match the requirements of a
changing environment’.35 The task for strategists in this situation is twofold: first they need to
develop sensing capabilities – to be able to accurately sense changes occurring in the business
environment brought about by such factors as technology innovation, changing competitive
landscape (including global and online competition), changing customer preferences, changing
government and legal regulation, and economic change (including the growth of developing
economies). The second task is the ability of the organisation to respond appropriately to the
changing environment – the capability to adapt, integrate and reconfigure the organisation’s
resources and skills. As Teece and his colleagues contended: ‘Winners in the global marketplace
have been firms that can demonstrate timely responsiveness and rapid and flexible product
innovation, coupled with the management capability to effectively coordinate and redeploy internal
and external competences’.36
The dynamic capabilities approach is clearly appropriate for organisations competing in a rapidly
changing business environment. Kodak, for example, might have survived if management had
recognised that film was doomed with the onset of digital photography. However, not all
organisations compete in such a volatile business environment, and a more traditional model such
as the competitive forces approach or strategic conflict approach would be more appropriate for
strategists to use. In the spirit of the configurational school discussed earlier, Martin Reeves, Claire
Love and Phillip Tillmans of the Boston Consulting Group propose that a key decision for
strategists is to develop a strategy for making strategy.37 That is, to find the right strategic style for
the conditions facing the organisation. They argue that there are two critical factors to consider:
predictability (the extent to which the future can be accurately and confidently predicted) and
malleability (the extent to which your organisation or a competitor is able to influence the dynamics
of the market). This process is discussed in further detail in Chapter 3.
During the early 2000s it became apparent that strategic decisions were increasingly being
made outside of formal planning cycles. In an online study of nearly 800 executives conducted in
2006, McKinsey & Co found that only 23 per cent of companies took major strategic decisions
within their formal strategic planning processes. The study also found that 45 per cent were
satisfied with the strategic planning process and that 79 per cent of these managers believed that
formal strategic planning processes played a significant role in strategy development.38 In a larger
study conducted in 2010, of 2135 executives, it was found that the primary trigger for business-unit
strategy decision making was ‘the regular planning cycle’ (45 per cent) followed by ‘issues as they
arise’ (35 per cent). Fifty-six per cent of respondents reported that decision making about business
unit strategy was more frequent than five years earlier while only 35 per cent reported ‘about the
same’.39
It had also become apparent that the circa-1970s problem of disconnection between strategy
development and strategy implementation had re-emerged as a major concern. This led to the
creation of a new position of chief strategy officer (CSO) in a number of companies such as
Kimberly-Clark, Motorola and Yahoo. CSOs were expected to ensure that strategic decisions were
effectively translated into action and also to assist the CEO and the senior management team in the
strategy development process.40 However, as was found in the 2006 McKinsey survey, the role of the
CSO differs from organisation to organisation. While 52 per cent of managers reported that
important strategic decisions were confined to a small group of senior managers in their organisations,
only 39 per cent believed that the CEO led the organisation’s strategy development process, while
34 per cent were of the opinion that the CSO or a strategy group led the process. Interestingly,
46 per cent of C-suite executives consisting of board members, CEOs, CFOs and other top
executives reported that the CEO (or the person holding an equivalent position) led the process.
What has been learnt?

From the above review of the developments that have taken place in the field of strategic
management, the following principles can be determined in order to develop processes for strategy
development and the effective implementation of those strategies that incorporate key marketing
concepts and techniques:
1 A distinction needs to be made between planning and strategy. As Mintzberg points out:
‘Organisations engage in formal planning, not to create strategies but to program the strategies
they already have, that is, to elaborate and operationalise their consequences formally’.41
Strategy is therefore the starting point of planning. Strategy development is a long-term, future-
oriented process.
2 The processes of strategy development, implementation, evaluation and control need to be
clearly integrated.
3 Strategic decisions need to be made and implemented as the need arises and, of necessity, may
be made outside of the formal strategic planning processes. Therefore the process of strategic
management needs to be ongoing. Organisations need to be flexible and have the ability to
respond in a timely fashion to changes in the business environment.
4 In line with the configurational school of thought, strategists need to choose a strategic
approach that is appropriate for the business environment in which they currently compete and
are likely to compete in the future. Strategy formation is considered to be a process of
transforming the organisation from one type of decision-making structure to another.
5 Strategic thinking is a creative process including intuitive and other non-rational and rational
thought processes.
6 Strategic thinking is not just a top-down process and provision needs to be made to include
bottom-up input into the strategy development process.
7 A model of the strategic management process should be considered in terms of being a
framework that provides guidelines for strategists to consider, rather than being a straitjacket
that inhibits creativity and innovation.
8 Strategic thinking invariably involves consideration of marketing-related issues – creating,
communicating and delivering, and exchanging offerings that have value for its customer and
other stakeholders. That is, marketing plays a key role in strategy planning and management
processes.
9 Marketing operates at three levels in the organisation: at the corporate, business unit (SBU) and
functional or departmental levels. At the top two corporate and business unit levels, the role for
marketing is:
a to foster a marketing-oriented culture throughout the organisation; that is, a focus on
establishing and maintaining a sustainable competitive advantage emphasising the
organisation’s value proposition
b to provide input into the strategic visioning process – the determination of what business
the organisation is in
c to provide in-depth input into key marketing strategy considerations including the
identification, evaluation and targeting of market segments, and the development of brand
positioning and value creating strategies including the value creation mix
d to identify market growth opportunities
e to provide in-depth input into the process of resource allocation
f to ensure that key marketing metrics are incorporated into the organisation’s monitoring,
evaluation and control processes.
The strategic marketing management

process – a framework
At the top level of strategic decision making, CEOs, CSOs and other members of the top
management team (the C-suite) are required to consider a wide range of factors including those
that are marketing related. It is therefore important that marketing has a strong voice in top
management strategy planning decision-making processes. This is the role for the chief marketing
officer (CMO) as was discussed in Chapter 1.
Marketing strategies may be developed in a number of ways according to whether strategic
decisions are made inside or outside of formal strategy planning processes, and whether marketing
strategies are developed as a part of the broader strategic planning or separately. Accordingly there
are four different ways in which marketing strategies may be developed:
1 as part of a broader formal strategy planning or strategic management process that culminates
in the preparation of a strategy planning document which may be produced in either a
comprehensive or an abbreviated format (see Chapter 12 for a discussion of format options)
2 as part of a broader set of strategy deliberations that are made outside of a formal strategy
planning process culminating in a number of recommendations, which may be articulated in a
paper or a report
3 as a separate strategic marketing plan that may be presented in either a comprehensive or an
abbreviated format
4 as a paper or report containing marketing strategy recommendations.
Irrespective of these different approaches the process of strategic marketing management is part
of a broader process of strategic management. The process as depicted in Figure 2.1 consists of four
interdependent stages consisting of strategic analysis, strategy development, implementation, and
evaluation and control. The organisation’s mission and vision inform each stage of the process.
FIGURE 2.1 The strategic marketing management process
Organisation mission and vision
Business definition and scope
Strategy
Strategic Strategy Strategy
evaluation and
analysis development implementation
control
• Mission and vision. The starting point of the process is the organisation’s mission and vision.
The mission statement sets out the core purpose of the organisation, its raison d’être – its
purpose for being. It also sets out the core values of the organisation – its inner self-beliefs and
important values such as corporate social responsibility, concern for the environment and
sustainability. A well-prepared mission statement provides a sense of direction for strategists –
that is the strategic scope. The mission statement may include management’s vision of the
futuristic world the organisation will compete in, and how it should compete in that world. In
many cases this is contained in a separate vision statement. Irrespective of how this is
presented, the importance of developing a vision statement is that it requires management to
contemplate the dynamic nature of the business environment that most organisations compete
in. As was discussed previously, it is essential that the strategic style to be used is appropriate
for the situation facing the organisation or that which it is likely to face in the future.
Mission and vision statements are often expressed in fairly broad terms and the next step is
to prepare a business definition and scope statement. The objective is to develop a more precise
statement that specifies the nature and parameters of the market (or markets) the SBU
competes in and the products it competes with. Mission, vision and business definition and
scope are discussed in further detail in Chapter 3.
• Strategic analysis. The purpose of this stage of the process is to review the current situation
facing the organisation and, most importantly, to arrive at assumptions about the future
situation. Strategic analysis comprises two major areas of activity: (1) conducting a situation
analysis; and (2) preparing a summary of this work in the form of a problems and opportunity
statement. It is an ongoing process of collecting, analysing and disseminating information as it
becomes available. Strategic analysis is discussed in further detail in Chapter 3.
• Strategic development. This is a pivotal stage of the entire strategic marketing management
process involving high-level business and marketing decision making. The strategy development
process is broken up into two components: strategic thinking and decision making. Strategic thinking
combines both top-down and bottom-up inputs, and both left-brain (intuitive creative) and right-
brain (analytical or rational thinking) processes. The outcome of the strategic thinking process is the
generation of strategy alternatives that need to be evaluated and selected in the decision-making
phase. The outcome of this process is the development of three high-level marketing strategies:
marketing objectives; product-market strategies; and segmentation, targeting and positioning
strategies. These high-level marketing strategies are discussed in detail in chapters 4 to 10.
• Strategy implementation. This is a process of transforming strategy recommendations into
reality. The effective and efficient execution of strategy is a critical part of the strategic
marketing management process and, to achieve this, the organisation must have the requisite
resources, structure, organisational culture, processes, systems, policies and procedures.
Implementation strategies are discussed in Chapter 11.
• Strategy evaluation and control. Just as considerable care must be exercised in implementing
marketing strategies, equal care must also be given to establishing an effective evaluation and
control system. The task here is to determine what is to be evaluated, how it is to be evaluated
(internal or external data including primary and secondary data), who is to supply the data (the
suppliers of information, such as external research organisations), and when it is to be
evaluated. The objective is to provide a mechanism for tracking the strategies articulated in the
marketing strategy document to ensure that the long-term objectives will be achieved. This
includes a triggering system to provide an early warning when performance starts to wander off
track. Evaluation and control of performance strategies are discussed in Chapter 11.

Marketing operates, or should operate, at two organisation the main role for the CMO is to
levels within organisations: at the higher level ensure that the organisation is market-oriented
of strategy management and at the – which involves an organisation-wide approach
departmental or functional level of operations. for creating, communicating, delivering and
At the higher level, the chief marketing officer maintaining the organisation’s value
(CMO) participates as a member of the senior proposition. That is, marketing is essentially the
management team for the purpose of organisation’s orientation towards the
developing and sustaining a competitive marketplace providing a deep understanding of
advantage for the organisation to meet its long- the customer and competitive environments. It
term financial objectives. At this level of also needs to be understood that marketing
strategies are developed as part of an integrated be flexible in order to cater for both deliberate
business planning approach involving all of the and emergent strategy decision making.42
functional areas of the organisation. These The strategic marketing processes outlined
marketing strategies may be articulated as part of in this chapter are discussed in much greater
a holistic business plan or strategy paper, or in detail in the remaining chapters of this book.
the form of a standalone strategic marketing plan. These processes are presented within a
It should also be recognised that strategic framework that is intended to provide
thinking is not a once-every-three-years marketing strategists with a means for
planning event, as great ideas often emerge in developing marketing strategies within a
response to evolving external or internal events. context of an organisation-wide strategic
Therefore, strategy-planning processes need to management approach.
1 Consider three entirely different industries development be regarded as an ongoing
and contrast the role that marketing would process rather than a once-every-three-year
be expected to play in the strategy type of event? Is there a better way to foster
development processes for leading decision making and to incorporate a
companies in each of those industries. process of continuous decision making?
Should the chief executive officer (CEO) or Discuss.
a chief strategy officer (CSO) lead the 3 An often-cited problem with involving a
organisation’s strategy development large number of people in the strategy
process? What role should the chief development and planning process is the
marketing officer (CMO) play? What other difficulty of accommodating a number of
functional heads should be involved in the diverse interests. In the end, the decisions
strategy development process? Who else are often a compromise in an effort to
should participate? balance opposing views. Do you agree or
2 Mintzberg argues that formal planning is disagree with this viewpoint?
more about programming strategies that 4 If a strategic business unit prepares a
have already been made rather than about strategic plan, is there any point in
creating strategies (point 1 in the section developing a strategic marketing plan?
‘What has been learnt?’, p. 49). If this is 5 If an organisation has a chief strategy officer,
correct, should the process of strategy is there a need for a chief marketing officer?
ETHICAL ISSUE
Do management consultants put their own interests ahead of those of their clients? Discuss.

After reading the section of this chapter appropriate format for presenting your work to
headed ‘The strategic marketing management an assumed senior management group.
process – a framework’, go to Chapter 12 for a You will most likely need to obtain your
discussion about the format options for writing instructor’s approval for your chosen format, so
a strategic marketing document. Discuss with therefore you should be prepared to present a
your team members and decide on the most convincing argument to support your case.

Explore Search me! marketing for articles • game theory
relevant to this chapter. Fast and convenient, • resource-based view of the firm
Search me! marketing is updated daily and • dynamic capabilities
provides you with 24-hour access to full text • blue ocean strategy.
ENDNOTES
1 H. Mintzberg, ‘The fall and rise of strategic planning’, 12 H. Mintzberg, ‘The fall and rise of strategic planning’,
Harvard Business Review, January–February 1994, p. 108. p. 107.
2 M. Kipping and L. Engwal (eds), Management consulting: 13 H. Mintzberg, The Rise and Fall of Strategic Planning,
Emergence and dynamics of a knowledge industry, Oxford Prentice-Hall International (UK), Hemel Hempstead,
University Press, Oxford, 2000. p. 321.
3 K. Grint and P. Case, ‘The violent rhetoric of 14 R.H. Hayes and W.J. Abernathy, ‘Managing our way to
reengineering: Management consultancy on the economic decline’, Harvard Business Review, July–August
offensive’, Journal of Management Studies, vol. 35, 1998, 1980, p. 68.
pp. 557–77.
15 R.H. Waterman Jr, T.J. Peters and J.R. Phillips,
4 A. Hill, ‘Inside McKinsey’, Financial Times, FT.com, ‘Structure is not organization’, Business Horizons, June
25 November 2011, pp. 1–14. 1980, pp. 14–26. The 7-S McKinsey Model was also
included in R. Pascale and A. Athos, The Art of Japanese
5 G.S. Day and R. Wensley, ‘Marketing theory with a Management, Penguin, London, 1981.
strategic orientation’, Journal of Marketing, vol. 47, 1983,
pp. 79–80. Refer also to D.S. Hopkins, The Marketing 16 The notion of a ‘hierarchy of strategies’ was established in
Plan, Conference Board, New York, 1981. the strategic planning literature in the 1970s. Although he
was not the first to conceive the idea, George Steiner is
6 A.P. Sloan, My Years with General Motors, Doubleday, generally associated with this concept. Refer to G.A.
New York, 1964. Steiner, Strategic Planning: What every manager must
7 F.W. Gluck, The McKinsey Quarterly, Winter 1986, know, The Free Press, New York, 1979.
pp. 18–41. 17 F.E. Webster Jr, ‘The changing role of marketing in the
8 J.B. Quinn, ‘Strategic change: Logical incrementalism’, corporation’, Journal of Marketing, October 1992, p. 11.
Sloan Management Review, vol. 20, 1978, p. 7. 18 F.E. Webster Jr, ‘The changing role of marketing in the
9 See, for example, the longitudinal studies by H. Mintzberg corporation’, p. 18.
and B.P. Waters, ‘Does planning inhibit strategic 19 The term ‘strategic management’ was popularised by
thinking? Tracking the strategies of Air Canada from 1937 Schendel and Hofer in a book they edited following a
to 1976’, in R.B. Lamb and P. Shivastava (eds), Advances conference in the field of strategic planning in 1977.
in Strategic Management, JAI Press, Greenwich, 1986; Refer to D.E. Schendel and C.H. Hofer (eds), Strategic
and R.T. Pacale, ‘Perspectives on strategy: The real story Management: A new view of business policy and planning,
behind Honda’s success’, California Management Review, Little Brown, Boston, Mass., 1979. Gluck and his
Spring 1984, pp. 83–94. colleagues also popularised the concept of strategic
10 H. Mintzberg, ‘The fall and rise of strategic planning’, management in F.W. Gluck, S.P. Kaufman and
p. 110. A.S. Walleck, ‘Strategic management for competitive
advantage’, Harvard Business Review, July–August 1980,
11 M. E. Porter, ‘Corporate strategy: The state of strategic pp. 154–61.
thinking’, The Economist, 23 May 1987, p. 20.
20 PIMS is a research program that investigates the financial 31 This condition is referred to as ‘punctuated equilibrium’.
results of strategies employed by approximately 3000 Refer to E. Beinhocker, ‘Strategy at the edge of chaos’,
SBUs of 450 companies in the USA. Refer to R. Buzzell The McKinsey Quarterly, June 2000, pp. 109–18.
and B. Gale, The PIMS Principle, The Free Press, New
York, 1987. 32 McKinsey and Company have developed a game theory
model that is described in H. Lindstädt and J. Müller,
21 J.A. Schumpeter, Theory of Economic Development: An ‘Making game theory work’, The McKinsey Quarterly,
inquiry into profit, capital, credit interest, and business December 2009, pp. 1–9.
cycle, Harvard University Press, Cambridge, Mass., 1934.
See also J.H. Strauss, ‘The entrepreneur: The firm’, 33 C.K. Prahalad and G. Hamel, ‘The core competence of
Journal of Political Economy, June 1944, pp. 112–27; and the corporation’, Harvard Business Review, 1990,
A.H. Cole, Business Enterprise in its Social Setting, pp. 79–91; G. Hamel and C.K. Prahalad, Competing for
Harvard University Press, Cambridge, Mass., 1959. the Future, Harvard Business School Press, Boston,
Mass., 1994; and C.K. Prahalad and G. Hamel, ‘Strategic
22 The concept of strategic vision was popularised by Bennis intent’, Harvard Business Review, May–June 1989,
and Nanus in the 1980s and later by Hamel and Prahalad pp. 63–76.
with their concepts of strategic intent and strategic
architecture. Refer to W. Bennis and B. Nanus, Leaders: 34 K.M. Eisenhardt and J.A. Martin, ‘Dynamic capabilities:
The strategies for taking charge, Harper and Row, New What are they?’, Strategic Management Journal, vol. 21,
York, 1985; and C.K. Prahalad and G. Hamel, ‘Strategic 2000, pp. 1105–21. See also: J.B. Barnet, ‘Firm resources
intent’, Harvard Business Review, May–June 1989, and sustained competitive advantage’, Journal of
pp. 63–76. Management, vol. 17, 1991, pp. 99–120; J. Barney,
M. Wright and D.J. Ketchen Jr, ‘The resource-based view
23 G. Shaw, R. Brown and P. Bromiley, ‘Strategic stories: of the firm: Ten years after 1991’, Journal of Management,
How 3M is rewriting business planning’, Harvard Business vol. 27, 2001, pp. 625–41; P. Doyle, ‘Shareholder-value-
Review, May–June 1998, pp. 41–50. based brand strategies’, Brand Management, vol. 9, no. 1,
2001, pp. 20–30; and S.D. Hunt and R.M. Morgan,’ ‘The
24 The learning school of thought evolved out of an article by resource-advantage theory of competition: Dynamics, path
C.E. Lindblom, ‘The science of muddling through’, Public dependencies, and evolutionary dimensions’, Journal of
Administrative Review, 1959, pp. 79–88, and grew to some Marketing, vol. 60, 1996, pp. 107–14.
prominence in J.B. Quinn, Strategies for Change: Logical
incrementalism, Irwin, Homewood, Ill., 1980. Pascale 35 D.J. Teece, G. Pisano and A. Shuen, ‘Dynamic
provides an interesting account of how strategies are capabilities and strategic management’, p. 515.
developed incrementally in R.T. Pascale, ‘Perspectives on
strategy: The real story behind Honda’s success’, 36 D.J. Teece, G. Pisano and A. Shuen, ‘Dynamic
California Management Review, vol. XXVI, no. 3, 1984, capabilities and strategic management’, p. 515.
pp. 47–72. 37 M. Reeves, C. Love and P. Tillmans, ‘Your strategy needs
25 W. Ouchi, Theory Z: How American business can meet the a strategy’, Harvard Business Review, September 2012.
Japanese challenge, Addison-Wesley, Reading, 1981; 38 ‘Improving strategic planning: A McKinsey survey’,
K. Ohmae, The Mind of the Strategist, McGraw-Hill, New McKinsey & Co, September 2006.
York, 1982.
39 Refer to: C. Bradley, L. Bryan and S. Smit, ‘Managing the
26 D.J. Teece, G. Pisano and A. Shuen, ‘Dynamic strategy journey’, McKinsey Quarterly, vol. 2, 2012, pp. 50–9.
capabilities and strategic management’, Strategic
Management Journal, vol. 18, no. 7, 1997, pp. 509–33. 40 For further information about the position of chief
strategy officer refer to R.T.S. Breen, P.F. Nunes and
27 W. C. Kim and R. Mauborgne, ‘Blue ocean strategy’, W.E. Shill, ‘The chief strategy officer’, Harvard Business
Harvard Business Review, October 2004, pp. 76–84; and Review, October 2007, pp. 84–93; T. Breen, P.F. Nunes
W. C. Kim and R. Mauborgne, Blue Ocean Strategy: How and W. Shill, ‘Rise of the chief strategy officer’, Outlook,
to create uncontested market space and make competition 2008, pp. 1–6; and ‘How chief strategy officers think
irrelevant, Harvard Business School Press, Boston, Mass., about their role: A roundtable’, mckinseyquarterly.com,
2005. May 2008, pp. 40–8.
28 R. Buaron, ‘Gaining advantage over competitors’, The 41 H. Mintzberg, The Rise and Fall of Strategic Planning,
McKinsey Quarterly, June 2000, p. 34. Prentice-Hall International (UK), Hemel Hempstead,
29 D.J. Teece, G. Pisano and A. Shuen, ‘Dynamic 1994.
capabilities and strategic management’, p. 515. 42 This point was emphasised in what has generally come to
30 The publication of an article written by Carl Shapiro in be regarded as a strategic planning classic: H. Mintzberg,
1989 is considered to be the main catalyst for the use of ‘Crafting strategy’, Harvard Business Review, July–August
game theory in a strategic management context. Refer to 1987, pp. 66–75. Also refer to Lindblom’s concepts of
C. Shapiro, ‘The theory of business strategy’, RAND ‘baby steps’ and ‘muddling through’, and Quinn’s concept
Journal of Economics, vol. 20, no. 1, 1989, pp. 125–37. of ‘logical incrementalism’ discussed previously – see
endnote 24.
PART
2
IDENTIFYING STRATEGIC
OPPORTUNITIES
Chapter 3 Strategic analysis
The future of an organisation is dependent on its ability to identify the forces of change that are likely
to impact on the business environment in which it operates and the organisation’s ability to effectively
respond to these changes.
Chapter 3 provides a detailed description of the processes involved in strategic analysis — the
foundation upon which successful strategies are developed and implemented.
The strategic marketing management process
Strategy
evaluation and
control
• Situation analysis
• Problems & opportunities statement
CHAPTER
3
STRATEGIC ANALYSIS
Facts are the bricks with which you will lay a path to your solution and build pillars
to support it. Don’t fear the facts.
Ethan M Rasiel1
The US department store Target was in the news address, their credit cards, and visits to the
in the early 2000s when a father marched into company’s website. Target is also able to buy
one of its stores in Minneapolis to complain commercially available data such as information
about an advertising mailer his school-aged about each customer’s educational background,
daughter had received for maternity clothing, occupation, media habits, cars owned and much
baby clothes and cribs. The store manager could more. Capturing and storing this data is one thing
not explain how this mix-up could have occurred but the success of the exercise is the ability of the
and apologised to the father for the error. The company to analyse the data and to make sense of
manager rang a few days later to reiterate his it. In this case the marketers at Target had
apology. However, this time the father was the developed a strategy to market baby-related
one to apologise as he had subsequently learnt products to women before their babies were born.
that his teenage daughter actually was pregnant. Women in the second trimester of pregnancy
This is a classic example of the use of were more likely to be in the market to purchase
predictive analytics by organisations such as Target products sold by Target such as cots, bassinets,
to determine their customers’ future purchase changing tables and baby clothes. The analysts at
behaviour. Target collects a vast amount of data Target determined that there were 25 products
about their customers’ purchasing habits including such as lotions and magnesium and zinc
information about what and when they have supplements that women in the second trimester
purchased in-store and online and information of pregnancy were likely to buy. Using this data
gleaned from touchpoints such as from survey the analysts were able to construct a ‘pregnancy
calls to the customer help line and from emails. predictor’ score indicating the likelihood of
Additionally, Target builds a personal profile for pregnancy and the estimated due date.
each customer by collecting demographic data Target is at the forefront of what has
(such as age, martial status and number of become known as the big data management
children), estimated household income, their revolution. Organisations such as Target and
60 Part 2 Identifying strategic opportunities
online retailers such as Amazon capture such a Business value in 2011 found that top-performing
large volume of data that there has been a rush companies are twice as likely as others to be using
by IT to develop and to market new technologies analytics to guide their future strategies, and to
and management tools to cater for the growing provide insights that guide their day-to-day
demand for data management and analytics. operations.2 McKinsey estimates that retailers
Research conducted by MIT’s Sloan Management could potentially increase their operating margins
Review in partnership with the IBM Institute for by more than 60 per cent using big data.3

Strategic analysis is the foundation upon which successful strategies are developed and
implemented. It is a process that involves the systematic and continuous collection of past and
present data for the purpose of identifying trends, forces and conditions which have the potential to
influence both the short- and long-term performances of the organisation. As Henry Mintzberg
pointed out many years ago: ‘Strategies cannot be created by analysis, but their development can be
helped by it’.4
This chapter examines the steps involved in strategic analysis, specifically:
• the two preliminary decisions that are made prior to the commencement of strategic analysis:
the strategic style and the organisation’s mission and vision
• the steps involved in conducting a comprehensive and thorough situation analysis
• the steps involved in making sense of the situation analysis by developing a problems and
opportunity statement.
Getting started
There are two critical issues to be considered at the outset of the strategic planning process. The
first is to develop a clear understanding of the strategic style that is appropriate for the organisation
to use. The second issue is to ensure that the organisation’s core values and core purpose, as
expressed in the organisation’s mission statement, are brought to the forefront of the strategic
planning processes.
Choosing the appropriate strategic style

There should not be a ‘one size fits all’ approach to strategic planning. As was briefly discussed in the
preceding chapter, in line with the configurational school of thought, the strategy-making style needs
to be tailor-made to meet the specific demands of the business environment in which the
organisation competes. Reeves, Love and Tillmans of the Boston Consulting Group have developed a
model that provides a most useful tool for strategists to use for this purpose.5 They argue that, as
strategy usually begins with an assessment of the industry in which the organisation competes, the
choice of strategy style should begin there as well. They further argue that the criteria for industry
Chapter 3 Strategic analysis 61
assessment can be narrowed down to just two critical dimensions: predictability (the extent to which
the future can be accurately and confidently predicted) and malleability (the extent to which your
organisation or a competitor is able to influence the dynamics of the market). Figure 3.1 shows a
matrix based on these two dimensions.
FIGURE 3.1 Choosing the right strategic style
Malleability
Low High
Adaptive Shaping
Low
If the industry is unpredictable If the industry is unpredictable

Predictability
and can’t be changed but it can be changed
Classical Visionary
High
If the industry is predictable If the industry is predictable

but can’t be changed and can be changed
Source: M. Reeves, C. Love and P. Tillmans, ‘Your strategy needs a strategy’, Harvard Business Review, September 2012.
The classical strategy is appropriate for organisations competing in a relatively stable and
predictable environment where it would not be possible for a competitor to influence the market
dynamics. Mature markets in categories such as commodities, fast-moving consumer goods
(FMCG), pharmaceuticals and consumer services such as household insurance typify this type of
situation. Strategists typically may adopt a strategy style based on the position school of thought
(such as Porter’s concept of competitive advantage approach, Kim and Mauborgne’s concept of
blue ocean, the concept of marketing warfare and product portfolio models), the strategic conflict
approach/game theory approach or the RBV paradigm (including Hamel and Prahalad’s concept of
competing in the future that focuses on making the most of the organisation’s core strengths or on
gaining advantage through operational excellence).6
The adaptive strategy is appropriate for organisations competing in an unpredictable
environment brought about by such factors as the impact of global competition, technological
change, social change and economic uncertainty. In this environment it would also not be possible
for a competitor to influence the dynamics of the market. Organisations faced with this situation
would need to focus on flexibility and to have the capacity to constantly change and refine goals
and tactics as events unfold. An organisational learning approach is an appropriate style for this
situation. Winners develop an overall direction through experimentation and rapid change and have
the ability to act quickly and creatively in response to an event. Planning cycles would need to be
short term or even be produced on a continual basis. Mintzberg and Peters and Waterman are
prominent proponents of this approach.
A shaping strategy is appropriate for organisations competing in an unpredictable and
malleable environment such as new and high-growth industries; for example, the early days of the
digital revolution. In such an environment Facebook was able to overtake MySpace by open-
sourcing its social networking platform, which allowed it to provide a wide range of applications for
its customers to use. A shaping strategy is also appropriate for a mature and fragmented industry.
This was the situation that Apple faced with the launch of the iPhone in 2007, a typical blue ocean
strategy. Apple reshaped the entire mobile phone industry as it did in shaping the tablet market
with the launch of the iPad in 2010.
The visionary strategy is appropriate for a situation where the business environment is
predictable and malleable. This is a strategy deployed by entrepreneurs to create an entirely new
market or by corporate leaders who revitalise a company with an entirely new vision. For example,
as early as 1994 UPS saw the potential of e-commerce and redefined its core business to cater for
the growth of online shopping – the enabler of global e-commerce. Six years later when the market
for e-commerce delivery was gathering momentum, UPS had established a position of market
dominance with a market share of 60 per cent. At around the same time, IBM also embarked on a
visionary strategy, in this case not just to take advantage of an emerging opportunity, but to ensure
the very the survival of the company. IBM was on the brink of collapse in 1993 when Lou Gerstner
was appointed CEO. The IT industry was going through a period of fundamental change and with a
clear view of the future, Gerstner put into place a major change process that would transform IBM
from being a product-based company to a broad-based customer solutions provider.7 (See the
Strategy in Practice case for a more detailed discussion of the IBM strategy.)
These four strategy situations provide a framework for strategists to choose the most appropriate
strategy style or combination of styles for their organisation. This style may vary from business unit
to business unit within a conglomerate organisation or even within a business unit for different
product lines competing in different market situations. Concepts, models and frameworks
developed within different schools of thought are not necessarily opposed to one another. In many
cases they are complementary and combine to provide a greater depth of understanding of how a
sustainable competitive advantage can be created.
Mission statement
A mission statement defines the fundamental, unique purpose of an organisation that sets it apart
from its competitors. It reflects management’s vision of what the organisation is trying to do and
how the organisation should compete now and in the future. Mission statements are, essentially,
philosophical statements that provide a sense of purpose and direction for the organisation. Mission
statements typically consist of two core principles: core values and core purpose. Core values
represent the organisation’s inner self-beliefs such as Walt Disney’s focus on imagination and
wholesomeness, P&G’s focus on product excellence and 3M’s focus on innovation. Core purpose is
the organisation’s raison d’être – its reason for being. Since the 1980s the growing influence of
stakeholder theory (discussed in Chapter 1) and the concept of corporate social responsibility has
meant that the core purpose of many organisations has been broadened to encompass the interests
of a number of stakeholder groups rather than just the interests of shareholders. Corporate social
responsibility (CSR) holds that an organisation has a social obligation to its stakeholders – those
affected by its policies and actions. CSR theory was extended with the introduction of the concept
of creating shared value (CSV) in 2011.8 The fundamental premise of this concept is that the
health of an organisation and the health of the communities in which it operates are mutually
dependent. (CSV is discussed in further depth in Chapter 4.)
Core values and core purpose represents an enduring philosophy that does not change over
time. They should represent the values and purpose as they really are, not a made-up wish list or an
advertising slogan of how the organisation would like to be viewed by the public. These values need
to be discovered and they need to be meaningful for the organisation’s employees.
Mission statements sometimes also include a vision statement which Bennis and Nannus define
as follows:
A vision articulates a view of a realistic, credible, attractive future for the organisation:
a condition that is better in some way than what now exists … a clearly articulated
vision of the future is at once simple, easily understood, clearly desirable and
energising.9
A vision statement is a means of communicating management’s view of the futuristic world the
organisation will compete in and how it should compete in that world. In this way it can act as a
powerful force in helping to forge a common understanding throughout the organisation of the
challenges that lie ahead. That is, the vision statement can play a role in shaping organisational
culture – of developing a shared understanding of the (market-oriented) strategic direction that the
organisation must take in order for it to prosper in the future. A similar motivational view is
advocated by Hamel and Prahalad in what they describe as strategic intent. They argue that many of
the companies that have risen to global leadership over the past 20 years began with ambitions that
were out of all proportion to their resources and capabilities. These companies were obsessed with
winning, and they overcame resource constraints to build leadership positions based on a
management system that included ‘focusing the organisation’s attention on the essence of winning;
motivating people by communicating the value of the target; leaving room for individual and team
contributions; sustaining enthusiasm by providing new operational definitions as circumstances
change; and using intent consistently to guide resource allocations’.10 Strategic intent emphasises a
long-term vision (five years plus) of the business that should not be limited by current resource
capabilities.

The business definition and scope statement operationalises the organisation’s mission statement,
transforming what is generally a fairly abstract statement into a more precise form to specify the
nature and parameters of the market (or markets) the SBU competes in and the products it
competes with. The purpose of this statement is to set out clearly and unambiguously the
organisation’s raison d’être and its strategic domain or scope. It is a critical step in the entire
strategic marketing management process, as the way a business is defined determines: (1) the
nature of the markets the business competes in (now and in the future); (2) the products and
substitutes that currently service that market, and new products and substitutes that may service
that market in the future (that is, to satisfy existing and future wants and needs of customers in
that market); (3) the nature of the competition; and (4) the capabilities the business needs to have
in order to compete successfully in that market. That is, these decisions involve choices concerning
where to compete, how to compete and what to compete with. Accordingly, the way a business is
defined determines the scope of that business in terms of its strategic domain – what it will and
will not cover. It also determines the strategic time horizon and the geographic domain. The
following is a suggested format for preparing a business definition and scope statement:
1 Specification of the organisation’s mission statement (including vision). Due to the
significance of this statement (or statements) it is important to restate the organisation’s mission
and vision right at the start of the strategic development process. This is to ensure that everyone
involved in the strategy development process has a clear understanding of the organisation’s
core ideology and its aspirations for the future.
2 Market definition. The mission of the organisation is to create, communicate and deliver value
for its customers. But who are these customers and what do they value? The objective of this
section is to define the customers in terms of the existing market segments that the
organisation targets and potential new market segments. Ideas about what segments will be
targeted will evolve as the strategic analysis and strategy development phases of the work
proceeds. For example, during the strategic analytical phase an emerging market segment may
be uncovered that will necessitate a later decision for the organisation to target that segment.
The business definition and scope statement would need to be modified accordingly.
3 Product definition. This involves listing the product categories to be targeted and the
organisation’s products/brands that compete in each of those product categories. This is not as
straightforward a task as it may at first appear. The classical definition of a product category is
that competing products will have similar characteristics and features. Consider toothpaste as
an example. There are toothpaste products that are marketed on their ability to whiten teeth, to
provide relief for sensitive teeth, to provide cavity protection, to fight bad breath, or to be
suitable for children. These are essentially sub-categories of the product category described as
toothpaste. But toothpaste itself can be considered to be a sub-category of a broader category
that could be labelled as ‘oral care’ or ‘oral hygiene’, consisting of sub-categories such as
toothbrushes, mouthwash, dental floss and denture cleaning products. To take the example one
step further, oral care could be considered to be a sub-category of personal care, which could
comprise sub-categories of hair care, skin care, deodorants, shaving products, toiletries and so
on. During the strategy development phase a decision may be made to redefine a product
category to broaden the scope. For example, a narrowly defined product category such as
toothpaste could be broadened to oral care.
4 Competitors. This involves identification of competitive products/brands competing in the
organisation’s product categories.
5 Scope. This involves two key decisions. First, the strategic timeframe or planning cycle. For
organisations competing in a business environment that is reasonably predictable, a timeframe
of three to five years would generally be appropriate; that is, for organisations choosing a
classical style of strategy. This timeframe might also be appropriate for organisations using a
visionary strategy if there is a clear enough view of the future. For most other situations the
planning cycle would need to be much shorter or even continuous for organisations competing
in a situation that calls for either an adaptive or shaping strategy. The second key decision
concerns the geographic domain of the intended strategy. A strategy should be developed for a
specific market context, such as for an individual country, or a region or state within a particular
country. Extending a strategy beyond a local or domestic market is difficult, as different
environmental factors are involved. For example, different economic, social, political and legal
conditions will exist from country to country. Additionally, there are different market conditions
such as market size and the nature and intensity of competition in different countries.
Situation analysis
The purpose of the situation analysis stage of the process is to lay a foundation on which strategic
decisions can be developed. Strategic analysis comprises two major areas of activity – conducting a
situation analysis and synthesising this analysis in the form of a problems and opportunities
statement.
The situation analysis is essentially a process of assessing the current situation facing the
organisation, arriving at a set of assumptions about the future, and identifying key strategic issues
that are likely to confront the organisation. That is, the aim of the situation analysis is to:
• identify forces that are the potential drivers of change
• determine the likely impact of these forces of change on the markets and the marketplace that
we are targeting so that we are able to make assumptions about the future environment our
organisation will compete in
• determine how our organisation is positioned to compete successfully in that future.
The focal point for strategic analysis is to determine the forces that are likely to impact on the
market (existing and potential customers) and the marketplace (existing and potential competitors
and distributors). The key questions to address are: What will the market be like three to five years
from now? Who will the customers be? What will their needs and preferences be in three to five
years’ time? What will their likely shopping behaviour be (including all of the touchpoints along the
value chain)? Who will the main competitors be? How will they compete?
According to a model developed by academics at Harvard, there are five areas of analysis that
underlie marketing decision making. The five Cs (5Cs) of analysis are: context (What cultural,
technological and legal factors limit what is possible?); customer needs (What needs do we seek to
satisfy?); competitors (Who competes with us in meeting those needs?); collaborators (Who should
we enlist to help us and how do we motivate them?) and company skills (What special competence
do we possess to meet customer needs?).11 All of these 5Cs are incorporated and expanded in the
framework of the situation analysis discussed below.
The situation analysis commences with a review of the external environment in which there
are forces that can be described as being remote from the market and marketplace, and forces
that are near. The remote environment forces (also described as macro environmental forces) are
those that impact on society as a whole including the industry and the marketplace that the
organisation operates in. The remote environment comprises economic, sociocultural, political–
legal, technological and natural environmental forces which have the potential to bring about
change in the nature, shape and size of the market (customer buying behaviour and market
demand) and the marketplace in which the organisation competes. For example, an upturn in the
economy can underpin a surge in consumer spending (market demand), which in turn could lead to
a change in consumer preferences such as increasing demand for premium products or services
(the nature of market demand). A change of government policy (political–legal forces) such as
industry deregulation can underpin massive changes to an industry (for example, the removal of
market entry barriers to pave the way for new competitors to enter the market). Each of the remote
environmental forces has the potential to significantly impact the future nature, size and shape of
the market and the marketplace in which the organisation will compete.
The review of the near environment comprises analysis of market demand and market
attractiveness, the competitive landscape, the distribution structure, end-customer buying behaviour
and preferences, and industry supply. Market demand and attractiveness is the central component of
the near environment review. The future nature, size and attractiveness of the market is influenced
by the remote environmental forces discussed above and also by end-customer buying behaviour,
marketplace forces (competitors and distributors) and in some cases supply considerations such as
an over- or undersupply of products or services in the product categories that serve the market.
After the strategists have developed a view about the future market and marketplace in which
the organisation will compete, the next stage is to determine how well the organisation is positioned
to compete successfully in that future environment. To do this the strategists first must arrive at a
number of decisions about the resources the organisation will need to have in order to achieve and
sustain a competitive advantage. These are the critical success factors that the organisation will
need to have in order to succeed. The next step is to conduct an extensive internal capabilities
review in order to determine the organisation’s strengths and weaknesses vis-à-vis the competition.
After the completion of the external environment and internal capabilities reviews, the final
stage of the process of strategic analysis is to make sense of all of the information that has been
collected. This is the role of the problems and opportunity statement. This phase is one of
synthesis – putting all of the parts broken down in the previous stages of analysis back into a whole
that captures the strategic challenges facing the organisation.
There are four phases of work involved in undertaking a situation analysis: (1) review of the
external environment (remote and near); (2) determination of critical success factors; (3) review of
internal capabilities; and (4) preparation of a problems and opportunities statement. Each of these
phases is discussed in the following sections of this chapter.
Review of the external environment

The purpose of the external environment analysis is to arrive at a view of the future. For strategists,
even in reasonably predictable business environments, it is necessary to understand that forecasting
or ‘predicting the future’ is at best a most hazardous exercise. In the heyday of strategic planning in
the 1970s (and before that, long-range planning in the 1960s) accurate forecasting was considered
to be an essential part of the process. However, time has shown that forecasting is notoriously
fallible no matter how sophisticated a modelling technique may be. At best, strategists can develop a
scenario or a number of alternative scenarios of what is plausible about the future. These scenarios
or key assumptions about the future become the platform upon which judgements are made
concerning the likely impact that these developments will have in terms of opportunities and threats
for the organisation. The review of the external environment is broken down into two main parts:
1 The remote (or macro) environment – the broad area of the environment that impacts on
society as a whole. Changes in the remote environment can impact on society as a whole and in
turn on the organisation and the industry and markets the organisation competes in.
2 The near (or industry) environment – the more specific environment impacting on each of the
organisation’s product-market segments.
Review of the remote (or macro) environment

There are five main remote environmental forces impacting on the planning unit: the economic,
sociocultural, political–legal, technological and the natural environment (including ecological
factors). These are driving forces of change or uncontrollable variables. The purpose of this review
is for those involved in the strategy development process to contemplate the future and to
determine the opportunities and threats that each external environmental factor is likely to create
over the period of the strategic time horizon. As was discussed in Chapter 2 there are three steps
involved in the review process:
1 Analysis – the process of decomposition, or breaking the whole into a number of constituent
parts to investigate their nature, functions and relationships
2 Diagnosis – a decision or opinion resulting from the analysis: to recognise and identify the
nature of the item investigated
3 Prognosis – the process of determining what is likely to happen: a forecast or a scenario
including the implications for the organisation in terms of opportunities and threats.
In preparing a situation analysis it is suggested that the review of each environmental factor
(discussed below) should likewise consist of two parts: (i) the scenario (or key assumptions) of the
future; and (ii) the implications of these scenarios for the planning unit. It is recommended that
these implications should be presented in a tabular format that not only identifies each opportunity
and each threat but also provides an assessment of its significance and the probability of its
occurring within the strategic timeframe. A double-digit five-point rating scale such as that shown
below is useful for this purpose.
RATING DEGREE OF SIGNIFICANCE OF THE RATING PROBABILITY OF OCCURRENCE

OPPORTUNITY OR THREAT
5 Extremely significant 5 Extremely likely
4 Quite to highly significant 4 Highly likely
3 Significant 3 Quite likely
2 Reasonably significant 2 Moderate
1 Not very significant 1 Low probability
For example, an assessment of 5–5 indicates that a specific opportunity or threat is highly
significant and is highly likely to occur. On the other hand, an assessment of 1–1 shows that the
opportunity or threat is not very significant and has a low probability of occurring. This type of
assessment has the advantage of enabling the analyst to readily sort out the wheat from the chaff.
The following is a summary of the key factors to be considered in the review of each of the
remote environmental forces.
The economy
The objective of this review is fairly obvious – to determine changes in economic conditions and
policies and to determine how these changes will affect the planning unit’s future operations; that
is, the likely impact of the economy on society as a whole, the organisation and the industry it
competes in, and the buyer behaviour of the market segments targeted, or to be potentially
targeted, by the organisation. The most common oversight in analysis of the economy is to overlook
the impact of the economy on the lives of individuals comprising the planning unit’s target markets.
The major economic indicators to consider are gross domestic product (GDP), the local and the
global business cycle trends (which range from depression to recession to recovery to prosperity),
the inflationary or deflationary trends, monetary policies, interest rates, credit availability, foreign
currency rates, government spending and taxing policies for firms and individuals, balance of
payments, foreign investment, saving rates, and the levels of unemployment and employment.
Economic trends need to be analysed in terms of the immediate or short-term impact through
to a longer-term timeframe.
The most significant economic trends are the evolution of a global economy, the shifts that are
occurring in global economic power, the emergence of global competition and global strategies, the
end of post–Second World War rapid economic growth in Western economies and stagnation, the
decline of manufacturing, the growth of services, the evolution of the post-industrial information (or
digital) age, the transition of economic power from the West to the East, and the impact of the
2008–13 global financial crisis (GFC) – which has created levels of uncertainty and credit shortages
in the business environment rivalled only by the Great Depression of the late 1920s. As McKinsey
directors Lowell Bryan and Dina Farrell advised in December 2008: ‘Uncertainty of this magnitude
will leave some leaders lost in the fog. To avoid impulsive, uncoordinated, and untimely ineffective
responses, companies must evaluate an unusually broad set of macroeconomic outcomes and
strategic responses and then act to make themselves more flexible, aware, and resilient’.12
The focus of economic analysis is to develop scenarios of possible economic outcomes and the
likely impact that changing economic conditions will have on the market and the marketplace in
which the organisation competes. In some cases a small change in one or two economic variables
will be highly significant while in others, unless there are huge changes, a shift in economic
circumstances will not make much of a difference on market demand. For example, an increase in
interest rates could underpin a decrease in demand for high-end luxury goods, but unless the
increase was significant it would not have much of an impact on market demand for everyday
commodity goods, although there might be a shift from premium to value-for-money brands.
The point to note is that some economic variables will be highly relevant for some organisations
and of lesser consequence for others. Therefore, strategists should select the economic indicators
that are the most relevant for the specific situation facing their organisation.
Sociocultural factors
This review combines three elements that are concerned with people and behaviour: demographic,
sociological and cultural. They have been grouped together because of the logical fit but in some
circumstances it may be preferable to treat each factor as a separate item. The main objective of
the review of sociocultural trends is to determine the significance of population and sociological
changes on the nature of the planning units’ customers and their purchase behaviour. This should
include analysis of changing demographic patterns and changing social values, attitudes and
lifestyles impacting (or likely to impact) on the markets targeted (or potentially targeted) by the
planning unit – as was defined in the business definition and scope section of the strategic plan.
Key trends to consider include population (size, growth rates and ethnic composition), age and
gender structure, family structure, levels of income and education, and various breakdowns of
occupation (type of work, full-time and part-time, working women), ethnicity and geographic
location. In addition to this demographic type of information, changing societal values and attitudes
need to be determined.
Of particular importance is the identification of emerging trends including those long-term
trends that are likely to ‘come of age’ during the timeframe of the strategic plan, such as, for
example, baby boomers (people born between 1946 and 1961) reaching the empty-nest stage of life
and/or retirement during the planning timeframe. Some of the more recent sociocultural trends
that have impacted on consumer marketing include an ageing population; the evolution of a
multicultural, fragmented society (along with the demise of market homogeneity); the rising
number of working women including working mothers; the emergence of the ‘new woman’; and the
division of society into ‘haves’ and ‘have-nots’. Additionally, a number of emerging segments have
been given labels such as yuppies (young upwardly mobile professionals), dinks (double income, no
kids), muppies (middle-aged urban professionals), woofies (well-off older folks), Generation X
(those born from the early 1960s to 1981), and Generation Y or Millenials (those born from the
early 1980s to the early 2000s). For business-to-business (B2B) marketers, the review of
sociocultural trends may take into account the above consumer trends for their end-markets. For
example, a supplier of components for the automotive industry would need to consider the impact
that consumer trends may have on the level and type of automotive sales. B2B marketers should
also review their customer profile under this section (perhaps using a more appropriate heading),
considering such factors as the number, size and type of customers, and their location and
distribution. The review should also include any significant business cultural influences that may
exist in the organisation’s industry. For example, the entry of multinational companies into an
Australian market may lead to a greater level of sophistication in the industry or different ways of
conducting business.
Analysis of sociocultural trends is one of the most important facets of strategic analysis,
particularly from a marketing point of view. In many cases emerging trends may be in the form of
relatively weak signals indicating shifts in social attitudes and behaviour that may lead to changes in
customer preferences and buying behaviour for the organisation’s products and services. It is
important to look for signs of emerging segments of the population who have unmet or unfulfilled
needs concerning the product categories that we compete in now or in the future (blue oceans).
Since the 1990s many leading organisations have drawn on the services of a breed of researchers
known as coolhunting agencies to provide observations and predictions about emerging trends
particularly concerning the youth market and fashion industries.
Political–legal factors
The major concern here is to determine if there is any proposed legislation or other regulatory
processes that are likely to impact on the industry of the organisation within the strategic timeframe.
Legislation may be imposed at the federal, state or local government level and by various government
instrumentalities such as the Australian Competition and Consumer Commission (ACCC). It is
therefore necessary to monitor the policies of political parties (particularly the main parties) and the
various regulatory agencies and instrumentalities. Changes in legislation can alter an industry
overnight. For example, legislation concerning compulsory employer contribution to superannuation
stimulated growth in the financial advisory and superannuation industries in Australia during the
early 2000s. It is therefore important, if not essential, for the organisation to monitor the political
and legal environment so that strategic plans can be developed to cater for changing conditions.
Political trends that have impacted on industry over the past few decades include the adoption
of policies based on economic rationalism, the move towards free markets and the removal of trade
barriers (which has made way for the opening up of global competition), deregulation of financial
markets and the telecommunications and airline industries, the move towards commercialisation/
privatisation of government instrumentalities, and an overall slow pace of essential microeconomic
reform.
Technological factors
The impact of technological change on society and industry cannot be overstated. As discussed in
Chapter 1, technology is ubiquitous as it impacts just about every facet of our social and business
life. In order to focus your analysis of technology, the focal point is to consider the impact that
technological change may bring about to each stage of the value chain starting with the
downstream activities consisting of the market (customer behaviour) and the marketplace
(competitors and intermediaries). For example, technology has changed the way individuals seek
information about products and services, the way they purchase (such as directly via the Internet)
and the way they receive and send marketing communication (with many more changes to come as
the digital revolution progresses, particularly the continuing trend towards the use of mobile
devices). Information technology has brought about major change in the distribution channels in
many industries, with end-user customers able to bypass intermediaries such as travel agents or
sharebrokers. New business models have evolved to take advantage of the opportunities provided by
information technology innovation. Moving upstream in value chain activities, it can be seen that
technology has changed the way goods are produced and where they are produced, just as it has
shortened the length of product life cycles and the overall tempo of business. It has also helped to
bring about changes in supplier–buyer relationships.
The natural environment (including ecological factors)

The natural environment can impact on the availability and quality of supply (raw materials), energy
supply and cost (for example, water, electricity or gas restrictions), and government policies
concerning such factors as pollution, recycling and genetically modified food products. Weather
conditions, for example, can significantly impact upon demand in many industries. Extreme summer
or winter conditions or unfavourable weather conditions can affect consumer markets such as ice-
cream, confectionery, clothing and fashion. Agricultural production is, of course, vulnerable to
weather conditions and supply shortages or excesses are a common problem for this industry.
Since the 1980s sustainability management has increasingly become a major issue for
organisations of all shapes and sizes. A global survey conducted by McKinsey & Company in 2011
found that 63 per cent of the 2956 companies surveyed had taken actions to actively reduce energy
use in their production processes, 61 per cent in reducing waste, 51 per cent in managing corporate
reputation for sustainability, 46 per cent in responding to regulatory constraints or opportunities
and 43 per cent in reducing emissions from their operations. However, it was also found that very
few companies were leveraging the sustainability of their existing products in order to find new
growth opportunities. Nor had many companies committed their R&D resources to develop new
sustainable products.13
Review of the near (or industry) environment

Turning from the broader aspects of the remote environment, this phase of the situation analysis
moves towards a more specific review of the near environment confronting the planning unit. There
are five interrelated factors to be considered in this review: market review, competitive review,
distribution channels and buyers (intermediary customers), customers (end users) and supply.
Market review and assumptions about future market demand

This is the focal point of strategic analysis. The purpose of this review is twofold:
• to arrive at assumptions about future market demand – that is, estimates of the total market
sales in terms of value and volume for each year within the strategic timeframe, including a
breakdown of total market sales by product category
• to arrive at a view of future market attractiveness.
Once again, the term ‘assumptions about the future’ is used to emphasise the point that the future
is unknowable. It is possible to develop assumptions about what the future might hold but it has to be
borne in mind that, no matter how sophisticated our approach may be to forecasting the future, this is
an imprecise science. The process of arriving at assumptions about future market demand commences
with an examination of historical data through to the most recently available (current) information.
This information provides the marketing strategist with a starting point for making judgements about
the future growth or otherwise of the market. There are a number of market forecasting techniques
that can be used to assist in making this judgement; these fall into three main categories:
1 Formal modelling techniques. These are techniques specifying an explicit mathematical
model, relying on ‘hard’ data to build and implement the model. There are three categories of
formal models:
a Sales trend/time series models. Forecasts are made on the basis of statistical analysis of
past data. The assumption is that historical trends indicate the future. Various techniques
can be used to search for regularities or patterns of change in a sales series. Trend
analysis is used to uncover growth trends over a preselected future period of time. It is
useful for forecasting annual sales over a period of several years. However, if annual
growth fluctuates significantly then a number of techniques can be used to ‘smooth out’
the short-term fluctuations. These include long-run averages, moving averages, curve
fitting techniques (searching for linear or non-linear trends), exponential smoothing, the
Box–Jenkins time series analysis and decompositional methods. Time series techniques
are used to uncover factors that may cause short-term fluctuations in the long-term trend;
for example, cyclical effects on sales that are medium length, sales that are up and down
or have wavelike movements around the trends, or short-run seasonal effects on sales
(within one year) due to predictable events such as seasonal conditions or irregular events
such as sudden economic downturns or physical events such as earthquakes, storms or
heatwaves.
b Causal methods/descriptive models (econometric analysis). Whereas time series
analysis is unsuitable for long-term forecasting and for market conditions that are unstable,
causal methods express demand as a function of a number of factors that will determine
its outcome. The most typical methods used are regression analysis and input–output
models.
c Customer aggregation models. These models break down sales into their major
components. Each component is then forecast and the resulting forecasts are multiplied
together to get a sales estimate. That is:
S¼NLR
where S ¼ estimated future product sales, N ¼ the number of people (or organisations) in
the target market, L ¼ the likelihood that the typical person (or organisation) in N will make
a purchase in the forecast time period, and R ¼ the quantity purchased during the forecast
time period.
2 Judgemental techniques. These do not require an explicit model; rather they use ‘soft’ data or
opinions. For example, a jury of executives may be formed to make judgements about the
future, or a more formal method such as the Delphi technique may be used. With the Delphi
model a group of experts or company executives are required to make individual judgements
about the future. They are brought together in a group and individual judgements are then
compared. After an iterative process individual judgements are modified until a group
consensus is formed.
3 Market and product analysis. Formal market research tests are used, such as a survey of
‘buyer intentions’ as a determinant of future market growth. In the case of new product
categories, product testing or test market research may be conducted.
Whether formal modelling techniques, judgemental techniques or market and product research
techniques are used, a most useful decision-making aid is an industry analytical technique
developed by Porter.14 Box 3.1 consists of a summary of 14 ‘potential driving forces of a market’,
which can be used for the purpose of making a judgement about the future. It is suggested that
these 14 factors should be used as a checklist for the task of contemplating the future size and
shape of a market. The shape of a market comprises the product categories that make up the total
market.
B O X 3. 1
The potential driving forces of a market
Long-run changes in growth. Changes in the long- capital), distribution (for example, transport costs)
term growth rate are driven by demographic shifts, or marketing (for example, media costs) can
changing customer needs, changes in the relative increase or decrease the cost of the product,
position of substitutes, changes in the position of thereby affecting demand.
complementary products, market saturation and Product innovation. Product innovation can widen
product innovation. the market (and therefore promote industry
Changes in buyer segments served. New buying growth) and can give a player a competitive
segments develop: for example, scientific calculators advantage resulting from product differentiation.
were first sold to engineers and scientists but later Marketing innovation. Innovative marketing in areas
were bought by businesspeople, students and such as advertising or the use of new distribution
various other buyer segments. channels can attract new users of the product and
Learning by buyers. As buyers become more reduce price sensitivity (by raising product
familiar with a product category, the mystique is differentiation). More efficient marketing and
removed and the product comes to be treated as a distribution can lower costs.
commodity. Process innovation. Innovations in the
Reduction of uncertainty. In the early stages of a manufacturing process can lead to a lessening of
market’s development, uncertainty as to the capital intensity, an increase or decrease in
potential size of the market and other marketing economies of scale, and other factors that impact
information leads the various players in the market on the industry structure. This could lead to a
to experiment with different marketing strategies. broadening of the base for the use of the product
As the market grows, the uncertainty is reduced and category.
strategies that have proven to be successful are Structural change in adjacent industries. The
imitated by most of the players. As the uncertainty structure of the suppliers’ and customers’ industry
dissolves, new types of competitors may enter the can impact the market. For example, the trend
market, stimulating competitive activity. towards a concentration of ownership of
Diffusion of proprietary knowledge. As technology supermarket outlets in Australia led to changes in
becomes more established over time, and less their bargaining power. Manufacturers supplying
proprietary, the advantages the pioneer enjoyed due supermarkets had to adjust their marketing methods
to technological superiority diminish. and, in many cases, their profit expectations.
Accumulation of experience. The learning curve Government policy change. Changes in government
results in a reduction of the unit cost of policy can affect key variables such as entry into the
manufacturing in some industries. Prices may fall as industry, competitive practices and profitability.
a result. Changes can also affect marketing strategies and
Expansion (or contraction) in scale. As a market performance in areas such as product quality,
grows, it increases in scale and this often leads to a packaging and labelling requirements, pricing
growth in absolute size of the leading competitors. strategies and promotion strategies.
This may provide the larger players with the ability Entry and exit. New players to a market and the exit
to gain economies of scale in production, establish of existing competitors affect the structure of the
captive distribution channels or captive service industry. Barriers to entry and exit therefore play an
organisations, and gain cost efficiency advantage in important role in the market entry or exit process.
advertising. Source: Adapted with the permission of Simon & Schuster
Changes in input costs and exchange rates. Changes Publishing Group, a division of Simon & Schuster, Inc. from the
in the cost or quality of inputs to manufacturing (for Free Press edition of COMPETITIVE STRATEGY: Techniques for
Analyzing Industries and Competitors by Michael E. Porter.
example, wages and material costs and the cost of
Copyright Ó 1980, 1998 by The Free Press. All rights reserved.
The objective is to choose from this checklist the forces that are most likely to have a
significant impact on the future size and shape of the market. These forces will vary from industry
to industry and over time. Generally, only about three or four of these potential forces are likely to
be significant.
A product life cycle (PLC) type of chart is an ideal descriptive tool for portraying historical market
data and scenarios of the future. The PLC concept is based on the premise that, like people,
markets advance through a number of evolutionary stages ranging from birth (introduction), growth
and maturity, to decline and eventual demise. This concept has proven to be a most useful tool for
portraying the evolutionary course of a market, but has not been without its critics. Chapter 4
discusses the concept more fully, but the point needs to be made here that the issue is an
empirical one, not a theoretical debate. A PLC can be graphed and, if it follows the S-shaped
pattern, it is reasonable to assume that the concept holds. If the graph does not follow the
S-shaped pattern, the concept probably is not a useful tool for that particular market.
Future market attractiveness

The second objective of the market analysis is to arrive at a view concerning future market
attractiveness (at the end of the strategic timeframe). Porter’s five-forces model, shown in Figure 3.2,
provides an invaluable analytical tool for this purpose.15 It is suggested that the analysis of market
attractiveness should cover two points in time: the current level of market attractiveness (based on
currently available data) and market attractiveness at the end of the planning period (based on
assumptions about changes that may take place).
FIGURE 3.2 Porter’s five-forces model: forces driving industry competition
Potential
entrants
Threat of
new entrants
Industry
Bargaining power competitors Bargaining power
of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of
substitute products
or services
Substitutes
Source: Michael E. Porter, ‘Industry structure and competitive strategy: Keys to profitability’’, Financial Analysts Journal,
July–August, 1980, p. 33.
Porter argues that the competitive intensity within an industry, and hence industry profitability,
depends upon the collective effect of five forces. At the centre of the model is competitive rivalry –
the intensity of rivalry among existing competitors. The greater the intensity, the less attractive the
industry may be as margins come under pressure from a combination of price-cutting activities and
high marketing costs that typically occur in competitive situations. Several factors contribute to
these situations of intense competition including the existence of numerous or equally balanced
competitors, slow industry growth, lack of differentiation, low buyer switching costs, high fixed
costs, a demand/supply balance that can often lead to overcapacity, perishable products (and
especially services) and high exit barriers.
Porter also suggests that when there are high strategic stakes involved, or when the
competitors are diverse in their strategies or in their background or personality, the greater is the
likelihood of intense competition. Intensity of competition is also affected by the other forces
shown in Figure 3.2. A threat of new entrants can make an industry unattractive. Such a threat
can occur when the barriers to industry entry are low (such as when economies of scale are not
important); there are no cost advantages for existing competitors (such as large-scale R&D
investment); there are few strong brands (that is, a lack of product differentiation); capital
requirements for industry entry are relatively low; there is relatively easy access to distribution
channels; or there is no form of government protection for the existing competitors. When the
bargaining power of buyers is high, the industry can also be unattractive. This can occur when
there are only a few large buyers in the market; the buying volume is large; there is low
differentiation between competitive products (such as with commodity types of products); the
value of the industry product is low; the seller’s quality of product is relatively unimportant to the
quality of the buyer’s products or services; there are low switching costs for the buyer; there are
high switching costs for the seller; the buyer is a low-profit earner; the buyer has access to full
market information; or there is a possibility of the buying organisation purchasing a company that
supplies the industry product (that is, to integrate backwards and therefore become a competitor).
Much the same is true when the bargaining power of suppliers is high. This can occur when there
are only a few large suppliers; the supplier’s product is highly differentiated or unique; the supplier
sells the same product to other industries (and is therefore not reliant on this industry); or the
suppliers could forward integrate and enter the market as a competitor. Finally, the availability of
substitutes makes an industry unattractive when substitute products are close in performance and
price to the industry’s product, there are low switching costs, and switching is a commonplace
occurrence.
It should also be noted that each of the remote environmental forces can directly impact upon
one or more of the five forces. For example, industry deregulation can remove barriers for entry and
change the intensity of competition. Likewise technological change can change the operation of the
supply chain and the buying power of intermediaries and end-user customers. Technological
advances lead to the creation of new product categories and the demise of others, which, by
impacting on the size of the market, can underpin more or less competitive intensity. When
conducting a review of the five forces it is therefore essential to consider the remote environmental
forces.
Competitive review
As was discussed in Chapter 1, market-oriented organisations focus on customers and competitors.
Therefore, a most significant part of the strategic marketing management process is the analysis of
the marketing strategies of all existing and potential competitors. This analysis must extend beyond
the basics, and an attempt must be made to understand the logic behind each key competitor’s
strategy: how they think and their likely future moves. The objective is to get inside the
competitors’ heads – to be able to anticipate rather than just react to their strategic actions.16 To do
this, the strategists need to obtain the following information pertaining to their main competitors:
1 the geographic markets they compete in; that is, whether their operations are confined to one or
a few local markets or whether they compete on a national, regional or international level.
2 their current marketing performance, including sales (by volume and value) and market share,
categorised by appropriate market segments.
3 their competitive position. Are they on the move and getting stronger, well entrenched and able
to maintain their position, stuck in the middle of the pack, attempting a turnaround from a
weak position, struggling and losing ground, or retreating to a defensible position (such as a
small niche in the market)?
4 an analysis of their current corporate and marketing objectives and strategies, and an
assessment of whether they would be satisfied with their current position and performance in
the market. Are they an offensive or defensive player? Are they an aggressive risk taker or a
conservative follower? A most useful tool for this type of assessment is to characterise each
competitor according to a classical typology provided by Miles and Snow.17 In this typology
competitors are classified into four strategic types – prospectors, analysers, defenders and
reactors – based on their intended rate of product-market development. Refer to Box 3.2 for a
description of each competitor type. Each competitor analysis should also include information
concerning that competitor’s customer base, their overall strategic approach and their customer
value creation mix strategies.
5 the analysis of the corporate strategy, which should determine the competitive strategy being
pursued. Just as it important for the strategists to determine the strategy style that is most
appropriate for their organisation, it is also important to attempt to identify the strategy style
used by each of the main competitors.
6 the likely future goals and strategies of each significant competitor.
7 the capabilities, that is, the internal strengths and weaknesses, of each significant competitor.
8 the vulnerabilities of each significant competitor.
9 moves that can be made that may provoke the most effective retaliation by each significant
competitor. Game theory models provide strategists with a useful tool in this regard.
B O X 3. 2
Characteristics of competitors – as identified by Miles and Snow
• Prospector. This competitor operates in a broad • Defender. This competitor attempts to locate
product market that undergoes periodic and maintain a secure position in stable product
redefinition, is a ‘first-mover’ in launching new or service areas, has a limited range of products
products and in entering new markets (which or services, competes with lower prices or
are not always highly profitable), responds higher quality or better service vis-à-vis its
rapidly to opportunities, and competes primarily competitors, and is usually not at the forefront
by stimulating and meeting new market of technological innovation or new-product
opportunities. development.
• Analyser. This competitor is an intermediate have a product-market orientation, is not a risk

type who makes fewer and slower product-market taker in introducing new products or in market
changes than prospectors, attempts to maintain development, is not aggressive in marketing
a stable limited line of products or services, is established products, and responses of this
seldom a first-mover and is more often a competitor are dictated by environmental
second or third entrant with a lower cost or pressures.
higher quality offering.
Source: Based on R.E. Miles and C.C. Snow,
• Reactor. This competitor lacks any Organizational Strategy Structure and Process,
well-defined competitive strategy, does not McGraw-Hill, New York, 1978. Stanford Press, 2003.
Distribution channels and buyers (intermediary customers)

The main emphasis of this part of the industry-level review is to determine the following criteria:
the way the distribution channels operate for this industry; where the power lies in the distribution
channels; emerging trends such as moves towards strategic alliances between competitors and
intermediaries; potential strategic alliances for the organisation (collaborators); and the use of
technology, particularly the Internet, electronic data interchange (EDI), product barcoding, just-in-
time (JIT) inventory management and quick response (QR) automatic ordering mechanisms. The
review should include an analysis of the distribution structure (the number and type of distributors
serving the total market including a breakdown of sales by the various intermediary types),
historical trends in the distribution channels including a scenario of future developments, the key
players in the distribution chain, and the power base of the buyers (refer to the previous discussion
of the bargaining power of buyers in relation to the Porter five-forces model). Trends concerning
physical distribution (transportation and warehousing technology) should also be reviewed. Most
importantly, the review should include information concerning the wants and needs of the
intermediaries. These organisations are customers of the planning unit and it is essential that their
wants and needs, objectives and trading conditions are fully understood – in particular, the margins
applied by the various intermediaries, promotional requirements, policies concerning new line fees,
stock delivery and inventory management requirements.
Customers (end users)

