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two
developing
marketing strategies
and a marketing plan
eople can grab a cup of coffee coffee should be a social experience.
P
LEARNING OBJECTIVES
virtually anywhere. Yet somehow Many stores have overstuffed chairs or LO1 Define a marketing strategy.
LO2 Describe the elements of a
Starbucks, Dunkin Donuts, and patio seating, as well as Wi-Fi access
marketing plan.
McDonalds have turned this common and multiple electrical outlets for cus- LO3 Analyze a marketing situation using
beverage into a market offering worth tomers working on computers. Over SWOT analyses.
pursuing. To accomplish this transfor- time, in addition to its brewed coffee and LO4 Describe how a firm chooses which
consumer group(s) to pursue with
mation, the three java giants have dis- espresso drinks, the company added its marketing efforts.
tinguished themselves using varied premade breakfast sandwiches, lunch LO5 Outline the implementation of the
marketing mix as a means to
marketing strategies aimed at slightly items, coffee-related merchandise and increase customer value.
different audiences. And thus the hum- accessories, branded beverages (e.g., LO6 Summarize portfolio analysis and
ble cup of coffee has become something Tazo, Ethos Water),1 and books, music, its use to evaluate marketing
performance.
much, much more. and films.
LO7 Describe how firms grow their
But the company has shifted away from business.
Starbucks. The international empire of its European caf ethos, increasingly cater-
more than 16,500 stores in 49 countries ing to coffee drinkers on the run. Fewer
that is Starbucks Coffee Company was Starbucks customers linger over coffee in
based on the idea that enjoying a cup of continued on p. 26
25
continued from p. 25 Straddling this middle position be-

tween upscale coffee drinkers and
the store;2 many take advan-
those content to grab a cup at a
tage of the stores drive-up
convenience store, Dunkin
windows. When the econ-
Donuts sells more than a
omy plunged, Starbucks
dozen different coffee
customers found it harder to
drinks, including flavored,
justify expensive coffee, which
iced, and blended bever-
helped create the opening for
ages, but it also keeps its
Dunkin Donuts and McDonalds.
prices low. The company re-
When these competitors rolled out
cently rolled out an iced dark
their iced beverages, Starbucks was in
roast that is bolder than
the midst of a massive restructuring,
Dunkin Donuts appeals to the average joe who demands a variety of other inexpensive coffees.
designed to return it to its earlier, more
coffee options atconveniently located stores.
The new blend is designed
successful business model.3 To retain cold
to appeal to men and attract the growing segment of coffee drink-
coffee customers, Starbucks improved its blended frappucino
ers who want their coffee to taste like coffee, not like ice cream.
drinks by offering them with soy milk, decaffeinated, and with
low-calorie syrups.
McDonalds. Known better for its Big Macs, McNuggets, and
Starbucks elected not to slash its prices to compete with
low prices, McDonalds Corp. is the most recent entrant into the
McDonalds and Dunkin Donuts though; instead, it plans to
coffee war. The company initiated its attack by improving its
create value for customers by reinventing its founding success
drip coffee and adding espresso drinks.6 More recently, it has
formula that emulated a European cafgreat cup-at-a-time
challenged Starbucks supremacy in the iced coffee drink
made coffee and a comfortable atmosphere. The company has
market by introducing its own blended coffee drinks and fruit
also mounted a social responsibility advertising campaign that
smoothies. This move came in response to the growing popu-
reminds consumers of its humanitarian and outreach programs,
larity of cold coffee drinks,7 which deliver a healthy profit
asking them to consider not just the price of their coffee but
margin to vendors.
also its global impact and cost.4 In addition, the company con-
stantly stresses that all coffee is not the same and that it uses
the best beans.
Dunkin Donuts. Dunkin Donuts sells 52 varieties of donuts and

other baked goods. But the majority of the companys profits now
come from its coffee drinks, of which it sells approximately 1 bil-
lion each year. With its nearly 9,000 stores in 31 countries,5
Dunkin Donuts positions itself as the coffee spot for the average
Joe, those customers who need breakfast and a caffeine hit on
their way to work rather than Wi-Fi and a sunny place to sit for
hours. The chain further distinguishes itself by promoting its
double-brewed coffee, which helps maintain the coffee flavor
McDonalds is on the attack against both Dunkin Donuts and
even when customers add milk, sugar, and ice. Starbucks for their share of the coffee market.
26 SECTION 1 | Assessing the Marketplace

marketing
strategy a firms target
market, marketing mix, and
continued from p. 26 and affluent than a typical Star-
method of obtaining a
By offering its drinks below competitors prices and in bucks shopper, so the company sustainable competitive
advantage.
the more family-oriented atmosphere of its 32,000 stores in has been careful not to appear too
8
117countries, McDonalds hopes to lure customers away from upscale, even as it offers drinks sustainable
competitive
Starbucks and Dunkin Donuts, as well as upsell some of its previously viewed as luxuries. In advantage something
its advertising, McDonalds mainly the firm can persistently
existing coffee-drinking clientele. It increased visibility for its
do better than its
new blended drinks by offering large fountain drinks for a dollar portrays its McCaf drinks as a competitors.
in the weeks around the introduction of the new beverages. 9 way to add fun to everyday life at
But McDonalds target audience in general is less educated an affordable price.10
Establishing a competitive advantage means that the firm,

in effect, builds a wall around its position in the market.
In this chapter, we start by discussing a marketing strategy, different marketing strategies. Although the chains customers all
which outlines the specific actions a firm intends to implement seek a good cup of coffee and a pastry, Starbucks attempts to reach
to appeal to potential customers. Then we discuss how to do a those who also want a coffee-drinking experience that includes a
marketing plan, which provides a blueprint for implementing nice, warm social atmosphere and personal baristas willing to
the marketing strategy. The chapter concludes with a discussion make their esoteric drinks. For these benefits, people are willing to
of strategies firms use to grow. pay relatively high prices. Dunkin Donuts customers, in contrast,
are not particularly interested in the experience. They want a
good-tasting cup of coffee at a fair price, and they want to get in
LO1 Define a marketing strategy.
and out of the store quickly. Finally, McDonalds offers a fine qual-
ity cup of coffee at a relatively low price, but it adds the benefit of
being available across the chains massive retail network and pro-
WHAT IS A MARKETING viding a more extensive food menu from which to choose.
STRATEGY? Building a Sustainable

A marketing strategy identifies (1) a firms target market(s),
(2) a related marketing mixits four Psand (3) the bases on Competitive Advantage
which the firm plans to build a sustainable competitive advan- What about these different sellers respective marketing mixes
tage. A sustainable competitive advantage is an advan- provides sustainable competitive advantages? After all, there are
tage over the competition that is not easily copied and thus can stores and restaurants that sell coffee and pastries in every
be maintained over a long period of time. A competitive advan- neighborhood (not to mention coffeemakers in virtually every
tage acts like a wall that the firm has built around its position in home) in which there is a Starbucks, McDonalds, or Dunkin
a market. This wall makes it hard for outside competitors to con- Donuts. Many of the alternatives offer great coffee and pastries.
tact customers insideotherwise known as the marketers target If one of the competitors lowered its prices, the others, as well as
market. Of course, if the marketer has built a wall around an at- the additional competition in the area, would likely match the
tractive market, competitors will attempt to break down the wall. reduction. If one company introduced a peppermint swirl cap-
Over time, advantages will erode because of these competitive puccino for the holiday season, other stores in the area could do
forces, but by building high, thick walls, marketers can sustain the same. Thus, just because a firm implements an element of
their advantage, minimize competitive pressure, and boost prof- the marketing mix better than the competition, it does not nec-
its for a longer time. Thus, establishing a sustainable competitive essarily mean that the advantage is sustainable.
advantage is key to long-term financial performance. Establishing a competitive advantage means that the firm, in
Starbucks, Dunkin Donuts, and McDonalds appeal to differ- effect, builds a wall around its position in the market. When the
ent target markets, and they implement their marketing mixes wall is high, it will be hard for competitors outside the wall to
(their four Ps) in very different ways. In essence, they have enter the market and compete for the firms target customers.
CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 27

