Strategic Marketing Management (1)

Strategic Marketing Management
AMBO UNIVERSITY WALISO CAMPUS

SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF MARKETING MANAGEMENT
STRATEGIC MARKETING MANAGEMENT COURSE
BY: BELAY ADAMU (MA)
1 Department of Marketing Management

Chapter One
Overview of Strategic Marketing
1.1. Marketing Management
Marketing (management) is the process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods, and services to create exchanges that satisfy
individual and organizational goals.
Marketing management is the practical application of marketing techniques. It is the analysis,
planning, implementation, and control of programs designed to create, build, and maintain
mutually beneficial exchanges with target markets. The marketing manager has the task of
influencing the level, timing, and composition of demand in way that will achieve organizational
objectives. Marketing management is the process of planning, implementing and control of
marketing activities.
“Marketing management is that field of business activity involving the establishment and
execution of the plans of all the phases or steps of a complete sales campaign” (Lewis K.
Johnson.)
“Marketing management is concerned with the direction of purposeful activities towards the
attainment of marketing goals.” Cundiff & Still)
The management of the process of making strategy and of making strategy happens. “a
systematic approach to a major and increasingly important responsibility of management: to
position and relate the firm to its environment in a way which assures its success and makes it
secure from surprises". Underlying purpose: to maintain fit or alignment between the
organization’s activities and its operating environment. Staying in fit means managing the
organization so as to stay aligned with changes in the surrounding world.
1.2 What is Strategic Marketing?
Marketing strategy is a process that can allow an organization to concentrate its limited resources
on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A
marketing strategy should be centered on the key concept that customer satisfaction is the main
goal.
Marketing strategy is a method of focusing an organization's energies and resources on a course
of action which can lead to increased sales and dominance of a targeted market niche. A

marketing strategy combines product development, promotion, distribution, pricing, relationship

management and other elements; identifies the firm's marketing goals, and explains how they
will be achieved, ideally within a stated timeframe
The marketing strategy is shaped by your overall business goals. It includes a definition of your
business, a description of your products or services, a profile of your target users or clients, and
defines your company's role in relationship to the competition. The marketing strategy is
essentially a document that you use to judge the appropriateness and effectiveness of your
specific marketing plans. Marketing strategy is a summary of your company's products and
position in relation to the competition.
Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill
market needs and reach marketing objectives. Plans and objectives are generally tested for
measurable results. Commonly, marketing strategies are developed as multi-year plans, with a
tactical plan detailing specific actions to be accomplished in the current year.
Marketing strategy needs to take a long term view, and tools such as customer lifetime
value models can be very powerful in helping to simulate the effects of strategy on acquisition,
revenue per customer and churn rate.
Marketing strategy involves careful and precise scanning of the internal and external
environments. Internal environmental factors include the marketing mix and marketing mix
modeling, plus performance analysis and strategic constraints. External environmental factors
include customer analysis, analysis, target analysis, as well as evaluation of any elements of the
technological, economic, cultural or political/legal environment likely to impact success. A key
component of marketing strategy is often to keep marketing in line with a company's
overarching mission statement.
Strategy is the thinking and planning is the doing. Here is an example of how the two work
together:
Example:
Objective: To gain broader market adoption.
Marketing Strategy: Introduce into new market segments.
Marketing Plan: Develop marketing campaign that reaches out, identifies with and focuses on
that specific segment.

A successful formula that can be used to further explain the importance on marketing strategy
and marketing planning looks like this:
Marketing Strategy ---> Marketing Plan ---> Implementation = Success
 Your marketing strategy consists of:
The "what" has to be done?
Inform consumers about the product or service being offered.
Inform consumers of differentiation factors.
 Your marketing plan consists of:
The "how" to do it?
Construct marketing campaigns and promotions that will achieve the "what" in your
strategy.
 Your implementation consists of:
Taking action to achieve items identified in marketing strategy and marketing plan.
1.3. Why studying Strategic Marketing Management
• Changes in Market structure
• Competition
• Cultural dynamics
• Micro & Macro Factors
• Impact of Technology
• Marginal Propensity to Save/Consume
• Changes in Buyers’ Behavior
 Understanding the buying decision process
 Determining the needs and wants of existing and prospective customers
 Research techniques for understanding customers and prospects
• Heterogeneity
Strategic Marketing Management explores the following topics:
Marketing as a Value Creation Process
 A framework for analyzing market opportunities and risks, and understanding customer
needs using state-of-the-art techniques
 The role of value creation in acquiring and retaining customers

Analyzing Buyer Behavior

 Understanding the buying decision process
 Determining the needs and wants of existing and prospective customers
 Research techniques for understanding customers and prospects
Selecting the Target Market and Positioning the Product
 The advantages of market segmentation
 Product positioning as the foundation for developing the marketing mix
 Standardization versus customization: the world of one-to-one marketing
Developing the Integrated Marketing Program to Generate Maximum Customer Value
 Designing products and services that deliver meaningful customer value
 The "augmented" product as an antidote to commoditization
 Marketing communications planning: budget and the media mix
 Going to market: designing and managing the distribution channel
 Positioning the Internet as an effective online sales tool
Capturing Created Value for the Firm
 Pricing: shifting from cost- to value-based pricing
 Characteristics of profitable pricing practices
Marketing Management
 Creating the marketing plan
 Anticipating and adapting to change
 Ethical and legal issues
1.4. Components of marketing strategy
Stage one: Defining strategic marketing objectives
These will to a large extent be determined by corporate strategy, and will answer such questions
as: which markets should we compete in? What should be our targets, in terms of market share
and profitability, in these markets?
The answer to the first question will be determined by the inherent attractiveness of the market
and our ability to compete in it. A market may be attractive for a number of reasons: because
there are high profits to be made in it; because it is growing; because it fits in well with or fills a
gap in our existing portfolio. It is useful at this stage to carry out some structured analysis using a
framework such as Michael Porter's Five Forces of Competition or SWOT analysis.

It is crucial, however, to ask not just whether the market is inherently attractive, but whether it
matches our capability profile: in other words, do we have particular strengths which will give us
an advantage in the market? A good marketing strategy may be determined as much by those
markets we choose not to enter as by those we do.
Targets will be expressed in terms of market share or profitability, or possibly both. For example,
in an early stage of the stage in the market life cycle, an organization may concentrate on
building share at the expense of profitability, or at a later stage may be content for share to
remain static whilst profits are high.
Stage two: Determining strategic focus
Having decided which markets to compete in, the question of how to compete can be addressed.
Should the focus be on growing the overall size of the market, or on taking a bigger share of an
existing market (penetration)? In order to do this, should we be concentrating on getting existing
customers to use more of our product, or on finding new customers or even new segments? Or
can we only increase share by taking customers from our competitors?
The answers to these questions will depend largely on what stage has been reached in the life
cycle of the market for this product. This in turn will determine whether the market is fairly
homogeneous or divided into segments or sub-segments. The more mature the market, the more
fragmented it tends to be.
Stage three: Defining customer targets
The first step in defining customer targets will be to understand the structure of the market in
terms of what segments exist and what alternative ways of segmenting the market might be
possible. It is important to remember in this context that segmentation is a characteristic of the
market, not something which marketers impose upon it. In seeking to gain a better understanding
of different customers' perception of value, marketers may see certain customers with similar
characteristics and perceptions as belonging together as a distinct segment, but unless those
similarities actually exist, the segmentation and the target will be meaningless. Customers within
one segment should be similar to each other in ways which are important for how, when, what
and why they buy, and different from customers in other segments. Organization’s which find
new ways of segmenting a market may also find new ways of differentiating their offering in
response to a particular segment's perception of value, and will therefore gain an advantage over
their competitors.

Once we have a clear view of market structure, we need to decide which segment or segments to
target. Certain elements will tend to make a segment attractive: size, growth, profitability, fit
with company strengths and relative weakness of competition.
The issue of customer economics, or choosing the right customer portfolio, is vital.
Organization’s can waste large amounts of resources pursuing customers who are not sufficiently
profitable, or are unattractive in other ways. This is even more important given the recent
emphasis on building customer relationships. This is usually an expensive and time consuming
business, so organization’s need to be sure that they are building relationships with the right
customers. It is not usually possible or desirable to build relationships with all customers.
As part of this stage, it will be decided whether to target only one segment, or several segments
at once. Clearly this decision will be influenced by such factors as: ƒ
 Available resources.
 Danger of brand contamination.
 Opportunity for economies of scale in manufacturing, marketing or distribution.
Stage four: Competitor analysis
In practice, it is clear that the analysis of competitors and the selection of customer targets will
go hand in hand, since the one will exert a strong influence on the other. The decisions to be
taken at this stage will relate to competitive positioning and competitive strategy.
Competitor analysis is a big topic and has an important role to play at the level of corporate
strategy as well as in the marketing strategy process. If you want to look more specifically and in
greater depth at competitor analysis, there is a separate learning guide on this topic. In the
context of developing a marketing strategy, there are particular areas of competitor analysis to be
considered.
The specific questions which competitor analysis must answer at this market specific level are:
 What does the customer buy when he does not buy my product?
 What is his perception of these alternatives and how does it compare with his perception
of my product?
 What do I know or what can I infer about my competitors' strategies in relation to their
products?

Stage five: Differential advantage

Differential advantage, or competitive advantage, describes the ways in which one organization’s
offering is different from and better than another's. This gives the company an advantage over its
competition. Differential advantage may come from a variety of sources: superior position,
superior skills or superior resources.
Superior position
E.g. lower costs (perhaps due to location); incumbent position (eg distribution network);
relationships
Superior skills
E.g. specialized knowledge, technical expertise, organizational skills such as flexibility
Superior resources
E.g. financial resources, geographical coverage, exclusive ingredients, experienced people
Whatever the source of differential advantage, it must offer real value to the customer in that it
meets his/her needs in a distinctive way, and is in some way better than the competition. It is the
meeting point of the three C's of customer, competition and company resources. Differential
advantage is at the heart of a marketing strategy and should be based on all of the preceding
analysis. It can then be translated into a practical marketing plan covering the four P's of the
marketing mix.
Stage six: Marketing mix
The "marketing mix" refers to the various elements of a company's offering in the market place:
the product or service itself, including its packaging; the price, including any discounts or
payment terms; the place, or distribution method; and the promotional mix by which the offering
is communicated to the market place.
In addition to the traditional "four Ps" subsequent writers have talked about the need to include
physical evidence, process and people, particularly where service products are concerned. For
example, if buying an intangible financial services product such as a mortgage, the building
society's offices, the ease and speed with which an application can be made, and the way in
which the society's staff deal with their customers will all influence the customer's perception of
the offering.