This review is, of course, a most critical area of analysis for market-oriented organisations. This is
because insufficient knowledge of customer behaviour and attitudes (as well as a failure to segment
a market in the most advantageous way) is one of the most common mistakes made in marketing.
In previously discussed sections of the situation analysis (namely, the business definition and scope
and the market review sections), the various market segments within the total market were
identified. In this section, information is provided about the people who comprise those market
segments. In other words, information is provided on customer buyer behaviour including such
issues as: Who are the buyers (or potential buyers)? Who is involved in the purchase decision
process (initiators, influencers, decision makers, buyers and users)? What do they buy? Why and
how do they buy? (That is, what is the complexity of the purchasing process and the degree of
involvement in the purchasing process?) Where do they buy? What trends are emerging regarding
buyer behaviour? What are their changing needs and preferences? How do current customers and
prospective customers rate each of the competitors in regard to product quality, price, availability,
brand reputation, customer service/customer engagement and value?
This review needs to go beyond mere demographic information to provide socioeconomic,

lifestyle and psychographic profiles of the key market segments. For business-to-business
marketers, end-user customers are organisations and individuals in those organisations that are
involved in the purchase process. See Chapter 5 for a further discussion of the market segmentation
process including a summary of the various ways both consumer and business-to-business markets
can be segmented.
There are a variety of market research tools that are available to help marketing strategists gain
insights into the wants and needs of their customers and buying preferences. In addition to
quantitative methods, such as the big data and predictive analytics discussed at the beginning of
this chapter, and survey research, there are traditional qualitative techniques available such as
focus group research, personal interview research and ethnographic research. There are some
recently introduced techniques. These include: coolhunting, real-time experience tracking (RET),
social media intelligence gathering and Google Analytics.
Coolhunting marketing agencies are commissioned by marketers targeting a youthful
demographic in order to uncover emerging and declining trends using a combination of research
techniques such as focus group research and online surveys.
RET was developed by MESH Planning, a US market research company, for the purpose of
providing marketers with information that captures customers’ brand experience almost
immediately. Members of a purpose-built consumer panel are required to send text messages from
their mobile phones each time they come across a specified brand or one of its competitors over a
1–4-week period of time (depending on the length of the purchase-decision journey). They are
required to report on just four things about each encounter they have with each brand: the brand
involved; the type of touchpoint (such as a television ad, an online ad, a tweet about it, or a sighting
in a shop); the degree to which they felt positive about the brand; and how persuasive they felt the
touchpoint was. They are also required to add further information online and complete a pre and
post survey to establish changes in brand attitude.18
Social intelligence gathering is based on the premise that people who have expert knowledge
about markets and have the power to shape perceptions about markets use social platforms to
exchange data and viewpoints with others. Social intelligence gathering consists of identifying these
key experts and using Web-based analytical tools to obtain meaningful strategic information
gathered from appropriate social media sources such as blogs, Facebook, Twitter, YouTube and
LinkedIn. The process involves the development of dynamic maps that allow the analysts to
pinpoint where the information and the experts reside, to capture and track real-time data.19
Google Analytics is a service provided by Google that generates data concerning Web usage. A
wide variety of analytical tools are available ranging from standard reporting to custom reporting
covering areas such as content, mobile, conversion and advertising analytics.20
Supply
The issue of industry-level supply is of interest to strategic marketing planners if there is a
likelihood of supply shortage or excess industry capacity. Supply shortages can occur in industries
such as food processing where crop failure or an outbreak of disease, for example, might adversely
impact on individual competitors or the entire industry. A first-mover in an industry might also tie
up supply as a means of creating entry barriers or, at least, of securing a major competitive
advantage. In some industries, usually where there is intense competitive rivalry, even slight excess
capacity can trigger a price warfare and a corresponding reduction of profitability for all
competitors.
The review of supply should also take into account the power of suppliers, previously discussed
as a part of Porter’s five-force model, and the likelihood of change occurring concerning the nature
of supply: for example, motor car manufacturers dealing with suppliers of plastic bumper bars
instead of suppliers of steel or aluminium bumper bars. Technology is often a driving force of
change concerning the nature of supply.
Completing the external environment review

To conclude this discussion of the external environmental analysis, it needs to be reiterated that
the objective of this review is to: (1) analyse the key external factors at both the remote and near
levels that will impact on the organisation as a whole and its marketing performance; and (2) from
the analysis of each factor diagnose the opportunities and threats that each of these items will
present to the organisation. Some of these opportunities and threats will need to be addressed at a
higher level of business strategy development, while others will become specific issues to be
addressed as a part of the strategic marketing management process.
The final task to complete the environmental analysis (for both the remote and near levels) is to
compile a ranking of the opportunities and a ranking of the threats. That is, sort all the
opportunities into an order starting with listing the factors with a 5–5 rating. Repeat this procedure
for the threats. The end result is a ranked listing of the threats and a ranked listing of the
opportunities that exist, or are expected to exist, in the external environment. It is suggested that
this information should be presented in a matrix format, as shown for opportunities in Figure 3.3.
Those factors listed in the top-left quadrant, which are highly significant and have a high probability
of occurrence, are thus highlighted and brought to the attention of those responsible for the
development of marketing strategies. This matrix should then be repeated showing the threats that
were revealed in the external environment review.
FIGURE 3.3 Summary of opportunities
Significance of opportunity
High Low
High
Probability of
occurrence
Low
Determination of critical success factors

Upon completion of the external environment review, the marketing strategists are now in a
position to step back and contemplate the prerequisite skills and resources that an organisation, in
a similar competitive position to the planning unit, must have in order to perform successfully in
this industry. Critical success factors (CSFs) – also described as key success factors (KSFs) – are those
skills and resources (internal capabilities) ‘that exert the most leverage on positional advantage and
future performance’.21 Day and Wensley argue that there are two means of gaining positional
advantage: ‘the provision of superior customer value or the achievement of lower relative costs’.22
That is, CSFs are those skills and resources that do the most to either lower costs or create
superior customer value.
The notion of CSFs is relatively simple but unfortunately the task of identifying the
prerequisite skills and resources for success is not so simple. There are basically two ways the
task can be undertaken: executive judgement and analytical approaches. The former involves
judgements made by management and/or those involved in the strategic marketing management
process or by industry experts. Analytical approaches involve attempts to identify causal
relationships between organisational capabilities and outputs or performance. For example, a
study of industry winners and losers might be conducted with the objective of unearthing factors
that contributed to the success of the winners. Alternatively, analytical attempts might be made
to discover causal relationships between controllable variables (for example, size of the sales
force) and outcomes (for example, cost of sales per unit). However, the identification and
isolation of causal variables is problematic, and attempts to scientifically deduce CSFs have
generally not met with much success.
Whatever the approach used to determine CSFs, a most useful decision-making aid is the
value chain model developed by Michael Porter.23 The concept of the value chain is based on
the identification of the variety of primary value-adding activities that are involved from the
start to the end of the process of transforming a raw material, or raw idea, to the delivery of a
finished product or service to a customer including the continuation of a relationship with that
customer.
Porter identified five primary chains of activity that are common or generic to all organisations,
which he labelled as: inbound logistics, operations, outbound logistics, marketing and sales, and
service. He also identified four support activities: procurement (purchasing), human resource
management, technology development and infrastructure.
This process of disaggregation or decomposition allows the strategist to examine each of the
organisation’s activities and the value creation role played by each of its key functions (purchasing,
R&D, production, administration and marketing). Each of these functions or activities is influenced
by the combined effect of the critical success factors. In some industries, having access to limited
raw material supply may be the number one critical success factor. In others, it may be to achieve
economies of scale in production or in distribution, or in other areas of marketing activity such as
sales force or the ability to fund an appropriate infrastructure to service various customer
touchpoints effectively and efficiently. Several of these CSFs are of concern at an organisation-wide
level (such as financial strength, production capabilities and R&D superiority) and would therefore
be addressed in a broader strategic planning context rather than strategic marketing planning.
Marketing-related CSFs typically include such factors as brand image (to create and sustain
selective demand among both end users and intermediary customers), uniqueness of product,
quality of product, depth of product range, power in the distribution channels and distribution
coverage including all of the customer touchpoints along the value chain. The significance of each
factor will vary according to the type of industry, position within the industry and the strategy being
pursued. For example, economy of scale is generally critical for the achievement of a low-cost
leadership position, whereas consumer franchise (strength of the brand name) might be the most
significant factor in a differentiation strategy.24
There comes a time when even the most successful employees dropped from 400 000 in 1986 to just
companies take their eyes off the road ahead and over 200 000 in 1994. However, all was not lost. In
run into serious trouble. Such was the case in the 1993 Lou Gerstner was appointed CEO and, just a few
early 1990s when one of the all-time giants of months into the job, began a process of change based
American industry was on the brink of collapse. on a dynamic capabilities style of strategy that was to
After recording losses of US$16 billion from 1991 to transform IBM from a producer and seller of hardware
1993, IBM Corporation was on the verge of failure to a broad-based IT solutions provider. The key
and plans were being prepared to break the components of a dynamic capabilities strategy are the
company up. ability of a company to sense and seize opportunities
So how did a company that only a few years and to be able to reconfigure the organisation’s
before was the second most profitable company in structure and competencies to implement the
the world spin out of control so quickly? In IBM’s strategies. Gerstner recognised that the market was
own words, ‘We became complacent. We took our shifting and that the application of technology would
eye off the marketplace. We were too slow to become the future driver of growth for the company.
exploit new technologies. But more than anything, it ‘The Next Big Thing’ would be a network computing
seemed that over the past decade the industry had revolution. As IBM employees were informed:
moved away from our kind of computing and our Few companies get a chance to step
way of working with customers’.25 forward and change the world in
IBM made its fortune during the heyday of the meaningful ways. A second chance is
mainframe computing era of the 1960s and 1970s nearly unheard of. Yet, with the rise of
by leasing expensive computers to its business a networked world, that’s the
customers and by providing an integrated service to opportunity we’ve been given.26
ensure that everything worked. But the seeds of
Over the next two decades IBM shifted its
destruction had been sown in the 1970s when
business mix by exiting its consumer, network
personal computers came onto the market, at first
hardware, business, application software, storage and
appealing to the consumer market and later, as they
personal computer businesses and by investing
became more and more powerful, to the small
heavily in the higher-value services (IBM Global
business market. IBM made two fundamental
Business Services and IBM Global Technology
mistakes. First, when it introduced the IBM PC in
Services) software and integrated solutions. In 1993
1981 its strategy of open architecture opened the
when Gerstner became the CEO, services
way for IBM compatibles and clones to enter the
accounted for 27 per cent of revenue and software
market and eventually run rings around IBM with
did not exist. By 2001, services and software had
cheaper and often superior computers. Second,
grown to become $35 billion and $13 billion
IBM was too slow to respond to the changing IT
businesses representing 58 per cent of the
environment when PCs became networked and
company’s total revenue. Market capitalisation
took over much of the work previously performed
increased nearly sixfold from $30 billion to $173
by mainframe computers. IBM stood and watched
billion, and the share price increased sevenfold.
as Cisco, Dell, Intel and Microsoft grew to dominate
Sam Palmisano, who took over from Gerstner as
the industry.
CEO in 2002, continued the transformation of
The biggest dangers are the ones companies don’t
the company and, by 2006, software and services
see coming and, while the signs were there, IBM
represented 70 per cent of revenue.
overlooked the seriousness of the situation. Many Wall
Street analysts started to write off IBM as a company Source: J.B. Harreld, C.A. O’Reilly III and M.L. Tushman,
and, by 1991, IBM’s share price had plummeted to the ‘Dynamic capabilities at IBM: Driving strategy into action’,
Californian Management Review, vol. 49, no. 4, 2007, p. 21.
lowest it had been since 1983. The number of
Review of internal capabilities

The objective of the review of internal capabilities stage of the situation analysis is to determine the
organisation’s capabilities vis-à-vis those of its competitors, and its ability to compete successfully in
each of its chosen product-market segments – that is, how well the planning unit is placed to meet
existing and future challenges presented in the external environment in which it operates. This is
the marketing activity identified as company in the 5Cs of marketing. Of particular importance are
the planning unit’s capabilities in regard to the CSFs identified in the preceding step. The review of
internal capabilities focuses on two main areas of activity: organisation-wide capabilities and
marketing capabilities. The review of each activity within each of these categories commences with
an analysis of the organisation’s current and predicted status for that factor, followed by a diagnosis
of what this implies for the organisation in terms of its strengths and weaknesses.
It is suggested that each individual strength and weakness should be diagnosed on the following
single-digit five-point scale rating:
RATING DEGREE OF SIGNIFICANCE OF THE STRENGTH OR WEAKNESS

5 Extremely significant
4 Quite to highly significant
3 Significant
2 Reasonably significant
1 Not very significant
Organisation-wide capabilities
The objective of this phase of the situation analysis is to determine the financial position of the
organisation and its ability to meet performance expectations – that is, an analysis of organisation
effectiveness. In most cases this review is developed as part of a broader strategic-planning
operation for the business unit as a whole. Where this is the case, this part of the situation analysis
consists of a summary of the pertinent findings from the higher-level business unit review.
Financial position
The financial position of an organisation is of paramount importance not only for the development
of corporate and business strategies but also for the development of marketing strategies. The
availability of sound financial resources should be considered a prerequisite for any marketing
strategy, and this factor should be taken into account before marketing strategies, particularly those
that call for market or product expansion, are considered. Analysis of financial factors should
include consideration of profitability ratios (return on equity, return on total assets, sales growth,
gross profit margin, net profit margin and expense ratios); liquidity ratios (working capital, current
ratio and quick ratio); operational efficiency ratios (asset turnover, inventory turnover, average
collection period and sales per employee); and leverage ratios (debt to equity, debt to total assets
and times interest earned). A cash flow analysis and sources and uses of funds analysis should also
be undertaken to give an in-depth understanding of the organisation’s financial position. After
analysing the organisation’s financial position (current and forecasted position), a diagnosis of what
this means in terms of strengths and weaknesses needs to be completed. Two of the most
important financial strengths or weaknesses to look for are the cost and investment positions of the
organisation relative to its main competitors and its overall (financial) ability to support its current
and future strategies. The appendix at the end of this chapter provides a summary of some of the
main financial ratios that can be used in analysing the financial position of the organisation.
Organisational effectiveness
The McKinsey 7-S model of organisation effectiveness, briefly discussed in Chapter 2, provides an
excellent framework for analysis of the organisation’s internal capabilities. The model combines
seven essential forces: structure, strategy, systems, skills, style and staff, which are all united by
shared values (organisational culture). Three of these forces (strategy, structure and systems) are
categorised as being hard while four are soft (shared values, skills, style and staff). The underlying
premise of the model, shown in Figure 3.4 below, is that all forces must be aligned and mutually
reinforcing for the organisation to succeed.
FIGURE 3.4 The McKinsey 7-S model of organisation effectiveness
Structure
Strategy Systems
Shared
values
Skills Style
Staff
Source: Based on R.H. Waterman Jr, T.J. Peters and J.R. Phillips, ‘Structure is not organization’,
Business Horizons, June 1980, pp. 14–26.
Structure
As discussed in Chapter 1, a trend towards organisational change evolved during the 1980s and
gathered momentum in the form of business process re-engineering (BPR) in the early 1990s.
Since that time organisations have experimented with all sorts of ways to break down hierarchical
functional organisational structures (functional silos) with matrix structures, process-based teams,
flat structures, network structures, collaborative structures and more recently, in the digital age,
virtual structures. This review emphasises collaborator activities of the 5Cs of marketing – in
particular the marketing-related downstream activities of the value chain, which are generally of
more concern at the business level of strategy planning. Regardless of the organisational structure,
the key consideration is to determine the organisation’s ability to coordinate its inter-functional
resources to create and to maintain superior customer value (for both end users and intermediaries)
and to respond to changes in the external environment ahead of its competitors. That is, to achieve
operational excellence and, in particular, to be able to efficiently and effectively respond to
customer needs over a multitude of touchpoints.
This review of structure should also include analysis of the innovation record of the
organisation. How successful has it been in developing new products and new processes (compared
to its main competitors)? How is research and development (R&D) organised – is it market-driven
or technologically driven? What is the level of funding for R&D and the overall standing of the
organisation’s R&D team in the industry? A critical question to ask is: What is the organisation’s
strike rate in successfully launching new products over the past three to five years compared to that
of its main competitors? Effective R&D may lead to an organisation having strengths in
technological innovation, being a pioneer in introducing successful new products, and continuously
improving and upgrading existing products. Conversely, the organisation may be falling behind in
the market because of a weakness in R&D.
Of particular significance for marketing is the positioning of marketing in the organisation. Is
the chief marketing officer (CMO) a member of the organisational leadership team and how
marketing oriented is the senior leadership team? This aspect of the organisation’s structure is
discussed in the next section addressing the organisation’s marketing capabilities.
Strategy
One of the most critical factors for the assessment of an organisation’s capabilities is its
competitive position – that is, its standing in the market. As Porter contends, ‘In analysing its own
position, a company must move from the vague notion of strengths and weaknesses to a central
(and precise) concern with its competitive advantages and disadvantages’.27 The analysis of
competitive advantage includes determination of the organisation’s position in each of the markets
it operates in, and its intended position for any new markets (blue ocean strategies). What is the
competitive strategy that the organisation is pursuing? Is it attempting to be the cost leader in the
mass market, to differentiate itself in the mass market, or is it pursuing a focus strategy (with either
a cost leadership or differentiation strategy for a market niche)? What is the organisation’s position
in each market? Is it the market leader, one of the top two or three, in the middle of the pack or a
struggler? That is, is it in a strong, average or weak position in each market? Are those positions
sustainable? What are the organisation’s capabilities for defending itself against any of the
competitors or any of the industry forces, especially the impact of digitalisation? The review of the
competitive position should include an analysis of the organisation’s costs relative to those of its
competitors, taking into consideration such factors as economies of scale, prices paid for raw
materials, labour, differences in internal operating costs, technology employed, marketing costs and
logistics costs. The objective of this review is to assess the organisation’s competitive position vis-à-
vis that of its competitors and to determine the extent of any competitive advantage (a strength) or
competitive disadvantage (a weakness).
Systems
How efficient and effective are the back office support functions such as IT, accounting, finance,
HR, logistics and all the other processes and procedures that make the organisation work?
A most critical aspect of this review of systems is to determine the current and future
production capabilities of the organisation – vis-à-vis the needs of the market in relation to the
capabilities of its competitors and the recommended marketing strategies. For example, there
are fairly obvious production requirements resulting from a strategy of market leadership based on
low-cost production compared to a strategy based on product quality differentiation or a strategy
based on serving a niche in the market (a focus strategy). The analysis would need to consider the
physical production facilities (location and size of factory, the state of plant and equipment, and
quality of labour), production techniques (including the use of total quality management and
benchmarking techniques), productivity levels and quality of production. Obsolete facilities
represent a weakness, as would a future supply problem (leading to product shortages or large price
rises). Strengths can be found with factors such as cost advantages, economies of scale, production
quality, proprietary technology, superior technological skills, superior manufacturing processes and
a lead in the experience curve. Service organisations could consider using the term ‘process
management’ as an alternative for this categorisation.
Style
The objective of this review is to assess the effectiveness and efficiency of management practices
and the leadership capabilities within the organisation. As Kotter points out, management in large
organisations is about coping with complexity – good management achieves a ‘degree of order and
consistency of key dimensions like the quality and profitability of products’.28 In order to deal with
complexity, managers plan (set goals for the future and establish detailed steps to achieve those
goals), budget (allocate resources to achieve the goals), organise (create organisation structures and
set jobs to accomplish the plans) and control (monitor performance and take appropriate action to
ensure plans are accomplished). Assessment of management capabilities therefore needs to
consider how effective and efficient these management practices are vis-à-vis those of the
competitors. On the other hand, leadership is about coping with change – the achievement of a
vision. Kotter argues that this requires the ability to motivate and to inspire – to keep ‘people
moving in the right direction, despite major obstacles to change, by appealing to basic but often
untapped human needs, values and emotions’.29 Assessment of leadership capabilities needs to be
considered against the background of change revealed in the external environment review that is
likely to face the organisation in the future. The greater the challenges facing the organisation, the
greater the importance of effective leadership.
From a strategic marketing management perspective, a key concern is the extent to which top
management is committed to a market orientation – that is, the extent to which management
attempts to shape understandings within the organisation of the need to focus on customers and
competitors (as discussed in Chapter 1). As Day points out, market-driven behaviour is more
likely when there is a committed and involved top management team, when reward systems are
based on external market performance, and when the organisation structure facilitates decision
making that is close to the customer and is based on processes that focus on customer value
creation.30
Staff
The analysis of this factor should cover consideration of workforce levels and productivity
performance, skill requirements, training, career plans, union influence, current and future
availability of people, working conditions and workforce morale, including an assessment of
organisational culture. Typical weaknesses in this area include shortages of skills, low morale, staff
shortages and union unrest. In services marketing, people are the key to competitive advantage,
particularly in providing effective customer service at all the various customer touchpoints. Factors
such as friendliness, prompt response, quickness in filling orders and handling payments, ability to
keep the line moving, and the capacity to be enthusiastic and to stay calm are all keys to a service
organisation’s success.
Skills
One of the most important prerequisites for an organisation to gain a competitive advantage is
having superior skills and resources to those of its competitors. This part of the analysis
commences with a determination of the current skill set requirement and one for the future. In the
digital age new skills in all sorts of areas are required for all sorts of functions such as IT support,
digital marketing expertise, customer service provision, data analysis, strategy planning, accounting
and finance. The next task is to determine what skill gaps exist.
Shared values
Shared values were originally titled superordinate (that is, higher order) values when the McKinsey
7-S model was first published in 1980. Shared values are meant to be the ‘glue that binds the
organisation together’. Waterman, Peters and Phillips, the authors of the 7-S model, argue that
shared values are not present in all or most organisations but that they are evident in most of the
superior performers. Therefore, the fundamental question is to determine how truly the espoused
core values of the organisation are shared within the organisation. If this is found to be the case,
the next step is to determine if these core values are represented in the organisation’s structure,
strategy and systems. If they are not, what needs to be changed?
Marketing capabilities
The analysis and diagnosis of the marketing element of the organisation’s internal factors is a
critical stage of the strategic marketing management process. An assessment of the planning unit’s
marketing capabilities needs to consider the way marketing is managed within the organisation and
the performance in the marketplace. This involves a review of the following factors.
Marketing management
The first part of the review of marketing capabilities is to determine the extent to which marketing
decision making and implementation is practised throughout the organisation. That is, how
efficient is the marketing operation within the organisation?
To accomplish this, four major areas of marketing management are recommended to be
included in the review: marketing organisation, market intelligence generation and dissemination,
marketing planning and marketing control. These are discussed below.
Marketing organisation
The objective of this review is to determine the importance attached to marketing. The key issues
are to: (1) identify the role that marketing plays in the organisation; and (2) determine if this role is
appropriate to maximise the organisation’s overall performance in creating, communicating and
delivering value to its chosen customers.
Is marketing of central importance to the organisation in terms of strategic direction? Does the
organisational structure provide for an optimal focus on customer value creation, communication
and delivery? That is, are customer-related activities conducted throughout the organisation and by
other value chain partners? Are these activities managed effectively and efficiently? Is there a focus
on competitive activity? How are marketing-related decisions made within the organisation? What
is the role of the marketing department?
Market intelligence generation and dissemination

Does the organisation receive timely and insightful market intelligence concerning external remote
and near-level environmental information? In particular, is there a high level of timely and
insightful information concerning customer (both end-user and intermediary customers) needs and
preferences and competitor activities in the product markets being served now and in the future?
An important distinctive capability of a market-oriented organisation is its ability to ‘sense events
and trends in their markets ahead of their competitors’.31 To achieve market-sensing superiority,
Day proposes a four-step process of gathering, interpreting and using market information:
1 Open-minded inquiry. This involves information concerning trends, events, opportunities and
threats in the market. It consists of:
a active scanning – management is systematically informed by front-line staff of customer and
competitor activity such as customer complaints, requests for new services and
consequences of competitor activity
b self-critical benchmarking – the study of attitudes, values and management processes of
world’s-best practice in any industry
c continuous experimentation and improvement – the systematic planning and observation of
the results of ongoing changes made towards improving productivity and customer
satisfaction, leading to the adoption of processes that improve performance
d informed imitation – the study of direct competitors so that successful moves can be
emulated before the competitors move too far ahead. The emphasis of the study is on
determining how and why the competitor succeeded, including a probe of what the
competitor achieved in terms of superior performance and features and identification of any
problems or shortcomings that customers might raise.
2 Synergistic information distribution. Information is widely distributed and there are no
blockages preventing information getting to those in the organisation who need it.
3 Mutually informed interpretations. In many cases managers have a distorted, incomplete or
unfounded personal view or mental model of the market in which they operate (such as how
the market works and how competitors and suppliers would react to their marketing programs).
Market-oriented organisations use scenarios and other devices to force managers to articulate,
examine and eventually modify their mental models.
4 Accessible memory. This involves the sharing of information and collective learning and
memory of successes and failures so that managers do not have to relearn what should be
known. Information technology can play an important role in providing a mechanism for the
retention of this knowledge.32
Marketing planning
How effective is the marketing planning process? That is, do the marketing planning practices
provide the planning unit with the ability to develop and implement proactive and effective
marketing strategies? Or is the process cumbersome, time-consuming and largely ineffective?
Marketing control
Does the planning unit monitor performance in order to ensure that marketing objectives (annual
and longer-term objectives) will be met? That is, does the monitoring system provide insightful and
timely information to detect problems in performance in time to take corrective action – to enable
strategic marketing planners to modify objectives caused by changes in the external environment
and to modify strategies in light of this information (an adaptive control system)?
Marketing strategies and performance

Whereas the first part of the review of marketing capabilities emphasises the efficiency of the
marketing operation, this part of the review emphasises effectiveness aspects. The review
commences with consideration of the alignment of the organisation’s customer value creation
activities and the organisation’s overall strategic positioning. The importance attached to these
activities would differ substantially (for example, between an organisation pursuing a focused
differentiation strategy based on brand image and that of an organisation pursuing a market-wide
low-cost strategy). (Strategic positioning is discussed more fully in Chapter 4.)
The next step is to consider specific aspects of the customer value creation mix commencing
with activities that focus on the creation of customer value. These are primarily product
management activities addressing such issues as: Is the product strategy in line with the
organisation’s overall strategic positioning strategy? Is the product-line width and depth appropriate
for this strategy? Are there gaps in the product mix (the number of product lines) or within
individual product lines? Do individual product lines need to be extended or should they be
pruned? How do individual products compare with competitors’ products in terms of quality,
features and benefits? How well are the product lines and individual brands positioned in the
marketplace?
A useful device for reviewing the overall performance of the organisation’s product lines and/or
products within a product line is to construct a product portfolio model such as the BCG model
discussed in Chapter 4.
The next step is to consider the effectiveness of the organisation’s activities designed to
communicate customer value. These are primarily integrated marketing communication (IMC) and
brand management activities. How effective has the organisation been in communicating value to
its customers and potential customers? What is the level of brand awareness? Are the brands
market leaders, challengers or followers in each of the market segments they compete in?
The final step is to consider activities designed to deliver customer value. These are primarily
customer management activities. Does the organisation have a deep understanding of their customers’
buying behaviour and preferences – a deep understanding of the customers’ value equation? How
effective is the organisation’s customer engagement strategy? Does it meet the needs of the targeted
customers? What are the organisation’s customer acquisition and customer retention rates? What is
the level of customer satisfaction and customer loyalty? How quick has the organisation been in
responding to opportunities that have arisen in the marketplace? How effective is the organisation’s
current go-to-market strategies? Does the current distribution strategy reflect the changes in customer
buying behaviour that have taken place in the digital age? Do the current go-to-market partners
provide the required level of customer support or engagement at critical touchpoints?
Problems and opportunities statement

On the completion of the situation analysis, the next and most critical stage is to interpret the
information; that is, to draw conclusions about the organisation’s situation. This is essentially a
process of sorting the wheat from the chaff, whereby the main issues are identified and highlighted.
The following is a suggested procedure for undertaking this task:
1 Determine the organisation’s capabilities in relation to the critical success factors. List the
critical success factors (which were determined prior to the commencement of the internal
capabilities review) in order of importance. Next to each CSF enter the assessment of the
organisation’s capabilities in this area (that is, by referring to the listing of internal strengths and
weaknesses and the ratings assigned for the appropriate factors). Identify any problems that are
apparent. These will need to be addressed when the strategic decisions are made. Some of
these problems will be outside the domain of marketing and are more appropriately addressed
in the broader strategic-planning activities. For the purposes of marketing strategy development
the focus, of course, is on marketing-related issues. The key issue in this regard is how
vulnerable is the organisation likely to be in regard to specific problems that are highlighted?
The more vulnerable it is, the greater the need for having this attended to. Identify the CSFs
where the organisation has particular strengths. These are potential areas for the establishment
of a sustainable competitive advantage.
2 Identify opportunities for the organisation where it has capabilities. To assist in determining this
issue, it is suggested that a listing be prepared of the significant opportunities revealed in the
external environment review (say, all those items rating a 5 and a 4). A listing of the
organisation’s most significant internal strengths should also be prepared and then the two lists
should be matched to see what external opportunities can be complemented by internal
strengths or distinctive competencies.
3 Identify opportunities the organisation currently doesn’t have the capabilities to exploit but may
be able to in the future. Match the above listing of significant opportunities to the lesser
internal strengths and weaknesses to determine if any of these could be turned around. That is,
the organisation may be able to devote resources to turn an internal weakness into a strength
and exploit an outstanding opportunity.
4 Identify the most significant threats. From the listing of external environment threats (for both
the remote and near levels) identify the most significant (those with ratings of 5) and determine
which of these will need to be attended to when a strategy is developed. The above steps will
enable the marketing strategists to prioritise the most important external and internal factors
that will impact on the future success or otherwise of the organisation. This will help to ensure
that marketing strategies are developed in accordance with the organisation’s capabilities,
and that a competitive advantage can be developed or maintained. The process is also intended
to avoid many of the pitfalls that have resulted from the overenthusiastic development of
marketing strategies that have disregarded essential business fundamentals (such as capabilities
regarding financial resources, management and leadership abilities, human resources and
production capabilities).
5 Determine the strategic implications of the above four factors. To do this, identify and prioritise
the strategic issues or challenges confronting the organisation. Next, state what each of these
issues or challenges means in terms of the marketing strategies the organisation will need to
develop to address them.
Sources of marketing information

Information is required for the external environment analysis and the internal capabilities review. In
summary, some of the main information sources are as follows:
The remote external environment. Secondary data sources for the review of the remote
environment include the website of the Australian Bureau of Statistics at www.abs.gov.au
(information concerning the economy); sociocultural (demographic–sociological–cultural) studies
and reports from various government instrumentalities (including the Commonwealth Department
of Treasury and the Reserve Bank of Australia); universities and other centres for research (such as
the Institute of Public Affairs); banks (for information concerning the economy); and business
publications (print and online newspapers and magazines). These sources of information are
available in hard copy format and via websites. Most university libraries provide access to the
relevant websites for authorised users.
As discussed previously, some organisations use environmental scanning techniques to

monitor and interpret the remote environment. Environmental scanning is a formal process of
monitoring current events and developing future scenarios to help predict potential developments
that may present opportunities or threats to the organisation. Scenario writing is a technique used
by some organisations as a means of looking into the future. In scenario writing, experts in
various areas such as economic, social and political fields are asked to write a scenario of future
trends in their particular area. An elaboration of scenario writing is the Delphi model discussed
earlier in this chapter.
The near external environment. At the near-environment level, information is required about
the size, structure, future trends and nature of the market, market share of competitors,
competitive activity and the situation regarding suppliers and distribution channels. Some
industries such as fast-moving consumer goods (FMCG) are very well catered for with extensive
market data. Retail World and A.C. Nielsen, for example, provide online market data for the
grocery industry, and VFACTS, produced by the Federal Chamber of Automotive Industries,
provides new passenger vehicle sales information. Mintel Australia provides reports on a number of
product markets and industries such as financial products and services, consumer food products,
clothing-related products and a number of subscriber-generated studies. IBISWorld is a most
comprehensive provider of Australian market information with a database of over 500 industry
sectors (based on the Australian Standard Industrial Classification – ASIC – codes) including
information covering the top 2000 Australian companies. IBISWorld industry and risk-rating
reports are available in electronic formats to subscribers to this service.
The Australian Bureau of Statistics and a number of government agencies also provide a
wide variety of industry reports, reviews and surveys (in hard copy and electronic formats).
These include reports issued by the Australian Securities and Investments Commission, the
Productivity Commission (formerly the Industry Commission), the Bureau of Industry
Economics, the Bureau of Agricultural and Research Economics, the Australian Competition
and Consumer Commission (ACCC) and the two bodies that amalgamated to become the
ACCC – the Prices Surveillance Authority and the Trade Practices Commission. Publications
for international agencies – for example, the Organisation for Economic Cooperation and
Development (OECD), the European Union (EU) and the United Nations (UN) – are useful
sources of information. The Economist Intelligence Unit’s (EIU’s) Viewswire service provides
reports highlighting over 250 important economic, political and market developments for 203
countries. Standard and Poor’s Financial Reports, Dun & Bradstreet reports, Jobson’s Year Books
and BRW’s annual survey reports of the top 500 companies are other useful sources of company
information. Online databases such as FACTIVA, Business Source Premier, Ausinet and MAID
(Marketing Analysis and Information Database) provide information that can be searched by a
variety of means such as by company, product or industry. A wealth of information can be found
online.
Where secondary data is not available, which is often the case in business-to-business markets,
many of the above organisations and other market research agencies may be able to conduct a
primary research study to obtain market and other marketing information. (Note that ‘market
information’ is data relating to market size and trends and so on, while ‘marketing information’
refers to all other strategic marketing data, covering buyers, products, prices, distribution and
marketing communication.) Trade magazines and industry publications provide another good
potential source of information. Trade associations often commission surveys of their industries,
and access to these surveys can be most useful. Company annual reports, stock exchange
information (including analysts’ reports), company brochures and other literature are often good
sources of competitor information. Internal sales-force reports should also be used for competitive
analysis.
Internal capabilities. The bulk of this information comes from internal data sources including
the accounting/financial system, the management information system, corporate and business
strategic plans, functional strategic plans (such as for finance, human resources, R&D and
production), customer satisfaction surveys, market research surveys, sales-force reports, front-line
employee feedback reports and other internal reports (including auditors’ reports). However,
additional information will be required, such as industry statistics (sometimes available from
industry bodies), to provide benchmark comparisons for the organisation’s performance.

The task of preparing a situation analysis is assessment of the degree of
clearly a significant one. The process can take predictability and malleability of the
several weeks (for organisations that have industry in which it competes.
established marketing information systems) to 2 Based on the organisation’s mission and
several months (where there is little or no vision, develop a business definition and
existing information). The length of time also scope statement. This considers the
depends on the complexity of the organisation business domain in terms of the markets
and the industry it competes in, the availability and products that the strategic plan
of information, and the organisation’s addresses. It also involves decisions
preparedness to commit the necessary concerning the strategic-planning process
resources to this area. It is, however, possible itself (such as whether a strategic plan is to
to prepare a less detailed situation analysis in a be developed for a strategic business unit as
much shorter timeframe and, in many cases, a whole, a product line or a single product).
this may be sufficient for first-up planning Business definition and scope should also
purposes. The most important thing to bear in include a statement of the time horizon of
mind is that the quality of strategic decision the strategic plan.
making depends on the quality of the 3 The situation analysis commences with a
information upon which the decisions are review of the external environment so that
based. It therefore stands to reason that every the internal capabilities of the organisation
effort should be expended in developing a can be assessed in accordance with the
thorough situation analysis and putting into nature and extent of the challenges
place a marketing information system for the presented (in the external environment).
ongoing collection of necessary marketing However, if it is anticipated that the
information. external environment review will take
The following is a step-by-step summary of considerable time to complete, work on the
the process of strategic analysis: internal capabilities review may be
1 Determine the appropriate strategic style undertaken simultaneously to avoid an
for the organisation. That is, determine unnecessary delay.
whether a classical, adaptive, shaping or vi- 4 The review of the external environment
sionary strategy is the most appropriate stra- consists of an analysis and a diagnosis of
tegic style for the organisation, based on an several factors, which include the remote
environment (the economic, sociocultural, organisation-wide capabilities, including the

political–legal, technological and ecological organisation’s financial position and an
factors) and the near environment (market assessment of organisational effectiveness
review, competitive review, distribution based on McKinsey’s 7-S model: structure,
channels) and buyers, customers (end strategy, systems, style, staff, skills and
users) and supply. In undertaking the shared values.
external environment review, it is necessary 9 Then review the organisation’s marketing
to establish a scenario for each of the capabilities including an assessment of:
factors. That is, the assumptions about the (a) marketing management capabilities
future will need to be stated for each factor (marketing organisation, market intelligence
with due acknowledgement given to the generation and dissemination, marketing
reference source of the information upon planning and marketing control systems);
which the assumptions are made. and (b) marketing strategies and
5 The review of each remote and near performance. The objective is to determine
environmental factor continues with a the organisation’s capabilities to compete
diagnosis of the opportunities and threats. successfully in the future — as described in
That is, for each external environment the review of the external environment.
factor, state: (a) the scenario of what is 10 As was the case with the external
likely to occur over the timeframe of the environment review, a five-point scale
strategic plan; and (b) the implications of should be used to rate the intensity of each
this scenario for the planning unit. Next, strength and weakness (using the same
rate the degree of significance of each scale for determining the degree of
of these opportunities and threats on significance).
a five-point scale ranging from 5 (for being 11 The final and most important stage is to
‘extremely significant’) to 1 (for being ‘not summarise the situation analysis into a
very significant’). Then assess the problems and opportunity statement. This
probability of occurrence for each factor, process includes an assessment of the
again on a five-point scale ranging from 5 organisation’s capabilities with regard to the
(for having a ‘high probability of critical success factors (for building or
occurrence’) to 1 (for having a ‘low maintaining a sustainable competitive
probability of occurrence’). advantage), the identification of
6 After the ratings have been completed, opportunities where the organisation has
present a ranked summary of the capabilities, the identification of
opportunities in the form of a matrix. opportunities where capabilities could be
Repeat this to show a ranking of the developed, and the identification of the
threats. most significant threats facing the
7 After the review of the external environment organisation. It concludes with a
has been completed, determine the CSFs statement of the strategic implications
that an organisation in a similar competitive confronting the organisation. When this
position in the planning unit’s market must has been completed a foundation will
have in order to succeed. have been laid for the next stage of the
8 Next conduct an internal capabilities process – the development of marketing
review, analysing and diagnosing strategies.
1 Select three different industries and then the future, how reliable is any review of the
consider which of the remote and near external environment?
environmental forces discussed in this 3 Commenting on the internal capability
chapter are most likely to impact favourably review process, a marketing consultant
or unfavourably on each of these industries. claimed that he had ‘never seen such a
How could a market challenger (a company review that did not speak glowingly about
with the second-highest market share) in the ability of the company, even though in
each of these industries respond many cases the company was obviously
strategically to the changes that are likely to being murdered by its competitors’. What
occur? can be done to stop this type of bias
2 Factor X, an unpredicted event impacting occurring?
on the economy, potentially has the ability 4 Why should critical success factors (CSFs)
to render an external environment review be determined prior to a review of internal
obsolete overnight. For example, the 1997– capabilities?
98 ‘Asian currency meltdown’, the bursting 5 In considering Porter’s five-forces model, a
of the dot-com bubble in 2001 and the CEO of a prominent financial services
global financial crisis (GFC) that company argued that information
commenced in 2008 turned economic technology and government regulatory
forecasts on their head. The entire outlook forces should be included, as these forces
for many industries changed dramatically, shape the nature and size of the financial
as news of economic doom and gloom services industry. Do you agree or disagree
emerged as a result of each of these crises. with this point of view?
Given the uncertain nature of forecasting
ETHICAL ISSUE
Are the practices of predictive analytics and big data an invasion of an individual’s privacy?

Following the steps outlined in this chapter, selected for your project and prepare a report
conduct a strategic analysis of the organisation on your findings.

Explore Search me! marketing for articles • big data
relevant to this chapter. Fast and convenient, • real-time experience tracking
Search me! marketing is updated daily and • social media intelligence gathering
provides you with 24-hour access to full text • predictive analytics.
ENDNOTES
1 E.M. Rasiel, The McKinsey Way, McGraw-Hill, highly recommended as a source of information for the
New York, 1998, p. 4. Copyright Ó 1998 by McGraw-Hill task of undertaking a market or industry analysis.
Education. Used by permission.
15 M.E. Porter, ‘How competitive forces shape strategy’,
2 S. Lavalle, E. Lesser, R. Shockley, M.S. Hopkins and Harvard Business Review, vol. 57, March–April 1979,
N. Kruschwitz, ‘Big data, analytics and the path from pp. 137–45.
insights to value’, MIT Sloan Management Review, vol. 52,
no. 2, 2011, pp. 21–31. 16 A good reference on the subject of competitive
intelligence is H. Courtney, J.T. Horn and J. Kar, ‘Getting
3 ‘Big data: The next frontier for innovation, competition and into your competitor’s head’, The McKinsey Quarterly, 1,
productivity’, McKinsey Global Institute, June 2011, p. 2. 2009, pp. 129–37.
4 H. Mintzberg, ‘The fall and rise of strategic planning’, 17 R.E. Miles and C.C. Snow, Organizational Strategy,
Harvard Business Review, January–February 1994, p. 112. Structure and Process, McGraw-Hill, New York, 1978.
5 M. Reeves, C. Love and P. Tillmans, ‘Your strategy needs 18 E. McDonald, H. Wilson and U. Konus, ‘Tracking the
a strategy’, Harvard Business Review, September 2012. customer’s journey to purchase’, HBR Blog Network,
11.12 a.m., 17 August 2012.
6 In addition to the framework developed by Reeves, Love
and Tillmans, this section also draws on concepts 19 M. Harrysson, E. Metayer and H. Sarrazin, ‘How social
proposed by Mainardi and Kleiner in the following article: intelligence can guide decisions’, The McKinsey Quarterly,
C. Mainardi and A. Kleiner, ‘The right to win’, Strategy þ 12 November 2012.
Business, vol. 61, Winter 2010, reprint 10407, pp. 1–12.
20 For further information visit: www.google.com.au/analytics.
7 J.B. Harreld, C.A. O’Reilly III and M.L. Tushman, ‘Dynamic
capabilities at IBM: Driving strategy into action’, Californian 21 G.S. Day and R. Wensley, ‘Assessing advantage: A
Management Review, vol. 49, no. 4, 2007, p. 21. framework for diagnosing competitive superiority’, Journal
of Marketing, vol. 52, April 1988, p. 5.
8 M.R. Kramer and M.E. Porter, ‘Creating shared value:
How to reinvent capitalism – and unleash a wave of 22 Day and Wensley, ‘Assessing advantage: A framework for
innovation and growth’, Harvard Business Review, January– diagnosing competitive superiority’, Journal of Marketing,
February 2011, pp. 62–77. See also M.E. Porter, ‘Strategy vol. 52, April 1988, p. 2.
& society: The link between competitive advantage and 23 M.E. Porter, Competitive Advantage: Creating and
corporate social responsibility’, Harvard Business Review, sustaining superior performance. Refer particularly to
December 2006, Prod. no. R0612D-PDF-ENG. Chapter 2, ‘The value chain and competitive advantage’.
9 W. Bennis and B. Nannus, Leaders: The strategies for 24 Refer to Day and Wensley, ‘Assessing advantage: A
taking charge, Harper & Row, New York, 1985, pp. 85 framework for diagnosing competitive superiority’, pp. 5–6,
and 103. for a further discussion of critical success factors.
10 G. Hamel and C.K. Prahalad, ‘Strategic intent’, Harvard 25 One Voice, International Business Machines Corporation,
Business Review, May–June 1989, p. 64. See also two other 1997, p. 8.
publications by these authors: C.K. Prahalad and
G. Hamel, ‘The core competence of the corporation’, 26 One Voice: The idea of IBM, International Business
Harvard Business Review, May–June 1990, pp. 79–91; and Machines, 1999, p. 76. Reprint Courtesy of International
G. Hamel and C.K. Prahalad, Competing for the Future, Business Machines Corporation, Ó 2014 International
Harvard Business School Press, Cambridge, Mass., 1994. Business Machines Corporation.
For a counterview refer to G.H. Langeler, ‘The vision trap’,
Harvard Business Review, March–April 1992, pp. 46–55. 27 M.E. Porter, ‘Corporate strategy: The state of strategic
thinking’, The Economist, 23 May 1987, p. 21.
11 The concept of the 5Cs is an extension of a concept of
the strategic 3Cs or the strategic triangle originated by 28 J.P. Kotter, ‘What leaders really do’, Harvard Business
Ohmae. Refer to K. Ohmae, The Mind of the Strategist: Review, May–June 1990, p. 104.
The art of Japanese business, McGraw-Hill, New York, 29 J.P. Kotter, ‘What leaders really do’, Harvard Business
1982. The 5Cs concept was developed by the marketing Review, May–June 1990, p. 104.
faculty at the Harvard Business School in the late 1990s.
Refer to R.J. Dolan, ‘Note on marketing strategy’, Harvard 30 G.S. Day, ‘The capabilities of market-driven organizations’,
Business School, November 2000, No. 9-598-061. Journal of Marketing, vol. 58, October 1994, pp. 37–52.
12 L. Bryan and D. Farrell, ‘Leading through uncertainty’, 31 G.S. Day, ‘The capabilities of market-driven
The McKinsey Quarterly, December 2008, p. 1. organizations’, p. 44. From G.S. Day, Analysis for Strategic
Market Decisions, Ó 1986, South-Western, a part of
13 S. Bonini and S. Görner, ‘The business of sustainability’, Cengage Learning, Inc. Reproduced by permission.
McKinsey & Company, October 2011. www.cengage.com/permissions.
14 Refer to M.E. Porter, Competitive Strategy: Techniques 32 G.S. Day, ‘The capabilities of market-driven organizations’,
for analyzing industries and competitors, The Free Press, p. 44. From G.S. Day, Analysis for Strategic Market Decisions.
New York, 1980. This was the first of Porter’s landmark Ó 1986 South-Western, a part of Cengage Learning, Inc.
textbooks on the subject of competitive advantage. It is Reproduced by permission. www.cengage.com/permissions.
APPENDIX TO CHAPTER 3:
FINANCIAL ANALYSIS
The following is a summary of the main accounting ratios that provide insight into the financial
health of an organisation. It should be noted that accounting methods vary from organisation to
organisation and that, accordingly, care needs to be exercised in comparing the results or
benchmarking financial performance from one company to another. There is also considerable
discussion in the accounting profession as to the merits of the various approaches to the
measurement of financial performance. Finally, it should be noted that there are several
significantly more complex and sophisticated tools and techniques available for assessing financial
performance, such as DuPont ratio analysis and value-based analysis (discussed briefly in Chapter 4)
and the balanced scorecard (BSC) approach (discussed briefly in Chapter 11).
PROFITABILITY RATIOS
The ability of an organisation to generate
revenue in excess of expenses
Return on equity (ROE) (%) Profit after tax/Shareholders’ funds
Return on total assets (%) Earnings before interest and tax (EBIT)/Total
assets
Sales growth (%) (Current year’s sales – previous year’s
sales)/Previous year’s sales
Gross profit margin (%) (Sales – Cost of sales)/Sales
Net profit margin (%) Profit after tax/Sales
Expense ratios (%) Expense/Sales
Note: % ¼ 100
LIQUIDITY RATIOS
The ability of an organisation to meet its
short-term financial obligations
Working capital turnover (times) Sales/(Current assets – current liabilities)
Current ratio (ratio) Current assets/Current liabilities
Quick ratio (ratio) Quick assets*/Current liabilities
*(Cash þ short-term marketable securities þ
accounts receivable)
Note: ratio ¼ relationship, e.g. 2:1
OPERATIONAL EFFICIENCY RATIOS
The efficiency with which assets are utilised
and the productivity obtained
Asset turnover (times) Sales/Total assets
Inventory turnover (times) Cost of sales/Inventory
Average collection period (days) (Accounts receivables/Sales) 365
Sales per employee (value) Sales/No. of employees
LEVERAGE (GEARING) RATIOS

Measures the extent to which non-equity
capital is used by the organisation
(financial risk)
Debt–equity ratio (%) Total debt/Shareholders’ funds
Debt to total assets (%) Total debt/Total assets
Times interest earned (times) Earnings before interest and tax (EBIT)/Interest
paid
INVESTMENT RATIOS
Measures the performance of the
company in relation to the investment
made by its shareholders
Earnings per share (EPS) (value) Last reported profit after tax/Number of shares
Price–earnings (P/E) ratio (times) Current price per share/Earnings per share
Market value of firm (value) Current share price Number of shares
Accounting (book) value of firm (value) Total asset value as per last reported balance
sheet
Market to book ratio (%) Market value of firm/Accounting (book) value
of firm
Dividend yield (%) Last reported dividends paid per share/Current
share price
What the ratios mean

RATIO MEASURES BENCHMARK NORMAL EXPECTED
RANGE DIRECTION
PROFITABILITY
Return on equity Overall performance Competitors 10–25% Increase
Return on total assets Asset productivity Competitors 15–30% Increase
Sales growth Sales performance Competitors 5–15% Increase
Gross profit margin Operating performance Competitors 30–50% Increase
Net profit margin Business performance Trend 3–12% Increase
Expense ratios Expense trends Trend Various Decrease
LIQUIDITY
Working capital Ability to support sales Trend 5–8 Increase
turnover
Current ratio Ability to pay debts Trend 2:1 Hold at optimum
Quick ratio Ability to survive Trend 1:1 Hold at optimum
OPERATIONAL EFFICIENCY
Asset turnover Asset efficiency Trend 4–6 Increase
Inventory turnover Inventory movement Trend 5–10 Increase
RATIO MEASURES BENCHMARK NORMAL EXPECTED

RANGE DIRECTION
OPERATIONAL EFFICIENCY
Average collection Debtor’s Credit policy 30–120 days Reduce
period creditworthiness
Sales per employee Employee efficiency Competitors Various Increase
LEVERAGE (GEARING)
Debt–equity ratio Gearing of the firm Industry 10–50% Hold at optimum
Debt to total assets Asset financing Industry 10–50% Hold at optimum
Times interest earned Interest coverage Trend 5–10 Increase
INVESTMENT
Earnings per share Shareholder earnings in Trend Various Increase
(EPS) last reporting period
Price–earnings (P/E) Market expectations of Industry 10–30 Hold at optimum
ratio earnings growth
Market value of firm Share market’s Trend Various Increase
valuation of the present
value of expected future
cash flows
Accounting (book) Value of company as Trend Various Increase
value of firm per the accounting
records of past
transactions
Market to book ratio Variation between Industry 25–500% Hold at optimum
market expectations and
accounting transaction
records
Dividend yield Return on investment Competitors 5–20% Increase
Note: The above normal range is generalised and is therefore not specific to individual companies or industries. Analysis should
be based on specific industry data. Also it should be noted that only the main benchmarking factor is stated in this table,
whereas benchmarks should include such factors as competitor performance, past trends and industry standards.
PART
3
STRATEGY
DEVELOPMENT -- HIGH-LEVEL
DECISION MAKING
Chapter 4 Strategy development – high-level decision making
Chapter 5 Segmentation, targeting and positioning strategies
Chapter 6 The customer value creation mix
The future of an organisation is dependent on its ability to capture and sustain value for its customers
over time.
Part 3 focuses on the processes of creating, communicating and delivering value for the
organisation’s customers, commencing with a discussion of the overall process of strategy development
(Chapter 4) before progressing to a discussion of the process of segmentation, targeting and brand
positioning (Chapter 5) and developing the customer value creation mix (Chapter 6).
Strategy
evaluation and
control
• Strategic thinking — Decision making

• High-level marketing strategies:
• Strategic positioning
• Marketing objectives
• Product-market strategies
• Segmentation, targeting and positioning strategies
• Customer value mix strategies
CHAPTER
4
STRATEGY
DEVELOPMENT -- HIGH-LEVEL
DECISION MAKING
Planners shouldn’t create strategies, but they can supply data, help managers think
strategically, and program the vision.
Henry Mintzberg1
Just a few weeks into his appointment as CEO of the 1960s and 1970s. His appointment to the
General Electric in April 1981, Jack Welch met position of CEO gave him the opportunity to
with the legendary management consultant and realise his vision of transforming GE to become
writer Peter Drucker. In this meeting, Peter the world’s greatest company. Welch’s starting
Drucker posed two simple questions that point for the turnaround was to develop a unified
reportedly were the spark that triggered a vision and strategy for the entire company
two-decade transformation of GE. The first encapsulated in what became his famous three-
question he asked was, ‘If you weren’t already in circle concept. All GE businesses had to fit into
business, would you enter it today?’ Drucker one of three categories consisting of core
then followed with his second question, ‘If the businesses (managed as cash cows), high-tech
answer is no, what are you going to do about it?’ businesses (high growth with negative cash flow
Reflecting on these two questions, Welch and high levels of investment) and services (cash
concluded that every business under the GE generators with high growth, high returns and
umbrella would have to be either number 1 or 2 low investment requirements). Businesses in each
in the market, or otherwise fixed, sold or closed. category that were not first or second in the
Welch, who joined the plastics division of GE market were given two years to fix the problem.
as a young PhD graduate in chemical engineering After that they were either sold or closed.
in 1960, had grown disenchanted with the highly Over the next decade GE was transformed.
politicised, slow moving bureaucratic Over 200 businesses were sold off and 370 new
management style that characterised GE during businesses were acquired. Activities that were not
100 Part 3 Strategy development – high-level decision making
regarded as core were outsourced and, via a create a culture akin to that of a small company.
process of downsizing and de-layering, about A program titled ‘workout’ was developed where
60 000 staff positions were eliminated. GE’s groups of 40–100 employees would attend a
much vaunted strategic planning system was three-day session to discuss ways of improving
scrapped and over 100 strategy planning positions the business and to present proposals for how
out of 200 were eliminated. A new ‘real-time this should be done. About 80 per cent of the
planning’ process was introduced based on a five- proposals received were on-the-spot ‘yes’ or ‘no’
page playbook, addressing five key questions: responses. At the same time a training program
market dynamics, recent competitor activities, was initiated to establish best-practice thinking
the GE business response, the greatest throughout the organisation. Welch also turned
competitive threat over the next three years, and his attention towards the issue of globalisation
the businesses’ proposed response. Welch and his and in 1987, he decreed that the objective to be
14 key business leaders would meet to workshop either number 1 or 2 was now to be evaluated on
these issues. a worldwide market position. His vision was now
By the late 1980s, the restructuring of GE articulated in terms of GE becoming a
had been largely completed and Welch believed boundaryless company.
that, as the ‘hardware’ of the company was now In 1999, just one year before his retirement,
in place, it was time to concentrate on getting Jack Welch’s early vision of making GE the
the ‘software’ right. He turned his attention world’s greatest company was finally realised.
towards creating an open and transparent style of Revenue had grown to over $100 billion, with
management encouraging candour and the ability operating margins at an all-time high of nearly 17
to face reality along with a corporate culture per cent. In 2000, for the third year running,
characterised by just three words: simplicity, the Financial Times named GE the most
speed and self-confidence. The objective was to respected company in the world.2

The strategic marketing management process comprises four main phases of work: the strategic
analytical phase (which was discussed in Chapter 3), strategy development, strategy implementation,
and strategy evaluation and control. This chapter addresses the second phase – the process of
developing, or ‘crafting’, effective marketing strategies. It is a pivotal stage of the entire strategic
marketing management process involving high-level business and marketing decision making.
As is discussed throughout this book, marketing is not a standalone business function. It is a
process by which organisations create, communicate and deliver value for their chosen customers.
This process is of central importance for all organisations of all shapes and sizes and therefore plays
a major role in the development of corporate and business-unit strategy planning and strategy
management.
Chapter 4 Strategy development – high-level decision making 101
The emphasis of this chapter is the development of marketing-related strategies within a

context of corporate and business-unit strategy planning decision making. The objectives are to
provide you with an understanding of the strategy development processes, specifically:
• the inputs to the strategic development process
• the processes of strategic thinking, issue identification/problem solving and decision making
• the development of high-level marketing strategies – discussed in a broad overview sense and
elaborated in greater detail in subsequent chapters.
Strategy development
Strategy development is a creative process. As Henry Mintzberg pointed out so many years ago,
strategy development should be thought of as a craft rather than just solely as a rational and orderly
process. As he argued, ‘Effective strategies can show up in the strangest places and develop
through the most unexpected means’.3 ‘Strategies need not be deliberate – they can also emerge.’4
Figure 4.1 conceptualises the crafting nature of the strategy development process, incorporating
both rational and intuitive or left and right brain thinking processes. The central point of this model
is strategic thinking. Ideas generated and issues arising from a number of top-down and bottom-up
sources are thrown into the strategic thinking mix. The outcome of this process is the generation of
strategic alternatives, which need to evaluated and considered in the decision-making process. In
turn these decisions form the basis of the development of high-level marketing strategies.
FIGURE 4.1 The strategy development process
Mission and Strategic Corporate SBU

strategic intent analysis strategies strategies

Strategy development • Marketing objectives
Strategic thinking Decision making
• Segmentation, targeting and
Ideas Issues positioning strategies
Problem solving • Customer value creation,
communication and delivery
strategies
Intelligent
opportunism
The following is a brief description of these processes.

Mission and strategic intent

It is important that all those involved in the strategy development process have a very clear
understanding of the organisation’s current mission and strategic intent as articulated (or at least as
should be articulated) in the mission statement or in a separate vision statement.
However, this is not to say that the mission and strategic intent should simply be accepted
without critical analysis. The key question to ask is: ‘Does the current mission statement and the
vision for the future reflect the reality of the situation facing the organisation?’ This question is
central to the entire strategic planning process and should be uppermost in the minds of the
strategists during all phases of the strategic thinking and strategy development work.
Strategic analysis
The situation analysis and the accompanying problems and opportunities statement provide the
strategists with a view of how the external environment operates and of the organisation’s
capabilities to compete in that environment. The first task for the strategists is to critically analyse
the findings of the situation analysis. This approach is described by Jeffrey Pfeffer and Robert
Sutton as evidence-based management. As they explain: ‘evidence-based management, like
evidence-based medicine, entails a distinct mindset that clashes with the way many managers and
companies operate. It features a willingness to put aside belief and conventional wisdom – the
dangerous half-truths that many embrace – and replace these with an unrelenting commitment to
gather the necessary facts to make more informed and intelligent decisions’.5 Strategists should
look closely at the accuracy of the information presented, particularly the underlying assumptions,
the explanations and conclusions, and gaps in logic.
This means that the strategists need to have a very good understanding of what strategy really
means for their industry. That is, they should understand the dynamics of the industry and the
processes of value creation from the beginning of the value chain to the end, including
interdependencies within the chain. They also need to have an understanding of adjacent or
potentially adjacent industries to their own as there are many areas of convergence or future
convergence that will impact on their organisation, particularly due to the irrepressible driving force
of change brought about by digital technology. Strategists need to become experts at identifying
potential game-changing disruptive innovations.
Corporate strategies
Corporate strategies are those developed at the highest level of the organisation. These strategies
are designed to create and deliver sustainable long-term value for the organisation’s stakeholders. In
multi-business companies, the main emphasis is on building and maintaining a portfolio of high-
performing businesses. The aim is to foster the development of strategies that deliver greater value
than the sum of the individual business unit parts. The management consultancy McKinsey &
Company maintains that the best corporate strategies are those that force multi-business
companies to make clear choices about their portfolios and the allocation of their resources.6 This
involves assessment of the long-term performance prospects of the organisation as a whole and the
development of strategies for individual SBUs for one of four different purposes: (i) to nurture
existing businesses (such as by providing appropriate resource allocations), (ii) to seed a new
business (for either organic start-up or acquisition), (iii) to prune an existing business (by either
reducing resource funding or selling off a portion of that business), or (iv) to harvest an
existing business by selling off underperforming businesses or businesses that no longer fit the
portfolio).7
Unfortunately, according to the findings of an online survey conducted by McKinsey in 2010,
only 20 per cent of executives reported that their companies fully addressed strategy this way.8
The creation of value for the organisation’s stakeholders, as opposed to just for shareholders,
has increasingly become a major concern for senior management and company boards in recent
years. In recent decades there has been increasing criticism of publicly listed companies for
emphasising shareholders’ interests ahead of all other stakeholders. Since the GFC, in particular,
there has also been mounting criticism of managers focusing on short-term financial performance
rather than on the long-term welfare of the company. Proponents of stakeholder theory and
corporate social responsibility (discussed in Chapter 1) argue that, in many organisations, there has
been a complete disregard for the wellbeing of customers, employees, suppliers and society as a
whole. Business has also been widely blamed for bringing about social unrest, environmental
damage and economic chaos and, as Michael Porter and Mark Kramer argue, the problem has
become so severe that the entire system of capitalism has come under siege.9 In response to this
situation, Porter and Kramer have developed a concept of creating shared value (CSV) based on the
proposition that the health of a company and the health of the community in which it operates are
mutually dependent, not mutually exclusive. Porter and Kramer contend that CSV can be achieved
by companies adopting one or more of the following three strategies: (i) reconceiving products and
markets (for example, producing nutritious as opposed to tasty but unhealthy food products, or the
production of environmentally friendly products); (ii) redefining productivity in the value chain (for
example, productivity gains that lower costs and energy usage); and (iii) building supportive industry
clusters (for example, developing clusters of related businesses and suppliers to drive innovation,
productivity efficiency and employment opportunities for local communities).10 See the ‘Strategy in
Practice’ box on the next page for a discussion about how Nestlé developed a CSV strategy.
The concept of shared value does not diminish the need for companies to make profits, as the
objective is to create economic value by the creation of social value. Indeed, the long-term survival
and prosperity of the organisation is an essential requirement for all stakeholders. Accordingly,
performance objectives consisting of the financial requirements for the organisation and other key
result areas, which are critical for the organisation’s long-term success, need to be established. These
include profitability, return on investment (ROI), return on assets (ROA), earnings per share (EPS),
total shareholder return (TSR), dividends and cash flow. If the organisation performs well financially,
share prices are maintained or increased. If financial performance is below expectations, share prices
drop, limiting the organisation’s ability to attract equity financing to underwrite future operations and
growth while also exposing the organisation to the danger of a takeover. Poor financial performance,
particularly poor cash flow, also limits an organisation’s ability to attain debt financing (borrowing).11
One other contentious issue that concerns the setting of corporate performance objectives is
the establishment of stretch goals or BHAGS (big, hairy, audacious goals) that are designed to
motivate managers and staff to perform at their highest levels. Jack Welsh’s objective for GE’s
divisions to achieve either number 1 or 2 position in the market is an example of this type of
stretch goal. His successor, Jeffrey R. Immelt, followed suit in 2005 with an equally challenging
objective by setting a goal for GE to achieve sustained organic growth of two to three times the
global GDP. In 2006 this equated to about 8 per cent and, as no other company the size of GE had
ever achieved that kind of growth, the goal was certainly very ambitious. As Immelt explained, the
reasoning behind this stretch goal was straightforward. At the company’s annual meeting in 2005
he stated: ‘Another decade of 4 per cent growth, and GE will cease to be a great company. But if
we can spur our growth rate without losing our productivity edge, GE will keep being the most
admired company in the next century’.12 Critics, however, argue that stretch goals can often be
demotivating, overwhelming and unattainable. Furthermore they can also encourage unethical
behaviour and excessive risk taking.13
Early in 2008 Peter Brabeck-Letmathe, the Brabeck-Letmathe’s business philosophy. Rather
chairman of Nestlé SA, contacted Michael Porter than focusing on philanthropy or externally imposed
to discuss an article he had written about criteria, CSV focuses on the simultaneous creation
competitive corporate social responsibility. Brabeck- of long-term shareholder and societal value.
Letmathe’s interest in this subject had been piqued Brabeck-Letmathe moved quickly to embrace the
when he attended the World Economic Forum held concept of CSV. In 2008 a Nestlé CSV Advisory
at Davos that January. The main subject for the Board was established that included among its
forum was corporate social responsibly (CSR) membership representatives of the most prominent
emphasising the need for companies to ‘give back to NGOs in the world. The first of what was to
society’. At the closing plenary session Brabeck- become a series of annual Creating Shared Value
Letmathe sent a shockwave through the forum reports was published that year and in April 2009
when he stood up and stated that he did not agree the first annual Creating Shared Value Forum was
with the notion that a company should give back to launched in New York, in which a Nestlé Prize in
society. He argued that his company, Nestlé, hadn’t Creating Shared Value was awarded with the aim of
stolen anything from society and therefore had fostering innovative approaches to solve problems of
nothing to give back. As he stated in an interview nutrition, water and rural development.
some years later, ‘I personally believe that no CEO CSV is embedded in the corporate culture of
of a public company should be allowed to make Nestlé and is operationalised in a process of
philanthropy. I know this is shocking for the evidence-based reporting where a comprehensive
American environment, but I think anybody who set of key performance indicators (KPIs) are
does philanthropy should do it with his own money established for each division focusing on nutrition,
and not the money of the shareholders’.14 environmental sustainability and rural development.
Brabeck-Letmathe left Davos feeling that the For example, in 2010 Nestlé UK announced a
issue of CSR required further thought and hence number of environmental sustainability objectives
the reason for contacting Michael Porter. During that included targeting in the UK and Ireland of a
their subsequent discussions of the subject Porter 20 per cent reduction in absolute CO2 emissions
and his colleague Mark Kramer were asked to and a 10 per cent increase in renewable energy
conduct an independent analysis of the Nestlé value usage by 2015 on 2006 levels. These objectives
chain in Latin America. The outcome was the extended previous strategies that had successfully
publication of a report, The Nestlé concept of addressed other sustainability issues such as
corporate social responsibility, which introduced the energy reduction, landfill reduction, water
concept of creating shareholder value (CSV), and reduction and increased usage of recyclable
that concept sat more comfortably with Peter material.15
Strategic business unit (SBU) strategies

This level of strategy is primarily concerned with the way in which the business unit competes in
its chosen industry. That is, how it is to compete (customer value creation strategies) and where it is
to compete (product markets). These high-level business unit decisions are referred to as strategic
positioning strategies. As Michael Porter explains, ‘strategic positioning attempts to achieve
sustainable competitive advantage by preserving what is distinctive about a company. It means

performing different activities from rivals, or performing similar activities in different ways’.16
Strategic positioning involves broad-based decisions about how the business unit (or business in the
case of a single-business organisation) is to be positioned within the industry in which it competes –
for example, whether to compete at a market-wide or market-niche level of competition. Strategic
positioning is all about being different and performing activities at an organisation-wide level to
create, communicate and deliver customer value.
As discussed in Chapter 3, views on strategic positioning of the business unit are largely
dependent on the prevailing school of thought within the organisation. For example, organisations
competing in a relatively stable and predictable environment with little potential to influence
dynamics of the market would generally adopt a classical style of strategy such as Porter’s concept
of competitive advantage, Kim and Mauborgne’s blue ocean, the strategic conflict approach/game
theory and the RBV paradigm. In a business environment that is largely unpredictable,
organisations would more appropriately adopt either an adaptive or shaping style of strategy. The
appendix at the end of this chapter provides further information about some of the most popular
strategic concepts, tools and techniques.
Irrespective of the various underpinning views, there are four key factors that strategists need to
consider in determining the organisation’s strategic position:
i the nature of the existing markets the organisation competes in and potential new markets. Are
these markets new and growing, maturing or declining? How attractive are these markets? How
stable are these markets?
ii the competitive position of the organisation in the marketplace. Is it a market leader, a
challenger, a follower or a niche player?
iii the organisation’s sources of advantage. Does it have superior skills and superior resources to
that of its competitors? What are the activities the organisation can perform that are different
from those of its competitors?
iv organisational culture. Is the organisation customer focused? Does it foster an innovative and
entrepreneurial environment or is it a bureaucratic type of organisation?
Intelligent opportunism
Creative ideas are not just a product of a formal strategy planning process. They arise at any time
throughout the year and can be generated by a multitude of individuals including employees
throughout the organisation, suppliers, supply chain partners, customers, inventors, entrepreneurs
and stakeholders such as shareholders and environmentalists. As Henry Mintzberg declared many
years ago, ‘strategies grow like weeds in a garden. They take root in all kinds of places, wherever
people have the capacity to learn (because they are in touch with the situation) and the resources
to support that capacity’.17 Great ideas can be serendipitous, arising from luck, by chance or
by accident such as the invention of Post-It Notes. The weak removable adhesive that is used in
Post-It Notes was the product of a failed attempt to formulate a very strong adhesive.
Intelligent opportunism represents the development of emergent strategies that arise over time
and are developed outside of formal strategic planning processes. Intelligent opportunism also
represents ideas that are generated both within and outside of formal strategic planning processes
by individuals both within and outside of the designated strategy planning team; for example,
looking beyond the industry that the organisation competes in to a wider business ecosystem
comprising several competitors for the purpose of co-developing innovative new products.18 This is
particularly relevant for organisations adopting a shaping strategy approach (as discussed above).
Strategic development
There are two interrelated phases in the strategic development stage of strategy planning: strategic
thinking and decision making. In a marketing context strategic thinking focuses on finding ways for
the firm to create value for its chosen customers. It is a synthesising process that blends right-brain
and left-brain thinking – in other words both rational and intuitive or creative thinking processes.
There are two facets involved in the strategic thinking process:
i the generation and evaluation of creative ideas. Left-brain thinkers are essential innovators
who according to research conducted by INSEAD excel in five skills: an ability to ask
provocative questions, an ability to use the power of observation to discover new ways of doing
things, a tendency to network with people who are different from themselves, a passion to test
new ideas and to try new experiences, and an ability to connect the unconnected to produce
disruptive ideas.19 These strategic thinkers consider big-picture issues such as seeking new
opportunities for the organisation within and outside of existing industry boundaries, changing
the rules of the game and outwitting competitors.
ii identification of key issues. Right-brain thinkers focus on strategic analysis and the underlying
assumptions behind the issues that were identified in the process, particularly those highlighted
in the problems and opportunity statement. This involves the use of problem identification and
problem-solving techniques.
The ideas generated and the issues identified then need to be evaluated and prioritised in order
of strategic viability and importance. The next task is one of problem solving – of developing
potential strategies to address the prioritised (key) issues that have been identified and the
prioritised creative ideas (opportunities). The next task is to evaluate each of the strategy
alternatives so that decisions can be made. The decisions should be based on an assessment of the
capability of each strategy alternative to create superior customer value – that would be difficult for
the organisation’s competitors to imitate.
High-level marketing strategies