E X H I B I T 2 . 1 Macro Strategies for Developing Customer a strong brand, unique merchandise, and superior customer
Value service all help solidify a loyal customer base. In addition, hav-
ing loyal customers is, in and of itself, an important method of
sustaining an advantage over competitors.
Loyalty is more than simply preferring to purchase from one
Operational firm instead of another.12 It means that customers are reluctant
excellence to patronize competitive firms. For example, loyal customers
Locational continue to shop at Dunkin Donuts even if Starbucks opens
excellence more convenient locations or provides a slightly superior as-
sortment or slightly lower prices.
More and more firms realize the value of achieving customer
excellence through focusing their strategy on retaining their
Customer value loyal customers. Starbucks doesnt think in terms of selling a
single cup of coffee for $2; instead, it focuses on satisfying the
customer who spends $25 per week, 50 weeks a year, for 10 years
or more. This customer isnt a $2 customer; hes a $12,500 cus-
tomer. Viewing customers with a lifetime value perspective, rather
than on a transaction-by-transaction basis, is key to modern
Customer
customer retention programs.13
excellence
Marketers use several methods to build customer loyalty.
Product
One such way involves developing a clear and precise position-
excellence
ing strategy. For instance, loyal Dunkin Donuts patrons have
such a strong attachment to its products that they would rather
go without than go to McDonalds.
Another method of achieving customer loyalty creates an
emotional attachment through loyalty programs.14 These loy-
Over time, all advantages get eroded by competitive forces,
alty programs, which constitute part of an overall customer re-
but by building high, thick walls, firms can sustain their advan-
lationship management (CRM) program, prevail in many
tage, minimize competitive pressure, and boost profits for a lon-
industries, from airlines to hotels to movie theaters to retail
ger time. Thus, establishing a sustainable competitive advantage
stores. With such programs, firms can identify members
is the key to positive long-term financial performance.
through the loyalty card or membership information the con-
There are four macro, or overarching, strategies that focus
sumer provides when he or she makes a purchase. Using that
on aspects of the marketing mix to create and deliver value and
purchase information, analysts determine which types of mer-
to develop sustainable competitive advantages, as we depict in
chandise certain groups of customers are buying and thereby
Exhibit 2.1:11
tailor their offerings to meet the needs of their loyal customers
Customer excellence: Focuses on retaining loyal customers better. For instance, by analyzing their databases, banks develop
and excellent customer service. profiles of customers who have defected in the past and use that
information to identify customers who may defect in the future.
Operational excellence: Achieved through efficient opera-
tions and excellent supply chain and human resource Once it identifies these customers, the firm can implement spe-
management. cial retention programs to keep them.
Product excellence: Having products with high perceived value Customer Service Marketers also may build sustainable
and effective branding and positioning. competitive advantage by offering excellent customer service,15
Locational excellence: Having a good physical location and though consistency in this area can prove difficult. Customer
Internet presence. service is provided by employees, and invariably, humans are
less consistent than machines. On every visit, for example, Star-
bucks must attempt to ensure that every single barista greets
Customer Excellence customers in a friendly way and makes drinks consistently. But
Customer excellence is achieved when a firm develops what happens when a barista comes to work in a bad mood or
value-based strategies for retaining loyal customers and pro- simply forgets to add nutmeg to a drink? Firms that offer good
vides outstanding customer service. customer service must instill its importance in their employees
over a long period of time so that it becomes part of the organi-
Retaining Loyal Customers Sometimes, the methods zational culture.
a firm uses to maintain a sustainable competitive advantage Although it may take considerable time and effort to build a
help attract and maintain loyal customers. For instance, having reputation for customer service, once a marketer has earned

customer operational
excellence involves a excellence involves a
focus on retaining loyal firms focus on efficient
customers and excellent operations and excellent
customer service. supply chain management.
by offering even better service, merchandise assortments, or

visual presentations.
Excellent Supply Chain Management and Strong

Supplier Relations Firms achieve efficiencies by devel-
oping sophisticated distribution and information systems as
well as strong relationships with vendors. Like customer rela-
tionships, vendor relations must be developed over the long
term and generally cannot be easily offset by a competitor.16
Furthermore, firms with strong relationships may gain exclu-
sive rights to (1) sell merchandise in a particular region, (2)
obtain special terms of purchase that are not available to com-
petitors, or (3) receive popular merchandise that may be in
short supply.
The supply chain for Netflix represented a remarkable inno-
vation when the company first started: With its 50 high-tech
distribution centers, it can get movies to 97 percent of its sub-
scribers overnight.17 When the DVDs arrive back at its facilities,
Netflix immediately sorts them for distribution to the next
Singapore Airlines continues to provide new and innovative customer

service offerings to stay ahead of its competition.
a good service reputation, it can sustain this advantage for a

long time, because a competitor is hard pressed to develop a
comparable reputation.
Operational Excellence
Firms achieve operational excellence, the second way to
achieve a sustainable competitive advantage, through their effi-
cient operations, excellent supply chain management, strong
relationships with their suppliers, and excellent human resource
management (which yields productive employees).
Efficient Operations All marketers strive for efficient op-

erations to get their customers the merchandise they want,
when they want it, in the required quantities, and at a lower de-
livered cost than that of their competitors. By so doing, they
ensure good value to their customers, earn profitability for
themselves, and satisfy their customers needs. In addition,
efficient operations enable firms either to provide their consum-
ers with lower-priced merchandise or, even if their prices are Some firms develop a sustainable competitive advantage
not lower than those of the competition, to use the additional through operational excellence with efficient operations and
margin they earn to attract customers away from competitors excellent supply chain management.

When Netflix receives DVDs from customers, they are immediately sorted and shipped to the next customer. Customers also have the option to receive
videos instantly via their iPad, TV, or computer.
customer, and it sorts its mailed bundles by zip code so the Product Excellence
U.S. Post Office doesnt have to do sowhich in turn earns
Product excellence, the third way to achieve a sustainable
Netflix a better shipping rate. The Case Study at the end of
competitive advantage, occurs by providing products with high
this chapter provides additional information about the methods
perceived value and effective branding and positioning. Some
Netflix has used to become a dominant player in the movie
firms have difficulty developing a competitive advantage
rental industry.
through their merchandise and service offerings, especially if
Human Resource Management Employees play a competitors can deliver similar products or services easily.
major role in the success of all firms. Those who interact with However, others have been able to maintain their sustainable
customers in providing services for customers are particularly competitive advantage by investing in their brand itself; posi-
important for building customer loyalty. Knowledgeable and tioning their product or service using a clear, distinctive brand
skilled employees committed to the firms objectives are critical image; and constantly reinforcing that image through their
assets that support the success of companies such as Southwest merchandise, service, and promotion. For instance, Bloomberg
Airlines, Whole Foods, and The Container Store.18 Businessweeks top global brandsCoca-Cola, Microsoft, IBM,
[ Employees who interact with customers in providing

services for customers are particularly important for
building customer loyalty.
]
JCPenney chairman and CEO Mike Ullman believes in the GE, Nokia, Toyota, Intel, McDonalds, Disney, and Mercedes
power of the employee for building a sustainable competitive are all leaders in their respective industries, at least in part be-
advantage.19 He has said, The associates are the first customers cause they have strong brands and a clear position in the
we sell. If it doesnt ring true to them, its impossible to com- marketplace.20
municate and inspire the customer. To build involvement and For 3M, innovation is the central rule of its corporate cul-
commitment among its employees, Penneys has dropped many ture; it spends approximately 6 percent of its sales on research
of the traditional pretenses that defined an old-style hierarchi- and development.21 Therefore, the company is well known for
cal organization. For instance, at the Plano, Texas, corporate developing the first audio tapes, Scotchgard, Post-It Notes,
headquarters, all employees are on a first-name basis, have a and so on, and customers know they can turn to 3M to solve
flexible workweek, and may attend leadership workshops in- their needs. For example, for all those people who store their
tended to build an executive team for the future. digital photographs on their computer and never print them,

product excellence marketing plan

involves a focus on achieving a written document
high-quality products; composed of an analysis
3M offers Post-It Photo Paper that can be stuck to any surface
effective branding and of the current marketing
for others to see. positioning is key. situation, opportunities
and threats for the firm,
Locational Excellence locational marketing objectives and
excellence strategy specified in terms
Locational Excellence is particularly important for retailers
a method of achieving of the four Ps, action
and service providers. Many say The three most important excellence by having a programs, and projected or
things in retailing are location, location, location. For example, strong physical location pro forma income (and other
most people will not walk or drive very far when looking to buy and/or Internet presence. financial) statements.
a cup of coffee. A competitive advantage based on location is
sustainable because it is not easily duplicated. Dunkin Donuts
and Starbucks have developed a strong competitive advantage developing its unique capabilities in several areas, Southwest
with their location selection. They have such a high density has built a very high wall around its position as the value player
of stores in some markets that it makes it very difficult for a in the airline industry.
competitor to enter a market and find good locations. But
McDonalds did not need to worry about finding new locations
when it entered the coffee battle; its stores already appear nearly
everywhere! check yourself
Multiple Sources 1. What are the various components of a marketing
strategy?
of Advantage
Southwest consistently has positioned itself as a carrier that 2. List the four macro strategies that can help
provides good service at a good valuecustomers get to their a firm develop a sustainable competitive
destination on time for a reasonable price without having to pay advantage.
extra for checked luggage. At the same time, its customers know
not to have extraordinary expectations. They dont expect food
service or seat assignments. But they do expectand even more LO2 Describe the elements of a marketing plan.
important, geton-time flights that are reasonably priced. By
THE MARKETING PLAN