The marketing plan can be produced at this stage, and will include a definition of the target
market segment(s), the source of differential advantage, and a list of actions under each of the
marketing mix headings, with timings, budget and responsibilities allocated.
The marketing mix approach simply says that all the messages the customer receives must be
consistent with each other and help to communicate the differential advantage (sometimes called
the value proposition). Some have argued that the concept is outdated, relying too much on the
marketing department to implement it, and needs to be replaced by a more company wide
approach. It is certainly true that consistency and an integrated approach are vital in
implementing marketing strategy.
Stage seven: Implementation
The implementation of marketing strategy demands good communication between the marketing
function and the other parts of the organization. The McKinsey "Seven S" model (Peters, T. &
Waterman, R. (1982) "In Search of Excellence" New York, HarperCollins) may be used as a
checklist to ensure that all the elements involved in implementing the strategy are consistent with
each other and with the strategy itself. The "seven S's" are:
Strategy itself - supported by
Skills - what distinctive core tasks (functional or organizational) is the company good at
performing?
Shared values - what is the culture of the company? What behavior or achievements are
rewarded?
Style - what is the management style? How do things get done round here?
Staff - what are the people like? What is their educational or business background? What is
likely to motivate them? How is their morale?
Systems - what formal systems are in place that may help (or hinder) implementation? (these
could be reward systems, monitoring systems, customer service systems?) What about the
informal systems?
Structure - what structures are in place that may help (or hinder) implementation? Is there a flat
management structure? Are there (for example) project management teams, or is the organization
structured along purely functional lines?

Stage eight: Monitoring market performance

Ideally a marketing plan should also include performance targets in terms of sales and
contribution, customer satisfaction, or any other measures deemed appropriate. There is a trend
towards the use of non-financial measures in monitoring company performance. The information
needed for such measurements is often difficult to obtain, but as feedback mechanisms showing
whether or not a strategy is being successfully implemented, they may be more useful than
traditional quantitative measures. The learning guide on performance management has more
information about the balanced scorecard approach.

Chapter Two
Strategic Planning & Marketing Process
What is Strategic Planning?
It is the managerial process that helps to develop a strategic and viable fit between the firm’s
objectives, skills, resources with the market opportunities available. It helps the firm deliver its
targeted profits and growth through its businesses and products.
Strategic planning is the management task concerned with the growth and future of a business
enterprise. Strategic planning can be viewed as a stream of decisions and actions that lead to
effective strategies and which, in turn, help the firm achieve its growth objectives. The process
involves a thorough self-appraisal by the corporation, including an appraisal of the businesses it
is engaged in and the environment in which it operates.
The marketing plan can function from two points: strategy and tactics. In most organizations,
"strategic planning" is an annual process, typically covering just the year ahead. Occasionally, a
few organizations may look at a practical plan which stretches three or more years ahead.
Strategic planning as a systematic, formally documented process for deciding the handful of key
decisions that an organization, viewed as a corporate whole, must get right in order to thrive over
the next few years. The process involves choosing strategically and results in the production of a
corporate strategic plan.
The issue is that most people try to set out to achieve the "how" without first knowing the
"what." This can end up wasting resources for a company, both time and money. When it comes
to marketing, we must always identify the what and then dig into the how.
Three Aspects of Strategy Formulation
The following three aspects or levels of strategy formulation, each with a different focus, need to
be dealt with in the formulation phase of strategic management. The three sets of
recommendations must be internally consistent and fit together in a mutually supportive manner
that forms an integrated hierarchy of strategy, in the order given.
Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions
about the total organization's scope and direction. Basically, we consider what changes should
be made in our growth objective and strategy for achieving it, the lines of business we are in, and

how these lines of business fit together. It is useful to think of three components of corporate
level strategy: (a) growth or directional strategy (what should be our growth objective, ranging
from retrenchment through stability to varying degrees of growth - and how do we accomplish
this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly
requires reconsidering how much concentration or diversification we should have), and (c)
parenting strategy (how we allocate resources and manage capabilities and activities across the
portfolio -- where do we put special emphasis, and how much do we integrate our various lines
of business).
Competitive Strategy (often called Business Level Strategy): This involves deciding how the
company will compete within each line of business (LOB) or strategic business unit (SBU).
Functional Strategy: These more localized and shorter-horizon strategies deal with how each
functional area and unit will carry out its functional activities to be effective and maximize
resource productivity.
2.2. Corporate & division strategic planning (Corporate Level Strategy)
This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if
you please. Corporate strategy involves four kinds of initiatives:
 Making the necessary moves to establish positions in different businesses and achieve an
appropriate amount and kind of diversification. A key part of corporate strategy is
making decisions on how many, what types, and which specific lines of business the
company should be in. This may involve deciding to increase or decrease the amount and
breadth of diversification. It may involve closing out some LOB's (lines of business),
adding others, and/or changing emphasis among LOB's.
 Initiating actions to boost the combined performance of the businesses the company has
diversified into: This may involve vigorously pursuing rapid-growth strategies in the
most promising LOB's, keeping the other core businesses healthy, initiating turnaround
efforts in weak-performing LOB's with promise, and dropping LOB's that are no longer
attractive or don't fit into the corporation's overall plans. It also may involve supplying
financial, managerial, and other resources, or acquiring and/or merging other companies
with an existing LOB.

 Pursuing ways to capture valuable cross-business strategic fits and turn them into
competitive advantages -- especially transferring and sharing related technology,
procurement leverage, operating facilities, distribution channels, and/or customers.
 Establishing investment priorities and moving more corporate resources into the most
attractive LOB's.
It is useful to organize the corporate level strategy considerations and initiatives into a
framework with the following three main strategy components: growth, portfolio, and parenting.
What should be Our Growth Objective and Strategies?
Growth Strategies
All growth strategies can be classified into one of two fundamental categories: concentration
within existing industries or diversification into other lines of business or industries. When a
company's current industries are attractive, have good growth potential, and do not face serious
threats, concentrating resources in the existing industries makes good sense. Diversification
tends to have greater risks, but is an appropriate option when a company's current industries have
little growth potential or are unattractive in other ways. When an industry consolidates and
becomes mature, unless there are other markets to seek (for example other international
markets), a company may have no choice for growth but diversification.
There are two basic concentration strategies, vertical integration and horizontal growth.
Diversification strategies can be divided into related (or concentric) and unrelated
(conglomerate) diversification. Each of the resulting four core categories of strategy alternatives
can be achieved internally through investment and development, or externally through mergers,
acquisitions, and/or strategic alliances -- thus producing eight major growth strategy categories.
1. Vertical Integration: This type of strategy can be a good one if the company has a strong
competitive position in a growing, attractive industry. A company can grow by taking
over functions earlier in the value chain that were previously provided by suppliers or
other organizations ("backward integration"). This strategy can have advantages, e.g., in
cost, stability and quality of components, and making operations more difficult for
competitors.

2. Horizontal Growth: This strategy alternative category involves expanding the company's
existing products into other locations and/or market segments, or increasing the range of
products/services offered to current markets, or a combination of both. It amounts to
expanding sideways at the point(s) in the value chain that the company is currently
engaged in. One of the primary advantages of this alternative is being able to choose
from a fairly continuous range of choices, from modest extensions of present
products/markets to major expansions -- each with corresponding amounts of cost and
risk.
3. Related Diversification (aka Concentric Diversification): In this alternative, a
company expands into a related industry, one having synergy with the company's existing
lines of business, creating a situation in which the existing and new lines of business
share and gain special advantages from commonalities such as technology, customers,
distribution, location, product or manufacturing similarities, and government access.
This is often an appropriate corporate strategy when a company has a strong competitive
position and distinctive competencies, but its existing industry is not very attractive.
4. Unrelated Diversification (aka Conglomerate Diversification): This fourth major
category of corporate strategy alternatives for growth involves diversifying into a line of
business unrelated to the current ones. The reasons to consider this alternative are
primarily seeking more attractive opportunities for growth in which to invest available
funds (in contrast to rather unattractive opportunities in existing industries), risk
reduction, and/or preparing to exit an existing line of business (for example, one in the
decline stage of the product life cycle). Further, this may be an appropriate strategy
when, not only the present industry is unattractive, but the company lacks outstanding
competencies that it could transfer to related products or industries. However, because it
is difficult to manage and excel in unrelated business units, it can be difficult to realize
the hoped-for value added.
What Should Be Our Portfolio Strategy?
Concerned with making decisions about the portfolio of lines of business (LOB's) or strategic
business units (SBU's), not the company's portfolio of individual products.
Portfolio matrix models can be useful in reexamining a company's present portfolio. The
purpose of all portfolio matrix models is to help a company understand and consider changes in

its portfolio of businesses, and also to think about allocation of resources among the different
business elements
The two primary models are the BCG Growth-Share Matrix and the GE Business Screen (Porter,
1980, has a good summary of these). These models consider and display on a two-dimensional
graph each major SBU in terms of some measure of its industry attractiveness and its relative
competitive strength
The BCG Growth-Share Matrix model considers two relatively simple variables: growth rate of
the industry as an indication of industry attractiveness, and relative market share as an indication
of its relative competitive strength. The GE Business Screen, also associated with McKinsey,
considers two composite variables, which can be customized by the user, for (a) industry
attractiveness (e.g, one could include industry size and growth rate, profitability, pricing
practices, favored treatment in government dealings, etc.) and (b) competitive strength (e.g.,
market share, technological position, profitability, size, etc.)
It is important to consider diversification vs. concentration while working on portfolio strategy,
i.e., how broad or narrow should be the scope of the company. It is not always desirable to have
a broad scope. Single-business strategies can be very successful (e.g., early strategies of
McDonald's, Coca-Cola, and BIC Pen). Some of the advantages of a narrow scope of business
are: (a) less ambiguity about who we are and what we do; (b) concentrates the efforts of the total
organization, rather than stretching them across many lines of business; (c) through extensive
hands-on experience, the company is more likely to develop distinctive competence; and (d)
focuses on long-term profits. However, having a single business puts "all the eggs in one
basket," which is dangerous when the industry and/or technology may change. Diversification
becomes more important when market growth rate slows. Building stable shareholder value is
the ultimate justification for diversifying -- or any strategy.
Stars
The business units or products that have the best market share and generate the most cash.
Monopolies and first-to-market products are frequently termed stars. However, because of their
high growth rate, stars also consume large amounts of cash. This generally results in the same
amount of money coming in that is going out. Stars can eventually become cash cows if they
sustain their success until a time when the market growth rate declines. Companies are advised
to invest in stars.

Cash cows
Cash cows are the leaders in the marketplace and generate more cash than they consume. These
are business units or products that have a high market share, but low growth prospects. cash
cows provide the cash required: to turn question marks into market leaders, to cover the
administrative costs of the company, to fund research and development, to service the corporate
debt, and to pay dividends to shareholders.
Dogs
Dogs are units or products that have both a low market share and a low growth rate. They
frequently break even, neither earning nor consuming a great deal of cash. Dogs are generally
considered cash traps because businesses have money tied up in them, even though they are
bringing back basically nothing in return.
Question marks

These parts of a business have high growth prospects but a low market share. They are
consuming a lot of cash but are bringing little in return. In the end, question marks, also known
as problem children, lose money. However, since these business units are growing rapidly, they
do have the potential to turn into stars. Companies are advised to invest in question marks if the
product has potential for growth, or to sell if it does not
What Should Be Our Parenting Strategy?
This third component of corporate level strategy, relevant for a multi-business company (it is
moot for a single-business company), is concerned with how to allocate resources and manage
capabilities and activities across the portfolio of businesses. It includes evaluating and making
decisions on the following:
Priorities in allocating resources (which business units will be stressed)
What are critical success factors in each business unit, and how can the company do well
on them
Coordination of activities (e.g., horizontal strategies) and transfer of capabilities among
business units
How much integration of business units is desirable?
2.3. Business unit strategic Planning (Competitive/Business Level)
The focus is on how to compete successfully in each of the lines of business the company has
chosen to engage in. The central thrust is how to build and improve the company's competitive
position for each of its lines of business. A company has competitive advantage whenever it can
attract customers and defend against competitive forces better than its rivals. Companies want to
develop competitive advantages that have some sustainability (although the typical term
"sustainable competitive advantage" is usually only true dynamically, as a firm works to
continue it). Successful competitive strategies usually involve building uniquely strong or
distinctive competencies in one or several areas crucial to success and using them to maintain a
competitive edge over rivals. Some examples of distinctive competencies are superior
technology and/or product features, better manufacturing technology and skills, superior sales
and distribution capabilities, and better customer service and convenience.
Competitive strategy is about being different. It means deliberately choosing to perform
activities differently or to perform different activities than rivals to deliver a unique mix of
value.

