Unit 3: Marketing Strategies

STRATEGY AND PLANNING:

Philip Kotler said of planning that it was deciding in the present what to do in the future. It involves both the determination of a desired future and the steps necessary to bring it about. Three levels of planning have been identified: a) Corporate or visionary planning: Mission and structure for evaluating and allocating resources to business b) Business planning: Long-range planning for positioning the company and its products to best serve its target markets. c) Functional planning: Marketing planning which is generally annual planning involving specific goals and plans over one year. Strategic Planning for Marketing (Adapted from Gilligan & Fifield, 1997)

Strategy & strategic levels:

In marketing: "Strategy" can be used to describe the means of achieving an objective; or "Strategy" can be used to describe an approach, stance or long-term plans. So "strategic planning" means a higher level of planning. Wilson, Gilligan and Pearson in Strategic Marketing Management, readily admit that there is no standard definition of "strategy", but highlight three "levels" of strategy: Corporate strategy dealing with the allocation of resources throughout the entire organisation, covering all of the various businesses or divisions Business strategy which exists at the individual business or division level and is concerned with the question of competitive positioning Functional-level strategy which is limited to the actions of specific functions within specific businesses.

CORPORATE STRATEGY
Strategies are formulated as a response to the various factors in the company's environment and these may come from both external and internal sources. (a) External Nature of the competition and the products which are on offer in the marketplace Political, economic, social and technological pressures Needs and requirements of the buyers Changes which are, or are likely to be, taking place in the environment

(b) Internal Corporate objectives Size and power of the company Availability of resources Current and past practices Expectations of stakeholders Position of the firm in the marketplace Nature of the firm's business (leader/follower) Managerial stance and attitude (aggressive/or not)

Organisational Stance and Positioning

Managerial stance and attitude can have a big influence on strategy formulation. Organisations can be categorised as being any one of the following: Leaders: These are innovative companies who are regularly first into the marketplace with new products. They tend to be powerful companies who will have major market shares and the benefit of abundant resources. They must adopt strategies which will: 2

Protect their current market share by using the mix, or Encourage current customers to use more, or Attract and retain new users and/or customers, or Redesign the product/service for new and existing users, or Introduce new products to new markets.

Companies can carry out these strategies by adopting a stance of: Innovation always being in front of the competition Fortification activities aimed at keeping the competition down Confrontation aggressive promotion, price wars Harassment pressure on distributors, criticising competition (b) Followers: These are the companies who do not invest heavily in research and development (R & D) but "copy" what the leaders do. This type of company will never get the initial major market share, but they do not have to invest money in development or in making the target market "aware", as the leaders will have already done this Followers are often referred to as "me-too" marketers in that they do not come up with original ideas or practices (c) Nichers: These types of organisation are those that are, to one extent or another, providing a "specialised" product offering. They will have some kind of USP (unique service proposition) which they can offer to their customers. Niche marketers are often left alone by the market leaders

Attack Strategies
(a) Direct Challenge Differential Advantage: This is a high-risk strategy but one with potentially high pay-off. Such a policy requires sufficient working capital and management determination to last out a long campaign

(b) Direct Attack Distinctive Competence: Removing the distinctive competence from the market leader by innovation is extremely effective providing that the advantages are valued by the target market and communicated effectively. A classic example is Xerox, who took the copying market away from 3M by introducing a better process.

(c) Direct Attack Market Share: Introducing the smaller firms strongly in the market can build market share very quickly providing that it is possible to retain Normally there will be loss of trade as old brands change to the new, but the promotional stimulus may well shake a few percentage points from the market leader in exchange for what is lost. 3

(d) Flank Attack: This involves the location of a position which is not open and which it is possible to occupy and hold. When segmentation analysis reveals a niche that is not being served, it is first necessary to ask why. If the answer is not "because it is untenable" then it becomes available as an attack base from which to build market presence and share.

(e) Encirclement: An encirclement attack endeavours to overwhelm a competitor by simultaneous attack on every front: an expensive strategy, but one extremely difficult (and expensive) to resist. Casio's approach to the calculator market is a typical example of encirclement. They overwhelmed the opposition by a constant stream of ever better, ever cheaper products until they achieved dominance.

(f) Bypass: The most indirect assault involves broadening a resource base over a period whilst avoiding confrontation until strategically prepared. In 1971 Colgate was underdog to Proctor and Gamble; by 1976 it was well placed in 75% of its markets, and out of contact with P & G in the remainder.