Effective marketing doesnt just happen. By creating a
marketing plan, firms like Starbucks, McDonalds, and
Dunkin Donuts carefully plan their marketing strategies
to react to changes inthe environment, the competition,
and their customers. A marketing plan is a written
document composed of an analysis of the current mar-
keting situation, opportunities and threats for the firm,
marketing objectives and strategy specified in terms of
the four Ps, action programs, and projected or proforma
income (and other financial) statements.22 The three ma-
jor phases of the marketing plan are planning, implemen-
tation, and control.23
Although most people do not have a written plan that
outlines what they are planning to accomplish in the next
year, and how they expect to do it, firms do need such a
document. It is important that everyone involved in im-
plementing the plan knows what the overall objectives
for the firm are and how they are going to be met. Other
stakeholders, such as investors and potential investors,
also want to know what the firm plans to do. A written
3M has always provided customer value through, among other things, product marketing plan also provides a reference point for evalu-
excellence by developing innovative products like Post-It Notes. ating whether or not the firm has met its objectives.

planning phase
the part of the strategic
marketing planning process E X H I B I T 2 . 2 The Marketing Plan
when marketing execu-
tives, in conjunction with
other top managers,
Step 1: Business
(1) define the mission or
vision of the business and
mission & objectives
(2) evaluate the situation Planning
by assessing how various phase
players, both in and outside
Step 2: Situation analysis
the organization, affect the
firms potential for success.
vSWOT
implementation
phase the part of the
strategic marketing planning Step 3: Identify opportunities
process when marketing
managers (1) identify Segmentation Targeting Positioning
and evaluate different
opportunities by engaging in Implementation Marketing
segmentation, targeting, and phase strategy
positioning (see STP ) and Step 4: Implement marketing mix
(2) implement the marketing
mix using the four Ps.
Product Price Place Promotion
control phase
the part of the strategic
marketing planning process
when managers evaluate Control Step 5: Evaluate performance
the performance of the phase using marketing metrics
marketing strategy and take
any necessary corrective
actions.
A marketing plan entails five steps, depicted in Exhibit 2.2. marketers use to grow a business. Finally, we consider how
In Step 1 of the planning phase, marketing executives, in the implementation of the marketing mix increases customer
conjunction with other top managers, define the mission and/ value.
or vision of the business. For the second step, they evaluate the
situation by assessing how various players, both in and outside
the organization, affect the firms potential for success (Step 2).
Step 1: Define the Business
In the implementation phase, marketing managers identify Mission
and evaluate different opportunities by engaging in a process The mission statement, a broad description of a firms ob-
known as segmentation, targeting, and positioning (STP) (Step 3). jectives and the scope of activities it plans to undertake,24 at-
They then are responsible for implementing the marketing mix tempts to answer two main questions: What type of business
using the four Ps (Step 4). Finally, the control phase entails are we? What do we need to do to accomplish our goals and
evaluating the performance of the marketing strategy using objectives? These fundamental business questions must be an-
marketing metrics and taking any necessary corrective actions swered at the highest corporate levels before marketing
(Step 5). executives can get involved. Most firms want to maximize
As indicated in Exhibit 2.2, it is not always necessary to go stockholders wealth by increasing the value of the firms stock
through the entire process for every evaluation (Step 5). For in- and paying dividends.25 However, owners of small, privately
stance, a firm could evaluate its performance in Step 5, then go held firms frequently have other objectives, such as achieving a
directly to Step 2 to conduct a situation audit without redefining specific level of income and avoiding risks. (See Exhibit 2.3 for
its overall mission. several mission statement examples.) Nonprofit organizations
We will first discuss each step involved in developing a instead have nonmonetary objectives, like eliminating drunk
marketing plan. Then we consider ways of analyzing a mar- driving, encouraging research, or redressing educational ineq-
keting situation, as well as identifying and evaluating market- uities. In its mission statement, Starbucks explicitly recognizes
ing opportunities. We also examine some specific strategies that its quality coffee is as important as its impact on society.26

mission statement
a broad description of a
E X H I B I T 2 . 3 Mission Statements firms objectives and the
scope of activities it plans
MADDs mission is to stop drunk driving, support the victims of this violent crime, and prevent underage to undertake; attempts to
drinking. answer two main questions:
The Hudson Institute is a nonpartisan policy research organization dedicated to innovative research and What type of business is it?
analysis that promotes global security, prosperity, and freedom. What does it need to do to
accomplish its goals and
Teach for Americas mission is to build the movement to eliminate educational inequity by enlisting our
nations most promising future leaders in the effort. objectives?
Starbucks aims to inspire and nurture the human spiritone person, one cup and one neighborhood situation analysis
at a time. second step in a marketing
Dunkin Brands mission is to lead and build great brands. For more than 50 years, weve been doing just plan; uses a SWOT analysis
that by leading the Quick Quality segment of the food and beverage industry. Dunkin Brands goes that assesses both the
beyond what people expect from a traditional quick service experience to deliver best-in-class menu items internal environment with
to eat, drink, and enjoy. regard to its Strengths and
McDonalds wants to be our customers favorite place and way to eat. Our worldwide operations have Weaknesses and the
been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional external environment in
customer experiencePeople, Products, Place, Price and Promotion. We are committed to improving our terms of its Opportunities
operations and enhancing our customers experience. and Threats.
Sources: http://www.madd.org/About-us/About-us/Mission-Statement.aspx; http://www.hudson.org/learn/
index.cfm?fuseaction=mission statement; http://www.teachforamerica.org/mission/mission_and_approach.htm;
http://www.starbucks.com/about-us/company-information/mission-statement; http://www.dunkinbrands.com/aboutus/;
http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html.
Dunkin Brands mission statement is broader, to encompass in Exhibit 2.4. Although our discussion focuses on Starbucks,
both its Dunkin Donuts and Baskin Robbins businesses. marketing managers find it helpful to perform SWOT analyses
McDonalds has the most global mission, because its footprint for competing firms, like McDonalds and Dunkin Donuts. Be-
is worldwide. For all these firms, marketing is primarily re- cause a companys strengths (Exhibit 2.4, upper left) refer to
sponsible for enhancing the value of the companys offering for the positive internal attributes of the firm, in this example we
its customers and other constituents, whether in pursuit of a might include Starbucks international reputation as a quality
profit or not. Another key goal or objective often embedded in coffee purveyor. Furthermore, to sell its varied products, Star-
a mission statement is how the firm is building a sustainable bucks can rely on its massive retail store network of 16,000 lo-
competitive advantage. cations worldwide in 50 countries; five million customers per
day visit Starbucks worldwide, and the average customer visits
1215 times per month.27 Beyond the stores, Starbucks licenses
LO3 Analyze a marketing situation using SWOT analysis.
its brands to business partners that produce ready-to-drink
products, such as Frappuccino and Starbucks DoubleShot
drinks, and gourmet ice creams, which sell in grocery and
Step 2: Conduct a
Situation Analysis
After developing its mission, a firm should per-
form a situation analysis, using a SWOT
analysis that assesses both the internal environ-
ment with regard to its Strengths and Weak-
nesses and the external environment in terms
of its Opportunities and Threats. Additionally,
it should assess the opportunities and uncer-
tainties of the marketplace due to changes in
Cultural, Demographic, Social, Technological,
Economic, and Political forces (CDSTEP).
These factors are discussed in more detail in
Chapter 4. With this information, firms can an-
ticipate and interpret change, so they can allo-
cate appropriate resources.
Consider how a corporation like Starbucks
might conduct a SWOT analysis, as outlined What is the mission for a nonprofit organization like Mothers Against Drunk Driving (MADD)?