The essence of strategy lies in creating tomorrow's competitive advantages faster than
competitors mimic the ones you possess today.
Porter's Four Generic Competitive Strategies

He argues that a business needs to make two fundamental decisions in establishing its
competitive advantage: (a) whether to compete primarily on price (he says "cost," which is
necessary to sustain competitive prices, but price is what the customer responds to) or to compete
through providing some distinctive points of differentiation that justify higher prices, and (b)
how broad a market target it will aim at (its competitive scope). These two choices define the
following four generic competitive strategies.
1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market by
providing products or services at the lowest price. This requires being the overall low-cost
provider of the products or services.
Implementing this strategy successfully requires continual, exceptional efforts to reduce costs --
without excluding product features and services that buyers consider essential. It also requires
achieving cost advantages in ways that are hard for competitors to copy or match. Some
conditions that tend to make this strategy an attractive choice are:
* The industry's product is much the same from seller to seller
* The marketplace is dominated by price competition, with highly price-sensitive buyers
* There are few ways to achieve product differentiation that have much value to buyers
* Most buyers use product in same ways -- common user requirements
* Switching costs for buyers are low
* Buyers are large and have significant bargaining power
2. Differentiation: appealing to a broad cross-section of the market through offering
differentiating features that make customers willing to pay premium prices, e.g., superior
technology, quality, prestige, special features, service, convenience (examples are Nordstrom
and Lexus). Success with this type of strategy requires differentiation features that are hard or
expensive for competitors to duplicate. Sustainable differentiation usually comes from
advantages in core competencies, unique company resources or capabilities, and superior
management of value chain activities. Some conditions that tend to favor differentiation
strategies are:

* There are multiple ways to differentiate the product/service that buyers think have
substantial value
* Buyers have different needs or uses of the product/service
* Product innovations and technological change are rapid and competition emphasizes the
latest product features
* Not many rivals are following a similar differentiation strategy
3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer segment
and competing with lowest prices, which, again, requires having lower cost structure than
competitors (e.g., a single, small shop on a side-street in a town, in which they will order
electronic equipment at low prices, or the cheapest automobile made in the former Bulgaria).
Some conditions that tend to favor focus (either price or differentiation focus) are:
* The business is new and/or has modest resources
* The company lacks the capability to go after a wider part of the total market
* Buyers' needs or uses of the item are diverse; there are many different niches and
segments in the industry
* Buyer segments differ widely in size, growth rate, profitability, and intensity in the five
competitive forces, making some segments more attractive than others
* Industry leaders don't see the niche as crucial to their own success
* Few or no other rivals are attempting to specialize in the same target segment
4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer
segment and competing through differentiating features (e.g., a high-fashion women's clothing
boutique in Paris, or Ferrari).
2.4. Functional Strategic Planning
Functional strategies are relatively short-term activities that each functional area within a
company will carry out to implement the broader, longer-term corporate level and business level
strategies. Each functional area has a number of strategy choices that interact with and must be
consistent with the overall company strategies.
Three basic characteristics distinguish functional strategies from corporate level and business
level strategies: shorter time horizon, greater specificity, and primary involvement of operating
managers.

A few examples follow of functional strategy topics for the major functional areas of marketing,
finance, production/operations, research and development, and human resources management.
Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what
should be outsourced?
Marketing strategy deals with product/service choices and features, pricing strategy, markets to
be targeted, distribution, and promotion considerations. Financial strategies include decisions
about capital acquisition, capital allocation, dividend policy, and investment and working capital
management. The production or operations functional strategies address choices about how and
where the products or services will be manufactured or delivered, technology to be used,
management of resources, plus purchasing and relationships with suppliers. For firms in high-
tech industries, R&D strategy may be so central that many of the decisions will be made at the
business or even corporate level, for example the role of technology in the company's
competitive strategy, including choices between being a technology leader or follower.
However, there will remain more specific decisions that are part of R&D functional strategy,
such as the relative emphasis between product and process R&D, how new technology will be
obtained (internal development vs. external through purchasing, acquisition, licensing, alliances,
etc.), and degree of centralization for R&D activities. Human resources functional strategy
includes many topics, typically recommended by the human resources department, but many
requiring top management approval. Examples are job categories and descriptions; pay and
benefits; recruiting, selection, and orientation; career development and training; evaluation and
incentive systems; policies and discipline; and management/executive selection processes.
CHOOSING THE BEST STRATEGY ALTERNATIVES
Here are some factors to consider when choosing among alternative strategies:
* It is important to get as clear as possible about objectives and decision criteria (what
makes a decision a "good" one?)
* The primary answer to the previous question, and therefore a vital criterion, is that the
chosen strategies must be effective in addressing the "critical issues" the company faces
at this time
* They must be consistent with the mission and other strategies of the organization
* They need to be consistent with external environment factors, including realistic
assessments of the competitive environment and trends

* They fit the company's product life cycle position and market attractiveness/competitive
strength situation
* They must be capable of being implemented effectively and efficiently, including being
realistic with respect to the company's resources
* The risks must be acceptable and in line with the potential rewards
* It is important to match strategy to the other aspects of the situation, including: (a) size,
stage, and growth rate of industry; (b) industry characteristics, including fragmentation,
importance of technology, commodity product orientation, international features; and
(c) company position (dominant leader, leader, aggressive challenger, follower, weak,
"stuck in the middle")
* Consider stakeholder analysis and other people-related factors (e.g., internal and
external pressures, risk propensity, and needs and desires of important decision-makers)
* Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most
likely, and pessimistic assumptions.
The Strategic Planning (Marketing) Process
The strategic planning process has seven interrelated steps: defining organizational mission,
establishing strategic business units, setting marketing objectives, performing situation analysis,
developing marketing strategy, implementing tactics, and monitoring results. Because the
process encompasses both strategic business planning and strategic marketing planning it should
be combination of senior company executives and marketers.
Defining Organizational Mission
Organizational mission refers to a long-term commitment to a type of business and a place in
the market. It .describes the scope of the firm and its dominant emphasis and values,. based on
that firm's history, current management preferences, resources, and distinctive competences, and
on environmental factors.
An organizational mission can be expressed in terms of the customer group (s) served, the goods
and services offered, the functions performed, and/or the technologies utilized. It is more
comprehensive than the line of business concept. And it is considered implicitly whenever a firm
seeks a new customer group or abandons an existing one, introduces a new product (good or
service) category deletes an old one, acquire another company or sells a business, engages in
more marketing functions (a wholesaler opening retail stores) or in fewer marketing functions (a

small innovative toy maker licensing its inventions to an outside company that produces,
distributes, and promotes them), or shifts its technological focus (a phone manufacturer placing
more emphasis on cellular phones).
Establishing Strategic Business Units

After defining its mission, a firm can form strategic business units. Each strategic business unit
(SBU) is a self-contained division, product line or product department in an organization with a
specific market focus and a manager with complete responsibility for integrating all functions
into a strategy. An SBU may include all products with the same physical features or products
bought for the same use by customers, depending on the mission of the organization. Each SBU
has these general attributes:
 A specific target market.
 Its own senior marketing executive.
 Control over its resources.
 Its own marketing strategy.
 Clear-cut competitors.
 Distinct differential advantages.
The SBU concept lets firms indentify the business units with the most earnings potential and
allocate to them the resources needed for growth. For instance, at General Electric, every SBU
must have a unique purpose, identifiable competitors, and all its major business functions
(manufacturing, finance, and marketing) within the control of that SBU's manager. Units not
performing up to expectations are constantly reviewed and, if necessary, consolidated with other
units, sold, or closed down.
Setting Marketing Objectives
A firm needs overall marketing objectives, as well as goals for each SBU. Objectives are often
described in both quantitative terms (rupee sales, percentage profit growth, market share, etc.)
and qualitative terms (image, level of innovativeness, industry leadership role, etc.) Small firms
goals are often less ambitious than those set by their larger counterparts, but they are no less
important. The goals are necessay to focus the firm and to be able to monitor the level of success
or failure. Without Goals, how can a firm really measure its performance?
Performing Situation Analysis

In situation analysis, also known as SWOT analysis, an organization identifies its internal
strengths (S) and weaknesses (W), as well as external opportunities (O) and threats (T). Situation
analysis seeks to answer: Where is a firm now? In what direction is it headed? Answers are
derived by recognizing both company strengths and weaknesses relative to competitors, studying
the environment for opportunities and threats, assessing the firm's ability to capitalize on
opportunities and to minimize or avoid threats, and anticipating competitor,' responses to
company strategies.
Developing Marketing Strategy
A marketing strategy outlines the way in which the marketing mix is used to attract and satisfy
the target market(s) and achieved an organization's goals. Marketing-mix decisions center on
product distribution, promotion, and price plans. A separate strategy is necessary for each SBU
in an organization; these strategies must be coordinated. A marketing strategy should be explicit
to provide proper guidance. It should take into account a firm's mission, resources, abilities, and
standing in the marketplace; the status of the firm's industry and the product groups in it (such as
cola versus non-cola soft drink); domestic and global competitive forces; such environmental
factors as the economy and population growth; and the best opportunities for growth.and the
threats that could dampen it. For instance, IBM does a lot of image advertising as part of its
overall marketing strategy in order to enhance its stature in the business community.
Evaluation of strategic Planning Approaches
Many firms assess alternative market opportunities; know which products are stars, cash cows,
question marks, and dogs; recognize what factors affect performance; understand their industries;
and realize they can target broad or narrow customer bases. Formally, strategic planning models
are most apt to be used by larger firms; and the models are adapted to the needs of the specific
firms employing them.
The approaches' major strengths are that they let a firm analyze all SBUs and products, study
various strategies' effects, learn the opportunities to pursue and the threats to avoid, compute
marketing and other resource needs, focus on meaningful differential advantages, compare
performance with designated goals, and discover principles for improving. Competitors' actions
and trends can also be studied.
The approaches' major weaknesses are that they may be hard to use (particularly by a small
firm), may be too simplistic and omit key factors, are somewhat arbitrary in defining SBUs and

evaluative criteria (like relative market share), may not be applicable to all firms and situations (a
dog SBU may be profitable and generate cash), do not adequately account for environmental
conditions (like the economy), may overvalue market share, and are often used by staff planners
rather than line managers.
These techniques only aid planning. They do not replace the need for managers to engage in
hands-on decisions by studying each situation and basing marketing strategies on the unique
aspects of their industry, firm, and SBUs.
Implementing Tactical Plans
A tactical plan specifies the short-run actions (tactics) that a firm undertakes in implementing a
given marketing strategy. At this stage, a strategy is operationalized. A tactical plan has three
basic elements: specific tasks, a time frame, and resource allocation.
The marketing mix (specific tasks) may range from a combination of high quality, high service,
low distribution intensity, personal selling emphasis, and above-average prices to a combination
of low quality, low service, high distribution intensity, advertising emphasis, and low prices.
There would be a distinct marketing mix for each SBU, based on its target market and strategic
emphasis. The individual mix elements must be coordinated for each SBU and conflicts among
SBUs minimized.
Proper timing (time horizon) may mean being the first to introduce a product, bringing out a
product when the market is most receptive, or quickly reacting to a competitor's strategy to catch
it off guard. A firm must balance its desire to be an industry leader with clear-cut competitive
advantages against its concern for the risk of being innovative. Marketing opportunities exist for
limited periods of time, and the firm needs to act accordingly.
Marketing investments (resource) are order processing or order generating. Order processing
costs involve recording and handling orders, such as order entry, computer data handling, and
merchandise handling. The goal is to minimize those costs, subject to a given level of service.
Order-generating costs, such as advertising and personal selling, produce revenues. Reducing
them may be harmful to sales and profits. A firm should estimate sales at various levels of costs
and for various combinations of marketing functions. Maximum profit rarely occurs at the lowest
level of expenditure on order generating costs.

