MANAGING THE STRATEGIC MARKETING PROCESS

MANAGING THE STRATEGIC MARKETING PROCESS André TOYE - ISCID - Université du Littoral 02-2003 This notes form the basic text for the given course. They are largely based on extracts from the book `Strategic Marketing' of J-J Lambin. Other contributions are issued from our own research and experience as well as references token from books as 'Competitive Marketing' by J. O'Shaughnessy, 'International Marketing' by S. Majaro, 'Industriële Marketing' by R. G. Ogilvie, and the strategic course of prof. P. Verdin (INSEAD) : "Des champions locaux aux maîtres de l'économie globale". We recommend the students to enrich their knowledge by consulting those references.

Table des matières

INTRODUCTION CHAPTER 1: THE ROLE AND PLACE OF MARKETING 1. The ideological foundations of marketing 2. The role of marketing in the firm 3. The why of strategic marketing 4. Types of Marketing Strategies 5. The place of marketing; background concepts 6. The Matrix Approach CHAPTER 2: THE STRATEGIC SEGMENTATION 1. Macro-segmentation analysis 2. Micro-segmentation analysis 3. Implementation of a segmentation strategy 4. Summary CHAPTER 3: THE COMPETITIVE STRUCTURE ANALYSIS 1. The various levels of competition 2. The notion of competitive advantage 3. Forces driving industry competition 4. The dynamics of competition 5. Conclusion

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CHAPTER 4: MARKET ATTRACTIVENESS: ANALYSIS & STRATEGIES 1. Growth opportunity analysis 2. The product life cycle 3. The BCG growth-share matrix 4. The multi-factor portfolio matrix: Mc Kinsey- GE grid 5. The A.D.L business life-cycle approach 6. How to set strategic objectives: The Ansoff matrix 7. Conclusion CHAPTER 5: THE MARKETING-MIX AND THE STRATEGIC OPTIONS 1. Which Products shall we offer, and to Whom? 2. Clarifying attitude to Pricing 3. Persuasive Communication 4. The Distribution Scene CHAPTER 6: THE WAY TO STRATEGIC & OPERATIONAL MARKETING PLANNING 1. The planning as marketing management backbone 2. Overview of strategic planning 3. A step-by-step Marketing Planning 4. Objectives and action programmes 5. Overview of the planning system CONCLUSION QUESTION & EXERCISE

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Introduction: THE STRATEGIC WAY OF THINKING

The management literature offers a large variety of definitions for "the strategy" of an enterprise. We will define a strategy as follows: - "Study and select the domains of activity in which the enterprise wants to be present and allocate the needed resources as to maintain its profitable position and assure the continuity." This definition identifies two strategic levels: • The corporate strategy that determines the domains of activity. It is this strategy that drives the enterprise to enter into such or such sector or to withdraw from one or another, in order to build a well balanced activity portfolio • The business strategy adapted to each of the sectors of activity. This strategy defines the manoeuvres that an enterprise has to accomplish in order to position itself favorably among its competitors in a given sector. This definitions show clearly that what really makes the strategy is not the kind of speeches done by the leaders, but is reflected by the actual choices made in the allowance of resources and the decisions of investments or disinvestments. The first models of strategic analysis came from the USA. Although these models appear today as a bit simplistic, it is useful to recall their logic that anyway still supports the more recent approaches. The basic model confronts the enterprise to its competitive environment while measuring the need to adapt competences and resources to the constraints imposed by the environment. This confrontation between internal analysis (of the enterprise) and external analysis (of the competitive environment) has been represented as follows: EXTERNAL ANALYSIS

INTERNAL ANALYSIS

OPPORTUNITIES –THREATS

STRENGTHS- WEAKNESSES

STRATEGIC OPTIONS

FUNCTIONAL POLICIES • Production • Marketing • Finance • Human resources (know-how + R&D)

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Based on the assessment of strengths and weaknesses of the enterprise on the one hand, and the identification of opportunities and threats present in the environment on the other end, this model is also known under the acronym «SWOT». The more recent developments are derived from this basic model and propose more formal methods of external and internal analysis as well as manners to link the conclusions from these analyses with the possible strategic choices. The basic model is very suitable to define the business strategies. Various counselors and 'gurus' have since formalized the analysis of corporate strategies. During the 15 latest years many models, methods and concepts have been developed and their approach present a set of five big steps: 1. Strategic segmentation This first stage aims to identify, within the global activity of the enterprise that presents most of the time a fussy patchwork of products, markets, technologies and production tools, the homogeneous clusters for which he formulation of a sound strategy, and the justified allowance of resources, will enable the construction of a successful operation. 2. Competitive analysis It is necessary, for each of the defined segments of activity, to analyze the intrinsic features (growth, potential of development, rate of profitability, value, attractiveness...), as to determine the main elements that are driving the business (rivalry between competitors, pressure of suppliers or customers, threat of newcomers, similar products or substitutes, public intervention...) and to identify the essential competitive factors. 3. Look for a competitive advantage For each of the considered sectors of activity, and taking into account the results of the competitive analysis, one has to work out a suitable strategy allowing the enterprise to build a lasting competitive advantage. The two main foreseeable strategies, often qualified of «generic strategies», are: • The cost leader strategy, by which the enterprise tries to insure a permanent cost advantage versus its competitors. Having and using a large production capacity is often the origin of lower cost. This strategy is often assimilated to a “volume strategy” • The differentiation strategy, by which the enterprise tries to produce a specific offer quite different from its competitors and avoiding a rivalry solely founded on costs and prices. 4. Strategic development To accelerate growth, increase potential of development, reduce risks, or make better use of the available resources, an enterprise can enter new domains of activity. Various «ways of strategic development» are possible; • the upstream or downstream integration • the geographical diversification or globalization (new markets) • the functional diversification (new products) • the conglomerate diversification. These developments can be realized through internal or external growth (fusions, alliances, acquisitions, etc... ). 5. Managing a diversified portfolio of activities Once an enterprise acts in various sectors comes the problem of how to manage the span of activities. The «portfolio models» facilitate such a global approach. They put the