(g) Guerrilla: A relatively small competitor cannot attack aggressively on a broad front but can choose where and when to hit in the knowledge that the big competitor is likely to be slow in response. Profits are therefore taken before response comes by which time the smaller firm is striking elsewhere. This is unlikely to defeat the market leader but it can take a substantial amount of profits from the market. The Hoppa buses introduced in UK cities have become a serious nuisance to the established major companies operating traditional buses on fixed routes.

Defence Strategies
(a) Position Defence: Based upon a clear positioning that is established over years of effort (as the Mars Bar has been), a position defence consists of flexible consolidation. Promotional innovation is needed to keep the product alive, healthy and active in the minds of its customers and consumers. An innovative leader will usually have massive cost advantages and be able to withstand sustained attack (b) Pre-emptive Defence 4

Nestl are past masters at this type of market strategy from comparatively few production lines they now produce many branded versions of the same canned milk, and not all are intended to be market leaders. (c) Counter-offensive:

This is an aggressive response to an attack in order to prevent loss of market share. Responses involve using mix elements. When Cadbury's attacked Mars they were immediately faced with an overwhelming counter-offensive. They withdrew from the confrontation. (d) Mobile Defence

This is good marketing policy even without the threat of an attacker on the horizon because it involves constant moving, through innovation, market broadening and diversification into new territory. It requires a willingness to "go where no-one has gone before" Richard Branson and his Virgin Empire exemplify the entrepreneurial approach to growth through mobility. (e) Flanking Defence

The American car giants exemplify failure in attempts to erect effective flank defences. Alert to the threat from Japan, which was focused on small cars, they attempted to protect their overall position with hastily designed American compacts. These were no competition for the very efficient Japanese competition, and the flanking defence turned out to be a major distracter (f) Contraction Defence

Pulling back to a position of strength to be better able to mount a counter-attack is sometimes a good policy. The British motor-cycle industry contracted before each successive wave of Japanese imports until there was no effective British motor cycle left.

MARKETING STRATEGIES
The marketing strategy is the means of achieving the corporate objectives. It gives messages to the stakeholders, or publics. It says: "This is where we are going", and "When we will get there", and "This is our stance".

Types of Marketing Strategy

One of the most fundamental issues which a company must decide on is the type of marketing strategy, or approach, that they will adopt. There are three basic marketing strategies which any company can follow:

Undifferentiated marketing Differentiated marketing Concentrated marketing.

Undifferentiated Marketing: Here there is a standard, unchanged product and a standard, unchanged marketing effort. This strategy can reduce costs (e.g. marketing, production) but will encounter wastage in promotional activity and possibly in distribution.

Differentiated Marketing Here the company segments its markets and offers modified products to different segments. The marketing mix elements will also be modified to suit the requirements of the chosen segments.

Concentrated Marketing Here the total marketing effort is aimed at one market segment. This strategy is really aimed at the exploitation of a limited market area and tends to be used by those companies who have highly specialised products. It is "niche marketing" by another name. 6

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

CORPORATE OBJECTIVES
Corporate objectives relate to the entire organisation and are essentially longer term and broad in their coverage. Objectives should be SMART: Specific Measurable Achievable Realistic Timed. These overall corporate objectives will represent the expectations of senior management and other important stakeholders, and may be expressed in either quantitative or qualitative terms. (a) Quantitative Quantitative objectives (in terms of numbers) can relate to money, percentages, periods of time, output figures, etc. Examples are: "To achieve 5% year-on-year growth in profit after tax for the next five years." (b) Qualitative Qualitative objectives (in terms of "ideals") can relate to service levels to be achieved, image, position, ethics, etc. The following is an excerpt from a statement of objectives published in the annual statement of a police force in northern England: "Within five years, or as soon as is practicable, to have a police force which: Is more open, relaxed and honest with ourselves and the public; Is more aware of our environment, sensitive to change and positioning ourselves to respond to change; Is more closely in touch with our customers, puts them first and delivers what they want quickly, effectively and courteously; Is the envy of all other forces."

MARKETING OBJECTIVES
Nature and Purpose of Marketing Objectives
Marketing objectives, in exactly the same way as corporate objectives, can be expressed in either qualitative or quantitative terms, e.g. "To increase market share by 5% each year for the next five years." "To be recognised as the leading supplier of pre-packed meals to the airline industry by the end of 1999."