Monitoring Results
Monitoring results involves comparing the actual performance of a firm, business unit, or
product against planned performance for a specified period. Actual performance data are then fed
back into the strategic planning process. Budgets, timetables, sales and profit statistics, cost
analysis, and image studies are just some measures that can be used to assess results.
When actual performance lags, corrective action is needed. For instance, .if implementation
problems persist, it is not (in most instances) because employees mean to do the wrong thing. It
is because they do not know the right thing to do. The first task in making strategy work is to
identify the right behavior which reduces costs, improves quality, pleases customers, and adds to
profits.
Steps in the Marketing Process
The marketing process consists of analyzing market opportunities, researching and selecting
target markets, designing marketing strategies, planning marketing programs, and organizing,
implementing, and controlling the marketing effort. The four steps in the marketing process are:
1. Analyzing market opportunities. The marketer’s initial task is to identify potential long
run opportunities given the company’s market experience and core competencies. To
evaluate its various opportunities, assess buyer wants and needs, and gauge market size,
the firm needs a marketing research and information system. Next, the firm studies
consumer markets or business markets to find out about buying behavior, perceptions,
wants, and needs. Smart firms also pay close attention to competitors and look for major
segments within each market that they can profitably serve.
2. Developing marketing strategies. In this step, the marketer prepares a positioning strategy
for each new and existing product’s progress through the life cycle, makes decisions
about product lines and branding, and designs and markets its services.
3. Planning marketing programs. To transform marketing strategy into marketing programs,
marketing managers must make basic decisions on marketing expenditures, marketing
mix, and marketing allocation. The first decision is about the level of marketing
expenditures needed to achieve the firm’s marketing objectives. The second decision is
how to divide the total marketing budget among the various tools in the marketing mix:
product, price, place, and promotion. And the third decision is how to allocate the
marketing budget to the various products, channels, promotion media, and sales areas.

4. Managing the marketing effort. In this step (discussed later in this chapter), marketers
organize the firm’s marketing resources to implement and control the marketing plan.
Because of surprises and disappointments as marketing plans are implemented, the
company also needs feedback and control.

Chapter Three
Dealing with Competition
3.1. Competitive forces
A new type of competitor appears to have emerged along with a different type of competitive
environment. This new environment is characterized by:
 Generally higher levels and an increasing intensity of competition
 New and more aggressive competitors who are emerging with ever greater frequency
 Changing bases of competition as organizations search ever harder for a competitive edge
 The wider geographic sources of competition
 More frequent niche attacks
 More frequent and more strategic alliances are necessary
 A quickening of the pace of innovation
 The need for stronger relationships and alliances with customers and distributors
 An emphasis upon value-added strategies
 Ever more aggressive price competition
 The difficulties of achieving long-term differentiation, with the result that a greater
number of enterprises are finding themselves stuck in the marketing wilderness with no
obvious competitive advantage
 The emergence of a greater number of ‘bad’ competitors (i.e. those not adhering to the
traditional and unspoken rules of competitive behavior within their industries).
The implications of these changes, both individually and collectively, are significant and demand
far more from an enterprise if it is to survive and grow. Most obviously, there is a need for a
much more detailed understanding of who it is that the enterprise is competing against and their
capabilities. However, in coming to terms with this, the marketing planner needs to focus not just
upon the ‘hard’ factors (e.g. their size, financial resources, manufacturing capability), but also
upon the ‘softer’ elements (such as their managerial cultures, their priorities, their commitment
to particular markets and market offerings, the assumptions they hold about themselves and their
markets, and their objectives). Without this, it is almost inevitable that the marketing planner will
fail to come to terms with any competitive threats. Given the nature of these comments, the need
for, and advantages of, detailed competitive analysis should be apparent and can be summarized
in terms of how it is capable of:

 Providing an understanding of your competitive advantage/disadvantage relative to your

competitors’ position
 Helping in generating insights into competitors’ strategies – past, present and potential
 Giving an informed basis for developing future strategies to sustain/establish advantages
over your competitors
3.2. Identifying Competitors
There are numerous examples of organizations having been taken by surprise by new
competitors who introduce and then play by very different rules of the game (think, for example,
of the way in which BA and the other major European flag carriers have been hit by new entrants
such as easy Jet and Ryanair; how Hoover and Electrolux were hit by Dyson; and how the major
clearing banks were seemingly taken by surprise by the telephone and Internet bankers). It is
apparent from these sorts of examples and the points made above that competitor analysis is not
a luxury but a necessity in order to: Survive, Handle slow growth, Cope with change, Exploit
opportunities, Uncover key factors, Reinforce intuition, improve the quality of decisions, Stay
competitive, Avoid surprises.
It follows from this that competitive analysis should be a central element of the marketing
planning process, with detailed attention being paid to each competitor’s apparent objectives,
resources, capabilities, perceptions and competitive stance, as well as to their marketing plans
and the individual elements of the marketing mix. In this way, areas of competitive strength and
weakness can more readily be identified, and the results fed into the process of developing an
effective marketing strategy. Better and more precise attacks can then be aimed at competitors
and more effective defences erected to fight off competitors’ moves. An additional benefit of
competitor analysis, in certain circumstances at least, is that it can help in the process of
understanding buying behavior by identifying the particular groups or classes of customer to
whom each competitor’s strategy is designed to appeal. This can then be used as the basis for
determining the most effective probable positioning strategy for the organization.
Recognition of these points leaves the strategist needing to answer five questions:
1. Against whom are we competing?
2. What strengths and weaknesses do they possess?
3. What are their objectives?
4. What strategies are they pursuing and how successful are they?

5. How are they likely to behave and, in particular, how are they likely to react to offensive
moves?
Taken together, the answers to these five questions should provide the marketing strategist with a
clear understanding of the competitive environment and, in particular, against whom the
company is competing and how they compete.
3.2.1. Industry concept (perspective) of competition
The industry perception of competition is implicit in the majority of discussions of marketing
strategy. Here, an industry is seen to consist of firms offering a product or class of products or
services that are close substitutes for one another; a close substitute in these circumstances is
seen to be a product for which there is a high cross-elasticity of demand. An example of this
would be a dairy product such as butter, where if the price rises a proportion of consumers will
switch to margarine. A logical starting point for competitor analysis therefore involves
understanding the industry’s competitive pattern, since it is this that determines the underlying
competitive dynamics.
From this it can be seen that competitive dynamics are influenced initially by conditions of
supply and demand. These in turn determine the industry structure, which then influences
industry conduct and, subsequently, industry performance. Arguably the most significant single
element in this model is the structure of the industry itself, and in particular the number of
sellers, their relative market shares, and the degree of differentiation that exists between the
competing companies and products.
The interrelated issue of the number of sellers and their relative market shares has long been the
focus of analysis by economists, who have typically categorized an industry in terms of five
types:
1. An absolute monopoly, in which, because of patents, licenses, scale economics or some
other factor, only one firm provides the product or service
2. A differentiated oligopoly, where a few firms produce products that are partially
differentiated
3. A pure oligopoly, in which a few firms produce broadly the same commodity
4. Monopolistic competition, in which the industry has many firms offering a differentiated
product or service
5. Pure competition, in which numerous firms offer broadly the same product or service.

 Although a substantial increase in levels of import penetration are in many ways the most
conspicuous causes of a change in competitive structures, a series of other factors exist
that can have equally dramatic implications for the nature and bases of competition.
Changes in the supplier base
 Legislation
 The emergence of new technology
3.2.2. Market Concept of competition
As an alternative to the industry perspective of competition, which takes as its starting point
companies making the same product or offering the same service, we can focus on companies
that try to satisfy the same customer needs or that serve the same customer groups. Theodore
Levitt has long been a strong advocate of this perspective and it was this which was at the heart
of his classic article ‘Marketing Myopia’. In this article, Levitt (1960), pointed to a series of
examples of organizations that had failed to recognize how actual and potential customers
viewed the product or service being offered. Thus, in the case of railways, the railway companies
concentrated on competing with one another and in doing this failed to recognize that, because
customers were looking for transport, they compared the railways with planes, buses and cars.
The essence of the market perspective of competition therefore involves giving full recognition
to the broader range of products or services that are capable of satisfying customers’ needs. This
should, in turn, lead to the marketing strategist identifying a broader set of actual and potential
competitors, and adopting a more effective approach to long-run market planning.
3.3. Analyzing Competitors
Given the nature of our comments so far, how then does the analysis of competitors feed in to the
development of a strategy? Only rarely can marketing strategy be based just on the idea of
winning and holding customers. The marketing strategist also needs to understand how to win
the competitive battle. As the first step in this, as we have argued throughout this chapter, the
planner must understand in detail the nature and bases of competition, and what this means for
the organization. In the absence of this, any plan or strategy will be built upon very weak
foundations. This involves:
 Knowing the strength of each competitor’s position
 Knowing the strength of each competitor’s offering
 Knowing the strength of each competitor’s resources

 Understanding each competitor’s strategy.