The outcome of the strategic development phase of the work is the determination of five interrelated
high-level marketing strategies: strategic positioning; marketing objectives; product-market
strategies; segmentation, targeting and positioning strategies; and the customer value creation mix.
These strategies are broad brushed and are based on marketing as an organisation-wide process
rather than on a marketing-department functional perspective.
Strategic positioning
As was discussed in the previous section concerning SBU-level strategies, strategic positioning is all
about how the organisation is to compete and where it is to compete. Strategy involves creating a fit
among the organisation’s customer value creation mix activities and its overall strategic positioning.
That is, strategic positioning provides a context for the development of marketing strategies.
Marketing objectives
The organisation’s long-term financial performance objectives provide a logical starting point for
setting marketing objectives. These are usually expressed in metrics such as profitability, return on
investment (ROI), return on assets (ROA), earnings per share (EPS), total shareholder return
(TSR), dividends and cash flow. These objectives are too high-level for marketing purposes and
therefore need to be translated into metrics that are appropriate, such as top-line revenue growth.
The case for focusing on the top rather than just the bottom line has been highlighted by McKinsey
& Company. In an extensive tracking study of 100 of the largest US public companies over the two
business cycles of 1984–93 and 1994–2003, McKinsey found that there was a very strong
‘correlation between the future survival of a company and its past revenue growth … A company
whose revenue increased more slowly than GDP did was five times more likely to succumb, usually
through acquisition, than a company that expanded more rapidly’.20 Shareholder value can be
enhanced in the short term by cost-reduction strategies such as downsizing and the reduction of
product quality. In the long term this might cause customers to become dissatisfied with the
organisation’s products or services, which in turn could lead to a loss of market share, reduction of
profitability and eventual decline in share price.21 That is, a focus on short-term shareholder value
can lead to the diminution of customer value with a resultant loss of competitive advantage and a
decrease in long-term financial performance. The McKinsey study revealed that companies that
failed to increase their revenues eventually ran out of ways to drive earnings and shareholder
returns.
An essential prerequisite in setting marketing objectives in terms of top-line revenue growth is
the inclusion of a gross margin target; that is, to factor in the costs (variable and direct) incurred in
achieving the revenue.
Financial objectives represent what the organisation wants to achieve, so the next step is to
determine where and how this is to be achieved. Once again these strategies are developed at a
high-level or helicopter view of the world, providing broad rather than detailed direction. The where
concerns the markets the organisation is to compete in and the how, the broad strategic approach.
Product-market strategies
To address the where aspect, the following tool based on a modification of the popular Ansoff
product-market matrix provides an excellent starting point.22
FIGURE 4.2 The product-market matrix
Existing products New products
Market penetration Incremental innovation

Existing markets
Strategies designed to: • Product line extensions (product

• increase primary and secondary demand additions)
• persuade current customers to • Product modifications (revisions and
increase usage improvements to existing products
• persuade users of competitive including cost reductions)
products to switch
Market development Radical innovation

New markets
• New geographic markets • Pioneering market strategies

• New market segments • new-to-the-world products
• New marketing channels • Market follower strategies
• innovative imitation
• product adaptation
Source: Based on a modification of the Ansoff product-market matrix: H.I. Ansoff, ‘Strategies for diversification’,
Harvard Business Review, vol. 35, no. 5, September–October 1957, pp. 113–24.
The following is a brief description of the potential strategies that can be considered for each of
the four product-market options.
• Market penetration (existing products in existing markets). The main objective is to increase
market share (or, in some cases, to maintain market share or to halt a decline). This can be
achieved by winning customers from competitors and/or increasing the product usage rate of
existing customers (a typical objective of customer loyalty programs). Efforts to increase the rate
of product usage among existing customers can also potentially have the effect of growing the
total market. However, the main strategy for the achievement of market growth is via the next
option: market development.
• Market development (existing products in new markets). Market development, or market
expansion, can be achieved by entering new markets/segments and/or converting non-users to
become users. A critical aspect of market development is to identify emerging market segments
that have growth potential.
• Incremental innovation (new products in existing markets). New products may be product line
extensions or modifications of existing products for existing markets or market segments. (Note:
The title ‘incremental innovation’ is preferred to the title ‘product development’ used by Ansoff,
as it more appropriately reflects the strategic imperative of the need for continuous product
innovation and renewal.)
• Radical innovation (new products in new markets). As the name implies, innovation strategies
are strategies that are radically different. These strategies include the development and
introduction of new-to-the world products, and the development and introduction to the market
of products that are new to the firm but not to the market – including innovative imitation
(emulative new products that are significantly different in at least one aspect from competitive
products) and product adaptation (modifying or improving on the product innovation of others).
Both innovative imitation and product adaptation strategies involve a degree of newness to the
market, not just the organisation. (Note: The term ‘radical innovation’ replaces the term
‘diversification’ used by Ansoff for this quadrant as it more appropriately reflects the strategic
focus of developing new products for new markets.)
These four product-market strategic options provide the strategists with a framework for
considering the potential revenue and profit that can be achieved for each year of the strategic
time-frame. This is essentially a first-cut view of these four high-level marketing strategies that are
discussed in detail in chapters 7 to 10. They are also discussed briefly in Chapter 11 in relation to
resource allocation.
A variation of the product-market model is the innovation ambition matrix developed by Deloitte
Consulting partners Bansi Nagji and Geoff Tuff in 2012.23 In this model, shown in Figure 4.3,
three levels of innovation are identified. At one extreme are core initiatives (efforts to make
incremental changes to existing products and incremental inroads into new markets) and at the
other, transformational initiatives (the creation of new offerings, if not whole new businesses, to
serve new markets and customer needs). In between these two extremes are adjacent innovations
(leveraging something that the company does well into a new space; that is, they allow an
organisation to use existing capabilities to create new uses). Adjacent innovations may share
characteristics with either or both the core and transformational strategy initiatives.
The main difference in the two approaches lies in the definition of newness in terms of product
innovation and nearness in terms of market adjacency. In the innovation matrix, incremental changes
FIGURE 4.3 The innovation ambition matrix
Create new markets. Transformational

Target new customer needs Developing breakthroughs
and inventing things for
markets that don’t yet exist
Enter adjacent markets. Adjacent
Where Expanding from existing
Serve adjacent customers
to play business into ‘new to the
company’ business
Serve existing market and Core
customers Optimising existing
products for existing
customers
Use existing Add incremental Develop new products

products and products and assets and assets
assets
Where to win
Source: B. Nagji and G. Tuff, ‘Managing your innovation portfolio’, Harvard Business Review, May 2012, reprint R1205C, p. 7.
to existing products are deemed to be core initiatives, whereas in the modified product-market matrix
these initiatives could be categorised as either market penetration (existing products in new markets)
or incremental innovation (new products in existing markets). Likewise in the innovation ambition
matrix, inroads into new markets are considered to be core initiatives combining what in the Ansoff
matrix could be considered to be either market penetration or market development.
Based on a research study they have conducted in the industrial, technology and consumer
goods sectors, Nagji and Tuff have found that better-performing companies (as reflected in share
price performance) allocate their resources across core, adjacent and transformation initiatives on a
70/20/10 per cent ratio. They argue that individual firms should deviate from this ratio according to
the specific strategic challenges that they face (that is, taking into account the industry environment
in which they compete, their competitive position and the stage of development they are in).
For example, a leading consumer goods company that they have studied allocates resources on an
80/18/2 per cent ratio, while a mid-stage technology firm has allocated resources on a 45/40/15
ratio. It is recommended that the organisation’s strategists should determine the ideal ratio for their
organisation to maximise its return on investment (based on revenue growth and market
capitalisation) and then devise a plan to work towards achieving that ratio.24
Another useful tool that strategists have at their disposal is strategic gap analysis, shown in
Figure 4.4.
This is a relatively simple tool that highlights the difference between what the organisation
wants or needs to achieve in terms of top-line revenue and what it is likely to achieve if current
strategies (that is, via existing products in existing markets) are continued. Invariably the analysis
reveals a gap between the two, highlighting the need for the development of innovative growth
strategies that have the potential for closing the gap. That is, strategies based on market/market
segment development, incremental and radical innovation.
FIGURE 4.4 Strategic gap analysis
Revenue objective
The strategic gap

Projected revenue
Revenue based on continuation
of current strategies
Time
Source: A modification based on a concept developed by D.T. Brownlie and C.K. Bart,
Products and Strategies, MCB University Press, Bradford, Yorkshire, vol. 11, no. 1, 1985, p. 14.
Segmentation, targeting and positioning strategies

These are marketing-focused decisions which flesh out in more detail the broad-based product-
market strategies and the business unit’s strategic positioning discussed above. Segmentation and
targeting strategies focus on the identification and targeting of submarkets of customers within the
organisation’s existing and potential new markets. Positioning is all about determining a unique
selling proposition – establishing a distinctive position in the minds of the targeted prospects.
Segmentation, targeting and positioning strategies are discussed in greater detail in Chapter 5
and are interwoven into much of the discussion of strategic issues throughout the remaining
chapters of this book.
Customer value creation mix

These are the sources of value or the activities that need to be conducted for the organisation to
create, communicate and deliver superior customer value. As was discussed in Chapter 1 the
notion of the customer value creation mix extends the traditional 4Ps and 7Ps concept of the
marketing mix to represent an organisation-wide or market-oriented perspective of the role of
marketing rather than a narrow marketing functional-based view. These activities are discussed in
greater depth in Chapter 6.

The strategy development phase of strategic consider along with issues that are identified in
management consists of three main areas of the process of strategic analysis. The way
activity: strategic thinking and decision making, information is processed and interpreted is
the development of high-level marketing dependent on the prevailing school of thought
strategies and the customer value creation mix. or strategy approach within the organisation.
In this chapter the first two of these activities Therefore, much thought needs to be devoted
were discussed, highlighting the complexity of at the very beginning of the strategic
the strategy development and decision-making management process as to what approach is
processes. the most appropriate for the organisation.
It was argued that strategic thinking The deliberations at this stage of the
involves both right-brain (analytical) and left- process lead to the development of the
brain (intuitive and creative) thinking following high-level marketing strategies:
processes. Accordingly, strategists draw on strategic positioning; marketing objectives;
information from a variety of top-down and product-market strategies, segmentation,
bottom-up sources including the organisation’s targeting and positioning strategies; and the
mission/strategic intent statement, strategic customer value creation mix. These strategies
analysis, corporate and SBU strategies and are discussed in detail in the next two chapters.
intelligent opportunism (ideas and issues It should be noted that establishing
identified from employees throughout the marketing objectives and product-market
organisation and from various other sources strategies at this stage of the strategic
such as suppliers, collaborative organisations, management process is tentative. It is an
intermediary customers, distribution partners, iterative process where these ‘first-cut’
end-user customers, community groups and decisions will be revisited, re-evaluated and
advocacy groups). refined as the strategy development process
The task for the strategists is to make sense progresses. The decisions involved in
of the ideas that are generated from the vast developing product-market strategies are
amount of information that they have to discussed in further detail in chapters 7 to10.
1 At the beginning of 2010 Coles considered the interests of other
Supermarkets launched a ‘Down, Down’ stakeholder groups?
pricing strategy, sparking a price war with 2 Institutional investors, including investment
its archrival Woolworths. With milk banks such as Macquarie Group, Citigroup
retailing at $1 a litre, dairy farmers were Global Markets Australia Holdings and
caught in the pricing crossfire between the Goldman Sachs JB Were, and
two retailers and many were forced to quit superannuation fund managers such as
the industry. The dairy farmers were not Colonial First State and AMP, wield
the only ones to feel the price squeeze, as tremendous power on share prices as they
many suppliers to both Coles and buy and sell shares. Share prices literally rise
Woolworths were forced to lower their or tumble overnight as these large
prices to the detriment of their gross profit institutional investors buy in or sell out of
margins. Consumers were obviously the various company stocks. A problem often
main beneficiaries of these price wars but cited about institutional investors is their
should both supermarket companies have lack of long-term vision. Their focus on the
short term makes it difficult for companies management. Three months later about half
to embark on essential capital investment of the company’s workforce (about 6000
programs that don’t show immediate returns. employees) was retrenched. He also lopped
On the other hand, institutional investors off nearly 90 per cent of Sunbeam’s product
argue that, apart from looking after the lines, and closed 18 of its 26 plants. Dunlap
money entrusted to them by their investors is considered by some to be a corporate
(in superannuation funds, insurance and hero, and by others to be a heartless
other forms of savings), they play an demagogue whose turnaround strategies are
important role in influencing good corporate excessively heavyhanded. A decade later
governance practices in the companies they Sue Morphet was cast in much the same
invest in. What is your view of the power of role. She was demonised by the Australian
institutional investors? What are the media, and critics had a field day in
implications for publicly listed companies? pointing out that at the same time that
3 In the middle of the global financial crisis 1850 were sacked from Pacific Brands she
Sue Morphet, CEO of Pacific Brands, had just been awarded a pay rise of around
came under the media spotlight when she $1.2 million for taking the CEO position
announced on 25 February 2009 that just a month earlier (in January 2009).
Pacific Brands was cutting 1850 jobs as However, the turnaround strategy met with
part of its plans to close most of its early success as, just 12 months later,
Australian manufacturing operations and to Pacific Brands announced a net profit of
move its production offshore to China. This $22.2 million for the six months to the end
outsourcing strategy was designed to save of December 2009, a vast improvement
the company, which was drowning under from a loss of $150 million in the same
too much debt. In many ways this was period the year before. Was the Pacific
reminiscent of the strategies employed by Brands strategy the right thing to do? Were
‘Chainsaw’ Al Dunlap. Al Dunlap built up a there other strategies that Pacific Brands
reputation during the 1980s to 1990s for could have pursued? Should societal factors
turning around ailing companies based on have been taken into account when the
applying a fairly simple formula for fixing Pacific Brands turnaround strategy was
such companies as Scott Paper, being developed?
Consolidated Press Holdings, Crown 4 Are outdated concepts and tools such as
Zellerbach and Lily-Tulip: cut costs, lay off the product life cycle, product portfolio
workers and close plants; in other words, models, marketing warfare or Porter’s
improve the operational efficiency of the concept of competitive advantage useful or
company and get the business harmful for developing marketing
fundamentals into shape. For example, just strategies?
days after taking over as CEO of Sunbeam 5 Should marketing objectives be set in terms
in July 1996, Chainsaw Al sacked and of market share objectives, or top-line or
replaced nearly all of the company’s senior bottom-line revenue?
ETHICAL ISSUE
Are concepts such as corporate social responsibility and creating shared value treated as window
dressing activities by most organisations?

Continue working on the strategic marketing in terms of the product-market objectives to be
project. Establish tentative marketing pursued over the strategic time horizon.
objectives and high-level marketing strategies

Explore Search me! marketing for articles • evidence-based management
relevant to this chapter. Fast and convenient, • creating shared value
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• stakeholder theory.
ENDNOTES
1 H. Mintzberg, ‘The fall and rise of strategic planning’, 9 M.R. Kramer and M.E. Porter, ‘Creating shared value:
Harvard Business Review, January–February 1994, p. 107. How to reinvent capitalism – and unleash a wave of
Copyright Ó 1994 by Harvard Business Publishing. Used innovation and growth’, Harvard Business Review, January–
by permission. February 2011, pp. 62–77. See also M. Porter, ‘Strategy &
society: The link between competitive advantage and
2 M. Skapinker et al., ‘World’s most respected companies: corporate social responsibility’, Harvard Business Review,
Resilience and flare triumph’, Financial Times, 15 December 2006, pp. 78–93.
December 2000, pp. 1–7.
10 M.R. Kramer and M.E. Porter, ‘Creating shared value:
3 H. Mintzberg, ‘Crafting strategies’, Harvard Business How to reinvent capitalism – and unleash a wave of
Review, July–August 1987, p. 70. innovation and growth’, Harvard Business Review, January–
4 H. Mintzberg, ‘Crafting strategies’, Harvard Business February 2011, pp. 62–77.
Review, July–August 1987, p. 68. 11 A. Rappaport, ‘Ten ways to create shareholder value’,
5 J. Pfeffer and R.I. Sutton, ‘Evidence-based management’, Harvard Business Review, September 2006, p. 12. It
Public Management, September 2007, p. 18. should be noted that this article focuses entirely on the
creation of shareholder value. However, the main thrust
6 ‘Creating more value with corporate strategy’, McKinsey of the article is an argument for creating long-term growth
Global Survey Results, The McKinsey Quarterly, January as opposed to short-term financial gain.
2011, www.mckinsey.com/insights/strategy/creating_
more_value_with_corporate_strategy_mckinsey_ 12 T. A. Stewart, ‘Growth as a process’, Harvard Business
global_survey_results. Review, June 2006, p. 61.
7 These strategies were identified in the following article: 13 Refer to D. Marlovitz, ‘The folly of stretch goals’, HBR
S. Hall, D. Lovallo and R. Musters, ‘How to put your Blog Network, 20 April 2012, http://blogs.hbr.org/2012/
money where your strategy is’, The McKinsey Quarterly, 04/the-folly-of-stretch-goals/. For a counterargument see
March 2012, pp. 28–38. S. Denning, ‘In praise of stretch goals’, Forbes,
Leadership, 23 April 2012, www.forbes.com/sites/
8 ‘Creating more value with corporate strategy’, McKinsey stevedenning/2012/04/23/in-praise-of-stretch-goals/.
Global Survey Results, The McKinsey Quarterly, January
2011, www.mckinsey.com/insights/strategy/creating_ 14 ‘A conversation with Peter Brabeck-Letmathe’, Council of
more_value_with_corporate_strategy_mckinsey_ Foreign Relations, 22 March 2011, www.cfr.org/business-
global_survey_results. and-foreign-policy/conversation-peter-brabeck-letmathe/
p24466.
15 H. Stodel, ‘Néstle ramps up work to slash CO2 waste’, 21 Day and Fahey provide an excellent example of this type
Grocer, 4 September 2010, p. 8. of strategic problem in describing strategies pursued by
Schlitz Brewing in the USA. Refer to G.S. Day and L.
16 M.E. Porter, ‘What is strategy?’, Harvard Business Review, Fahey, ‘Putting strategy into shareholder analysis’, Harvard
November–December 1996, p. 61. Business Review, March–April 1990, pp. 156–62.
17 H. Mintzberg, ‘Crafting strategy’, Harvard Business Review, 22 The concept of categorising products and markets into
July–August 1987, p. 70. new and existing dimensions was pioneered by Drucker
18 The notion of a business ecosystem was originally but incorporated later into a matrix format by Ansoff.
proposed by James Moore in 1993. Refer to: J. Moore, Refer to P.F. Drucker, The Practice of Management,
‘Predators and prey: A new ecology of competition’, Harper & Row, New York, 1954; and Ansoff, Corporate
Harvard Business Review, May–June 1993, pp. 75–86. Strategy.
19 J. Dyer and H. Gregersen, ‘The world’s most innovative 23 B. Nagji and G. Tuff, ‘Managing your innovation
companies 2012’, INSEAD Knowledge, 11 September portfolio’, Harvard Business Review, May 2012, reprint
2012, p. 1. The five discovery skills were originally R1205C, pp. 1–11.
identified in the publication of a research study in J. Dyer, 24 B. Nagji and G. Tuff, ‘Managing your innovation
H. Gregersen and C.M. Christensen, The Innovator’s portfolio’, pp. 1–11.
DNA: Mastering the five skills of disruptive innovators,
Boston, Mass., Harvard Business School Press, 1997.
20 S. Smit, C.M. Thompson and S.P. Viguerie, ‘The do-or-

die struggle for growth’, The McKinsey Quarterly, no. 3,
2005, p. 39.
STRATEGY TOOLS AND CONCEPTS
In line with the configuration school of thought discussed in Chapter 2 and earlier in this chapter,
the strategy style to be adopted needs to be appropriate for the business environment in which the
organisation competes – now or in the future. The chosen strategic style may also comprise a
combination of concepts, tools and techniques from a variety of different schools of thought.
In this appendix, some of the models most commonly used by strategists are discussed.
The product life cycle concept

The product life cycle (PLC) concept was developed during the late 1950s1 and became prominent
during the 1960s. The concept is quite simple as it postulates that products, like human beings, pass
through a number of different phases or stages of their life. In the case of products, the stages are
described as introduction, growth, maturity and decline. An additional stage described as competitive
turbulence or shake-out is also shown in some PLC models, as can be seen in Figure 4.5.
FIGURE 4.5 A typical product life cycle pattern
Life cycle
extension
Sales
Product
category
sales (in
real dollars)
Introduction
Competitive Decline or
turbulence extension
Growth Maturity
Time (years)
There are three levels or dimensions of product life cycles: the brand level, the product
category (product subclass) level and the industry (product class) level. The product category level
is the most useful for providing guidelines for the development of marketing objectives and
strategies.
The strategic implications of the PLC have been one of the most popular subjects in marketing
literature. Box 4.1 provides a summary of the typical characteristics of each of the PLC stages and
the marketing strategic implications.
Although there are some variations between the guidelines presented in the various PLC
models, Box 4.1 represents what could be described as a typical model. It can be observed that
these guidelines are fairly general in nature and that they do not provide for differences in market
position (such as different objectives for a leader, a challenger or a follower) or for markets that
B O X 4. 1
Typical characteristics of the PLC stages and the marketing strategic implications
INTRODUCTORY GROWTH COMPETITIVE MATURITY DECLINE
TURBULENCE
Characteristic
Sales Low Rapidly Slowing Peak sales Declining
Prices High Lower than Low Low Falling
introduction
Profits (per unit) Negative High and rising Declining Average Declining
Customers Innovators þ early Early majority Early majority Late majority Laggards
adopters
Competition Few Growing Shake-out Declining Further decline
number of begins numbers
imitators
Strategic implications – marketing objectives and strategies
Marketing Encourage trial Market share Protect and Protect share Halt, decline or
objective Establish penetration strengthen Manage for reduce
distribution Attract new niches earnings expenditure
users Keep loyal users and milk for
Extend the PLC profit
Product Basic Offer Tighten line Diversity of Phase out
extensions, Improve quality brands and weak items
features, models
service Reposition
brand if
necessary
Price Skimming or Maintain Match or beat Defensive Maintain profit
penetration prices competitors margins
Distribution Selective Build intensive Strong dealer Intensive and Selective
coverage support extensive
Promotion Create awareness Stimulate Maintain Stress brand Phase out
Develop brand wider trial customer differences and Maintenance
loyalty Emphasise franchise benefits weight only
brand loyalty
do not follow the typical S-shaped curve of the PLC model. It should also be recognised that the
concept has been subjected to a good deal of criticism, which can be summarised as follows:
• There is difficulty in defining the appropriate market.
• The length of the various stages differs for different products or industries. It is often not clear
what stage the product/brand is at.
• The S-shaped pattern does not always occur. Swan and Rink, for example, contend that there
are as many as 10 different PLC curves.2
• The players can affect the growth curve by extending it in a variety of ways such as
repositioning and product innovation.
• Generalised strategic implications are questionable because of divergent patterns between
industries such as competitive structure (which may vary during the stages) and the various
strategies the competitors use such as price competition, advertising and R&D expenditure.
Porter argues that industry takes many different paths so that the PLC pattern, which describes
one pattern, does not always hold. Moreover, he contends that there is nothing in the concept that
provides for a prediction of when the S-shaped pattern holds or when it does not.3 Therefore, it
should be noted that care must be taken when developing objectives and strategies based on PLC
models. The suggested guidelines are a good starting point for the process of decision making but
for nothing more than that.
Product portfolio models

During the early 1960s the notion of product portfolio management was introduced as a means for
diversified organisations to make decisions concerning the allocation of corporate resources to their
various SBUs. These models provided strategists with tools for evaluating the strategic positions of
each SBU and appropriate strategic prescriptions. In practice, product portfolio models were also
used by SBUs to evaluate the strategic positions of their various product lines and to formulate
strategies for those product lines.
A variety of portfolio models were developed during the 1960s and 1970s, with the most
publicised being those produced by the Boston Consulting Group, General Electric in consultation
with McKinsey & Company, and Arthur D. Little. All of these models followed a similar process of
evaluating the positions of an organisation’s SBUs on a grid or matrix. These positions were plotted
on two main dimensions: business strength (an assessment of the strength of each SBU relative to
its competitors) and market attractiveness (of the industry the SBU competed in). The first two of
these models are summarised in the following section, including a description of the steps to be
taken in constructing each model and a summary of the strategic recommendations.4
Boston Consulting Group growth/share matrix

The underlying concept of the Boston Consulting Group (BCG) model, developed in the late
1960s, is that strategic business units comprise a corporation’s portfolio of investment
opportunities. Each SBU’s strategic position is plotted on a four-quadrant grid, which is shown in
Figure 4.6. It is a two-dimensional model based on market growth, which forms the vertical axis of
the matrix, and relative market share, which forms the horizontal axis. Market growth is essentially
a proxy for market attractiveness and the stage the market has reached in its product life cycle.
Relative market share is a proxy for the business unit’s competitive strength and is computed by
dividing the SBU’s market share (in value or volume) by that of the largest competitor.
FIGURE 4.6 The BCG product portfolio model
Relative market share
High Low
Star ??
High (also known as ‘Problem
Children’ or ‘Wildcats’)
Market growth
Cash Cow Dogs

Low
There are two types of Dogs:

Cash Dogs and Genuine Dogs
Market growth is subdivided into two categories – high and low. Determining the cut-off point
between these two categories is therefore a critical decision. Similarly, relative market share is
divided into high and low categories and, accordingly, a decision also needs to be made about
where this vertical line should be drawn. These two critical decision points are discussed at the end
of this appendix.
Once the vertical (market growth) and horizontal (relative market share) lines are determined,
the strategic position of each SBU can then be plotted on the grid. The relative size of the circle for
each SBU can be drawn to represent sales volume. A segment drawn within this circle can be
shown to represent profit contribution.
Categorising each business unit

The BCG product portfolio model provides a means of categorising the strategic position of each
business unit into four areas: Stars, Cash Cows, Question Marks and Dogs. Based on these
classifications the model is then used by strategists to consider the strategic implications, in terms
of future earnings and cash flow, of investing the corporation’s resources in each SBU.
• Stars. These are SBUs with high relative market share in high-growth markets. Stars are
essential for the corporation’s long-term success but, paradoxically, they are quite often net
users rather than suppliers of cash. High-growth markets are those that are in the introductory
or growth stage of the PLC, and business units in these markets are required to invest heavily
in market and new-product development during these phases of market evolution.
• Cash Cows. These are SBUs with high relative market share in low-growth markets. Cash
Cows are former Stars that have drifted into this quadrant as their markets have matured and
growth has slowed (or even become negative). Cash Cows are cash generators enjoying
economies of scale and reduced investment requirements as the emphasis turns to maintaining
rather than establishing market leadership. Profit margins are relatively high.
• Question Marks. These are SBUs with low relative market share in high-growth markets. These
SBUs are ‘Problem Children’ (also known as ‘Wildcats’) as they have been unable to gain a
strong position in the market they compete in. They are often new to the market. These
business units require large amounts of cash, and the objective is to shift them to the left
quadrant to become a Star. Otherwise, when the market matures they will slip down into the
Dogs category.
• Dogs. These are SBUs with low relative market share in low-growth markets. There are two
categories of Dogs: Cash Dogs and Genuine Dogs. Cash Dogs are profitable, but Genuine Dogs
are either unprofitable or very nearly unprofitable.
The aim is to have a balanced portfolio of businesses, which is achieved by following a success
sequence in which cash generated by Cash Cows is invested in developing Question Marks so that
they will become Stars. In turn the Stars will one day change into future Cash Cows as the markets
they compete in mature.
It should be noted that the model was originally developed to provide strategists at the
corporate level of an organisation with an analytical tool for developing strategies for a portfolio of
business units. However, it is recommended that the model should also be applied at the business
unit level to review the portfolio of product lines and as an aid for developing strategies for those
product lines. It can also be used at a product line level to review the strategic position of individual
products and brands within the product line.
Suggested BCG objectives and strategies5

Stars: ‘Invest for growth’
• Market share objective:
- Hold/increase; that is, defend leadership or gain if possible. Accept moderate short-term
profits and negative cash flow.
• Strategies:
- Consider geographic expansion, product line expansion and product differentiation.
- Upgrade product introduction effort.
- Adopt an aggressive marketing posture, namely, selling, advertising, pricing, sales
promotion and service levels as appropriate.
Question Marks/Problem Children: ‘Opportunistic development’
- Increase or harvest/divest.
• Strategies:
- Invest in selective products.
- Identify and target uncontested and/or emerging market segments.
- Pursue similar strategies as previously stated under ‘invest for growth’.
Cash Cows: ‘Manage for earnings’
- Hold, that is, maintain, market position and manage for earnings.
• Strategies:
- Maintain market position in most successful product lines and prune less-successful
product lines.
- Differentiate products to maintain share of key segments.
- Limit discretionary marketing expenditure.
- Stabilise prices, except where a temporary aggressive stance is necessary to maintain
market share.
Dogs6
1 Cash Dogs
- Hold. Acknowledge low growth – do not view as a ‘marketing problem’.
• Strategies:
- Identify and exploit growth segments.
- Emphasise product quality to avoid ‘commodity’ competition.
- Systematically improve productivity.
- Assign talented managers.
2 Genuine Dogs
- Harvest/divest.
• Strategies:
- Prune product line aggressively.
- Maximise cash flow.
- Minimise marketing expenditure.
- Maintain or raise prices at the expense of volume.
Guidelines for constructing a BCG model

The model is based on the underlying assumption of the learning or experience curve. That is, the
unit cost of production declines as the firm gains more cumulative experience in production,
distribution and marketing.
Relative market share

This is the ratio of the firm’s unit sales (or actual market share) to that of its largest competitor. To
compute, divide your market share by the largest competitor’s market share. For example:
YOUR SHARE LARGEST RATIO

COMPETITOR
Example 1 10 20 0.5
Example 2 10 10 1.0
Example 3 30 20 1.5
A ratio less than 1.0 means that you are not the market leader; a ratio of precisely 1.0 means
that you are tied for the lead; and a ratio greater than 1.0 means that you are the market leader.
The relevance of relative market share is based on the experience curve concept: the greater the
market share, the greater the cost efficiency. Profit impact of market strategy (PIMS) studies show
(generally) a strong relationship between market share and ROI, although there are several other
factors that impact on ROI.
A log scale is normally used for the (vertical) relative market share axis. Relative market share is
usually divided at the 1.0 (vertical) line so that ‘high’ signifies market leadership. However, this is
not a fixed rule and the line could be drawn at a lesser value so that strong no. 2s and no. 3s in a
good market position can be placed on the ‘high’ side.
Market growth rate

This is a rough proxy for the PLC stages separating growth from maturity. The placement of the
horizontal line is an arbitrary decision (although most examples illustrate it at 10 per cent). As a
guide, the line should be placed to show:
Growth sustained growth above GDP

Maturity approximately equal to GDP
As a further consideration, the cash flow situation for a product placed in each of the four
quadrants (assuming that the product holds its market share) should equate to the following:
FIGURE 4.7 Cash flow guidelines for the BCG matrix
In balance Cash users

Market
growth
Cash generators In balance
The GE/McKinsey market attractiveness/business assessment matrix expands the two-

dimensional approach of the BCG model. It uses a multifactor assessment of ‘industry
attractiveness’ and ‘business strengths’ as the two main factors and expands the ‘high’ and ‘low’
dimensions into ‘high’, ‘medium’ and ‘low’, thereby creating nine strategic positions.
Criticisms of the BCG model

• In many circumstances, factors other than relative market share and market growth influence
cash flow.
• The assumption that relative market share is linked to profit, thereby indicating business
strength, does not hold as there are many other factors that influence business position
including financial resources, marketing expertise and access to distribution channels.
• The assumption that market growth is an adequate indicator of market attractiveness is similarly
flawed as there are many other factors that influence market attractiveness. These include the
factors identified by Porter in his five-forces model (competitive rivalry, threat of new entrants,
bargaining power of suppliers, bargaining power of buyers and threat of substitutes) discussed in
Chapter 3. Additionally, legal and technological factors affect market attractiveness.
• Cash flow may be less important than ROI in determining the attractiveness of investing in one
business unit or another.
• The model provides little insight into how one business unit might be compared with another in
terms of investment opportunity. For example, is every Star better than a Cash Cow?
The General Electric/McKinsey model

In the early 1970s General Electric (GE) became interested in the portfolio management approach.
However, GE management believed that the BCG approach overlooked a number of important
factors that determine market attractiveness and business strength. Accordingly, they commissioned
McKinsey & Company to develop an alternative model, which is shown in Figure 4.8. This model
has become widely known as the GE/McKinsey market attractiveness/business assessment matrix,
although it is also alternatively referred to as the GE/McKinsey screening grid. Shell and Arthur D.
Little developed a similar model known as the industry maturity/competitive position grid or the
directional policy matrix.
The GE/McKinsey model is, like the BCG model, two-dimensional. However, instead of using
a single factor as the basis for determining market attractiveness and a single factor for determining
business position, the GE/McKinsey model uses a variety of factors. That is, it is a multifactor
portfolio model. Additionally, the GE/McKinsey model divides each dimension into high, medium
and low categories, thereby proving nine strategic positions compared to the four strategic positions
in the BCG model.
FIGURE 4.8 The GE/McKinsey market attractiveness/business assessment matrix
Business position
High Medium Low

High
Market attractiveness
Medium
Low
High overall attractiveness
Medium overall attractiveness
Low overall attractiveness
The GE/McKinsey multifactor portfolio model is a more complex model than the BCG model
and it takes a considerable amount of time and effort to construct it. It involves judgements about
determining factors that make a market attractive, and for determining the strength or otherwise of
business in that market. Moreover, it requires strategists to rank and to weight the importance of
each factor, which means that the model constructs are highly subjective.
The GE/McKinsey model was designed to be used as a tool for corporate-level strategists to
assign investment priorities in their various business units and to provide a guide for resource
allocation. As with the BCG model, it is recommended that marketing strategists should develop
this model at both the corporate level and business unit level to review the strategic position of the
business unit as a whole and the strategic positions of the product lines within the business unit.
B O X 4. 2
General strategic options for the GE/McKinsey matrix
PROTECT POSITION INVEST TO BUILD BUILD SELECTIVELY
• Invest to grow at maximum • Challenge for leadership. • Specialise around limited
digestible rate. • Build selectively on strengths. strengths.
• Concentrate effort on • Reinforce vulnerable areas. • Seek ways to overcome
maintaining strength. weaknesses.
• Withdraw if indications of
sustainable growth are lacking.
BUILD SELECTIVELY SELECTIVITY/MANAGE FOR LIMITED EXPANSION OR
EARNINGS HARVEST
• Invest heavily in most attractive • Protect existing program. • Look for ways to expand
segments. • Concentrate investments in without high risk; otherwise,
• Build up ability to counter segments where profitability is minimise investment and
competition. good and risk is relatively low. rationalise operations.
• Emphasise profitability by
raising productivity.
PROTECT AND REFOCUS MANAGE FOR EARNINGS DIVEST
• Manage for current earnings. • Protect position in most • Sell at a time that will maximise
• Concentrate on attractive profitable segments. cash value.
segments. • Upgrade product line. • Cut fixed costs and avoid
• Defend strengths. • Minimise investment. investment meanwhile.
Source: From G. Day, Analysis for Strategic Market Decisions, 1st edn. Ó 1986 South-Western, a part of Cengage Learning, Inc.
Reproduced by permission. www.cengage.com/permissions.
Guidelines for constructing a GE/McKinsey multifactor portfolio model

Constructing a GE/McKinsey multifactor portfolio model consists of two main steps: developing
the criteria for the assessment of market attractiveness and business strength, and assessing
individual products against those criteria.
Developing the criteria for the assessment of market attractiveness and business strength
1 Determine the factors that would make any market attractive. There are a number of factors
that determine the degree of market attractiveness. These would be drawn from the external
environment factors contained in the situation analysis and, for example, might include:
a market factors
b competition
c financial and economic factors
d technological factors
e sociopolitical factors (in the SBU’s environment).
There are a number of subfactors that need to be considered to expand each of these areas.
For example, market factors would include the size of the market, growth rate, diversity of the
market, sensitivity to price and several other factors. Box 4.3 provides a checklist of subfactors
to consider for each of these main areas. This checklist was developed by William Rothschild, a
specialist in strategic planning at General Electric. The checklist groups the factors for both
market attractiveness and business strength into five categories: market, competitive, financial
and economic, technological and sociopolitical.
Alternatively, market attractiveness can be determined by drawing on Porter’s five-forces
model – that is, the intensity of competition, buyer power, threat of new entrants, supplier
power and the threat of substitutes.
B O X 4. 3
A checklist of factors to consider for determining market attractiveness and business
strengths
FACTORS CONTRIBUTING TO MARKET FACTORS CONTRIBUTING TO BUSINESS

ATTRACTIVENESS POSITION STATUS/POSITION OF YOUR
BUSINESS
Market factors Market factors
• Size (dollars, units or both) • Your share (in equivalent terms)
• Size of key segments • Your share of key segments
• Growth rate per year: • Your annual growth rate:
– Total – Total
– Segments – Segments
• Diversity of market • Diversity of your participation
• Sensitivity to price, service features and external • Your influence on the market
factors • Lags or leads in your sales
• Cyclicality • Bargaining power of your suppliers
• Seasonality • Bargaining power of your customers
• Bargaining power of upstream suppliers
• Bargaining power of downstream suppliers
Competition Competition
• Types of competitors • Where you fit, how you compare in terms of
• Degree of concentration products, marketing capability, service, production
• Changes in type and mix strength, financial strength and management
• Entries and exits • Segments you have entered or left
• Changes in share • Your relative share change
• Substitution by new technology • Your vulnerability to new technology
• Degrees and types of integration • Your own level of integration
Financial and economic factors Financial and economic factors
• Contribution margins • Your margins
• Leveraging factors, such as economies of scale • Your scale and experience
and experience • Barriers to your entry or exit (both financial and
• Barriers to entry or exit (both financial and non-financial)
non-financial) • Your capacity utilisation
• Capacity utilisation
Technological factors Technological factors
• Maturity and volatility • Your ability to cope with change
• Complexity • Depths of your skills
• Differentiation • Types of your technological skills
• Patents and copyrights • Your patent protection
• Manufacturing process technology required • Your manufacturing technology
Sociopolitical factors in your environment Sociopolitical factors in your environment

• Social attitudes and trends • Your company’s responsiveness and flexibility
• Laws and government agency regulations • Your company’s ability to cope
• Influence with pressure groups and government • Your company’s aggressiveness
representatives • Your company’s relationship with the broader
• Human factors, such as unionisation and community, external bodies, employees and
community acceptance unions
Source: Based on a table presented by D.F. Abell and J.S. Hammond, Strategic Marketing Planning: Problems and Analytical
Approaches, Upper Saddle River, NJ, 1979, p. 214. Ó 1979. Reprinted by permission of Pearson Education, Inc.
2 Weight the relative importance of each of these factors by assigning values to add up to 100.
The following example, for a hypothetical manufacturing company in the business-to-business
area, shows the external factors that top management considered to be significant and the
relative weighting they assigned each factor:
MARKET ATTRACTIVENESS WEIGHTING

Market factors 15
Competition 15
Financial and economic factors 30
Technological factors 25
Sociopolitical factors 15
Total 100
3 The next stage is to determine the criteria for assessing the current business strength for any
product. The starting point for this assessment is to identify the business strengths that are
necessary for any product to be successful. That is, what are the critical success factors for a
product to succeed in its market?
One way of doing this is to use the same factors that were used to determine market
attractiveness. However, a preferable alternative is to use the critical success factors that were
identified in the problems and opportunity stage of the marketing planning process. This was
discussed in Chapter 3 and a list of potential CSFs was identified: financial capabilities, production/
manufacturing capabilities, supply, human resources, management, R&D (technological
leadership), competitive position, marketing, uniqueness of product/service, product/service quality
superiority, product range, strength of brand name, superior customer service, distribution
availability, price, image/reputation, sales-force superiority or advertising effectiveness. In most
cases around five to eight CSFs would be identified to be the most significant.
4 After identifying the CSFs, the next stage is to weight their relative importance in a similar
fashion to the process described for Step 2 to weight the external factors. Turning to a
hypothetical manufacturing company, top management identified and assigned relative
weightings of the following CSFs:
CSF BUSINESS STRENGTH WEIGHTING

Manufacturing 20
R&D 20
Financial resources 10
Management 10
Distribution 10
Product quality 10
Sales force 10
Image 10
Total 100
5 It is important that agreement is reached regarding the above assessment criteria before
proceeding to the next stage. Otherwise, an endless round of arguments will ensue and the
criteria will become moving targets.
The next stage is to construct the screening grid. The usual way of doing this is to divide the
matrix into equal (one-third) shares for both market attractiveness (the vertical lines) and
business strength (the horizontal lines). Once this has been developed the next stage of the
process is to assess the position of each product.
Judging individual products against assessment criteria

6 To judge the market attractiveness of each product it is suggested that a scoring system, ranging
from 1.0 for high attractiveness to 0.5 for medium attractiveness to 0.0 for no attractiveness, be
used.
Some organisations predetermine the potential score to be assigned. For example, for
market factors it may be predetermined that size and growth will be the key determinants.
Moreover, if a market has a turnover of $10 million or less it is ‘low’, $11–25 million it is
‘medium’ and over $25 million it is ‘high’. Growth may range, for example: 3 per cent or lower
may be ‘low’, 4–6 per cent ‘medium’ and 71 per cent ‘high’. The use of such a scoring system
can add an objective element to the process of evaluation.
Using the example of the hypothetical manufacturing company, Product A’s market
attractiveness was judged as follows:
SCORE FOR PRODUCT A

Market factors 0.5
Competition 0.1
Financial and economic factors 1.0
Technological factors 0.7
Sociopolitical factors 0.4
7 The next step is to combine the market attractiveness weighting determinants with the assessed
score for the particular product. This can be computed as follows for Product A:
FACTOR WEIGHTING SCORE* RATING

Markets 15 0.5 7.5
Competition 15 0.1 1.5
Financial and economic 30 1.0 30.0
Technological 25 0.7 17.5
Sociopolitical 15 0.4 6.0
Total 100 62.5
*Scored: high ¼ 1.0, medium ¼ 0.5, low ¼ 0
In this example, Product A has been assessed to be of medium market attractiveness.

8 The next step is to judge the business position for the product to determine the product’s
business strength vis-à-vis that of its competitors. Market research may be used to assist in the
assessment of the marketing-related factors such as product quality, distribution (availability
and customer service) and image.
CSF SCORE FOR PRODUCT A

Manufacturing 0.2
R&D 0.5
Financial resources 0.6
Management 0.7
Distribution 0.3
Product quality 0.5
Sales force 0.8
Image 0.4
9 The next stage is to compute the rating for the product:

BUSINESS POSITION FACTOR WEIGHTING SCORE* RATING
Manufacturing 20 0.2 4.0
R&D 20 0.5 10.0
Financial resources 10 0.6 6.0
Management 10 0.7 7.0
Distribution 10 0.3 3.0
Product quality 10 0.5 5.0
Sales force 10 0.8 8.0
Image 10 0.4 4.0
Total 100 47.0
*Scored: high ¼ 1.0, medium ¼ 0.5, low ¼ 0
Product A’s business strength of 47.0 places it in the medium business strength box. Thus
product A has been found to be in a market of medium attractiveness and it has a medium
business strength.
(Note: When developing the grid, it is suggested that a circle is used to show each product’s
position. The size of the circle should represent the relative size of the current market that the
product competes in. It is also useful to draw a segment within the circle to represent the
product’s current market share.)
10 Finally, the generic strategic option for the product can be considered. Box 4.2 (presented
earlier in this chapter) provides a summary of generic strategic options that have been
recommended by Day.7
Reference to this table shows that the product evaluated in the above example should
pursue a strategy of selectivity/management for earnings.
The above steps should have been followed for determining the current position for each
product. In order to determine the trend, the entire procedure outlined in Steps 1–10 should
now be repeated projecting the information criteria three to five years into the future (that is,
for the planning horizon of the marketing strategic plan). This will enable the future position to
be plotted on the grid. This is usually achieved by drawing an arrow pointing to the projected
position.
Identifying the relevant factors

Different industries will have different emphases on what factors are important. As a guideline the
nature of the product and customer behaviour should determine the emphasis. For example, for
highly differentiated products for which customers seek technical innovation or other special
benefits, relative technological position may be the key to a strong business position. Patent
protection may be the key to market attractiveness.
For commodity products, low manufacturing costs and entry barriers may be the prime
contributors to business position and market attractiveness.
The concept of competitive advantage – the

positioning school
The concept of competitive advantage was championed by Porter in the 1980s and 1990s.8 The
basis of his argument was that a ‘company could only outperform its rivals if it could establish a
difference that it could preserve – by delivering greater value to its customers or by creating
comparable value at a lower cost, or by doing both’.9
Porter’s concept of generic competitive strategies provides managers with means for managers
to: (1) evaluate a firm’s competitive position; and (2) develop strategies to improve its current
position. The model is based on two dimensions: the type of competitive advantage and
competitive scope. Porter argues that an organisation must choose between a low-cost or
differentiation form of competitive advantage and between a broad (industry-wide) or narrow
focus. That is, there are four generic strategies or routes to competitive advantage that an
organisation can pursue:
1 Cost leadership at an industry-wide level of competition

2 Cost leadership at niche of focus level of competition
3 Differentiation at an industry-wide level of competition
4 Differentiation at niche of focus level of competition.
Cost leadership
Cost leadership strategies can be employed at a market-wide level (a broad competitive scope) or at
a market-niche level (a focus or narrow competitive scope). With a cost leadership strategy the
objective is market share leadership based on a marketing strategy in which cost leadership is the
main strategic tool. This strategy needs to be addressed at the business unit level (that is, at an
organisation-wide level) and not just at the marketing level. In order for it to be successful, the
organisation needs to become the low-cost producer in its industry. This therefore necessitates
attention to non-marketing functions, particularly production, supply and R&D, in addition to
marketing functions. Porter argues that cost leadership is appropriate where an organisation has
economies of scale and has been able to reduce costs due to ‘the experience curve’ effect. As he
elaborates:
Cost leadership requires aggressive construction of efficient-scale facilities, vigorous
pursuit of cost reductions from experience, tight cost and overhead control, avoidance
of marginal customer accounts, and cost minimisation in areas like R&D, service, sales
force, advertising and so on.10
Porter contends that achieving a low overall cost position often requires a high relative market
share or other advantages such as having favourable access to raw materials or designing products
that are easy to manufacture, spreading costs over a wide product line and serving all major
customer groups. Having a low-cost position yields a firm above-average returns.
Differentiation
Differentiation strategies can be employed at a market-wide level (a broad competitive scope)
or at a market niche level (a focus or narrow competitive scope). This strategy calls for
differentiating a product or service from the competitor’s products or services. Differentiation
refers to a customer’s perception of difference (uniqueness) and superiority on at least one
physical or non-physical product characteristic.11 The key to a successful differentiation
strategy is to identify needs that customers believe to be important and to deliver value to those
customers. Differentiators seek to command premium prices; therefore, their customers have
to be willing to pay the premium for the perceived value they will receive. The differentiation
may be in the product form, brand image, product features, breadth of the product line,
technology, customer service, pricing or distribution channels. At the heart of a successful
differential strategy is the development of a customer franchise based on brand loyalty. The
differentiator can increase margins and avoid the need to compete in the low-cost section of
the market. This often implies a lower market share and is a strategy to be pursued when the
low-cost leadership position is occupied by a strong competitor.
Porter argues that winners in a chosen industry singlemindedly pursue one of the four generic
strategies. Each strategy requires a different managerial approach and different skills and assets. He
warns that a strategy of being ‘stuck in the middle’ – where two or more generic strategies are
pursued at the same time – will not achieve a competitive advantage:
The firm in the middle is almost guaranteed low profitability. It either loses the
high-volume customers who demand low prices or must bid away its profits to get
this business away from low-cost firms. Yet it also loses high-margin business – the
cream – to the firms who are focused on high-margin targets or have achieved
differentiation overall. The firm stuck in the middle also probably suffers from a
blurred corporate culture and a conflicting set of organisational arrangements and
motivation systems.12
Figure 4.9 provides a useful matrix for analysing the cost leadership versus differentiation
strategy direction pursued for the organisation’s products and for analysing competitive
strategies.
FIGURE 4.9 Strategy options based on relative costs and differentiation alternatives
Relative costs
High Low
1 2
Market niche High differentiation/high
Degree of differentiation
High
margins
3 4
Disaster area Cost leadership
Low
The low relative cost/low degree of differentiation position shown in quadrant no. 4 is where
the market leaders would be expected to be found. This is generally a strategy that only the market
leader or perhaps a strong no. 2 or no. 3 could successfully pursue. The risk for competitors
pursuing this strategy is that, as the industry matures, their cost leadership advantage could
diminish. To offset this the organisation must keep abreast of technological innovation, reinvest in
modern equipment, scrap obsolete assets and avoid product line proliferation. In some extreme
cases the ideal position shown in quadrant no. 2 may be a strategic alternative. If the competitor
has a low relative cost and a high degree of differentiation, then it can achieve high margins by
pricing either at or just above its competitors (who have higher relative costs). This quadrant may
also be occupied by competitors in the low–medium relative cost area who price higher than the
cost leader but substantiate the premium price by their medium-to-high level of differentiation.
These competitors must have customers who are willing to pay the additional price to receive the
‘added value’ for the product. The danger of this strategy is that, as an industry matures, the
products tend to be increasingly regarded by the market to be generics or commodities. The value
of paying a premium price for the added value (differential) diminishes and customers turn to the
lower priced alternatives.
Where neither of these two strategies is available, the competitor can choose to focus on a
niche or single segment of the market as shown in quadrant no. 1. Prestige car manufacturers
typically pursue this strategy by producing a relatively high-cost product that is highly
differentiated. They appeal to a segment that is prepared to pay a high price to acquire a
differentiated product. The final quadrant, to be avoided like the plague, is quadrant no. 3: the high
relative cost/low degree of differentiation strategy.
In 1996 Porter provided an elaboration of his earlier work on strategy.13 First, he argues that a
company can only outperform its competitors if it establishes a difference that it can preserve. This
can be achieved only by delivering greater value to its customers, by creating comparable value at
lower cost or by doing both. He argues that it is a mistake to confuse operational effectiveness with
strategy. Operational effectiveness means to perform similar activities better than competitors
perform them. Strategic positioning, on the other hand, means either to perform different activities
from that of the competitors or to perform similar activities differently. While operational
effectiveness is necessary it can only provide a short-term advantage, as competitors will soon catch
up on the productivity front.
Second, Porter argues that competitive strategy is all about being different – ‘deliberately
choosing a different set of activities to deliver a unique mix of value’.14 He argues that strategic
positions emerge from three distinct, but frequently overlapping, sources:
• variety-based positioning, which produces a subset of an industry’s products or services
• needs-based positioning, which serves most of the needs of a particular group of customers
• access-based positioning, which segments customers who are accessible in different ways
(essentially, a distribution-based strategy).
These three sources of strategic positioning expand the earlier concept of generic strategies by
providing three possible sources of strategic positioning for each of the four generic strategies. For
example, a low-cost industry-wide competitor can choose a variety-based, needs-based or access-
based positioning strategy or a combination of these three sources.
Critics of Porter’s concept of competitive advantage argue that low cost and differentiation are
often compatible strategies. Porter states that a low-cost position often requires high market share,
but critics contend that to achieve high market share it is necessary to pursue a differentiation
strategy. It is also claimed that Porter’s premise that differentiation is associated with uniqueness
and premium prices is flawed. Many top-selling brands are higher in quality than their competitors
and compete at a mid price-point position in the market rather than at or below the market average
price point or at the premium end of the market.
Blue ocean strategy

Kim and Mauborgne introduced the concept of blue ocean strategy with the publication of an
article of the same name in the Harvard Business Review in 2004 and a book in 2005.15 They argue
that the business universe consists of two distinct spaces which they describe by using the
metaphor of red and blue oceans. A red ocean represents all the known industries competing today
in what is the ‘known market space’, whereas a blue ocean is the unknown market space –
industries not in existence today. They contend that: ‘Competing in overcrowded industries is no
way to sustain high performance. The real opportunity is to create blue oceans of uncontested
market space’.16 In direct contrast to Porter’s contention that strategy is a trade-off between the
creation of value (differentiation) and low cost, they argue that a blue ocean strategy is created by
an organisation pursuing differentiation and low cost simultaneously.
The blue ocean strategy focuses the reconstruction of market boundaries based on six key areas
that Kim and Mauborgne refer to as a six-paths framework:
• Path 1 The industry. This concept is directly related to the marketing myopia view
promulgated by Theodore Levitt. That is, define the business you are in by customer needs
rather than by the physical characteristics. For example, an airline is in the business of
satisfying its customer needs for transportation. Define the industry broadly as transportation,
not narrowly as the airline industry.
• Path 2 Look across the strategic group. That is, look across product categories such as hair
care, not just at one category such as shampoo.
• Path 3 Look across the chain of buyers. That is, look at the spectrum of initiator-influencer-
decider-purchaser-user for the product, not just the purchaser.
• Path 4 Look across complementary services and offerings. For example, an airline providing
airport transfers, and hotel reservations.
• Path 5 Look across functional/emotional appeals. For example, the success of Swatch was
due to appealing to the psychological needs of self-esteem and ‘belongingness’ (a fun-to-have
fashion accessory) as opposed to safety needs (functionality).
• Path 6 Look across time. Consider the future needs and trends, not the current needs and
trends of the market.
A major difference between the blue ocean approach and competitive advantage is that
organisations adopting a blue ocean strategy focus on innovation and a continual process of
searching for new untapped markets, as opposed to the competitive advantage viewpoint that
innovation provides only a short-term advantage. In the long term, competitors will imitate the
innovator and once again the core business activity centres on competition among firms. In reality
both red and blue strategies are important. In later chapters of this book, red ocean strategies are
discussed in relation to strategies for existing products in existing markets (Chapter 7), existing
products for new markets (Chapter 8) and new products for existing markets (Chapter 9). Blue
ocean strategies are discussed in Chapter 10 concerning new products for new markets.
Resource-based view of the firm (RBV)

The concept of the resource-based view of the firm (RBV) was defined by Birger Wenerfelt in an
article published in the Strategic Management Journal in 1984.17 However, the concept made little
impact in the academic and business worlds until 1990 when Hamel and Prahalad took up the
cudgel with the publication of what was to become a widely read article in the Harvard Business
Review.18 RBV theory views an organisation as a ‘unique bundle of idiosyncratic resources and
capabilities where the primary task for management is to maximise value through the optimal
deployment of existing resources and capabilities, while developing the firm’s resource base for
the future’.19
Hamel and Prahalad argue that core competence – the combination of individual technologies
and production skills underlying an organisation’s product lines – is the essential building block of
strategy.20 The core competence of Sony, they argue, is miniaturisation, which underpins all of
their products, from the Sony Walkman to notebook computers. Other notable concepts within the
RBV school of thought include the Stalk, Evans and Shulman notion of ‘capabilities-based
competition’, Kanter’s idea of time-to-market or time compression strategies, and Grant’s concept
of a knowledge-based theory of the firm. Stalk et al. argue that a focus on core competencies is not
enough. For them, the key to success is ‘capabilities-based competition’. In an increasingly dynamic
business environment, they maintain that ‘successful competitors move quickly in and out of
products, markets and sometimes even entire businesses’. They argue that ‘capabilities-based
competitors identify their key business processes, manage them centrally, invest in them heavily,
looking for a long-term payback’.21 Kanter also argues the case for speed in what she terms time-to-
market or time compression strategies – the ability to do things more quickly than the
competitors.22 She contends that a company can gain a competitive advantage by increasing the
speed of getting new products to market (new-product realisation), manufacturing and distributing
on a just-in-time (JIT) basis, providing quick response (QR) customer service, and responding more
quickly to market trends and opportunities than their competitors. That is, she argues that
strategists need to focus on internal processes.23 Grant conceptualises organisations as institutions
for integrating knowledge. He argues that information resides with individuals and that therefore
the primary role for an organisation is the application of knowledge.24 The task for management
therefore is to establish organisational structures that facilitate the transfer of knowledge from
individuals within the organisation and its partners to decision makers throughout the organisation.
Dynamic capabilities
This approach builds on the resource-based view of the firm (RBV) catering for a business
environment of rapid and unpredictable change. In such a market the source of a sustainable
competitive advantage is achieved by managing the dynamic capabilities of the organisation; that is,
by the organisation’s ability to ‘integrate, build, and reconfigure internal and external competencies
to address rapidly changing environments’.25 The dynamic capabilities required include product
development, strategic decision making and alliancing.
In recognition that existing core competencies (as per the RBV approach) can potentially
become less valuable over time due to competitors replicating them or changing customer
preferences, the dynamic capabilities approach focuses on developing the ability to adapt and
extend existing competencies to address a changing market situation. To develop this ability the
organisation needs to focus on two critical capabilities: the ability to sense threats and
opportunities, which changes in the business environment are likely to present, and the ability to
seize the opportunities or respond to these threats by reconfiguring both tangible and intangible
assets. That is, organisational leaders need to have strategic insight and the ability to implement
transformative or turnaround strategies (strategic execution).
The dynamic capabilities approach is similar to the blue ocean approach inasmuch that
both emphasise the need for an organisation to change over time and to compete in both existing
and new markets. By emphasising the need to understand changing customer need and
preferences, both approaches also differ from the competitive advantage approach of beating the
competitors.26
Drawing the externally and internally focused views of

competitive advantage together
A focus on internal capabilities or core competencies contrasts with the view of competitive
advantage proposed by Porter. That is, Day and Wensley point out that there are two schools of
thought as to what the term ‘competitive advantage’ actually means.27 The first interpretation is
that competitive advantage is analogous to ‘distinctive competence’ – the possession of superior
skills and resources as per the resource-based theory of the firm. The second interpretation is
that competitive advantage represents the achievement of positional superiority – lower relative
costs (cost leadership) or superior customer value (differentiation). Day and Wensley argue that
neither view independently provides a complete picture of competitive advantage. They therefore
propose that the two views need to be integrated in order to describe the state of advantage and
how it is gained. Figure 4.10 shows the sequence proposed by Day and Wensley about how
competitive advantage is created and sustained, and what this means in terms of performance
outcomes.
FIGURE 4.10 Day and Wensley’s elements of competitive advantage model
Sources of Positional Performance

advantage advantages outcomes
• Superior skills • Superior • Satisfaction
• Superior customer value • Loyalty
resources • Lower relative • Market share
costs • Profitability
Investment of profits
to sustain advantage
Source: Reprinted with permission from Journal of Marketing, published by the American Marketing Association,
G. S. Day and R. Wensley, vol. 52, April 1988, p. 3.
Positional advantages and performance outcomes are a consequence of the sources of

advantage that an organisation has (relatively superior skills and resources). Superior skills and
resources provide an organisation with the ability to do more or do better (or both) than its
competitors. Superior skills are the distinctive capabilities of personnel arising from their ability to
perform individual functions more effectively than competitors. Superior resources can be found in
the scale of operations, location, sales-force breadth, distribution coverage, availability of automated
assembly lines and brand-name power. Superior skills and resources are the antecedents of
positional advantage, which are manifested in two forms: superior customer value and lower relative
costs. Superior customer value (differentiation) is achieved when an organisation performs some
value-adding activity that leads to customer perception of superiority. Lower relative costs are
achieved by an organisation performing most of its activities at lower costs than its competitors –
while offering a parity product. The achievement of a sustainable competitive advantage is
measured in terms of customer satisfaction, customer loyalty, market share and profitability
(performance outcomes). Profits are invested in the acquisition or enhancement of the

organisation’s sources of advantage (superior skills and resources) in order to achieve or maintain a
long-term, sustainable competitive advantage.
Models of sustainable competitive advantage provide a means for analysing the organisation’s
strategic position and that of its competitors. Most importantly, the models can be used as
decision-making aids for deciding future competitive positioning strategies. Closely related to these
considerations is how the organisation will compete in its chosen markets in terms of its
competitive stance.
The concept of marketing warfare

This concept was originally developed by Kotler and Singh in 1981 and has been embellished by
others since then. The focus is on how the organisation is to compete in the marketplace from the
point of view of a market leader, a market challenger/follower or a market-niche player.28
Market leaders. Can compete in the marketplace by pursuing one or a combination of the
following five options:
• Market expansion is an attempt by the market leader to expand demand for the product
category (market-driving strategies). Apart from stimulating primary demand for the product
category, a market leader could attempt to broaden the market by expanding into related
products or categories, or related market segments.
• Market-share protection is an attempt by the market leader to protect its share of the market
with strategies such as outspending its competitors in advertising, using consumer and trade
sales promotions to maintain customer loyalty, extending the product line to cover all market
segments, lowering prices and increasing distribution.
• Pre-emptive strike is an offensive strategy that anticipates or discourages competitive entry – for
example, tying up the distribution channels by providing attractive trade incentives or by
launching a fighting brand designed to offset any competitive product.
• Counterattack is attacking a competitor either by taking an individual competitor head on or by
mounting a flanking strategy such as by moving into an emerging market segment that the
competitor has not entered.
• Reactive strategy is an alternative strategy whereby the market leader might wait until it is
attacked and then react to the competitive challenge by launching a new product to offset the
attacker, matching or bettering the price offer, or using advertising or sales promotion.
Market challenger/follower. Organisations that are a strong no. 2 or 3 in the mainstream market
and are perceived by customers to be an alternative to the leader. Generally these organisations are
innovative and aggressive and quite often seek market leadership. Their marketing objective would
therefore be to increase their market share. Market followers are typically smaller and are usually
around the midpoint of the market structure. Quite often they compete with value-for-money
alternative products (based on being adequate in quality but at a lower price). They may not
compete in all of the mainstream markets but would cover the largest segments. In most cases their
marketing objective would be to maintain or increase market share. Market challengers and market
followers can choose between three proactive strategies (head-to-head competition, flanking
strategies and encirclement) and one reactive strategy of following the leader.
• Head-to-head competition is a dangerous strategy to pursue and the market challenger should
be confident that it has a competitive advantage based on product superiority and/or cost. This
competitive advantage must not only be real but also be capable of being perceived by the
customer to exist and to be significant.
• Because head-to-head competition is so risky, the alternative strategy of flanking is often
considered to be a preferred option. This strategy involves determining a need that the market
leader (or leaders) has overlooked and, in response, to offer a product that satisfies that need.
That is, a flanking strategy seeks to compete in an uncontested area.
• A third alternative for a proactive strike is encirclement. This involves an aggressive move
against the market leader on several fronts. This may involve introducing a product range that
surrounds the market leader or switching the customer’s attention to benefits or attributes that
the leader currently does not offer.
• The final strategic alternative for the market challenger/follower is the reactive strategy of
‘follow the leader’. This minimises the risk of retaliation and is essentially a ‘me too’ approach.
However, as a cautionary note, it should be observed that there is a danger of using market
share alone as an indicator of an organisation’s competitive position. As Porter argues, a goal of
becoming the market leader (or to be one of the leaders) can be harmful because market leadership
is not a cause but an effect of competitive advantage: ‘The strategic mandate to business units
should be to achieve competitive advantage. A goal of leadership per se also embroils managers in
endless debates over how an industry should be defined to calculate shares, obscuring once more
the search for competitive advantage that is the heart of strategy’.29
Marketing-niche players. Focus on a segment of the market and command a large share of that
segment (with a low share of the overall market). Their main marketing objective is to hold market
share for their market niche. Market-niche strategies are those that are intended to avoid
competition, as the market pursued is either too small or too specialised for the market leader or
challengers to be interested. These market segments may be based on customer type, a price
segment or a geographic area.
Financial performance models

Financial managers draw on a range of techniques ranging from ratio analyses to more complex
value-based planning models for determining future earnings. In this section the DuPont ratio
analysis model and three value-based planning models are briefly summarised.
DuPont ratio analysis

The DuPont model is one of the most popular techniques used for the assessment of current and
past financial performance. Financial managers use this model, originally developed by DuPont, to
forecast their organisation’s future value by determining the growth rate of earnings in terms of
return on assets (ROA). The model decomposes ROA into a series of constituent ratios that show
how changes in a planned activity, such as an expense item of profit margin, will potentially impact
on the organisation’s ROA. There is also another version for arriving at return on equity (ROE).30
FI G URE 4.11 DuPont ratio analysis
ROA
Net income/Total assets
Profit margin Asset turnover

