Basic Marketing Handouts

Unit 2 –The Marketing Strategy

Prepared for  MHTM 2nd Trimester Students (SOA University)

Creating Customer Value:

Customer value proposition

In the field of marketing, a customer value proposition consists of the sum total of benefits which a
vendor promises that a customer will receive in return for the customer's associated payment (or
other value-transfer).
That means Value = Benefit / Cost=(Functional Benefit + Emotional Benefit) / (Time Cost + Energy
Cost + Psychic Cost + Monetary Cost)

Put simply, the value proposition is what the customer gets for his money/time/energy.
Accordingly, a customer can evaluate a company's value-proposition on two broad dimensions with
multiple subsets:
1. relative performance: what the customer gets from the vendor relative to a competitor's
offering;
2. price: which consists of the payment the customer makes to acquire the product or service;
plus the access cost
The vendor-company's marketing and sales efforts offer a customer value proposition; the vendor-
company's delivery and customer-service processes then fulfill that value-proposition.
Value-proposition as a marketing tool:

A value-proposition can assist in a firm's marketing strategy, and may guide a business to
target a particular market segment. Typically, there are three ubiquitous elements in a value
proposition: Convince (who?), that (what?), because (why?). This framework will structure
your value proposition in a cohesive manner that makes sense internally and externally.

Whether for a product, service or a company as a whole, this formulation can allow a firm to
see if its competencies align with the segment that it plans to target.

The company has always had the value-proposition of increasing its market share and growing
revenue by:

1. providing superior customer service

2. product differentiation

3. operational efficiency

A strategic analysis and planning document should contain at least five elements:

1. current situation (including problems, causes and effects)

2. target situation
3. when to reach the target situation
4. cost of reaching the target situation and opportunity cost analysis
5. the benefits of both the targeting and the achievement phases
Marketing strategy:

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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 around the key concept that customer satisfaction is the
main goal.

Key part of the general corporate strategy:

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. 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).

Marketing strategy determines the choice of target market segments, positioning, marketing mix,
and allocation of resources. It is most effective when it is an integral component of overall firm
strategy, defining how the organization will successfully engage customers, prospects, and
competitors in the market arena. Corporate strategies, corporate missions, and corporate goals. As
the customer constitutes the source of a company's revenue, marketing strategy is closely linked with
sales.

Types of strategies:

Marketing strategies may differ depending on the unique situation of the individual business.
However there are a number of ways of categorizing some generic strategies. A brief description of
the most common categorizing schemes is presented below:

 Strategies based on market dominance - In this scheme, firms are classified based on their
market share or dominance of an industry. Typically there are four types of market
dominance strategies:

o Leader (40%)
o Challenger (30%)
o Follower (20%)
o Nicher (10%)
 Porter generic strategies - strategy on the dimensions of strategic scope and strategic
strength. Strategic scope refers to the market penetration while strategic strength refers to
the firm’s sustainable competitive advantage. The generic strategy framework (porter 1984)
comprises two alternatives each with two alternative scopes. These are Differentiation and
low-cost leadership each with a dimension of Focus-broad or narrow.

o Product differentiation
o Market segmentation
 Innovation strategies - This deals with the firm's rate of the new product development and
business model innovation. It asks whether the company is on the cutting edge of technology
and business innovation. There are three types:

o Pioneers
o Close followers
o Late followers

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 Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There
are a number of different ways of answering that question, but the most common gives four
answers:

o Horizontal integration
o Vertical integration
o Diversification
o Intensification

Strategic Planning Process

In the 1970's, many large firms adopted a formalized top-down strategic planning model. Under this
model, strategic planning became a deliberate process in which top executives periodically would
formulate the firm's strategy and then communicate it down the organization for implementation.
The following is a flowchart model of this process.

The Strategic Planning Process

Defining Organizational Mission

Establishing SBUs

Setting Marketing Objective

Performing Situation Analysis

AnalysisAnalysis

Strategy Formulation

Implementation

Control

This process is most applicable to strategic management at the business unit level of the
organization. For large corporations, strategy at the corporate level is more concerned with managing
a portfolio of businesses. For example, corporate level strategy involves decisions about which
business units to grow, resource allocation among the business units, taking advantage of synergies
among the business units, and mergers and acquisitions. In the process outlined here, "company" or
"firm" will be used to denote a single-business firm or a single business unit of a diversified firm.