Identifying and evaluating competitors’ strengths and weaknesses
By this stage it should be apparent that the identification and evaluation of competitors’
strengths, weaknesses and capabilities is at the very heart of a well-developed competitive
strategy. The marketing planner should, as a first step, therefore concentrate upon collecting
information under a number of headings as a prelude to a full comparative assessment. These
include: Sales, Market share, Cost and profit levels, and how they appear to be changing over
time, Cash flows, Return on investment, Investment patterns, Production processes, Levels of
capacity utilization, Organizational culture, Products and the product portfolio, Product quality,
The size and pattern of the customer base, The levels of brand loyalty, Dealers and distribution
channels, Marketing and selling capabilities, Operations and physical distribution, Financial
capabilities, Management capabilities and attitudes to risk, Human resources, their capability and
flexibility, Previous patterns of response, Ownership patterns and, in the case of divisionalized
organizations, the expectations of corporate management.
Evaluating competitive relationships and analyzing how organizations compete
In essence, five types of relationship can develop between an organization and its competitors:
1. Conflict, where the firm sets out to destroy damage or force the competitor out of the
market.
2. Competition, where two or more firms are trying to achieve the same goals and penetrate
the same markets with broadly similar product offers.
3. Coexistence, where the various players act largely independently of others in the market.
This may in turn be due to the marketing planner being unaware of the competition;
recognizing them but choosing to ignore them; or behaving on the basis that each firm
has certain territorial rights that, tacitly, each player agrees not to infringe.
4. Cooperation, where one or more firms work together to achieve interdependent goals.
Typically, this is done on the basis of exchanging information, licensing arrangements,
and joint ventures and through trade associations.
5. Collusion, which, although typically illegal, has as its purpose that of damaging another
organization or, more frequently, ensuring that profit margins and the status quo are
maintained.

Given this, any analysis of how firms compete falls into four parts:
1. What is each competitor’s current strategy?
2. How are competitors performing?
3. What are their strengths and weaknesses?
4. What can we expect from each competitor in the future?
However, before moving on to the detail of these four areas, the strategist should spend time
identifying what is already known about each competitor. There are numerous examples of
companies that have collected information on competitors only to find out at a later stage that
this knowledge already existed within the organization but that, for one reason or another, it had
not been analyzed or disseminated.
In attempting to arrive at a detailed understanding of competitive relationships, it is essential that
each competitor is analysed separately, since any general analysis provides the strategist with
only a partial understanding of competitors, and tells little either about potential threats that
might emerge or opportunities that can be exploited. It is worth remembering, however, that
what competitors have done in the past can often provide a strong indication of what they will do
in the future. This is particularly the case when previous strategies have been conspicuously
successful.
The character of competition
The final area that we need to consider when examining how firms compete is what can loosely
be termed ‘the character of competition’. Because competition within a market is influenced to a
very high degree by the nature of customer behavior, the character of competition not only takes
many forms, but is also likely to change over time. One fairly common way of examining the
character of competition is therefore by means of an analysis of the changes taking place in the
composition of value added by different firms. (The term ‘value added’ is used to describe the
amount by which selling prices are greater than the cost of providing the bought out goods or
services embodied in market offerings.) An analysis of changes in the value-added component
can therefore give the strategist an understanding of the relative importance of such factors as
product and process development, selling, after-sales service, price, and so on, as the product
moves through the life cycle.
The marketing planner can also arrive at a measure of the character of competition by
considering the extent to which each competitor develops new total industry demand (primary

demand) or quite simply competes with others for a share of existing demand (selective
demand). When a competitor’s objective is the stimulation of primary demand, it is likely that
efforts will focus upon identifying and developing new market segments. Conversely, when a
competitor concentrates upon stimulating selective demand, the focus shifts to an attempt to
satisfy existing customers more effectively than other companies. The obvious consequence of
this is that the intensity of competition on a day-to-day basis is likely to increase significantly.
Identifying competitors’ objectives
Having identified the organization’s principal competitors and their strategies, we need then to
focus upon each competitor’s objectives. In other words, what drives each competitor’s
behavior? A starting point in arriving at an answer to this is to assume that each competitor will
aim for profit maximization either in the short term or the long term. In practice, of course,
maximization is an unrealistic objective, which for a wide variety of reasons many companies
are willing to sacrifice. A further assumption can be made – that each competitor has a variety of
objectives, each of which a different weight has. These objectives might typically include cash
flow, technological leadership, market share growth, service leadership or overall market
leadership. Gaining an insight into this mix of objectives allows the strategist to arrive at
tentative conclusions regarding how a competitor will respond to a competitive thrust. A firm
pursuing market share growth is likely to react far more quickly and aggressively to a price cut
or to a substantial increase in advertising than a firm that is aiming for, say, technological
leadership.
In a general sense, however, company objectives are influenced by a wide variety of factors, but
particularly the organization’s size, history, culture and the breadth of the operating base. Where,
for example, a company is part of a larger organization, a competitive thrust always runs the risk
of leading to retaliation by the parent company on what might appear to be a disproportionate
scale. Conversely, the parent company may see an attack on one of its divisions as being a
nuisance but little more, and not bother to respond in anything other than a cursory fashion. It
follows that the marketing strategist should give explicit consideration to the relative importance
of each market to a competitor in order to understand the probable level of commitment that
exists. By doing this, it is possible to estimate the level of effort that each competitor would then
logically make in order to defend its position. Several factors are likely to influence this level of
commitment, the five most important of which are likely to be:

1. The proportion of company profits that this market sector generates

2. The managerial perceptions of the market’s growth opportunities
3. The levels of profitability that exist currently and that are expected to exist in the future
4. Any interrelationships between this and any other product or market sector in which the
organization operates
5. Managerial cultures – in some companies, for example, any threat will be responded to
aggressively almost irrespective of whether it is cost-effective.
3.5. Competitive Strategies
Having identified and evaluated the main competitors, the company must now design
competitive marketing strategies that best position its offer against competitors' offerings.
What broad marketing strategies can the company use? Which ones are best for a particular
company or for the company's different divisions and products? No one strategy is best for all
companies. Each company must determine what makes the most sense, given its position in the
industry and its objectives, opportunities and resources. Even within a company, different
businesses or products need different strategies.
Businesses maintain their position in the marketplace by making competitive mows to attack
competitors or defend themselves against competitive threats. These moves change with the role
that firms play in the target market - that of leading, challenging, following or niching. We now
look at specific marketing strategies that are available to market leaders, challengers, followers
and nichers.
3.5.1. Market leader strategies
Most industries contain an acknowledged market leader. The leader has the largest market share
and usually leads the other firms in price changes, new product introductions, distribution
coverage and promotion spending. The leader may or may not be admired, but other firms
concede its dominance. The leader is a focal point for competitors, a company to challenge,
imitate or avoid. Some of the best-known market leaders are Boeing (airliners), Nestle (food).
Microsoft (software), L'Oreal (cosmetics), Royal Dutch/Shell (oil). McDonald's (fast food] and
De Beer (diamonds).
A leading firm's life is not easy. It must maintain a constant watch. Other firms keep challenging
its strengths or trying to take advantage of its weaknesses. The market leader can easily miss a
turn in the market and plunge into second or third place.

Leading firms want to remain no. 1, This calls for action on four fronts. First, the firm must find
ways to expand total demand. Second, the firm can try to expand its market share further, even if
market size remains constant. Third, a company can retain its strength by reducing its costs.
Fourthly, the firm must protect its current market share through good defensive and offensive
actions.
1. Expanding the Total Market
The leading firm normally gains the most when the total market expands. If people take more
pictures, then as the market leader, Kodak stands to gain the most. If Kodak can persuade more
people to take pictures, or to take pictures on more occasions, or to take more pictures on each
occasion, it will benefit greatly. Generally, the market leader should look for new users, new
uses and more usage of its products.
NEW USERS: Every product class can attract buyers who are still unaware of the product, or
who are resisting it because of its price or its lack of certain features. A seller can usually find
new users in many places. For example, L'Orfial might find new fragrance users in its current
markets by convincing women who do not use expensive fragrance to try it. Or it might find
users in new demographic segments; for instance, men's fragrances are currently a small but fast-
growing market.
NEW USES: The marketer can expand markets by discovering and promoting new uses for the
product.
MORE USAGE: A third market expansion strategy is to persuade people to use the product
more often or to use more per occasion.
2. Expanding Market Share
Market leaders can also grow by increasing their market shares further. In many markets, small
market-share increases mean very large sales increases. Many studies have found that
profitability. Businesses with very large relative market shares averaged substantially higher
returns on investment. Because of these findings, many companies have sought expanded market
shares to improve profitability rises with increasing market share. There are three main ways by
which these firms can further increase their leading position.
WIN CUSTOMERS: Winning competitors' customers is rarely easy. Sales promotions and price
reductions can produce increased share quickly, but such gains are made at the expense of
profitability and disappear once the promotion ends. Exceptions to this are price fights stimulated

by market leaders with more resources than competitors. More often market share gains are
achieved by long-term investment in quality, innovation or brand building.
WIN COMPETITORS: Leading mature companies often find it easier to buy competitors rather
than win their customers. Sometimes this can launch the company into new sectors.
WIN LOYALTY: Loyalty schemes have grown hugely in recent years. At their best these are
attempts to build customer relationships based on the long-run customer satisfaction.
Gaining increased market share will improve a company's profitability automatically. Much
depends on its strategy for gaining increased market share. We see many high-share companies
with low profitability and many low-share companies with high profitability. The cost of buying
higher market share may far exceed the returns. Higher shares tend to produce higher profits only
when unit costs fall with increased market share, or when the company's premium price covers
the cost of supplying higher-quality goods.
3. Improving Productivity
Market productivity means squeezing more profits out of the same volume of sales. The size
advantage of market leaders can give them lower costs than the competition- Size itself is not
sufficient to achieve low costs because this could be achieved by owning unrelated activities that
impose extra costs. The lowest costs often occur when a market leader, such as McDonald's,
keeps its business simple. The buying and selling of subsidiary businesses often reflects
businesses trying to gain strength by simplifying their activities.
IMPROVE COSTS: To remain competitive, market leaders fight continually to reduce costs.
CHANGE PRODUCT MIX: The aim here is to sell more high-margin vehicles. Mercedes'
current range does not cover luxury off-road vehicles, people movers or small sports cars - all
growth areas commanding premium prices- Moving into these markets will reduce Mercedes'
dependence on its 'lower-priced' models.
ADD VALUE: Mercedes makes and sells cars, but its customers want prestige and transport.
Mercedes can add value by offering long-terra service contracts, leasing deals or other financial
packages that make buying easier and less risky for customers. In the past Mercedes sold basic
models that are poorly equipped by modern standards. Customers then paid extra to have a car
custom made for them with the features they wanted. The 'Made in Germany' label that has
served the company for so long is no longer enough to command a premium price. The aim is to
maintain a price premium by the brand's strength and superior quality across a broad range of

products. This contrasts with the Japanese, whose well- equipped luxury Lexus (Toyota), Acura
(Honda) and Innniti (Nissan) brands have tightly targeted small ranges.
4. Defending its Position
While trying to expand total market size, the leading firm must also constantly protect its current
business against competitor attacks. What can the market leader do to protect its position? First,
it must prevent or fix weaknesses that provide opportunities for competitors. It needs to keep its
costs down and its prices in line with the value that the customers see in the brand. The leader
should 'plug holes' so that competitors do not jump in. The best defence is a good offence and the
best response is continuous innovation. The leader refuses to be content with the way things are
and leads the industry in new products, customer services, distribution effectiveness and cost
cutting. It keeps increasing its competitive effectiveness and value to customers. It takes the
offensive, sets the pace and exploits competitors' weaknesses. Increased competition in recent
years has sparked management's interest in models of military warfare. Leader companies can
protect their market positions with competitive strategies patterned after successful military
defense strategies.
Six defense strategies that a market leader can use
POSITION DEFEN'CE: The most basic defense is a position defense in which a company
holds on to its position by building fortifications around its markets. Simply defending one's
current position or products rarely works.
FLANKING DEFENCE: When trying to hold its overall position, the market leader should
watch its weaker flanks closely. Smart competitors will normally attack the company's
weaknesses.
PRE-EMPTIVE DEFENCE: The leader can be proactive and launch a pre- emptive defense,
striking competitors before they can move against the company. A pre-emptive defense assumes
that an ounce of prevention is worth a pound of cure.
COUNTEK OFFENSIVE DEFENCE: When attacked, despite its flanking or pre-emptive
efforts, a market leader may have to be reactive and launch a counter- offensive defense.
Sometimes companies hold off for a while before countering. This may seem a dangerous game
of 'wait and see', but there are often good reasons for not jumping in immediately. By waiting the
company can understand more fully the competitor's attack and perhaps find a gap through which
to launch a successful counter offensive.