 The main purpose of marketing objectives is to achieve the corporate objective(s). Over and above that prime function, marketing objectives should give direction

Defining Marketing Objectives

Gilligan et al, in Strategic Marketing Management (1992) present two published viewpoints of researchers who have identified possible marketing objectives: (a) McKay (1972) McKay suggested that there were only three possible marketing objectives: To enlarge the market To increase market share To improve profitability. (b) Gultinan and Paul (1988) Gultinan and Paul argued that six objectives should be given consideration: Market share growth Market share maintenance Cash flow maximisation Sustaining profitability Harvesting Establishing an initial market position. Gilligan et al then go further to suggest that the supportive thinking for both of these viewpoints can be said to reflect the thinking of Ansoff on marketing objectives. (c) Ansoff (1968) Ansoff argued that marketing objectives can only ever be about: Products, and Markets And that products and markets are either Existing, or New. This means that, according to Ansoff, marketing objectives should always be expressed in terms of existing or new products or markets or a combination of all four factors, as expressed in the following model.

Factors Influencing Marketing Objectives

The influences on marketing objectives can be related to the external and internal forces The external environment: A rapidly changing environment Government legislation Uncertainty on competitive activity or actions Changes taking place in technology, in particular internet based technologies such as SMS, downloads, broadband etc Different patterns of population or buying behaviour Recessionary economics, etc. The internal environment: Unrealistic corporate objectives Poor planning skills Narrow viewpoint of the planners Lack of resources Fear of failure to achieve limiting creativity Lack of knowledge of the market environment, etc. Maintaining the Competitive Edge Every company that is in business for a reasonable length of time must do something better than its competitors at least in the opinion of a number of customers. That something better may involve various factors, ranging from location and delivery to product performance and marketing. Service industries need to consider how competitive advantage is gained through the delivery of the service and how process improvements can be made to add value So what can the marketing manager do to maintain the competitive edge? 9

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

Benefits of Marketing Objectives

Providing marketing objectives are defined clearly and communicated correctly, they can bring many advantages: They give a clear direction to the personnel involved They can create unity They allow for measurement of achievement They can reduce risk They can improve decision-making

Problems in Formulating Marketing Objectives

Despite the fact that so many advantages can be gained, it is a sad fact that many organisations find it almost impossible to define good marketing objectives. There can be several reasons for this. Fear of Failure Apathy Success Organisational Culture Lack of Knowledge

MODELS FOR FORMULATING MARKETING STRATEGIES

Ansoff Model:
Ansoff claimed that in marketing we can only ever be talking about products and markets, and that these can only be old, or existing, and new, or potential. Thus marketers have: Existing products which they can sell to existing markets Existing products which they can sell to new markets New products which they can sell to existing markets New products which they can sell to new markets

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Strategy 1: Market Penetration (same product/same market) This strategy will be appropriate when a market is growing and not yet saturated. Penetration can be achieved by: Attracting non-users of a product Increasing the usage, or purchasing rate, of existing customers. Strategy 2: Market Development (same product/new market) This strategy is often found when a regional business wishes to expand or if new markets are emerging because of changes in consumer habits. It can also occur when a new use has been discovered for an existing product. Strategy 3: Product Development (new product/existing market) With this strategy an organisation develops new products or services to appeal to its existing markets. It may simply be a product "refinement", e.g. change of packaging or taste, etc. Product development is most prevalent when branding exists. Promotional aspects will emphasise the added qualities of the "new" product and link it specifically to the security of, and confidence in, the brand. This strategy builds on customer loyalty and the benefits to be gained by purchase. Strategy 4: Diversification (new products/new market) This strategy is sometimes introduced so that a company does not become too dependent on its existing SBUs. 11

 It can be a form of "insurance" against potential disasters that could occur in the event of drastic environmental changes. Diversification means catering for market sectors which are also new to the firm. If a new product is developed for the existing market it is Product Development and not Diversification. (a) Diversification by Integration Vertical Integration This involves the acquisition of some other enterprise in the chain of distribution between the manufacturer and the customer. It can be either "forward" or "backward" Horizontal Integration This is the acquisition of another organisation which has a feature that is desired, i.e. the acquired organisation may be using similar materials or components for which they have a monopoly of supply. (b) Diversification by Conglomeration This strategy moves the firm away from its existing product-market situation into an entirely new area in order to satisfy a primary objective. Quite often this is done as a short-term activity For example, a company that produces garments may reap instant profits if it invests oil on the open market. This type of activity can also be part of a longer-term strategy to spread risks. Ansoff applied: Ansoff's model as applied to Coca Cola, who use all four strategies (adapted from Evans and Berman (Marketing, 1990)). (a) Market Penetration More adults used in commercials "You can't beat the feeling" theme Price discount and promotions (fun caps) to existing customers Increasing sales through fast-food outlets Strengthened distribution network