Net income/Total sales Sales/Total assets
Gross profit Operating expenses Current asset Fixed asset

ratio ratio management management
Selling Administration Financial Debtors Inventory

turnover turnover
Value-based planning
Value-based planning techniques are designed to forecast the economic value to an organisation
that a specific strategy or operating program will yield. There are several methods used including
shareholder value analysis (SVA), market value added (MVA) and economic value added (EVAä).
Shareholder value analysis is a discounted cash flow approach. The most well-known approach
to SVA is that proposed by Rappaport.31 In this model, shareholder value is derived by taking into
account cash flow that would be generated by a proposed strategy, the cost incurred as cost of
capital and the market value of the debt assigned to the organisation. Shareholder value is
estimated by consideration of seven value drivers: sales growth rate, operating profit margin, income
tax rate, fixed capital needs, working capital needs, the cost of capital and the planning period.
Market value added (MVA) is a method of evaluating the extent to which an organisation
performs its basic mission of creating wealth for its shareholders. MVA, as proposed by the New
York consulting company Stern Stewart, is the difference between total market value (the value of
an organisation’s stock and debt) and invested capital (the capital an organisation has collected over
its life from equity and debt offerings, bank loans and retained earnings).32 A concept closely
related to MVA is economic value added (EVAä), which sets out to measure the wealth created by
an organisation each year. EVAä estimates the amount of return a specific strategy or operating
program will generate for an organisation that is in excess of its cost of capital. EVAä is calculated
by deducting from net dollar income (derived from operations) the cost of capital required to
produce that income.
EVAä ¼ Net operating profit after taxes – (capital in place cost of capital).33
APPENDIX ENDNOTES
1 Joel Dean is attributed as being the pioneer of the product A.I. Murray, ‘A contingency view of Porter’s generic
life cycle concept. Refer to J. Dean, Managerial strategies’, Academy of Management Review, vol. 13, 1988;
Economics, Prentice-Hall, Englewood Cliffs, NJ, 1951. C.W. Hill, ‘Differentiation versus low cost or
differentiation and low cost: A contingency framework’,
2 J.E. Swan and D.R. Rink, ‘Fitting market strategy to Academy of Management Review, vol. 13, 1988; J. Hendry,
varying product life cycles’, Business Horizons, January– ‘The problem with Porter’s generic strategies’, European
February 1982, pp. 72 and 76. Management Journal, vol. 8, 1990; M. Cronshaw, E. Davis
3 For a good summary of the PLC and its problems see and J. Kay, ‘On being stuck in the middle, or good food
M.E. Porter, Competitive Strategy: Techniques for costs less at Sainsbury’s’, Centre of Business Strategy,
analyzing industries and competitors, The Free Press, London School of Business, 1990; and D. Faulkner and
New York, 1980, pp. 156 and 162. C. Bowman, ‘Generic strategies and congruent
organisational structures’, European Management Journal,
4 For the reader requiring more detailed information vol. 10, no. 4, 1992.
concerning product portfolio models, the following
sources are recommended: A.C. Hax and N.S. Majluf, 13 Porter, ‘What is strategy?’, pp. 61–78.
‘The use of the growth-share matrix in strategic planning’, 14 Porter, ‘What is strategy?’, p. 64.
INTERFACES, 13 February 1983, pp. 46 and 60;
A.C. Hax and N.S. Majluf, ‘The use of the industry 15 W.C. Kim and R. Mauborgne, ‘Blue ocean strategy’,
attractiveness-business strength matrix in strategic Harvard Business Review, October 2004, pp. 76–84; and
planning’, INTERFACES, 13 April 1983, pp. 54 and 71; W.C. Kim and R. Mauborgne, Blue Ocean Strategy: How
M.H.B. McDonald, ‘Some methodological comments on to create uncontested market space and make the
the directional policy matrix’, Journal of Marketing competition irrelevant, Harvard Business School Press,
Management, vol. 6, no. 1, 1990, pp. 59 and 68; D.F. Boston, Mass., 2005.
Abell and J.S. Hammond, Strategic Market Planning:
Problems and analytical approaches, Prentice-Hall, 16 W.C. Kim and R. Mauborgne, ‘Blue ocean strategy’,
Englewood Cliffs, NJ, 1979, Chapter 4, pp. 173–227. Harvard Business Review, October 2004, p. 77.
5 Based on M. Christopher, S. Majaro and M. McDonald, 17 B. Wernerfelt, ‘A resource-based view of the firm’,
Strategy Search: A guide to marketing for chief executives Strategic Management Journal, vol. 5, no. 2, 1984,
and directors, Gower, Aldershot, UK, 1987. pp. 171–80.
6 Note: BCG introduced the concept of ‘Cash Dogs’ in the 18 C.K. Prahalad and G. Hamel, ‘The core competence of
1980s in response to criticisms that not all dogs were the corporation’, Harvard Business Review, May–June
disasters – as had previously been suggested. 1990, pp. 79–91.
7 Refer to G.S. Day, Analysis for Strategic Market Decisions, 19 R.M. Grant, ‘Toward a knowledge-based theory of the
West Publishing Company, New York, 1986, p. 204. firm’, Strategic Management Journal, vol. 17, 1996, p. 110.
8 Refer M.E. Porter, ‘How competitive forces shape 20 Refer to Hamel and Prahalad, ‘Strategic intent’, p. 64. See
industry’, Harvard Business Review, vol. 57, March–April also two other publications by these authors: Prahalad and
1979, pp. 137–45; M.E. Porter, Competitive Strategy; Hamel, ‘The core competence of the corporation’,
M.E. Porter, Competitive Advantage: Creating and pp. 79–91; and Hamel and Prahalad, Competing for the
sustaining superior performance, The Free Press, New Future.
York, 1985; and M.E. Porter, ‘What is strategy?’, Harvard 21 G. Stalk, P. Evans and L.E. Shulman, ‘Competing on
Business Review, November–December 1996, pp. 61–78. capabilities: The new rules of corporate strategy’, Harvard
9 Porter, ‘What is strategy?’, pp. 61–78. Business Review, March–April 1992, pp. 57–69.
10 Porter, Competitive Strategy, p. 35. 22 R.M. Kanter, ‘How to compete’, Harvard Business Review,
July–August 1990, pp. 7–8.
11 Dickson and Ginter provide an excellent discussion of the
use of the terms ‘market segmentation’ and ‘product 23 Kanter, ‘How to compete’, pp. 7–8.
differentiation’ and the implications of these concepts for 24 R.M. Grant, ‘Toward a knowledge-based theory of the
marketing strategy. Refer to P.R. Dickson and J.L. Ginter, firm’, pp. 109–22.
‘Market segmentation, product differentiation, and
marketing strategy’, Journal of Marketing, vol. 51, April 25 D.J. Teece, G. Pisano and A. Shuen, ‘Dynamic
1987, pp. 1–10. capabilities and strategic management’, Strategic
Management Journal, vol. 18, no. 7, 1997, p. 517.
12 Porter, Competitive Strategy, pp. 41 and 42. This is one of
Porter’s most controversial notions. The following are 26 Bruce Harreld was the strategy vice president (SVP) of
examples of articles criticising this aspect of Porter’s work: IBM during the time of the transformative changes that
A. Karnani, ‘Generic competitive strategies – an analytical took place under the leadership of Lou Gerstner and Sam
approach’, Strategic Management Journal, vol. 7, 1984; Palmisano. Insight into how IBM managed the process
can be found in the following article he wrote with two 29 Porter, Competitive Advantage: Creating and sustaining
academic colleagues: J.B. Harreld, C.A. O’Reilly III and superior performance, pp. 25–6.
M.L. Tushman, ‘Dynamic capabilities at IBM: Driving
strategy into action’, Californian Management Review, 30 For further information concerning the DuPont model
vol. 49, no. 4, 2007, pp. 21–43. based on ROE, refer to Z. Bodie, A. Kane and A.J.
Marcus, Investments, Irwin/McGraw-Hill, Boston, Mass.,
27 G.S. Day and R. Wensley, ‘Assessing advantage: A 1996, pp. 570–3.
framework for diagnosing competitive superiority’, Journal
of Marketing, vol. 52, April 1988, pp. 1–20. 31 A. Rappaport, Creating Shareholder Value: The new
standard for business performance, The Free Press,
28 These strategies are an elaboration of a concept of New York, 1986.
marketing warfare introduced originally in the 1980s.
Refer to P. Kotler and R. Singh, ‘Marketing warfare in the 32 Refer to S. Tully, ‘America’s best wealth creators’,
1980s’, Journal of Business Strategy, Winter, 1981, vol. 1, Fortune, 28 November 1994, pp. 143–62.
no. 3, pp. 30–41. There are also several very good 33 For further information concerning EVAä refer to
advanced marketing strategy textbooks that provide J. Brown, ‘Valueþ: Looking at EVAä’, Australian
extensive discussion of marketing strategy options. Refer, CPA, April 1999, pp. 44–6.
for example, to O.C. Walker, H.W. Boyd and J-C.
Larréché, Marketing Strategy: Planning and
implementation, Irwin, Chicago, 1996.
Strategy
evaluation and
control

• Segmentation, targeting and positioning decisions
CHAPTER
5
SEGMENTATION, TARGETING AND
POSITIONING STRATEGIES
In order to succeed, brand owners must become more sensitive to the needs and
desires of informed and discerning customers who demand high degrees of
engagement — and consistency. And increasingly, the capacity of brands to deepen
existing relationships and develop new ones relies on their ability to leverage
new technology in service of the human connection.
Jez Frampton, Global Chief Executive, Interbrand1
In the highly competitive world of destination three years and with growth continuing after
tourism the Australian Tourist Commission’s that, at around 25 per cent annually.
(ATC) ‘Come and say G’day’ (‘Shrimp on the So why was this campaign so successful?
Barbie’) advertising campaign stands out as one Timing was important. Australia had been put on
of the most famous and successful of all. the map after just recently winning the America’s
Spearheaded by a television commercial featuring Cup in 1983 and with Australian artists such as
Paul Hogan, the campaign was initially launched Olivia Newton-John, AC/DC, Air Supply and
in Los Angeles in January 1984 and then later Men at Work rising to the top of the music
rolled out to major east-coast markets, and San industry. The style of advertising was also
Francisco and Chicago. Before the campaign was immensely important. Paul Hogan’s Ocker
launched Australia was rated 78th of the ‘most accent and the tagline ‘Come and say G’day’
desired’ destinations for Americans. Three aroused the curiosity of the American viewers.
months later Australia had shot up to number 7 However, the end line ‘I’ll slip another shrimp on
on the list and not long after that number to 1. the barbie for you’ was the clincher. The
These favourable attitudinal scores were expression ‘shrimp on the barbie’ was a sensation
translated into revenue results, with arrivals from and went on to become one of the most
the USA to Australia doubling over the next publicised expressions to emanate from an ad.
But the most important factor of all was Over the years the brand values developed
brand positioning. Bill Baker, the ATC marketing for the ‘Come and say G’day’ campaign remained
manager for North America and Europe at that as the guiding light for the development of
time, argues that the ATC marketing team were advertising strategies. As stated today the key
pioneers in the field of destination branding. As principles are:
he states, ‘At that time the term ‘‘branding’’ was Brand positioning statement
really limited to reference to the products of The people of Australia are friendly and straight-
major corporations such as Procter & Gamble, talking and open. Their sense of mateship and their
GE and other consumer product companies. ‘no worries’ attitude make all visitors feel welcome.
Even without a branding framework, we They make it easy to enjoy adventures beyond
instinctively directed our research, analysis, imagination. Whether it’s in Australia’s wide-open
communications, and product development landscapes, pristine oceans or vibrant cities, a
toward what is today referred to as destination holiday in Australia is an opportunity to experience
branding’.2 a vast yet accessible adventure playground. You
Australia was positioned to be a friendly, don’t just visit Australia, you live it.
fun-loving country offering adventure and a
feeling of welcome for those visiting. Paul Brand proposition
Hogan, who was largely unknown in America at On holiday in Australia you don’t switch off, you
the time of the launch of the campaign, switch on. The unique experiences you have and the
epitomised the Australian brand persona – a people you meet will make you feel uplifted and full
friendly, fun-loving, knockabout character with a of life.
cheeky sense of humour. Two years later Hogan Brand personality
rose to international fame with the hit movie High spirited, down to earth, irreverent, welcoming.4
Crocodile Dundee, which gave added momentum Through a combination of quantitative and
to the advertising campaign. qualitative studies, Tourism Australia targets
‘Come and say G’day’ was a defining a psychographic market segment identified as
campaign for the ATC, generating a significant Experience Seekers. This segment covers all
increase in visitor arrivals and export earnings. In age groups, income levels and cultures
the 1990s new campaigns were developed representing between 35 and 50 per cent of
including ‘Discover Australia’ for the US market; all potential international travellers from key
‘Australia now, let yourself go’ for Europe; source markets. Within this broad segment
‘Australia, the feeling is magic’ for Asia; and marketing communication messages are
‘Australia. Make it happen for you’ for New targeted to four life-stage/psychographic
Zealand. In 1995 the ATC launched a Brand segments: youth (18–30 years), families
Australia campaign based on the idea that (couples across all ages with children),
holidaying in Australia was all about experience holidaymakers (mostly couples without
and the emotional bonds that overseas people children), and honeymooners (25–39 years,
have with Australia.3 In 2004 the ATC was mainly from Eastern markets, France and
disbanded and a new entity, Tourism Australia, Italy). Tourism Australia also supports the
came into existence for the purpose of cruise industry, particularly cruise companies
increasing the economic benefits to Australia in North America, for developing itineraries
from tourism. for Australia.5
Chapter 5 Segmentation, targeting and positioning strategies 143

In the previous chapter a framework for the process of establishing marketing objectives and high-
level business unit and marketing strategies was discussed. The end product of this complex
decision-making process is that top-line revenue objectives for the business unit are established.
The process also involves the development of high-level product-market strategies specifying from
where the revenue will be derived. The next stage of the process, the focus of this chapter, is to
develop in further detail segmentation, targeting and positioning (STP) strategies followed with a
brief overview of value creation, communication and delivery strategies, which are discussed in
greater detail in Chapter 6.
It is important to note here that STP decisions were traditionally regarded to be ‘marketing
department decisions’ but this is no longer the case as they are an integral part of high-level
business strategy decisions.
The specific focus of this chapter is to develop:
• an understanding of the steps involved in market segmentation and targeting process
• an understanding of the steps involved in brand positioning.

Segmentation, targeting and positioning (STP) focuses on the identification of submarkets of
customers within the total market, targeting specific market segments and differentiating the
organisation’s product offering from that of its competitors through the process of positioning; that
is, ‘selecting avenues for delivering superior value to customers and positioning the organization and
its brands in the marketplace using distinctive competencies’.6 These high-level marketing
decisions then flow on to the development of customer value creation, communication and delivery
strategies – the customer value creation mix.
Figure 5.1 shows the relationship between the first phase of the process of developing high-
level marketing strategies (strategic positioning) and the following phases of segmentation, targeting
and brand positioning decisions and customer value creation, communication and delivery
strategies.
FIGURE 5.1 The process of developing high-level marketing strategies
Strategic
positioning
Segmentation Targeting Positioning
Customer value
creation mix
The end result of these deliberations should ideally be a clear statement of the recommended
marketing strategies to be put into place over the strategic timeframe. The process of arriving at
these decisions involves consideration of several complex issues that are discussed in this chapter
and further elaborated in Chapter 6, which discusses processes and activities designed to create,
communicate and deliver customer value.
Segmentation
Market segmentation7 is a strategy based on the partitioning of a market into segments of potential
customers who have similar characteristics and similar needs, and because of this are likely to
exhibit similar purchasing behaviour. The key to market segmentation is to identify distinctive
groups of customers that have homogeneous (similar) characteristics, needs, wants and
preferences for a product. The aim is to discover product features and benefits that are important
factors in the customer’s purchasing decision-making process; that is, to discover what
customers value.
Partitioning a market into a number of discrete segments provides a marketer with the ability to
develop a customised marketing strategy for each segment. For organisations pursuing a market-wide,
multi-segment competitive strategy, the development of a customised marketing strategy for each
segment is described as a differentiated marketing strategy. For organisations pursuing a focus
(or marketing-niche) competitive strategy, the marketing effort is directed towards one segment of the
entire market. This is described as a concentrated marketing strategy. Since the 1990s many
marketing organisations have moved even further towards micromarketing or one-to-one marketing.
This is where individual customers or potential customers can be targeted with highly individualised
and personalised marketing. In the case of micromarketing, a very narrowly defined segment is
identified and the marketing strategy is directed towards individuals in this segment. One-to-one
marketing goes a step further by giving the customer the power to customise the product offering to
his or her requirements. This is also described as mass customisation, a strategy most successfully
implemented by Dell Computers.
Opposed to the above two market segmentation approaches is the older strategy of
undifferentiated marketing. This is where one marketing strategy is developed to service the entire
market. That is, market segment differences are ignored. This strategic choice is defended on the
grounds that developing a separate marketing strategy for several separate market segments is an
expensive exercise. Moreover, it is argued that in many cases market segmentation is unwarranted,
as differences between market segments are not significant. However, apart from with commodity
types of products, this mass marketing approach is generally considered to be unsuitable for most
contemporary marketing situations.
Market segmentation provides a means for marketers to analyse and understand much more
thoroughly the needs, wants and preferences of their customers and their patterns of purchase
behaviour. Moreover, it provides a means of identifying emerging needs and wants, and changing
customer preferences including their evaluation of all competitive product offerings. Based on this
analysis of the market segments (within the total market) marketing strategists are then in a
position to develop customer value creation, communication and delivery strategies that cater for
the specific needs of the segments they choose to target.
There are a number of ways of dividing a market into different market segments. The following
is a summary of some of the most commonly used variables (or descriptors).
Consumer markets
A useful basis for segmenting consumer markets is to categorise the various alternatives in terms
of the 4Ws: who the customers are, what they buy, where they buy their products or services,
and why they buy.8 It should be noted at the outset of this discussion that these categories and
sub-categories are not mutually exclusive and that it is common practice for strategists to develop
segments based on a combination of segment characteristics.
Analysis of who the customer is

• Demographic segmentation. Age, gender, marital status, family size and ethnicity.
• Socioeconomic segmentation. A combination of demographic data and social indicators such
as social class, education, income and occupation. For example, the ABS provides socioeconomic
indexes based on census data. ABS consultants can tailor-make indexes according to the needs
of individual marketing organisations.
• Segmentation by stage of life. Examples of this segmentation are bachelors, full-nesters, empty
nesters, baby boomers (those born between 1946 and 1961), Generation X (those born between
the early 1960s and 1981) and Generation Y or Millennials (born from the early 1980s to the
early 2000s).
• Lifestyle segmentation. The way people live. Popular labels include jugglers (working women
who juggle work and family commitments), yuppies (young upwardly mobile professionals),
muppies (middle-aged urban professionals), dinks (double income no kids) and woofies (well-
off older folks).
• Psychographic segmentation. A combination of psychological and lifestyle criteria – based
on the values people hold and their lifestyle. In this sense values are defined as goals that
individuals seek in life. These include, for example, peace and happiness (terminal values)
or the means or behavioural standards by which individuals pursue those goals
(instrumental values) such as a sense of fair play or honesty. These values, in turn,
underwrite the lifestyle of the individuals concerned. One of the most well-known
classifications of psychographic profiling is VALS2 provided by Strategic Business Insights,
a spin-off of SRI International (formerly the Stanford Research Institute). Refer to
www.strategicbusinessinsights.com. Then go to VALSä. Then go to ‘Take the VALSTM
survey’. Roy Morgan Value Segments is a good Australian example of psychographic
research. Go to ‘Products’ at www.roymorgan.com.au.
Note: Values or personal values are deeply held and enduring beliefs – that is, fundamental
values associated with beliefs and attitudes held by individuals. Rokeach identified two categories
of personal values: terminal (goals that an individual would like to achieve during his or her
lifetime) and instrumental (preferable modes of behaviour or means of achieving terminal values).9
The term ‘values’ (plural) differs from the term ‘value’ (singular).
Analysis of what and where they buy

This is behavioural or usage segmentation. It is extremely important to identify patterns of actual
purchase behaviour.
• Product category segmentation. Convenience (purchased and consumed regularly), shopping
(consumers take time to select), specialty (high-end luxury), emergency and impulse or
unsought products.
• Brand segmentation. An example is Mercedes-Benz buyers. A marketer of luxury goods or
services may choose this narrow form of segmentation as an appropriate market to target.
• Product user segmentation. Heavy, medium, light users or non–product category users.
• Rate of new-product adoption. Based on Rogers’ diffusion of innovation concept. Consumers
are categorised into the following five groups according to their adoption of a new product:
innovators (2.5 per cent), early adopters (13.5 per cent), early majority (34 per cent), late
majority (34 per cent) and laggards/non-adopters (16 per cent).
• Price point segmentation. Examples of this segmentation are premium price, value-for-money
or cheap goods.
• Segmentation by the type of distribution outlet frequented. Examples are boutiques, chain
stores, general merchandise outlets, specialty stores and online shopping. There are five
different situation characteristics that potentially impact on purchase behaviour and therefore
could be used as segmentation descriptors: physical surroundings (the ‘servicescape’ or the
physical environment of a retail outlet); social surroundings (shopping as a social event);
temporal perspective (the time to make the purchase – for example, targeting time-poor
individuals); task definition (purpose of the purchase such as for self or for gift giving); and
pre-purchase attitude (different moods at time of purchase).
• Purchase behaviour. Buying frequency (for example, a segment of frequent purchasers/
frequent flyers/heavy users versus light users of a product or service, brand switchers versus
brand loyals, channels used (for example, online versus bricks-and-mortar shoppers), shopping
style (considered versus impulse purchase).
• Behavioural targeting. A technique used by online marketers using Web analytics to
segment visitors to particular types of sites (by assigning a unique cookie ID) according to
the web pages they visit or keywords they use to determine their interest in a product
category; for example, those interested in travel to certain locations or those interested in
financial services products.
• Geographic segmentation. City, urban, suburban, rural and international segments.
• Geodemographic segmentation. A combination of demographic and lifestyle characteristics
within geographic clusters.
• Sensitivity to marketing activity. For example, price-conscious buyers (reacting to specials),
consumers who respond to promotions or changes in product features.
• e-marketing segmentation. Defined by individuals’ online behaviour: simplifiers (like readily
available product information and end-to-end convenience); surfers (use the Internet for
shopping, entertainment, to seek information); bargainers (deal seekers); connecters (use social
media to connect with others); routiners (visit regular sites for content such as finance and
news); and sportsters (similar to routiners but focus on sports and entertainment sites).10
Analysis of why they buy

This segmentation is based on the benefits and/or value that individuals seek from products.
• Benefit segmentation. The perceived benefits derived from purchasing and/or using the
product. These sought benefits can be categorised as: functional benefits (such as usefulness,
safety, reliability, ease of use, efficiency and durability); psychological benefits (such as status,
self-esteem, self-enhancement, patriotism, ethics, spirituality and the pleasure of gift giving);
experiential benefits (such as fun, pleasure and excitement); relationship benefits (such as
belongingness, affiliation and group membership); and process benefits (such as convenience –
fast checkout, ease of purchasing or outstanding customer service).
• Value segmentation. Builds on and extends benefit segmentation. Individuals not only seek
benefits (as categorised above) but also assess these sought benefits relative to the costs or
sacrifice of receiving those benefits. This assessment may or may not take into account the
perceived value of the competitive offerings.
Business markets
• Geographic segmentation. Urban, rural, city, state, national, regional or international
segmetation.
• Customer type. Based on:
- industry type – for example, by Australian Standard Industrial Classification (ASIC) class
- industry stature/technology used – for example, new economy versus old economy
companies or high tech versus low tech
- industry life cycle stage
- the function performed – for example, manufacturer, distributor, retailer or consultant
- company size, such as by turnover or number of employees – for example, small office home
office (SOHO), small–medium enterprises (SMEs), large corporations, multinationals and
key account customers
- product usage – for example, heavy, medium or light, or users of our product versus users of
competitors’ products, or loyal versus non-loyal
- the applications of product usage by the user group, and the end use for the product – for
example, a steel manufacturer may differentiate between customers who use steel for
manufacturing, for building construction, for railroads and so on.
• Benefit segmentation. Same as benefit segmentation described above for consumers.
• Value segmentation. Same as value segmentation described above for consumers.
• Other behavioural bases. Buyers may be segmented by personal characteristics such as their
awareness of the product category, their readiness to adopt a new product (diffusion of
innovation concept), the extent to which they are risk averse or are risk takers, or by their
exposure to particular media.
The above categorisations are essentially generic typologies of the various bases that can be
used to divide a market into appropriate segments. One variable or a combination of these
variables may be suitable for a specific situation. The key consideration is to determine whether
individuals in a nominated segment have similar needs, wants, values and preferences that are
meaningful for the product or service offering. Moreover, the needs, wants, values and
preferences of that group of people need to be significantly different, in the context of the
marketing situation, from that of other groups (segments) within the total market. That is, within
the total market, there needs to be heterogeneity of consumer preferences – clear differences of
preferences between different segments of the market. Within each segment there needs to be
homogeneity of preferences.
The suitability of a segment also depends on the extent to which different needs, wants, values
and preferences can be identified and linked to measurable variables such as demographic or
lifestyle descriptors that will underpin customer purchase behaviour. The purpose of identifying a
market segment is to be able to tailor-make marketing strategies that are directed to groups of
customers that are most likely to purchase the product or service. Most importantly these
customers need to be worth pursuing financially. Each potential market segment must be able to
be serviced cost-effectively and be of sufficient size to be profitable. Finally, the marketing
organisation needs to be able to access that segment via marketing communication and
distribution channels.
Identifying an appropriate market segment, or segments, is not an easy task. There are
essentially four methods that can be used in order to determine appropriate groupings:
• The first method, referred to as ‘normative segmentation’, attempts to determine buyer
similarities by analysing elasticity coefficients, marginal revenues and response function
coefficients. This econometric approach is mostly regarded to be unrealistic as it fails to take
into account allowances for such factors as managerial and institutional constraints and the
competitive environment.
• The second method, referred to as ‘a priori segmentation’, is a more popular approach. It is
used mainly when the strategist has sufficient knowledge of the market to predetermine
segmentation variables that are thought to be appropriate (such as age, gender, or benefit
sought). For example, usage patterns by various age and socioeconomic groupings may be
ascertained. This type of information can be obtained from secondary sources such as the
ABS or syndicated research studies such as those provided by Roy Morgan and A.C. Nielsen.
For example, Roy Morgan Value Segments studies provide in-depth analysis of the buying
behaviour and media consumption characteristics of 10 psychographic segments, as was cited
previously.
• The third method, referred to as ‘post hoc segmentation’, involves the use of primary
research. A market segmentation study is conducted in order to determine the attitudes,
perceptions, benefits sought and product usage information of a representative sample of the
market. The researcher chooses a battery of interrelated variables, such as psychographic
characteristics and preferences, for a number of user benefits associated with the product
category. Next, a survey is conducted to determine a rating of the importance that
respondents attach to each variable. The data is then analysed, and individual importance
ratings are clustered into person groups by maximising in-group similarities and between-
group differences.
• The fourth method, known as ‘data mining’, explores customer data in order to determine
purchase patterns and relationships that can form a meaningful basis for segmenting the
organisation’s customer base; examples are identifying the most profitable customers (customer
lifetime value analysis), heavy to infrequent product users and purchase patterns such as time
of day, mode of payment or outlets where the products are purchased.
Targeting
Once the segments are identified, the next task is to select those to be targeted. The criteria for
selection should be based on the following:
1 Similarity (homogeneity) of customer needs within the segment.
2 Distinctiveness (heterogeneity) between segments.
3 Segment size and profitability based on a forecast of future sales and estimates of marketing
costs to service the segment (see discussion below).
4 Growth potential. The best market segment opportunities are those with a tailwind; that is,
segments in the introductory or growth phases of their life cycle.
5 Accessibility – the ability to cost effectively reach customers via marketing communication
channels.
6 Responsiveness – to marketing stimuli (such as traditional and digital advertising, sales
promotion, price or product changes).
7 Intensity of existing and future competition.
8 Barriers to entry.
9 Level of customer satisfaction with existing products.
10 Potential for the introduction of a game-changer new product.
There are significant organisational implementation differences, and therefore costs, between
serving a segment that only requires tweaking of the customer value creation mix and one
that involves the deployment of organisation-wide resources for functions such as R&D for
new-product development, operations or the creation of a new value network (such as developing
a strategic alliance with another organisation to provide capabilities that the organisation does
not have).
Positioning
Positioning, or more specifically, brand positioning, is a marketing organisation’s attempt to create
and maintain a favourable, strong and unique brand position in the minds of the prospective or
existing customers. Positioning a brand means emphasising unique or distinctive characteristics
that differentiate the brand from its competitors. Views about how to position a brand differ
significantly and so it would be constructive at this stage of the discussion to consider how the
positioning concept has evolved and is continuing to evolve.
Many years before the term positioning was coined in the late 1960s, advertising was the main
weapon used by consumer goods marketers to create a brand image. This was a concept
popularised by legendary advertising leaders such as David Ogilvy and Leo Burnett in the 1950s. As
David Ogilvy proclaimed, ‘every advertisement must be considered as a contribution to the complex
symbol, which is the brand image’.11 Ogilvy regarded brand image and brand personality as
synonymous terms, although today the two terms are generally considered to represent two closely
related concepts. That is, brand image is based on rational appeals such as product features or
attributes, while brand personality is based on emotional or psychological appeals. However, this
‘soft sell’ approach to advertising was not universally accepted and as Rosser Reeves argued, the
purpose of advertising was to sell, not to entertain or show off the copywriter’s cleverness. Reeves’
concept of the unique selling proposition (USP) directly contrasted with the brand image and brand
personality concepts. He decreed that every advertisement must bear the following features:
• Unique. The advertisement must contain a unique proposition about the product that the
competition either cannot claim or does not offer.
• Selling. The proposition must be so strong that it can move the mass millions.
• Proposition. Each advertisement must make a proposition to the consumer – that is, the reason
to buy.
The USP was invariably embedded in a slogan such as ‘M&Ms melt on your mouth, not your
hand’. An integral part of this hard-selling approach was the use of repetition. The USP is repeated
several times during each individual advertisement and, in addition, the advertisement itself is
scheduled with high levels of frequency in order to make an impact. This style of advertising was
grating and, although immensely unpopular with television viewers, worked wonders for many
advertisers.
Towards the late 1960s a little-known advertising proprietor named Jack Trout introduced, in
Industrial Marketing, a new advertising concept which he termed ‘positioning’.12 A decade later
Trout and his business partner, Al Ries, expanded the positioning concept in a book, Positioning:
The battle for your mind, published in 1981 – a book that was destined to become one of the
bestselling marketing books of all time. Ries and Trout argued that, because the communication
environment had become so overcrowded, it was no longer possible for individuals to retain in their
memories information such as a brand image or a brand personality. They defined positioning in the
following terms:
Positioning starts with a product. A piece of merchandise, a service, a company, an
institution, or even a person. Perhaps yourself. But positioning is not what you do to a
product. Positioning is what you do to the mind of the prospect. That is, you position
the product in the mind of the prospect … To succeed in our over communicated
society, a company must create a position in the prospect’s mind, a position that takes
into consideration not only a company’s own strength and weaknesses, but those of the
competition as well.13
Ries and Trout argued that individuals had learnt to cope with communication overload by
ranking brands in their minds, in a way that could be visualised by imaging a series of ladders
representing a product category such as soft drinks. Each step of the ladder represents a brand. The
objective is twofold: to position the brand on the appropriate ladder and to place the brand as high
as possible on the ladder. To do this, they contended the advertiser must relate the brand to the
brands that are already there. That is, positioning is a two-stage process of (i) communicating the
product category the brand should be associated with, and (ii) communicating the brand’s essential
differences and raison d’être from other brands in that category.14 For example, Volkswagen’s
slogan of Das Auto highlights the German heritage of the marque (the product category). The
second stage of the process is Volkswagen’s value-for-money proposition.
Over the years the concept of brand positioning has evolved and the Ries and Trout singular
approach of relating a brand to its competitors has given way to a more widespread view that
positioning strategies involve emphasising a brand’s point of difference from its competitors – a
favourable, strong and unique brand association. Most, if not all, of the positioning and branding
concepts that were developed from the 1970s to 1990s were based on the underlying assumption
that the process of brand positioning is a one-way, sender-to-receiver process. As Allen, Fournier
and Miller point out, these views were grounded in the disciplines of psychology and information
economics, drawing ‘heavily upon the information processing theories of consumer behaviour that
were popular during the field’s formative stages’.15 However, since the early 2000s, an alternative
postmodernist or interpretive approach to branding has started to gather considerable momentum
in both academic and practitioner circles. Researchers and theorists following this approach tend to
draw on theories and concepts from the disciplines of anthropology, sociology and philosophy.
The concept of branding from this alternative perspective is based on the premise that
consumers are active meaning makers rather than passive receivers of brand messages. Brand
meaning is not just created by the organisation (as per the dominant perspective) but from two
additional sources – cultural influences and the process of co-creation impacting on individual
consumers. That is, there are three mechanisms that influence the formation of brand meanings:
• the organisation via its business and marketing activities
• culture (broader cultural systems including the influence of the mass media)
• the individual consumer (as an active participant in the value creation process).
From this perspective it can be seen that organisations have control over just one of the three
antecedents of brand meaning. However, it is possible for organisations to develop strategies that
can help to shape the brand meanings derived from the cultural and individual consumer delivery
mechanisms. At the individual consumer level, co-creation strategies designed to enhance the brand
experience can be developed. This includes a variety of touchpoints between the brand and the
consumer along the value chain, and via communication channels including social networking sites.
Susan Fournier and Lara Lee propose an additional and more revolutionary strategy, building a
brand community.16 They define a brand community as ‘a group of ardent consumers organized
around the lifestyle, activities, and ethos of the brand’.17 Members of these brand communities join
for a number of reasons, such as forming social links, sharing information about using the brand, and
self-expression. Harley-Davidson, on the brink of extinction over two decades ago, embraced a
strategy of building a brand community based on a shared ethos (the ‘brotherhood of riders’). This
strategy resulted in a dramatic turnaround of the company’s fortunes to such an extent that, in 2008,
Harley-Davidson had become a top-50 global brand and was valued at $US7.8 billion. Fournier and
Lee argue that a brand community strategy can benefit organisations in all types of industries, not
just those, such as Harley-Davidson, with icon brands in high-involvement product categories.
Fournier and Lee contend that to develop and successfully implement a brand community
strategy it is necessary to have an organisation-wide commitment to this approach. They argue that
community-building strategies are high-level business strategies, not just marketing strategies. It is
also essential to focus on providing help for building the community, as this will serve to strengthen
the brand. They also suggest that online social networks play a very important role in the process of
building a brand community, but not in isolation from offline activities such as involvement in
community outreach projects, charity events and social gatherings. It is critically important to
appreciate that brand communities are formed to serve the people in them, not the organisation.
The emphasis is therefore on nurturing the process of developing the community but not managing
or controlling it.
The implications for organisational strategists of the above discussion are quite clear. First of all
they need to be cognisant of the fact that brand meanings are formed by a number of mechanisms,
not just by their exposure to the organisation’s marketing efforts. Individuals are not passive
receivers of marketing information but play an active role in forming meanings about brands. Brand
positioning strategies therefore need to be developed that extend beyond traditional (4Ps or 7Ps)
techniques. In the digital age, media consumers connect with brands in ways that are increasingly
beyond the control of marketing organisations and their go-to-market business partners such as
retailers and delivery organisations. Just like in times of old, the marketplace has become a location
where people gather and talk to each other. The difference is that today the marketplace is not a
physical but a virtual (Internet) location. In this context, Levine et al. defined a market as a place of
conversations.18 The broadened concept of the customer value creation mix therefore provides a
much more appropriate framework for the development of brand positioning strategies.
The second point to be noted is that the principles of building and maintaining a brand have
not changed. What has changed is an extended dimension of the way brand meanings are
communicated and formed. Brands evoke emotions and shape the way individuals interpret
messages. Never has brand positioning been as important for organisations as it is now.
As the above discussion illustrates, the process of brand positioning is complex and somewhat
confusing given the variety of theoretical perspectives and different approaches that exist. Figure 5.2
provides a framework for a simplified model of the processes involved.
FIGURE 5.2 The brand positioning process
Cultural systems
including the mass
media
The organisation
(including go-to- Other
market business consumers
partners
Consumer
Brand meanings
Brand meanings Word-of-mouth, digital
Customer value creation.
–brand
–brand image
image
The objective is to establish and
andperceptions
perceptions
media including social media
a brand identity and brand ofofvalue)
value) and brand communities
personality.
As the model shows, the consumer is an active participant in the meaning making or value
creation process. The way a brand is perceived is described as brand image. Individuals decode
marketing messages and develop brand meanings from other communication channels
(touchpoints), such as other individuals, cultural influences (including the mass media) and brand
communities. Brand image is influenced by personal characteristics and psychological factors such
as self-image. Keller defines brand image as: ‘perceptions about a brand as reflected by the brand
associations held in consumer memory’.19 Brand associations fall into three main categories:
attributes (product and non-product related), benefits and value (functional, psychological,
experiential, relationship and processes), and attitudes (overall evaluation of a brand).
The marketing organisation through its marketing activities attempts to establish what is described
as a brand identity comprising the physical characteristics of the brand (physical composition, brand
name, logo, packaging brand attributes, features etc.) and brand personality (psychological
characteristics). Customer value-based activities communicate both physical and psychological
aspects of the brand to the receiver. Brand personality is an attempt by marketing organisations to
attribute a human personality characteristic to a brand, such as using a spokesperson (celebrity or a
real or symbolic figurehead) for the brand via advertising or other promotional means. Jenifer Aaker
has identified five core dimensions of brand personality: sincerity (down-to-earth, honest, wholesome,
cheerful); excitement (daring, spirited, imaginative, up-to-date); competence (reliable, intelligent,
successful); sophistication (upper-class, charming); and ruggedness (outdoorsy, tough).20
Other consumers play a significant role in the shaping of brand meanings. One- and two-way
consumer–consumer communication via word-of-mouth and digital media (including blogs and
social media) and brand communities play a powerful and influential role in the way brands are
perceived. As was discussed in Chapter 1, the Internet has transformed the marketing
communication process from a one-way, sender–receiver (company–consumer) flow of information
to a multi-way process of interactions between companies and consumers, between consumers
with other consumers, consumers with online and offline communities, consumers with social
networks, and consumers with company collaborators such as retail salespeople. The consumer at
the heart of the marketing process plays an active role in the co-creation of value. Value is defined
and co-created by the consumer rather than just by the marketing organisation.
Branding decisions
An important consideration for marketing organisations concerning brand positioning is whether to
deploy an individual or a family branding strategy. An individual brand name strategy is where each
individual product in a product portfolio is given its own brand name and brand identity. For
example, Unilever Australia markets a range of brands such as Dove, Lux, Pears, Sunsilk, Impulse,
Lynx, Rexona and Vaseline as individual brands in its personal care range. The advantage of this
strategy is that each brand can be positioned differently to appeal to different segments of the
market. However, the downside is that establishing and maintaining a number of separate brand
positions for individual products is an expensive proposition.
The other branding option is umbrella branding – to market all or a number of the
organisation’s products under a family brand name. Family brand names may be used for all
products marketed by the organisation (for example, Kellogg’s), as a separate family name for
different product categories or different product lines (for example, Cadbury Schweppes markets
Red Tulip confectionery, Cadbury’s chocolates and MacRobertson confectionery) or in
combination with individual brand names (such as Volkswagen Up, Volkswagen Polo, Volkswagen
Golf, Volkswagen Eos, Volkswagen New Beetle, Volkswagen Jetta, Volkswagen Passat, Volkswagen
Tiguan and Volkswagen Touareg). Umbrella branding strategies provide three main advantages. The
first is that marketing costs are spread over a number of products, thereby reducing the cost for
individual products in the family. Umbrella branding also provides a cost-effective means for
product line extension (introducing a new product to the product line) or for leveraging a brand
(brand leveraging) into a new product category. The cost and risk of extending the product line or
leveraging into a new product category is reduced if brand awareness and favourable associations of
the parent brand can be effectively transferred to the new product. The third advantage is the
potential halo or signalling effect provided by a parent or focal brand within the family. Perceptions
relating to the parent brand, or a prominent product within the family (that is, a focal brand), spill
over to other products bearing the same brand name.21
The next step is to develop a brand positioning strategy. This is a complex process consisting of
the following steps.
Step 1 Brand audit

The starting point is to determine current level of brand knowledge of all competitive brands in the
selected market segments. Brand knowledge consists of brand awareness and brand image
(perceptions) – that is, the position that the brand and its competitors currently occupy in the
minds of individuals in the selected target market segments. There are two research techniques
used to determine brand awareness: brand recall and brand recognition studies. Brand recall is
based on the respondent’s ability to recall names of brand associated with a given product category.
Recall studies may be aided (prompted) or unaided. Figure 5.3 provides a framework for measuring
the depth and strength of brand awareness for the organisation’s brand. Brand recognition studies
assess the respondent’s ability to recognise the name of a brand when exposed to a visual cue such
as an advertisement or a logo.
FIGURE 5.3 Depth and strength of brand awareness
Awareness set
Non-awareness set
‘Yes, I am aware of
‘Never heard of it’
this brand’
Evoked set Inept set

Inert set
‘The brand readily comes ‘I don’t think the brand is
‘I don’t know much about it’
to mind’ any good’
The second part of brand knowledge is to determine the brand image of each competing brand
in the market segment brand. This is the Holy Grail for advertising agencies, market research firms
and, more recently, brand agencies. Long-established techniques such as perceptual mapping,
conjoint analysis and focus group research have been adopted and modified to become proprietary
models developed by these various brand experts. More recently ethnographic, semiotic and
neuromarketing techniques have been added to the battery of research tools that are available. The
appendix of this chapter provides a brief summary of the main techniques.
Traditional market research techniques generally fall into either one of two categories: those
that measure brand associations against a predetermined list of brand associations or those that
attempt to discover what the brand associations are. Predetermined lists abound but generally, as
was discussed briefly above, brand associations can be classified into the following three major
categories:
1 Attributes – features that characterise a product or a service. These can be sub-categorised as
product related (the physical composition) or non-product related (price, packaging, process
benefits such as convenience, or outstanding customer service, reflection about what sort of
person uses the product, and the usage situation). This type of positioning is referred to as a
USP – unique selling proposition
2 Benefits – opinions about what the brand can do for the individual. (What’s in it for me?)
Benefits may be functional (such as problem removal or avoidance), experiential (what it feels
like to use the product or service), symbolic (such as self-esteem, belongingness, relationships
or social approval) or emotional (ranging from positive emotions such as altruism, romance,
nostalgia or compassion to negative emotions such as guilt or fear).
3 Brand attitudes – the individual’s overall evaluation of a brand based on the extent to which it
is believed that the brand has particular attributes and benefits and an evaluative judgement of
how good or bad it is for the brand to have those attributes or beliefs.22
Step 2 Brand strategy

The next step is to determine the ideal point – the position that perfectly matches the target
market’s ideal or sought attributes for the product category. There are several research tools to
assist in this task such as perceptual mapping, conjoint analysis and focus groups. A perceptual
map is a visual technique that maps or plots the target market’s perceptions of a brand vis-à-vis
those of its competitors. The vast majority of perceptual maps are two dimensional – based on two
main product attributes. This is problematic as the technique oversimplifies the way perceptions
are developed. This problem is addressed by conjoint analysis, which is based on the concept that
individuals make overall judgements about brands by considering a number of attributes conjointly.
Conjoint analysis provides the strategists with a measurement of the relative importance of
attribute levels. The appendix provides a more detailed discussion of the methodologies involved in
perceptual mapping and conjoint analysis.
Another useful tool is the value curve.23 This tool is constructed by first determining the
attributes or benefits that are most important for the target market. In this way the value curve is a
visual model of the value proposition.
Figure 5.4 provides a model that highlights the relative importance of the various attributes
based on the two dimensions of differentiation and relevance. As the model shows, the most
important attributes are those that are drivers.
FIGURE 5.4 Brand attributes that matter
Differentiation
Low High
Antes Drivers
High
Attributes that are important to Attributes that are both important

customers but are provided by to customers and highly
Relevance
all competitors differentiated from competitors
Neutrals Fools gold

Low
Attributes that are irrelevant to Attributes that are distinctive but

customers do not drive customer loyalty to a
brand
Source: Based on N.A. Aufreiter, D. Elzinga and J.W. Gordon, ‘Better branding’, The McKinsey Quarterly, 4, 2003, Exhibit 2, p. 34.
To illustrate the process involved let us consider the positioning of three brands competing in a
hypothetical frozen-food product category. Research has revealed that there are six product
attributes that consumers consider to be important: taste, nutrition, ease of preparation, preparation
time, low fat and low sugar. It was also found that there are two quite different market segments
operating in this market: the healthy food seekers and convenience shoppers. In the healthy food-
seeking segment nutrition, low fat and low sugar were found to be the most important value drivers
(sought attributes). In the convenience segment the value drivers were found to be ease of
preparation and preparation time. These attributes were then listed on a graph (the value curve),
which is shown in Figure 5.5.
Next, research was conducted to determine how respondents in each market segment assessed
each of the three competing brands against each of the six attributes (in terms of low, medium or
FIGURE 5.5 The value curve for frozen food
2 Brand 1
Brand 2
1
Brand 3
0
Taste Nutrition Ease of Preparation Low fat Low sugar
preparation time
high performance). As can be seen, Brand 1 is highly rated as a healthy food product, Brand 2 as a
convenience product, while Brand 3 appears to be stuck in the middle as it is not rated highly by
either the healthy food or convenience market segments.
The marketers of each brand now are in a position to decide whether to continue or modify
their current positioning strategies. This can range from a small adjustment to a major shift. The
latter is described as a repositioning strategy – an attempt to change existing perceptions, attitudes
and beliefs about a brand. Strategists for Brand 3 would need to consider the repositioning
alternative, as the brand is quite clearly in need of urgent attention. The brand may require much
more than an advertising-led strategy to turn things around. (For example, it may need product
reformulation and new packaging.)
The final stage of developing a brand positioning strategy is to encapsulate the desired brand
position in a positioning statement, which is a blueprint of three to four sentences that provides a
clear and precise expression of the key idea about a brand or company that is to be communicated
to its intended target market. The key idea should be capable of differentiating the brand from its
competitors, emphasising customer benefits, not just product attributes. The key idea should be
capable of connecting with the target market on both an emotional and rational platform. For
example, BMW’s positioning as articulated in the advertising slogan ‘the Ultimate Driving Machine’
is based on an emotional appeal (feelings), which is supported by (rational) product attributes
featured in advertisements for the brand. Nike’s ‘Just Do It’ advertising slogan captures the
emotional appeal conveyed by the fitness culture for some, and being a sports superstar for others.
Nike’s focus on state-of-the-art product attributes underpins these emotional platforms.
In recent years, the term customer value proposition (CVP) has evolved to be used either
interchangeably with the term ‘positioning statement’ or to represent a slightly different concept.
The concept of value, as was discussed in Chapter 1, came to prominence during the 1990s. At the
same time the term ‘value proposition’ started to enter the marketing vocabulary to describe several
different phenomena. In the context of stakeholder theory, the value proposition was thought to be
the value for the organisation’s stakeholders such as its customers, suppliers, employees,
communities, financiers, shareholders and creditors.24 From a marketing point of view, the term
‘customer value proposition’ refers to the attributes and benefits that customers most value. It is a
term that tends to be used either as an alternative for brand positioning or as an added dimension.
The former sits more comfortably with some organisational strategists who regard brand positioning
simply as a device used to create advertising spin. As an added dimension, the term ‘value
proposition’ is used to complement and support the overall brand positioning. Whereas positioning
is concerned with establishing a frame of reference or key brand associations in the minds of the
target customers, the value proposition focuses on the specific drivers of value sought by those
targeted customers. For example, BMW’s frame of reference signalled to its targeted customers by
‘the Ultimate Driving Machine’ positioning is the pleasure of driving or owning a BMW. The value
proposition within this overall frame of reference, however, would vary according to the importance
individuals attach to attributes such as performance, safety, resale value or running costs, or to
benefits such as status, prestige and safety.
Step 3 Evaluate the brand positioning strategy

The final stage of the brand positioning process is to evaluate the strength of the intended brand
positioning strategy. Here is the key question to ask: ‘Is this strategy likely to produce a favourable,
strong and unique brand position in the minds of the intended target market?’ Box 5.1 provides a
checklist developed by Interbrand that can be used as an assessment tool for evaluating a
prospective brand-positioning strategy.
B O X 5. 1
Interbrand’s brand-strength factors
Our experience and knowledge show that brands in protection, proprietary ingredients or design,
the ideal position to keep generating demand for the scale or geographical spread.
future are those performing strongly (that is, 4 Responsiveness. The ability to respond to
‘showing strength’ versus the competition) across a market changes, challenges, and opportunities:
set of 10 factors that are outlined below. Four of the brand should have a sense of leadership
these factors are more internally driven, and reflect
internally, and a desire and ability to constantly
the fact that great brands start from within. The
evolve and renew itself.
remaining six factors are more visible externally,
acknowledging the fact that great brands change External factors
their world. The higher the Brand Strength Score,
1 Authenticity. The brand is soundly based on an
the stronger the brand’s advantage.
internal truth and capability. It has a defined
Internal factors heritage and a well-grounded value set. It can
1 Clarity. Clarity is about what the brand stands deliver against the (high) expectations that
for and its values, positioning and proposition. customers have of it.
Clarity, too, is about target audiences, customer 2 Relevance. The fit with customer/consumer
insights, and drivers. Because so much hinges needs, desires, and decision criteria across all
on this aspect, it is vital that these factors are relevant demographics and geographies.
articulated and shared across the organisation. 3 Differentiation. The degree to which customers/
2 Commitment. Internal commitment to brand, consumers perceive the brand to have a
and a belief internally in the importance of differentiated positioning distinctive from the
brand: this is the extent to which the brand competition.
receives support in terms of time, influence and 4 Consistency. The degree to which a brand is
investment. experienced without fail across all touchpoints
3 Protection. How secure the brand is across a or formats.
number of dimensions: this includes legal
5 Presence. The degree to which a brand feels this will extend to consumer understanding of
omnipresent and is talked about positively by the company that owns the brand.)
consumers, customers, and opinion formers in Source: ‘Best global brands: The definitive guide to the
both traditional and social media. best 100 global brands’, Interbrand, 2012, p. 138. Interbrand’s
6 Understanding. The brand is not only recognised Best Global Brands 2012 report is a look at financial
by customers, but there is also an in-depth performance of the brand, role of brand in the purchase
decision process and the brand strength. Go to
knowledge and understanding of its distinctive
www.bestglobalbrands.com for more information.
qualities and characteristics. (Where relevant,
Over four decades ago the takeaway food industry advertising repositioning campaign in April 2003. In
in Australia was transformed when KFC (1968), the first phase, television commercials were aired
Pizza Hut (1970) and McDonald’s (1971) opened that were designed to ‘expose the truth’ about the
their first stores. ‘McDonald’s will never succeed’, quality of McDonald’s food and restore the value of
critics proclaimed, ‘as real men will never give up trustworthiness in the brand at the same time. The
their beloved Greasy Joe’s hamburgers.’ But next phase began in August of that year, consisting
McDonald’s had other target markets in mind and, of a press advertisement featuring the new Salad
very soon, young singles (aged 18–24), teenagers Plus menu that contained ‘only 10 gm of fat’. From
(aged 14–17) and children with young parents were January to September 2004, the advertising
flocking to eat at McDonald’s outlets. message switched to a broader message about the
From the time it opened its doors in Australia, range of healthy new menus, emphasising the low-
McDonald’s has carefully created a warm, friendly and sugar buns and the use of canola oil for cooking
nurturing brand position. Television advertising has nuggets and fries. This brand repositioning strategy
played a critical role in the brand positioning strategy, was highly successful, with McDonald’s outlets
as has the use of Ronald McDonald in capturing the returning record levels of sales revenue.
imagination of children. The caring nature of Towards the end of 2004, McDonald’s Australia
McDonald’s was established with Ronald McDonald launched the ‘I’m lovin’ it’ advertising campaign to
House and its involvement in community and charity reinforce the new healthy image that had been
events such as McHappy Day and sponsorship of created. In 2007 McDonald’s earned a Heart
Clean Up Australia Day and Little Athletics. Foundation Tick for nine of its health-conscious meals
But McDonald’s has also experienced a great and launched these new meals with an advertising
deal of criticism over the years. In 1991 in response campaign based on the theme ‘You are what you eat’.
to concerns about the environment, McDonald’s From 2003 to 2008, revenue grew at an
switched from packaging burgers in polystyrene average of 8 per cent per annum but, despite this
foam to paper wraps. At the same time recycled sales success, brand perceptions of McDonald’s did
paper was used for such items as paper napkins and not improve. During this period the issue of obesity
outer cartons. Towards the end of the 1990s escalated in Australia and to many of the critics
concern was being expressed about the fat and McDonald’s was ‘the devil incarnate’. In 2007 the
sugar content in fast food in general and advertising agency DDB Group, using an
McDonald’s food in particular. McDonald’s ethnographic research approach, conducted a
responded by developing a series of new healthy number of interviews with individuals at their local
food products including a New Taste menu in 2001, McDonald’s restaurants. While chatting over a meal,
a low-fat Happy Meals menu and a Salad Plus menu these individuals were asked about what they liked
in 2003 and a Deli Choice menu in 2004. To and disliked about McDonald’s. The researchers
support the introduction of these new healthy found that even the most ardent critics could find
products McDonald’s began a three-phase something they liked – a cherished moment that
they had experienced in the past. Out of this the critics’ favourite scapegoat for the obesity
research a ‘McDonald’s Moments’ advertising problems confronting the nation. Research showed
campaign was conceived. It was launched towards that about 50 per cent of Australians were
the end of 2007 with a series of television concerned about the quality and nutritional value of
commercials showing real people in real situations McDonald’s products. In 2012, McDonald’s
at a McDonald’s restaurant. responded by publishing calorie information for each
Three years later, research conducted in 2010 of their products and, at the beginning of 2013,
showed that the campaign had successfully introduced an iPhone app, TrackMyMacca’s, so that
improved brand perceptions of McDonald’s.25 customers could track the ingredients of the food
However, despite this success McDonald’s remained they were eating.
The customer value creation mix

The final stage of the process of developing high-level marketing strategies (as shown in Figure 5.1
at the beginning of this chapter) is the development of customer value creation, communication
and delivery strategies. In this section the discussion will be limited to a brief overview of the
processes involved, as more detailed information is provided in the next chapter (Chapter 6).
Customer value creation and delivery strategies flow on from the segmentation, targeting and
brand positioning decisions discussed in previous sections of this chapter. As discussed in earlier
chapters of this book, customer value creation mix strategies extend the traditional concept of the
marketing mix to include a number of other organisation-wide or cross-functional activities
conducted along the value chain – the value network as it is alternatively described by Kumar.26
Customer value mix strategies are ‘big picture’ strategies comprising broad strategic directions
rather than intricate details (which are more appropriately addressed in annual marketing plans
such as brand or marketing communication plans).
The key to developing effective customer value mix strategies is for strategists to have a deep
understanding of the customer value proposition – that is, they need an understanding of the value
drivers for each of the targeted market segments. In most cases, strategists will already have such
an understanding concerning the marketing of their existing products in existing markets. If the
brands concerned are well positioned and performing well in the marketplace, the recommended
strategies might reasonably be expected to be based on a continuation of past strategies, with
perhaps a minor adjustment to the customer value creation mix. A fundamental principle of
branding is consistency, and it is therefore important that changes to positioning are made on a
long-term basis in response to changing customer values, customs and behaviour patterns that
evolve over time.
In situations where a repositioning strategy or other major strategic initiatives (such as new
product development or market development) are deemed necessary, a more comprehensive
decision-making process would be necessary. These decisions are made at a business-unit level of
strategy and are discussed in detail in chapters 7 to 10.

This chapter has discussed the processes After identifying and selecting market
involved in developing high-level marketing segments to be targeted, the next step is to
strategies – in particular, decisions relating to develop a value proposition or, as it is
segmentation, targeting and positioning (STP), alternatively termed, a brand positioning
and customer value creation, communication strategy – that is, to establish a distinctive
and delivery strategies. These interrelated sets position in the minds of the targeted prospects.
of considerations follow the broad-based This can be based on adopting a competitive
strategic positioning and product-market position (relating the brand to the competitors),
decisions that were discussed in Chapter 4. functional benefits (brand features or
Market segmentation provides a means for attributes), psychological benefits, relationship
marketers to analyse and understand the values benefits or process benefits. Brand positioning
that matter most for the organisation’s existing strategies also involve consideration of whether
and potential customers. In consumer markets, to deploy an individual branding or umbrella
these customers can be categorised in terms of branding strategy.
the 4Ws on the basis of: who the customers Based on these STP decisions, the
are, what and where they buy, and why they marketing strategists are then in a position
buy. Business markets can be segmented to develop customer value creation,
according to geography, customer type, the communication and delivery strategies which
benefits the customers seek and personal were briefly discussed in this chapter and are
behavioural characteristics, such as a buyer’s further elaborated on in chapters 6 to 10.
readiness to adopt a new product or whether he
or she is risk averse or a risk taker.
1 Consider the market segmentation strategy 3 What are the differences, if any, between
and the brand positioning strategy pursued the way Coles Supermarkets, Woolworths,
by Tourism Australia as discussed at the IGA and Aldi are positioned?
beginning of this chapter. Additional 4 Is there a danger that a fashion brand such
information can also be found at as Louis Vuitton will lose its appeal by
www.tourism.australia.com/en-au/. Are becoming too popular?
there any segments that could be added? 5 Refer to the ‘Strategy in practice’ case in
Do you think that the brand strategy clearly this chapter. Now matter how it tries, do
differentiates Australia from other tourist you think McDonald’s can overcome the
destinations? criticism that is levelled against it? If you
2 What is the difference between the way were the Australian CMO, how would you
BMW, Mercedes-Benz, Audi and Lexus attempt to position McDonald’s?
attempt to position their brands?
ETHICAL ISSUE
Critics claim that market segmentation is just negative gender and racial characteristics.
another form of stereotyping with all of the Should this issue be a concern for marketers?
inherent dangers of promoting and reinforcing

Continue working on your strategic marketing the most attractive segments to target. Develop
plan. Identify the way the market for your a brand positioning strategy.
product(s) can be segmented and then select

Explore Search me! marketing for articles • value proposition
relevant to this chapter. Fast and convenient, • priori market segmentation
Search me! marketing is updated daily and • brand leveraging
provides you with 24-hour access to full text • repositioning strategies.
ENDNOTES
1 J. Frampton, ‘Best global brands 2012: The definitive on market segmentation is generally attributed to the work
guide to the best global brands’, Interbrand, 2012, p. 4. of Wendell Smith; refer to W.R. Smith, ‘Product
Interbrand’s Best Global Brands 2012 report is a look at differentiation and market segmentation as alternative
financial performance of the brand, role of brand in the marketing strategies’, Journal of Marketing, vol. 21, July
purchase decision process and the brand strength. Go to 1956, pp. 3–8.N.A. Aufreiter, D. Elzinga and J.W.
www.bestglobalbrands.com for more information. Gordon, ‘Better branding’, The McKinsey Quarterly, no. 4,
2003, p. 29.
2 B. Baker and P. Bendel, ‘Come and say G’day!’, Travel
Marketing Decisions, Summer 2005, archived at: 8 There are many ways of identifying categorisations for
www.atme.org/pubs/archives/77_1898_11926.cfm market segmentation. For a thorough description of
market segmentation approaches, refer to A. Weinstein,
3 Australian Tourist Commission, Annual Report 2003/ Market Segmentation, Probus Publishing, Chicago, Ill.,
2004, 10 September 2004, p. 8. 1987. For an excellent discussion about how market
4 Extract from Tourism Australia website: segmentation studies should be constructed and how they
www.tourism.australia.com/en-au/marketing/ should be used, refer to D. Yankelovich and D. Meer,
brand-australia.aspx. ‘Rediscovering market segmentation’, Harvard Business
Review, February 2006, pp. 122–31.
5 Source: Tourism Australia website:
www.tourism.australia.com/en-au/marketing/ 9 M.J. Rokeach, Beliefs, Attitudes and Values: A theory of
segments.aspx. organization and change, Jossey-Bass, San Francisco,
1968; and M.J. Rokeach, The Nature of Human Values,
6 Based on D.W. Cravens, ‘Implementation strategies in the The Free Press, New York, 1973.
market-driven strategy era’, Journal of the Academy of
Marketing Science, vol. 26, no. 3, 1998, p. 237. 10 Source: ‘Segmenting the e-market’, The McKinsey
Quarterly, November 2000.
7 The process of market segmentation was recognised at
least as far back as 1916, as evidenced in the following 11 D. Ogilvy, ‘The image of a brand – A new approach to
quotation: ‘Innumerable businesses recognise the creative operations’, text of a talk given at the American
existence of market contours by putting their products Association of Advertising Agencies in 1955, reprinted
into two or more grades’; refer to A.W. Shaw, An courtesy of Ogilvy & Mather and published by
Approach to Business Problems, Harvard University Press, Markenlexikon.com at: www.absatzwirtschaft.de/pdf/
Cambridge, Mass., 1916. However, the modern emphasis ogilvy_1955.pdf, p. 6.
12 J. Trout, ‘Positioning is a game people play in today’s 21 For further information concerning umbrella branding,
me-too market place’, Industrial Marketing, June 1969, refer to T. Erdem, ‘An empirical analysis of umbrella
pp. 51–5. branding’, Journal of Marketing Research, vol. 35, August
1998, pp. 339–51; B. Wernerfelt, ‘Umbrella branding as a
13 A. Ries and J. Trout, Positioning: The battle for your mind, signal of new product quality: An example of signalling by
Warner Books, New York, 1981, pp. 2 and 24. posting a bond’, Rand Journal of Economics, vol. 19, no. 3,
14 Reference to the two-stage positioning process is derived 1988, pp. 458–66; P.H. Farquhar, J.Y. Han, P.M. Herr
from J-N. Kapferer, Strategic Brand Management: Creating and Y. Ijiri, ‘Strategies for leveraging master brands’,
and sustaining brand equity long term, Kogan Page, Marketing Research, September 1992, pp. 32–41; and
London, 1998, p. 96. D.C. Court, M.G. Leiter and M.A. Loch, ‘Brand leverage’,
The McKinsey Quarterly, no. 2, 1992, pp. 101–10.
15 C.T. Allen, S. Fournier and A. Miller, ‘Brands and their
meaning makers’, Boston University School of 22 Based on Keller, 1993, pp. 1–22.
Management, Working Paper #2006–08, p. 5. 23 The concept of the value curve was introduced by
16 S. Fournier and L. Lee, ‘Getting brand communities W. Chan Kim and Renée Mauborgne. Refer to:
right’, Harvard Business Review, April 2009, pp. 105–11. W.C. Kim and R. Mauborgne, ‘Value innovation:
The strategic logic of high growth’, Harvard Business
17 Fournier and Lee, p. 105. Review, January–February 1997, pp. 103–12.
18 R. Levine, C. Locke, D. Searls and D. Weinberger, The 24 R.E. Freeman, Strategic Management: A stakeholder
Cluetrain Manifesto, Perseus Books, 2000. This is a approach, Pitman Publishing Inc., Marshfield, 1984.
collection of 95 theses that were written as a call for
action for businesses operating in what they described as 25 Source material for the ‘McDonald’s Moments’ advertising
the ‘newly connected marketplace’. The precursor of the campaign: ‘McDonald’s – Helping people fall in love with
book was published in 1999 on the website: the brand again’ (2010 Awards), The Account Planning
www.Cluetrain.com. Group (APG), 2 July 2010 and www.ddb.com.au.
19 K.L. Keller, ‘Conceptualizing, measuring, and managing 26 N. Kumar, ‘From market segments to strategic segments’,
customer-based brand equity’, Journal of Marketing, Harvard Business School Press, Boston, Mass., 2006, p. 2.
January 1993, p. 3.
20 J.L. Aaker, ‘Dimensions of brand personality’, Journal of

Marketing Research, vol. 34, no. 3, 1997, pp. 347–56.
MARKET SEGMENTATION
AND POSITIONING
DECISION-MAKING AIDS
There are two traditional tools widely used by market researchers to help marketing strategists
analyse and evaluate alternative market segmentation and product positioning strategies: perceptual
maps and conjoint analysis. In this appendix a more recently developed market research tool,
neuromarketing, is also discussed.
Perceptual maps
Perceptual maps are pictures or maps of consumer perceptions of a market or product category.
There are two main ways of constructing a perceptual map: the attribute rating method and the
overall similarity method.
Attribute rating method

The first step is to research the market in order to determine the salient attributes that consumers
use to evaluate the various competitive brands in a product category. Next, respondents are
presented with the list of attributes and are requested to rate each brand on each attribute. A
massive amount of data is generated from this process. For example, if eight attributes are selected
and there are four competitive brands to evaluate, each respondent would be requested to provide
32 ratings. To deal with such a large volume of data, the statistical analysis phase is divided into
two stages. Initially, the statistical analysis (either factor analysis or multiple discriminant analysis)
concentrates on one set of attributes, such as by averaging the ratings across all respondents. In the
next phase, the data is analysed to determine which attributes best discriminate among brands. The
data is then reduced from the original set of attributes to two dimensions, as the objective of this
analysis is to find two axes for the perceptual map that best capture the variations in perceptions of
the various brands. Figure 5.6 provides an example of this form of perceptual map. How the map
was constructed is also described briefly.
How the perceptual map was developed

A focus group of senior managers earning $150 000þ was conducted in order to determine the
criteria that would influence them for the purchase/lease of a prestige car as part of a salary
package. The focus group discussion revealed that there were 10 variables that influenced the
brand choice, and these included intangible/emotional considerations such as ‘image’, product
attributes such as ‘advanced engineering’ and tangible benefits such as ‘safety’. Respondents were
FIGURE 5.6 A perceptual map of prestige cars – senior managers earning $150 000þ
Prestigious to own
High
• Mercedes
• Jaguar
• BMW
Financial effectiveness
• Alfa
• Toyota (Lexus)
High • Audi Low

• Saab
• Honda (Legend)
• Volvo
Low
then given a list specifying nine prestige cars and they were asked to rate, on a 10-point scale, the
degree to which they believed each brand fitted the variables they had identified.
This information was later analysed using factor analysis and it was found that the 10 variables
could be grouped into two dimensions:
• Prestigious to own. Variables that contributed to this dimension were perceptions of image,
luxurious appointments, advanced engineering, quality finish, safety and high price/expensive.
• Financial effectiveness. Variables that contributed to this dimension were perceptions of high
resale value (high residual), reliability, ease of maintenance and longevity.
These dimensions were then used as the axes for the construction of the perceptual map shown
in Figure 5.6.
Perceptual maps developed by this technique also provide a means of identifying market
segments. Individuals can be classified into different market segments based on the similarities
they have concerning their product or brand perceptions and the choices they have made between
the various products or brands. However, the attribute rating method is limited by its emphasis on
rational decision making. The assumption that individuals form perceptions about brands via a
process of mentally rating product attributes overlooks the reality that perceptions are formed via a
combination of rational, emotional and experiential considerations.
Overall similarity method

The major difference between this method and the attribute rating method concerns data input.
With the overall similarity method, attributes are not specified and respondents are required to
simply assess the degree of similarity between pairs of competitive brands. That is, brand A
compared to brand B, brand C and so on. The degree of similarity is then rated on a scale (typically
a 10-point scale). The data that is collected is analysed using multidimensional scaling (MDS)
technology that attempts to map the distance between brands. The spatial map that is produced
therefore shows how similar or dissimilar the respondents perceive the various competitors to be.
However, as this technique does not provide a means for explaining why these competitive brands
were perceived to be similar or different, the market researcher can only infer from the data the
criteria respondents drew on to evaluate the differences.
In the example provided in Figure 5.6, respondents would have been asked to state how similar/
dissimilar a BMW was to a Mercedes, a BMW to a Saab, a BMW to a Jaguar and so on, until all
combinations of the nine brands would have been paired off. The data would then have been
mapped and the market researcher would have been required to examine the results so as to
determine the factors that might have contributed to the way each brand was positioned.
One of the most important considerations in developing a brand positioning strategy is the
perception of uniqueness or differentiation between brands. As the overall similarity method
provides a means for assessing perceived similarities and differences, it is a useful tool to aid
decisions concerning brand positioning. This tool also provides a means for identifying groups of
customers who hold similar perceptions about competitive brands, a basis for market segmentation
analysis.
Conjoint analysis
The underlying concept of conjoint analysis is that individuals make overall judgements about
brands or products by considering two or more attributes conjointly. That is, rather than
considering a number of attributes one at a time, conjoint analysis asks respondents to evaluate
brand preferences by considering bundles of attributes that are joined together.
Conjoint analysis commences with the identification of several attributes (typically up to six or
seven) that respondents use to arrive at brand preferences (or purchase disposition). Next, these
attributes are sorted into bundles of two (or more), and respondents are then requested to state
their preferences (ranked or rated) for each bundle. That is, attributes are considered conjointly
(joined together). Consider, for example, that the following four attributes have been identified for a
soft drink: flavour, low calories, low sugar and price. The marketer wishes to study three alternative
flavours, three levels of low calorie, two sweetening alternatives (sugar and NutraSweet¤) and two
price point alternatives. This would result in 36 bundled alternatives (3 3 2 2). The next
stage is to select some or all of these bundles of attributes and then to request respondents to state
their preferences for each alternative – either by ranking each from 1 to 36 or by rating each on a
scale (such as a 5-point or 10-point scale) stating a preference from ‘least liked’ to ‘most liked’.
Where attributes are bundled into groups of two, the process is described as a two-at-a-time
bundling or trade-off procedure. An alternative, generally preferred, approach is the full profile
procedure, requiring respondents to consider a complete set of attribute descriptors rather than just
two at a time. The main advantage of this approach is its realism, but the downside is that it is
difficult for respondents to consider several attributes simultaneously.
Conjoint analysis provides the researcher with a means of generating quantitative measures of
the relative importance of attribute levels. This provides a basis for segmenting a market into groups
of people with similar needs who seek similar benefits for various products. This form of benefit
segmentation also provides a means for developing brand positioning strategies involving all
components of the customer value creation mix.
Neuromarketing
Interest in brain wave measurement in marketing can be traced back to at least the early 1970s
when electroencephalography (EEG) equipment was used to evaluate responses to television
commercials.1 However, the cost of EEG and magnetic resonance imaging (MRI) was prohibitive
for marketing purposes; it wasn’t until the 1990s when the development of a new technology,
functional magnetic resonance imaging (fMRI), provided a more practical alternative. The term
neuromarketing was not coined until 2002 but the origin of the concept can be found in the work
of psychologists at Harvard University during the 1990s. The concept is based on the notion that
the major thinking part of human activity takes place at the subconscious level operating below the
level of controlled awareness. The use of fMRI technology allows market researchers to pinpoint
the regions of the brain that are active when an individual responds to stimuli such as being shown
a product or an advertisement.
Neuromarketing gained widespread publicity with the publication in 2004 of the Pepsi
Challenge – a blind taste test of Pepsi Cola and Coca-Cola.2 Using fMRI scanners, 67 volunteers
where first required to blind test samples of Coke and Pepsi. In this blind test over half were found
to prefer Pepsi, with scans revealing activation of the ventromedial prefrontal cortex (reward centre
of their brain). When the brands were identified it was found that brand knowledge of Coke
activated the dorsolateral prefrontal cortex and the hippocampus areas of the brain (areas
associated with memory, emotions and emotional information processing). This led researchers to
conclude that the brand image for Coke had a greater influence on brand preference than did taste.
At the same time the research showed that identification of Pepsi had no influence on the
respondents’ brand knowledge. The researchers also concluded that there were two separate brain
systems operating – one involving taste and the other recalling cultural information.
In Australia neuromarketing research services are provided by Neuro-Insight (www.neuro-
insight.com) and Nielsen NeuroFocus (www.neurofocus.com).
APPENDIX ENDNOTES
1 See, for example, H.E. Krugman, ‘Brain wave measures 2 ‘Coke versus Pepsi: It’s all in the head’, Press Release,
of media involvement’, Journal of Advertising Research, Eureka Alert, 13 October 2004.
vol. 11, 1971, pp. 3–10.
Strategy
evaluation and
control

• High level marketing strategies:
• Segmentation, targeting and positioning decisions
CHAPTER
6
THE CUSTOMER VALUE
CREATION MIX
Customers choose between suppliers by evaluating which supplier provides them with the
best value. The choice is driven by evaluating the relative importance of a complete set of factors
(product, service, relationship, image and price) and the perceived performance of all suppliers
on those factors. The decision process is not, and will never be, a function of just how satisfied
a customer has been with a product or service.
Bradley T. Gale1
Achieving a point of differentiation in the myriad creation, communication and delivery of fair
‘me-too’ markets that exist today represents a value for its customers. The initial focus of what
huge challenge for most organisations. For those was labelled the ‘Fair Value’ agenda was to
in the Australian banking industry this is address the most pressing customer irritants, for
particularly difficult in the face of a widespread example, by the removal of the big monthly
public perception that, not only are the Big 4 ‘all account and overdrawn account fees and the
the same’, but they have ‘colluded to price gouge lowering of home lending and credit card fees.
their customers’. At the height of the GFC the These changes were highlighted in a marketing
public was outraged by the failure of the Big 4 communication campaign under the theme,
banks (Commonwealth Bank, Westpac, ANZ and ‘More give, less take’.
NAB) to pass on interest rate cuts at a time However, the results of the campaign were
when many of their home lending customers disappointing. Research conducted by NAB after
were struggling to make ends meet. 12 months revealed that consumers believed that
This was the challenge facing the National all banks were offering similar improvements to
Australia Bank (NAB) in 2009 when the then their product offerings and that, accordingly,
newly appointed Group CEO, Cameron Clyne, there was little difference between the Big 4. So
set out to transform the bank’s Australian it was back to the drawing board for the NAB
franchise by developing a strategy based on the strategy team and their advertising agency
Clemenger BBDO. A market research study other bankers. These stunts were recorded and
conducted by Clemenger BBDO provided the uploaded to a dedicated NAB Break Up blog.
key insight the strategy team was looking for: the Three additional hidden camera films were also
anger that was felt by retail banking customers uploaded to this site that showed NAB
about the compliant relationships between the ambushing ANZ, Commonwealth Bank and
Big 4 banks; ‘although people didn’t expect their Westpac meetings with the breaking up
bank to be perfect, they were sick of the endless message. On Tuesday full-page newspaper ads
collective greed’.2 This insight led the team to displayed a ‘Dear John’ letter from NAB to its
establish a number of objectives for the three main competitors under the headline, ‘It’s
development of the new campaign: (i) to over between us’. A helicopter flew around both
establish that NAB stands for ‘fairer banking’, Sydney and Melbourne trailing a huge banner
(ii) to challenge the perception that all banks are with the message: ‘Dear CommBank, Westpac
the same, (iii) to demonstrate by behaviour rather and ANZ, you’re dumped. NAB’. After all of
than just words that NAB is different, (iv) to the frenzied activities of the first week the
highlight NAB’s ‘fairer banking’ product features campaign continued with press, outdoor and
that differentiate NAB from its competitors, online advertising.
(v) to encourage other banks’ customers to The impact of the campaign was enormous.
question their bank’s collusive behaviour, and It was estimated that the PR activity generated
(vi) to provide a platform for staff engagement. over $5 million worth of media coverage in just a
The campaign that was developed was single day. Over a quarter of a million online
nothing short of spectacular. Titled ‘break up’, visits to the NAB Break Up blog site were
the campaign began on Friday 11 February 2011 recorded in the first five days of the campaign,
with what appeared to be an embarrassing mis- and Break Up became the number 1 discussed
tweet from a disgruntled NAB employee: topic on Twitter.
‘Sooooo stressed out. Have to make a tough On all measures the campaign was a huge
decision and I know I’ll probably hurt someone’s success. Research showed that the perception
feelings! Arrggghhh’. The tweet was re-tweeted of NAB being ‘the leader in making banking
over 100 times. The next day, in response to a fairer’ rose from 10 per cent prior to the
media release from NAB, newspapers around beginning of the campaign to 17 per cent in
the country broke the news that NAB would February 2011. On the dimension ‘doing things
pay a $700 early exit fee for CBA, Westpac differently than others’, NAB’s rating leapt
and ANZ customers to switch to their lower from 9 per cent to 19 per cent while the other
standard variable mortgage rate. On the same three banks dropped a point or two. On a week-
day the NAB website directed Web surfers to a on-week basis, the NAB was swamped with a
video blog featuring the dating columnist Zoe 79 per cent increase in home loan enquiries, a
Foster presenting information from a purported 50 per cent increase in credit card applications
NAB survey about couples breaking up. These and a 20 per cent increase in transaction
two activities acted as a teaser for the main accounts opened. From the start of the
campaign launch on Monday 14 February, campaign to the end of March, the bank signed
Valentine’s Day. On this most romantic day of up 116 466 new customers. The campaign also
the year patrons at cafes and restaurants in achieved the objective of staff engagement, with
Melbourne, Sydney and Adelaide and activity on NAB’s internal social networking site
commuters on public transport witnessed actors increasing by over 600 per cent in the week
staging break-ups between NAB bankers and Break Up was launched.
Chapter 6 The customer value creation mix 171
In addition to the commercial success that Creativity. In announcing the award the Jury
Break Up achieved, the campaign was considered President, Dave Senay, stated: ‘It was a brilliant
to be the best PR campaign in the world when it example of positioning a company, a bank, and
was awarded the 2011 Grand Prix in PR at the at the same time depositioning your
prestigious Cannes Lions International Festival of competition’.3

In the previous chapter the process of developing high-level marketing strategies was discussed,
with an emphasis on the processes of segmentation, targeting and positioning (STP); that is, the
identification of customer groups (segments) for the organisation to target and decisions about how
to position the organisation’s product offerings to those segments, against competitive offerings.
The next step, the focus of this chapter, is the development of customer value mix strategies,
specifically:
• determination of what customers value – the customer value proposition
• the development of strategies that create, communicate and deliver customer value.
What do customers value?