Step 1: Defining Organizational Mission: A company's mission is its reason for being. The mission
often is expressed in the form of a mission statement, which conveys a sense of purpose to
employees and projects a company image to customers. In the strategy formulation process, the
mission statement sets the mood of where the company should go.

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Step 2: Establishing SBUs: When operating in more than one business, a firm can establish a SBU or
Strategic Business Unit to operate its various portfolios more effectively, i.e. by dividing each and
every business and operating them as a separate unit will benefit the whole company as we can see
them separately.

Step 3: Setting Marketing Objectives: Objectives are concrete goals that the organization seeks to
reach, for example, an earnings growth target. The objectives should be challenging but achievable.
They also should be measurable so that the company can monitor its progress and make corrections
as needed.

Step 4: Performing Situation Analysis: Once the firm has specified its objectives, it begins with its
current situation to devise a strategic plan to reach those objectives. Changes in the external
environment often present new opportunities and new ways to reach the objectives. An
environmental scan is performed to identify the available opportunities. The firm also must know its
own capabilities and limitations in order to select the opportunities that it can pursue with a higher
probability of success. The situation analysis therefore involves an analysis of both the external and
internal environment.

The external environment has two aspects: the macro-environment that affects all firms and a
micro-environment that affects only the firms in a particular industry. The macro-environmental
analysis includes political, economic, social, and technological factors and sometimes is referred to as
a PESTEL Analysis.

An important aspect of the micro-environmental analysis is the industry in which the firm operates
or is considering operating. Michael Porter devised a five forces framework that is useful for industry
analysis. Porter's 5 forces include barriers to entry, customers, suppliers, substitute products, and
rivalry among competing firms.

The internal analysis considers the situation within the firm itself, such as:

 Company culture
 Company image
 Organizational structure
 Key staff
 Access to natural resources
 Position on the experience curve
 Operational efficiency
 Operational capacity
 Brand awareness
 Market share
 Financial resources
 Exclusive contracts
 Patents and trade secrets
A situation analysis can generate a large amount of information, much of which is not particularly
relevant to strategy formulation. To make the information more manageable, it sometimes is useful
to categorize the internal factors of the firm as strengths and weaknesses, and the external
environmental factors as opportunities and threats. Such an analysis often is referred to as a SWOT
Analysis.
Step 5: Strategy Formulation: Once a clear picture of the firm and its environment is in hand, specific
strategic alternatives can be developed. While different firms have different alternatives depending
on their situation, there also exist generic strategies that can be applied across a wide range of firms.

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A marketing strategy outlines the way in which the marketing mix is used to attract and satisfy the
target market. A separate strategy is necessary for each SBU.

Four strategic planning approaches are:

• Product/Market Opportunity Matrix

• Boston Consulting Group Matrix (BCG Matrix)
• General Electric Business Screen (GE Matrix)
• Porter Generic Strategy Model
The Product / Market Opportunity Matrix:

Boston Consulting Group Matrix (BCG Matrix):

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General Electric Business Model (GE Model)

Business Strength
Market Attractiveness

Strategies for General Electric Matrix:

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PROTECT POSITION INVEST TO BUILD BUILD SELECTIVELY

 Invest to grow at maximum  Challenge for leadership  Specialize around limited strengths
digestible rate
 Build selectively strengths  Seek ways to overcome weaknesses
 Concentrate effort on
maintaining strength  Reinforce vulnerable areas  Withdraw if indications of
sustainable growth are lacking

BUILD SELECTIVELY SELECTIVITY / MANAGE FOR LIMITED EXPANSIONS OR HARVEST

EARNINGS
 Invest heavily in most  Look for ways to expand without
attractive segment  Perfect existing program high risk otherwise minimize
investments and rationalize
 Build up ability to counter  Concentrate investments operations.
competition in such segments where
profitability is good and
 Emphasize profitability by risks are lower
raising productivity

PROTECT AND REFOUCS MANAGE FOR EARNINGS DIVEST

 Manage for current earnings  Protect position in most  Sell at time that will maximize cash
profitable segments value
 Concentrate on attractive
segments  Upgrade product line  Cut fixed costs and avoid
investments
 Defend strengths  Minimize Investment

Porter’s generic Strategy:

a. Overall Cost leadership: The business works hard to achieve the lowest production and
distribution costs so that it can price lower than its competitors and win a large market