E X H I B I T 2 . 4 SWOT Analysis for Starbucks, McDonalds, and Dunkin Donuts
Environment Evaluation
Positive Negative
Starbucks Internal Stengths Weaknesses
Strong brand identity Reliance on joint ventures and licensed stores
Retail & grocery store network Rapid growth erodes customer experience
External Opportunities Threats
Expansion in China Potential saturation of the U.S. market
McDonalds Internal Strengths Weaknesses
Strong brand identity Sensitive to changing global markets
Global retail store network Price elastic target market
New product categories Future sourcing sustainability
Ronald McDonald house Customers nonacceptance of McCafe
Dunkin Donuts Internal Strengths Weaknesses
Strong regional brand identity Mass-market focused
Loyalty program Franchise inconsistency
Retail store growth in the U.S. Intense competition in the specialty and overall coffee market
Global retail expansion Economic instability for franchisees
convenience stores. These varied and plentiful retail locations fair-trade coffee and clean production conditions for coffee grow-
represent a significant strength that the company can leverage ers and beans. As the consumer environment appears poised to
to bring other products to market. become even more green, Starbucks existing socially responsi-
Yet every firm has its weaknesses, and Starbucks is no excep- ble practices may provide it an opportunity to appeal even more
tion. The weaknesses (Exhibit 2.4, upper right) are negative to environmentally conscious or green consumers.
attributes of the firm. Starbucks precipitous growth has Threats (Exhibit 2.4, lower right) represent the negative as-
called into question one of its original and primary benefits to pects of the companys external environment. For example, de-
consumersthe experience of watching their drinks being spite its expansion internationally, most Starbucks retail locations
made by hand by a professional barista. Starbucks started
grinding its espresso beans in advance and using auto-
matic espresso machines, which adversely affected the
stores ambiance and the coffees flavor. It also added
breakfast sandwiches, which many customers didnt like.
Starbucks took decisive action to deal with these weak-
nesses by concentrating its training efforts on providing a
more personal experience in the stores and tweaking
some of its recipes.28
Opportunities (Exhibit 2.4, lower left) pertain to posi-
tive aspects of the external environment. Among Star-
bucks many opportunities, the most significant may be its
ability to build its current brand and businesses. In 2009,
$110 million of Starbucks $562 million in profits came
from international business, and the huge, mostly un-
tapped Chinese market offers a remarkable opportunity for
enormous future growth.29 Starbucks already has grown
into an international brand but also has significant oppor-
tunities for much greater international expansion. In addi-
tion to such traditional growth, Starbucks continues to Starbucks strengths include a strong brand identity and a retail store and
emphasize its social responsibility, including its support of grocery network.

STP the processes of

segmentation, targeting,
and positioning that firms
firm first divides the marketplace
use to identify and evaluate
into subgroups or segments, deter- opportunities for increasing
mines which of those segments it sales and profits.
should pursue or target, and finally
decides how it should position its market segment
products and services to best meet a group of consumers who
the needs of those chosen targets. respond similarly to a firms
marketing efforts.
Segmentation Many types
of customers appear in any mar- market
ket, and most firms cannot satisfy segmentation
everyones needs. For instance, the process of dividing
among Internet users, some do the market into groups
of customers with different
research online, some shop, some
needs, wants, or
look for entertainment, and many characteristicswho
Threats to Starbucks marketing strategy and plan may include further
downturns in the U.S. economy, potential adverse health effects of coffee,
may do all three. Each of these therefore might appreciate
and increased competition. groups might be a market seg- products or services geared
ment consisting of consumers especially for them.
are in the United States, a market that some observers suggest who respond similarly to a firms
may be close to saturation. If U.S. demand were to drop, marketing efforts. The process of
whether because of economic conditions or shifts in the coffee dividing the market into groups
market, Starbucks would be in real trouble. Starbucks also of customers with different needs, wants, or characteristics
must keep abreast of any new research that suggests negative who therefore might appreciate products or services geared
health effects from caffeine. Perhaps even more pressing, com- especially for themis called market segmentation.
petitors such as Peets Coffee and Caribou Coffee continue to Lets look at Hertz, the car rental company (see Exhibit 2.5).
pursue Starbucks position as the market leader, while other Some of the segments that Hertz targets include single people
outlets like Dunkin Donuts and McDonalds offer similar and couples wanting to have a bit of fun (Hertzs Fun Collec-
products at lower prices. tion, including the Corvette ZHZ and Chevrolet Camaro); busi-
ness customers and families who prefer a luxurious ride (its
Prestige Collection, which features the Cadillac Escalade and
LO4 Describe how a firm chooses which consumer group(s) to
Infiniti QX56); environmentally conscious customers (Green
pursue with its marketing efforts.
collection of cars such as the Toyota Prius and Ford Fusion);
and families (SUV/Minivan collection). The company also of-
fers commercial vans for service customers.30 Thus, Hertz uses
Step 3: Identifying and a variety of demographicsgender, age, income, intereststo
identify customers who might want the Fun, Prestige, Green,
Evaluating Opportunities Using and SUV/Minivan collections, but it also applies psychological
STP (Segmentation, Targeting, or behavioral factors, such as a preference for style or a need to
and Positioning) move possessions across town, to identify likely consumers of
the Fun Collection and its commercial vans.
After completing the situation audit, the next step is to identify
and evaluate opportunities for increasing sales and profits using Targeting After a firm has identified the various market seg-
STP (segmentation, targeting, and positioning). With STP, the ments it might pursue, it evaluates each segments attractiveness
E X H I B I T 2 . 5 Hertz Market Segmentation
Segment 1 Segment 2 Segment 3 Segment 4 Segment 5
Segments Single people and Business customers Environmentally conscious Families Commercial customers
couples wanting to and families who prefer customers
have a bit of fun a luxurious side
Fun Collection Prestige Collection Green Collection SUV/minivan Commercial Van/Truck
& crossover
Cars Offered Corvette ZHZ Infiniti QX56 Toyota Prius Toyota Rav 4
Chevrolet Camaro Cadillac Escalade Ford Fusion Ford Explorer Ford Cargo Van

target marketing or
targeting the process
of evaluating the
and decides which to pursue using Market positioning involves the process of defining the
attractiveness of various
segments and then deciding
a process known as target mar- marketing mix variables so that target customers have a clear,
which to pursue as a market. keting or targeting. From our distinctive, desirable understanding of what the product does or
previous example, Hertz realizes represents in comparison with competing products. Hertz posi-
market that its primary appeal for the tions itself as a quality car (and truck) rental company that is the
positioning involves SUV/Minivan collection centers first choice for each of its target segments. In its marketing com-
the process of defining the on young families, so the bulk of munications, it stresses that customers will get peace of mind
marketing mix variables so its marketing efforts for this busi- when they rent from Hertz, the market leader in the car rental
that target customers have ness is directed toward that group. business, and be able to enjoy their journey (e.g., leisure con-
a clear, distinctive, desirable
Soft drink manufacturers also sumers) and reduce travel time (e.g., business consumers).31
understanding of what the
product does or represents
divide their massive markets into To segment the coffee drinker market, Starbucks uses a variety
in comparison with submarkets or segments. Coca- of methods, including geography (e.g., college campuses versus
competing products. Cola, for instance, makes several shopping/business districts) and benefits (e.g., drinkers of caf-
different types of Coke, including feinated versus decaffeinated products). After determining which
regular, Coke II, and Cherry of those segments represent effective targets, Starbucks positions
Coke. Among its diet colas, it targets Coke Zero to men and itself as a firm that develops a variety of products that match the
Diet Coke to women, because men prefer not to be associated wants and needs of the different market segmentsespresso
with diets. It also markets Sprite to those who dont like dark drinks, coffees, teas, bottled drinks, pastries, and cooler foods.
colas, Fruitopia and Minute Maid for more health-conscious After identifying its target segments, a firm must evaluate
consumers, and Dasani bottled water for purists. each of its strategic opportunities. A method of examining
which segments to pursue is described in the Growth Strategies
Positioning Finally, when the firm decides which segments section later in the chapter. Firms typically are most successful
to pursue, it must determine how it wants to be positioned when they focus on opportunities that build on their strengths
within those segments. relative to those of their competition. In Step 4 of the marketing
Hertz targets several markets. Its Fun Collection (left) appeals to single people and couples wanting to have fun, while its Prestige Collection (right)
appeals to its business customers and families who prefer a luxurious ride.