(b) Market Development Greater emphasis on China, Eastern Europe, South America, Middle East, Africa Appeal to men with Diet Coke Changing image of soda from children to "family" (c) Product Development New brands/flavours New containers. (d) Diversification

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 Manufacturer of water treatment and conditioning equipment Acquiring Columbia Pictures, Embassy Communications Licensing company name for clothing range Ansoff's model is not perfect as it does not cover everything. It takes no account of any environmental factors It does not give any room for judgement on profitability It can inhibit the creativity of planners

Porter's Generic Strategy Model

Michael Porter is a widely quoted authority. This model claims that there are only three main strategies which a business can follow: Cost leadership Differentiation Focus

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Strategy 1: Cost Leadership: Company aims to produce in large quantities, at the lowest cost possible and sell at lower prices. Capitalise on economies of scale and keep prices to a minimum. Attract price-sensitive buyers

Strategy 2: Differentiation: This strategy involves offering some unique selling (service) proposition (USP) that the competition do not have. Prices may not be too important to buyers Customers become brand or product loyal For example smokers preferring specific brands or fashion designer companies etc. Another example could be that of a fashion company producing a diverse range of clothes to suit different requirements for different target sectors (military uniforms/ work wear / leisure).

Strategy 3: Focus: The company aims at very select market sectors and will be charging higher prices or offer special USPs. The company can concentrate on its key products for specific targets Acquire a reputation for being "specialist" They are, to some effect, niche marketers, e.g. Rolex watches, Rolls Royce cars

Portfolio Analysis Models

(a) Boston Consultancy Group Matrix (BCG) Using the variables of market share and market growth rates, planners can plot their products/SBUs onto a grid which will then suggest certain strategies that can be used. Boston Consultancy Group Matrix

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Knowing the age (stage) of the product in the market is not as simple as it sounds. To analyze this Boston Consulting Group (BCG) from the USA developed a well known product portfolio which relates market growth to market share It is sometimes called Boston Matrix and ties closely with the product life cycle The matrix places products into four categories

DOGS Products with low market share in low growth markets They do not generate cash; rather they tend to have high cash burn rate 15

The most common strategy for dogs is to divest-this involves selling of the product or ceasing production The best example is low growth market of video recorders-overtaken in the technology and sales stakes by the DVD player

CASH COWS Products with the high share of a low growth market These are often mature markets with well established products At this stage the product needs fresh injections of capital for example advertising and promotion The generated funds are possibly used to support other products

PROBLEM CHILDREN Also known as question mark & wild cats Products with low share of a high growth market They consume marketing resources and generate little income. They may, because the market is growing, become the stars or cash cows of the future if they can gain greater market share Increased marketing expenditures and attempting to build product awareness and brand image may be needed. STARS Products in high growth markets with a relatively high market share Stars often generate high amounts of income, but may need protecting from competitors Market leadership may not have been established in these markets, and companies will be fighting for market share and brand loyalty Nokia 3210 was a star product during the rapid growth period in the mobile phone market

Portfolio Strategies After positioning all products (SBUs) on the BCG matrix, the company must decide if it has a balanced portfolio. (Too many of any one type means it is unbalanced.) Strategies suggested by the BCG matrix can be one of four:

Build (for Question Marks) to increase share, even if it means giving up short-term profit Hold (for strong Cash Cows) to preserve share Harvest (for weak Cash Cows where the future is dim or for Question Marks and Dogs) to increase short-term cash flow regardless of long-term effects Divest (Dogs and Question Marks draining resources) to sell off, liquidate or delete an SBU or a product.

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BCG Matrix: Cash Position for Products

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Changes in Product/SBU Position The solid arrow shows the ideal route for any product, or SBU and the dotted line shows the possible route a Cash Cow can take. Because the BCG plots the current position of an SBU, or product, it can be used periodically to assess any changes in position. It can also be used to project future positions, either likely or preferred. Two products are shown as "planned" and two as "forecast". For "planned" positions, strategists will be taking the initiative in one way or another; for "forecast" positions, defensive or remedial action may be necessary. In either case it will be the marketing mix which is used to achieve the desired objectives .