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share. Companies pursuing this type of strategy should always focus on engineering,
purchasing, manufacturing and physical distribution etc.

b. Differentiation Strategy: The business concentrates on achieving superior performance in an

important customer benefit area valued by a large part of the market. It is otherwise known
as the quality leadership. And to make that the company should make its product with the
best components, put them together expertly, inspect them carefully, and effectively
communicate their quality.

c. Cost focus Strategy: Here, the company focuses on a narrow market segment. By cost
leadership where the focus is on to reduce the cost any how and less emphasis is given on
the marketing aspect.

d. Differentiation focus strategy: Here also, the company also focuses on a narrow market
segment. By quality leadership where the focus is on to offer the best quality product to the
consumer.

Step 6: Implementation: The strategy likely will be expressed in high-level conceptual terms and
priorities. For effective implementation, it needs to be translated into more detailed policies that can
be understood at the functional level of the organization. The expression of the strategy in terms of
functional policies also serves to highlight any practical issues that might not have been visible at a
higher level. The strategy should be translated into specific policies for functional areas such as:

 Marketing
 Research and development
 Procurement
 Production
 Human resources
 Information systems
In addition to developing functional policies, the implementation phase involves identifying the
required resources and putting into place the necessary organizational changes.

Step 7: Control: Once implemented, the results of the strategy need to be measured and evaluated,
with changes made as required to keep the plan on track. Control systems should be developed and
implemented to facilitate this monitoring. Standards of performance are set, the actual performance
measured, and appropriate action taken to ensure success.

It’s a Dynamic and Continuous Process:

The strategic management process is dynamic and continuous. A change in one component can
necessitate a change in the entire strategy. As such, the process must be repeated frequently in order
to adapt the strategy to environmental changes. Throughout the process the firm may need to cycle
back to a previous stage and make adjustments.

Drawbacks of this Process:

The strategic planning process outlined above is only one approach to strategic management. It is
best suited for stable environments. A drawback of this top-down approach is that it may not be
responsive enough for rapidly changing competitive environments. In times of change, some of the
more successful strategies emerge informally from lower levels of the organization, where managers
are closer to customers on a day-to-day basis. Another drawback is that this strategic planning model

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assumes fairly accurate forecasting and does not take into account unexpected events. In an
uncertain world, long-term forecasts cannot be relied upon with a high level of confidence. In this
respect, many firms have turned to scenario planning as a tool for dealing with the multiple
contingencies.

Competitor analysis:

Competitor analysis in marketing and strategic management is an assessment of the strengths and
weaknesses of current and potential competitors. This analysis provides both an offensive and
defensive strategic context through which to identify opportunities and threats.

Given that competitor analysis is an essential component of corporate strategy, it is argued that most
firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate
on what is called “informal impressions, conjectures, and intuition gained through the tidbits of
information about competitors every manager continually receives.” As a result, traditional
environmental scanning places many firms at risk of dangerous competitive blind spots due to a lack
of robust competitor analysis. There are various methods of competitor analysis are there. Some of
the commonly used techniques are as follows.

1. Competitor array: One common and useful technique is constructing a competitor array. The
steps include:

 Define your industry - scope and nature of the industry

 Determine who your competitors are

 Determine who your customers are and what benefits they expect

 Determine what the key success factors are in your industry

 Rank the key success factors by giving each one a weighting - The sum of all the weightings
must add up to one.

 Rate each competitor on each of the key success factors

 Multiply each cell in the matrix by the factor weighting.

 Sum columns for a weighted assessment of the overall strength of each competitor relative
to each other.

This can best be displayed on a two dimensional matrix - competitors along the top and key success
factors down the side. An example of a competitor array follows

Key Industry Success Weights Competitor 1 Competitor 1 Competitor 2 Competitor 2

Factors ratings weighted ratings weighted
Extensive Distribution .4 6 2.4 3 1.2
Customer Focus .3 4 1.2 5 1.5
Economies of Scale .2 3 .6 3 .6
Product Innovation .1 7 .7 4 .4
Total 1.0 20 4.9 15 3.7

In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out
of 10, compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated
higher on customer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than

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competitor #2 (20 out of 40 compared to 15 out of 40). When the success factors are weighted
according to their importance, competitor #1 gets a far better rating (4.9 compared to 3.7).