plan, the firm implements its marketing mix and allocates re- Step 4: Implement Marketing Mix
sources to different products and services.
With the growth of the Internet and the younger demo- and Allocate Resources
graphics of its core customer base, Unilevers Dove line of soaps When the firm has identified and evaluated different growth
and lotions has positioned itself to appeal to younger, Internet- opportunities by performing an STP analysis, the real action
savvy target markets using innovative marketing campaigns. begins. It has decided what to do, how to do it, and how many
(See Social and Mobile Marketing 2.1.) resources should be allocated to it. In the fourth step of the
planning process, marketers implement the actual marketing
mixproduct, price, promotion, and placefor each product
LO5 Outline the implementation of the marketing mix as a means
and service on the basis of what they believe their target
to increase customer value.
markets will value. At the same time, they make important
decisions about how they will allocate their scarce resources to
their various products and services.
Social & Mobile Marketing [2.1]

Spreading Positive Self-Esteem Online
In its efforts to build brand evangelists for its products, Dove has
attempted to harness the immense power of social media by en-
gaging young women in the education and development of positive
self-esteem. Doves mission statement reads to make more
women feel beautiful every day by widening stereotypical views of
beauty, and its campaigns fit that ideal by spanning a broad spec-
trum of target markets. Doves Movement for Self-Esteem has
touched 7 million young women and expected to reach 15 million by
2015.32 Lets consider a timeline of its efforts:
In 2003, the DOVE Campaign for Real Beauty began, developed
in response to The Real Truth About Beauty: A Global Report. This
report demonstrated that popular beauty images in the United
States were unattainable for most women. They prioritized thin-
ness, youth, and blond hair, leaving little room for anyone who fell
outside these borders.33 Dove uses the Internet to promote the notion that beauty should not
In 2006, Dove kicked off its online Real Beauty campaign by be defined by self-limiting stereotypes.
posting its Evolution video on YouTube. The campaign was one of
the most successful viral marketing campaigns ever; the first day, it andU.S. television only sold advertising spots in 30 or 60 second
prompted 40,000 views, and then reached 1.7 million views in the increments.
first month.34 The video demonstrated the distorted perception of In its ongoing efforts, Dove attempts to keep customers en-
beauty that resulted from advertising. In the online video, a model gaged with its brand by updating the campaign but following the
transforms from a normal-looking woman to a billboard pin-up after same mission. Dove invites consumers to join the Self-Esteem
undergoing hours of makeup. Even then, the image on the billboard movement and participate in activities that help young womens
gets altered by Photoshop. The video ends with a tagline: No won- self-esteem.36 Women interact with the brand by making a Self-
der our perception of beauty is distorted. Esteem bubble that contains words and images that make them
In 2007, Evolution won one of the most prestigious advertising happy, take quizzes about their body image, upload videos, use on-
awards, the Grand Prix for viral marketing at Cannes.35 According line editing tools, and vote on one anothers submissions. By talking
to Dove, it chose the Internet as its release platform for Evolution about how to build self-esteem and recognizing the fallacies that
because it freed the advertising team from time constraints. exist in advertising images, Dove hopes to improve the self-esteem
The marketers wanted to run a spot that was 74 seconds long, and lives of everyone.37

products anything that

is of value to a consumer
and can be offered through
a voluntary marketing Product and Value Creation
exchange. Products, which include services,
constitute the first of the four Ps.
metric a measuring Because the key to the success of
system that quantifies a any marketing program is the cre-
trend, dynamic, or ation of value, firms attempt to de-
characteristic. velop products and services that
customers perceive as valuable
enough to buy. Amazon.com, for
example, developed the first e-book reader, the Kindle, to en-
able customers to read anything they wanted to by downloading
it onto this new mobile reading device.
We have alluded to 3M and its well-known research and de-
velopment efforts. Adding Value 2.1 discusses how 3M creates
value for its customers by creating new products for them.
Price and Value Capture Recall that the second ele-

ment of the marketing mix is price. As part of the exchange pro-
cess, a firm provides a product or a service, or some combination
thereof, and, in return, it gets money. Value-based marketing Amazon.com developed the first e-book reader, the Kindle, a product that
requires that firms charge a price that customers perceive as has helped change the traditional book business and the way people read
giving them a good value for the product they receive. Clearly, it books forever.
[ A firm provides a product or a service, or some combination

thereof, and, in return, it gets money. ]
Adding Value [2.1] But these creative researchers cannot do it all on their own.
An obvious but still rather uncommon approach to matching prod-
uct development with customer needs is to involve customers in
Innovation at 3M the process of innovation.41 Corporate clients in particular are ex-
perts in their businesses; they know their demands better than
When a company pours billions of dollars into research and devel-
anyone. By interacting with these expert customers and combin-
opment, a struggling economy is a serious problem. If profits fall,
ing their needs with its own broad range of technical expertise
who has money for innovation, right? Not so for 3M. This longtime
and infrastructure, 3M produces novel solutions to difficult
innovator cites a multipronged mission that includes satisfying cus-
challenges.
tomers with innovative technology and superior quality, value, and
Many of these interactions take place at the companys cus-
service, as well as earning the admiration of all those associated
tomer innovation centers, where visitors outline their business
with 3M worldwide (among other goals).38 Its product offering
goals for 3M experts and tour the manufacturers core technolo-
spans an incredible range of categories, from health care and high-
gies. Exposure to these technologies, 3M has learned, helps stimu-
way safety to office and pet care products.39
late creative ideas about ways to combine or adapt existing
Because it remains constantly committed to providing useful,
science in one sector to provide solutions in another. A new tech-
new solutions to its customers, 3M continues to reinvest a signifi-
nology in aerospace, for example, could lead to a breakthrough in
cant percentage of its revenues in research.40 Furthermore, in line
health care. These innovation centers are so successful that 3M
with 3Ms commitment to value and develop our employees
has opened nearly two dozen, and companies like Hershey and
diverse talents, initiative, and leadership, it allows its researchers to
Pitney Bowes are following suit.
spend time pursuing their own interestssome of sciences most
important discoveries occur during unrelated research, after all.

partnering with media companies to

gain exclusive or early access to cer-
tain content.
Lets look at Starbucks four Ps. It
provides high quality coffee-based
drinks and foods with good service to
its customers. The drinks are priced
from $2 to $5, and the pastries and
sandwiches are $2 to $6. Starbucks
stores are conveniently located near
other retail stores and pedestrian traf-
fic. Starbucks communicates its com-
mitment to social responsibility and
to providing customers high quality
and excellent service via advertising
Amazons Kindle e-books provide its customers with a good valuewhat they get for what they have to pay for it. and social media.
is important for a firm to have a clear focus in terms of what Step 5: Evaluate Performance
products to sell, where to buy them, and what methods to use
in selling them. But pricing is the only activity that actually Using Marketing Metrics
brings in money by influencing revenues. If a price is set too The final step in the planning process includes evaluating the
high, it will not generate much volume. If a price is set too low, results of the strategy and implementation program using mar-
it may result in lower-than-necessary margins and profits. keting metrics. A metric is a measuring system that quantifies
Therefore, price should be based on the value that the cus-
tomer perceives. Amazons Kindle comes in two sizes, the
6-inch display and the 9.7-inch display priced at $259 and
$489, respectively. The larger Kindle has substantially more
storage capacity.
Place and Value Delivery For the third P, place, the

firm must be able, after it has created value through a product
and/or service, to make the product or service readily acces-
sible when and where the customer wants it. Amazon.com
sells its Kindle through its website and is now also selling it
in Target so that customers can try it out before buying it.42
As the e-reader market expands with many competitors in-
cluding Barnes & Nobles Nook, Sonys e-reader, and Apples
iPad, all are available in bricks and mortar stores. All of the
e-readers have their own e-bookstores where books, maga-
zines, and newspapers are available for sale and then instantly
downloadable.43
Promotion and Value Communication The fourth

and last P of the marketing mix is promotion. Marketers com-
municate the value of their offering, or the value proposition, to
their customers through a variety of media including television,
radio, magazines, sales forces, and the Internet.
Amazon currently has the largest e-bookstore (The Kindle
Store), with over 500,000 titles for customers to choose from, a
significant advantage worthy of promotion, giving them a
greater advantage from a pure reading point of view. Apples
iPad is the only e-reader that is also a multifunctional device
with Internet browsing, application usability, e-mail, and the like. Amazon promotes its Kindle e-book reader in advertisements like this to
Each of the e-readers is marketing its advantages. Some are communicate its attributes and value to its customers.