MOBILE DEFENCE: In a mobile defense a company is proactive in aggressively defending a

current market position. The leader stretches to new markets that can serve as future bases for
defence and attack. Through marker: broadening, the company shifts its focus from the current
product to the broader underlying consumer need.
CONTRACTION DEFENCE: Large companies sometimes find they can no longer defend all of
their positions, since their resources are spread too thin and competitors are nibbling away on
several fronts. So they react with a contracting defence (or strategic withdrawal). The company
gives up weaker positions and concentrates its resources on stronger ones.
3.5.2. Market challenger strategies
Firms that are second, third or lower in an industry are sometimes quite large, such as Colgate,
Fiat, Toyota, Roche, Sandoz, HSBC (Hong Kong and Shanghai Banking Corp.), Carlsberg and
PepsiCo. These runner-up firms can adopt one of two competitive strategies: they can attack the
leader arid other competitors in an aggressive hid for more market share (market challengers): or
they can play along with competitors and not rock the boat (market followers). We now look at
competitive strategies for market challengers.
1. Defining the Strategic Objective and the Competitor
A market challenger must first define its strategic objective. Most market challengers seek to
increase their profitability by increasing their market shares. The strategic objective chosen
depends on who the competitor is. In most cases, the company can choose which competitors it
will challenge. The challenger can attack the market leader - a high-risk but potentially high-gain
strategy that makes good sense it' the leader is not serving the market well. To succeed with such
an attack, a company must have some sustainable competitive advantage over the leader- a cost
advantage leading to lower prices or the ability to provide better value at a premium price.
The challenger can avoid the leader and instead attack firms its size, or smaller local and regional
firms. Many of these firms are underfinanced and will not be serving their customers well.
Several of the large beer companies grew to their present size not by attacking large competitors,
but by gobbling up small local or regional competitors. Thus the challenger's strategic objective
depends cm which competitor it chooses to attack. If the company goes after the market leader,
its objective may be to wrest a certain market share. Bic knows that it cannot topple Gillette in
the razor market - it simply wants a larger share. Or the challenger's goal might he to take over
market leadership. Compaq entered the persona! computer market late, as a challenger, but

quickly became the market leader. If the company goes after a small local company, its objective
may be to put that company out of business, The important point remains: the company must
choose its opponents carefully and have a clearly defined and attainable objective.
2. Choosing an Attack Strategy
How can the market challenger best attack the chosen competitor and achieve its strategic
objectives?
FRONTAL ATTACK: In a full frontal attack, the challenger matches the competitor's product,
advertising, price and distribution efforts. It attacks the competitor's strengths rather than its
weaknesses. The outcome depends on who has the greater strength and endurance. Even great
size and strength may not be enough to challenge a firmly entrenched and resourceful competitor
successfully. If the market challenger has fewer resources than the competitor, a frontal attack
makes little sense.
FLANKING ATTACK: Rather than attacking head on, the challenger can launch a flanking
attack. The competitor often concentrates its resources to protect its strongest positions, but it
usually has some weaker flanks. By attacking these weak spots, the challenger can concentrate
its strength against the competitor's weakness. Flank attacks make good sense when the company
has fewer resources than the competitor.
Another flanking strategy is to find gaps that are not being filled by the industry's products, fill
them and develop them into strong segments. European and Japanese car makers do not try to
compete with American car makers by producing large, flashy, gas-guzzling contraptions.
Instead they recognized an unserved consumer segment that wanted small, fuel-efficient cars and
moved to fill this hole. To their satisfaction and Detroit's surprise, the segment grew to be a large
part of die market.
ENCIRCLEMENT ATTACK: An encirclement attack involves attacking from all directions, so
that the competitor must protect its front, sides and rear at the same time. The encirclement
strategy makes sense when the challenger has superior resources and believes that it can break
the competitor's hold on the market quickly.
BYPASS ATTACK: A bypass attack is an indirect strategy. The challenger bypasses the
competitor and targets easier markets. The bypass can involve diversifying into unrelated
products, moving into new geographic markets or leapfrogging into new technologies to replace
existing products. Technological leapfrogging is a bypass strategy used often in high-technology

industries. Instead of copying the competitor's product and mounting a costly frontal attack, the
challenger patiently develops the next technology. When satisfied with its superiority, it launches
an attack where it has an advantage.
GUERRILLA ATTACK: A guerrilla attack is another option available to market challengers,
especially smaller or poorly financed ones. Normally, guerrilla actions are by smaller firms
against larger ones. The smaller firms need to be aware, however, that continuous guerrilla
campaigns can be expensive and must eventually be followed by a stronger attack if the
challenger wishes to 'beat' the competitor.
3.5.3. Market- follower strategies
Not all runner-up companies will challenge the market leader. The effort to draw away the
leader's customers is never taken lightly by the leader. If the challenger's lure is lower prices,
improved service or additional product features, the leader can quickly match these to diffuse the
attack. The leader probably has more staying power in an all-out battle. A hard fight might leave
both firms worse off and this means the challenger must think twice before attacking. Many
firms therefore prefer to follow rather than attack the leader.
A follower can gain many advantages. The market leader often bears the huge expenses involved
with developing new products and markets, expanding distribution channels, and informing and
educating the market. The reward for all this work and risk is normally market leadership. The
market follower, on the other hand, can learn from the leader's experience and copy or improve
on the leader's products and marketing programmes, usually at a much lower investment.
Although the follower will probably not overtake the leader, it can often be as profitable.
In some industries - such as steel, fertilizers and chemicals – opportunities for differentiation are
low, service quality is often comparable and price sensitivity runs high. Price wars can erupt at
any time. Companies in these industries avoid short-run grabs for market share because the
strategy only provokes retaliation. Most firms decide against stealing each other's customers.
Instead they present similar offers to buyers, usually by copying the leader. Market shares show
a high stability.
This is not to say that market followers are without strategies. A market follower must know how
to hold current customers and win a fair share of new ones. Each follower tries to bring
distinctive advantages to its target market - location, services, financing. The follower is a
primary target of attack by challengers. Therefore, the market follower must keep its

manufacturing costs low and its product quality and services high. It must also enter new markets
as they appear. Following is not the same as being passive or a carbon copy of the leader. The
follower has to define a growth path, but one that does not create competitive retaliation.
The market-follower firms fall into one of three broad types. The cloner closely copies the
leader's products, distribution, advertising and other marketing moves. It originates nothing - it
simply attempts to live off the market leader's investments.
The imitator copies some things from the leader, but maintains some differentiation with
packaging, advertising, pricing and other factors. The leader does not mind the imitator as long
as the imitator does not attack aggressively. The imitator may even help the leader avoid the
charges of monopoly.
Finally, the adapter builds on the leader's products and marketing programmes, often improving
them. The adapter may choose to sell to different markets to avoid direct confrontation with the
leader.
3.5.4. Market niche strategies
Almost every industry includes firms that specialize in serving market niches. Instead of
pursuing the whole market or even large segments of the market, these firms target segments
within segments or niches. This is particularly true of smaller firms because of their limited
resources. Smaller divisions of larger firms also pursue niching strategies.
The main point is that firms with low shares of the total market can be highly profitable through
clever niching. One study of highly successful mid-size companies found that, in almost all
cases, these companies niched within a larger market rather than going after the whole market.
Why is niching profitable? The main reason is that the market nicher ends up knowing the target
customer group so well that it meets their needs better than other firms which casually sell to this
niche. As a result, the nicher can charge a substantial mark-up over costs because of the added
value. Whereas the mass marketer achieves high volume, the nicher achieves high margins.
Nichers try to find one or more market niches that are safe and profitable. An ideal market niche
is big enough to be profitable and has growth potential. It is one that the firm can serve
effectively. Perhaps most importantly, the niche is of little interest to large competitors. The firm
can build the skills and customer goodwill to defend itself against an attacking big competitor as
the niche grows and becomes more attractive. The key idea in nichemanship is specialization.

The firm has to specialize along market, customer, product or marketing-mix lines. Here are
several specialist roles open to a market nicher:
End-use specialist: The firm specializes in serving one type of end-use customer. For example,
Reuters provides financial information and news to professionals and Moss Bros' strength is in
clothes hire.
Vertical-level specialist: The firm specializes at some level of the production-distribution cycle.
For example, the Dutch-based Anglo-Italian company, EVC, is Europe's leading manufacturer of
polyvhiylchloride (PVC), while Country Homes' niche is as an intermediary between owners of
country cottages and people who want to hire them for holidays.
Customer-size specialist: The firm concentrates on selling to cither small, medium or large
customers. Many nichers specialize in serving small customers neglected by the large companies,
Fuji gained its initial success in the photocopying market by specializing on small firms
neglected by Xerox. Many regional advertising agencies also specialize in serving medium-sized
clients.
Specific -customer specialist: The firm limits its selling to one or a few large customers. There
are many firms like this in the motor industry: for example, Unipart devotes most of its time to
BM\V/Kover.
Geographical specialist: The firm sells only in a certain locality, region or area of the world.
Most retail banks stay within their national boundaries. Two odd exceptions to this rule are the
European HSBC and Standard & Charter, whose main interest is south-east Asia.
Product or feature specialist: The firm specializes in producing a certain product, product line or
product feature - Rolls-Royce is the only supplier of tilt-thrust jet engines.
Quality-price specialist: The firm operates at the low or high end of the market. For example,
Hewlett-Packard specializes in the high-quality, high- price end of the hand-calculator market,
while Tring International sells very cheap CDs.
Service specialist: The firm offers one or more services not available from other firms: for
example, NASA's ability to recover and repair satellites.
Niching carries a very significant risk, in that the market niche may dry up or he attacked.
Porsche was hit by both of these threats when the demand for luxury cars declined in the early
1990s and Honda, Toyota and Mazda attacked the sports car market.

The danger of the disappearing niche is why many companies use multiple moiling. By
developing two or more niches, the company increases its chances of survival. Most of the
wealth of successful healthcare companies comes from their each having products in a few
niches that they dominate. For instance, Sweden's Gambio concentrates on'renal care,
cardiovascular surgery, intensive care and an aesthesia, blood compound technology and
preventive health services.