Two additional columns can be added. In one column you can rate your own company on each of the
key success factors (try to be objective and honest). In another column you can list benchmarks. They
are the ideal standards of comparisons on each of the factors. They reflect the workings of a
company using all the industry's best practices .

2. Competitor Profiling:

This is all about profiling the competitors completely. Superior knowledge of rivals offers a legitimate
source of competitive advantage. Clearly, those firms practicing systematic and advanced competitor
profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly
becoming a core competence required for successful competition. An appropriate analogy is to
consider this advantage as akin to having a good idea of the next move that your opponent in a chess
match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a
good offense is the best defense in the game of business as well.

A common technique is to create detailed profiles on each of your major competitors. These profiles
give an in-depth description of the competitor's background, finances, products, markets, facilities,
personnel, and strategies. This involves:

 Background
o location of offices, plants, and online presences

o history - key personalities, dates, events, and trends

o ownership, corporate governance, and organizational structure

 Financials

o P-E ratios, dividend policy, and profitability

o various financial ratios, liquidity, and cash flow

o Profit growth profile; method of growth

 Products.

o products offered, depth and breadth of product line, and product portfolio balance

o new products developed, new product success rate, and R&D strengths

o brands, strength of brand portfolio, brand loyalty and brand awareness

o patents and licenses

o quality control conformance

o reverse engineering

 Marketing

o segments served, market shares, customer base, growth rate, and customer loyalty

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o promotional mix, promotional budgets, advertising themes, ad agency used, sales
force success rate, online promotional strategy

o distribution channels used (direct & indirect), exclusivity agreements, alliances, and
geographical coverage

o pricing, discounts, and allowances

 Facilities

o plant capacity, capacity utilization rate, age of plant, plant efficiency, capital
investment

o location, shipping logistics, and product mix by plant

 Personnel

o number of employees, key employees, and skill sets

o strength of management, and management style

o compensation, benefits, and employee morale & retention rates

 Corporate and marketing strategies

o objectives, mission statement, growth plans, acquisitions, and divestitures

o marketing strategies

3. Media Scanning: Scanning competitor's ads can reveal much about what that competitor
believes about marketing and their target market. Changes in a competitor's advertising
message can reveal new product offerings, new production processes, a new branding
strategy, a new positioning strategy, a new segmentation strategy, line extensions and
contractions, problems with previous positions, insights from recent marketing or product
research, a new strategic direction, a new source of sustainable competitive advantage, or
value migrations within the industry. It might also indicate a new pricing strategy such as
penetration, price discrimination, price skimming, product bundling, joint product pricing,
discounts.

Marketing Control:

It is the process of Controlling the marketing effort by virtue of various techniques so that we can
always keep an eye on the processes.

The Marketing Control can be divided into various types. They are –

• Budget
• Profitability
• Efficiency (Productivity)
• Strategic

Budget Control:

• Measurement of results against monthly/quarterly budgets (goals)

• Reasons for deviations (variances)

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• Remedial steps to be taken to close the gaps
• between performance and goals
• Review performance in the next month/quarter and assess results
Benchmarks for Efficiency:

• against last year

• against budget
• against targets
• % growths
• % variances
• % market share
Marketing Expense:

• Sales Force
• Advertising
• Sales Promotion
• Market Research
• Sales Administration
• Public Relations
• Direct Marketing

Financial Analysis:
• RONW - Net Profits/Net Worth profit margin *asset turnover*financial leverage
• Increase margins by increase in sales or reduction in costs or both
• Increase asset turnover by increasing sales or reducing the assets (inventories, debtors)
against a given level of sales
Profitability Control:
• Product rationalization
• Customer rationalization
• Costing Analysis
Efficiency Control:
• Sales force efficiency
• Advertising efficiency
• Sales promotion efficiency
• Distribution efficiency
Sales Force Efficiency:
• No. of calls per salesperson per day
• Average revenue per sales call
• Average cost per call
• Average call time per call
• No. of new customers per period
• Sales force cost per unit sales
Advertising Efficiency:
• Before and after measure of attitude towards the product
• No. of enquiries per ad
• Cost per enquiry

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Sales Promotion Efficiency:
• % sales sold on ‘promotion’
• Display cost per sales rupee
• % coupons redeemed
• No. of enquiries resulting from a demonstration
Distribution Efficiency
• Time taken to execute orders
• % order executed
• service levels
Other Control Measures
• Marketing Effectiveness Review
- Customer philosophy, integrated marketing organization, adequate marketing information,
strategic orientation and operational efficiency
• Marketing Audit
Comprehensive , systematic, independent and periodic review of a company’s business environment,
objectives, strategies and activities with an idea to identify areas of weaknesses and recommend a
plan of action to improve on such areas.