In Chapter 5 the concept of the value proposition was discussed. It was established that the term
‘value proposition’ is closely related to the concept of brand positioning. While the concept of
positioning is concerned with establishing a frame of reference or key brand associations in the
minds of the organisation’s target customers, the value proposition focuses on the specific drivers
of value sought by those targeted customers; that is, the customers’ perceptions of value.
Customer value perception (CPV) as defined by Zeithaml is ‘the consumer’s overall assessment
of the utility of a product based on the perception of what is received and what is given’.4 At the
core of the concept of CPV is the notion of a trade-off between perceptions of benefits to be
received and perceptions of the costs or sacrifices involved in receiving those benefits. Cost or
sacrifices include not only the purchase price but also such factors as repair and maintenance,
installation, service, and, in a B2B context, the cost of failure.
So what do customers value? Figure 6.1 provides a customer value framework developed by J.
Brock Smith and Mark Colgate that helps to explain why customers make the choices they do.5
They argue that there are four major types of customer value that can be created: functional/
instrumental value, experiential/hedonistic value, symbolic/expressive value and cost/sacrifice value.
These four values influence the choices customers make concerning (i) product category decisions
(whether to buy or use a specific product) and (ii) brand decisions. The model is applicable for all
types of B2C and B2B products and services.
FIGURE 6.1 The customer value creation framework
Functional/ Experiential/
instrumental value hedonistic value
Customer value
Symbolic/
Cost/sacrifice value
expressive value
Source: Based on a framework developed by Smith and Colgate. Refer to J.B. Smith and M. Colgate, ‘Customer value creation:
A practical framework’, Journal of Marketing Theory and Practice, vol. 15, no. 1, 2007, pp. 7–23.
• Functional/instrumental value – the extent to which a product has the desired characteristics
(correct, accurate or appropriate features, functions, attributes including aesthetics, quality,
customisation and creativity); usefulness (benefits); and performance capabilities (such as
reliability, performance quality and service support). Organisations pursuing this strategy focus
on product innovation and product leadership, investing heavily in new product development
processes, R&D, market research, technology and activities revolving around continuous
improvement and production quality.
• Experiential/hedonistic value – the extent to which a product creates appropriate customer
emotions (both positive, such as pleasure, enjoyment and fun, and negative, such as fear or
problem avoidance); feelings, experiences and sensory (such as smell or taste, or in a service
context aesthetics or ambience); and epistemic value (the desire to seek knowledge).
Organisations pursuing this strategy focus on customer relationships and service quality,
investing in customer support technology, market research, facilities (especially in a service
environment) and flexible manufacturing in order to provide customised product offerings to
narrowly defined market segments.
• Symbolic/expressive value – the extent to which customers attach or associate psychological
meanings to a product. These associations are based on the individual’s concept of self or self-worth
(reflection of the way one feels about him/herself); self-expression (reflection of one’s personality,
taste or values); social meaning (reflection of prestige, status or image); and conditional meaning
(symbolism relating to a specific sociocultural event or tradition such as giving a birthday present).
Organisations pursuing these strategies focus on brand image/brand equity and customer equity.
They typically invest in marketing communication activities, especially advertising and public
relations, and in activities relating to product quality and customer engagement.
• Cost/sacrifice value – the extent to which customers seek to maximise or at least realise the
benefits derived from a product while at the same time seeking to minimise the costs and other
sacrifices that may be involved (that is, transaction costs) in the purchase, ownership or use of
the product. Firms competing with this strategy focus on operational excellence and value chain
efficiencies, especially purchasing, production and distribution.
It should be noted that the above four categorisations are not mutually exclusive. In most cases
there are multiple values. A Chanel handbag, for example, is valued by its customers for its superb
product quality and design (functional/instrumental values), as a means of self-expression (symbolic/

expressive value) and for the pleasure that is created by the shopping and ownership experience
(experiential/hedonistic value). Chanel focuses on advertising (to create and maintain brand image/
equity), customer service (to enhance the purchasing experience to create and maintain customer
equity) and on an exclusive distribution strategy designed to enhance the shopping experience.
The customer value creation model provides a framework for the development of the value
creation mix strategies. The starting point is to conduct a review of the organisation’s current
strategies. Figure 6.2 provides an organising framework for this review.
FIGURE 6.2 Review of customer value creation mix strategies
1. What do target customers value?
2. Of all the value dimensions that

target customers want, which are
most important?
3. How well (poorly) are we doing

5. What are target customers likely
in delivering the value that
to value in the future?
customers want?
4. Why are we doing well (poorly) on

important value dimensions?
Source: R.B. Woodruff, ‘Customer value: The next source of competitive advantage’, Journal of the Academy of
Marketing Science, Spring 1997, Figure 4 ‘Customer value determination process’, p. 144.
As the model shows, the first two stages of the review process involve the identification of what
the targeted customers value and the values that matter most for them. Strategists draw on market
research techniques such as customer satisfaction surveys, focus groups, cross-tabulated surveys,
demographic information, ethnographic research and, more recently, laddering and prototyping
techniques for this purpose. Laddering is a means-end technique that identifies core attributes and
value drivers via in-depth customer and non-customer interviewing. The interview process consists
of a series of closely related questions that are designed to link product attributes, consequences
and personal values that underpin the interviewee’s purchase preferences. For example, on the first
probe an interviewee might state that the reason for purchasing or wanting to purchase a Golf GTi
is because it is reasonably priced, and it is prestigious (cost/sacrifice value, experiential/hedonistic
and symbolic/expressive values). The next question would be: Why is prestige important? The
response might be: ‘I have a good job and it’s important to keep up with appearances’
(consequences). The next question or questions would be designed to identify the interviewee’s
personal values that underpin these responses (such as, social recognition, a sense of
accomplishment or a sense of freedom and adventure). Prototyping extends the laddering
information by developing a profile or a portrait of the ideal customer – a brand champion. The
objective of prototyping is to develop a detailed understanding of the lifestyle of these ideal
customers, and the motivations and aspirations that drive their purchase decisions. A prototype is a
detailed description or profile of an individual customer who is considered to represent others in
the prototype category. The profile may be written either in a narrative style or as a bulleted listing
of characteristics.
Customer satisfaction surveys provide the main input for Step 3 that investigates the
performance of the organisation in delivering the value that customers want. Step 4, however,
requires additional qualitative research input to explore reasons as to why the organisation’s
customers have considered the organisation to perform well or poorly on value dimensions that
matter.
In some product categories where the future is reasonably clear, Step 5 can be approached with
a degree of confidence. For example, it was reasonably predictable that features pioneered in luxury
cars such as airbags, electric windows, iPod connectivity, park assist and lane assist would not
take long to become virtually standard features for all cars. Techniques such as brainstorming,
trend-spotting, the Delphi Technique, coolhunting and scenario planning are used to help in the
task of attempting to uncover values that the targeted customers are likely to seek in the future.
Towards the end of the 1990s, the iconic British packaging and an advertising campaign based on a
garment company Burberry was in trouble. For the distinctly British theme featuring leading fashion
financial year ending 31 March 1998, profits plunged models such as Kate Moss heralded a new
from £62 million to £25 million. The owners of beginning. Bravo believed that Burberry could be
Burberry, Great Universal Stores, were advised to successfully positioned in a market niche
sell off their ailing subsidiary. Fast forward to the sandwiched between the pure luxury brands at the
financial year 2011/12 where Burberry was named top and the mass distributed brands below. In 1998,
the fourth fastest growing global brand in surveys a new premium high-couture and runway fashion
conducted by both Interbrand and BrandZ. brand, the Burberry Prorsum range, was launched
The turnaround of Burberry commenced in and, in 2000, a flagship Burberry store was opened
1997 with the appointment of a new CEO, Rose in New Bond Street. This was followed by the
Marie Bravo, recruited from the position of opening of landmark stores in the major fashion
President of Saks Fifth Avenue. The challenges capitals of Milan, New York, London (Knightsbridge)
facing Bravo at that time were enormous. She and Barcelona. In 2001, Christopher Bailey was
found that because of a strategy of expansion over appointed design director and the Burberry London
several decades the Burberry brand had been ready-to-wear range was upgraded to reflect the
trashed. Burberry products could be found in over updated lifestyle positioning of the Burberry brand.
60 different stores in central London alone but not By now the road to recovery was well underway.
in any of the prestige department stores such as The turnover and profit decline had been halted and,
Harrods, Selfridges or Harvey Nichols. An out-of- by 2004, turnover had climbed to £593.6 million
control licensing strategy had resulted in product with an EBIT of £116.7 million.
design, quality and pricing inconsistencies across The stage was now set for the second phase of
markets. As a consequence of this strategy the Burberry’s revitalisation. In 2006, after a six-month
Burberry product range had become overextended transition, Bravo handed over the CEO reins to
while, at the same time, a parallel market of Angela Ahrendts, the former Vice President of Liz
Burberry products had emerged as a major problem. Claiborne. Ahrendts’ vision was to elevate Burberry
The first action that Bravo took was to tackle to the position of a major player in the global luxury
Burberry’s image problem. A new logo design, a brand market. To achieve this she identified a
change of name from Burberry’s to Burberry, new market segment that she believed had been largely
untapped by any of her competitors: the Millennial – stores in markets that had stores for two or more of
the luxury customers of the future. Burberry’s luxury brand competitors.
One of Ahrendts’ first actions was to promote Ahrendts also had a vision to be the first luxury
Christopher Bailey to the position of chief creative brand company to be fully digitalised – from end to
officer. With 23 licences around the world, Burberry end. This meant that her customers were able to
products had become ubiquitous and out of touch have full access to Burberry on any device and to
with the image requirements of a luxury brand. get the same feeling of the brand and culture
Bailey was introduced as the ‘Brand Czar’ and staff wherever they were. The company’s website (http://
were informed by Ahrendts that ‘anything that the Burberry.com) was substantially upgraded to
consumer sees – anywhere in the world – will go become the lynchpin for customer engagement,
through Bailey’s office. No exceptions’.6 This was entertainment and interaction. In 2009, Burberry
followed by the closing down of a design team in launched a social media platform (http://
Hong Kong and factories in New Jersey and Wales. artofthetrench.com) to celebrate the iconic trench
A new ‘Brand First’ positioning strategy was coat and the people who wear it. In 2012 Burberry
developed based on three core attributes: the Bespoke was launched on the Burberry website to
quintessential British character of Burberry, the provide customers with the ability to co-create a
democratic nature of the brand and Burberry’s Burberry trench coat to their own specifications.
historic origins – born from a coat. The focus on While the trench coat is the centrepiece of the
Burberry’s heritage provided the direction that Burberry branding strategy, the product range
inspired creativity and innovation within the under the directorship of Chris Bailey has been
company. From just a few basic styles of trench refined and expanded over the years. Sixty per cent
coat, Bailey and his team designed a complete new of Burberry’s business in 2012 was in apparel (with
range of trench coats in a large variety of styles and half of that in outerwear). Womenswear, women’s
colours. The ethos of the trench coat permeated accessories, women’s bags, women’s shoes,
everything the company did, from runway shows to menswear, men’s accessories, watches,
store displays. The retail operation was strengthened childrenswear, beauty and fragrance, and gifts
over the next six years with the opening of 132 account for the remaining 40 per cent.

The review of an organisation’s current customer value creation mix highlights the activities that are
important and whether they are being conducted well or poorly. This information provides the
strategists with a means of determining the customer value creation, communication and delivery
activities that they need to address within their strategic timeframe.
Strategies designed to create value – product management

strategies
These processes and activities involve what is primarily considered to be the domain of product
management. In this sense a product may be an idea, a physical entity (a good), or a service, or any
combination of the three.7
Physical goods are created by activities and processes involving research and development
(R&D), new-product development, supply and production. Each of these activities and processes
involves marketing-related input including decisions concerning (i) the physical characteristics of
the product (quality, features and attributes, branding, packaging and pricing), (ii) intangible
product properties (the core product – the benefits and value for targeted customers), and (iii) the
augmented product (pre- and post-sale service support such as warranties, delivery, installation and
credit).
The fundamental difference between services and goods is intangibility. Services cannot be seen,
felt, tasted or touched. As Grönroos points out, services are processes, not things.8 Services are
partly produced and consumed simultaneously, with customers playing a role in the co-creation of
the service. In services marketing the interaction between the customer and the quality-generating
resources (physical resources, people resources and process resources comprising technology and
systems) of the organisation is of paramount importance. Marketing input is therefore required in
areas such as facility design and location, human resource management (recruitment, training
and performance management of staff across the organisation who interact with targeted customers)
and information technology, particularly digital technology and social media.
Product management is important for marketers of physical goods and for services. Major
decisions revolve around the following product portfolio considerations:
• Existing products – How well (or poorly) do our existing products deliver value to our targeted
customers? What modifications need to be made to existing products? What opportunities exist
for entering new markets with our existing products? What products need to be deleted?
• New products – What new products need to be added? New products may need to be
introduced to meet the existing and emerging needs and preferences of: (i) market segments
currently being targeted; and (ii) new (related) segments to be targeted within the strategic
timeframe.
• Branding and brand positioning – How will the products be branded? Individually or by
product line? How will the brand(s) be positioned or repositioned?
Product management also involves a consideration of pricing strategies. Pricing strategy must
support the organisation’s strategic positioning and product positioning strategies. A pricing strategy
must also take account of marketplace reality and the changes that are likely to take place in the
marketing environment. The main considerations concerning pricing strategy are: product line
pricing, penetration versus skimming pricing, and the use of sales promotion techniques as
alternative pricing mechanisms.
Decisions need to be made concerning product line pricing. In most product categories a variety
of price points can be identified ranging from premium-priced products to midpoint (or value-for-
money) products and bargain or low-priced products. Market-wide or multi-segment marketers
typically choose to compete at all or most price points, while niche or focused competitors
concentrate on one price point. Figure 6.3 shows a product/price positioning grid that provides a
tool for analysing current competitive price line strategies and for developing pricing strategies.
Decisions about penetration and skimming pricing strategy are mainly related to new-product
introductions, specifically for first-movers (market pioneers). A cost leader, for example, might
choose a penetration pricing strategy (low price) to encourage fast product adoption and to
discourage competitors from entering the market. The objective is to establish a high market share
and to achieve profitability via large-volume sales. Price skimming, on the other hand, is for a
differentiator. High prices signal high quality and, coupled with a selective distribution or exclusive
distribution strategy, high margins can be achieved by the marketing organisation and the chosen
intermediaries. However, when competitors enter the market, the price skimmer typically has to
reduce prices in order to meet those of the competitor. The risk is that a price reduction may
disenfranchise the innovators and early adopters who purchased the product at higher prices.
FIGURE 6.3 A product/price positioning grid
High price Low price
High XX
product quality
XX
XX XX
Low
product quality XX
XXXX
Decisions also need to be made about the use of sales promotion techniques as alternative
pricing mechanisms – for example, the use of cash-back offers, introductory discounts and coupons
for launching new brands. Loyalty programs may be planned for the purpose of attracting and
maintaining customers during all phases of market evolution. Sales promotions may also be planned
to stimulate demand during off-season troughs.
Strategies designed to communicate value – brand management

and integrated marketing communication strategies
These strategies typically are described as integrated marketing communication (IMC) strategies or
brand management strategies. IMC strategies play an important role in the creation of brand
meanings. As was discussed in Chapter 5, brand meanings are created by three mechanisms: the
organisation via its business and marketing activities, the broad culture including the influence of
the media, and the customer. IMC strategies play an important role in the first of these
mechanisms. Their role is to inform (create awareness and to communicate product information),
to imbue (the brand with symbolic values and meanings), to persuade (encourage trial or purchase),
to reinforce (positive attitudes) and to remind (to repurchase). With the advent of digital media
including social media, two additional roles need to be added: engagement and relationship building
(including advocacy).
All of these roles are important and it has become an imperative for all organisations to develop
IMC strategies that embrace traditional and digital forms of communication. This is easier said
than done because, as discussed previously, the development of digital media capabilities requires a
restructuring of the organisation’s marketing activities and processes. Research conducted in 2012
by the Boston Consulting Group found that organisations progress through three stages of maturity
in adopting digital media strategies: experimenting, building and digitally evolved. Organisations in
the experimenting stage dabble with digital media and devote less that 10 per cent of their annual
marketing budgets to this activity. They invest in data mining and technology to monitor customer
usage and behaviour. In the next (building) stage, organisations identify and target brand
influencers (to act as brand champions or promoters), track customer activities and consider the
development of online brand communities and the use of monitoring services to manage an
increasing volume of Web traffic. Builders spend more than 10 per cent of their annual marketing
budget on digital media. Digitally evolved organisations spend over 20 per cent of the marketing
budget on digital media and are actively engaged in developing advanced capabilities in digital
marketing.9
The starting point for the development of strategies designed to communicate value is to
conduct a brand audit (as was discussed in Chapter 5) in order to determine the current level of
brand knowledge in terms of brand awareness and brand image of all competing brands in the
selected market segments. Based on these findings, strategies are then developed that are designed
to either increase or to maintain the current levels of brand awareness and to create a favourable,
strong and unique brand position in the minds of the intended target market; that is, for the brand
to be favourably included in the potential customers’ evoked set of brands (the customers’ shortlist
of brands to be considered).
The next step for the strategists to consider is information derived from the touchpoint analysis
and mapping process, in particular the needs and expectations of targeted customers at each
touchpoint. The task for the strategists is to develop integrated marketing communication strategies
that most effectively and efficiently address the needs and expectations of those customers. This
includes consideration of (i) the combination of marketing communication tools to be used
(traditional and new) within the context of an overall customer engagement strategy, and (ii)
communication content decisions. Coles, for example, uses a combination of television, print,
radio, online and point-of-purchase media in its ‘Feed the family for under $10’ marketing
campaign launched in 2009. Buoyed by the success that Coles had experienced with its
sponsorship of the television program MasterChef, the centrepiece of the ‘feed your family’
campaign (featuring the celebrity chef Curtis Stone) was the creation of a series of recipes
published online and in print media as well as in-store recipe leaflets. As a part of this campaign,
the advertising agency DDB Melbourne created ‘Kitchen Confidence’, a recipe engine in text, PDF
and video formats, that was distributed across a number of online channels including the Coles
website, a dedicated Coles YouTube channel, Facebook, Twitter and other social media sites.10
Strategies designed to deliver value – customer engagement

strategies and distribution strategies
Customers and potential customers engage with organisations and with other customers through an
ever-increasing variety of touchpoints. These customers and potential customers form impressions
about organisations and their brands at every encounter. Consequently, the development of an
effective customer engagement strategy has become a major challenge for organisations of all
shapes and sizes.
The customer engagement strategy development process starts by mapping the touchpoints that
customers or prospects are likely to encounter, ranging from pre-purchase to post-purchase points
of interaction. The pre-purchase phase starts from the moment a potential customer becomes
aware of a product or brand because of exposure to advertising (traditional or digital), word-of-
mouth (friends, business associates or sales personnel) or from sighting the product. During the
purchase phase, the potential customer will come into contact with a variety of possible
touchpoints such as the organisation’s salespeople, representatives of the organisation’s go-to-
market partners (such as retail salespeople, or distributor sales personnel in B2B organisations),
finance personnel, call centres, friends, business associates, social media, blogs, brand communities
and a myriad of other sources. Research conducted by McKinsey reveals that over two-thirds of the
number of touchpoints during this consumer active-evaluation stage are consumer-driven (via digital
media, word-of-mouth, print reviews and other information sources) rather than company-driven
(traditional media, direct marketing, sponsorship, sales personnel contact, in-store shopping
experience, product delivery and service delivery).
During the post-purchase phase, customers will potentially come into contact with a variety of
organisational personnel in departments such as sales, customer service, accounting and marketing
either on the phone, by email or mail-outs, for example, concerning the organisation’s loyalty
program. These touchpoints may be initiated by the organisation or by the customer. In addition to
company–customer and customer–company-generated touchpoints, the customer might also
interact with other customers, potential customers, friends and acquaintances through the social
media, the blogosphere, a brand community, an email or by word-of-mouth.
After identifying and mapping the number and nature of the various touchpoints, the next steps
are to:
a establish the targeted customers’ needs and expectations for each touchpoint stage and how
each interaction adds or subtracts to perceptions of brand value
b establish how well and consistent the organisation is in creating, communicating and delivering
value in comparison to its competitors
c determine which of the touchpoints matter most to the organisation’s customers – that is, the
value drivers, as discussed in Chapter 5. These touchpoints need to be prioritised in order of
importance.
Market research tools that have been used for the purpose of identifying and mapping customer
touchpoints include a combination of traditional quantitative techniques (such as customer
satisfaction surveys), brand image surveys and qualitative techniques (such as focus groups and in-
depth interviews) and, more recently, ethnographic studies. Over the last decade there has been a
flurry of new proprietary techniques introduced such as SiegelþGale’s PinPointä touchpoint
evaluator, MCorp Consulting’s Touchpoint Mapping¤ and Mesh Planning’s Real Time Experience
Tracker (see also Chapter 3).
The challenge for marketing organisations is to manage the customer engagement process.
Customer engagement needs to be managed not just on an organisation-wide basis, but by a
network of partners outside of the organisation. McKinsey’s French, LaBerge and Magill argue that
chief marketing officers (CMOs) should concentrate their efforts on building a customer
engagement ecosystem consisting of three areas of activities: marketing department activities,
activities performed inside the organisation but outside of the marketing department, and activities
performed by a network of external partners.11 They argue that marketing is best placed within the
organisation to orchestrate the entire process. In order to move beyond a function-by-function
approach to customer engagement French, LaBerge and Magill suggest that the following five-step
process should be undertaken:12
1 The starting point is to hold a customer engagement summit drawing together senior managers
across the organisation’s units and functions. The focus of the summit should be threefold: (a)
to discuss how the organisation’s customers could be motivated to invest in an ongoing
relationship with the organisation’s products or brands, (b) to address how the organisation’s
activities can be coordinated to reach and engage customers across the full range of
touchpoints, and (c) to reach agreement on the mix of internal and externally provided
customer engagement activities that are required. Customer-facing activities that are provided
by external partners (that is, the organisation’s go-to-market partners) need to be carefully
considered in the development of the organisation’s distribution channel strategies.
2 The second step is to create a customer engagement council – an operational and decision-
making body whose purpose is to coordinate tactics across all of the touchpoints in a timely
manner. The membership of this council needs to be large enough to represent all of the key
areas of customer engagement but not too large to prevent it functioning inefficiently.
3 The third step is to appoint a ‘chief content officer’ responsible for designing and executing a
content strategy with the objective of engaging customers and forging strong emotional bonds.
4 The fourth step is to create a ‘listening centre’ to monitor what is being said about the
organisation and its brands on various digital media platforms.
5 The final step is to change the mindset concerning customer engagement budgeting. The cost
of customer engagement activities can be overwhelming, and it is therefore essential to consider
the total customer engagement budget and redirecting expenditure to areas that are the most
productive. Research conducted by Forrester Research and the Boston Consulting Group
has found that digitally evolved companies experience improvements in brand perceptions by
10 per cent or more, sales increases between 0.7 to 1.1 per cent, an increase by 90 per cent in
resolved customer complaints, and a reduction in customer-support costs by 40 per cent.13
In the digital age the organisation’s go-to-market strategies have never been so important.
Decisions need to be made concerning distribution channel length (the different type of
intermediaries to be used), distribution intensity (ranging from narrow to broad distribution
coverage – from exclusive to selective to intensive distribution), the selection of the distribution
partners and most importantly the role that these partners are expected to provide in creating,
communicating and delivering value for the organisation’s targeted customers. Distribution partners
that fulfil a customer-facing function play a role in the overall experience that the organisation’s
customers have with the brand (value creation), interacting with the customers at critical
touchpoints in their decision-making journey (value communication), facilitating the purchase
transaction and providing customer service (delivering value). The key requirement for the
organisation is to have a well-developed go-to-market strategy where the roles and responsibilities of
the organisation’s personnel (including sales, marketing and logistics) are clearly defined, as are the
roles and responsibilities of the channel partners.

This chapter has discussed the processes the value dimensions that are the most
involved in developing strategies that are important for the organisation’s targeted
designed to create, communicate and deliver customers, the next step is to determine how
customer value. These decisions are an well or how poorly the organisation has
extension of the high-level segmentation, performed in delivering on those value
targeting and positioning (STP) strategies dimensions – including an assessment of why
discussed in Chapter 5. the organisation has succeeded or not
The starting point for these deliberations is succeeded in this regard.
to develop an understanding of what customers Armed with information about what the
currently value and what they are likely to value target customers most value, and the
in the future. The customer value framework organisation’s performance in delivering on that
developed by Smith and Colgate provides a value, the strategists are then in a position to
useful model for this purpose. After identifying either refine existing value creation,
communication and delivery strategies or to pre-purchase, purchase and post-purchase

develop new strategies. A most important input stages of buyer behaviour.
for these deliberations is the construction of a The touchpoint map provides the strategists
touchpoint map that plots all of the various a basis for considering the appropriate mix of
points of interaction or engagement that marketing tools and other organisational
customers or potential customers may have processes and activities to be used to create,
with the organisation and its go-to-market communicate and deliver value for the
partners as they progress through each of the organisation’s customers.
1 Referring to the Burberry case discussed in that company. What arguments would you
this chapter, identify and prioritise the use to either convince or dissuade him or
value drivers that were at the heart of the her?
strategy developed from 2006 on. 4 Are social media sites such as Facebook
2 Have the concepts of the 4Ps and 7Ps and Twitter a passing fad or are they here to
passed their use-by dates? Discuss. stay?
3 Assume you are the sales and marketing 5 Do the major supermarket chains in
director of a medium-sized B2B company. Australia have too much power over the
The CEO has asked you whether a digital way in which food is produced, distributed
marketing strategy would be appropriate for and marketed?
ETHICAL ISSUE
Does privacy exist in an online world? Should our online activities including online shopping
we be worried about the amount of personal and social media?
information that organisations can gather from

Continue working on your strategic marketing Next, develop your customer value creation mix
plan. Develop a touchpoint map for each strategy recommendations.
market segment that is to be targeted.

Explore Search me! marketing for articles • customer value perception
relevant to this chapter. Fast and convenient, • brand management
Search me! marketing is updated daily and • customer engagement
provides you with 24-hour access to full text • customer touchpoints.
ENDNOTES
1 B.T. Gale, ‘Why customer satisfaction fails: Buying 7 An extract from the American Marketing Association
decisions are based on value, not satisfaction’, Gale definition of product: www.marketingpower.com.
Consulting website: www.galeconsulting.com/
index.php?option¼com_content&view¼article&id¼18& 8 C. Grönroos, ‘The perceived service quality concept: A
Itemid¼23. mistake?’, Managing Service Quality, vol. 11, no. 3, 2001,
pp. 150–2.
2 The 2011 Australian EFFIE Awards entry form submitted
by Clemenger BBDO Melbourne, entry number 193, 9 K. Sayre, V. Rastogi, P. Zwillenberg, J. Foster and A.
www.effies.com.au/attachments/d184b4d2-fd5d-4fa5- Sheerin, ‘Marketing capabilities in the digital age’, The
9a1b-c13ec4647a1e.pdf. Boston Consulting Group Report, January 2012, pp. 6–7.
3 L. Carne, ‘Best PR campaign in the world – from a bank? 10 Source DDB Melbourne website: http://
NAB’s Break Up wins at Cannes Lions Festival’, 12 June ddbmelbourne.com/2011/09/09/content-strategy/.
2011, www.theaustralian.com.au. 11 T. French, L. LaBerge and T. Magill, ‘Building your
4 V. Zeithaml, ‘Consumer’s perceptions of price, quality, customer engagement ecosystem’, McKinsey & Company
and value: A means-end model and synthesis’, Journal of Chief Marketing & Sales Officer Forum, February 2012,
Marketing, July 1982, pp. 2–22. pp. 1–3.
5 J.B. Smith and M. Colgate, ‘Customer value creation: A 12 T. French, L. LaBerge and T. Magill, ‘Five no regrets
practical framework’, Journal of Marketing Theory and moves for superior customer engagement’, The McKinsey
Practice, vol. 15, no. 1, 2007, pp. 7–23. Quarterly, July 2012.
6 A. Ahrendts, ‘Burberry’s CEO on turning an aging British 13 K. Sayre, V. Rastogi, P. Zwillenberg, J. Foster and A.
icon into a global luxury brand’, Harvard Business Review, Sheerin, ‘Marketing capabilities in the digital age’, The
January–February 2013. Boston Consulting Group Report, January 2012, pp. 1–12.
PART
4
STRATEGY DEVELOPMENT --
PRODUCT-MARKET STRATEGIES
Chapter 7 Market penetration strategies
Chapter 8 Market development strategies
Chapter 9 Incremental innovation strategies
Chapter 10 Radical innovation strategies
It is a truism that ‘organisations that don’t grow, wither on the vine and fade away’.
Part 4 focuses on the strategic options that are available for an organisation to exploit growth
opportunities via market penetration (Chapter 7), market development (Chapter 8), incremental
innovation (Chapter 9) and radical innovation (Chapter 10).
Strategy
evaluation and
control
• Market penetration strategies

• Market development strategies
• Incremental innovation strategies
• Radical innovation strategies
CHAPTER
7
MARKET PENETRATION STRATEGIES
No company can survive long, let alone distinguish itself, without a rich body of capabilities
and a resonant corporate culture. Indeed, the fundamental enabler of strategy — the source of
competitive advantage — is a distinctive, coherent corporate identity. This is the quality that
attracts customers, investors, employees, and suppliers.
Cesare Mainardi with Art Kleiner1
In a global economic environment characterised 1980s, Unilever was one of the first global
by its volatility and uncertainty, the global FMCGs to embrace ethnography as a research
FMCG giant Unilever successfully managed to tool for providing customer insight and, in the
grow its business by 30 per cent over a four-year early 1990s, it developed an Insight Activator
period from 2008 to 2012. Unilever’s business process that was designed to help marketing and
strategy is articulated in a document titled ‘The R&D personnel transform consumer insights in
Compass’, which sets out the company’s vision order to update or improve existing products and
and purpose and the following four key to create new products. The process was
strategies: winning with brands and innovation redesigned throughout the 1990s in order to
(new-product development and product streamline what had become a cumbersome
improvement), winning in the marketplace process and, in the early 2000s, Unilever in
(market development), winning through partnership with the strategic insight agency
continuous improvement (leveraging the value Face developed a co-creation process to actively
chain to enhance product quality and customer seek collaboration with consumers to develop
service and to roll out innovations faster) and new-product ideas. The process is based on the
winning with people (the development of a concept of the consumer pyramid shown in
culture in which performance is always aligned Figure 7.1.
with values).2 As can be seen, the consumer pyramid is
Unilever invests heavily in the equity of its divided into five layers. At the bottom layer are
brands and continuously seeks to discover the non-users of the brand. Irregular brand users
connections between consumers and the populate the second bottom layer followed by
products they buy. Towards the end of the brand loyalists, brand advocates and finally at the
186 Part 4 Strategy development – product-market strategies
FIGURE 7.1 The consumer pyramid
active intimate co-creators

1%
advocates
9%
loyalists
irregulars
non-users
passive open
Source: A.C.M. Medeiros and A. Needham, ‘The co-creation revolution’, Innovate, 2008, p. 6.
top of the pyramid, co-creators. The level of develop a new deodorant for women. Sixteen co-
engagement with the brand ranges from passive creators were identified and invited to attend a
engagement at the bottom to active engagement workshop in London to develop insights through to
at the top. For example, co-creators at the top activation of ideas. The participants were then
might represent just 1 per cent of the market and given three weeks after the workshop to develop
brand advocates, 9 per cent of those who are their ideas with mentoring input from Face. The
actively engaged.3 ideas were then presented to Unilever stakeholders
A project managed by Face for Unilever’s and, as a result, five names were proposed along
Rexona brand illustrates how the co-creation with product design and communication ideas
process is facilitated. The brief for Face was to including press and digital media.4

The Unilever case highlights the importance that leading organisations place on managing their
existing products and on creating new products and new markets. This is the first of four chapters
that discuss in detail these high-level product-market strategies. In this chapter the focus is on the
development of market penetration strategies; that is, strategies for existing products in existing
markets including nearby or adjacent product categories and markets.
In a broad sense, market penetration strategies are designed to win and retain individuals and/or
organisations as customers as they enter the market during the various post-introductory phases of
market evolution.
Chapter 7 Market penetration strategies 187
The specific focus of this chapter is to examine customer acquisition and customer retention
strategies during each of the following four phases of market evolution:
• growth
• competitive turbulence
• maturity
• decline.
(Note: Products or product lines in the introductory stage of market evolution are categorised as
new products and are accordingly discussed in chapters 9 and 10 concerning incremental and
radical innovation strategies.)
Product-market strategies
The organising framework for the discussion of product-market strategies in this and the next
three chapters is based on the modification of the Ansoff product-market growth matrix that was
briefly discussed in Chapter 4. As can be seen in Figure 7.2, the matrix consists of four strategy
alternatives based on the combination of existing and new products, and existing and new
markets.
FIGURE 7.2 The product-market framework
Existing products New products
Market penetration Incremental innovation

Existing markets
Strategies designed to: • Product line extensions (product

• increase primary and secondary demand additions)
• persuade current customers to • Product modifications (revisions and
increase usage improvements to existing products
• persuade users of competitive including cost reductions)
products to switch
Market development Radical innovation

New markets
• New geographic markets • Pioneering market strategies

• New market segments • new-to-the-world products
• New marketing channels • Market follower strategies
• innovative imitation
• product adaptation
Source: Based on a modification of the Ansoff product-market matrix: H.I. Ansoff, ‘Strategies for diversification’,
Harvard Business Review, vol. 35, no. 5, September–October 1957, pp. 113–24.
Market penetration. Strategies designed to increase the market share of an existing product or
product line in a currently served market. These strategies include efforts to:
1 increase primary demand (that is, demand for the product category as a whole) and secondary
demand (that is, demand for the organisation’s products or brands). These strategies are
designed to stimulate market growth during introductory and growth stages of market evolution
and to win the greatest share of new customers entering the market (that is, the innovators,
early adopters and the early majority). During the latter stages of market evolution the
conversion of non-users (that is, the late majority and laggards) typically requires a special
marketing effort. These strategies are typically considered to be market development strategies.
2 increase product usage of existing customers
3 win customers from competitors.
Market development. This involves strategies designed to expand the total market served by a
product or a product line including entry into new geographic markets, new market segments
(including the identification of emerging market segments, the conversion of non-users of the
product category and the development of new applications for new customers) and new marketing
channels designed to reach unserved customers.
Incremental innovation. This involves strategies based on the introduction of either a new product
(that is, product line extension) or a modified product within the existing product line. The latter
includes revisions, improvements and cost reductions for existing products. Product modification is
also referred to as product adaptation – a term that is also used in the context of radical innovation.
Radical innovation. This includes strategies used by a market pioneer in the development of a
new-to-the world product to create a new or blue ocean market,5 or by a market challenger/follower
in the development of a new product in a market that is new for them. The market challenger/
follower may pursue a strategy based on innovative imitation (emulative new products that are
significantly different in at least one aspect from competitive products) or product adaptation
(modifying or improving on the product innovation of others). Both innovative imitation and
product adaptation strategies involve a degree of newness to the market, not just the organisation.
(As noted above, the term ‘product adaptation’ is also used in the contexts of market development
and product development.)
The Ansoff matrix provides strategists with a framework for focusing on innovation and growth.
The first quadrant, market penetration, focuses on the now of strategy, while the other three
quadrants focus on the tomorrow. Market penetration strategies are the engine rooms of
profitability, providing the means for the organisation to fund future growth opportunities.
Strategies for the various stages of market

evolution
Strategies for growth markets
A growth market is characterised as a stage of rapid sales growth. Combining the traditional
concepts of market evolution and diffusion of innovation, the stage of market growth begins when
customers described as the early majority take over from the innovators and early adopters.6 A
growth market begins when the early uncertainty about a new-to-the world product starts to wane
and potential customers become more knowledgeable. The structure of the industry starts to take
shape and distribution channels are developed. In some markets, prices begin to fall due to
increasing competitive intensity and economy of scale productivity gains. In markets where the
competitive pressure is not so intense and demand is greater than supply, prices may be maintained
or even increased.
There are of course many exceptions to this traditional view of market evolution. Growth can be
experienced virtually from Day 1 with the introduction of new disruptive innovation products such
as the iPad. In many industries product life cycle and market life cycle stages have become so
shortened that differences between stages of evolution have become blurred; for example, the rise
and fall of personal computer storage devices (from floppy disks to cloud storage).
Strategies for market leaders

Managing a product line during the market growth stage is not for the faint-hearted. While the
overall structure of the industry may have started to take shape during the introductory stage, the
eventual outcome is generally unclear as the market pioneer battles it out with the market followers
and late entrants. During the introductory stage the market pioneer is ideally placed to ‘define the
rules of the game’; that is, to be able to deploy a shaping strategy (also described as a market-driving
strategy) where the goal is to build an ecosystem along the value chain and, with others, to establish
industry standards and business practices. This is achieved through such activities as lobbying,
marketing and by entering into collaborative arrangements with suppliers and distributors.7 A
shaping strategy based on short-term or continuous planning cycles should continue through the
early stage of market growth until the market shape becomes more clearly defined and longer-term
strategy planning horizons can be established.
In an ideal sense, the goal for the market leader at the beginning of the growth phase of market
evolution would be to either build or to maintain market share in absolute terms. However, in
many situations due to factors such as increasing competitive intensity and market fragmentation,
such a goal may be unrealistic. A more realistic goal would be to maintain relative market share
leadership. In order to achieve this, the market leader would need to (i) retain its existing
customers, and (ii) win the largest share of all the new customers entering the market. The market
leader could also consider developing strategies designed to increase primary demand for the
product category as a whole.
Strategies for market challengers

There are two broad strategic options available to market challengers. The first is to win the largest
share of new customers (the early majority) as they enter the market for the first time. The second
is a switching strategy where the goal is to win customers away from the market leader and other
competitors for repeat purchases (for example, of convenience goods) or replacement purchases
(for example, of durables or seasonal fashion items).
A market challenger can attempt to achieve this by developing either a leapfrog strategy (a
superior product offering), a frontal attack (targeting the market leader with either or both lower
prices or superior product attributes), a flanking attack (targeting a new and uncontested market
segment), encirclement (the development of a number of new market segments) or, for a small
competitor, a guerrilla attack (a market-niche strategy based on either cost leadership or
differentiation).8
Strategies for markets undergoing competitive turbulence

This is a stage where the market continues to grow but the rate of growth starts to decline. The
market is often characterised by industry over-capacity and intensified competition resulting in
price wars, as some competitors in the market attempt to increase their sales volume in order to
survive. Kim and Mauborgne describe this stage as a red ocean – existing markets with known
products, competitors and strategies, where strategy is often fought on low prices and quality.9 In
this situation a number of weaker competitors either exit the market completely or are taken over
by more successful competitors.
By this stage, competitors without a clear competitive advantage find it increasingly hard to
maintain their market share. In Michael Porter’s terms, these competitors are stuck in the middle
as they have not been able to create either a low-cost or a differentiated position such as by
superior product quality, superior customer service or brand equity.
Competitors who have attempted to create a competitive advantage based only on superior
product quality or superior technology may find that this is not enough when product
differentiation becomes less important, particularly in the formation of a me-too market. Superior
customer service and/or brand equity are essential prerequisites for establishing a differentiated
competitive advantage.
Strategies for mature markets

This is a stage when sales for the total market peak but the rate of growth starts to decline
significantly. As fewer first-time buyers enter the market (the late majority), the market competitors
increasingly rely on repeat purchases to maintain their sales. Increasing competitive intensity and,
in many cases, industry over-capacity leads to increasing price competition and, as a consequence,
decreasing profits.
By now the market may have evolved to what Bruce Henderson, the founder of the Boston
Consulting Group, hypothesised many years ago with his concept of the ‘rule of three and four’.
Henderson argued that a stable and competitive industry never has more than three significant
competitors with market share ratios of approximately 4:2:1.10 Research conducted by the BCG
Strategy Institute and others in 2012 has confirmed the validity of this hypothesis for stable
competitive industries that are characterised by low competitive turbulence and limited regulator
intervention. Examples can be found in the US car-rental industry, machinery manufacturing,
household appliances, and credit rating agencies. The research study also found that the rule of
three and four does not apply in more dynamic and unstable industries such as consumer
electronics, investment banking, life insurance and IT software and service. It is also not
applicable in industries where competition is stifled by regulations or in industries undergoing
consolidation.11
An earlier research study of 200 industries conducted by Sheth and Sisodia also supports the
rule of three and four hypothesis.12 They found that, in nearly all industries, three full-line
generalist competitors dominated the market, typically controlling from 70 to 90 per cent of the
market. A number of smaller product or market specialist competitors accounted for the remaining
10–30 per cent share. Sheth and Sisodia argued that a volume-driven competitor must achieve a
minimum market share of 10 per cent to remain financially viable. The worst performers are those
‘stuck in the middle’ with market shares ranging from 5 to 10 per cent. For this reason, smaller
product or market specialists deploying a market-niche strategy would be best advised to resist the
temptation of growing market share.
Strategic options for a mature market include one or a combination of market acquisition
strategies (converting non-users, or targeting new or underdeveloped market segments or
geographical markets); increasing product usage; developing new uses for the product or new ways
to use the product; and customer retention. The latter is of critical importance and the organisation
would need to work hard to ensure that its distinctive form of competitive advantage, established
during the formative stages of market evolution, is not eroded.
As was discussed in Chapter 4, a mature market is characterised by Kim and Mauborgne as a
red ocean. They argue that instead of competing in such a market, a preferable approach is to
create a blue ocean – an uncontested market space. Here the focus is on innovation and a
continual process of searching for new untapped markets. They argue that a value innovator should
think ‘in terms of the total solution customers seek, even if that takes the company beyond its
industry’s traditional offerings’.13
Strategies for declining markets

This stage of market evolution is characterised by decreasing sales as the competitive products are
superseded either by new technology, alternative product forms or changing customer values, tastes
and preferences. In markets where the exit barriers are low, unprofitable competitors may choose to
withdraw. In some markets, the declining stage for the leading competitors can be profitable as
marketing and distribution costs are reduced.
There are essentially two strategic options for organisations competing in a declining market.
The first, a profitable survivor strategy, may be appropriate for a market leader or a relatively strong
competitor where the decline is expected to slowly take place over a fairly long period of time. The
profitable survivor is able to increase market share at a relatively low cost, as other competitors start
to harvest their products as they prepare to exit. The objective is to achieve a dominant market
position, which would provide the profitable survivor with the ability to achieve relatively high
margins over the remaining life of the product. To achieve its objective, the profitable survivor
could choose one or some of the following strategies designed to encourage weaker competitors to
exit the market: (i) by starting a price war; (ii) introducing a line extension strategy to take
advantage of any remaining profitable niches; (iii) taking over a weaker competitor’s accounts, such
as in a B2B context, by contracting to continue servicing their products and supplying spare parts;
and (iv) taking over or purchasing the operations of a weaker competitor.
The second option is a harvesting strategy, which requires decreasing marketing and other
operational costs, ceasing or, at the very least, minimising investments in capital equipment or in
R&D, and allowing the organisation’s brand or brands to continue more or less on their own steam
by relying on the purchases of loyal customers. If the decline is likely to take place over a relatively
long time, then the inevitable decision to exit the market could be delayed until the product
becomes unprofitable and/or there is no strategic reason to continue — such as maintaining an
unprofitable product in order to provide a comprehensive product line to service the organisation’s
customers. Where a decision is made to harvest the product, the strategies to be considered include
(i) improving marketing and sales efficiencies (such as reducing the size of the sales force, the use
of sales agents or other middlemen, or by using the organisation’s website to service customers), and
(ii) using a more selective form of distribution (such as limiting distribution to one or two large retail
chains in the case of a B2C organisation, or a single distributor in the case of a B2B organisation).
A word of caution
The concept of market evolution is based on an assumption that markets evolve in a systematic and
predictable way. This of course is not always the case because of the impact of macro environmental
driving forces of change (such as globalisation, technological innovation, the digital revolution and
economic uncertainty) and market forces (such as changing consumer preferences and competitive
behaviour). As a consequence, the normative or prescribed pattern of market evolution will not hold
for many industries nor will the generalised strategic prescriptions always be appropriate.
Nonetheless, despite these limitations, the value of the concept is that it is a tool that helps
strategists to focus on long-term, rather than just short-term, time horizons. It highlights the need
for strategists to develop a clear understanding of the current market environment that each of the
organisation’s product lines competes in, and to develop a view about the future environment. It
also highlights the different challenges that the organisation faces at each stage of market evolution
and the need to develop strategies that are appropriate for each stage. As was discussed above (and
in more detail in Chapter 3), a shaping strategy is ideal in the introductory and growth stages where
the market leader or aspiring market leader is in a position to be able to radically change the
dynamics of the market with an innovative move. If the market is relatively predictable and less
malleable to competitor influence, then a classical approach is often found to be the most
appropriate strategic style. However, in a fast-changing and relatively unpredictable environment,
which can occur through all stages of market evolution, an adaptive strategic approach is called for.

The following is an outline of the main considerations involved in the development of value
creation, communication and delivery strategies.
Product management (value creation). During the introductory stage of a new product
category it is important not to confuse or overwhelm prospective customers by offering a large
variety of product offerings. The principle of keeping it simple applies and for this reason a product
line might in reality consist of just one product. From an organisation resource point of view the
introduction of a single product would also generally make sense due to the high start-up costs
involved and the absence of economies of scale. Market growth is typically the stage where the
action starts to hot up with new and improved products hitting the market as competition
intensifies. The focus for the market leader is ‘stay one step ahead of the posse’ via processes of
product improvement, cost reduction (not to be confused with price reduction) and product line
extension. Product improvement is particularly important, as it usually doesn’t take much time for a
product to become outdated as new and improved competitive products are launched into the
market. The value curve discussed in Chapter 5 (see Figure 5.5) provides product managers with a
most useful tool for this purpose.
The process commences with a research study to determine what customers for the entire
product category actually want; that is, the sought product attributes. The next step is to determine
the importance that these targeted customers attach to each of these sought product attributes.
Plotting this information on a graph will help the product manager identify the product attributes
that are highly valued (rated 5 out of 5) down to those that are lowly valued (rated 1 out of 5). The
third step is for the targeted customers to rate each of the competing products (including the
organisation’s product) against each product attribute. The information revealed in each of these
two steps will help the product manager to consider one or more of the following four alternatives
for modifying the existing product:
(i) Product enhancement. If the value curve research shows that the existing product is not highly
valued (that is, rated 5 out of 5) against one or more product attributes which the target market
considers to be highly important, appropriate product enhancements should be considered.
(ii) Reduction. That is, to consider reducing, where possible, one or more product attributes that are
relatively unimportant (such as a rating of 2 or 3 out of 5) for the target customers. For example,
an airline might consider serving a snack instead of a meal on short-haul domestic flights.
(iii) Eliminate. If one or more product attributes has virtually no value for the target customers,
then consider removing them entirely. For example, a budget airline may choose to eliminate
food service entirely in an effort to provide low-cost airfares.
(iv) Create. The introduction of a new-product attribute or feature that was identified in the first
phase of the research study to be highly valued by the targeted customers but is not currently
offered by any of the competitors.14
Conducting value curve research is not the only way product managers are able to access
information that can be used for the purpose of modifying existing products. Leading organisations
such as Nike, P&G, Heinz, Dell and KLM use their engagement platforms to ‘systematically
involve customers, employees, and stakeholders in a continuous process of both discovery and
execution of new value creation opportunities’.15 That is, they use engagement platforms for
improving existing products and developing new products. In addition to traditional marketing
research techniques such as focus groups, ethnography and customer satisfaction surveys, they
have at their disposal new open-innovation tools such as netnography (online ethnography),
crowdsourcing (using a large group of targeted customers or online brand communities) and
co-creation processes (such as the Unilever approach outlined at the beginning of this chapter).
Creating a buzz with social media – The Ford ‘Fiesta Movement’
Towards the end of 2009, the Ford Motor small-car market compared to 30 per cent for the
Company mounted a ground-breaking social media sub-compact category.
campaign to launch the re-entry of its Fiesta into The learning experience that Ford gained from
the intensely competitive American automotive using social media was invaluable. The ‘Fiesta
sub-compact product category. Ford had abandoned Movement’ created brand awareness but, as the
this category almost three decades before and, given initial buzz started to wane, so did sales. In an effort
the increasing demand for fuel-efficient cars, the re- to address this issue, a new two-pronged campaign
entry into the sub-compact category was was developed for a new Fiesta model launch
strategically important for the company. towards the end of 2013. The first and main
In what was considered to be an extremely bold component of this strategy was once again a social
move, Ford decided to deploy a social media-only media campaign, the ‘Fiesta Movement: A Social
communication strategy. The campaign, labelled the Remix’. However, this time, while social media would
‘Fiesta Movement’, commenced with the remain as the centrepiece of campaign, television
recruitment of 100 influential bloggers representing and other advertising media would be added to the
the target market of Millennials (18–32-year-olds). communication mix. The role of the social media
Each blogger was given a European-produced version campaign was to create awareness and excitement,
of the car to test drive and, with the prestige they as Scott Monty, the global head of social media at
gained from being recognised so publicly, they soon Ford explained. ‘But when you move beyond
became enthusiastic brand advocates generating a consideration and shopping for a car, and go lower
tremendous amount of pre-launch buzz and down the funnel, [consumers] are going to want to
excitement. As a result the mid-year launch of the know how much they’re buying it for, and how
Fiesta in 2010 was a tremendous success, with sales in they’re going to be persuaded to buy a Fiesta.’16
just half a year of 23 000 units. In 2011, sales went Drawing on their experience with the first Fiesta
through the roof with over 69 000 units being sold. Movement campaign, the Ford communication
But then came the crunch in 2011. It could be strategists determined that the focus of the new
seen in retrospect that the sales success of the campaign would revolve around lifestyle aspects of
Fiesta in 2011 was overstated due to short supply of using the car rather than in-your-face product
Ford’s other small car, the Focus. The Focus, features. Accordingly, visitors to a dedicated
competing in the more popular compact category of website (http://www.fiestamovement.com) were
the small-car market, was due for an update in 2012 invited to follow the adventures of 100 specially
and consequently demand for the older model recruited influential bloggers described by Ford as
during the run-out period had declined. The ‘Fiesta Agents’ as they participated in a number of
compact category accounted for 70 per cent of the ‘missions’ behind the wheel of their brand new
Fiestas. The missions included tie-ins with events campaign would be based on their online
such as American Idol, the 2013 Bonnaroo conversations. These conversations would also
Music Festival and X Games, as well as other provide the backdrop for the advertising component
lifestyle activities and interests such as travel, of the campaign, which would focus on product
fitness, entertainment, technology and social features and benefits.
activism. The Fiesta Agents were informed Source: Based on two articles written by Dale Buss and published
that the entire content of the social media online by Forbes, 2 May 2012 and 19 February 2013.17
Brand management and customer engagement (communication and delivery of value). The
brand is the focal point of providing value to the organisation’s customers and to the organisation
itself. The first step in the process of brand building is to recognise that customers are active
meaning makers rather than passive receivers of brand messages. Customers co-create perceptions
of value based on the interactions they have with the brand, the influence of other individuals and
broader cultural systems including the mass media. They expect the interactions they have with an
organisation to be more of a dialogue than an organisation-dominated monologue.18 They use a
variety of new communication channels that have reshaped the relationship between organisations
and their customers.
In a general sense, the aim of communication is to inform (create brand awareness and to
communicate product information), inspire (psychological appeals – imbue the brand with symbolic
values and meanings), engage (stimulate customer relationships with the brand), persuade
(encourage trial or purchase), reinforce (positive attitudes and the brand experience) and remind (to
repurchase). In the formative stages of market evolution (introductory and early growth) the role of
informing, inspiring and persuading is emphasised. Communication planners have a large variety of
communication tools to consider for this purpose, including traditional forms of advertising
(television, radio, print and outdoor media) and online advertising (organisation websites, display or
banner ads, pop-ups, blogs, podcasts, search engine advertising, widgets, emails (including viral
marketing), SMS messages and mobile apps (including QR scanning).
The communication planners also have at their disposal a variety of traditional marketing
communication tools to consider such as publicity, event marketing, stealth marketing (buzz
marketing, word-of-mouth and product placement), sales promotion, direct mail, telemarketing
(outbound call centres) and personal selling. These tools are largely sender–receiver or one-way
forms of communication and play an important role in providing product and brand information.
The next objective, to inspire, is of paramount importance; that is, brand building – the
development of a favourable, strong and unique brand position in the minds of the target audience.
Advertising is a most effective communication tool for this purpose, particularly for companies
competing in FMCG (fast-moving consumer goods), automotive and fashion markets.
However, the ability of advertising to influence brand meanings is a comparatively weak force.
As discussed above, brand meanings are formed by the interactions customers have with a brand –
how they engage with the brand, with other individuals or groups of individuals and their brand
experiences. Social media provides a platform for this engagement. Social media provides an
organisation with the ability to reach out to their customers to provide product information and
insights, product demonstrations, and to address questions or complaints that are raised. This can
only be achieved if the organisation has strong products and services and an outstanding customer
service capability. Social media should be considered to be more than just another marketing tool,
but as a means for providing outstanding customer service.
Social media needs to be managed. This involves establishing processes for monitoring social
media conversations relating to the brand and the creation of policies and mechanisms to respond
to customer complaints and positive comments. Social media provides a means for the organisation
to foster closer customer relationships and customer loyalty. A prime objective is to nurture brand
champions (brand advocates) to help give the brand a voice. However, for many organisations social
media is considered to be a two-edged sword. A worldwide study of senior executives across a range
of industries conducted by the Economist Intelligence Unit (EIU) in 2012 found that, while 48 per
cent of their companies use social media, most believed that the benefits of social media were
outweighed by the risks. Forty per cent of these executives expressed concerns about the negative
effects of customer criticism, while only 26 per cent believed that customer recommendations
would have a positive effect. Only 15 per cent of the respondents believed that the new
communication channels could create brand ambassadors (would recommend the brand to a wider
audience) while 34 per cent cited difficulties concerning the control of brand image.19
As more and more customers take up the brand, the goals of reinforcement and reminding come
to the fore. Customer loyalty programs, advertising and social media channels are used for this
purpose.

Market penetration strategies are designed to growth starts to decline, competitors without a
win and retain customers as they enter the distinctive competitive advantage find it
market during the various post-introductory increasingly difficult to maintain market share
stages of market evolution. These strategies and weaker competitors, often those stuck in
include efforts to increase both primary the middle, are shaken out of the market.
demand (for the product category as a whole) In a mature market where the rate of
and secondary demand (for the organisation’s market growth starts to decline significantly,
products or brands), as well as efforts to the strategic options include one or a
increase the product usage of existing combination of market acquisition strategies
customers and to win customers from (converting non-users or targeting new or
competitors. underdeveloped market segments or
During the growth stage of market geographical markets), increasing product
evolution the goal for a market leader should be usage (developing new uses for the product or
to build or maintain market share, while the new ways to use the product) and customer
goal for a marketing challenger should be to retention.
win the largest share of new customers Customer value is at the heart of the
entering the market and/or to take customers strategic decision-making considerations during
away from the market leader and other each of the various stages of market evolution.
competitors. The challenger can attempt to The main considerations in the development of
achieve this either by deploying a leapfrog value creation, communication and delivery
strategy, a frontal attack, a flanking attack, or strategies are product management (value
by encirclement. creation), brand management and customer
In the competitive turbulence stage of engagement (communication and delivery of
market evolution where the rate of market value).
1 Should the marketing department be 3 How important is the role of persuasion in
responsible for developing the organisation’s communication?
communication strategies? 4 How useful is the theory of market
2 Consider the Ford Fiesta social media evolution for development of marketing
strategy described in the above ‘Strategy in strategies?
Practice’ case. Is there a risk that the 5 How important is market share as a
opinions expressed by the brand agents strategic objective?
could be considered to be contrived and
just another form of marketing spin?
ETHICAL ISSUE
Should there be more control over marketers who encourage the vulnerable to eat more junk food,
drink more alcohol and bet more money on sporting events?

Continue working on your strategic marketing plan. Develop in broad detail your market
penetration strategy for your product line.

Explore Search me! marketing for articles • market evolution
relevant to this chapter. Fast and convenient, • shaping strategy
Search me! marketing is updated daily and • harvesting strategy
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ENDNOTES
1 C. Mainardi and A. Kleiner, ‘The right to win’, Strategy þ 3 Based on the article: A.C.M. Medeiros and A. Needham,
Business, vol. 61, 2010, p. 5. Published by PwC ‘The co-creation revolution’, Innovate 2008, ESOMAR,
Strategy & Inc. ª 2010 PwC. All rights reserved. PwC 2008.
refers to the PwC network and/or one or more of its
member firms, each of which is a separate legal entity. 4 Based on a presentation by Jarsolav Cir, Global Director,
Please see www.pwc.com/structure for further details. Consumer and Market Insight, Rexona, and Andrew
www.strategy-business.com. Needham, founding partner of Face Group, as published
online at: www.slideshare.net/jardac/cocreation-face-and-
2 Based on information derived from the Unilever 2012 unilever.
Annual Report: ‘Making sustainable living commonplace’,
Annual Report and Accounts 2012, Unilever, 8 March 2013.
5 W.C. Kim and R. Mauborgne, ‘Blue ocean strategy’, 13 W.C. Kim and R. Mauborgne, ‘Value innovation: The
Harvard Business Review, October 2004, pp. 76–84. strategic logic of high growth’, Harvard Business Review,
January–February 1997, p. 106.
6 E.M. Rogers, Diffusion of Innovations, Free Press,
Glencoe, 1962. 14 Based on the concept of the value curve developed by
Kim and Mauborgne. Refer to: W.C. Kim and R.
7 Based on M. Reeves, C. Love and P. Tillmanns, ‘Your Mauborgne, ‘Value innovation: The strategic logic of high
strategy needs a strategy’, Harvard Business Review, growth’, Harvard Business Review, January–February 1997,
September 2012. pp. 103–12.
8 These strategies are based on the concept of marketing 15 V. Ramaswamy, ‘Co-creation of value: Towards an
warfare as developed by Kotler and Achrol. Refer to expended paradigm of value creation’, Marketing Review
P. Kotler and R. Achrol, ‘Marketing warfare in the 1980s’, St Gallen, 6, 2009, p. 14.
Journal of Business Strategy, Winter 1981.
16 D. Buss, ‘This time Ford Fiesta aims at selling more
9 W.C. Kim and R. Mauborgne, ‘Blue ocean strategy’, Fiestas’, Forbes, 19 February 2013, p. 3.
Harvard Business Review, October 2004, pp. 76–84.
17 D. Buss, ‘Ford Fiesta sales slump despite ground breaking
10 Bruce Henderson’s ‘The rule of three and four’ was social media campaign’, 2 May 2012; and D. Buss, ‘This
published in 1976 by the Boston Consulting Group’s time Ford Fiesta aims at selling more Fiestas,’ Forbes, 19
business magazine, Perspectives. Source: www.bcg.com/ February 2013.
about_bcg/history/history_1976.aspx, retrieved 20 March
2014. 18 ‘Getting closer to the customer: A challenge for the
C-Suite’, Economist Intelligence Unit, 2012, p. 3.
11 M. Reeves, M. Deimler, G. Stalk and F.L.S. Pasini, ‘The
rule of three and four’, BCG Perspectives, The Boston 19 ‘Getting closer to the customer: A challenge for the
Consulting Group, 2012. C-Suite’, pp. 7–8.
12 J.N. Sheth and R.S. Sisodia, ‘Competitive markets and

the rule of three’, Ivey Business Journal, September–
October 2002.
Strategy
evaluation and
control

CHAPTER
8
MARKET DEVELOPMENT
STRATEGIES
Today, emerging markets serve as the world’s economic growth engine, and the far-reaching effects
of their spectacular rise continue to play out. But their risks are often downplayed. Therefore, taking
advantage of emerging-market opportunities requires careful planning.
Ernst & Young1
In 1963 Rosalı́a Mera, a seamstress, and her In 1985 a company, Inditex, was founded as
husband Amancio Ortega Gaona started a small a holding company to manage Zara and several
home-based business producing low-cost other retail businesses that Mera and Ortega
designer-inspired quilted bathrobes and lingerie had established. In 1988 Zara ventured outside
for the retail market. Their products were an of its home market for the first time when it
instant hit with the Spanish public and, within a opened a store in neighbouring Portugal. The
very short time, demand had grown to the extent next move was even more adventurous, with
that production was outsourced to a number of the opening of a store in New York in 1989,
co-operatives that Ortega established to harness followed by Paris in 1990. By then Inditex’s
the talents of literally hundreds of seamstresses management had started to develop what they
working from their homes in La Coruña, an described as an ‘oil stain’ international-market
economically deprived city in Spain. entry strategy. The first step was to launch a
Buoyed by the success of this business, Mera flagship store in the major fashion capital of
and Ortega believed that the concept they had the new country. The second step was to gain
established of affordable fashion could be local operating experience and then to use this
extended much further. In 1975 they ventured knowledge to open stores in other cities in that
into retailing, opening their first store, Zara, in La country. Over the next several years one or
Coruña. Zara was an instant hit and over the next two new Zara stores were opened each year,
decade Zara stores were established in cities mainly in Europe. In retrospect these were only
throughout Spain. baby steps as, from 1998 on, the pace of
market development hotted up considerably. This was the prelude to a decade of massive
Over the next three years stores were opened international expansion. Over the next decade
in 24 new countries and, by the end of 2001, 1418 new Zara stores were launched all around
Zara had established 507 stores in 33 countries the globe and by 2012 the Zara empire had
(including Spain). During that year Inditex was grown to 1925 stores in 86 markets.2 During this
floated on the Spanish Stock Exchange, with period of rapid expansion Zara also embraced the
26 per cent of the company’s shares sold to e-commerce revolution with the launch of online
the public, with Amancio Ortega retaining a stores in 16 European markets in 2010. By 2012
60 per cent shareholding. The Inditex Group the number of Zara online markets had grown to
comprised SBU retailing chains (Zara, 21. In 2013 Ortega was named in Forbes
Massimo, Dutti, Pull & Bear, Bershka, magazine as the third richest person in the world.
Stradivarius and Oysho) plus some associated Sadly, in the same year, Rosalı́a Mera, the
companies involved in textile purchasing and wealthiest self-made woman in the world, died of
processing, manufacturing, logistics, real estate a brain haemorrhage while holidaying with her
and finance. daughter on the island of Menorca.