PROBLEMS CAN ARISE BOTH WHEN FIRMS

SUCCESSFULLY IMPLEMENT POOR STRATEGIES AND WHEN
THEY POORLY IMPLEMENT GOOD STRATEGIES.
a trend, dynamic, or characteristic. Metrics are used to explain Another method of assessing performance is to view the firms
why things happened, and to project the future. They make it products or services as a portfolio. Depending on the firms rel-
possible to compare results across regions, strategic business ative performance, the profits from some products or services
units (SBUs), product lines, and time periods. The firm can de- are used to fuel growth for others.
termine why it achieved or did not achieve its performance
goals with the help of these metrics. Understanding the causes Financial Performance Metrics Some commonly
of the performance, regardless of whether that performance ex- used metrics to assess performance include revenues, or sales,
ceeded, met, or fell below the firms goals, enables firms to make and profits. For instance, sales are a global measure of a firms
appropriate adjustments. activity level. However, a manager could easily increase sales by
Typically, managers begin by reviewing the implementation lowering prices, but the profit realized on that merchandise
programs, and their analysis may indicate that the strategy (or (gross margin) would suffer as a result. Clearly, an attempt to
even the mission statement) needs to be reconsidered. Problems maximize one metric may lower another. Managers must there-
can arise both when firms successfully implement poor strate- fore understand how their actions affect multiple performance
gies and when they poorly implement good strategies. metrics. Its usually unwise to use only one metric because it
rarely tells the whole story.
Who Is Accountable for Performance? At each In addition to assessing the absolute level of sales and profits,
level of an organization, the business unit and its manager a firm may wish to measure the relative level of sales and profits.
should be held accountable only for the revenues, expenses, For example, a relative metric of sales or profits is their increase
and profits that they can control. Thus, expenses that affect
several levels of the organization (such as the labor and capital
expenses associated with operating a corporate headquarters)
shouldnt be arbitrarily assigned to lower levels. In the case of a
store, for example, it may be appropriate to evaluate perfor-
mance objectives based on sales, sales associate productivity,
and energy costs. If the corporate office lowers prices to get rid
of merchandise and therefore profits suffer, then its not fair to
assess a store managers performance based on the resulting
decline in store profit.
Performance evaluations are used to pinpoint problem areas.
Reasons performance may be above or below planned levels
must be examined. Perhaps the managers involved in setting
the objectives arent very good at making estimates. If so, they
may need to be trained in forecasting.
Actual performance may be different than the plan predicts
because of circumstances beyond the managers controllike a
global recession. Assuming the recession wasnt predicted, or
was more severe or lasted longer than anticipated, there are sev-
eral relevant questions: How quickly were plans adjusted? How
rapidly and appropriately were pricing and promotional policies
modified? In short, did the manager react to salvage an adverse
situation, or did those reactions worsen the situation?
Performance Objectives and Metrics Many factors

contribute to a firms overall performance, which makes it hard
to find a single metric to evaluate performance. One approach
is to compare a firms performance over time or to competing Goodyear, one of the largest tire firms in the world, organizes its
firms, using common financial metrics such as sales and profits. strategic business units by geography.

strategic business
unit (SBU) a division of
E X H I B I T 2 . 6 Performance Metrics: Starbucks versus McDonalds the firm itself that can be
managed and operated
2009 2010 % Change somewhat independently
from other divisions and
Starbucks44 Net Sales $9.8B $10.7B 9% may have a different
Net Profit $894M $1,472B 53.5% mission or objectives.
Net Profit/Net Sales 9% 13.8% 51.6%
product line groups
45
McDonalds Net Sales $22.7B $24.1B 6.2% of associated items, such
Net Profit $4.5B $4.9B 8.9% as those that consumers
Net Profit/Net Sales 19.8% $20.3% 2.5% use together or think of as
part of a group of similar
Note: Dunkin Donuts is a private company so the sales and profits are unavailable. products.
market share
or decrease over the prior year. In addition, a firm may compare example, Goodyear is one of the percentage of a market
its growth in sales or profits relative to other benchmark com- largest tire firms in the world, sell- accounted for by a specific
panies (e.g., Coke may compare itself to Pepsi). ing its products on six continents entity.
The metrics used to evaluate a firm vary depending on in over 180 countries and with relative market
(1)the level of the organization at which the decision is made sales of over $16 billion. It has share a measure of the
and (2)the resources the manager controls. For example, while four SBUs that are organized by products strength in a
the top executives of a firm have control over all of the firms geography: North American Tire; particular market, defined
resources and resulting expenses, a regional sales manager has Europe, Middle East, and African as the sales of the focal
control only over the sales and expenses generated by his or her Tire; Latin American Tire; and Asia product divided by the
salespeople. Pacific Tire. 46 sales achieved by the
Lets look at Starbucks sales revenue and profits (after taxes) A product line, in contrast, is a largest firm in the industry.
and compare them with those of McDonalds (Exhibit 2.6). group of products that consumers
market growth
Clearly on the profits side, Starbucks is growing at the fastest may use together or perceive as rate the annual rate of
pace (53.5 percent versus 8.9 percent for McDonalds). How- similar in some way. One line of growth of the specific
ever, McDonalds profit as a percentage of sales is much higher product for Goodyear could be market in which the
(20.3percent versus 13.8 percent). As this exhibit demonstrates, car, van, SUV, and light truck while product competes.
it is important to look simultaneously at multiple performance another line could be racing tires
metrics. or aviation tires.
Furthermore, as the collective corporate consciousness of One of the most popular portfolio analysis methods, devel-
the importance of social responsibility grows, firms are start- oped by the Boston Consulting Group (BCG), requires that
ing to report corporate social responsibility metrics in major firms classify all their products or services into a two-by-two
areas, such as their impact on the environment, their ability to matrix, as depicted in Exhibit 2.7.47 The circles represent
diversify their workforce, energy conservation initiatives, and brands, and their sizes are in direct proportion to the brands
their policies on protecting the human rights of their employ- annual sales. The horizontal axis represents the relative market
ees and the employees of their suppliers. Ethical and Societal share.
Dilemma 2.1 examines how Starbucks is working to tackle In general, market share is the percentage of a market ac-
important societal issues. counted for by a specific entity48 and is used to establish the
products strength in a particular market. It is usually discussed
LO6 Summarize portfolio analysis and its use to evaluate marketing
in units, revenue, or sales. A special type of market share metric,
performance. relative market share, is used in this application because it
provides managers with a products relative strength, compared
to that of the largest firm in the industry.49
Portfolio Analysis In portfolio analysis, management The vertical axis in the matrix in Exhibit 2.7 is the market
evaluates the firms various products and businessesits growth rate, or the annual rate of growth of the specific mar-
portfolioand allocates resources according to which prod- ket in which the product competes. Market growth rate thus
ucts are expected to be the most profitable for the firm in the measures how attractive a particular market is. Each quadrant
future. Portfolio analysis is typically performed at the strate- has been named on the basis of the amount of resources it gen-
gic business unit (SBU) or product line level of the firm, erates for and requires from the firm.
though managers also can use it to analyze brands or even indi-
vidual items. An SBU is a division of the firm itself that can be Stars. Stars (upper left quadrant) occur in high-growth markets
managed and operated somewhat independently from other and are high market share products. That is, stars often require a
divisions and may have a different mission or objectives. For heavy resource investment in such things as promotions and new