Chapter Four
The Marketing Environment & Marketing Audit

4.1. Environmental Analysis and scanning
Marketing Audit
Although the process of marketing auditing is a fundamental underpinning for the marketing
planning process, it is for many organizations still a relatively new and under-utilized activity.
This is despite a substantial body of evidence which suggest that an organization’s performance
in the marketplace is directly influenced by the marketing planner’s perception of three factors:
1. The organization’s current market position
2. The nature of environmental opportunities and threats
3. The organization’s ability to cope with environmental demands.
Given this, the marketing audit is designed to provide the strategist with a clear understanding of
these three dimensions and in this way provide a firm foundation for the development of
strategy, something that is reflected in a comment by McDonald:
“Expressed in its simplest form, if the purpose of a corporate plan is to answer three central
questions:
Where is the company now?
Where does the company want to go?
How should the company organize its resources to get there?
Then the audit is the means by which the first of these questions is answered. An audit is a
systematic, critical and unbiased review and appraisal of the environment and of the company’s
operations. A marketing audit is part of the larger management audit and is concerned
(specifically) with the marketing environment and marketing operations.”
What is a marketing audit?
The marketing audit is in a number of ways the true starting point for the strategic marketing
planning process, since it is through the audit that the strategist arrives at a measure both of
environmental opportunities and threats and of the organization’s marketing capability. The
thinking that underpins the concept of the audit is therefore straightforward: it is that corporate
objectives and strategy can only be developed effectively against the background of a detailed
and objective understanding both of corporate capability and environmental opportunity.

The audit is, therefore:“The means by whicha company can identify its own strengths and
weaknesses as they are relate to external opportunities and threats. It is thus a way of helping
management to select a position in that environment based on known factors.”
The audit must embrace the marketing environment in which the organization – or the business
unit – is operating in, together with the objectives, strategies and activities being pursued. In
doing this, the planner needs to take an objective view of the organization and its market and not
be affected by preconceived beliefs. It follows from this that the audit must be comprehensive,
systematic, and independent and conducted on a regular basis.
Given this, the three major elements and potential benefits of the marketing audit can be seen to
be:
1. The detailed analysis of the external environment and internal situation
2. The objective evaluation of past performance and present activities
3. The clearer identification of future opportunities and threats.
The rationale for the audit is therefore straightforward and in a number of ways can be seen to
derive from the more commonly known and widely-accepted idea of the financial audit which,
together with audits of other functional areas, is part of the overall management audit.
Figure 4.1. The place of the marketing audit in the overall management audit

The Structure and Focus of the Audit

In terms of its structure, the marketing audit consists of three major and detailed diagnostic steps.
These involve a review of:
1. The organization’s environment (opportunities and threats)
2. Its marketing systems (strengths and weaknesses)
3. Its marketing activities.
The first of these is designed to establish the various dimensions of the marketing environment,
the ways in which it is likely to change and the probable impact of these changes upon the
organization. The second stage is concerned with an assessment of the extent to which the
organization’s marketing systems are capable of dealing with the demands of the environment.
The final stage involves a review of the individual components of the marketing mix.
It should be apparent from this that, in conducting an audit, the strategist is concerned with two
types of variable. First, there are the environmental or market variables, over which the strategist
has little or no direct control. Second, there are the operational variables, which can be controlled
to a greater or lesser extent. This distinction can also be expressed in terms of the macro-
environmental forces (political/legal, economic/demographic, social/cultural, and technological)
that affect the business, and micro-environmental actors (customers, competitors, distributors
and suppliers) who subsequently influence the organization’s ability to operate profitably in the
market place. Regardless of which approach to categorization is used, the process and purpose of
the audit is the same. It begins with an external audit covering the macro-environmental forces
referred to above and the markets and competitors that are of particular interest to the company.
The internal audit then builds upon this by assessing the extent to which the organization, its
structure and resources relate to the environment and have the capability of operating effectively
within the constraints that the environment imposes.
The stages of the audit

In conducting a marketing audit, the majority of planners adopt a stepwise procedure. In this
way, it is argued; the approach ensures a degree of consistency that allows for a comparison from
one period to another. In discussing this, Grashof (1975) advocated the following steps:
1 Pre-audit activities in which the auditor decides upon the precise breadth and focus of the audit

2 The assembly of information on the areas which affect the organization’s marketing
performance – these would typically include the industry, the market, the firm and each of the
elements of the marketing mix
3 Information analyses
4 The formulation of recommendations
5 The development of an implementation programme.
Although for many organizations it is the assembly of information that proves to be the most
time-consuming, it is that often prove to be the most problematic. In analyzing information the
auditor therefore needs to consider three questions:
1. What is the absolute value of the information?
2. What is its comparative value?
3. What interpretation is to be placed upon it?
It is generally acknowledged that, if these questions are answered satisfactorily, the
recommendations will follow reasonably easily and logically. The only remaining problem is
then the development of an effective implementation programme.
It should be apparent from the discussion so far that a marketing audit, if carried out properly, is
a highly specific, detailed and potentially time-consuming activity. Because of this, many
organizations often do not bother with a full audit, and opt instead for a less detailed, more
general and more frequent review of marketing effectiveness, coupled with an analysis of
strengths, weaknesses, opportunities and threats. Recognizing this, we focus initially upon one of
the most typical ways of reviewing effectiveness as a prelude in the final part of the chapter to an
examination of the more detailed marketing auditing processes.
Environmental Analysis and scanning
SWOT analysis
Although SWOT analysis is one of the best-known and most frequently used tools within the
marketing planning process, the quality of the outputs often suffer because of the relatively
superficial manner in which it is conducted. There are several ways in which SWOT analyses
can be made more rigorous, and therefore more strategically useful, and this is something to
which we will return at a later stage in this chapter. However, before we turn to the detail of the
SWOT, it is perhaps worth summarizing the key elements of the four dimensions.

Strengths: Areas of (distinctive) competence that:

 Must always be looked at relative to the competition
 If managed properly, are the basis for competitive advantage
 Derive from the marketing asset base
Weaknesses: Areas of relative disadvantage that:
 Indicate priorities for marketing improvement
 Highlight the areas and strategies that the planner should avoid
Threats: Trends within the environment with potentially negative impacts that:
 Increase the risks of a strategy
 Hinder the implementation of strategy
 Increase the resources required
 Reduce performance expectations
Opportunities: Environmental trends with positive outcomes that offer scope for higher levels
of performance if pursued effectively:
 Highlight new areas for competitive advantage
SWOT analysis is therefore designed to achieve two principal objectives:
1 To separate meaningful data from that which is merely interesting
2 To discover what management must do to exploit its distinctive competencies within each of
the market segments both now and in the longer term.
Identifying opportunities and threats

Faced with a constantly changing environment, each business unit needs to develop a marketing
information system (MIS) that is capable of tracking trends and developments within the
marketplace. Each trend or development can then be categorized as an opportunity or a threat,
and an assessment made of the feasibility and action needed if the organization is either to
capitalize upon the opportunity or minimize the impact of the threat.
However, in examining opportunities and threats, the reader needs to recognize that they can
never be viewed as ‘absolutes’. What might appear at first sight to be an opportunity may not be
so when examined against the organization’s resources, its culture, the expectations of its
stakeholders, the strategies available, or the feasibility of implementing the strategy. At the risk

of oversimplification, however, the purpose of strategy formulation is to develop a strategy

which will take advantage of the opportunities and overcome or circumvent the threats.
For our purposes, an opportunity can be seen as any sector of the market in which the company
would enjoy a competitive advantage. These opportunities can then be assessed according to
their attractiveness and the organization’s probability of success in this area.
The opportunity matrix

The probability of success is influenced by several factors, but most obviously by the extent to
which the organization’s strengths, and in particular its distinctive competences, match the key
success requirements for operating effectively in the target market and exceed those of its
competitors. Competence by itself is rarely sufficient in anything more than the short term since,
given time, competitive forces will erode this competence. Because of this the strategist needs to
concentrate upon developing competitive advantages which are sustainable over time.
However, at the same time as generating opportunities, the external environment also presents a
series of threats (a threat being a challenge posed by an unfavorable trend or development in the

environment, which, in the absence of a distinct organizational response, will lead to the erosion
of the company’s market position).
Threats can be classified on the basis of their seriousness and the probability of their occurrence.
The threats matrix

Given the nature of these comments, it can be seen that by putting together a picture of the major
opportunities and threats facing the business the marketing planner is attempting to arrive at a
measure of the market’s overall attractiveness. In essence, four possibilities exist:
1. An ideal business that is characterized by numerous opportunities but few, if any, threats
2. A speculative business that is high both in opportunities and threats
3. A mature business that is low both in opportunities and threats
4. A troubled business that is low in opportunities but high in threats.
Identifying strengths and weaknesses

Although in many markets it is often a relatively simple process to identify a whole series of
environmental opportunities, few organizations have the ability or the competences needed to
capitalize upon more than a small number of these. Each business needs therefore to evaluate on

a regular basis its strengths and weaknesses. This can be done by means of the sort of checklist
illustrated in Figure below:
Performance Importance
Strength Fundame Marginal Neutral Marginal Fundame High Medi Lo
ntal Strength Weakness ntal um w
Strength weakness
Marketing Factors
1.relative market share
2.reputation
3.previous performance
4.competitive stance
5.customer base
6.customer loyality
7.breadth of pdt range
8.depth of pdt range
9.product quality
10.progrumm of pdt
modification
Each factor is rated by management or an outside consultant according to whetherit is a
fundamental strength, a marginal strength, a neutral factor, a marginal weakness,or a
fundamental weakness. By linking these ratings, a general picture of the organization’s principal
strengths and weaknesses emerges. Of course, not all of these factorsare of equal importance
either in an absolute sense or when it comes to succeeding witha specific business opportunity.
Because of this, each factor should also be given a rating (high, medium or low) either for the
business as a whole or for a particular marketing opportunity.
Combining performance and importance levels in this way injects a greater sense of perspective
to the analysis and leads to four possibilities emerging; illustrated in Figure below.

The performance–importance matrix

Cell 1 consists of those factors which are important but in which theorganization is currently
performing badly. Because of this the organization needs toconcentrate on strengthening these
factors. Cell 2 consists of unimportant factors. Cell 3is made up of factors in which the business
is already strong but in which it needs tomaintain its strengths. Improvements here, while often
desirable, have low priority. Cell4 is made up of unimportant factors in which (possibly as the
result of over-investmentin the past) the business is unnecessarily strong.
Analyzing the environment
The Political Environment
Marketing decisions are typically affected in a variety of ways by developments in thepolitical
and legal environments. This part of the environment is composed of laws,pressure groups and
government agencies, all of which exert some sort of influence andconstraint on organizations
and individuals in society.With regard to the legislative framework, the starting point involves
recognizingthat the amount of legislation affecting business has increased steadily over the past
twodecades. This legislation has been designed to achieve a number of purposes, including:
 Protecting companies from each other so that the size and power of one organizationto
damage another is limited
 Protecting consumers from unfair business practice by ensuring that certain
safetystandards are met, that advertising is honest, and that generally companies are
notable to take advantage of the possible ignorance, naivety and gullibility of consumers

 Protecting society at large from irresponsible business behavior.