Top-line growth is essential for an organisation’s survival. Research conducted by McKinsey over two
business cycles found that large organisations whose revenue increased more slowly than GDP were
five times more likely to be acquired or to go out of business than were faster growers.3 This is the
second of four chapters that discusses potential growth strategies that are available for organisations
to pursue. In the previous chapter, growth strategies via market penetration (existing product lines in
existing markets) were examined. This chapter continues the theme by examining strategies for
existing product lines in new markets; that is, market development strategies. These strategies
typically involve a degree of product adaptation (the modification of an existing product), but not to
the extent where the effort would be more appropriately categorised as new-product development.
Market development also includes the marketing of new applications for existing products. The
specific focus of this chapter is to examine the following market development strategies:
• new geographic markets
• new market segments
• new marketing channels.
Geographic expansion
As the name suggests, geographic expansion is a strategy to extend an organisation’s market
coverage domestically or internationally.
Domestic market expansion is typically a strategy pursued by small-to-medium sized enterprises
(SME) seeking growth opportunities beyond their local market territories. As research by the
Economist Intelligence Unit (EIU) reveals, growth in sales and earnings appears to be a perennial
Chapter 8 Market development strategies 201
business objective for managers of most SMEs.4 The underlying belief is that the achievement of scale
efficiencies provides a means for enhancing the survival prospects for a small business. Many small
businesses not only survive due to geographic expansion, but also thrive. As discussed at the beginning
of this chapter, Zara rapidly progressed from being a relatively small fashion retailer to become a
significant national operator en route to becoming an international behemoth. Closer to home,
Carman’s Fine Foods provides another example that typifies this approach. Starting life as a
Melbourne-based manufacturer of muesli in the 1980s, the company grew rapidly during the 1990s
after a Coles buyer initially agreed to trial-stocking Carman’s muesli in 20 Melbourne supermarket
stores. Six months later the distribution was extended to the rest of Victoria and, not long later, to New
South Wales. Today both Coles and Woolworths distribute Carman’s products nationally. Carman’s
has also expanded internationally and now exports its muesli products to over 30 foreign markets.5
International market expansion takes many forms. At its simplest level, the decision to go
international may be just a matter of an organisation making a decision to export one or more of its
existing products (or services) to an overseas market. This may take the form of entering into a
distribution agreement with a foreign agent who takes responsibility for marketing the organisation’s
products in a defined geographic market. The objective for the exporting organisation may simply
be to take advantage of an opportunity that has arisen or alternatively to ‘test the waters’ for a later
more concerted effort to develop the market. Volkswagen’s re-entry into the Australian market
provides a classic example of this approach. In 1991 Inchcape Distributors Australia acquired the
Australian franchise for Volkswagen and, in 1993, relaunched the brand for the Australian market.
In 2001 Volkswagen AG severed its ties with Inchcape and established Volkswagen Group
Australia Pty Ltd to take charge of the Australian operations.
Exporting is not just for the corporate giants. Over 90 per cent of Australia’s 45 000 exporting firms
are SMEs with 50 or less employees. About 94 per cent of those firms export goods and 6 per cent
export services.6 For the Australian wine industry, the discovery of export markets was a godsend.
In the decade leading up to the mid-1980s, Australia was a net importer of wine. The industry’s
prospects were so dire that the federal government funded a vine-pull scheme to compensate wine
growers for planting different crops. Just one decade later, the Australian wine industry was
booming. Land devoted to grapevines had doubled and about one-third of wine sales were in export
markets.7 The export-led boom continued throughout the 1990s and early 2000s, reaching a peak
of just over $A2.8 billion of export sales in the financial year 2006/2007. Due to the GFC and
intense international competition, sales declined over the next few years to just under $2 billion for
the financial year 2010/2011. Approximately 60 per cent of the export revenue was derived from
just three markets: the UK, USA and Canada.8
At a more complex level of international market development, an organisation may decide to
enter into a licensing arrangement or a joint venture with a local organisation, a franchising
agreement, or decide to go it alone by establishing a wholly owned subsidiary, as Volkswagen AG
decided to do when it created Volkswagen Group Australia Pty Ltd. Another alternative is to either
merge with or acquire an established business in the local market – that is, to deploy a mergers and
acquisition (M&A) strategy. This was the approach adopted by the Australian legal company Slater
& Gordon in 2012 when it acquired the UK personal injuries practice of Russell Jones & Walker.
In 2007 Slater & Gordon was the first legal firm in the world to become publicly listed and, when
legislation was introduced in the UK to allow legal practices to offer shares on the stock market, an
opportunity was created for Slater & Gordon to enter that market. Given the size and scope of the
UK market, Slater & Gordon’s managing director Andrew Grech was confident that the British
market would potentially contribute up to 50 per cent of the company’s total revenue within just a
few years from the date of the acquisition.9
For many organisations, however, entering a market in a developed economy has lost its appeal.
Ageing populations, a slowdown in economic growth and intensified global competition have
created a plethora of red ocean markets in a number of developed countries and, as a consequence,
attention has shifted towards emerging markets. With estimates showing that 70 per cent of world
growth will come from these markets over the next few years, it is no wonder that so many
organisations have prioritised the importance of such markets. Giant FMCG organisations such as
Unilever, Colgate-Palmolive, Danone, Henkel, Nestlé and Coca-Cola have all established strong
footholds in emerging markets. In 2012, for example, 55 per cent of Unilever’s worldwide sales
came from emerging markets.10 ANZ has led the way in the Australian banking industry with 43
per cent of revenue and 54 per cent of profits earned from outside of Australia and New Zealand,
predominantly in Asia.11
The attractiveness of emerging markets has increased over the last decade due to two main
factors: (i) demographic shifts including the rapid growth of the middle classes – it is estimated that
one billion people will enter the middle class by 2020 and that 66 per cent of them will live in
emerging markets;12 and (ii) the increasing ease of access to emerging markets made possible by
the Internet, enabling all types of organisations to substantially reduce the cost and ease of
conducting business in overseas markets.
The decision to enter an international market is made at the highest level of corporate
management, invariably necessitating board approval. The decision-making process commences
with a research study typically referred to as a foreign-market opportunity analysis. The research is
often conducted over three separate stages commencing with a broad-brush preliminary study for
the purpose of identifying and short-listing foreign markets that are potentially attractive.13 A most
useful tool for conducting this analysis is the Market Potential Index (MPI) for Emerging Markets
conducted by Michigan State University’s International Business Center. The index, originally
developed by S. Tamer Cavusgil, assesses countries on the following eight dimensions: market size,
market growth rate, market intensity, market consumption capacity, commercial infrastructure,
economic freedom, market receptivity and country risk.14 These findings are of course highly
generalised, necessitating the need for strategists to delve into more specific information for their
particular industry.
In emerging markets where information sources are either unreliable or non-existent,
researchers may base their initial screening on the model developed by Arnold and Quelch and
shown in Box 8.1.15
B O X 8. 1
The Arnold and Quelch model of estimating market demand in emerging markets
Q ¼ (P þ NP) (DevGDP AdjGDP)

where:
Q ¼ the total market potential
P ¼ national population
NP ¼ new population (that is, the estimated population growth during the planning period)
DevGDP ¼ average per capita GDP in developed markets
AdjGDP ¼ GDP in the emerging market adjusted to purchasing power parity
(to reflect differences in living costs and consumer spending power)
After completing the preliminary screening, a short-list of markets that warrant further
investigation is then prepared. The objective of this next stage is to estimate the aggregate or total
market demand for the organisation’s product category in each of the markets of interest. Issues to
be explored include identification of the fastest growing markets, market trends and external
environment factors (such as political and economic stability, government regulations), and market
restrictions (such as export licensing regulations). This assessment requires local knowledge that
could be obtained from sources such as the Australian Department of Foreign Affairs and Trade
(DFAT), business and industry associations, Internet searches, market research agencies and direct
contacts with local organisations. In the absence of product category market data, a surrogate
indicator may be used. For example, in the absence of market data for medical equipment, a
surrogate (such as the number of hospital beds or the number of surgeries) could be used. At the
completion of this stage of the foreign-market opportunity analysis, the strategist should then be in
a position to select the most appropriate market or markets to target.
The objective of the third and final stage of the process is to investigate specific issues relating
to the development of market-entry strategies. A more thorough investigation of the potential
market size for the product category must be undertaken along with estimates of the organisation’s
market share, revenue and costs. The investigation would also need to include a thorough analysis
of the competitive landscape, considering such questions as: Who are the existing competitors?
What are their strengths and weaknesses? What retaliatory strategies might they take to counter a
new entrant? Are there any other potential new entrants? Primary research would also need to be
conducted to investigate marketing issues; for example, specifics like brand positioning, the
customer value proposition, product or service adaptation (including product or packaging
modifications), product pricing, distribution availability and costs (including consideration of the
design and structure of distribution channels and the suitability of intermediaries), the availability
and costs of marketing communication, and the availability and costs of business partnerships.
In addition to these marketing-related issues, broader aspects of market entry need to be
investigated. A good starting point for this analysis is to consider six critical success factors for
market entry that have been identified by McKinsey consultants Horn, Lovallo and Viguerie.16 The
list, shown in Box 8.2, serves as a checklist for the strategists to determine the factors that are most
relevant for their specific situation. Horn and his colleagues argue that the decision should not be
based solely on what they term an inside perspective, as this is fraught with the potential for
cognitive biases that can wreak havoc on market-entry decision making. To avoid this problem, they
recommend that the strategists should take an outside or external view of the situation by drawing
on the experiences of other organisations that have successfully and unsuccessfully entered foreign
markets; that is, to create a reference class of organisations that have faced similar market-entry
situations to that which the organisation is contemplating.17 It is recommended that the reference
class should comprise at least five similar past entry decisions.18
B O X 8. 2
Predictors of success in market entry
1 Size of entry relative to minimum efficient 2 Relatedness of the market entered. The more
scale. Organisations that are closer to the closely related that an organisation’s product or
industry’s minimum efficient scale are more service is to the current market offerings, the
likely to succeed. better the chance of success.
3 Complementary assets. While core assets and 6 Degree of technological innovation. In markets
capabilities are important, complementary assets where there is a high level of technical innovation,
such as marketing and distribution are often it is difficult for a new entrant to compete against
more important. established incumbents. It would be better for a
4 Order of entry. A first-mover may have an new entrant to focus on a small niche ignored by
advantage in some settings but often greenfield the dominant players in the market.
entrants (‘optimistic martyrs’) lose out to more Source: McKinsey & Company: Adapted from exhibit
experienced later entrants. ‘Beating the odds in market entry’, November 2005, McKinsey
5 Industry life cycle. Early market entry in the Quarterly, www.mckinsey.com/insights/mckinsey_quarterly.
McKinsey & Company.
introductory or growth stages of the industry
life cycle is more likely to be successful than
entering in or near shake-out.
By studying the factors that have underpinned market-entry successes and failures of
organisations in an appropriate reference class, the organisation’s strategists are then in a position
to develop a balanced (inside and outside) view of the factors that are critical for a successful
market entry. The reference class analysis will also provide insights about the skills and resources
the organisation would need to successfully enter the market. If new capabilities are required, for
example, the strategists might need to consider a contractual approach for market entry such as a
joint venture or licensing rather than a more capital-intensive approach by going it alone and
establishing a wholly owned subsidiary operation.
New market segments

Markets do not stand still. Over time, as markets progress through the various stages of evolution, a
process of fragmentation occurs due to the changing nature of customer buying behaviour. This
process has been accentuated with the advent of the digital revolution and, as a result, there has
been a proliferation of new customer segments in all types of consumer and business markets. At
the same time the middle ground has come under immense pressure in many markets, as more and
more organisations find that they have become stuck in the middle between numerous low-frills
and high-end competitors. The dilemma for these organisations, as McKinsey’s Court, French and
Knudsen point out, is that ‘staying in the middle is often a death sentence, while focusing on just
one end of the market is a recipe for slow or no growth’.19
The takeaway point from this observation is that it has become even more important today than
ever before for the organisation’s strategists to identify the emergence of potential new market
segments. As Court and his colleagues argue, the starting point is to identify and prioritise clusters
of the highest-value, fastest-growing customer cells in the market. This can only be achieved if the
organisation’s strategists are able to develop a deep understanding of their ‘customer needs and
behaviour at the intersection of segments, channels and product categories’.20 To develop such a
deep understanding of their customers, Court and his colleagues argue the case for the
establishment of an ongoing and systematic research process – a customer insights network that, in
addition to integrating customer attitudinal and behavioural information, encompasses relationships
with expert third parties (who provide help in managing complex sets of data or in managing
innovative qualitative research studies) and key suppliers. The insights provided by this network
should then be embedded into the organisation’s key decision-making processes.21
The next step is to assess the current and future attractiveness of the emerging segment or
segments and to arrive at a Go/No decision concerning market entry. If the decision is Go then the
next step is to develop appropriate customer value creation mix strategies (as was discussed in
Chapter 6).
The emergence of a low-end market segment can have even more serious implications for
organisations that are susceptible to what has been defined by Clayton Christensen as disruptive
innovation. Christensen argues that distinction needs to be made between what he terms
‘sustaining innovation’ and ‘disruptive innovation’. A sustaining innovation is one that involves either
incremental year-by-year product or service improvements or the development of a breakthrough
new product for an existing market. That is, a sustaining innovation makes ‘a product or service
perform better in ways that customers in the mainstream market already value’.22 These strategies
are essentially incremental new-product development strategies (new products for existing markets)
and are discussed in detail in Chapter 9. In contrast, disruptive innovations are those that lead to
the creation of an entirely new market through the introduction of a new kind of product or service.
These new products and services are not designed to be as good as or better than existing products
or services in the market but, on the contrary, are designed to be simpler, more convenient and less
expensive. They are designed to appeal to non-customers of the existing product category (such as
the late majority or the laggards discussed in Chapter 5) and/or existing customers who find that the
current product offerings exceed their performance needs. The competitors in the newly created
low-end market segment are invariably new entrants to the market. An improvement cycle begins
and, over time, the lower-end products or services improve to such an extent that they eventually
meet the needs of the mainstream market. When this occurs, the disruptors start to take market
share away from the mainstream competitors who then struggle to survive.
The challenge for these mainstream competitors is therefore to be able to stay ‘one step ahead
of the posse; that is, to have processes in place to serve as an early warning system for the potential
for disruptive innovation in their industry. According to Christensen and Overdorf, the most
effective way for organisations to meet the challenge of innovative change head-on is to create a
new organisation space where new processes, values and capabilities can be developed. There are
three possible ways of achieving this: (i) by creating a new organisational structure within existing
corporate boundaries in which the new processes, values and capabilities can be developed; (ii) by
spinning out an independent organisation; or (iii) by acquiring a different organisation that has the
capabilities and processes that closely match the task.23 These alternatives are discussed in more
detail in Chapter 10.
The creation of the processes, values and capabilities to cope with innovative change takes a
considerable amount of time. Meanwhile the mainstream competitors are faced with the prospect
of having to decide how to respond to the immediate challenge of losing market share to the new
challengers entering the low end of the market. The mainstream competitors are faced with a fight
or flight type of decision. The decision to fight could be considered to be a viable option for some
of the mainstream competitors who have the ability to adjust their cost structures and/or their
business models for this end of the market. Other mainstream competitors may decide to enter the
low end of the market in an attempt to stave off the entry of new competitors. Either way,
the existing competitors have only a few options to fight off the challengers. The first is to extend
the product line with the introduction of modified new product. The second option, for companies
such as Gillette or Apple, is to continue marketing a superseded model at a lower price. Gillette,
for example, continued to market the Mach 3 razor well after the introduction of the Fusion model.
Apple also experimented with this strategy after the introduction of the iPhone 5 in September
2012 by continuing to market the iPhone 4 at a lower price. However, this strategy proved to be
largely unsuccessful and was abandoned after the introduction of the iPhone 5S and IPhone 5C
just 12 months later.
Another market development strategy that is used by many B2B and B2C organisations is to
develop new applications or uses for their existing products. Ford and Holden, for example, went
down this path for many years in supplying modified versions of their larger model motor vehicles
for the taxi industry. More recently, Apple has targeted the business market by fostering the
development of a large variety of custom-built and third-party applications for its iOS-based
product range (iPads, iPhones and iPod touch). PepsiCo, for example, developed an in-house app
for delivery and merchandising personnel to track deliveries, check stock levels and fleet scheduling
updates.24 Dürr Dental has developed an iPad-based imaging app for dentists to display patient
X-rays and camera images, amongst a number of other applications.
FIIG Securities leading the way in developing the Australian fixed income market
With over $9 billion in investment, FIIG Securities the global financial crisis (GFC) in 2007, a large
Limited is the largest specialist fixed income number of investors began to reappraise the level
provider in Australia. This is a remarkable of risk in their investment portfolios. Many of
achievement for an organisation that was literally these investors were retirees managing their own
founded on a shoestring in December 1998. self-managed superannuation funds (SMSFs),
At that time, the fixed income asset class seeking a safe haven from the volatility of investing
(product category) was dominated by the big end of in equity markets. During the early stage of the
town. It was, and still is, a common practice for large GFC a number of managed funds needed to sell
corporations to issue corporate bonds for the bonds, which provided FIIG with deeply
purpose of raising capital to fund their operations. discounted bonds with high yield to maturity,
Large investment banks acting on a corporation’s which helped the company gain traction with its
behalf would market a bond issue to large wholesale target market.
investors such as superannuation funds, fund In April 2010, FIIG commenced a Direct Bonds
managers and other large corporations. Corporate Service that enabled investors to invest in bonds in
bonds are tradable but, unlike shares traded on the parcel sizes down to $50 000, making them
ASX, corporate bonds are traded through what is accessible to individual investors and SMSFs on a
described as the secondary or over-the-counter greater scale. In July 2013, FIIG reduced the parcel
(OTC) market. size further to $10 000, provided that a minimum
The corporate bond market was therefore of $50 000 was invested in the initial bond
largely inaccessible to smaller or non-wholesale portfolio.
investors. This represented an opportunity for Jim FIIG worked hard to develop this market,
Stening and Alastair Healey to establish FIIG for the devoting a considerable amount of time and
express purpose of opening up the corporate bond resources towards education, including conducting
market to mid-level companies and other SMEs free seminars, the publication of The Australian
such as local governments. FIIG was launched in Guide to Fixed Income (now in its second edition),
Brisbane and the first step for Jim and Alastair was providing speakers for a variety of investor
to source bonds to sell to mid-level organisations conferences, and sponsorship involvement in
that were identified as potential buyers. However, organisations such as the Australian Shareholders’
investors were restricted to investing in minimum Association and the Financial Planning Association.
bond parcels of $500 000. Sales leads were generated through these activities,
In 1999 a second office was opened in Sydney and through FIIG’s website and direct customer
followed by a third in 2004 in Melbourne. The contact. Half of FIIG’s 130 staff were employed in a
market was growing steadily. At the beginning of customer relationship capacity.
New marketing channels

A marketing channel is traditionally defined in terms of ‘a set of activities and processes involved in
the transfer of title and the movement of goods and services from the point of production to the
point of consumption’.25 In the digital age, marketing channels should be considered in terms of
both offline and online activities that are involved in the purchase funnel between the supplier and
purchaser or user of goods and services. Offline channel structures range from direct customer-
to-supplier transactions to those involving a complex multi-level structure of intermediaries
(go-to-market partners) such as in a B2C context; for example, the following five-level structure:
producer-agent-wholesaler-retailer-consumer. Online activities include those that are informational,
transactional, and those that provide a platform for managing customer relationships.
Decisions concerning the choice of marketing channels are accentuated at times of market
change, such as the beginning of a new stage of market evolution (for example, a shift from an
exclusive or selective to an intensive distribution strategy at the beginning of the growth stage of
market evolution). During all stages of market evolution, a decision to target a new market segment
might initiate the need to select a new channel. For example, a B2B organisation that has targeted
large businesses may decide to use an agent or a specialised distributor to service the SME market.
The emergence over the last decade of new digital marketing channels has provided both
opportunities and threats for many organisations. In the USA and UK, for example, bricks-and-mortar
department stores such as Macy’s and the House of Fraser have most successfully developed their
online capabilities to become multichannel or omnichannel organisations. In the USA, 26 of the
top 30 online retailers are omnichannel retailers with both a bricks-and-mortar and an online
presence.26 In Australia, it would appear that the majority of bricks-and-mortar retailers were at first
reluctant to enter the online world for fear of cannibalising their own market and because of a
reluctance to invest resources in establishing an online infrastructure. Many of those that did
establish an online presence seemed to do so more for defensive purposes rather than
wholeheartedly embracing the new world. However, the story has changed considerably in recent
years. Paul Zahra, CEO of David Jones, declared in 2011 that establishing e-commerce capabilities
had become a major priority.27 In November 2012 a new omnichannel retail strategy was launched,
comprising a new Web store and a mobile store that included an iPad app.
For all organisations in B2C and B2B markets alike, the use of digital channels has become
increasingly important. It is therefore an imperative for strategists to develop a deep understanding
of the steps involved in the customer decision journey and the number and nature of the multitude
of touchpoints that occur along the way between the customer and the organisation, including all
of its go-to-market partners. The process of touchpoint analysis and touchpoint mapping discussed
in Chapter 6 provides a means for strategists to determine the importance of new marketing
channels to be targeted.

In a business environment of slow growth that process starts with the development of
typifies many Western markets, the need for an organisational capabilities to be able to seek
organisation to seek growth opportunities for its and discover opportunities for expanding into
existing products in new markets has never new markets, and the capacity and the
been more important than it is currently. The willingness of top management in the
organisation to devote organisational resources making, whereas a strategy to enter an

to exploit those opportunities. emerging foreign market would require
Market-development strategies include top-level management and board-level
entry into new market segments, new decision-making involvement.
marketing channels, and established and Market development does not happen
emerging foreign markets. The development of overnight. Particularly in the case of foreign
each of these strategies ranges in complexity market expansion, it can take many years for
and the level of decision making that is the organisation to achieve a satisfactory return
required. For example, entry into a new from its investment. However, to ignore
market segment would typically be considered market-development growth opportunities can
within the domain of marketing decision be even more perilous in the long term.
1 In launching the iPhone 5s and iPhone 5c publicity that was gained from winning so
in September 2013, Apple made it quite many awards. The CEO has asked you to
clear that it would continue to target the develop a market-development strategy. As
premium end of the smartphone market. a starting point, he has asked you to identify
Should Apple have been worried about the market segments that would be
ignoring the middle market? appropriate to target and the marketing
2 What was the secret behind Zara’s channels that could be used.
successful entry into new geographic a What are the pros and cons for each of
markets? the marketing channels you have
3 You have just been appointed to the role of suggested?
marketing manager in a boutique winery in b Outline your recommended strategy.
the Barossa Valley, South Australia. The 4 What strategies can an organisation that is
winery, a family-owned business, has ‘stuck in the middle’ pursue in order to
recently won several prestigious national survive and prosper?
and international awards for its Shiraz, 5 Has the emergence of new digital-
Cabernet Sauvignon and Riesling wines. marketing channels diminished the role of
All of these wines are marketed at the the sales organisation in the process of
premium end of the market via cellar-door market development?
sales. However, sales have declined
significantly in recent times despite the
ETHICAL ISSUE
In some foreign markets the acceptance of is considered to be normal practice. Is it
gifts, commissions and other forms of payments acceptable for Australian organisations to
by public officials for ‘facilitating market entry’ comply with these practices?

Continue working on your strategic marketing write a brief rationale. If there are such
plan. Decide what, if any, opportunities exist opportunities, develop in broad detail your
for market development. If there are none, proposed market-development strategy.

Explore Search me! marketing for articles • product adaptation
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ENDNOTES
1 Quote by Ernst & Young from ‘Tracking global trends: emerging markets: An indexing approach’, Business
How six key developments are shaping the business Horizons, January–February 1997, pp. 87–91. The MPI
world’’, Copyright ª 2011 by Ernst & Young Global can be accessed at: http://globaledge.msu.edu/knowledge-
Limited. Used by permission. http://www.ey.com/ tools/mpi.
Publication/vwLUAssets/Tracking_global_trends/$FILE/
Tracking%20global%20trends.pdf. 15 D.J. Arnold and J.A. Quelch, ‘New strategies in emerging
markets’, Sloan Management Review, October 1998,
2 ‘Annual Report 2012’, Inditex, June 2013, pp. 18–19. pp. 7–20.
3 S. Smit, C.M. Thompson and S.P. Viguerie, ‘The do-or- 16 J.T. Horn, D.P. Lovallo and S.P. Viguerie, ‘Beating the odds
die struggle for growth’, The McKinsey Quarterly, 3, 2005, in market entry’, The McKinsey Quarterly, 4, 2005, pp. 35–45.
pp. 35–45.
17 For further information about reference classes refer to:
4 ‘Developed economies – SMEs focus on continued D. Lovallo and D. Kahneman, ‘Delusions of success: How
expansion’, Economist Intelligence Unit, 2012, pp. 1–4. optimism undermines executives’ decision’, Harvard
Business Review, July 2003, pp. 56–63.
5 M. Steffens, ‘Hard work paid off for muesli queen’,
The Age, Business Day section, 5 July 2012, p. 5. 18 J.T. Horn, D.P. Lovallo and S.P. Viguerie, ‘Beating the
odds in market entry’, p. 37.
6 ‘Characteristics of Australian exporters 2011–12’,
Australian Bureau of Statistics, 5368055006, 19 D.C. Court, T.D. French and T.R. Knudsen, Profiting from
tables 5.1–5.5, May 2013. Proliferation, McKinsey & Company, New York, 2006, p. 10.
7 R. Osmond and K. Anderson, ‘Trends and cycles in the 20 Court, French and Knudsen, Profiting from Proliferation,
Australian wine industry, 1850 to 2000’, report published p. 35.
by the Centre for International Economic Studies,
University of Adelaide, 1998. 21 Court, French and Knudsen, Profiting from Proliferation,
pp. 35–45.
8 ‘Australian wine and grape industry 2010–2011’, Australian
Bureau of Statistics, Report no. 1329.0, 27 February 2012. 22 C.M. Christensen and M. Overdorf, ‘Meeting the
challenge of disruptive change’, Harvard Business Review,
9 C. Merritt, ‘Slater & Gordon in invasion has Britain March–April 2000, p. 72.
reeling’, The Australian, 1 February 2012.
23 Based on Christensen and Overdorf, ‘Meeting the
10 ‘Making sustainable living commonplace’, Annual Report challenge of disruptive change’, pp. 67–76.
and Accounts 2012, Unilever, 2012, p. 6.
24 Based on information provided on the Apple website.
11 ‘Right place right time’, Annual Report 2012, ANZ, p. 7 Further information and examples can be seen at:
www.apple.com/ipad/business/it-center/apps.html.
12 Ernst & Young, ‘Tracking global trends: How six key
developments are shaping the business world’, EYGM 25 Based on a modified version of the American Marketing
Limited, 2011, p. 7. Association’s definition of a marketing channel. Refer to:
www.marketingpower.com/_layouts/Dictionary.aspx?.
13 The three-stage approach is an adaptation of a model
originally proposed by Tamer Cavusgil. Refer to: S.T. 26 Source: ‘Economic structure and performance of the
Cavusgil, ‘Guidelines for export market research’, Business Australian retail industry’, Productivity Commission
Horizons, November–December 1985, pp. 27–33. Inquiry Report, no. 56, 4 November 2011, p. 106.
14 The indexing approach was introduced by Cavusgil in the 27 C. Reilly, ‘David Jones plans on entertaining customers
article: S.T. Cavusgil, ‘Measuring the potential of through omnichannel’, retailbiz.com.au, 22 August 2013.
Strategy
evaluation and
control

CHAPTER
9
INCREMENTAL INNOVATION
STRATEGIES
It is the customer who determines what a business is … Because it is its purpose to create a
customer, any business enterprise has two -- and only these two -- basic functions: marketing and
innovation. They are the entrepreneurial functions.
Peter Drucker1
In the summer of 1885, King C. Gillette, a two. Sales were so successful that, within just a
successful American travelling salesman, had a few short years, Gillette had become a global
flash of inspiration, a simple idea that was to manufacturer and marketer with production
become the genesis of the founding of a gigantic plants in Boston, Paris, Montreal, Berlin and
global organisation several years later. Gillette, Leicester.
fed up with shaving with a razor that had to be Gillette’s patent protection expired in 1921
frequently sharpened on a leather strop, came up and the company met the challenge head-on.
with of the idea of developing a safety razorblade A two-pronged market strategy was developed.
that could be thrown away and replaced by a new A new and improved razor was introduced at the
blade when it became dull. All that was needed, same price as the original, while the old-model
he thought, was the ability to produce a sharp razor was rebranded the Silver Brownie Razor,
edge on a small square of sheet metal. priced to compete at the low end of the market.
It took Gillette six years to find William In 1922 Gillette introduced a razor give-away
Emery Nickerson, an engineer and machinist at strategy in partnership with Wrigley gum,
Massachusetts Institute of Technology, who was a strategy that over time has become known as
able to develop the production technology that the razors-and-blades business model, based on
was needed to transform Gillette’s idea into the idea of locking customers into a proprietary
reality. system where the money is made from selling
In 1904 the Gillette Safety Razor Company complementary products.
received patent protection for its razors, thin From the 1920s to the 1960s Gillette
double-edged blades and a combination of the dominated the razor shaving market with only
a few relatively minor updates to the product Contour in Australia) and a pivoting-head
design over this time, including the introduction disposable razor in 1980.
of the Aristocrat in 1934 that made blade However, towards the late 1980s, the
changing easier and the Super Speed in 1947, company was again facing a crisis. Management
which was designed to shave more closely. At the had seriously underestimated the impact that its
beginning of the 1960s Gillette’s market share in own invention of disposable razors would have on
the US was around 70 per cent and even more in cannibalising its own mainstream product range.
many overseas markets. However, when The answer lay in the development of a
Wilkinson Sword entered the market in the early revolutionary new shaving system, the Sensor
1960s with the introduction of stainless steel razor, launched in 1990. The Sensor took seven
blades, Gillette’s market dominance was very years to develop, as new technology was required
soon eroded. In 1965 its market share had to make 93 precise welds per second to join twin
plummeted to 49 per cent and the company was razorblades to a number of tiny springs. Sensor
facing a crisis. A new CEO was appointed and went on to become the most successful new-
over the next several years Gillette went on a product innovation in Gillette’s history. It
merger and acquisition spending spree on its way recorded sales in its first year of 24 million razors
to becoming a diversified consumer products and 35 million cartridges.
company rather than relying on just one product Innovation was now a part of Gillette’s DNA.
line. Sensor for women was launched in 1992, followed
The 1960s crisis served as a call to action by the introduction of the SensorExcel in 1993–
and, when Gillette introduced its own stainless 94. By the mid 1990s, over 40 per cent of all
steel blade in the mid 1960s, its market share Gillette sales came from products debuted over
climbed back to around 60–65 per cent. By 1971 the last five years. The never-ending pursuit of
Gillette had been reorganised into four divisions product innovation continued with the
(safety razor, toiletries, personal case and Paper introduction of the SensorExcel for women in
Mate). The focus was now on innovation, and the 1996, the Mach III (a triple-bladed shaving
safety razor division responded to the call with system), a battery-powered razor in 2004
the introduction of a twin-bladed razor in 1971 (M3Power), the Fusion (a five-bladed razor) in
(Trac II), a twin-bladed disposable razor in 1976, 2006, and numerous updates and product
a pivoting-head razor in 1977 (Atra, branded the enhancements to the Fusion from that year on.

The Gillette case illustrates the well-known saying ‘innovate or die’. Success has become a merely
temporary achievement and today, in order to survive, an organisation must continuously innovate
and evolve, to create and maintain value for its customers and to stay ahead of its competitors
The focus of this chapter is incremental innovation, or as it is alternatively described, sustaining
innovation – strategies that are based on modifications or improvements to existing products and
the introduction of new products within existing product lines for existing customers. Incremental
Chapter 9 Incremental innovation strategies 213
innovation strategies also include brand leveraging, the use of an existing brand name for the
introduction of new products into different but adjacent product categories. Louis Vuitton, for
example, has leveraged its brand established in handbags into a number of adjacent product
categories including clothing, jewellery, perfumes and accessories.
The specific focus of this chapter is to examine:
• the processes, practices and activities involved in generating, developing and evaluating new
product ideas
• the processes, activities and practices involved in launching or commercialising new products
• the processes, activities and practices involved in measuring the performance of new-product
introductions.
The challenge for marketers – new-product

development
The importance of marketing and innovation has long been recognised. The quotation to this effect
cited at the beginning of this chapter was published over 60 years ago and ever since that time a
legion of business scholars and practitioners have made similar proclamations. And yet, despite all
of this publicity, new-product development (NPD) remains one of the greatest challenges for all
types of B2C and B2B organisations. Studies conducted over the past two to three decades by
professional associations such as the Product Development & Management Association (PDMA),
the Product Development Institute (PDI) and the American Productivity & Quality Center
(APQC) indicate that about half of all new products fail. These figures are of course highly
generalised and rates of failure or success vary significantly across industries, product categories,
markets, the stage of new-product development (early versus late kills), and the way a new product
is defined (such as a product modification compared to a new-to-the world product).
There is a significant difference in new-product success rates from organisation to organisation.
A relatively recent survey conducted by the PDI and the APQC highlights a disparity that exists
between top- and bottom-performing organisations. The study of 257 organisations conducted in
2010 found that top-performing organisations (those that reported excellent returns from their new-
product activity over the last three years) achieved a commercial success rate of 68 per cent. Those
organisations killed off or cancelled 24 per cent of their new products prior to launch and
experienced just a 14 per cent commercial failure rate. On the other hand, low-performing
organisations (who experienced very poor to negative returns) achieved a 45 per cent commercial
success rate, a 34 per cent commercial failure rate, and killed off or cancelled 21 per cent of
products prior to launch.2 The researchers who conducted the study suggested that top-performing
organisations have more pre-launch kills than their low-performing counterparts due to factors such
as more rigorous criterion for passing each of the product development stages and in scrutinising
estimates that have been made concerning the market potential of each new product.
The seven key dimensions of NPD best practice

Numerous research studies have found that the quality of the organisation’s innovation process is a
key factor that distinguishes top-performing organisations from the rest. According to research
conducted by Kahn, Barzack, Nicholas, Ledwith and Perks, there are seven key dimensions that
determine the quality of the innovation process.3 These seven key dimensions form the framework
for the discussion of NPD best practices throughout the rest of this chapter.
FIGURE 9.1 The seven key dimensions of NPD best practice
Company culture Research
Project climate Strategy Commercialisation
Metrics &
Process
performance
Source: Kenneth B. Kahn, Gloria Barczak, John Nicholas, Ann Ledwith and Helen Perks,
‘An examination of New Product Development best practice’, Journal of Product Innovation Management,
Product Development & Management Association, 2012, vol. 29, no. 2, pp. 180–92.
Strategy
A well-defined and clearly communicated NPD strategy provides a sense of purpose and a focus for
all of the organisation’s NPD activities and processes. Strategy is therefore at the heart of the NPD
best practices framework shown in Figure 9.1. The characteristic of the strategy dimension is that
best practice organisations consider new-product development within the context of their mission
and vision, and their long-term strategic planning processes. These organisations continuously look
for future market opportunities and regard the identification of new-product projects as an ongoing
process. They have a systematic portfolio management approach in place comprising a balanced
mix of radical and incremental projects.
At the SBU level of decision making the focus is (or should be) on striking and maintaining
the right balance for the unit’s innovation portfolio. As was discussed in Chapter 4, research
conducted by Deloitte Consulting principals Bansi Nagji and Geoff Tuff has found that high-
performing organisations direct 70 per cent of their innovation resources to enhancements of their
core offerings (defined as incremental changes to existing products for existing customers), 20 per
cent to adjacent opportunities (existing or modified existing products for new markets) and 10 per
cent to transformational initiatives. However, as Nagji and Tuff point out, this is a generalised ratio
and individual organisations should strive towards striking a ratio appropriate for their specific
strategic situation, taking into account such factors as the industry environment in which they
operate, their competitive position and the stage of development they are in. For example, a leading
consumer goods company that Nagji and Tuff studied allocates resources on an 80/18/2 per cent
ratio while a mid-stage technology firm allocates resources on a 45/40/15 ratio. Nagji and Tuff
conclude that the organisation’s strategists should determine the ideal ratio for their organisation to
achieve in order to maximise its product-innovation return on investment (based on revenue growth
and market capitalisation). The next step is for the strategists to devise a plan for the organisation
to work towards achieving that ratio.4
At the product line level of strategy, the need for product development is driven by the
recognition of (i) changing customer preferences, (ii) technological and other macro environmental
changes, (iii) the introduction of new competitive products, and (iv) products in the line that are
nearing the end of their life cycle. In response to these driving forces of change, product managers
have two innovation strategies to consider: product line extension and product modification.
Product line extension as defined by the American Association of Marketing ‘… is a new product
marketed by an organisation that already has at least one other product being sold in that product/
market area. Line extensions are usually new flavours, sizes, models, applications, strengths, etc.
Sometimes a distinction is made between near line extensions (very little difference) and distant
line extensions (almost completely new entries)’.5
During the 1980s, product line extension was the strategy of choice for the vast majority of
consumer goods and services organisations. Extensions were considered to be a low-cost and low-risk
strategy designed to meet the needs of a proliferation of customer segments that were identified by
marketers at that time. Branding came under the spotlight as organisations reaped the benefits of
marketing a variety of products under the umbrella of a single brand. However, the downside of an
over-reliance on line extension was, as Quelch and Kenny warned the readers of the Harvard Business
Review in 1994, that costs could become dangerously high. They also argued that excessive
segmentation had led to confusion in the marketplace, along with the undermining of brand loyalty.6
One of the first companies to take action to address this growing problem was the giant
consumer-goods company Procter & Gamble (P&G). After decades of line extension upon line
extension, which saw up to 31 varieties of Head & Shoulders shampoo and 52 versions of Crest
toothpaste being marketed, P&G started to prune its product lines towards the middle of the
1990s. In 1996 P&G’s product lines were reduced to two-thirds of what they were a decade
previously. This was all part of a broader strategy of simplification involving the standardisation of
product formulas and packaging on a worldwide basis, the elimination of inefficient promotions,
the reduction of new-product launches and the divestiture of marginal brands. In hair care the
number of product items was slashed by over 50 per cent; yet, despite this, market share grew by
nearly five points to 36.5 per cent from 1991 to 1996.7
This P&G example highlights the trade-off type of decision making that needs to be carried out
between providing product line depth and diversity on the one hand, and the need to achieve cost-
effective production and marketing operations on the other. During the introductory and growth
phases of a product category, pioneers and fast followers typically pursue strategies of product
diversification to meet the needs of emerging market segments and for competitive reasons (such as
to deploy a flanking strategy or a reactive strategy: for example, launching a fighting brand to offset
a competitive product). However, by the time the product category reaches maturity, these
strategies often lead to a situation where the marketplace has become cluttered and confusing. This
is the time to consider product line pruning strategies. In conducting such a review, consideration
should be given to each individual product’s contribution to the overall profit of the product line.
This can be achieved by considering the extent to which each product contributes on a pro rata
basis towards covering the fixed and variable costs of the product line. From this analysis the
following four categories of contribution can be identified:
• products that contribute more than their pro rata share
• products that break even by covering their pro rata share
• products that don’t cover their pro rata share but contribute more than their incremental costs
• products that don’t cover their costs.8
Product modification is ‘the altering of an existing product to make it more appealing to the
marketplace’.9 In some industries, such as fashion, cars and consumer technology, the regular
introduction of a ‘new and improved model’ is a normal part of life. The new model may be a minor
update, such as an annual facelift for a car, or a more substantial update, such as the addition of
new features that are valued by the target market. The objectives of product modification are
twofold: customer retention strategies designed to increase the attractiveness of the product for
existing customers, and customer acquisition strategies designed to entice customers of competitive
products to switch and during the early stages of market evolution to attract new customers
entering the market for the first time.
Company culture
Best practices organisations emphasise the importance of fostering an innovation climate. They are
characterised by the presence of a value system that drives the way NPD is encouraged and
supported, including in the way top management supports the NPD process, such as the sources of
new-product ideas (with new techniques like crowdsourcing, open innovation and co-creation) and
how creativity is rewarded and encouraged. Best practice organisations focus on establishing cross-
company values and extra-company alliances and partnerships – collaboration with the
organisation’s external partners, customers and suppliers. In best practice organisations, innovation
is considered to be a core and continuous process rather than an intermittent or occasional process.
Project climate
Whereas the dimension of company culture addresses an organisation-wide focus on innovation
and creativity, project climate addresses intra-company and project-specific issues. In best practice
organisations, NPD activities are conducted by dedicated, accountable and empowered cross-
functional teams.
Research conducted over the last decades has found that between 70 and 97 per cent of
organisations use cross-functional teams for NPD.10 Moreover, 33 per cent of these organisations
use cross-functional teams 100 per cent of the time.11 These teams typically comprise specialists in
R&D, engineering, manufacturing/production and marketing. Often, personnel from functional
areas such as finance and purchasing are seconded to a NPD project team as the need arises.12
The creation of effective NPD cross-functional teams has been challenging for many
organisations. The complexity of team projects and the task of managing a team of individuals from
different professional backgrounds require a high degree of leadership and management prowess.
Different stages of the NPD bring about a number of different challenges for the project team. For
example, the front-end fuzziness stage of the concept development stage is largely experimental and
chaotic, which can be extremely stressful for some individuals. Likewise, the succeeding stage of
‘building a business case’ can prove to be stressful, due to uncertainty about such factors as the
potential demand for the new product, and overall project ambiguity.
Process
Best practice organisations have a well-established, robust idea-to-launch system of NPD in place,
such as the Stage-Gate¤ process of product innovation developed by Robert G. Cooper in the
1980s. Since that time, the model has been refined over and over again and road-tested by
thousands of organisations throughout the world. The Stage-Gate¤ process has become virtually
the universal model of product innovation, with over 80 per cent of the Global 1000 companies
adopting it.
As the name suggests, the Stage-Gate¤ model comprises two main elements: stages and gates.
Each of the five stages shown in Figure 9.2 consists of a set of prescribed, cross-functional and
parallel activities preceded by a gate or entrance to that stage by a Go/Kill checkpoint.
FIGURE 9.2 The Stage-Gate¤ process
Discovery
Idea screen
Gate
1 Second Go to Go to Go to
screen development testing launch
Gate Gate Gate Gate

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
2 3 4 5
Scoping Build Development Testing Launch

business and
case validation
Post-
launch
review
Source: A typical Stage-Gate¤ process as shown in R.G. Cooper, ‘Effective gating’, Marketing Management Magazine,
March–April 2009, Exhibit 2, p. 15.
The five stages comprise a set of required or recommended best practice activities that are
required to advance a project to the next gate or decision point. The activities for each stage are
conducted concurrently (that is, in parallel) by a cross-functional project team comprising
personnel from departments such as marketing, R&D, production or operations. A key feature is
that no department can take ownership of any stage.
The gates are the Go/Kill decision points that serve as quality control checkpoints. At each gate
the project team is required to bring to the decision point a set of deliverables such as the results of
the set of activities prescribed for the stage under review. The project is assessed against two sets of
criteria: must meet criteria (a checklist of knockout questions designed to weed out projects that are
misfits) and should meet criteria (such as a point system used to prioritise projects). Based on this
information, the gatekeepers’ task is to arrive at a Go/Kill/Hold/Recycle decision along with an
approved action plan for the next stage comprising timelines, resource requirements, and a list of
deliverables and dates for the next gate.13 The gatekeepers need to be cognisant that each stage of
the process costs more than the preceding one. Accordingly, they play a critical role in reducing the
unknowns and uncertainties in the project. As Cooper argues, ‘Gates need to have teeth’. That is,
the gatekeepers need be able to say ‘No’ and to be prepared to drown some puppies.14 At every
stage of the process two key questions are asked: (i) What is the customer value proposition? (ii)
Does this customer value proposition provide a competitive advantage (that is, superior value for
the customer)?
In brief, the activities required for each of the five stages of the process plus the two pre- and
post-process stages are as follows:15
• Discovery. The pre-work stage designed to discover and to generate new product ideas
(product ideation). These processes include: (i) technical research activities conducted for the
purpose of discovering new technological possibilities; (ii) voice-of-customer (VOC) research
designed to identify unmet or unarticulated customer needs – these research techniques
include focus groups, ethnography, and depth interviews of customers, non-customers and lead
users; (iii) competitive analysis and reverse brainstorming of competitive products; (iv)
employee suggestion schemes; (v) strategic-planning processes that uncover future innovative
disruptions, gaps and opportunities in the market; and (vi) open innovation.
• Scoping. A preliminary investigation and project-scoping set of activities mainly based on desk
research. It is a quick and relatively inexpensive process (typically completed in less than a
month) that is designed to provide the following information: (i) a preliminary market
assessment (estimates of market size and potential, plus the likely rate of product acceptance/
adoption based on a first-cut concept of the customer value proposition); and (ii) a preliminary
technical assessment (identification of potential sources of supply, technical and operations
feasibility, timing and costing estimates, and risk assessment – including technical, legal and
regulatory). The objective is to narrow down the number of projects to go to Stage 2 and to
provide first-cut marketing and financial information to be in Stage 2 for the projects that
survive.
• Build the business case. The critical homework stage of the process, consisting of a detailed
investigation based on primary market and technical research information in order to build a
business case focusing on product definition, project justification and the development of a
detailed project plan. This is a pivotal stage in the process, as the proceeding three stages are
where the heavy spending on NPD is incurred. Attention shifts away from the broad-brush
market and technical assessments undertaken in the scoping process and moves to a detailed
analysis. Market research is undertaken in order to gain detailed insights into customer
preferences and buying behaviour. Concept tests are conducted to evaluate the customers’
responses to the new-product idea, and competitive analysis is done to assess how the new
product will compare to existing and potential new competitive products (differentiation,
competitive advantage and superior customer value) and likely competitive responses to the
launch of the organisation’s new product. At the same time, a detailed technical appraisal is
prepared focusing on the economic and technical feasibility aspects of the new product, along
with risk assessment. The final requirement is to conduct a detailed business and financial
analysis including calculations such as net-present-value (NPV) and sensitivity analysis to
consider possible risks. This information is required for Gate 3 – the last point at which the
project can be killed prior to entering the costly development stage.
• Development. The detailed design and development of the new product includes product
prototype testing work. The deliverable is the development of an alpha-tested or lab-tested
product. During this stage, detailed production/operations, test and market launch plans are
developed. Financial plans are updated and product conformance issues (regulatory, legal and
patent) are resolved.
• Testing and validation. The objective of this stage is to validate the viability of the project.
These activities include laboratory and plant tests, field trials or pilot operations to check quality
and performance aspects of the new product, and test marketing in order to obtain customer
feedback, test the launch plan, and forecast market share and revenue projections.
• Launch. The commercialisation process, including production/operations, marketing, selling
and distribution. (Note: this process is discussed in further detail in a later section on
commercialisation.)
• Post-launch review. There are two post-launch reviews. The first is conducted two to four
months after the launch with the objective of assessing the project’s strengths and weaknesses
and what can be learnt from the project. The second and final review is typically conducted 12
to 18 months after the launch, when the project and product performance are assessed based
on the latest available revenue, costs, expenditure and profit data. This data along with timing is
compared to the projections made at Gates 3 and 5.
Time-to-market is a critical consideration in NPD. Too much time can open a window of
opportunity for competitors to pre-empt the launch of the new product and to establish market
leadership. As the pace of market change increased drastically during the 1990s, a practice known
as time pacing was adopted by a number of leading companies such as Cisco Systems, Emerson
Electric, Gillette, Sony, Starbucks and 3M. Time pacing is based on launching new products
according to the calendar. New products are introduced or existing products are modified on a
regular basis that keeps the NPD ticking over at a fast pace. Time pacing contrasts with what is
described as event timing – the call to action for product development in response to an event such
as a competitive move, changing technology, shifting customer demand or poor product
performance. The Stage-Gate¤ model addresses the timing aspect of NPD via the process of
parallel or concurrent development of each of the NPD stages.
Research
Best practice organisations employ a variety of research methodologies and techniques that are
used throughout all stages of the NPD process. At the idea-generation (ideation) stage, a
combination of traditional and new market-research techniques are used such as brainstorming,
focus groups, Delphi methodology, customer visits, conjoint analysis ethnography, lead user
processes, crowdsourcing and open innovation. Since the early 2000s, the techniques of open
innovation and crowdsourcing have evolved, with B2C organisations such as P&G, Starbucks,
Unilever and Nike leading the way. In 2001, P&G turned to an open innovation model, coined
Connect þ Develop, to drive its NPD process. In addition to the 7500 P&G staff involved in NPD,
active collaboration in the process is sought from a variety of external partners including inventors,
suppliers, university spin-offs and other organisations including competitors. In 2001 when the
strategy was launched, less than 15 per cent of P&G’s innovation initiatives involved external
partnerships. By 2006 the number had risen to 35 per cent and by 2008 to over 50 per cent. In
2013 two ambitious goals were established: for the Connect þ Develop program to deliver $3
billion towards the company’s annual sales growth by 2015, and for P&G to become the partner of
choice for innovation collaborations.
Just as P&G’s Connect þ Develop strategy has become an exemplar of open innovation best
practice, My Starbucks Idea has become an outstanding example of the use of online
crowdsourcing. Introduced in 2008, My Starbucks Idea has provided Starbucks with a wealth of
product and in-store experience innovation ideas. Of over 150 000 ideas submitted online by its
customers by mid 2013, Starbucks had implemented just under 300 new product innovations.
In addition to involving customers in the co-creation processes of NPD, market research is used
to gain information about competitive products, the macro-environmental forces driving current
and future market demand, concept and market testing.
Commercialisation
Commercialisation describes both launch and post-launch activities associated with the communication
and delivery of customer value. These activities include marketing, selling, logistics and customer service
(including technical support where appropriate). Commercialisation is often the single most expensive
stage of the NPD process and, in some cases, the cost of commercialisation exceeds the combined
costs of all of the preceding stages.
Best practice organisations start planning for the new-product launch in the early stages of NPD
with cross-functional involvement of personnel in areas such as marketing, logistics and customer
service along with the project-specific NPD specialists. The success of a new-product launch depends
on a number of strategic and tactical decisions including the following considerations:
1 Brand positioning and the customer value proposition. The strategists must ensure that the
value proposition – the reason to buy – is distinctive, easily understood and capable of being
clearly articulated. How much of the marketing communication effort will be needed to
communicate the value proposition? If the new product is designed to create a new-product
category (for the existing market), how much of the marketing communication effort should be
devoted to creating primary demand for the new category?
2 Competitive environment. What are the competitive products? What are the retaliatory moves
or counterattacks the key competitors are likely to deploy?
3 Readiness of the new product to go to market. Rushing a new product onto the market
before all the bugs have been ironed out can have disastrous consequences. Apple fell into this
trap with the launch of the Newton in the 1990s. John Sculley, the CEO of Apple at that time,
prematurely announced the development of the Newton at a consumer electronics show,
despite the fact that the new product was only at a very early stage of technical development.
As a consequence, demand for the introduction of the Newton, a personal digital assistant
(PDA), was such that the product was rushed to the market way ahead of the planned
schedule. The Newton failed to capture the dominant position in the PDA market that it had
created and eventually the project was spun off into an Apple subsidiary. Not to be outdone,
Microsoft launched its ill-fated Windows Vista program in 2007 complete with a multitude of
compatibility and performance problems. As a result Vista was a marketing flop. Time rated it as
one of the 10 biggest tech failures of the last decade.16 The market was largely underwhelmed
and the product failed to take off. Stage 4, the testing and validation stage of the Stage-Gate¤
model, is designed to prevent this type of problem from occurring.
4 Demand forecasting. The importance of test marketing and demand forecasting conducted
during Stage 4 of the Stage-Gate¤ process cannot be overstated. Short supply, in addition to
missing out on potential sales, can lead to a reseller and customer backlash. On the other side
of the coin, over-supply can be equally problematic as, in addition to ramping up inventory
costs, over-supply has the potential of sending signals to the marketplace about a lack of
customer uptake. Best practice manufacturing companies address the issue of supply by
integrating the function of logistics with manufacturing, marketing and operations. They also
use quick-response and flexible manufacturing techniques.
5 Timing. Sufficient time must be devoted to the sell-in phase of the new-product launch for the
sales force to gain the support of the organisation’s go-to-market partners. There must also be
sufficient time to allow for the physical distribution of the new product. Distribution often takes
longer than anticipated, which can result in either the launch being delayed or running the risk
of short supply. Launching a product too late in a key selling season can also have a devastating
effect on the success of a new product.
6 Pre-launch activities. Planning for the launch typically covers three sub-phases of activities:
pre-launch (sometimes referred to as a teaser campaign), launch and the launch follow-up. The
objective of the pre-launch or teaser campaign is to create a buzz; that is, to create interest and
a sense of excitement about the release of the new product. Marketing communication tools
such as publicity, word-of-mouth, viral advertising (word-of-mouth via social networking),
blogging (getting product influencers on board to spread the message), emailing, direct
marketing and advertising are typically used for this phase of the campaign.
7 Launch activities. The objective is to create awareness of the new product and to generate
demand. Marketing communication tools that are typically used include event marketing (think
Apple), publicity, advertising (traditional and digital), promotion and personal selling along with
customer service support. While not many companies can create as much interest in the release
of a new product as Apple, other event marketing tools can be considered such as presentations
to key clients or launching a new model or product at a trade show or exhibition.
8 Post-launch activities. The launch phase marks the beginning of the commercialisation
process, not the end. Marketing activities need to be continued in order to build on and to
sustain the sales momentum achieved during the launch phase. A most important objective is
to retain distribution support.
Metrics and performance

Metrics and performance refers to the way NPD performance is tracked, reported, recognised and
rewarded. Best practice organisations focus on performance goals for the entire NPD process.
These organisations specify criteria for each of the Go/Kill gates and other performance objectives
such as time-to-market. They also measure post-launch performance against objectives that were
established in key metrics such as the number of product inquiries (including via customer service
and website visits), brand awareness (aided and unaided recall and recognition), market share, sales
volume, retention rate (number of repeat buyers), customer satisfaction and brand perception. The
post-launch evaluation includes a review of the performance of the sales force, the organisation’s
go-to-market partners (including purchase reordering data) and the marketing communication
channels.
As discussed previously in reference to Stage 5 of the Stage-Gate¤ model, the first review
should be conducted two to four months after the launch, with the second and final review
conducted around 12 to 18 months after the launch. However, this is a generalised timing
suggestion and in fast-moving industries such as FMCG, where the success or failure of a
new product is literally determined within a few weeks, a much shorter timeframe would be
appropriate.
Kit Kat Chunky 3: Revitalising a brand icon
In 1935 a worker at the Rowntree factory in York studying at university, college or TAFE, doing an
put a suggestion in a recommendation box for a apprenticeship or working part-time. Qualitative
snack ‘a man could take to work in a box’. Today, research revealed that while enjoying the exciting
nearly 80 years later, Kit Kat, now owned by the world of possibilities of young adulthood, these 18–
global confectionery company Nestlé, is one of the 24-year-old males were often frustrated by factors
leading confectionery brands in the world. Its such as a lack of financial independence or having to
advertising slogan, ‘Have a break, have a Kit Kat’, live up to the expectations of others such as their
created by the JWT London executive Donald Gilles parents or line mangers at work. The research
in 1958, is one of the most memorable and somewhat surprisingly revealed that many of these
enduring advertising lines of all time. young males were in the habit of taking regular
Staying at or near the top in the fiercely breaks during the day at work or when studying.
competitive confectionery market is not an easy These breaks were considered to be a form of
task. Towards the end of the 1990s, Kit Kat was a release from the tensions they were experiencing
brand in decline. Consumer tastes were changing about not being able to spend more time on things
and competitors such as Cadbury and Mars had they really wanted to do, as opposed to things they
captured the imagination of the market with the had to do. Out of this insight came the realisation
introduction of new and innovative chocolate bars. that a break for these 18–24-year-old males gave
It was time for a change. them an opportunity to do what they wanted to
In 1999 Nestlé responded with the development do – to be able to enjoy themselves with some
of Kit Kat Chunky, a larger sized Kit Kat finger unexpected fun. This led to the big idea of the
designed to appeal to a target market of young adult campaign: ‘Get three times more from your break
males. Kit Kat Chunky was an instant hit and, over thanks to Kit Kat Chunky 3’s three surprising
time, proved to be one of the most successful textures, as you enjoy three things in one bar’.
innovations launched in the Australian confectionary The marketing communication strategy that was
market. During the next few years a series of flavour developed was based around the theme of ‘triple the
line extensions were introduced, but towards the fun in your break, with Kit Kat Chunky 3’. A
end of the first decade of the new century sales had combination of television, outdoor, digital and
started to decline. Once again it was time for a mobile media was used with the objective of
change. establishing deep engagement with the brand among
A Eureka moment occurred when concept the core target of 18–24-year-old males. A
testing of a new version of the product, which was centrepiece of the strategy was a user generated
being developed at the Nestlé factory in content (UGC) competition based around the
Campbellfield, Victoria, yielded extremely positive creation of a three-minute action video, ‘the
results. The new chocolate bar featured the Kit Kat ultimate Kit Kat Chunky 3 break’. A call-out video
brand’s signature wafer topped with three breakable was run on Kit Kat’s YouTube channel and Facebook
chunks comprising three different textures: fudge, page with a prize of $10 000 on offer for the
crisp and a sauce. The new chocolate bar would also winner along with the chance of appearing on
be offered in three different flavours: chocolate, national television in their own three-minute action
caramel, and cookies & cream. video. The submissions were uploaded to the Kit Kat
Planning for the launch of the new product YouTube channels and viewers were invited to vote
commenced with research into the broad Kit Kat online for their favourite video.
Chunky market, which was defined as young adult The results of the campaign exceeded all
males aged 16–28 years. Within this broad group expectations. Nestlé’s campaign tracking
the target market was further refined to zero-in on conducted three months after the launch showed
the 18–24-year-olds – those in a transitional stage that 55 per cent of males aged 18–24 were aware
of the new product (against a norm of 33 per cent Most importantly, the sales of Kit Kat Chunky were
after three months), while 60 per cent of all a phenomenal 54.2 per cent ahead of those of the
consumers were aware (against a norm of previous year. Woolworths named it the grocery
33 per cent). At the same time, 25 per cent of launch of the year for 2011.
males aged 18–24 (against a norm of 8 per cent) Source: Based on case material written by Andrew McCowan,
and 27 per cent of all consumers (against a norm Planning Director, JWT Sydney, as an entry submission for the
of 8 per cent) had trialled the new product. 2012 Australian Effie Awards.