ethical & societal dilemma [2.1]

into consideration, Starbucks attempts to programs around the world, in countries
Starbucks Working address historic preservation, environ- such as Bangladesh, Ethiopia, and Kenya.
to Make the Earth mental, infrastructure, job, and urban Thus far, it has contributed $6 million to help
revitalization concerns. For example, in solve the worlds water crisis, thereby aid-
a Better Place LaMesa, California, Starbucks overcame ing approximately 420,000 people who lack
To ensure it adds value to the broader soci- opposition by supporting local events and consistent access.51
ety that makes up its macroenvironment, businesses. In addition, it formed a joint Lack of water is not the only health
Starbucks rates its own corporate social venture with Johnson Development Corpo- worry facing people across the world. By
responsibility performance in five catego- ration (JDC) to develop urban coffee op- posting nutrition information in its stores,
ries: ethical sourcing, environment, com- portunities. By opening in diverse urban Starbucks attempts to aid in the effort to re-
50
munity, wellness, and diversity. Its brand areas, Starbucks helps stimulate economic duce the prevalence of obesity and diabe-
equity improves in response to its proactive growth in the areas by creating jobs, using tes among it consumers. According to one
efforts along these socially report, communicating this
responsible dimensions; information has prompted
customers feel good about Starbucks customers to
their buying experience, lower their calorie intake,
and Starbucks develops but not their purchase
stronger relationships with amounts. In contrast,
suppliers, both locally and Dunkin Donuts stores that
globally. post their nutrition informa-
With regard to its focus tion suffer significant losses
on ethical sourcing and in market share.52
sustainable coffee produc- To address the health
tion, Starbucks maintains and welfare of its own em-
its C.A.F.E. (Coffee and ployees (whom the com-
Farmer Equity) program. pany calls partners),
The C.A.F.E. guidelines in- Starbucks not only offers
clude a scorecard that generous health benefits
rates coffee farmers ac- packages but also has un-
cording to their product dertaken a Thrive Wellness
quality, economic account- Initiative (TWI) for its
On World Water Day, Starbucks sponsored walks to symbolize and raise awareness 145,000 partners. 53 The
ability, social responsibility, about the average length that women and children walk to get drinking water
and environmental leader- stated purpose of TWI is to
eachday.
ship. Third parties evaluate care for the well-being of
whether suppliers meet employees. For example,
Starbucks standards under the C.A.F.E. local suppliers, and attracting other retailers the newest portion of the TWI is Kinetix, a
program. In just a few years, suppliers from to the area. program that offers classes on nutrition and
13 different countries gained C.A.F.E. ap- Starbucks has also launched a program exercise, as well as eight weeks of ses-
proval. In turn, Starbucks increased the that focuses on the needs of the more than sions with a personal trainer.
amount of coffee that it purchased from 1 billion people globally who lack access to Finally, just as it expects its coffee pro-
verified suppliers, from 77 percent to 81 per- safe drinking water. On World Water Day, ducers to engage in environmentally
cent, on its way to its goal of having 100% Starbucks sponsors three-mile walks in friendly practices, Starbucks itself attempts
of our coffee certified or verified by an inde- many cities, as well as a virtual online walk, to use renewable energy and reduce its
pendent third party. to symbolize and raise awareness about the negative impact on the environment. Furni-
On a more local level, Starbucks some- average distance that women and children ture and fixtures in stores are made of
times experiences opposition from local walk to get drinking water each day. Star- sustainable building materials. As a mem-
communities that believe its stores will bucks Ethos Water brand contributes ber of the Sustainable Packaging Coalition,
ruin the historical ambiance of an area. 5 cents for each bottle of water sold in Starbucks also works to replace conven-
To take the needs of local communities Starbucks stores to humanitarian water tional packaging with green alternatives.

E X H I B I T 2 . 7 Boston Consulting Group Product Portfolio Analysis needed to complement or boost the
sales of another product or for com-
petitive purposes. In the case depicted
HIGH Relative market share LOW in Exhibit 2.7, the company has de-
HIGH cided to stop making Brand B.
Stars Question marks Although quite useful for concep-
tualizing the relative performance of
products or services and using this in-
A A formation to allocate resources, the
BCG approach, and others like it, is of-
ten difficult to implement in practice.
Market growth rate
In particular, it is difficult to measure

both relative market share and indus-
try growth. Furthermore, other mea-
sures easily could serve as substitutes
to represent a products competitive
position and the markets relative at-
B tractiveness. Another issue for market-
ers is the potential self-fulfilling
prophecy of placing a product or ser-
C vice into a quadrant. That is, suppose a
product is classified as a dog though it
has the potential of being a question
mark. The firm might reduce support
Cash cows Dogs for the product and lose sales to the
LOW
point that it abandons the product,
which might have become profitable if
provided with sufficient resources.
Because of these limitations, many
firms have tempered their use of ma-
production facilities to fuel their rapid growth. As their market
trix approaches to achieve a more balanced approach to evalu-
growth slows, stars will migrate from heavy users of resources to
ating products and services and allocating their resources.
heavy generators of resources and become cash cows.
Instead of assigning allocation decisions to the top levels of the
Cash Cows. Cash cows (lower left quadrant) are in low-growth organization, many firms start at lower management levels and
markets but are high market share products. Because these employ checks and balances to force managers at each level of
products have already received heavy investments to develop the organizational hierarchy to negotiate with those above and
their high market share, they have excess resources that can be below them to reach their final decisions.
spun off to those products that need it. For example, the firm
may decide to use the excess resources generated by Brand C to Strategic Planning Is Not
fund products in the question mark quadrant.
Sequential
Question Marks. Question marks (upper right quadrant) ap-
The planning process as we have discussed it (refer again to
pear in high-growth markets but have relatively low market
Exhibit 2.2) suggests that managers follow a set sequence
shares; thus, they are often the most managerially intensive
when they make strategic decisions. That is, after theyve de-
products in that they require significant resources to maintain
fined the business mission, they perform the situation analy-
and potentially increase their market share. Managers must de-
sis, identify strategic opportunities, evaluate alternatives, set
cide whether to infuse question marks with resources generated
objectives, allocate resources, develop the implementation
by the cash cows, so that they can become stars, or withdraw
plan, and, finally, evaluate their performance and make ad-
resources and eventually phase out the products. Brand A, for
justments. But in practice, actual planning processes can move
instance, is currently a question mark, but by infusing it with
back and forth among these steps. For example, a situation
resources, the firm hopes to turn it into a star.
analysis may uncover a logical alternative, even though this
Dogs. Dogs (lower right quadrant) are in low-growth markets alternative might not be included in the mission statement,
and have relatively low market shares. Although they may gen- which would mean that the mission statement would need to
erate enough resources to sustain themselves, dogs are not des- be revised. The development of the implementation plan
tined for stardom and should be phased out unless they are might reveal that insufficient resources have been allocated to

a particular product for it to achieve its objective. In that case,

the firm would need to either change the objective or increase
the resources; alternatively, the marketer might consider not
investing in the product at all.
Now that we have gone through the steps of the marketing
plan, lets look at some growth strategies that have been respon-
sible for making many marketing firms successful.
check yourself
1. What are the five steps in creating a marketing
plan?
2. What tool helps a marketer conduct a situation
analysis?
3. What is STP?
LO7 Describe how firms grow their business.
GROWTH STRATEGIES
Firms consider pursuing various market segments as part of
their overall growth strategies, which may include the four major
strategies shown in Exhibit 2.8.54 The rows in the exhibit distin-
guish those opportunities a firm possesses in its current markets
from those it has in new markets, whereas the columns distin-
guish between the firms current marketing offering and that of a MTV provides a dedicated forum and blog so fans can discuss The Hills
new opportunity. Lets consider each of the strategies in detail. stars Kristin Cavallari and Lauren Bosworth.
E X H I B I T 2 . 8 Market/Product and Services Strategies