Marketing Audit.

How to conduct a marketing audit.

The marketing audit is a fundamental part of the marketing planning process. It is conducted not
only at the beginning of the process, but also at a series of points during the implementation of the
plan. The marketing audit considers both internal and external influences on marketing planning, as
well as a review of the plan itself.

There are a number of tools and audits that can be used, for example SWOT analysis for the internal
environment, as well as the external environment. Other examples include PEST and Five Forces
Analyses, which focus solely on the external environment.

In many ways the marketing audit clarifies opportunities and threats, and allows the marketing
manager to make alterations to the plan if necessary.

This lesson considers the basics of the marketing audit, and introduces a marketing audit checklist.
The checklist is designed to answer the question, what is the current marketing situation? Lets
consider the marketing audit under three key headings:

 The Internal Marketing Environment.

 The External Marketing Environment.
 A Review of Our Current Marketing Plan.
1.The Internal Marketing Environment.

What resources do we have at hand? (i.e. The FIVE 'M's):

 MEN (Labor/Labour).
 MONEY (Finances).

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 MACHINERY (Equipment).
 MINUTES (Time).
 MATERIALS (Factors of Production).
 How is our marketing team organized?
 How efficient is our marketing team?
 How effective is our marketing team?
 How does our marketing team interface with other organisations and internal functions?
 How effective are we at Customer Relationship Management (CRM)?
 What is the state of our marketing planning process?
 Is our marketing planning information current and accurate?
 What is the current state of New Product Development? (Product)
 How profitable is our product portfolio? (Product)
 Are we pricing in the right way? (Price)
 How effective and efficient is distribution? (Place)
 Are we getting our marketing communications right? (Promotion)
 Do we have the right people facing our customers? (People)
 How effective are our customer facing processes? (Process)
 What is the state of our business's physical evidence? (Physical Evidence)
2. The External Marketing Environment.

As a market orientated organisation, we must start by asking - What is the nature of our 'customer?'
Such as:

 Their needs and how we satisfy them.

 Their buyer decision process and consumer behaviour.
 Their perception of our brand, and loyalty to it.
 The nature of segmentation, targeting and positioning in our markets.
 What customers 'value' and how we provide that 'value?.'
What is the nature of competition in our target markets?

 Our competitors' level of profitability.

 Their number/concentration.
 The relative strengths and weaknesses of competition.
 The marketing plans and strategies of our competition.
What is the cultural nature of the environment(s)?

 Beliefs and religions.

 The standards and average levels of education.
 The evolving lifestyles of our target consumers.
 The nature of consumerism in our target markets.
What is the demography of our consumers? Such as average age, levels of population, gender make
up, and so on. How does technology play a part?

 The level of adoption of mobile and Internet technologies.

 The way in which goods are manufactured.
 Information systems.
 Marketing communications uses of technology and media.
What is the economic condition of our markets?

 Levels of average disposable income.

 Taxation policy in the target market.
 Economic indicators such as inflation levels, interest rates, exchange rates and
unemployment.

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Is the political and legal landscape changing in any way?

 Laws, for example, copyright and patents.

 Levels of regulation such as quotas or tariffs.
 Labour/labor laws such as minimum wage legislation.
3. A Review of Our Current Marketing Plan

 What are our current objectives for marketing?

 What are our current marketing strategies?
 How do we apply the marketing mix? (Including factors covered above in (a))
 Is the marketing process being controlled effectively?
 Are we achieving our marketing budget?
 Are we realizing our SMART (Specific, Measurable, Achievable, Reasonable, Time-bound)
objectives?
 Are our marketing team implementing the marketing plan effectively?
 Levels of staffing.
 Staff training and development.
 Experience and learning.
 What is our market share? (total sales/trends/sales by product or customer or channel)
 Are we achieving financial targets? (profit and margins/ liquidity and cash flow/ debt: equity
ratio/ using financial ratio analysis)

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