Incremental product development is the need for product managers to consider product
lifeblood of many organisations. In common line extension and/or product modification
with market penetration strategies, incremental strategies.
innovation focuses on the creation, Best practice organisations emphasise the
communication and delivery of value to the importance of creating a company culture and
organisation’s existing customers. It is a strategy project climate that encourages innovation and
based on evolutionary, rather than creativity while at the same time establishing a
revolutionary, product innovation. systematic approach of NPD, typically based on
Organisations that succeed in product the Stage-Gate¤ process. In these
innovation approach the NPD process organisations, NPD activities are conducted by
systematically and have well-structured and dedicated, accountable and empowered cross-
applied product innovation processes in place. functional teams. These organisations also
Best practice organisations focus on seven invest heavily in market research, employing a
critical dimensions: strategy, company culture, variety of research methodologies and
project climate, process, research, techniques throughout the entire idea-to-
commercialisation, and metrics and commercialisation (and evaluation) processes.
performance. At the SBU level of strategy, the Finally, best practice organisations pay a
emphasis is on managing an innovation portfolio considerable amount of attention to the
with the objective of devoting resources to commercialisation and performance
projects that have the most potential for measurement processes. Planning for the
maximising the return on investment from product launch and post-launch activities
product innovation. At the product-line level of commences in the early stages of the NPD
strategy, changing customer preferences and process, with the management of the process
other macro-environmental forces drive the continuing through to the post-launch review.
1 Critics describe the practice of short 3 A member of a NPD was sceptical about an
product-replacement cycles as wasteful upbeat assessment of a new-product idea
planned obsolescence. Do you agree or that was derived from the concept testing
disagree? Discuss. process. She argued that, as concept testing
2 Is Apple in danger of being outflanked by is a notoriously flawed process, the
Samsung and other competitors in the assessment was rather meaningless. Do you
market for mobile digital devices?
agree or disagree with her views on the other segments do you think might have
adequacy of concept testing? Discuss. been included?
4 The target market of Kit Kat Chunky 3, as 5 Referring once again to the Kit Kat Chunky
discussed in the ‘Strategy in practice’ case 3 ‘Strategy in Practice’ case, is the
in this chapter, was defined very narrowly. positioning of Kit Kat Chunky 3 as ‘a snack
Do you agree with this decision? What to be enjoyed during a break’ too limiting?
ETHICAL ISSUE
Critics claim that incremental innovation is just environmental pollution. Do you agree or
a fancy term for planned obsolescence, which disagree with this viewpoint?
they argue encourages wastefulness and

Continue working on your strategic marketing product items need to be added or modified,
plan. Consider the product-line depth of the develop a new-product development strategy
project you are working on. Do you need to add for the product line.
or delete product items from the range? If

Explore Search me! marketing for articles • Stage-Gate¤ model
relevant to this chapter. Fast and convenient, • open innovation
Search me! marketing is updated daily and • new-product development best practices
provides you with 24-hour access to full text • innovation portfolio.
ENDNOTES
1 P. Drucker, The Practice of Management, Harper & Row, best practice’, Journal of Product Innovation Management,
New York, 1954, p. 53. Copyright Ó 1954 by vol. 29, no. 2, 2012, pp. 180–92.
HarperCollins Publishers. Reprinted by permission of
HarperCollins Publishers. 4 B. Nagji and G. Tuff, ‘Managing your innovation
portfolio’, Harvard Business Review, May 2012, reprint
2 ‘New product development: Embracing an adaptable R1205C, pp. 1–11.
process’, Product Development Institute and American
Productivity & Quality Center collaborative benchmarking 5 American Marketing Association dictionary:
study, December 2010, as reported in ‘Winning at new www.marketingpower.com/_layouts/dictionary.aspx.
products’, APQC, 2011, pp. 1–4. 6 J.A. Quelch and D. Kenny, ‘Extend profits, not product
3 K.B. Kahn, G. Barczak, J. Nicholas, A. Ledwith and H. lines’, Harvard Business Review, September–October
Perks, ‘An examination of New Product Development 1994.
7 ‘Make it simple’, Business Week, 9 September 1996, 12 A. C. Edmondson and I. M. Nembhard, ‘Product
pp. 56–61. development and learning in project teams’, Journal of
Product Innovation, vol. 26, 2009, pp. 123–38.
8 Based on S.C. Jain, Marketing Planning and Strategy,
South Western Publishing, Cincinnati, Ohio, 2000, 13 This section was based on R. G. Cooper, ‘Perspective:
p. 430. The Stage-Gate idea-to-launch process – Update, what’s
new and NextGen systems’, Journal of Product Innovation
9 Based on the American Marketing Association dictionary Management, vol. 25, no. 3, May 2008, pp. 213–32.
definition of product modification published at:
www.marketingpower.com/_layouts/dictionary.aspx. 14 R.G. Cooper, ‘Effective gating: Make product innovation
more productive by using gates with teeth’, Marketing
10 See, for example, the following studies: R.G. Cooper and Management Magazine, March–April 2009, p. 13.
E.J. Kleinschmidt, ‘Determinants of timeliness in product
development’, Journal of Product Innovation Management, 15 This section draws on the work of Robert Cooper as
vol. 11, no. 5, November 1994, pp. 381–96; A. Griffin, outlined in the following article: R. G. Cooper, ‘The
‘PDMA Research on new product development practices: Stage-Gate idea to launch system’ in (eds.) J.N. Sheth and
Updating trends and benchmarking best practices’, N.K. Malhotra, Wiley International Encyclopedia of
Journal of Product Innovation Management, vol. 14, 6 Marketing, John Wiley & Sons Ltd – Wiley Online
November 1997, pp. 429–58; E.F. McDonough III, Library, 2010, p. 7.
‘Investigation of factors contributing to the success of
cross-functional teams’, Journal of Product Innovation 16 D.A. McIntyre, ‘The 10 biggest tech failures of the last
Management, vol. 17, 3 May 2000, pp. 221–35. decade’, Time, 14 May 2009.
11 E.F. McDonough III, ‘Investigation of factors contributing

to the success of cross-functional teams’.
Strategy
evaluation and
control

CHAPTER
10
RADICAL INNOVATION STRATEGIES
I don’t care if it’s my idea, an employee’s idea, a competitor’s idea, a partner’s idea or some
other associate’s idea. My job is to build a culture of innovation. That’s something that we try to
enforce. We encourage it. We value it. We notice it. We compensate for it. We require it.
Marc Benioff, founder and CEO of Salesforce.com Inc.1
During the autumn of 1998 Marc Benioff, a of what was to become known as the ‘software-as-
senior vice president of Oracle Corporation, a-service’ (SaaS) model. Instead of paying an
developed an idea that he believed would upfront licence fee, Salesforce.com clients would
revolutionise the enterprise computer software pay a monthly fee to access Salesforce.com’s
industry. At that time software companies such Web-based standard CRM program, which they
as Oracle, Siebel and SAP would design and could then shape to fit their individual needs. By
install complex customised software systems for September 1999, Salesforce.com’s first clients had
their clients to manage various aspects of their been signed up and, by the end of the year, Benioff
business such as customer relationship decided it was time to leave Oracle for good. The
management (CRM) activities. The process was company, Salesforce.com, was officially launched in
costly and cumbersome, with software being February 2000 and by that time more than 200
distributed in the form of CD-ROM packages customers had signed up.
that took from six to 18 months to install. Fast-forward to 2013 when Salesforce.com
Inspired by the way Amazon.com had was ranked, for the third consecutive year by
developed such a clean and easy interface that INSEAD, as the world’s most innovative company.
could be customised for individual users, Benioff With a market capitalisation of $32.60 billion (in
thought ‘Why can’t enterprise software be like November 2013) and sales in excess of $3 billion,
this?’2 A few months later, with the blessing and Salesforce.com had come a long way since it was
support of his boss, Larry Ellison, Benioff and three founded in a one-bedroom apartment in San
colleagues founded Salesforce.com. In March 1999 Francisco. Along the way Marc Benioff created a
work began in a rented one-bedroom apartment to business revolution, a paradigm shift in the
write the code for a prototype of a new Web-based marketing and delivery of enterprise software. As
CRM software package. During this time Benioff one IT commentator expressed it, ‘Marc Benioff
still worked for Oracle but by mid-year, when the should go down in history – or at least the history
prototype had been developed, he took a leave of of the software industry – for his nearly single-
absence to devote more time to the development handed invention of on-demand computing’.3

This chapter examines radical innovation, the last and most extreme of the four modified Ansoff
product-market growth options discussed in the three preceding chapters. Radical innovation is a
term that stands for doing something different – the creation of a new product, product line,
process, system or business model that is significantly different from the business unit’s current
product offerings but within the scope of its business mission. Radical innovation stands apart from
the other three product-market strategy options, as it invariably requires the development of new
skills, techniques and facilities. It is also the riskiest of the four product-market options and the
one with the longest ROI payout. However, the failure to develop and introduce radical innovations
puts established organisations at risk. In 1957 the average life expectancy of corporations listed on
the S&P 500 Index was 75 years. Today it is just 15 years. Organisations that ignore radical
innovation do so at their peril.
Radical innovation is primarily a market driving strategy as distinct from a market driven
strategy. Market driving organisations such as Apple, Salesforce.com, Amazon.com, Body Shop,
Swatch, eBay, Starbucks, Dell and Wal-Mart are those that deliver a leap in customer value by the
development of a radically new product, process or business system. Radical innovation is a high-
risk strategy but offers the organisation the potential to create an entirely new industry or to
revolutionise or radically change an existing industry, with the opportunity to reap substantial
rewards. Market driving strategies differ from market driven strategies that are essentially
incremental innovation strategies (as discussed in the previous chapter).
The specific focus of this chapter is to examine:
• how radical innovation differs from the other three product-market growth options
• the processes involved in the creation of radical types of innovation strategies
• the strategies that a market pioneer or market follower can pursue in order to gain a competitive
advantage in a new market – or a new form of an existing market.
Radical innovation
Radical innovation includes the development of products that are new-to-the-world (new products
for markets that don’t presently exist) and products that are new-to-the-firm in markets that are in
an embryonic stage of development, including new forms of an existing market such as online, as
opposed to traditional forms of, stockbroking. Within these two broad categorisations there are a
total of four different types of innovations. (Note: the term ‘product’ is used as an umbrella term to
include not only physical products, but services, processes and business models.)
New-to-the-world product innovations:
• Breakthrough innovations. The creation of a product that enables the creation of a market that
did not exist before.
• Transformational innovations. Discontinuous, game-changing or radical new products that
disrupt entire industries.
• Blue ocean or value innovation strategies. Products that are designed to capture an untapped
market space (untapped or unfulfilled demand) by creating something that is fundamentally
new and that provides superior buyer value to customers in an existing market. The new
product offers a quantum leap in buyer value that serves to create a new market within an
existing market boundary.
Chapter 10 Radical innovation strategies 229
New-to-the firm product innovations:

• Market follower strategies. Products developed by a market follower to enter a market or new
form of a market that is in the embryonic stage of development. The new product may be based
on either innovative imitation (emulative new products that are significantly different in at least
one aspect from the competitive product or products) or product adaptation (modifying or
improving on the product innovation of others).
Big ‘I’ innovation – the fuzzy front end

of innovation
‘Big I’ innovation is a term proposed by George Day for the purpose of differentiating ‘big I’ new-to-
the-world and new-to-the-firm innovations from ‘little i’ minor projects.4 Big I projects are often
chaotic and unstructured and, for that reason, the beginning of the process is termed the fuzzy
front end (FFE) of new-product development. These are the processes that precede the formal and
structured steps prescribed in the Stage-Gate model discussed in Chapter 9. They are, as research
by Peter Koen and his colleagues has found, far more iterative and complex than the single ideation
step represented in the Stage-Gate model. In a study of FFE best practices for the Industrial
Research Institute (IRI) Koen and his colleagues developed a theoretical construct, defined as the
New Concept Development (NCD) model, to describe the various front-end inputs and activities.5
Figure 10.1 portrays these inputs and activities.
FIGURE 10.1 The New Concept Development model
Influ
enc
Idea
in
gF
Generation &
acto
Enrichment
Idea
Selection
rs
Opportunity
Analysis ENGINE
Concept
Definition
Opportunity
Identification
To NPD
and/or
TSG
Source: P. Koen et al., ‘Fuzzy front end: Effective methods, tools and techniques’, in P. Belliveau, A. Griffen and S. Sorermeyer (eds),
PDMA Toolbook for New Product Development, John Wiley and Sons, New York, 2002, Figure 1.2, p. 8.
The model is based on the notion the FFE exists in an environment of influencing factors as
shown on the outer ring. These influencing factors are primary contributors to the serendipitous
discovery of new ideas. They comprise the organisation’s internal capabilities (its ability to identify
opportunities, generate ideas and to develop concepts and technologies) and the external remote
and near environment forces – the driving forces of change (technology, economy, sociocultural,
political–legal, the natural environment, customer preferences, the competitive environment and
value chain environment).
The inner spoke of the model comprises five elements that represent the creative front-end
activities (opportunity identification, opportunity analysis, idea generation and enrichment, idea
selection and concept definition). Creative and innovative concepts may be strategy driven
(recognition of a changing industry environment), market or customer driven (such as recognition
of unfulfilled customer needs), technologically driven (research and technical development) or
serendipitously created. In many cases radical innovation is the brainchild of a visionary leader who
is able to recognise an opportunity that others could not see. In a research study of 25 pioneering
companies, Kumar, Scheer and Kotler found that the generation and development of an idea was a
combination of serendipity, inexperience and persistence.6 Howard Schultz, for example, founded
Starbucks in 1983 with the desire to bring the Italian coffee culture he had experienced in Verona
and Milan to America. Nicolas Hayek’s big idea of a ‘second watch’ as a means of self-expression
drove the development of Swatch, which underpinned the recovery of the entire Swiss watch
industry from a near-death experience in the early 1980s. Phil Knight, a certified public accountant,
and Bill Bowerman, a college track coach, had no sports-shoe industry experience when they
founded Nike, which meant that they were not inhibited by the industry’s perceived wisdom of how
things should be done.
Fred Smith’s persistence to overcome a multitude of problems that stood in the way of his
vision to create a guaranteed overnight delivery system is legendary. Smith originated the concept in
a term paper at Yale in the early 1960s and, after mulling over it for several years, founded Federal
Express in 1971 to bring to fruition his big idea.
The circular shape in the diagram of the NCD model (Figure 10.1) represents the notion that
ideas are expected to flow, circulate and reiterate among the five elements in no particular order.
The two inward arrows represent starting points at either the opportunity identification, or idea
generation and enrichment processes of idea generation. The exiting arrow represents a developed
FFE concept that now requires rigorous assessment as part of a more structured new product
development (NPD) and/or technology stage gate (TSG) process.
The inner hub of the model represents the engine (leadership, culture and the business
strategy) that drives the innovation process – that is, an organisational culture that encourages and
fosters innovation and creativity.
The design of an effective structure to manage innovation is a major challenge for most
organisations. Research conducted by McKinsey & Company in 2012 has shown that there is no
uniform view of how a separate innovation function should be designed. In a global survey of over
2900 business executives, McKinsey found that 27 per cent of the companies surveyed had
established an innovation centre; 25 per cent, a new-business development function; 18 per cent,
an emerging-business opportunities group; 11 per cent, an emerging-technologies group; 8 per cent,
an advanced-technologies institute; and 4 per cent, an incubator. (Note: Seven per cent of
respondents answered either ‘other’ or ‘don’t know’.) The survey also revealed that 62 per cent of
companies use more than one structural model to drive their innovation efforts.7
While there is no consensus about how major innovation projects should be managed, there is
nonetheless a fairly consistent view about the following issues:
i Organisational culture. A culture that encourages innovation and creativity is critical for the
success of new-product development. According to an extensive study of innovation results
conducted by Robert Cooper for the Product Development Institute, the number one factor
that distinguishes the top innovation companies from the rest is having ‘the right climate and
culture for innovation, an appetite to invest in innovative and more risky projects, and the right
leadership from the top’.8 Numerous other research studies have underlined the critical role
that senior managers play in fostering an innovative organisational culture.9 It has also been
found that the early involvement of a business-executive champion who has the capacity to
channel resources to new projects is critical to the innovation unit’s overall success.10
ii Strategic alignment. The innovative effort needs to be strategically aligned with the
organisation’s business. The McKinsey & Company survey found that companies that aligned
innovation with strategy were six times as likely as those without an integrated strategy to
effectively achieve their financial objectives.11
iii Striking the right balance. There needs to be a balance between too much autonomy and too
much structure. Freelancing without a sense of direction can be a ‘recipe for disaster’.12 On the
other hand, too much structure can stifle innovation. In a study of 62 teams from licensing
units across six large pharmaceutical companies, Henrik Bresman found that, on average, teams
operating under more rigorous organisational constraints exhibited less learning than teams that
operated under less structure.13
iv Collaborative teamwork. The establishment of a multifunctional team. Koen and his
colleagues recommend that a team of three to five people should be appointed to work full-time
on a large project. The team should have a project charter that clearly specifies the expectations
of the assignment, the resources to be committed and the expected outcome.14
Strategies for new-to-the-world innovations

Timing of market entry is a critical decision for new-to-the-world innovations. Should the
organisation be a pioneer and take first-mover advantage, or should it be a follower?
This is a question that, at first glance, would seem to be a no-brainer. But research conducted
over the last few decades has shown that being first into the market does not automatically
guarantee future success. In theory, a market pioneer is able to gain a ‘first-mover advantage’
(FMA) during the lead time it has over later entrants to the market by using this time to erect a
number of barriers to market entrance. The market pioneer would then go on to dominate the
market through the various stages of market evolution.15 However, not all market pioneers have
been able to effectively achieve a first-mover advantage, and research has shown that later entrants
have often been able to gain a competitive advantage by free riding and leapfrogging the pioneer
with superior technology and superior market positioning.16 Research conducted over the last three
decades has only served to confuse the issue of whether it is better to be a pioneer or a follower as
numerous studies support both sides of the argument.17 Adding to the confusion are observations
that the results of the studies are polarised by choice of research methodology and the type of
products in the sample.18 Many such studies have also been flawed due to definitional differences
relating to the terms ‘product’ and ‘market newness’.
Despite the debate about whether it is more advantageous to be a market pioneer or a market
follower, the challenge to successfully launch a new product and to sustain a competitive advantage is
formidable. It is even more so when the new product is based on radical, as opposed to incremental,
innovation. This was highlighted in a 2006 study by Min, Kalwani and Robinson, which found that
only 23 per cent of pioneers of radical innovations survived more than 12 years compared with
61 per cent survival of pioneers of incremental innovations over the same timeframe. These
researchers also found that pioneers of really new products are often the first to fail. In contrast, by
learning from the pioneers’ mistakes, early followers are not as vulnerable to exit (failure).19 Given the
enormity of the challenge, the first step for strategists considering the launch of a radical new product
is to develop an understanding of the mechanisms that provide a pioneering first-mover advantage.
Strategies for developing a first-mover advantage

Figure 10.2 shows the mechanisms that a market pioneer can use individually or in combination to
create and maintain a first-mover advantage (FMA). The centre circle in the model represents the
goal of first-mover advantage – to create, communicate and deliver sustainable customer value. This
is achieved by one or a combination of the following five FMA mechanisms: brand positioning and
segmentation strategies, technological leadership, value chain strategies, switching costs, and
economies of scale and experience.
FIGURE 10.2 First-mover advantage mechanisms
Brand positioning and

segmentation strategies
Technological leadership Switching costs
Superior
customer value
Economies of scale
Value chain strategies
and experience
Superior customer value

The objective of FMA is to create a product offering that will be perceived by customers and
potential customers to deliver superior value. As was discussed in Chapter 6, there are four major
types of customer value that the organisation can attempt to create. The first, functional/
instrumental value, is concerned with the extent to which the product meets the customers’ desired
attributes, its perceived usefulness, and the extent to which its performance meets customer
expectations. The second, experiential/hedonistic value, focuses on the extent to which the product
creates customer experiences, feelings and emotions. The third, symbolic/expressive value, focuses
on the psychological meanings customers attach to or associate with a product, while the fourth,
cost/sacrifice value, is concerned with the trade-offs that customers make between attempting to
maximise or realise product value benefits and minimising the transaction cost involved in the
purchase, ownership or use of the product.20
Brand positioning and segmentation strategies

A market pioneer is in a position to develop strategies that define the market expectations of the
product category – that is, by establishing primary demand for the product category and the sought-
product attributes and benefits that appeal to the largest segment of customers. This assertion is
underpinned by well-developed theories in the field of consumer behaviour such as a model developed
by Carpenter and Nakamoto. In an experimental research study, Carpenter and Nakamoto found that
during the early stages of market evolution, when little is known about product attributes or the ideal
combination of attributes, the market pioneer is in strong position to profoundly influence the
formation of preferences and to become the standard or prototype against which all later entrants will
be judged.21 A longitudinal experimental research study conducted by Kardes and Kalyanaram adds
another dimension to this finding by showing that differential learning about brands is a function of order
entry. The first brand in a new-product category is likely to be perceived to be novel and interesting,
thereby gaining the attention of potential customers. Much of this information is subsequently encoded
into the prospect’s long-term memory. As the market follower is likely to share many of the product
features and attributes with the pioneer, much of the information is likely to be perceived as redundant
and uninteresting. As a consequence, a deceasing amount of learning takes place about the brand. The
amount of redundant information increases as each new brand enters the market.22
Apart from incorporating the key attributes (product features and benefits) into the overall
product offering, the organisation’s strategists have at their disposal a variety of marketing tools
designed to create, communicate and deliver customer value. These include pricing, distribution,
marketing communication, customer service and customer engagement strategies. The objective is
to develop strategies that will define the rules of the game, and, by raising the cost of entry,
deterring competitors from entering the market.23
Technological leadership
The development of a radical new product provides the market pioneer with a first-mover advantage
as long as the organisation is able to keep that technology proprietary. In markets such as
pharmaceuticals, where technological advantage is largely a function of R&D expertise and
expenditure, this can be achieved by patent protection. In industries where this is not possible or
where patent protection is largely ineffective, secrecy and advances in the product innovation
learning curve are mechanisms that may be used by the market pioneer in an attempt to maintain
technological leadership.24 As evidenced by the ongoing ‘patent wars’ in the smartphone and tablet
product categories, patent protection provides only minimal first-mover advantage.
Technical leadership is particularly relevant for organisations pursuing functional/instrumental
value creation strategies.
Value chain strategies

The market pioneer may be in a position to influence both the upstream and downstream value chain
activities in the developing market by pre-empting sources of supply and tying up the distribution
channels. This is particularly relevant in markets where there are a limited number of suppliers, and
the pioneer is able negotiate exclusive long-term supply agreements that will have the effect of
creating a barrier to entrance for potential competitors. The pioneer also has the potential advantage
of being able to shape the way the new product is distributed (the type of distribution channels to be
used), and by establishing close relationships or strategic alliances with its distribution partners to
make life difficult for new market entrants. In B2B markets, distributors are often reluctant to take
on more than one or two competitive brands, as are retailers in many FMCGs markets.
Switching costs
Depending on the nature of the product and the technological complexity, switching costs can be
high and act as a deterrent for customers wanting to change suppliers. In some B2B markets, the
first-mover is able to impose a long-term buyer–supplier contact that would effectively prevent or
deter the buyer from making a switch. In some consumer-based markets, switching costs can be a
problem for the market pioneer. In markets such as consumer electronics, the market pioneers in
product categories such as music had to convince potential buyers to change their equipment to
play microgroove vinyl records in the 1950s, tapes in the 1960s, CDs in the 1980s and iPods in the
early 2000s. The pioneers for the introduction of each new technology had to invest considerable
time and effort into creating primary demand for the new technology, which made it easier for later
entrants to enter the market once this had been established.
Economies of scale and experience

The market pioneer has the advantage of occupying a monopoly position in the market until
competitors arrive on the scene. The objective is to build volume and achieve economies of scale and
an experience-based cost advantage over later entrants. Potential competitors may be deterred from
large-scale entry and choose to compete in a smaller-scale market niche. A market pioneer pursuing a
cost/sacrifice value strategy would be in a position to lower prices to deter new entrants. A market
pioneer pursuing a radical strategy (including functional/instrumental, experiential/hedonistic and
symbolic/expressive value creation strategies) could raise the bar higher for competitors entering the
market by using the cost advantage to fund continuing product improvement, to extend the product
line, or to increase marketing communication or customer engagement activities.
Size is also a critical factor in what is described as demand-side economies of scale or, more
commonly, network effects or network externality. In network- or system-based markets, where
interconnectivity and compatibility is a critical issue, the pioneer can gain a first-mover advantage
by establishing an industry standard operating system. JVC won the videocassette recording war in
the 1970s by building an alliance (a network) of consumer electronics manufacturers to support the
development of its VHS system. Sony, going it alone, found that it could not compete and
eventually had to abandon its Betamax system. Similarly, Apple lost out to IBM in the personal
computer market when IBM outsourced the production of its operating system to Microsoft
without locking in exclusivity. This paved the way for Microsoft to sell its operating system to all
personal computing manufacturers and to establish the industry standard.
Strategies for new-to-the-firm innovations

The main disadvantage of being a pioneer is failure to capitalise on the above opportunities and the
enormous cost of establishing primary demand for a new product category. Market followers may
also have an advantage brought about by technological advances that have the effect of rendering
the pioneer’s product or production processes obsolete.
A market follower, pursuing a product adaptation strategy based on modifying or improving the
product innovation of others, would typically invest far less in R&D than the pioneer or other early
entrants, thereby gaining a significant cost advantage in this regard. However, this may not be the
case for a market follower pursing an imitative innovative strategy based on the development of at
least one aspect of the pioneering product that is significantly different.
A follower can have the advantage of sitting back and waiting until the pioneer has built
sufficient primary demand and volume to make market entry attractive. The follower can take
advantage of mistakes made by the pioneer such as ineffective targeting and positioning (by not
tailoring the product to the needs of the main market segments), not taking up technological
improvements, problems with products (poor quality and/or lack of sought-product attributes),
marketing mix problems (such as overpricing the product), a failure to gain a critical mass for
distribution, ineffective marketing communication (including insufficient marketing communication
expenditure), unsatisfactory customer service, and inadequate resources devoted to launching the
new product. A follower, by addressing one or several of these mistakes made by the pioneer, has
the opportunity of successfully entering the market. In particular, a follower can achieve success by
entering the market on a larger scale than the pioneer and/or leapfrogging the pioneer with a
technologically superior product, a superior quality product or vastly superior customer service. In
some cases a follower entering the market with significantly larger resources may be able to achieve
low-cost leadership because of economies of scale (or predicted future economies of scale) to
enable it to significantly undercut the pioneer’s price. A pioneer responding to this lower price
might alienate the innovators and early adopters who paid higher prices when they purchased
the product.
In most cases a late entrant cannot aspire to a market-wide leadership position, as the pioneer
and early followers would have taken a major hold of most market segments. In this case a late
entrant would need to pursue a focus strategy by concentrating on one or two market segments that
have been largely untapped by the main players. The main players may have overlooked these
market segments or may have considered them to be too small to worry about. Alternatively, there
may be one or two emerging segments that a late entrant can enter before the main players do.
However, not all late entrants find it difficult to compete successfully in a new market, as was
the case when Apple entered the MP3 market in 2001 with the launch of its iTunes and iPod
products. At that time there were over 50 companies selling portable MP3 players and there were
numerous Internet music websites that offered free or paid-for access to songs that could be
downloaded to a personal computer or directly to an MP3 player. At that time, the music industry
was in a state of flux shaken by the short-lived entry of Napster into the market in 1999. Napster’s
peer-to-peer software provided a means for anyone with access to the Internet to download music for
free and, by mid 2000, over three billion songs had been exchanged that way. Following legal action
taken by the Recording Industry Association of America, Napster was shut down towards the end of
that year. This provided a tremendous opportunity for Apple in 2001 to launch its iTunes music
store – a move that provided a mechanism for preventing the pirating of music, thereby gaining the
support of the music industry. Apple was able to leapfrog all of the competitors in the market due to
a combination of superior technology, superior marketing and brand positioning. The combination of
iTunes and iPod technology allowed the seamless integration of the three components of the music
system (the music store, the player and the jukebox software) coupled with an easy-to-use interface,
and superb design and product quality. Apple broadened its appeal in 2002 when iTunes was made
available to Windows users, which paved the way for Apple to achieve market dominance. Just three
years after the introduction of iTunes/iPod, Apple had gained a 65 per cent share of the market.
When you next open a bottle of champagne to champagne grew so rapidly that they could not keep
celebrate a birthday, the New Year, a milestone event up with supply. Barbe-Nicole was determined to find
or whatever occasion you might have to celebrate, a solution to this problem and, in 1816, she came up
spare a thought for Barbe-Nicole Clicquot, the widow with an ingenious and simple invention. With the
who revolutionised the French champagne industry. assistance of her cellar master, Antoine de Miller, she
Like many innovative product developments, moved her kitchen table into Veuve Clicquot
champagne was an accidental discovery. Vineyards Ponsardin cellars and asked a workman to riddle the
had been planted in the Champagne region of tabletop with a number of slanted holes that were
France as early as the fifth century, but because of just large enough to hold the neck of a champagne
the region’s cold northerly climate, fermentation of bottle at an angle. She placed champagne bottles
the wine was often halted. As a result, the dormant upside down in each of the holes and then began a
yeast cells that were formed would awaken in spring daily process of gently tapping and turning each
and begin to ferment once again to release carbon- bottle to force the sediment onto the cork. This daily
dioxide gas bubbles in the bottled wine. The early ritual continued for six weeks when, with just a quick
wine growers tried to rid their wines of these flick of the cork, the residue was ejected leaving
unwanted bubbles, but over time, the sparkling behind a crystal-clear bottle of champagne.
version came to be desirable. During the The invention of the process known as remuage
seventeenth and eighteenth centuries, champagne (riddling) was a major technological breakthrough
grew in popularity to become the favourite drink of that provided Veuve Clicquot Ponsardin with a
the aristocracy and royalty in France, in many other massive competitive advantage, providing a
European countries and, particularly, in England. springboard for the company to become a major
However, the sediment from dead yeast during player in the rapidly growing champagne industry.
the secondary fermentation process meant that the Barbe-Nicole was unable to patent the revolutionary
champagne produced by the early champagne new technology but managed to keep it a secret until
houses was cloudy, unsightly and distasteful to drink. the end of the 1820s when all of the champagne
Methods that were developed to remove the houses adopted this production process, which
sediment either managed to spoil the quality of the remains in use in an automated version to this day.
champagne or were extremely labour intensive and Source: Based on T.J. Mazzeo, The Widow Clicquot,
tediously slow. This aspect of champagne production Harper Collins, New York, 2008. Copyright ª 2008 by
became a major problem for the champagne houses HarperCollins Publishers. Reprinted by permission of
in the early nineteenth century, when demand for HarperCollins Publishers.

Radical innovation strategies are based on the The generation of radically new ideas is
development of radical new-product offerings described as the fuzzy front end of innovation.
or business models that provide the The New Concept Development (NCD) model
organisation with an opportunity to reap discussed in this chapter provides a framework
substantial rewards or, in some cases, the for the development of radically innovative
ability to survive in a changing industry concepts. This model shows that there are
environment. Radical innovations are ‘big I’ influencing factors that are primary
processes or projects that require a different set contributors to the serendipitous discovery of
of capabilities, compared with ‘little i’ new ideas. These influencing factors include
sustaining or incremental innovation projects. the impact of the external environment in
which the organisation operates and the process, the next stage is to consider how the
organisation’s internal capabilities concerning innovative product or business model is to be
its ability to identify opportunities, generate launched. Two broad market-entry strategies
ideas, and develop concepts and technologies. were discussed: strategies for a market pioneer
The model also shows that there are five front- to gain a first-mover advantage, and strategies
end creative activities involved in the process of that a market follower might pursue in order to
developing radically new products or business take advantage of the pioneers’ mistakes.
models – opportunity identification, Mechanisms to achieve a first-mover advantage
opportunity analysis, idea generation and include brand positioning and segmentation
enrichment, idea selection and concept strategies, technological leadership, value chain
definition. Finally, the model identifies the role strategies, switching costs and economies of
that leadership, culture and business strategy scale and experience. At the heart of these
play in driving the innovation process. strategies is the objective of creating superior
After developing the big idea and putting it customer value.
through a rigorous stage-gate assessment
1 After reading this chapter, a principal forms of product offerings or business
partner of a leading firm of accountants models?
remarked that radical innovation is not a 3 How should the process of radical
strategy that his firm should consider. The innovation be most effectively managed?
thrust of his argument was that, ‘as current 4 Are small entrepreneurial organisations
auditing practices are not likely to change more likely to develop new-to-the-world
in the foreseeable future, it would be a product ideas than large organisations?
waste of time and money to chase after 5 Given the success of companies such as
useless ideas’. Do you agree or disagree Apple in developing an embryonic market,
with this point of view? is it better to be a market follower than a
2 What role does organisational culture market pioneer?
play in the development of radical new
ETHICAL ISSUE
Should governments do more to encourage a business culture of innovation?

Continue working on your strategic marketing that need to be addressed which require a
plan. From your earlier work in developing the focus on radical innovation? Incorporate these
situation analysis, and after reading this findings in your strategic marketing plan.
chapter, are there any threats or opportunities

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ENDNOTES
1 Salesforce.Inc was ranked the number one most 9 See, for example: R.G. Cooper and E.J. Kleinschmidt,
innovative company in the world by Forbes for three ‘Benchmarking the firms critical success factor in new
consecutive years from 2011 to 2013. H. Gregersen and product development’, Journal of Product Innovation
J. Dyer, ‘The world’s most innovative companies 2013’’, Management, vol. 12, 1995, pp. 374–91; M.X. Song and
INSEAD Knowledge, 9 September 2013, p. 1; (http:// M.E. Parry, ‘What separates Japanese new product
knowledge.insead.edu/innovation/entrepreneurship/the- winners from losers’, Journal of Product Innovation
worlds-most-innovative-companies-2013-2596). Copyright Management, vol. 13, 1996, pp. 422–39; M. Swink,
INSEAD 2013. ‘Technological innovativeness as a moderator of new
product design integration and top management support’,
2 J. Moline, ‘It takes a salesforce’, NYSE Magazine, 2004, p. 5. Journal of Product Innovation Management, vol. 17, 2000,
3 D. Pombriant, ‘The man who moved a paradigm’, CRM pp. 208–20; P.A. Koen et al., ‘New concept development
Magazine, November 2009, p. 1; www.destinationcrm.com/ model: Providing clarity and a common language for the
Articles/Columns-Departments/Reality-Check/The-Man- fuzzy front end of innovation’, Research Technology
Who-Moved-a-Paradigm-57845.aspx. Management, March–April 2001, pp. 46–55.
4 G.S. Day, ‘Is it real? Can we win? Is it worth doing?: 10 P.A. Koen et al., ‘Fuzzy front end: Effective methods, tools
Managing risk and reward in an innovation portfolio’, and techniques’, in P. Belliveau, A. Griffen and S.
Harvard Business Review, December 2007, pp. 110–20. Sorermeyer (eds), PDMA Toolbook for New Product
Development, John Wiley and Sons, New York, 2002, p. 15.
5 The Industrial Research Institute (IRI) research was
based on a study of front-end best practices of eight 11 McKinsey & Company, ‘Making innovation structures
companies of the IRI’s Process Effectiveness Network. work’, Insights and Publications, September 2012, p. 3.
Refer to P. Koen et al., ‘Providing clarity and a common 12 R.G. Cooper, ‘Perspective: The innovation dilemma: How
language to the fuzzy front end’, Research Technology to innovate when the market is mature’, Journal of Product
Management, March–April 2001, pp. 46–55. Innovation Management, vol. 28, 2011, p. 5.
6 N. Kumar, L. Scheer and P. Kotler, ‘From market driven 13 B. Kessler, ‘Get out of the way’, INSEAD Knowledge,
to market driving’, European Management Journal, vol. 18, 8 October 2013.
no. 2, 2000, pp. 129–42.
14 P.A. Koen et al., ‘Fuzzy front end: Effective methods, tools
7 The survey was conducted online in May 2012. A total of and techniques’, in P. Belliveau, A. Griffen and S.
2927 executives responded to the online questionnaire, Sorermeyer (eds), PDMA Toolbook for New Product
representing a full range of regions, industries and Development, John Wiley and Sons, New York, 2002, p. 18.
company size. Refer to: McKinsey & Company, ‘Making
innovation structures work’, Insights and Publications, 15 R.A. Kerin, P.R. Varadarajan and R.A. Peterson, ‘First-
September 2012; <www.mckinsey.com/insights/ mover advantage: A synthesis conceptual framework, and
innovation/making_innovation_structures_work_ research propositions’, Journal of Marketing, vol. 56, 1992,
mckinsey_global_survey_results>. pp. 33–52.
8 R. Cooper, ‘How to innovate when the market is mature’, 16 I. Abel, ‘From technology imitation to market dominance:
Journal of Product Innovation Management, vol. 28, 2011, The case of the iPod’, Competitive Review, vol. 18, no. 3,
p. 6. 2008, pp. 257–73.
17 S. Min, M.U. Kalwani and W.T. Robinson, ‘Market ‘Customer value creation: A practical framework’, Journal
pioneer and early follower survival risks: A contingency of Marketing Theory and Practice, vol. 15, no. 1, 2007,
analysis of really new versus incrementally new product- pp. 7–23.
markets’, Journal of Marketing, vol. 70, no. 1, 2006,
pp. 15–33. 21 G.S. Carpenter and K. Nakamoto, ‘Consumer preference
formation and pioneering advantage’, Journal of Marketing
18 I. Abel, ‘From technology imitation to market dominance: Research, August 1989, pp. 285–98.
The case of the iPod’, Competitive Review, vol. 18, no. 3,
2008, p. 259. See also: P.A. VanderWerf and J.F. Mahon, 22 F.R. Kardes and G. Kalyanaram, ‘Order-of-entry effects
‘Meta-analysis of the impact of research methods on on consumer memory and judgment: An information
findings of first-mover advantage’, Management Science, integration perspective’, Journal of Marketing Research,
vol. 43, no. 11, 1997, pp. 1510–19. August 1992, pp. 343–57.
19 S. Min, M.U. Kalwani and W.T. Robinson, ‘Market 23 T.S. Gruca and D. Sudharshan, ‘A framework for entry
pioneer and early follower survival risks: A contingency deterrence strategy: The competitive environment,
analysis of really new versus incrementally new product- choices and consequences’, Journal of Marketing,
markets’, Journal of Marketing, vol. 70, no. 1, 2006, July 1995, pp. 44–55.
pp. 15–33.
24 M.B. Lieberman and D.B. Montgomery, ‘First-mover
20 Based on Smith and Colgate’s concept of customer value advantages’, Strategic Management Journal, vol. 9, 1998,
creation, as described in: J.B. Smith and M. Colgate, p. 43.
PART
5
STRATEGY IMPLEMENTATION,
EVALUATION AND CONTROL
Chapter 11 Managing the strategic marketing process
Chapter 12 Writing the strategic marketing report
The best strategies in the world will fail if they are poorly implemented.
Part 5 focuses on the processes involved in the implementation, evaluation and control of market
strategies (Chapter 11) and the steps involved in writing strategic marketing reports (Chapter 12).
Strategy
evaluation and
control
CHAPTER
11
MANAGING THE STRATEGIC
MARKETING PROCESS
For too long, marketers have not been held accountable for showing how marketing expenditures
add to shareholder value. As time has gone by, this lack of accountability has undermined
marketer’s credibility, threatened the standing of the marketing function within the firm, and even
threatened marketing’s existence as a distinct capability within the firm.
Rust, Ambler, Carpenter, Kumar and Srivastava1
In 2001 Wachovia, a relatively small American would be the overall return, and what would be
regional bank, merged with First Union, a much the optimum mix of marketing expenditure?
larger banking and financial institution. A There were no easy answers to these questions,
decision was made to retain the name Wachovia which were at the forefront of debate in business
despite the fact that the brand was little known circles about the need for marketing
outside of the five southeastern states where it accountability and measurement.
was located. This decision, according to industry The first step that was taken was to assemble
analysts, was made on the grounds of Wachovia’s a team of staff from the corporate marketing
outstanding reputation for customer service. division and the customer insight and analytics
Recognising the fact that newly merged division to work closely with the company’s
entities typically experience a loss of customers financial group. Membership of the team was
and a decline in customer satisfaction scores, expanded to include personnel from TNS, a
Ken Thompson, the CEO of Wachovia, gave the leading market research company, and from
go-ahead for the marketing team to mount a UCLA’s Anderson School of Management. At
major branding initiative. As this initiative the outset of the project, it was determined that,
required a substantial amount of money to be because customer satisfaction was a major
spent on advertising, he demanded answers for strategic focus for the firm, the goal should be to
the following three questions: What would be the determine the economic value that would be
relative return on each component of the gained from their customers over their lifetimes.
company’s retail marketing expenditure? What Over the next few months, the team worked
244 Part 5 Strategy implementation, evaluation and control
frantically in designing and developing a of effort was devoted to the development of a

comprehensive marketing database consisting of market-response model designed to measure the
historical advertising expenditure across media, impact of each marketing variable through to the
customer satisfaction scores, and customer ultimate goal of estimating customer equity. This
acquisition, retention and loss information broken involved complex mathematics and Wachovia,
down by Nielsen’s designated market areas along with TNS, drew on the services of SAS for
(DMA) – the localities within the coverage area software support and MarQuant Analytics to
of specific television and radio stations. The provide mathematical expertise.
database even included information about the The model that was eventually developed was
number and locations of Wachovia branches, and market tested and finally made available for use
the number of service personnel within each by managers in 2006. The extensive effort was
branch. The database was eventually refined and worth it, as Wachovia managers then had a tool
divided into three categories of information that at their disposal that could be used to determine
affect customer equity: activities directly marketing mix allocations and the size of the
controlled by marketing (all forms of marketing budget they would need to provide in order to
communication, sales employees per branch, achieve the long-term goal of building customer
branches per capita and rate ratios), activities equity. During that time Wachovia was
indirectly controlled by marketing (news consistently ranked number one in the University
coverage, customer satisfaction and brand of Michigan’s customer satisfaction surveys, and
equity) and external factors (leading economic by 2008 it had become the fourth-largest
indicators, seasonality and identified shocks). bank-holding company in the US. At the end
While work was being conducted to develop that year the company merged with Wells
the marketing database models, a great amount Fargo & Company.2

In the 1970s and early to mid 1980s, marketing managers were preoccupied with processes for
creating winning marketing strategies. However, by the late 1980s, in the wake of the quality and
customer service revolutions and intensifying competition, implementation issues came to the
forefront for senior managers. During the 1990s supply chain management became increasingly
important, as speed to market became a critical success factor in many industries. At the same
time, as evidenced by the quotation at the beginning of this chapter, calls for marketing
accountability and measurability became louder and louder as marketers were expected to achieve
‘more bang for the buck’.
The last two stages of the strategic marketing management process are (i) resource allocation
and strategy implementation, and (ii) strategy evaluation and control. The focus of this chapter is
on developing an understanding of these stages, specifically:
• resource allocation – the decision-making processes involved in the allocation of financial
resources to fund the proposed marketing strategies
Chapter 11 Managing the strategic marketing process 245
• implementation – the processes and activities that transform marketing strategies into action
• evaluation and control of marketing performance – processes concerning evaluating marketing
performance, and for taking corrective action when plans go awry.
Resource allocation
As the saying goes, a marketing plan is only as good as the paper it is written on until such time as
it is approved by the appropriate level of management. The starting point of transforming marketing
strategies into action is therefore the steps involved in presenting the strategy recommendations for
approval. One of the most scrutinised parts of a strategic marketing plan or paper is resource
allocation. Marketing expenditure is often one of the largest expenditures for many organisations
and, as David Stewart, the winner of the 2007 Elsevier Distinguished Marketing Scholar Award,
has stated: ‘Its very size makes the marketing budget a target of interest to Boards of Directors and
senior management’.3
Resource allocation can be considered as a two-part process. The first part concerns high-level
decisions regarding the total size of the budget and managing the innovation portfolio; that is, the
allocation of resources concerning the enhancement of core offering (market penetration
strategies), market development, incremental innovation and radical innovation. These decisions
are typically made at the business-unit level of strategy. As was discussed in Chapter 4, strategic
gap analysis is a useful tool that highlights the differences between what the organisation needs to
achieve in terms of top-line revenue over the strategic timeframe, and what it is likely to achieve if
the current strategies are continued. The model invariably shows that a strategic gap potentially
exists, thereby highlighting the need for the development of strategies designed to close the gap. As
was discussed in chapters 4 and 9, research conducted by Deloitte Consulting has found that high-
performing organisations direct 70 per cent of their innovation resources to enhancement of their
core offerings, 20 per cent to adjacent opportunities (existing or modified existing products for new
markets) and 10 per cent to transformational initiatives. They point out that this is a generalised
allocation, and, for example, they have found that a leading consumer goods company allocates
resources on an 80/18/2 per cent ratio, while a mid-stage technology firm allocates resources on a
45/40/15 per cent ratio. The key point is that an ideal ratio needs to be determined for the
organisation in relation to its strategic situation and future ambitions.
The second part of the resource allocation process is to drill down to the strategic role of
marketing – that is, the allocation of resources to enable high-level marketing strategies to be
executed. How much money should be spent over the strategic timeframe for marketing-related
activities? How can this expenditure on marketing be justified? These questions that come under
the banner of marketing accountability and measurement have become a central concern for
marketing academics and practitioners in recent times. The importance that marketers have
attached to the topic was evidenced in the early 2000s when the Marketing Science Institute
(MSI) designated metrics, the measurement of the impact of marketing, as its top research priority.
Interest in the topic has only intensified since then.
The development of a marketing accountability and measurement model has proven to be a
major challenge for the marketing industry. Such challenges can best be explained by reference to
the stylised model of the marketing productivity chain shown in Figure 11.1. Overwhelmingly, the
focus for marketing has concerned (see the middle box in the figure) the measurement of
intermediate outcomes such as an increase in brand awareness (customer reactions) and sales or
market share (product-market impact) attributed to a particular marketing action, such as an
advertising or sales promotion campaign. These measurements address functional or tactical

aspects of marketing and stop well short of providing a linkage between the intermediate outcomes
and financial results.
FIGURE 11.1 A stylised model of the marketing productivity chain
Intermediate marketing outcomes

Marketing Financial
• Customer reactions
actions results
• Product-market impact
The key to providing this linkage according to Rust, Lemon and Zeithaml is to measure changes
in the organisation’s customer equity – the present value of the anticipated lifetime revenue from
the organisation’s current and potential customers less their acquisition and retention costs. Rust,
Lemon and Zeithaml argue that a focus on customers and customer equity reflects a shift in
marketing thinking that has taken place over the last two decades, away from a product-centred to
a customer-centred point of view.
Based on the notion of customer equity, Rust and his colleagues have developed a customer
lifetime value (CLV) model that links marketing actions to customer equity and financial return.4
The model provides strategists with a means for making what-if evaluations of marketing return on
investments based on high-level criteria that can be used to trade off marketing strategies in
general. The model, as shown in Figure 11.2, views marketing as an investment, as opposed to a
viewpoint held by many managers that marketing is a cost. It is suggested that marketing
investments should reflect broad, higher-level resource allocations; for example, by aggregating all
expenditures that relate a strategic investment category such as ‘perceived value’ (for example,
marketing activities that relate to perceptions of product quality and value for money), ‘brand
equity’ (brand-image activities, such as advertising and other marketing communication) and
‘relationship management’ (marketing activities such as loyalty programs and customer engagement
activities that are designed to foster customer loyalty).
The CLV model provides a means for the strategists to determine the return on each of the key
strategic investments or drivers of customer equity and, accordingly, to determine which of these
investments yields the greatest return. The investment leads to an improvement in each driver,
which in turn leads to improved customer perceptions. An improvement in customer perceptions
then results in increased customer attraction and retention that leads to increased CLV and
customer equity. The increase in customer equity less the cost of the marketing investment results
in the final computation of return on marketing investment.
The link that connects the drivers to customer perceptions (the second and third steps in the
model) is based on data obtained from a customer ratings survey where customers are required to
rate the perceived performance for the brand for each driver category. A feature of the model is that
it incorporates the impact of competitor offerings and brand switching.
The CLV framework developed by Rust and his colleagues was the first published framework
that was developed for evaluating return on marketing. Its value is that it provides strategists with a
basis for analysing, measuring and projecting ROI outcomes from alternative marketing
expenditures. As the Wachovia case discussed at the beginning of this chapter highlights, the
development of such a model involves complex mathematical modelling expertise.5
FIGURE 11.2 The CLV model of return on marketing investment
Marketing investment
Driver improvement(s)
Improved customer
perceptions
Increased Increased
customer customer
attraction retention
Cost of
marketing
Increased CLV investment
Increased customer equity
Return on marketing investment
Source: R.T. Rust, K.N. Lemon & V.A. Zeithaml, ‘Return on marketing: Using customer equity to focus marketing strategy’,
Journal of Marketing, vol. 68, 2004, p. 112.
Implementation
After gaining approval, the next step is to translate the proposed marketing strategies into
actionable or operational marketing plans such as an annual marketing plan, brand or product
plans, marketing communication plans and specific campaign plans such as for launching a new
product or entering a new market. These plans are developed within the context of the
organisation’s annual budgeting cycles and spell out in detail who is to do what by when. That is,
they assign specific responsibilities and resources to the appropriate functional areas within the
organisation and to key individuals in those areas.
The assignment of who is to do what has become a major concern for all types of organisations since
the 1990s.6 This concern was accelerated with the advent of the digital revolution in the early 2000s as
organisations struggled to come to grips with the rapidly changing marketing and business environment.7
The key consideration for these organisations is how to restructure their marketing activities in order to
become more responsive to their customers’ needs and to be able to create, communicate and deliver
value to these customers. To address this issue the following principles are suggested:
1 Organisation-wide coordination. As Peter Drucker so famously stated 60 years ago, marketing
must permeate all areas of the enterprise.8 New structures need to be created to break down
organisational silos to coordinate customer-engagement activities across a broad range of
customer touchpoints throughout the organisation, such as by establishing a customer-
engagement council (as was discussed in Chapter 6).
2 Clearly defined roles and responsibilities. Based on the principle that the ‘buck must stop
somewhere’, responsibility and accountability for marketing activities across the organisation
need to be clearly defined.
3 Core marketing activities. The traditional silo-based structure of a marketing department
should be abandoned and replaced with a hub-and-spoke structure, according to the views of
senior marketing leaders. These views emanate from a worldwide research study of senior
marketing leaders conducted by the American Association of National Advertisers, and the
World Federation of Advertisers and Effective Brands.9 It was recommended that the CMO
would be situated at the hub of a wheel, with managers or directors of functions such as
product, advertising, market research and marketing strategies creating the spokes and the rims
of the wheel. Figure 11.3 provides an illustration of this proposed structure.
4 A marketing ecosystem. Decisions need to be made about what marketing activities need to be
performed in-house and by partner organisations such as advertising agencies, digital agencies
and PR companies.
5 Appointment of a chief experience officer. This could be the CMO or another individual who
is given the responsibility for overseeing marketing staff that perform the following three broad
types of activities: think (activities performed by analytics marketers), feel (activities performed
by engagement marketers) and do (activities performed by production and content marketers).10
6 Marketing operations management. As managing the marketing function has become
increasingly complex, a number of organisations, particularly those in high technology, have
appointed a marketing operations director (MOD) to take charge of implementing marketing
strategies and managing the organisation’s day-to-day marketing operations. In the era of the
FIGURE 11.3 A hub-and-spoke structure of the marketing department
Product
Manager
Marketing
Promotion
Strategies
Director
Director
CMO
Market
Advertising
Research
Director
Director
PR
Manager
Source: Based on the publication of internal research findings from a study conducted by the Association of National
Advertisers, and the World Federation of Advertisers and Effective Brands. Referenced in J. Rooney, ‘Here’s what the marketing
organization of the future should look like’, Forbes, CMO Network, 10 April 2013; Millward Brown Vermeer.
Internet, mobile technology, big data, customer engagement and customer relationship
management (CRM) technology is a key enabler of marketing processes and activities and,
accordingly, the MOD would be expected to play a leadership role in providing the interface
between marketing and IT.
The above principles serve as a general guideline for those facing the challenge of restructuring
their organisation’s marketing activities. A key consideration for those involved is to develop a
structure that aligns with the organisation’s overall customer value creation strategy (as was
discussed in Chapter 6). For example, organisations that compete by the creation of superior
experiential value would need to focus on excelling in customer service and customer support,
while organisations competing on the basis of creating superior symbolic/expressive customer value
would need to focus on the development of a brand image/brand equity strategy where advertising,
PR and customer engagement and support are the centre of their marketing activities.
‘If it can’t be measured, it’s not worth doing’ is a responses to this question, customers are then
philosophy adopted by Phil Soden, General divided into three distinct categories: detractors
Manager Group Marketing of HCF Australia (dissatisfied customers), passives (satisfied
Limited, a not-for-profit private health-insurance customers but only moderately) and promoters
company. HCF competes in the $14 billion (customers who are delighted with the company and
Australian health-services industry against three likely to recommend it to others).
major players, Medibank Private, BUPA Asia Pacific Results are summarised into control panels and
and HBF Health Funds, which together with HCF senior managers are provided with continuous
account for more than 70 per cent of the industry’s updates about the current status of HCF’s
revenue. customer base across all customer touchpoints.
HCF’s mission is to become the leader and the NPS results are categorised demographically, by
benchmark for excellence within the private health- region, by product and by revenue, and are provided
insurance industry. The company’s management is for every branch, call centre, website, dental and
determined to maintain the highest standards of eye-care centre. The research is also used to
governance and reporting, and all aspects of its benchmark members of competitors, and customers
performance are benchmarked against the best of in a number of selected industries.
corporate organisations listed on the Australian Other dashboard reports cover data inputs from
Securities Exchange (ASX). In 2013, HCF was financial performance, internal sales and lapse
awarded its fifteenth Gold Award from the statistics, industry performance data and market
Australian Reporting Awards. survey information, and brand image and competitor
HCF’s operations are underpinned by the activity (expressed as Share of Voice per market).
Kaizen system of continuous improvement. KPIs, Detailed industry data is also obtained from
based on balanced scorecard categories, are government sources (Private Health Insurance
established for each aspect of HCF’s operations. Administration Council and Private Health Insurance
These performance targets are then monitored on Ombudsman) and ad hoc syndicated research that
an ongoing basis. provides a big-picture view of HCF’s performance.
Customer loyalty is measured according to a This ongoing performance system has
tool termed net promoter scores (NPS) developed contributed to the overall success of HCF, which
by the Bain consultant, Fred Reichheld.11 NPS has grown consistently at around twice the industry
measures customer loyalty based on asking a sample rate in terms of these marketing-related KPIs.
of the organisation’s customers a single question: Source: Based on an interview with Phil Soden, General Manager
‘How likely is it that you would recommend this Group Marketing of HCF Australia Limited, 12 November 2009;
organisation to a friend or colleague?’ Based on the HCF, Media Release, 19 June 2013.
Evaluation and control of performance

Just as considerable care must be exercised in implementing marketing strategies, equal care must
be given to establishing an effective evaluation and control system. The task here is to determine
what is to be evaluated, how it is to be evaluated (internal or external data including primary and
secondary data), who is to supply the data (the suppliers of information such as external research
organisations), and when it is to be evaluated. The objective is to provide a mechanism for tracking
the strategies articulated in the marketing strategy document to ensure that the long-term
objectives will be achieved. This includes a triggering system to provide an early warning when
performance starts to wander off-track.
In determining what is to be measured, it is necessary to differentiate between metrics that can
be classified as either a leading or lagging indicator. Leading indicators provide clues as to future
marketing performance. That is, they are metrics that signal future performance and are mainly,
but not exclusively, concerned with measurements of effectiveness – measurements relating outputs
to the ends or objectives of an organisation. Leading indicators are the antecedents of future
marketing performance that can be measured in terms of hard data, which in turn can be classified
as financial outcomes including performance in terms of top- and bottom-line revenue and return
on investment (ROI) for marketing activity. That is, leading indicators are the inputs to the CLV
return on the marketing investment model discussed earlier in this chapter.
Lagging indicators are measurements of past performance (after-the-event metrics). In providing
information about how well the organisation has performed in the past, lagging indicators are
mainly concerned with issues of efficiency – metrics concerned with profitability and return on
investment (ROI) for marketing activity. As Peter Drucker has observed: ‘Effectiveness is the
foundation of success – efficiency is the minimum condition for survival after success has been
achieved. Efficiency is concerned with doing things right. Effectiveness is doing the right things’.12
WHAT IS TO BE HOW IT IS TO DATA SOURCE WHEN IT IS TO

MEASURED BE MEASURED BE MEASURED
Consideration of how each metric is to be measured involves decisions concerning methodology.

For example, tracking studies can be used to measure shifts in customer attitudes, perceptions,
awareness levels, comprehension levels, conviction levels and intention to buy. Brand equity can be
measured financially and/or non-financially, and there are a number of methodologies available for
this form of marketing measurement. Methodology can include quantitative and qualitative data. The
sources of marketing information range from internally generated data, such as sales and expenditure
data, to external secondary or primary data sourced from various market research and other providers
of marketing intelligence. Decisions need to be made about the methodology that is to be used for
measuring each metric and about the supplier of that information. Finally, decisions need to be made
about the frequency of measurement and evaluation. Given that high-level marketing strategies are
concerned with performance over a relatively long timeframe, a balance needs to be achieved
between having too much control, encouraging too much short-term corrective action, and not having
enough control. Frequency of evaluation for these longer-term marketing strategies needs to take into
account the nature of the metrics involved, and the metrics that are more appropriately used in an
organisation’s annual marketing planning cycle. For example, if performance measurement for
tactically based marketing, advertising or brand plans is conducted on a monthly basis, then it would
be appropriate to assess long-term strategic plans annually.
Since the early 2000s, marketing dashboards have become commonplace in many organisations.
A marketing dashboard is essentially a graphic display of key performance metrics and underlying
short- and long-term performance drivers that are provided for the organisation’s personnel on their
desktop computers and their mobile devices such as an iPad or smartphone. A dashboard can be
created internally or by external providers such as SAS or Dundas.13 The use of a dashboard
provides the organisation’s decision makers with a summarised view of marketing information that
can be used for planning, budgeting and monitoring purposes.
A marketing control system

A marketing control system, as shown in Figure 11.4, consists of four stages of activity.
Benchmarking – identification of an appropriate standard

There are two types of standards: comparative (based on a comparison with competitor
performance, industry averages, world best practices and historical performance levels), and ideal
(established on what is thought to be perfection). However, the latter standard is by nature
subjective, and leading companies and those focusing on a differentiation strategy of product
quality may not find this a meaningful measurement criterion. Standards should be set within the
context of the external environment. For example, if economic conditions are improving, standards
should be set higher than for previous years. In times of economic downturn, standards may need
to be adjusted downwards to reflect the changed conditions.
Corrective action
Performance measurement reveals problems that have occurred in long-term and short-term
strategy implementation. The next step is to determine why these problems have occurred. There
FIGURE 11.4 A marketing control system
Benchmarking – identification of
an appropriate standard
Measurement of performance
Evaluation of performance
Corrective action
are, essentially, two causes of marketing-strategy implementation problems: an unsatisfactory

marketing effort, and changes in the external environment such as a shift in the economy, new
legislation or competitive activity. Problems with the marketing effort would lead to a focus on ways
of improving performance, while changes in the external environment may call for a modification of
the objectives originally set in the marketing strategy plan.
There are three types of control systems: after-the-fact, steering-control and adaptive-control
systems. An after-the-fact control system measures performance at the end of the planning period.
The problem with this approach is that nothing can be done to address any problems that might
emerge during the planning period. A steering-control system is a reactive system that provides for
the detection of problems and for the implementation of corrective action during the planning
period under review rather than at the end of the period. It therefore facilitates corrective action to
be taken before performance wanders too far off-track. An adaptive-control system is a proactive
system whereby management anticipates changes that have taken place or are occurring in the
environment, and modifies objectives and strategies set out in the marketing strategy document to
adapt to the new situation. This is an essential aspect of strategic control, as marketing strategies
developed over long periods can reflect objectives and strategies that become unrealistic over time.
If problems have been uncovered in the evaluative process, corrective action needs to be taken. It is
important that appropriate action is taken as quickly as possible to prevent a deteriorating situation.
On the other hand, hasty reactions can often lead to detrimental results. It is essential that a proper
balance is achieved between satisfying both the short-term and the longer-term performance
requirements.
Strategic fit between marketing strategy and implementation

An important aspect of evaluation of performance is to determine whether the organisation has
been able to effectively implement its chosen strategies. Figure 11.5 shows a classical model
proposed by Bonoma that provides a framework for evaluating strategic fit.
FIGURE 11.5 A model of strategic fit between marketing strategy and implementation
Strategy
Excellent Poor
Excellent
Implementation
Success Rescue or ruin

Poor
Trouble Failure
Source: T.V. Bonoma, ‘Making your marketing strategy work’, Harvard Business Review, March–April 1984.
• Success. The implementation was excellent and the strategy was appropriate (in terms of its fit
with the market and the competitive environment).
• Rescue or ruin. The implementation was excellent, hiding the deficits of an inappropriate
strategy. This may give management time to adjust the strategy but it may also hasten ultimate
failure.
• Trouble. The implementation was poor, hampering performance of an appropriate strategy. The
potential danger is that management could incorrectly conclude that the strategy was
inappropriate and switch to another less-appropriate strategy.
• Failure. The implementation was poor and the strategy was inappropriate. The cause of failure
is often hard to detect because the poor strategy is often masked by the poor implementation.14
Marketing performance as part of a holistic

management system
In 1992 Kaplan and Norton introduced the concept of the balanced scorecard, arguing that
effective organisational performance measurement needs to be considered in the context of being
part of an integrated management process.15 The balanced scorecard sets out to provide a
‘comprehensive framework that translates a company’s strategic objectives into a coherent set of
performance measures’.16 The process forces managers to focus on a handful of measures that are
the most critical for the organisation’s success, thereby placing strategy, not control, at the helm.
The balanced scorecard provides performance measurement based on four important
perspectives, which can be seen in Figure 11.6.
FIGURE 11.6 The balanced scorecard
Financial Perspective
• Measures that indicate whether the
company’s strategy, implementation
and execution are contributing to
bottom-line improvement
Customer Perspective Internal Business Perspective

• Time • Focus on what the company
• Quality must do internally to meet
• Performance customers’ expectations
• Service
Innovation and Learning Perspective

• Continual improvements to existing
products and processes
• Ability to introduce entirely new
products with expanded capabilities
Source: Based on R.S. Kaplan and D.P. Norton, ‘The balanced scorecard – measures that drive performance’,
Harvard Business Review, January–February 1992, pp. 71–9.
Kaplan and Norton contend that the balanced scorecard provides answers to four basic
questions pertaining to these perspectives: How do our customers see us? (a customer perspective);
What must we excel at? (an internal perspective); Can we continue to improve and create value?
(an innovation and learning perspective); How do we look to our shareholders? (a financial
perspective). All of these perspectives impact on the processes of marketing but of primary
importance is the customer perspective. Customer performance issues include lead time
(measurement of the time it takes for the organisation to deliver the product or service from the
time the order is received), quality (product quality and on-time delivery), and performance and
service (how the organisation’s products or services create value for its customers). These four
perspectives act as a basic model from which organisations can develop their own customised
scorecards that fit their mission, strategy, technology and culture.
According to research published by the Gartner Group, 40 to 60 per cent of US firms had
adopted the balanced scorecard system by the end of 2000.17 Moreover, Kaplan argues that the
balanced scorecard can be combined with other measurement systems such as economic value
added (EVAä) and activity-based costing (ABC).18 Given the popularity of these systems, it is
anticipated that interest in performance measurement systems will continue for many years. The
key point to be appreciated by marketers is that marketing performance measurement needs to be
considered within the broader context of strategic management and management performance
evaluation systems.
It should also be noted that Kaplan and Norton contend that the balanced scorecard approach
is more than just a tool for performance measurement. As was discussed in Chapter 2, Kaplan and
Norton have proposed that organisations should establish at the corporate level an office of strategy
management to oversee all strategy-related activities, from strategy planning to execution and
performance measurement. The balanced scorecard becomes the centrepiece of the organisation’s
strategy management system, with the office of strategic management taking responsibility for
overseeing the alignment of all of the management processes with strategy.19

Since the late 1980s, marketing practitioners CLV model discussed in broad detail in this
and academics have become increasingly chapter provides a means for achieving this.
interested in the implementation aspect of the Once the marketing objectives, strategies
marketing concept. Developing great marketing and budgets have been approved by senior
strategies is one thing, but implementing them management, the emphasis then progresses
effectively and efficiently is another. Market- towards the implementation of the proposed
oriented organisations put considerable effort marketing strategies. This involves the
into getting both parts of the equation right. specification of who is to do what by when. At
They emphasise a holistic approach to the the centre of these deliberations are concerns
development and implementation of marketing about how marketing activities are to be
strategies. performed at both the organisation-wide and
The first step is to obtain appropriate senior marketing-function levels of operation.
management approval for the proposed Recommendations include the creation of a
marketing strategies. A most important aspect customer engagement council, a hub-and-
of this decision-making process is resource spoke structure of the marketing department
allocation and budget approval (that is, and the appointment of a marketing operations
obtaining approval for the allocation of financial director to take responsibility for the
resources as proposed in the recommended implementation of marketing strategies and the
marketing strategies). An important underlying day-to-day marketing activities.
principle of financial resource allocation is that The next stage of the marketing
marketing expenditure must be linked to the implementation process is to evaluate and
financial performance of the organisation. The control marketing performance. This involves a
four-stage process consisting of benchmarking, new circumstances. In this way performance

measuring performance, evaluating assessment can be made against market
performance and taking corrective action. realities rather than superseded assumptions.
Ideally, an adaptive-control system should be Performance should also be assessed in terms
put into place so that changes in the of the strategic fit – the effective
environment can be detected and objectives implementation of appropriate marketing
and strategies can be modified according to the strategies.
1 After reading the ‘Strategy in Practice’ case chapter concerning the establishment of a
in this chapter, a marketing director of a customer engagement council. ‘At the end
large FMCG company questioned the value of the day’, he argued, ‘the members of the
of assessing customer loyalty on the net council report to their line manager, not the
promoter score (NPS) metric. ‘Too easy to head of the so-called customer engagement
manipulate’, she claimed and ‘too much council. Without reporting authority the
over-used. I’m not sure how much thought council could end up being a toothless
goes into ticking a box such as tiger’. Is he right? How could this problem
recommending the product to a friend’. Is be overcome, if at all?
she right? What are your views? 4 The finance director also argued that the
2 The same marketing director also questioned proposal to add a director of marketing
the value of a marketing dashboard. ‘It directs operations was a waste of money. ‘Shouldn’t
too much attention towards short-term implementation be the responsibility of the
performance’, she claimed. Do you agree? If CMO?’ he argued. What do you think?
this is a problem, can it be overcome? 5 List the marketing metrics that would be
3 The finance director of the same company appropriate for Apple to use.
was sceptical about the proposal in this
ETHICAL ISSUE
Should CEO bonuses be linked to benchmarked customer satisfaction scores?

Continue working on your strategic marketing way your proposed marketing strategies are to
plan. Describe in broad detail your proposed be implemented, measured, evaluated and
resource allocation/marketing budget and the controlled.