General Electric Business Matrix (GE)

The GE matrix is an improvement on the previous models It takes into account not only the nature of the market, but also the capabilities of the company. SBUs are assessed in terms of the Attractiveness of the Industry and the Business Strengths of the company. Typical aspects which are taken into account are:

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Planner will give a score to each of the factors under consideration and then the total is taken as the point at which the SBU is placed on the grid. General Electric Business Matrix

Here circles represent the overall market sales whereas BCG circles represent the income for the company only. The share held by the company is then shown as a proportion of the circle.

We can see the characteristics of various products in a company's portfolio. The company has major shares in three markets: i) A highly attractive market, with a large overall market potential revenue; the company has high business strengths. The company is in a very strong position with this SBU.

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ii)

iii)

A market which is viewed as being mid position in attractiveness but the company has high business strengths. The overall market income is not major, in terms of the other SBUs, but activity could generate further interest which could increase the attractiveness of the market. Given the share held, this SBU could potentially be a future high earner for the company. A market which is not seen as being highly attractive coupled with the fact that the company does not have any high degree of business strength in that field. The fact that the company has such a major share of the overall market may indicate that the competition has withdrawn because of costs incurred, or some other reason, and the company has acquired share by default rather than activity. The market may be lucrative in terms of potential earnings but not attractive in terms of size hence the classification as a "medium attractive market".

Strategic Options
Strategic options for SBUs placed on the GE matrix cover three types of marketing management activity. Each strategy covers three of the nine cells as shown in Figure General Electric Matrix Strategies

i)

Investment for Growth This is a strategy for use with strong products in markets with high or medium attractiveness (similar to BCG Stars), where the company also has high or medium business strengths. Full resources should be used: innovations, product-line extensions, product/brand advertising, intensive distribution, good price margins, etc. Profitability expectations would be high. 20

ii) Manage Selectively for Earnings Strong position in weak market (like BCG Cash Cow); company uses marketing to retain loyalty. Moderate position in moderate market; company can identify underserved segments and invest on a selective basis. Weak position in attractive market (like BCG Question Mark); company must decide whether to increase investment, concentrate on the niche(s), acquire another business or trim off activities. iii) Harvest/Divest Here the SBUs are similar to BCG Dogs. The strategy can be to minimise marketing activities and concentrate on selected products rather than the whole range. They can divest products from the range, closing down or deleting an SBU which is seen as non productive or to have little future. Profits are "harvested" because investments are minimal.

Gap Analysis
The idea of gap analysis links up with portfolio analysis, which asks if you are offering the right products to the specific market segment. Markets change and it is usually necessary to change with them. For example the home music industry, this has gone from records to tapes and then to compact discs in a fairly short time. If you run a company that is still making records there is going to be a big gap to fill! New Product Development New Market Development Evaluating Services

However, in order to develop marketing strategy, it is important for marketers to evaluate the quality of services and a tool for doing this is call 'GAP'.

The GAP model identifies four levels of potential differences in expectations versus perception GAP 1 Difference between Customer Expectations and Managements Perception of Customer Expectations GAP 2 Difference between management's perception of customer expectations and the service specification GAP 3 Difference between the service specification and the delivered service GAP 4 Difference between what is the communicated to customers and what is delivered to customers

Measuring Customer Expectations

One of the difficulties with measuring customer expectations and perception of a service is that the customers may value different aspects of a service For example, of an airline customers may value the friendliness of the staff, the punctuality of the flight or the ease of check-in etc. The SERVQUAL model, therefore, provides us with a model for evaluating customer expectations. SERVQUAL assesses five dimensions of a service:

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(a) Reliability (i) Providing services as communicated (ii) Customer complaint handling (iii) Punctuality (iv) Getting things right first time (v) Keeping accurate records. (b) Responsiveness (i) Customer communication about delivery (ii) Promptness of response (iii) Willingness to assist customers (iv) Readiness to respond to requests from customers. (c) Assurance (i) Employees who instil confidence with customers (ii) Customers feeling safe during the transaction (iii) Courteousness of employees (iv) Knowledge of employees (d) Empathy (i) Individual attention to customers (ii) Caring attitude of employees (iii) Understanding needs of customers (iv) Acting in best interests of customers (v) Convenience of delivery. (e) Tangibles (i) Standard of equipment (ii) Standard of facilities (iii) Appearance of employees (iv) Standard of materials

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