It is important therefore that the marketing planner is aware not only of the current legislative
framework, but also of the ways in which it is likely to develop and how, by means of industry
pressure groups and lobbying of parliament, the direction of legislation might possibly be
influenced so that it benefits the company. At a broader level, the strategist should also be
familiar with the way in which legislation in other countries differs, and how this too might
provide opportunities and constraints.
The economic environments
Within the majority of small and medium-sized enterprises (SMEs), the economic environment
is typically seen as a constraint, since the ability of a company to exert any sort of influence on
this element of the environment is, to all intents and purposes, negligible. As a consequence, it is
argued, firms are typically put into the position of responding to the state of the economy.
Having said this, larger companies, and particularly the multinationals (MNCs), are perhaps able
to view the economic environment in a rather different way, since they are often able to shift
investment and marketing patterns from one market to another and from one part of the world to
another in order to capitalize most fully on the global opportunities that exist.
More specifically, however, the sorts of changes that are currently taking place in the economic
environment can be identified as:
1. An increase in real income growth
2. Continuing inflationary pressures
3. Changes in the savings/debt ratio
4. Concern over levels of Third World debt
5. Different consumer expenditure patterns.
The social environments
From the viewpoint of the marketing planner, analysis of short-term and long-term economic
patterns is of vital importance. In doing this, arguably the most useful and indeed logical starting
point is that of demography, since not only is demographic change readily identifiable, but it is
the size, structure and trends of a population that ultimately exert the greatest influence on
demand. There are several reasons for this, the two most significant of which are, first, that there
is a strong relationship between population and economic growth and, second, that it is the
absolute size of the population that acts as the boundary condition determining potential or

primary demand.A detailed understanding of the size, structure, composition and trends of the
population is therefore of fundamental importance to the marketing planner. It is consequently
fortunate that, in the majority of developed countries, information of this sort is generally readily
available and provides a firm foundation for forecasting.
At the same time, a variety of other equally important and far-reaching changes are currently
taking place, including:
a. The growth in the number of one-person households
b. A rise in the number of two-person cohabitant households
c. An increase in the number of group households.
d. A much greater degree of social mobility
The technological environment
Technological advance needs to be seen as a force for ‘creative destruction’ in that the
development of new products or concepts has an often fatal knockout effect on an existing
product. The creation of the xerography photocopying process, for example, destroyed the
market for carbon paper, while the development of cars damaged the demand for railways.
The implications for the existing industry are often straightforward: change or die. The
significance of technological change does, however, need to be seen not just at the corporate or
industry level, but also at the national level, since an economy’s growth rate is directly
influenced by the level of technological advance.
Technology does, therefore, provide both opportunities and threats, some of which are direct
while others are far less direct in their impact. Recognizing then that the impact of technology is
to all intents inevitable, the areas to which the marketing planner should pay attention include
1. The accelerating pace of technological change
2. Unlimited innovational opportunities
3. Higher research and development budgets
4. A concentration of effort in some industries on minor product improvements
5. A greater emphasis upon the regulation of technological change

Chapter Five
Managing the Marketing Mix Strategies
What is the marketing mix?
Once a firm has defined its target market and identified its competitive advantage, it can create
the marketing mix that brings a specific group of consumers a product with superior value. Every
target market requires a unique marketing mix to satisfy the needs of the target customers and
meet the firm’s goals.
1. Product Strategy
Marketing strategy typically starts with the product. Marketers can’t plan a distribution system or
set a price if they don’t know exactly what product will be offered to the market. Marketers use
the term product to refer to goods, services, or even ideas. Examples of goods would include
tires, MP3 players, and clothing. Goods can be divided into business goods (commercial or
industrial) or consumer goods. Examples of services would be hotels, hair salons, airlines, and
engineering and accounting firms. Services can be divided into consumer services, such as lawn
care and hair styling, or professional services, such as engineering, accounting, or consultancy.
In addition, marketing is often used to “market” ideas that benefit companies or industries, such
as the idea to “go green” or to “give blood.” Businesses often use marketing to improve the long-
term viability of their industries, such as the avocado industry or the milk industry, which run
advertising spots and post social media messages to encourage consumers to view their
industries favorably. Thus, the heart of the marketing mix is the good, service, or idea. Creating a
product strategy involves choosing a brand name, packaging, colors, a warranty, accessories, and
a service program.
Marketers view products in a much larger context than is often thought. They include not only
the item itself but also the brand name and the company image. The names Ralph Lauren and
Gucci, for instance, create extra value for everything from cosmetics to bath towels. That is,
products with those names sell at higher prices than identical products without the names.
Consumers buy things not only for what they do, but also for what they mean.
It is important for marketers to reinvent their products to stimulate more demand once it reaches
the sales decline phase. Marketers must also create the right product mix. It may be wise to
expand your current product mix by diversifying and increasing the depth of your product line.

All in all, marketers must ask themselves the question “what can I do to offer a better product to
this group of people than my competitors”.
In developing the right product, you have to answer the following questions:
 What does the client want from the service or product?
 How will the customer use it?
 Where will the client use it?
 What features must the product have to meet the client’s needs?
 Are there any necessary features that you missed out?
 Are you creating features that are not needed by the client?
 What’s the name of the product?
 Does it have a catchy name?
 What are the sizes or colors available?
 How is the product different from the products of your competitors?
 What does the product look like?
2. Pricing Strategy
Pricing strategy is based on demand for the product and the cost of producing that product.
However, price can have a major impact on the success of a product if the price is not in balance
with the other components. For some products (especially service products), having a price that
is too low may actually hurt sales. In services, a higher price is often equated with higher value.
For some types of specialty products, a high price is expected, such as prices for designer clothes
or luxury cars. Even costume jewelry is often marked up more than 1000 percent over the cost to
produce it because of the image factor of a higher price. Special considerations can also
influence the price. Sometimes an introductory price is used to get people to try a new product.
Some firms enter the market with low prices and keep them low, such as Carnival Cruise Lines
and Suzuki cars. Others enter a market with very high prices and then lower them over time,
such as producers of high-definition televisions and personal computers.
Consequently, prices too high will make the costs outweigh the benefits in customers eyes, and
they will therefore value their money over your product. Be sure to examine competitors pricing
and price accordingly. When setting the product price, marketers should consider the perceived
value that the product offers. There are three major pricing strategies, and these are: Market
penetration pricing, Market skimming pricing and Neutral pricing.

Here are some of the important questions that you should ask yourself when you are setting the
product price:
 How much did it cost you to produce the product?
 What is the customers’ perceived product value?
 Do you think that the slight price decrease could significantly increase your market
share?
 Can the current price of the product keep up with the price of the product’s competitors?
3. Place (Distribution) Strategy
Place (distribution) strategy is creating the means (the channel) by which a product flows
from the producer to the consumer. Place includes many parts of the marketing endeavor. It
includes the physical location and physical attributes of the business, as well as inventory and
control systems, transportation, supply chain management, and even presence on the web.
One aspect of distribution strategy is deciding how many stores and which specific
wholesalers and retailers will handle the product in a geographic area. Cosmetics, for
instance, are distributed in many different ways. Avon has a sales force of several hundred
thousand representatives who call directly on consumers. Clinique and Estée Lauder are
distributed through selected department stores. Cover Girl and Coty use mostly chain
drugstores and other mass merchandisers. Redken products sell through hair salons. Revlon
uses several of these distribution channels. For services, place often becomes synonymous
with both physical location (and attributes of that location such as atmospherics) and online
presence. Place strategy for services also includes such items as supply chain management.
An example would be that an engineering firm would develop offices with lush interiors (to
denote success) and would also have to manage the supplies for ongoing operations such as
the purchase of computers for computer-aided drafting.
Understand them inside out and you will discover the most efficient positioning and distribution
channels that directly speak with your market. There are many distribution strategies, including:
Intensive distribution, Exclusive distribution, Selective distribution and Franchising.
Here are some of the questions that you should answer in developing your distribution strategy:
 Where do your clients look for your service or product?
 What kind of stores do potential clients go to? Do they shop in a mall, in a regular brick
and mortar store, in the supermarket, or online?

 How do you access the different distribution channels?

 How is your distribution strategy different from your competitors?
 Do you need a strong sales force?
 Do you need to attend trade fairs?
 Do you need to sell in an online store?
4. Promotion Strategy
Many people feel that promotion is the most exciting part of the marketing mix. Promotion
strategy covers personal selling, traditional advertising, public relations, sales promotion, social
media, and e-commerce. These elements are called the promotional mix. Each element is
coordinated with the others to create a promotional blend. An advertisement, for instance, helps a
buyer get to know the company and paves the way for a sales call. A good promotional strategy
can dramatically increase a firm’s sales.
Public relations play a special role in promotion. It is used to create a good image of the
company and its products. Bad publicity costs nothing to send out, but it can cost a firm a great
deal in lost business. Public relations use many tools, such as publicity, crisis management
strategy, and in-house communication to employees. Good publicity, such as a television or
magazine story about a firm’s new product, may be the result of much time, money, and effort
spent by a public-relations department. Public-relations activities always cost money—in salaries
and supplies. Public-relations efforts are the least “controllable” of all the tools of promotion,
and a great deal of effort and relationship-building is required to develop the ongoing goodwill
and networking that is needed to enhance the image of a company.
Sales promotion directly stimulates sales. It includes trade shows, catalogs, contests, games,
premiums, coupons, and special offers. It is a direct incentive for the customer to purchase the
product immediately. It takes many forms and must adhere to strict laws and regulations. For
example, some types of contests and giveaways are not allowed in all the states within the United
States. McDonald’s discount coupons and contests offering money and food prizes are examples
of sales promotions.
Social media is a major element of the promotion mix in today’s world. Most businesses have a
corporate website, as well as pages on different social media sites such as Facebook, Pinterest,
and Twitter. Social media is more powerful as a channel for getting the company’s message out
to the target market (or general public) than traditional advertising, especially for some target

markets. Companies (and even individuals) can use social media to create instant branding. E-
commerce is the use of the company website to support and expand the marketing strategies of
the 5Ps. It can include actual “order online” capabilities, create online communities, and be used
to collect data from both existing and potential customers. Some e-commerce websites offer free
games and other interactive options for their customers. All of this activity helps to build and
strengthen the long-term relationships of customers with the company.
In creating an effective product promotion strategy, you need to answer the following questions:
 How can you send marketing messages to your potential buyers?
 When is the best time to promote your product?
 Will you reach your potential audience and buyers through television ads?
 Is it best to use the social media in promoting the product?
 What is the promotion strategy of your competitors?

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Strategic Marketing Management

AMBO UNIVERSITY WALISO CAMPUS

STRATEGIC MARKETING MANAGEMENT COURSE

BY: BELAY ADAMU (MA)

1 Department of Marketing Management

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marketing strategy combines product development, promotion, distribution, pricing, relationship

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Analyzing Buyer Behavior

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Stage five: Differential advantage

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Stage eight: Monitoring market performance

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Porter's Four Generic Competitive Strategies

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Establishing Strategic Business Units

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 Providing an understanding of your competitive advantage/disadvantage relative to your

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 Understanding each competitor’s strategy.

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1. The proportion of company profits that this market sector generates

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MOBILE DEFENCE: In a mobile defense a company is proactive in aggressively defending a

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The Marketing Environment & Marketing Audit

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