Explore Search me! marketing for articles http://login.cengagebrain.com using the access
relevant to this chapter. Fast and convenient, code that comes with this book, which provides
Search me! marketing is updated daily and 12 months access. Try searching for the
provides you with 24-hour access to full text following key words:
articles from hundreds of scholarly and popular • customer equity
journals, eBooks and newspapers, including • customer lifetime value model
The Australian and The New York Times. Log in • marketing dashboards
to the Search me! marketing database via • balanced scorecard.
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information from both local and international spellings in your searches, e.g. ‘globalisation’ and
sources. To get the greatest number of search ‘globalization’; ‘organisation’ and ‘organization’
ENDNOTES
1 R.T. Rust, T. Ambler, G.S. Carpenter, V. Kumar and R.K. 9 Based on the publication of initial research findings from
Srivastava, ‘Measuring marketing productivity: Current a study conducted by the Association of National
knowledge and future directions’, Journal of Marketing, Advertisers, and the World Federation of Advertisers and
October 2004, pp. 76–89. Ó 2004; permission conveyed Effective Brands. Refer to J. Rooney, ‘Here’s what the
through Copyright Clearance Center, Inc. marketing organization of the future should look like’,
Forbes, CMO Network, 10 April 2013.
2 Based on D.M. Hanssens, D. Thorpe and C. Finkbeiner,
‘Marketing when customer equity matters’, Harvard 10 J. Rooney, ‘Here’s what the marketing organization of the
Business Review, May 2008, pp. 117–23. future should look like’, Forbes, CMO Network, 10 April
2013.
3 D.W. Stewart, ‘Marketing accountability: Linking
marketing actions to financial results’, Journal of Business 11 F. Reichheld, The Ultimate Question, Harvard Business
Research, vol. 62, 2009, p. 636. School Publishing Corporation, 2006.
4 R.T. Rust, K.N. Lemon and V.A. Zeithaml, ‘Return on 12 P. Drucker, Management: Tasks, responsibilities and
marketing: Using customer equity to focus marketing practices, Harper & Row, New York, p. 45.
strategy’, Journal of Marketing, vol. 68, 2004, pp. 109–27.
13 Examples of marketing dashboards can be seen at:
5 The Rust el al. article includes a detailed description of www.sas.com and www.dundas.com/gallery/sample-
the statistical and implementation details, including data dashboards/.
options, model input and model estimation. Refer to R.T.
Rust, K.N. Lemon and V.A. Zeithaml, ‘Return on 14 T.V. Bonoma, ‘Making your marketing strategy work’,
marketing: Using customer equity to focus marketing Harvard Business Review, March–April 1984.
strategy’, Journal of Marketing, January 2004, pp. 109–27. 15 R.S. Kaplan and D.P. Norton, ‘The balanced scorecard –
6 For further information concerning the changes that measures that drive performance’, Harvard Business
occurred in the organisation of marketing during the Review, January–February 1992, pp. 71–9.
1990s refer to C. Homburg, J.P. Workman Jr and O. 16 R.S. Kaplan and D.P. Norton, ‘Putting the balanced
Jensen, ‘Fundamental changes in marketing organization: scorecard to work’, Harvard Business Review, September–
The movement toward a customer-focused organizational October 1993, p. 134.
structure’, Journal of the Academy of Marketing Science,
vol. 28, no. 4, 2000, pp. 459–78. 17 Cited in A. Neely and M. Bourne, ‘Why measurement
initiatives fail’, Measuring Business Excellence, MCB
7 See, for example, the following three articles in the University Press, Bradford, York, 2000, p. 3.
McKinsey Quarterly that have discussed the changing role
of marketing: D. Court, ‘The evolving role of the CMO’, 18 R.S. Kaplan, ‘Integrating shareholder value and activity-
The McKinsey Quarterly, 3, 2007, pp. 29–39; T. French, based costing with the balanced scorecard’, Harvard
L. LaBerge and P. Magill, ‘We’re all marketers now’, The Management Update, 2001, pp. 3–6.
McKinsey Quarterly, July 2011; T. French, L. LaBerge and
P. Magill, ‘Five no regrets moves to superior customer 19 R.S. Kaplan and D.P. Norton, ‘The office of strategy
engagement’, The McKinsey Quarterly, July 2012. management’, Harvard Business Review, October 2005,
pp. 72–80.
8 P. Drucker, The Practice of Management, Harper & Row,
New York, 1954, pp. 52–4.
Strategy
evaluation and
control
CHAPTER
12
WRITING THE STRATEGIC
MARKETING REPORT
If the language we use in writing strategic planning reports were only a matter of presentation,
of the way we package ideas and offer them to others, it would not matter much how
we wrote them. But writing is thinking.
Gordon Shaw, Robert Brown and Philip Bromiley1
In 1995 Robert Brullo, the head of 3M’s fluoro project and several complex strategic issues that
polymer group, was faced with a problem: how to needed to be resolved.
present to senior management a proposal that he After mulling over the problem for some time,
knew would face a lot of opposition. Brullo was Brullo came to the conclusion that the best way
convinced that 3M should enter into a joint forward was to write a narrative style of business
venture with the German chemical company plan. He then spent two weeks writing his plan,
Hoechst, despite the fact that 3M rarely entered which he gave to some of his staff to critique.
into this type of arrangement. After numerous rewrites, he was finally ready to
Hoechst had initially been a supplier and present his proposal to the senior management
manufacturer for 3M for many years and, in the group. When the big day came, he turned off the
mid 1990s, had developed a new resin product overhead projector, opting to present his ideas in
called THV that had huge market potential. the form of a strategic story. By the end of the
Hoechst had the manufacturing capabilities to presentation, his plan was enthusiastically accepted.
produce the new product but lacked the skills that The narrative form of strategic plan that he wrote
3M had to develop and market it. A joint venture became the foundation of the subsequent joint
appeared to be the most logical way to go but venture between the two companies. Robert Brullo
these arrangements were notoriously difficult to was rewarded for his efforts by being appointed
negotiate and to manage. Brullo was well aware president of the new company, Dyneon, which was
that 3M rarely entered into joint-venture formed in August 1996.
arrangements and that he would have a difficult Not long after that, storytelling became a
task in convincing the senior management team of way of life at 3M with the narrative form of
the merits of such a proposal. He also needed to business plans replacing the traditional bullet-
clarify his own thinking about the potential of the point type of approach.2

The thought-starter at the beginning of this chapter highlights the importance that writing plays in
the strategic planning process. Writing not only plays a pivotal role in how complex information is
delivered clearly and persuasively, but on how the act of writing stimulates our thought processes –
‘writing is thinking’. That is, writing helps the strategists to gather their thoughts and to focus on
the important issues in both the analytical and development phases of the strategic marketing
process.
This final chapter provides guidelines for writing strategic marketing documents and reports,
specifically:
• the importance of writing and presenting a strategic marketing plan or report
• the different types of strategic marketing plans and reports
• the processes involved in crafting marketing strategies and pitfalls to be avoided.
The role of the strategic marketing report

The strategic marketing report is fundamentally an exercise in communication, involving the
sharing of information between one group of people (the marketing strategists) and several other
groups. One of these other groups is invariably a senior management team (or, in some cases, a
board of directors) whose approval is sought for the recommendations presented in the strategic
marketing document or report. Other groups include those who are expected to play a major role in
the implementation of the marketing strategy recommendations. Thus it can be seen that the
strategic marketing document or report must not only involve the transfer of information from one
group to another, but must also act to persuade a number of people to approve and/or act on
recommendations that it contains. Like all such documents, careful consideration must be given to
ensure that it addresses the needs of its intended target audience.
It is also important to appreciate that, as was discussed in Chapter 2, marketing strategy
recommendations are developed both within and outside formal strategic planning processes. This
was borne out in a survey conducted by McKinsey in 2006 in which only 23 per cent of
respondents, from companies with revenues of at least US$500 million, reported that strategic
decisions were made within the confines of formal strategic-planning processes.3 That is, the
majority of strategic decisions (77 per cent) were made outside formal strategy-planning processes.
However, on the upside, it was also found that 79 per cent of those managers believed that formal
planning processes play a significant role in strategy development.4
There are two main implications of these findings. First, strategic decisions are made both on
an ongoing basis and within formal planning processes. Second, the process of planning, whether or
not it is conducted formally over a set period of time, is important. Strategic planning processes
provide the following benefits:
• The process forces those involved in it to think about the future – and the way their
organisation should compete in that future. All too often, senior managers are caught up in day-
to-day activities, finding little time to consider strategic issues.
• Contemplating the future provides the opportunity for the organisation to adopt a proactive
stance in the marketplace and to stay one or two steps ahead of its competitors.
• The process of committing strategic analysis and thinking to paper provides the opportunity for
the writers to fully develop their ideas and concepts that otherwise might not have been
thought through as clearly.
Chapter 12 Writing the strategic marketing report 261
• The process provides a means for the development of shared understandings of the challenges
facing the organisation and the strategic options that the organisation might choose to pursue.
• The strategic marketing document acts as a vehicle to facilitate the sharing of knowledge and
information that otherwise might not have come to the surface. That is, the process of strategic
marketing planning helps to unlock organisational memory thereby facilitating organisational
learning.
• Involvement in the process helps to foster a sense of commitment, which is an essential
ingredient for the effective implementation of the marketing strategies proposed in the
marketing plan.
Strategic marketing documents and reports

The process of strategic planning culminates in a number of recommendations that are presented
to senior managers for approval. These strategic decisions may be made either during formal
planning processes or on an ongoing basis as the need arises (such as when an event triggers the
need to review existing strategies). Accordingly, these strategic marketing recommendations may be
articulated as follows:
1 a part or a section within a formal strategic planning process either as:
a a part of a broader-based business-planning document, or
b a standalone strategic marketing planning document
2 a paper or report based on a set of deliberations outside of formal strategic planning processes
either as:
a a part of a broader-based set of strategy deliberations, or
b a paper or report containing marketing strategy recommendations.
Choosing the most appropriate format

Whether the document is produced as a traditional strategic marketing plan or as a paper or report,
the fundamentals of effective business writing apply. The format and tone of the writing must be
appropriate for its target audience. In organisations where formal planning documents are required,
a traditional planning format would be called for. However, since the late 1990s, some
organisations have moved away from this approach in recognition of the fact that decision makers
need to work smarter and faster. In a world of 30-second news grabs, elevator pitches, Twitter
posts, WhatsApp and information overload, the way individuals read and absorb information has
changed. A comprehensive strategic marketing plan, no matter how well it is thought out and
presented, may just be too time-consuming for busy managers to absorb. Business writing needs to
be concise and, at the same time, capable of motivating the reader to act on the recommendations.
The choice of formats is extremely important. Organisation decision makers need to choose a
style that will maximise the communication effectiveness. To assist in this task, the following
factors should be considered:
1 Tailor the communication format to suit the intended audience. Identify the decision
makers and others who will be recipients of the report, such as line managers who will need to
action the recommended strategies. Consider the audiences as individuals, taking into account
their position in the organisation, their knowledge or familiarity with the information that is
being presented, and such factors as their norms, traditions and values. Also determine the
extent to which the audience is likely to be interested in the information presented to them and
whether they are likely to be opposed to any of the recommendations.
2 Define the purpose of the communication. Is the main purpose to provide information, to
persuade, or a combination of both? A traditional planning format is an effective vehicle for
conveying a great deal of analytical information and detailed strategy recommendations. It is
extremely useful for audiences who are not familiar with the level of detail contained in the
document, but somewhat tedious for those who are well informed. For these individuals, a
more succinct style of report or a narrative format would be more suitable.
3 Decide on the appropriate format. When the purpose of the communication is clearly defined
and the needs of the intended audience are identified, the next stage is to decide which of the
following two approaches is the most appropriate:
a The build approach. This is a traditional A–Z, or indirect, approach whereby the reader is
led through each of the background steps (the situation analysis) before the strategy
recommendations are revealed. In other words, it is like a novel where the reader is kept in
suspense until all is finally revealed in the last chapter. This approach is useful when the
audience is either unfamiliar with the background material or likely to be opposed to the
strategic recommendation if it is presented upfront.
With this approach, the reader is led through all of the steps that lead to the
recommendations that are being presented. The objective is to initially establish a shared
understanding of the challenges that are facing the organisation, before the strategic options
are canvassed and the recommended strategies are presented; that is, to get the readers
onside and make them aware of the thinking that led to the decisions that underpin the
recommended strategies.
b The bottom-line approach. This is a direct approach whereby the strategy
recommendations are stated at the beginning of the report. This is then followed by the
supporting data that led to these recommendations: including the key issues, the strategy
alternatives that were considered (and rejected) and the rationale for the selection of the
recommended alternative.
With this approach the reader is left in no doubt as to what is being presented. It is
appropriate for audiences who are results oriented and are generally well informed about the
background information. However, if the recommendations are contentious or likely to be
challenged, then the danger of this approach is that the reader could be put offside from the
very beginning of the report.
In the main, formal business-planning documents, such as business plans and strategic
marketing plans, are based on a build format. These plans have the potential to provide the
intended audience with a comprehensive review of the situation facing the organisation, the
business or marketing opportunities that have been identified and the recommended strategies. A
well-prepared business plan is essential for entrepreneurs seeking capital for a new business
enterprise and, generally, these plans are required to be produced in a fairly structured sequence.
There are literally thousands of papers published that provide guidelines on how to write new-
venture business plans and many of these include standardised templates that can be downloaded
from a website.5 The same applies for established organisations where a strategic business plan or a
strategic marketing plan is required to follow a particular build type of sequence. Guidelines for
writing a strategic marketing plan are outlined in a later section of this chapter.
Suggestions for writing strategic marketing

papers or reports
The bottom-line approach is often preferable for the articulation of recommendations that are
made outside the formal planning processes and, as stated previously, may take the form of a paper
or report. In this case the marketing recommendations might be included as a section in a broader-
based business-unit strategy paper or as a self-contained strategic marketing paper. There are
several ways that a paper of this nature can be constructed and, as outlined previously, the bottom-
line format is potentially a most effective way to write the report. The key objective is to gain the
attention and interest of the reader at the outset of the report. Next the reader needs to appreciate
what the key issues are (that is, problem identification – what are the most important problems
facing the organisation and what are the marketing opportunities?). This needs to be accompanied
by supporting data (hard evidence). Graphs, tables, pictures and charts should be included where
appropriate as a ‘message has a better chance of getting across if it’s conveyed in both verbal and
visual form’.6 The amount of supporting data included in the report is dependent on the complexity
of the business environment and on how well the reader is informed of the issues involved. In cases
where there is excessive data and other information, it might be preferable to provide this in a
separate document as an appendix to the main report. The next stage is one of problem solving,
consisting of identifying the various options that were canvased in the strategy development phase
of the work. This is followed by evaluations that were made for each option (including the pros and
cons for each option) and finally, the rationale for the recommended strategy.
For some organisations, these types of reports consist of a series of printed PowerPoint slides,
while other organisations stick to a more conventional style of writing. In some cases organisations
(such as 3M, HP, IBM, DuPont, Kimberly-Clark, Disney and Nike) have adopted a much more
radical approach by writing their reports in what is described as a narrative or a strategic story.
Gordon Shaw, the executive director of planning at 3M during the 1990s, argues that plans
presented as bullet points are particularly unsatisfactory, as they generally consist of just a list of
‘good things to do’. He contends that bullet points fail to convey the logic or rationale behind the
strategic thinking that has underpinned the recommendations stated in these types of plans. He
adds that bullet points are too generic as they only represent an illusion of clarity, not a reality.
Bullet points leave critical relationships unspecified and critical assumptions about how the
business works unstated.7 In a Harvard Business Review article, Shaw and his colleagues argued the
case for the narrative format in the following terms:
Presenting a plan in a narrative creates a richer picture of strategy not only for the plan’s
authors but also for its intended audience. Readers are made privy to the author’s
thought processes, so they know far more than they would if they read a bullet list.
When assumptions are made explicit, they can be discussed and held up against senior
managers’ own mental models. Executives are in a better position to evaluate the plan
critically, ask more penetrating and insightful questions, and offer more useful advice.8
As was discussed at the beginning of this chapter, narratives are not just the preferred way of
writing reports at 3M but they are virtually a way of life. Most importantly, narratives help individuals
at 3M to clarify their thinking when developing their strategic plans and as an aid for capturing
powerful insights about the business situation. That is, the discipline of storytelling permeates the
entire strategy development process at 3M, as well as providing a means for presenting a written
report.
Robert McKee is a screenwriting coach who McKee provides an example of how a business
conducts writing classes in the USA, UK and story could be constructed for an imaginary start-
Europe for screenwriters, filmmakers, TV writers up chemical company that has discovered a new
and others in various creative writing fields. He also chemical compound that can prevent heart attacks.
coaches industry executives in the art of storytelling. The CEO has prepared a pitch to potential
In an interview with Harvard Business Review’s senior investors, and McKee suggests that instead of
editor, Bronwyn Fryer, McKee provides a number of presenting a lot of slides summarising the main
suggestions about how business executives can learn points of a business plan, the CEO could turn the
to create and deliver engaging, inspiring and pitch into a story along the following lines:
persuasive presentations. The starting point is that someone close
The first step, he argues, is to toss away their to the CEO, such as his father, has
PowerPoint slides and learn how to tell good stories. died of a heart attack. In his grief the
Presentations are all about persuasion and there are CEO had wished that there was a
essentially two ways to persuade people. The first, chemical indication of heart disease
using conventional rhetoric such as a PowerPoint which could have prevented his father’s
presentation, is an intellectual process. The problem death. The CEO’s company has just
with this approach is that the people in the audience discovered a protein that is present in
are likely to mentally argue or reject points made the blood immediately before a heart
during the presentation, because of their own sets attack. His company has developed an
easy-to-administer and inexpensive test
of beliefs and interpretation of facts about the
to detect this protein. The CEO’s story
subject matter. Even if the presentation does
then moves on to introduce an obstacle
succeed in persuading the audience, this will be only that arose in getting the test approved
at an intellectual level and individuals are not by the FDA. The first application is
normally inspired to act by reason alone. The most rejected but in the meantime further
powerful way to inspire and persuade people is to research reveals that the test was even
engage their emotions. And this can be achieved by better than previously thought. The
presenting a compelling story. second application has now been
So how should a compelling story be approved but now the company needs
constructed? McKee emphatically rejects the additional funding in a fight-to-the-
beginning-to-end approach, as it is boring and finish patent race. At this stage, McKee
banal. He contends that the secret of creating a contends that the audience would be
powerful story is to display the struggle between aware that the story might not have a
expectations and reality, and to create suspense. happy ending. They would be literally on
the edge of their seats. Then comes the
This can be achieved by what McKee describes as
punchline: the CEO reveals that his
an ‘inciting incident’ – an event where the
company had won the race. ‘The
unexpected happens, such as the loss of a key patent was approved. We’re ready to
account or some other disaster. The story then goes go public and save a quarter-million
on to describe what it’s like to deal with this lives each year.’
problem, such as working with scarce resources,
making difficult decisions or taking action despite McKee concludes that the investors would now
the risks involved. As he states, ‘All great storytellers be ready to throw money into the new venture.
since the dawn of time – from the ancient Greeks Source: Adapted from: ‘Storytelling that moves people:
through Shakespeare and up to the present day – A conversation with screenwriting coach Robert McKee’,
have dealt with conflict between subjective Harvard Business Review, June 2003, pp. 51–5. Copyright ª 2003
expectation and cruel reality’. by Harvard Business Publishing. Used by permission.
Guidelines for preparing formal strategic

marketing plans
A strategic marketing plan is a document that contains a considerable variety of information
including data and information collection, analysis, interpretation and synthesis. As an outcome of
that analytical work, it also presents and argues the case for several decisions. In other words, a
strategic marketing plan is a most complex document.
Because of its complexity the format of a strategic marketing plan requires considerable
thought. There are essentially two main alternatives: to prepare what can be described as a
traditional or comprehensive document, or an abbreviated version. The former contains a
considerable amount of information and is typically in the 80–100-page range. The abbreviated
version would typically run to about 25–35 pages as it is more succinct, focusing mainly on the key
issues and strategy recommendations, with the more detailed information provided in the form of
an adjunct report or as an appendix.
In this section guidelines are provided for preparing each of these more formal types of strategic
marketing plans.
Guidelines for writing a comprehensive strategic

marketing plan
The operative word here is ‘guidelines’. A logical format is to structure the strategic marketing plan
along the lines of the strategy planning process articulated in this book. Commencing with an
executive summary, the strategic marketing plan might contain the following sections:
• Executive summary
• Introduction
• Situation analysis:
- Business definition and scope
- External environment – remote environment
- External environment – near environment
- Critical success factors
- Internal capabilities
• Problems and opportunity statement
• High-level marketing strategies
- Strategic positioning
- Marketing objectives
- Product-market strategies
- Segmentation, targeting and positioning strategies
- Customer value creation mix
• Strategy implementation
- Resource allocation
- Action plan
• Strategy evaluation and control.
In this section, guidelines are presented to assist in the actual writing-up stage of each of the
above sections of the comprehensive strategic marketing plan. The work involved in developing
each of these sections has, of course, been elaborated in significant detail in previous chapters of
this book. It is suggested that these guidelines should be read in conjunction with reference to the
appropriate earlier chapters.
Executive summary
An executive summary is a précis or an outline of the entire report. It serves two basic purposes.
First, it provides essential information for those who might not have the time or inclination to wade
through the entire document. Thus the executive summary, like a headline in a press
advertisement, plays an essential role in attracting the interest of the reader – enough, it is hoped,
to encourage him or her to want to delve further into the full body of the report. Second, it
emphasises, to those who have read it, the most essential points that need to be remembered or
revisited for further scrutiny.
Care must be taken to ensure the executive summary is a short, sharp snapshot of the entire
strategic marketing plan. It can only be written at the conclusion of the report-writing process, although
it is presented at the beginning, not at the end, of the document. The writing of the executive summary
is not an easy task, as it requires considerable discipline to condense a large body of information into
what should ideally be no more than one or two pages – or around 250–300 words maximum.
An important principle to bear in mind is that the executive summary must not contain any
material that is not in the main body of the report. It should also follow the structure of the full
report. In writing an executive summary, it is often found that some important information has been
overlooked in the main report or an important point has been insufficiently emphasised or presented
in some illogical manner. Where this occurs, the main body of the report should be revised.
An executive summary should highlight the most significant findings from the strategic analysis,
the strategic challenges (opportunities and threats) facing the organisation, and the organisation’s
capabilities to meet these challenges. This information should be followed by a brief summary of
the main strategic recommendations contained in the report including top- and bottom-line
revenue objectives (in total and for each product-market category), an overview of the
recommended strategies for each product-market, strategic positioning, market segmentation and
customer value creation mix strategies.
The most common mistakes found in executive summaries are: (i) they are written as if they are
an introductory section rather than as a summary statement; (ii) they do not contain essential
information (such as marketing objectives or budget information) or do not place sufficient
emphasis on essential information; and (iii) they are too long.
Introduction
An introductory section should be succinct and straight to the point. It is to introduce the reader to
the purpose of the strategic marketing plan and the background of the organisation and/or the
strategic planning unit that has developed the strategic recommendations, and to present other
information that clarifies any questions a reader might have as to why the document was written,
what it was trying to achieve and the environmental context in which it was written.
A well-written introductory section could be presented in as little as one page or, if there is a lot
of important background information, three to five pages. Anything more than this may test the
patience of the reader.
Situation analysis
Writing this section requires considerable thought – the better the analysis, the better the strategic
decisions that follow. However, in writing a strategic marketing plan, consideration must be given
to the amount of material the reader will be confronted with in order to get to the main issues.
Don’t expect the reader to wade through 80 pages or more of facts and figures, charts and dialogue
in order to see the light. Where there is a large volume of material (which is generally the case),
consider placing anything other than essential reading into an appendix or even into a separate
document. This will free up the situation analysis to provide a free-flowing readable section that
does not bog down the reader with unnecessary information.
However, the writer should be equally aware that he or she should not hide away important
information in an appendix (or separate document) with the belief that the reader will automatically
refer to it. If it is important, present it in the main body of the report. Use graphs, tables and charts
where appropriate. Graphs and charts are powerful descriptive tools, as the truism ‘a picture is
worth a thousand words’ testifies.
As a general rule, a business definition and scope section can be reasonably stated in one to
three pages – depending on the complexity of the markets served, the product lines serving those
markets, and the number of competitors and their product lines. The important point to note is
that business definition and scope is a precise specification of the business domain of the strategic
planning unit. It is essential that it is accompanied by a supporting statement presenting the
arguments as to why this specification is appropriate.
In writing the external environment review, try to limit the review of each remote environmental
force to two to three pages. Start with a brief summary of the descriptive part of the review – the
facts and figures of what has occurred in the past. Next present the arguments as to what this
means for the future (that is, the assumptions you have made about the future). Then state the
implications of these assumptions, for the planning unit’s products or services, in terms of
opportunities and threats. This could be summarised in the form of a two-column table listing the
opportunities in one column and the threats in the other. In order to structure the review of each
remote environmental force, it is therefore suggested that the information could be presented
under two subheadings: ‘Scenario’ and ‘Implications’. Under the heading ‘Scenario’ present critical
top-line historical data and information. Then state the assumptions that are being made about the
future. Under the heading ‘Implications’ state the conclusions that you have arrived at regarding the
likely impact of these assumed events on the strategic planning unit’s products and services. As was
suggested in Chapter 3, the summary points of the implications in terms of opportunities and
threats should include an assessment of their significance and of the likelihood of occurrence (on a
double-digit five-point rating scale).
One of the most common problems experienced with the remote environment analysis is a lack
of focus. The purpose is to address those environmental forces that are likely to impact on the
industry/market, the organisation, its competitors and most importantly its customers – as identified
in the business definition and scope. In many cases the impact of economic forces on the lives of
the target markets is overlooked, as are sociocultural trends. It is therefore essential to check that
the review of the remote environmental forces is focused and does not fall into the trap of being
overly generalised.
The write-up of the next stage of the situation analysis – the review of the near environment –
is invariably the most difficult to contain in terms of its size. Once again the advice is to include a
summary of the analysis in the main body of the report and present detailed information in an
appendix or separate volume. In the main body of the report use subheadings for each section, such
as ‘Description’, ‘Assumptions concerning future trends’ and ‘Implications’.
A typical problem that occurs in the presentation of the near environment is a lack of attention
to the market review section, including the assumptions of the future size and nature of the market
(and the segments within it). This is a key section of the entire strategic marketing plan and,
accordingly, appropriate attention should be given to it.
The next section, critical success factors, involves the listing of those factors and the
accompanying rationale as to why these factors are considered to be so important. In the majority
of cases, critical success factors can be succinctly stated in one or two pages. The most common
problem with this section of the work is the absence of a rationale or a justification of why each
factor is so important. A brief explanation of two to three sentences is invariably sufficient, perhaps
drawing on a tool such as the value chain as supporting evidence.
Care must also be exercised in the writing of the next section – the internal capabilities review
– to avoid information overload. Once again try to summarise key or top-line points for each area of
this review, presenting detailed information in an appendix or accompanying document.
Subheadings for each area of the review might include ‘Analysis’ and ‘Implications in terms of
strengths and weaknesses’. Under the first subheading, present the facts and figures and a general
description of the organisation’s capabilities vis-à-vis those of its competitors. Under the second
subheading, list the strengths and weaknesses including an assessment of the significance of each
(using a five-point rating scale).
The number of pages devoted to an entire situation analysis varies considerably according to the
complexity of the factors reviewed and of the analysis and interpretation. In some cases, well-written
situation analyses can be prepared in approximately 20 pages while others may require 30–40 pages.
Problems and opportunity statement

A situation analysis is a means to an end. The end is what it all means in terms of problems and
opportunities that are likely to confront the organisation over the next three to five years. The role
of the problems and opportunity statement is to synthesise the vast amount of information
contained in the situation analysis and to highlight those areas of the business requiring priority
attention in the strategy development process.
In most cases, a well-written problems and opportunity statement can be presented in one or
two pages. Follow the steps suggested in Chapter 3 for preparing a problems and opportunity
statement. That is, use the five sections suggested in that part of Chapter 3 as subheadings for the
problems and opportunity statement.

Commence with a statement of the top-line revenue objectives for each year of the planning
period. Next, state the gross and net profit margin objectives for each of these years. Then show
how these objectives will be met in terms of the revenue mix (the four product-market strategies –
existing products in existing markets (market penetration), existing products in new markets
(market development), new products in existing markets (incremental innovation) and new
products in new markets (radical innovation).
State the rationale for these decisions. Draw on tools such as strategic gap analysis as well as
the strategic positioning tools such as the product life cycle, product portfolio models and
competitive advantage models to support your arguments. Most importantly, draw on the
opportunities and threats identified in the situation analysis and the problems and opportunities
statement to support your arguments.
Having stated what is to be achieved, the next step is to discuss how this is to be achieved in
terms of the recommended strategic positioning, the segments to be targeted, brand-positioning
strategies and the customer value creation mix. The length of this section will depend on several
factors, including the number of market segments to be targeted; the depth and width of the
product line (or lines) serving those segments; and the complexity of the recommended customer
value creation mix, communication and delivery strategies. Relatively straightforward
recommendations may require as few as 8–12 pages, while more complex strategies could amount
to 20–30 pages of description and justification.
Strategy implementation, evaluation and control

The strategy implementation process commences with resource allocation, which is often the most
closely scrutinised section of the entire report. Therefore, care must be taken to ensure that the
figures presented are accurate and well justified. State the figures, then under a subheading such as
‘Rationale’ state the assumption on which forecasts are based and the justifications for the
recommended expenditure. Depending on the complexity of the strategic marketing plan, this
section typically requires around three to eight pages.
In this, the final section of the strategic marketing plan, an action plan is required setting out
details of the activities required to implement the strategy recommendations, timing and
responsibilities. The action plan should be followed with a brief description of the control mechanisms
that will be used to monitor performance over the three- to five-year timeframe of the recommended
strategies. Of particular importance is a statement of what is to be measured, how it is to be measured
and how often it is to be measured (for example, quarterly, half-yearly or annually).
In a strategic marketing plan this information is fairly broad – considerably less detailed than
what is required for an annual (operational) marketing plan – so two to five pages should cover the
requirements for this section.
A final note
The above description of the content of a strategic marketing planning document covers what is
required for a ‘typical strategic marketing plan’. Every strategic marketing plan is unique and there
is, of course, no such thing as a typical strategic marketing plan. It must be stressed, therefore, that
the above description provides nothing more than a guideline. It is not intended to be a prescriptive
statement of how a strategic plan must be written. Indeed, the notion of writing a strategic
marketing plan by filling out a series of standardised forms is firmly rejected. Writing a strategic
marketing plan is a creative task, and while guidelines assist in the task they should not be used as
a straitjacket to inhibit an innovative approach.
Guidelines for writing an abbreviated strategic marketing plan

The process of developing the strategic marketing plan is the same as above, but the difference
with this type of report is that it is presented in a more succinct format. The content of this type of
strategic marketing plan is essentially a synthesis of the comprehensive version. To prepare a
strategic marketing plan this way, it is recommended that each of the steps outlined in this book is
followed but that the findings are written as ‘rough copy’ rather than as a finished piece of work.
After the rough copy has been written, the next stage is that of synthesis. First, gather all of the
information contained in the strategic analysis. The objective is to make sense of all of the findings
from the data collected in developing the situation analysis and the problems and opportunity
statement. What are the most important findings? What are the most important issues? What are
the most important strategic implications? Much of this information is (or should be) contained in
the problems and opportunity statement, so use this as a starting point to contemplate the big
picture. This will help you to ‘sort the wheat from the chaff’ and identify the most critical issues.
The first section of your report should then be written in a way that highlights the critical issues
from the findings of your strategic analysis. Ensure that it is written in an interesting way that will
engage the target audience. Begin with a bang by identifying the key problem or opportunity
addressed in the strategic marketing plan. For example, a key problem may be declining demand for
the product category or the entry of a major competitor into the market. Next, discuss the issues
that you have identified that are the antecedents of the key problem. For example, declining
demand for a product category could be caused by a combination of economic forces (especially in
times of deteriorating economic conditions), changing demographic patterns, or changing customer
attitudes or preferences (such as a shift towards product substitutes). This is where the work you
have prepared previously in synthesising the data comes into play. For example, you might have
discovered that there is an emerging market segment that has not been targeted by any of the
existing players in the market. The discovery of this segment may have been the outcome of your
analysis of a combination of remote environmental trends (such as sociocultural, economic and
technological trends) and near environment trends (such as changes in buying behaviour and
competitor analysis). Show the evidence. That is, cite the data that supports your argument. Allow
about 10–15 pages for this part of the report.
The next part of the report contains strategy recommendations. This is essentially a succinct
overview of the information discussed previously for writing a comprehensive strategic marketing
plan. Commence with a statement of marketing objectives and the top-line product-market
strategies that are recommended to achieve those objectives. Then discuss the strategic positioning
strategy, segmentation and brand-positioning strategies and the customer value creation mix.
Follow this discussion with budget and implementation, control and evaluation information. Allow
about 15–20 pages for this part of the report.
The process of crafting marketing strategies

Just as the format of a strategic marketing document varies from one organisation to another, there
is no right way of organising the process of strategy development. However, there are a few
principles that should be observed:
• The first is to involve decision makers at an organisation-wide level, not just those in the
marketing department. This is a fundamental requirement for market-oriented organisations. Of
particular importance is the involvement of the CEO. Apart from the value of this individual’s
knowledge and responsibility for the strategic direction of the organisation, the symbolic
importance of the CEO should not be overlooked. Actions speak louder than words, and the
involvement of the organisation’s leader in the strategy development signposts to all and sundry
the importance of this activity.
• While involvement of decision makers at an organisation-wide level is required in the strategic
marketing planning process, the chief marketing officer (or equivalent title) is required to take
overall responsibility. As the saying goes, ‘The buck must stop somewhere’. Without the
assignment of responsibility and appropriate authority for leading and managing the process,
there is a danger that collective responsibility can mean no responsibility.
• An important part of the process is to organise workshop activities, where participants in the
marketing strategy development process work their way through the various steps involved. In
many cases a two- to three-day retreat has been found to be an effective way to commence the
process. Strategic thinking does not occur in a vacuum, and the organisation of these retreats or
‘workshops’ requires considerable thought. The danger is that poorly led workshops can be a
waste of time, effort and money and can do more harm than good. Therefore, ensure the
following:
- Essential information should be provided prior to the workshop or retreat. Ideally, the
starting point for the retreat is consideration of the organisation’s mission and vision, and
the strategic issues that have been identified in the process of strategic analysis (which are
articulated in a problems and opportunities statement). The key assumptions that
underpin the strategic analysis, the conclusions that have been reached concerning the
strategic implications of the findings, need to be vigorously examined so that agreement
can be reached concerning the priority order of strategic issues.
- Don’t try to cover too much in any one retreat. Focusing on just the top two or three
strategic issues, the next stage for the workshop participants is to consider a range of
strategic options that would most effectively address those issues. Several workshop sessions
may be required for this.
- Consider the use of an external consultant to act as a facilitator to lead the workshops.
This is particularly important for the internal capabilities (self-analysis) phase of the
review, as it is often difficult for company insiders to be objective – either because they
are too close to the situation or because of (organisational) politics.
• The timeframe for the development of a strategic marketing plan should therefore be sufficient
to facilitate a thorough investigation of the key issues, including collection of market
intelligence, analysis, and the development and consideration of strategic alternatives based on
that information base. Therefore, depending on the complexity of the strategic planning unit
and the complexity of the strategic issues, a strategic marketing plan might be most effectively
developed over several weeks. For example, a fairly straightforward strategic marketing plan
building on a successful pre-existing strategy in a mature market with little expected change
may be developed in four to five weeks or less. On the other hand, a more complex marketing
situation may require three to six months to develop fully.
• Finally, the physical presentation of the strategic marketing plan to senior management requires
a great deal of thought. The time allocated to the presentation dictates how much information
can be communicated. Ensure that the most essential parts of the analysis are highlighted, the
strategic problem or opportunity is clearly identified and the range of strategic alternatives has
been thoroughly considered. Then devote sufficient time to presenting the recommended
strategies and the justification for these recommendations. Consider also preparing a
condensed version of the strategic marketing plan for senior management to review, rather than
providing them with the complete version.
Avoiding the pitfalls

• The strategic planning process should not be the exclusive domain of an elite group of strategy
planners. In market-oriented organisations this means that the process of developing marketing
strategies should include, as far as is practical, a number of decision makers throughout the
organisation, not just those in the marketing department.
• The strategy development process is a creative process and should include both top-down and
bottom-up decision making, not just one or the other.
• Strategy development and planning are two different processes. Formal planning is essentially a
process of programming strategies that have already been developed. Therefore, the strategy
development process should not be bogged down by an inordinate attention to detail. Strategy
development involves consideration of the big picture – the future direction for the
organisation. Planning follows this process by providing the detail of how to get there.
• Distinction needs to be made between strategic marketing planning and annual or operational
marketing planning (typically product or brand marketing plans). Strategic marketing plans or
reports provide a longer-term perspective with broad (planning) detail. Annual or operational
marketing plans contain greater and more specific detail.
• Steps need to be taken to prevent strategy planning becoming a ritualised and meaningless
process. Strategic thinking needs to occur continuously and should not be restricted to a once-
every-three-years event. Strategy-planning weekends or week-long retreats can be very useful
but, ideally, a more ongoing type of process should be established to complement these
concentrated bursts of effort. In some over-bureaucratic organisations, the development of a
strategic plan is so highly formalised that it is predominantly a process of filling out a series of
mind-numbing forms. Attention to the format of a strategic marketing plan or report is
important, but not to the extent that the planning document takes on a life of its own.

The writing of a strategic marketing document the individuals can relate to. There is also a
is a major task requiring considerable effort and need to plan for planning. As the process of
thought about its proposed format. In this strategy development should involve the
chapter, some guidelines have been provided to participation of a number of decision makers
assist in this task. As noted, these guidelines throughout the organisation, the process needs
should be taken as suggestions rather than as to be well managed in order for it to be
prescriptions for how the work should be effective. Involvement in the process leads to a
presented. The overriding consideration is the shared understanding of what the future holds
effectiveness of the communication with the for the organisation and the strategies it should
intended target audience, usually a senior pursue in order for it to survive profitably in
management group. Speak the language of this that future.
group and present the information in ways that
1 A marketing and sales manager of a highly any value. You just need to get out there
successful personal computer company and do it!’ Do you agree or disagree with
claimed that the preparation of a strategic this viewpoint?
marketing plan was a waste of time. ‘In our 2 A CEO of a top-500 Australian company
industry’, he asserted, ‘a new product may remarked that the majority of strategic
come and go within the time it takes to marketing plans he had seen ‘contained
develop a marketing plan. Our industry is voluminous situation analysis information
just too fast-moving for planning to be of but precious little about the proposed
marketing strategies’. Assuming that this is Boston Consulting Group, are used by
an accurate comment, why do you think many organisations, large and small, to
this type of planning might occur? What develop strategic plans. Should a consultant
can be done to avoid this sort of problem be commissioned to develop a strategic
from occurring? marketing plan for an organisation?
3 The general manager in the same company Discuss.
joined in the criticism of marketing plans, 5 Criticisms of strategic-marketing planning
complaining that most of the marketing models include the arguments that they
plans she had seen were ‘dull and boring’. are often prescriptive, and that they are
She added, ‘These are selling documents for mainly suitable for the marketing of
marketing, and they should be exciting and consumer goods. Are these valid criticisms?
persuasive’. Do you agree with this point of Discuss.
view? Discuss.
4 Large consulting organisations, such as
McKinsey & Company, Accenture and the
ETHICAL ISSUE
An IT executive who has recently joined your to you. His former employer is a direct
company has told you that he has some competitor to your company. How should you
information about his former employer’s respond to this IT person?
marketing strategies that might be of interest

After reading Chapter 12, reconsider the way strategic marketing plan. What could be done
you have prepared and communicated your to improve the effectiveness of your plan?

Explore Search me! marketing for articles • business storytelling
relevant to this chapter. Fast and convenient, • report writing
Search me! marketing is updated daily and • business presentations
provides you with 24-hour access to full text • executive summaries.
ENDNOTES
1 G. Shaw, R. Brown and P. Bromiley, ‘Strategic stories: How 5 See, for example, the following two articles: ‘Writing a
3M is rewriting business planning’, Harvard Business business plan: The basics’, Harvard Business School Press,
Review, May–June 1998, pp. 41–50. Copyright 1998 by Boston, Mass., 2006, pp. 1–40, reprint no. 5344BC; and
Harvard Business Publishing. Used by permission. S.R. Rich and D.E. Gumpert, ‘How to write a winning
business plan’, Harvard Business Review, May–June 1985,
2 Adapted from the vignette ‘Building a story that works’, in pp. 156–66, reprint product no. 584X. A Google search
G. Shaw, R. Brown and P. Bromiley, ‘Strategic stories: How using the keywords ‘How to write a business plan’ will yield
3M is rewriting business planning’, Harvard Business millions of organisations and individuals providing either
Review, May–June 1998, p. 46. free or paid-for business planning formats and templates.
3 As stated in R. Dye and O. Sibony, ‘How to improve 6 J. Clayton, ‘How to make a picture worth a thousand
strategic planning’, The McKinsey Quarterly, 3, 2007, p. 40. words’, Harvard Management Communication Letter,
The survey, conducted in late July and early August 2006, 2002, reprint No. C0210B.
was based on 796 responses received from a panel of
executives from around the world who had mostly financial 7 As discussed in G. Shaw, R. Brown and P. Bromiley, 1998.
or strategic responsibilities for their organisations.
8 G. Shaw, R. Brown and P. Bromiley, 1998, p. 47.
4 R. Dye and O. Sibony, 2007, p. 41.
275
GLOSSARY
activity-based cost management (ABCM) big data
The process of using information from activity- The processing of high-volume, high-velocity
based costing to analyse activities, cost drivers data sets to enable enhanced decision making,
and performance to reduce costs while insight discovery and process optimisation.
maintaining customer value.
blue ocean
activity-based costing (ABC) An uncontested marketspace. The opposite is a
An accounting method that focuses on costing red ocean.
products, projects and other organisational
brand
activities as the key elements for analysing the
A name, term, sign, symbol or design (or
cost behaviour in organisations, as opposed to
combination of them) that is intended to
traditional cost systems that use only unit-level
identify the goods or services of one seller (or
cost drivers (such as direct labour and the
group) and to differentiate them from those of
number of units produced).
its competitors.
adaptive-control system
brand community
A proactive marketing evaluation and control
A group of ardent consumers organised around
system that compares performance to
the lifestyle, activities and ethos of a brand.
objectives, which are modified over time to
reflect changing environmental conditions. brand equity
See also ‘after-the-fact control system’ and A concept that attempts to place the
‘steering-control system’. marketplace value of a brand based on its
reputation and goodwill. It is the added value
after-the-fact control system
that a brand name provides which is manifested
A system that measures marketing performance
in the market by added market share and profit.
at the end of a planning period and compares it
to expected performance. See also ‘adaptive- brand identity
control system’ and ‘steering-control system’. The core values of a brand.
analysis brand image
Breaking the whole into a number of A set of associations that are organised in such
constituent parts in order to investigate their a way that is meaningful for an individual – for
nature, functions and relationships. See also example, by associating the brand with a
‘diagnosis’. product attribute, product benefit or other
characteristics such as perceptions of lifestyle
augmented product
of the user.
Post-sale support services and benefits that add
value to a product. This includes such factors brand leveraging
as customer service, goodwill, guarantees, Launching a new product into a new product
delivery, credit and installation. category with an existing brand name.
balanced scorecard (BSC) brand position
A comprehensive framework that translates an The perceived fit between a product or brand
organisation’s objectives into a coherent set of and the needs of the target market, relative to
financial and operating measures. The BSC is competitive product offerings. Brand position is
used for measuring organisational performance a closely related concept to brand image except
and as a strategic management system. that the frame of reference is the competition.
276 Glossary
brand positioning core competence

The process of attempting to establish a brand The collective learning within an organisation,
position. especially in relation to technological and
production skills that deliver value to the
business process re-engineering (BPR)
organisation’s customers, thereby providing it
A process where an organisation attempts to
with a competitive advantage.
reinvent itself, rather than try to merely improve
or enhance its processes, with the objective of core product
achieving large gains in productivity and The characteristics of a product that satisfy
organisational performance. customer needs.
co-creation corporate social responsibility (CSR)
High-quality personalised interactions that A balanced approach for organisations to
enable individual customers to co-create unique address economic, social and environmental
experiences with the organisations that they issues in a way that aims to benefit people,
deal with. communities and society.
competitive advantage cost/sacrifice value
Superiority over competition based on the value The extent to which customers seek to
an organisation creates for its customers in a maximise or at least realise the benefits derived
way that its competitors cannot match. A from a product while at the same time seeking
sustainable competitive advantage (SCA) is to minimise the costs and other sacrifices that
achieved when the advantage resists erosion may be involved (that is, transaction costs) in
from competitors. the purchase, ownership or use of the product.
concentrated marketing strategy creating shared value (CSV)
Deploying a marketing strategy towards one Policies and operating practices that enhance
segment within the total market. This is also the competiveness of an organisation while
referred to as ‘focused’ or ‘niche marketing simultaneously advancing the economic and
strategy’. social conditions in the communities in which it
conjoint analysis operates.
A research technique showing how individuals creative platform
make overall judgements about brands or The ‘what to say’ component of the
products by considering two or more communication message. It should be a clear
attributes together. Conjoint analysis provides a and concise expression of how a brand, product
basis for market benefit segmentation studies or company is to be positioned in the mind of
and the development of brand positioning the intended audience.
strategies.
critical success factors (CSFs)
coolhunting Those relatively few factors that are critical for
Trend spotting based on observations and an organisation, in a similar competitive position
predictions in changes of new or existing to the organisation under review, to have in order
cultural trends. to succeed. CSFs are the superior skills and
co-opetition resources that do the most to either lower costs
Hybrid behaviour comprising competition and or create superior customer value. They are also
cooperation between organisations. referred to as ‘key success factors’ (KSFs).
Glossary 277
customer engagement for its targeted customers. These activities are

High-quality interactions that achieve an conducted at an organisation-wide level,
ongoing relationship between a customer and including those that would traditionally be
an organisation or its brands. regarded as marketing mix activities.
customer equity customer value proposition (CVP)
The present value of the anticipated lifetime The promise by an organisation to deliver a set
revenue of all of the organisation’s current and of product attributes and benefits that matter
potential customers less their acquisition and most to its targeted customers.
retention costs.
database marketing
customer experience The collection and electronic storage of
The experience customers have during pre- information about past, present and future
purchase, purchase and post-purchase customers. This information is used to profile
processes. and target customers with marketing programs.
customer lifetime value (CLV) Delphi model
The value of a customer to the organisation as A research technique that can be used for
measured by the net present value derived over forecasting. Experts on an individual basis are
his or her lifetime. required to submit a forecast and their rationale
for their forecasts to the researcher. These
customer relationship management (CRM)
forecasts are then pooled and sent to each
A marketing tool that harnesses the power of
expert who is then required to submit a second
computers and databases so as to provide
forecast. The process is continued until a
marketers with the ability to collect and
consensus is achieved – usually after three or
accumulate data about customer-buying
four rounds.
patterns – on an individual or one-to-one basis.
CRM is alternatively termed ‘permission diagnosis
marketing’ or ‘one-to-one marketing’. Assessment of the significance of analytical
information for strategic marketing planning
customer satisfaction measurement (CSM)
purposes – in the form of opportunities and
The number of customers, or percentages of
threats facing the planning unit and for
total customers, whose reported experiences
assessment of internal capabilities in the form
with an organisation, its products or its services
of strengths and weaknesses. See also ‘analysis’.
exceeds, meets or surpasses their expectations.
differentiated marketing strategy
customer value added (CVA)
Deploying a customised marketing strategy for a
A research tool developed by AT&T that
number of individual market segments. This is
measures the level of satisfaction of an
also referred to as ‘multisegment marketing
organisation’s customers as compared to that of
strategy’.
the customers of its competitors. Also known as
relative customer value (RCV) or the customer disruptive innovation
value ratio (CVR). A process by which a product or service takes
root initially in simple applications at the
customer value creation mix
bottom of a market to eventually move
The mix of activities and processes conducted
upmarket and to displace the existing
by an organisation and its value chain partners
competitors.
in creating, communicating and delivering value
278 Glossary
distinctive competence event marketing

A set activities that an organisation does Tying a brand to a meaningful sporting, cultural,
particularly well relative to its competitors. That entertainment, social or other event such as a
is, the internal strengths that provide value to convention or conference.
the organisation’s customers.
evidence-based management
distribution channel length Decisions informed by the best available
The variety of different types of intermediaries scientific information.
used by an organisation to ‘go to market’, such
exchange theory
as the use of agents, wholesalers and retailers,
A perspective based on the belief that life is a
as opposed to going directly to market, such as
series of exchanges involving rewards and costs.
via direct marketing.
In market (or economic) exchange, people
distribution intensity exchange money, goods or services hoping to
Distribution coverage ranging from narrow either profit or at least break even. In social
coverage (exclusive or selective distribution) to exchange, the items of exchange include social
broad or widespread coverage (intensive and psychological factors.
distribution).
exclusive distribution
driving-market approach Distributing products via one intermediary at a
Where an organisation influences the structure particular level in each market.
of a market and/or the behaviour of the players
experience curve
in that market. A driving-market approach is
The concept that costs decrease as experience
one of two market-oriented approaches; the
increases. Based on this notion it is
other is a market-driven approach where
assumed that a market share leader would
organisations react to the preferences and
have a cost advantage over its smaller
behaviours of customers and other players
competitors.
within a given market structure.
experiential/hedonistic value
DuPont ratio analysis
The extent to which a product creates
A model for assessing current and past financial
appropriate customer emotions (both positive
performance and for forecasting an
such as pleasure, enjoyment and fun, and
organisation’s future value.
negative such as fear or problem avoidance),
e-tailing or online retailing feelings, experiences and sensory (such as smell
Retailing of goods and services via the or taste, or in a service context aesthetics or
Internet. ambience), and epistemic value (the desire to
seek knowledge).
electronic data interchange (EDI)
The linking of an organisation with its suppliers external environment
by computer. Factors that are external to the organisation
that influence its operation.
enterprise resource planning (ERP)
A system that links financial, manufacturing, fast-moving consumer goods (FMCG)
human resources, distribution and order Goods typically distributed through
management systems into an integrated single supermarkets that are frequently purchased
system. and have a relatively short shelf life.
Glossary 279
An alternative term, used in North America, is modifications for existing products in existing
‘frequently purchased package goods’. markets. Also known as sustaining innovation.
first-mover-advantage industry environment
The notion that the first entrant to a new An alternative term to near environment referring
market has the potential to achieve a long-term to the external influences that directly impact on
competitor advantage. an industry, including demand characteristics and
five Cs (5Cs)
industry structure (market, competitor,
A framework that underpins marketing decision distribution, customer and supplier structure).
making, consisting of analysis of customers, integrated marketing communication (IMC)
company, competitors, collaborators and The synergetic use of the various marketing
context. communication tools to provide clarity,
five-forces model of industry analysis
consistency and maximum marketing
A model developed by Michael Porter to communication impact.
analyse industry attractiveness based on intelligent opportunism
consideration of five basic competitive forces – The development of emergent strategies that
rivalry among existing firms, bargaining power arise over time and are generated both within
of buyers, threat of new entrants, bargaining and outside of formal strategic planning
power of suppliers and threat of substitute processes by individuals throughout the
products or services. organisation, its value chain partners and a
frequency
variety of other sources.
The number of times a target audience is intensive distribution
exposed to an advertising message. Distributing products through all or most
functional/instrumental value
potential resellers.
The extent to which a product has the desired internal marketing
characteristics (correct, accurate or appropriate Treating employees and intermediaries as
features, functions, attributes including internal customers and accordingly targeting
aesthetics, quality, customisation and them with marketing activities.
creativity), usefulness (benefits) and
Internet
performance capabilities (such as reliability,
A network of interconnected computer
performance quality and service support).
networks that carry data to facilitate
generic strategies information exchange. The Internet and email
A term popularised by Michael Porter to are subsets of the World Wide Web service.
describe four strategic alternatives for achieving
just-in-time (JIT) inventory management
a sustainable competitive advantage – broadly
Based on the Japanese concept of kanban, JIT
targeted strategies based on either cost
is a system that fully integrates the production
leadership or differentiation, and narrowly
and sales processes and ordering and delivery
targeted strategies based on either a cost focus
time lines so that goods are delivered at the
or a differentiation focus.
time they are to be used.
incremental innovation
key success factors (KSFs)
Incremental changes made to existing products
An alternative term to critical success factors.
and service including product line extensions or
280 Glossary
lagging indicators business in terms of what it makes or what it

Performance measurements of past events. sells – instead of in terms of satisfying the
wants and needs of its customers.
leading indicators
Metrics that signal future performance; that is, marketplace
antecedents of future marketing performance. A marketplace is where buyers (potential and
macro environment
actual customers) and sellers (including
An alternative term to remote environment distributors, retailers and competitors) meet to
referring to the external influences that impact exchange goods or services. The marketplace
on society as a whole, the organisation and the can be either a physical or virtual (electronic)
industry it competes in, especially the impact setting. See also ‘marketspace’.
on the organisation’s customers and marketspace
competitors. An informational marketplace where goods and
market-driven approach services are exchanged via computer interaction
A synonymous term to describe market-oriented and where value is extracted from information.
organisations. mass customisation
market-oriented or market orientation The provision of custom-tailored products and
A business philosophy that emphasises an services.
organisation-wide commitment to creating and micromarketing
maintaining superior customer value by being A strategy of targeting individual customers with
customer focused and competitor oriented; that individualised and customised marketing. It is
is, the implementation of the marketing also described as ‘one-to-one marketing’.
concept.
near environment
market pioneer An alternative term to industry environment
The first entrant into a new market. referring to the external influences that directly
impact on an industry, including demand
market segmentation
characteristics and industry structure (market,
A process of partitioning a market into groups
competitor, distribution, customer and supplier
(or segments) of potential or existing customers
structure).
who have similar characteristics and similar
needs. Because of this they are likely to exhibit neuromarketing
similar purchasing behaviour. The use of brain measuring technology to
analyse an individual’s sensorimotor, cognitive
marketing concept
and affective responses to marketing stimuli.
A term coined by Peter Drucker in the 1950s to
describe a managerial philosophy that calls for organisational culture
managers to focus on their customers rather The shared meanings and understandings held
than on the products that they sell. It by a group, or groups, of members in an
emphasises a long-term strategic orientation organisation that guides the way they view their
based on customer satisfaction rather than an organisational world(s) and the way they act in
emphasis on current sales volume. that (those) world(s).
marketing myopia penetration pricing strategy
A term popularised by Theodore Levitt in 1960 Entering a market at a relatively low price
to describe the short-sighted view of defining a with the aim of capturing a high market
Glossary 281
share. It is also referred to as a ‘market share product mix

strategy’. The mix of product lines marketed by an
organisation.
perceptual map
A multidimensional scaling method graphically product portfolio models
showing a brand or product’s position vis-à-vis A technique providing a framework, typically
those of its competitors on selected product in the form of a matrix, displaying an
traits. organisation’s operations as a portfolio of
businesses, product lines, products or brands.
positioning statement
These models are used as diagnostic aids and
A one- to three-sentence statement of how
prescriptive guides for strategy development
a brand, product or company is to be
and resource allocation. Two of the most well-
communicated to its intended audience.
known portfolio models are the BCG growth/
Also referred to as a creative platform.
share matrix and the GE/McKinsey market
predictive analytics attractiveness/business assessment matrix.
A variety of statistical techniques used to
production-oriented
analyse current and historical data to make
Organisations that focus on what they make
predictions about the future.
rather than on satisfying their customer needs.
product category prognosis
A grouping of products that serve similar A forecast or prediction of what is likely to
functional needs. happen.
product life cycle (PLC) quick response (QR)
A concept stipulating that products have a life Technology that combines a JIT system with
and progress through a number of life cycle high-speed communication technology (product
phases. The phases are introduction, growth, bar coding, point-of-sale scanning and
competitive turbulence, maturity and decline. electronic data interchange, and online
This is reflected in the sales curve for a computer linkage between the buying and
market, a product category or a brand. selling organisations) to maximise ordering and
Changes are required in marketing strategies to delivery efficiency. See also ‘just-in-time (JIT)
meet changing consumer demand and inventory management’.
competitive conditions at each phase. A
product’s position on the life cycle directly radical innovation
influences its positioning and marketing The creation of a new product, product line,
strategies. process, system or business model that is
significantly different than the business unit’s
product line current product offerings but within the
A line of product offerings or brands within a scope of its business mission. Radical
product category. innovation includes the development of
product line extension new-to-the-world products and new-to-the firm
Introducing a new product or brand to an products.
existing product line. real time experience tracking (RET)
product line pruning A mobile phone-based research technique that
Deleting a product or brand from a product captures customers’ experiences with a brand
line. as and when they occur.
282 Glossary
red ocean Marketing is viewed as a facilitator of

The known marketspace representing all the ongoing processes of voluntary exchange
industries in existence today. The opposite to a through collaborative, value-creating
blue ocean. relationships among individuals and
organisational actors.
relationship marketing
An emphasis on developing and maintaining servicescape
long-term relationships with a few rather than The physical setting (including the layout,
many suppliers. Both parties work towards a decor, ambience, background noise and music)
more cooperative long-term relationship with of the service encounter, including other
the aim of achieving mutual profitability and tangible cues such as the appearance of staff
other objectives. It is alternatively termed and the quality of promotional materials and
‘one-to-one marketing’. stationery.
remote environment skimming pricing strategy
An alternative term to macro environment Entering a market at a relatively high price with
referring to the external influences that impact the aim of ‘skimming the cream off the market’
on society as a whole, the organisation and the by targeting the most price-insensitive
industry it competes in, especially the impact segments.
on the organisation’s customers and
stealth marketing
competitors.
An umbrella term coined in the mid 1990s to
repositioning strategy describe a range of marketing techniques that
An attempt to change existing perceptions and attempt to create a buzz or a sense of
beliefs about a brand. excitement about a new product in a way that is
subtle and not immediately obvious that it is a
return on investment (ROI) marketing
marketing promotion.
A management discipline based on the
application of metrics to evaluate an steering-control system
organisation’s return on its marketing A reactive marketing performance system that
investments. provides for the detection of problems and for
the implementation of corrective action during
rule of thee and four
the planning period under review rather than
The concept that a stable and competitive
at the end of the period. It therefore facilitates
environment has never more than three
corrective action to be taken before
significant competitors with market share
performance wanders too far off-track. See also
ratios of 4:2:1.
‘after-the-fact control system’ and ‘adaptive-
sales-oriented control system’.
Organisations that focus on selling what they
strategic alliances
make rather than on satisfying customer needs.
Forms of organisation that evolved during the
selective distribution 1980s. Strategic alliances are formed between
Distributing products via a relatively small organisations and their suppliers and resellers
number of selected intermediaries. (customers), and with specialist manufacturers/
providers of goods or services or in some cases
service-dominant logic (S-D logic)
alliances between competitors. The
The view that service provision rather than
characteristics of strategic alliances are shared
goods is fundamental to economic exchange.
Glossary 283
objectives and a commitment of resources by individuals’ concept of self or self-worth

both parties. See also ‘zaibatsu’. (reflection of the way one feels about his/
herself), self-expression (reflection of one’s
strategic business unit (SBU)
personality, taste or values), social meaning
A free-standing business within a larger
(reflection of prestige, status or image) and
organisation that has a unique business mission
conditional meaning (symbolism relating to a
and a clearly definable set of competitors, and
specific sociocultural event or tradition such as
is large enough to justify senior management
giving a birthday present).
attention but small enough to serve as a useful
focus for resource allocation. tipping point
The term originated in the field of epidemiology
strategic gap analysis
to describe a point of time in an epidemic when
A tool for analysing strategic options for closing
a virus reaches a critical mass. The term has
a revenue (or a profitability) shortfall between
been adopted in business to describe the point
objectives and expected performance via a
of time where a product, a market or a concept
continuation of current marketing strategies
takes off. It can be equated to the rapid growth
over the next few years.
stage of a product life cycle.
strategic intent
top-down planning
A long-term vision (10–20 years) of what an
An approach to planning whereby decisions
organisation wants to be.
are made from the top and passed down the
strategic positioning line. Also referred to as goals-down-plans-up
Strategies developed by an organisation to planning.
achieve a sustainable competitive advantage.
total quality management (TQM)
Strategic positioning is all about being different
A management philosophy that extends
and performing activities at an organisation-
statistical methodologies of measuring and
wide level to create, communicate and deliver
controlling production quality to provide a
customer value.
company-wide awareness and focus on all
supply chain management quality issues from supply to production to
A technique for linking a manufacturer’s marketing, selling and distribution of goods
operations to those of its suppliers, its key and services. It emphasises teamwork and
intermediaries and its end-user customers with the imperative of satisfying customer needs
the aim of enhancing efficiency and and establishing excellent supplier
effectiveness. relationships.
SWOT touchpoint
An acronym standing for ‘strengths, A point of direct customer contact or
weaknesses, opportunities and threats’. It is interaction either with the organisation’s
used for analysing an organisation’s internal product or service itself, or with representations
capabilities and the external environment in of it by the organisation, its value chain
which it competes. partners or some other third party.
symbolic/expressive value undifferentiated marketing
The extent to which customers attach or A strategy, also known as ‘mass marketing’,
associate psychological meanings to/with a where one marketing mix strategy is deployed
product. These associations are based on the to service an entire market.
284 Glossary
unique selling proposition (USP) value proposition

An advertising claim based on a unique product See ‘customer value proposition’.
attribute that represents a meaningful and
vision statement
distinctive customer benefit.
A view of a realistic, credible and attractive
value-based planning models future for an organisation.
Techniques designed to forecast the economic
voice-of-customer (VOC)
value to an organisation that a specific strategy
A term typically used to describe various market
or operating program will yield. Methods
research techniques that provide a voice for the
include shareholder value analysis (SVA),
customer in the new-product development
market value added (MVA) and economic value
process.
added (EVA).
zaibatsu
value chain
A Japanese business model involving the
A model that disaggregates an organisation into
formation of a family of enterprises organised
strategically relevant activities for the purpose of
around a single controlling parent, usually a
determining the behaviour of costs and existing
bank. See also ‘strategic alliances’.
and potential sources of differentiation.
285
INDEX
A co-creation, 23, 24, 25
Coles Group Ltd, 44
a priori segmentation, 148 commercialisation, 220–1
academic discipline, 5–6 company culture, 216
accountability, 20, 245–6 competition, 4, 18
adaptive strategy, 61 competitive advantage, 45, 128–9, 134–5
adaptive-control system, 252 competitive forces approach, 47
advertising competitive review, 74–5
analytics, 39, 77 competitors
formats, 194–5 characteristics, 75–6
positioning, 150–2, 156, 158 market segments, 204–6
power of, 2–3 concentrated marketing strategy, 144
advertising agencies, 6 concept, the marketing, 5, 7–10, 36
after-the-fact control system, 252 conjoint analysis, 155, 165
aggregation models, 71 consumer markets, 145–8
American Marketing Association, 26 consumers
attribute rating method, 163–4 brand perception, 25, 152–3
Australian Competition and Consumer Commission (ACCC), 69 communication, 23
Australian Tourist Commission, 141–2 marketing planning, 9
segments, 145–7
core marketing activities, 248
B core values, 62
benchmarking, 251 corporate bonds, 206
blue ocean strategy, 131–2 corporate social responsibility, 18–19, 62, 104
Booz, Edwin G., 34 corporate strategies, 102–4
Boston Consulting Group, 35, 60 corrective action, 251–2
business unit categories, 118–19 cost leadership, 129
product portfolio model, 117–21 creating shared value (CSV), 62, 103–4
brand audit, 153–4 creative thinking, 40, 101, 105, 106
brand management critical success factors (CSFs), 78–9
communicate value, 177–8, 194 customer, 145
brand positioning, 149–53 customer experience, 23
brand strategy, 155–7 data, 59–60
branding decisions, 153–7 end users, 76–7
brands equity, 20
brand associations, 154 intermediary customers see buyers
brand awareness, 153–4, 193 needs, 8
brand community, 151 customer aggregation models, 71
brand equity, 19 customer engagement, 23, 194
brand identity, 152 deliver value, 178–80, 194
destination branding, 142 customer experience, 23
as meaning makers, 24 customer groups see segmentation
personality, 142 customer lifetime value (CLV), 19, 246–7
Burberry, 174–5 customer relationship management (CRM), 16
business case, 218 customer satisfaction measurement, 13
business definition, 63–4 customer service, 13–14
business markets, 147 customer value added (CVA), 14
business writing, 261–2 customer value creation, 171–80
business-to-business (B2B) marketers, 68 customer value perception, 156–7, 171
business-to-consumer (B2C), 11, 219 customer lifetime value (CLV), 246–7
buyers (intermediary customers), 76 history of the concept, 25–6
buying preferences, 77 process, 159, 192–5
types of value, 172–4, 232
C
capabilities D
internal, 81, 90 data management, 59–60
marketing capabilities, 85–7 data mining segmentation, 148
organisation-wide, 81–2 database marketing, 6
Carmen’s Fine Foods, 201 decision making, 42–3
causal methods/models, 71 hierarchy of strategies, 42
channels, 207 market expansion, 202–4
classical strategy, 61 strategic decisions, 49
286 Index
deliver value, 178–80 H

demand, 70
demand forecasting, 220 harvesting strategy, 191
demographics, 68 hierarchy of strategies, 42
differentiation strategies, 129–31, 144 high-level marketing strategies, 143, 268
digital era, 22–4 holistic management, 253
digital marketing channels, 207, 222
disruptive innovation, 22–3
distribution, 180 I
channels, 76 IBM Corporation, 80
domestic market expansion, 200–1 implementation, 52, 247–9
DuPont model, 136–7 Inditex, 199–200
dynamic capabilities, 48–9, 80, 133 industry environment, 13, 70–1
innovation
disruptive, 22–3, 205
E incremental, 107–8, 188, 205, 211–21
ecological factors, 70 radical, 108, 188, 228–36
economic liberalism, 4 innovation ambition matrix, 109–10
economies of scale, 234 intelligent opportunism, 105
economy, 67–8 internal capabilities
electronic commerce, 11 marketing capabilities, 85–7
end users, 76–7 organisation-wide, 81–5
environment international market expansion, 201–4
industry, 70–1 internet, 23
macro (remote), 66–70 introduction
natural environment, 70 to strategic marketing report, 266
near (industry), 65, 70–1 inventory, 15
evaluation, 250–4, 269 Just-in-time (JIT) inventory management, 15
evidence-based management, 102
exchange theory, 4
executive summary, 266 J
export, 201 Japan
external environment review emergence as an economic force, 10
macro (remote), 65–70, 88–9 Japanese marketing industry
near (industry), 70–8, 89 Just-in-time inventory management, 15
kanban, 15
organisational culture, 17
F quality management methods, 13
Fiesta, 11–12 strategic alliances, 16–17
FIIG Securities, 206 success, 40–1
financial analysis, 94–6 Just-in-time (JIT) inventory management, 15, 76
financial position, 81–2
first-mover advantage (FMA), 231, 232–4
five Cs, 65 K
five-forces model, 73–4
kanban, 15
fixed incomes, 206
Ford Motor Company, 11–12
forecasting
formal modelling techniques, 70–1
L
judgemental techniques, 71 lagging indicator, 250
market and product analysis, 71 launch, 219, 220–1
future market attractiveness, 73 leading indicator, 250
Little, Arthur D., 34
logistics, 15
G
gap analysis, 108–9
General Electric, 99–100 M
geographic expansion, 200–4 macro environment, 65
Gillette, 211–12 management
globalisation, 11, 13 evidence-based, 102
goals, 103 performance measurement, 253–4
Index 287
management consulting, 34–6 measurements

market challenger/follower, 135–6, 189, 234–5 competitive advantage, 134
market definition, 64 customer value, 14, 19, 25
market development, 108, 188 financial performance, 94–6
market evolution, 188–92, 207 marketing outcomes, 245–6
competition, 189–90 marketing performance, 20, 221, 250–4, 269
declining markets, 191 quality, 13
growth markets, 188–9 metrics, 221, 250–1
mature markets, 190 micromarketing, 144
market intelligence, 85–6 mission, 51–2, 102
market leader, 135, 188–9 statement, 62–3
market orientations, 20–2 modelling techniques, 70–1
market penetration, 108, 187
market segments, 204–6
marketing N
accountability, 245–6 National Australia Bank (NAB), 169–71
activities, 248 natural environment (ecological factors), 70
as an academic discipline, 5–6 near environment, 65, 70–1
as an organisational process, 10 Nestlé SA, 104
concept, 5, 7–10, 36 neuromarketing, 166
database, 6 New Concept Development model, 229–30
definition of, 26 new market segments, 204–6
early practice of, 6 new product development
management, 6–10, 85 business case, 218
objectives, 106–7 commercialisation, 219, 220–1
organisational process, 10–12 company culture, 216
relationship marketing, 15–16 metrics and performance, 221
strategic marketing, 37 new-to-the-firm, 229, 234–6
strategies, 50–1 new-to-the-world, 228, 231–4
theory, 4–5 process, 217–19
marketing capabilities project climate, 215
intelligence generation and dissemination, 85–6 research, 219, 222
management, 85 Stage-Gate model, 217, 221
organisation, 85 strategy, 214–16
planning, 86 new-to-the-firm, 229
strategies and performance, 86–7 new-to-the-world, 228, 231–4
marketing channels, 22, 207 normative segmentation, 148
marketing communication, 23–4, 177–8
marketing control system
adaptive-control system, 252 O
after-the-fact control system, 252 objectives, 103, 106–7
benchmarking, 251 one-to-one marketing see relationship marketing
corrective action, 251–2 opportunities, 78
steering-control system, 252 opportunity statement, 268
marketing ecosystem, 248 organisation-wide capabilities
marketing information, 88–90 financial position, 81–2
marketing objectives, 106–7 organisational effectiveness, 82
marketing operations management, 248 shared values, 84
marketing performance, 250–3 skills, 85
holistic management, 253 staff, 84
marketing productivity, 245–6 strategy, 82
marketing strategies structure, 82–3
development, 270–1 style, 84
high level, 143 organisation-wide coordination, 247
management, 50–1 organisational change, 17, 82
pitfalls, 271–72 organisational culture
marketing warfare, 135–6 importance for marketing, 17
marketspace, 11 innovation, 231
mass customisation, 144 management practices, 41–2
McDonalds, 158–9 organisational effectiveness, 42, 82
McKinsey & Company, 34–5, 38–9 organisational process, 10–12
product portfolio model, 121–8 organisational structure, 20–21, 24, 39, 82–3
McKinsey 7-S model, 42, 82–5 overall similarity method, 164–5
288 Index
P shared value, 103

shareholder value, 62, 104
perception maps, 163–5 situation analysis, 64–6, 266–8
attribute rating method, 163–4 external environment
overall similarity method, 164–5 near, 65–6, 70
performance evaluation, 221, 250–4 remote, 65–70, 88
scorecard, 253–4 review, 78
performance models, 136–7 small-to-medium sized enterprises (SME), 200–1
political-legal factors, 69 Smith, Adam, 4
population, 68 social responsibility, 18–19, 104
Porter’s five-forces model, 73–4 societal values, 68
positioning, 128–9, 149–57 sociocultural factors, 68–9
post hoc segmentation, 148 Stage-Gate process, 217, 221
predictive analytics, 59 stakeholders, 18–19, 103
pricing, 176 steering-control system, 252
problems and opportunities statement, 87–8, 268 strategic alliance, 16–17
Procter & Gamble, 2–3 strategic analysis, 52, 102
product analysis, 71 strategic business unit (SBU), 38, 39, 117
product definition, 64 categories, 118
product development, 175–6 SBU approach, 45, 104–5
product life cycle (PLC), 73, 115–17 strategic conflict approach, 47–8
product management, 176, 192–3 strategic decisions, 49
create value, 175–7 strategic development, 52, 106
product portfolio, 117–19 strategic fit, 252–3
product portfolio model strategic gap analysis, 108–9
Boston Consulting Group, 117–21 strategic intent, 63, 102
General Electric/McKinsey model, 121–8 strategic management, 40–3, 46–9
product readiness, 220 competitive forces approach, 47
product-market strategies, 107–10, 187–8 dynamic capabilities, 47, 48–9, 80
profitable survivor, 191 resource-based view of the firm, 47, 48
strategic conflict approach, 47–8
Q strategic marketing, 37, 42–3
process, 50–2
quality management, 13 strategic marketing plan or report
quick response (QR) technology, 15, 76 abbreviated report, 269–70
approach, 262
comprehensive report, 265–9
R executive summary, 266
radical innovation, 108, 188, 228–36 format, 261–2, 264
relationship marketing, 15–16 high-level marketing strategies, 268
relative customer value (RCV) see customer value added implementation, 247–9, 269
remote environment see external environment problems and opportunity statement, 268
research, 219–20 resource allocation, 245–7
resource allocation, 245–7 role, 260–1
resource-based view of the firm, 47, 48, 132–3 situation analysis, 266–8
return on investment (ROI), 20, 246–7 suggestions for writing, 263
roles and responsibilities, 248 strategic planning, 43, 45
creative thinking, 40, 101, 106
evolution of, 17–18, 36–40
S move to strategic management, 45
7-S model (organisational effectiveness), 42, 82–5 organisational levels, 43
sales trend models, 70–1 pitfalls, 271–2
salesforce.com, 227 strategic positioning, 106
scope strategic style, 60–2
new product development, 218 strategic thinking, 40
scope statement, 63–4 strategy
segmentation, 110, 233, 144–8 competition, 18
categories, 145–8 corporate, 102–4
segments development, 101–7, 270–1
new market segments, 204–6 evaluation and control, 52, 250–4
service-based economies, 10 implementation, 52, 247–9
service-dominant logic (S-D logic), 15 new product, 214–16
services marketing, 1 pitfalls, 271–2
shaping strategy, 61 success factors, 78–9
Index 289
supply, 77–8 V
supply chain management, 10
sustainability, 70 value
sustaining innovation see innovation communicate, 177–8, 194
Swatch Group Ltd, 12 deliver, 178–80, 194
switching costs, 234 shared value, 103
shareholder, 104
value chain, 79, 233–4
T value curve, 155–6
value proposition, 155
Target (department store), 59
value-based planning, 137
targeting, 149
values
technological factors, 69
core, 62
technological leadership, 233, 234
vision, 51–2
threats, 78
statement, 63
time series models, 70–1
strategic intent, 63
timing, 219, 221, 231, 234
visionary strategy, 62
top-down planning, 39
total quality management (TQM), 13
Tourism Australia see Australian Tourist Commission W
Wachovia, 243–4
Wesfarmers, 44–5
U
undifferentiated marketing, 144
Unilever, 185–6 Z
unique selling proposition (USP), 149–50 Zara, 199–200

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STRATEGIC

PART 2 IDENTIFYING STRATEGIC OPPORTUNITIES

PART 3 STRATEGY DEVELOPMENT – HIGH-LEVEL

PART 4 STRATEGY DEVELOPMENT – PRODUCT-MARKET

PART 5 STRATEGY IMPLEMENTATION, EVALUATION

2 STRATEGIC THINKING AND STRATEGIC DECISION MAKING 34

PART 2 IDENTIFYING STRATEGIC OPPORTUNITIES

PART 3 STRATEGY DEVELOPMENT –

Product-market strategies 107

5 SEGMENTATION, TARGETING AND POSITIONING

6 THE CUSTOMER VALUE CREATION MIX 169

PART 4 STRATEGY DEVELOPMENT –

8 MARKET DEVELOPMENT STRATEGIES 199

9 INCREMENTAL INNOVATION STRATEGIES 211

10 RADICAL INNOVATION STRATEGIES 227

PART 5 STRATEGY IMPLEMENTATION, EVALUATION

12 WRITING THE STRATEGIC MARKETING REPORT 259

ABOUT THE AUTHOR

Chapter 2 Strategic thinking and strategic decision making

Focus of this chapter

The evolution of marketing thought and practice

The formative years of marketing thought and practice

The underlying theory of marketing

Marketing as an academic discipline

Throughout the formative years of the evolution of marketing as an academic discipline,

The early practice of marketing

The marketing management school of thought

accepted as a major contribution to marketing thought despite a lack of empirical evidence

Marketing as an integrated organisational process

The impact of these driving forces of change on marketing

Total quality management

Customer service revolution and customer satisfaction measurement

Services marketing revolution

and production of a service – is the distinguishing factor. Customers therefore participate as

Just-in-time (JIT) inventory management

Customer relationship management

Strategic alliances and networks

Strategic planning and strategic management

Emphasis on competitive strategies

Corporate social responsibility and stakeholder theory

Customer lifetime value (CLV) and customer equity

Emphasis on measurement and accountability

The digital era (early 2000s to current)

production of Encyclopedia Britannica – after 244 years of production. Newspaper readership

The evolution of a new marketing paradigm –

SUMMARY AND CONCLUSION

STRATEGIC MARKETING PROJECT

SEARCH ME! MARKETING

Focus of this chapter

progress in growing markets … During the 1970s the influence of marketing

Strategy planning and strategic

From doom and gloom to renewal

T A B L E 2 . 1 Decision making for the three organisational hierarchical levels

The new era of strategy development

What has been learnt?

The strategic marketing management

FIGURE 2.1 The strategic marketing management process

Organisation mission and vision

Business definition and scope

SUMMARY AND CONCLUSION