Market Penetration
PRODUCTS AND SERVICES A market penetration strategy employs the
existing marketing mix and focuses the firms ef-
Current New
forts on existing customers. Such a growth strategy
might be achieved by attracting new consumers to
the firms current target market or encouraging
Current
Market Penetration Product Development

current customers to patronize the firm more often
or buy more merchandise on each visit. A market
penetration strategy generally requires greater
marketing efforts, such as increased advertising
MARKETS
and additional sales and promotions, or intensified

distribution efforts in geographic areas in which
the product or service already is sold.
To penetrate its target market, TV network
New
Market Development Diversification MTV found that it needed new ways to engage its
viewers. The young audience to which MTV tradi-
tionally appeals now consists of text-messaging,
video-gaming multitaskers who no longer accept
plain video programming on their televisions.

market penetration market product

strategy a growth development development
strategy that employs the strategy a growth strategy a growth
Thus, the network is working hard to develop
existing marketing mix and strategy that employs the strategy that offers a new
additional strategies and outlets to retain focuses the firms efforts on existing marketing offering product or service to a
viewers, as well as to encourage them to spend existing customers. to reach new market firms current target market.
more time interacting with its content. MTV segments, whether
discovered that interactions with the audience domestic or international.
through alternative channels increase ratings
for the show. Therefore, in addition to pro-
ducing and airing reality shows such as The
Hills, MTV has a virtual community (virtual.mtv.com), in to sandals, French fries to rice, and credit cards to cash. To
which fans of the show may create an avatar, shop to outfit that achieve such growth, MTV leveraged its existing media con-
avatar, and design a crib in Lauren Conrads Design studio. tent but also delivers culturally relevant content using local DJs
By providing The Hills fans with a dedicated forum, blog, and and show formats.
activities, MTV encourages them to connect and debate about
the drama between Heidi and Spencer, Kristin Cavallari and Product Development
Brodie, and Audrina and Justin. Not only can viewers talk about
The third growth strategy option, a product development
the characters as if they were friends, but they can buy the prod-
strategy, offers a new product or service to a firms current
ucts they wear and download the music played during the
55 target market. Consider MTVs dynamic lineup: The network
show.
constantly develops new pilots and show concepts to increase
the amount of time viewers can spend watching MTV. For ex-
Market Development ample, each version of The Real World reality series and new
A market development strategy employs the existing series such as Jersey Shore and Im Hustling the Hamptons repre-
marketing offering to reach new market segments, whether sent new programs designed to attract and retain existing viewers.
International expansion generally is riskier than domestic

expansion because firms must deal with differences in government
regulations, cultural traditions, supply chains, and language.
domestic or international. International expansion generally is

riskier than domestic expansion because firms must deal with
differences in government regulations, cultural traditions, sup-
ply chains, and language. However, many U.S. firms, including
MTV, enjoy a competitive advantage in global marketssuch
as Mexico, Latin America, Europe, China, and Japanbecause,
especially among young people, American culture is widely
emulated for consumer products.
For example, because of rising prosperity worldwide and
rapidly increasing access to cable television that offers U.S. pro-
gramming, fashion trends from the United States have spread
to young people in emerging countries. Since its founding in
1981, MTV has expanded well beyond the United States, with
niche sites in more than 20 countries, including the United
Kingdom, Japan, Brazil, and India. It is available in 440 million
households in 150 countries and 28 languages.56 And thus, the Using a product development growth strategy, MTVs The Hills target
global MTV generation prefers soft drinks to tea, athletic shoes market is attracted to new MTV programming and online blogs.

diversification related unrelated

strategy a growth diversification diversification
strategy whereby a firm a growth strategy whereby a growth strategy whereby
opportunity.58 In other words, the firm might
introduces a new product the current target market a new business lacks any
or service to a market and/or marketing mix common elements with the
be able to purchase from existing vendors,
segment that it does not shares something in present business. use the same distribution and/or manage-
currently serve. common with the new ment information system, or advertise in the
opportunity. same newspapers to target markets that are
similar to their current consumers. MTV has
pursued a related diversification by introduc-
ing TV series that focus, instead of on wealth,
Along with its new TV series, MTV develops new online prod- celebrities, and excessive youth culture (e.g., The Hills, My
ucts to engage consumers through more than 25 niche blogs, as Super Sweet 16), on more positive social messages. Its new se-
well as websites that it uses to dominate a greater share of view- ries, The Buried Life, still should appeal to viewers of The Hills,
ers minds and time. These various MTV-branded niche sites because it stars popular television celebrities. However, the
pertain to social, political, and environmental issues that appeal plotlines of the show revolve around how these stars help un-
to different segments in its target market. The sites further derprivileged groups. Nick Lachey, formerly the lead character
encourage viewers to get involved in real-world issues (not The in Newlyweds, now appears on Taking the Stage, a reality series
Real World issues), such as digital disrespect through mobile that considers the efforts and struggles of students in a per-
technologies. By visiting the sites, MTV promises that consum- forming arts school in Cincinnati.59
ers can share mobile content, educate themselves, and take In contrast, in an unrelated diversification, the new
action on important issues.57 business lacks any common elements with the present busi-
ness. Unrelated diversifications do not capitalize on core
strengths associated either with markets or with products.
Diversification Thus, they would be viewed as being very risky. Revisiting
A diversification strategy, the last of the growth strategies our example of the technology innovation company 3M, we
from Exhibit 2.8, introduces a new product or service to a find an excellent and successful example of unrelated diversi-
market that currently is not served. Diversification opportuni- fication strategies: What began as a sandpaper products com-
ties may be either related or unrelated. In a related diversi- pany now markets its products in six major business
fication opportunity, the current target market and/or segments, from consumer office supplies to orthodontic
marketing mix shares something in common with the new technologies.60
MTV creates new shows by pursuing a related diversification strategy. The stars of The Buried Life,
Ben Nemtim, Dave Lingwood, Duncan Penn, and Jonnie Penn, are already popular MTV celebrities.

check yourself
1. What are the four growth strategies?
CHECK IT OUT!
2. What type of strategy is growing the business
mhhe.com/GrewalM3e
from existing customers? for study materials
3. Which strategy is the riskiest? including quizzes,
iPod downloads,
and video

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eople can grab a cup of coffee coffee should be a social experience.

continued from p. 25 Straddling this middle position be-

Dunkin Donuts. Dunkin Donuts sells 52 varieties of donuts and

26 SECTION 1 | Assessing the Marketplace

Establishing a competitive advantage means that the firm,

STRATEGY? Building a Sustainable

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 27

28 SECTION 1 | Assessing the Marketplace

by offering even better service, merchandise assortments, or

Excellent Supply Chain Management and Strong

Singapore Airlines continues to provide new and innovative customer

a good service reputation, it can sustain this advantage for a

Efficient Operations All marketers strive for efficient op-

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 29

[ Employees who interact with customers in providing

30 SECTION 1 | Assessing the Marketplace

product excellence marketing plan

THE MARKETING PLAN

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 31

32 SECTION 1 | Assessing the Marketplace

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 33

E X H I B I T 2 . 4 SWOT Analysis for Starbucks, McDonalds, and Dunkin Donuts

34 SECTION 1 | Assessing the Marketplace

STP the processes of

E X H I B I T 2 . 5 Hertz Market Segmentation

Segment 1 Segment 2 Segment 3 Segment 4 Segment 5

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 35

36 SECTION 1 | Assessing the Marketplace

Social & Mobile Marketing [2.1]

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 37

products anything that

Price and Value Capture Recall that the second ele-

[ A firm provides a product or a service, or some combination

38 SECTION 1 | Assessing the Marketplace

partnering with media companies to

Place and Value Delivery For the third P, place, the

Promotion and Value Communication The fourth

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 39

PROBLEMS CAN ARISE BOTH WHEN FIRMS

Performance Objectives and Metrics Many factors

40 SECTION 1 | Assessing the Marketplace

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 41

ethical & societal dilemma [2.1]

42 SECTION 1 | Assessing the Marketplace

In particular, it is difficult to measure

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 43

a particular product for it to achieve its objective. In that case,

LO7 Describe how firms grow their business.

E X H I B I T 2 . 8 Market/Product and Services Strategies

Market Penetration Product Development

and additional sales and promotions, or intensified

44 SECTION 1 | Assessing the Marketplace

market penetration market product

International expansion generally is riskier than domestic

domestic or international. International expansion generally is

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 45

diversification related unrelated

46 SECTION 1 | Assessing the Marketplace

CHAPTER 2 | Developing Marketing Strategies and a Marketing Plan 47

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