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accent on two main features in order to see if the activities of the enterprise form a balanced and coherent whole: • the value and attractiveness of the activity domains considered • the competitive position of the enterprise on each of these domains If there is a lack of coherence, these models help to formulate a real “portfolio strategy”. The five steps of the _global strategic analysis can be recalled as follows: 1: definition of the domains of activities or strategic segments of the enterprise. 2: competitive analysis of each of the activity domains. 3: choice of a generic strategy for each identified domain. 4: determination of the strategic development ways towards new activities. 5: managing a diversified portfolio of activities. The first step in this strategic analysis frame permits to go from the corporate level to the business level. The second and third steps are dedicated exclusively to business strategy. The fourth step brings us back to the corporate level which is also the perspective adopted in the fifth step. This approach is linked to logic of free economy and free competition. However the observation of the real behavior of the economic actors reveals that many enterprises evolve in a less competitive environment. This dimension, not taken in account in the classic models, can be qualified as 'relational'. Indeed, the privileged relations established with various economic partners (State, competitors, shareholders, unions...) can protect the enterprise and back it out of the dangers of fierce competition. Competitive analysis

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Chapter 1: THE ROLE & PLACE OF MARKETING

The overall structure is summarized in Figure 1.1. In the first chapter, we introduce a distinction between operational marketing (the action dimension) and strategic marketing (the analytical and philosophy dimension). Figure 1.1: The marketing process

In the new Macro-environment, marketing is confronted with challenging roles and priorities that require a reinforcement of strategic marketing and the adoption of a market orientation within the entire organization. - Strategic marketing, to begin with, sets the place, recognizing the needs of individuals and organizations and proposing elements to respond to and to satisfy the demand. The role of strategic marketing is to settle the firm's reference market and identify various potential markets or segments. Once the product-markets are identified, a choice is to be made on base of their attractiveness and the economic opportunities. For any given firm, the will to be present in a certain product-market depends on its competitiveness, in other words, on its

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capacity to meet buyers' needs better than its rivals can. Based on a strategic audit, the market-driven firm can formulate an appropriate long term marketing strategy for each chosen segment or business units which compose its product-market portfolio. - Operational marketing is the firm's commercial and action-oriented process. It is the classic process of achieving a targeted market share through the use of tactical means related to the product-, distribution-, price- and communication decisions: the four Ps or marketing mix as it is called in professional jargon The vigour of operational marketing is a decisive factor in the performance of the firm, especially in markets where competition is fierce. However, it is also clear that without solid strategic options, there can be no ultimately profitable operational marketing. No matter how powerful an operational marketing plan is, it cannot create sales where there is no need, neither can't it keep alive activities doomed to disappear. Hence, in order to be profitable, operational marketing must be founded upon a sound strategic design, which is itself based on the recognition of needs in the market and its expected evolution. In today's environment, no one really argues with the importance of marketing. Despite this general agreement, many firms are simply paying lip service to the concept and are still limiting marketing to its operational dimension. Understanding marketing is one thing, but sustaining its importance in commitment and implementation is quite another. Marketing is both a business philosophy and an action-oriented process. In a first phase we will describe the system of thought: to clarify the ideological foundations of marketing and their main implications regarding the firm's operations and organization. As an active process, marketing runs a number of tasks necessary to the smooth functioning of a market economy. A second objective yet is to describe these tasks, whose importance and complexity have evolved with changes in technology, economics, competitiveness and the international environment. Within this framework we shall examine the implications of these environmental changes for the management, and marketers. 1. THE IDEOLOGICAL FOUNDATIONS OF MARKETING The term marketing is a heavily loaded word, debated and often misunderstood, not only by its detractors, but also by its proponents. Three popular meanings recur regularly: • Marketing is advertising, promotion and hard selling, in other words a set of particularly aggressive selling instruments used to penetrate existing markets. In this first, very mercantile, sense of the word, marketing is viewed as mainly applicable to mass consumer markets and much less to more sophisticated sectors, such as high technology, financial services, public administration, and social or cultural services. • Marketing is a set of market analysis tools, such as sales forecasting methods, simulation models and market research studies, used to develop a prospective and more scientific approach to needs and demand analysis. Such methods, often complex and costly, are considered to be only available to large enterprises, leaving out small and medium-sized ones. The image projected is often that of unnecessarily sophisticated tools, entailing high costs and little practical value. • Marketing is the hype, the architect of the consumer society in an economic system where sellers commercially exploit individuals. It is necessary to create new needs continuously, in order to sell more and more. Consumers become alienated from the seller, just as workers have become alienated from the employer. Behind these somewhat oversimplified views there are three characteristic dimensions to the concept of marketing: an active aspect (the penetration of markets), an analytic aspect (the understanding of markets) and an ideological aspect (a state of mind). The tendency is however to reduce marketing to its active dimension -that is, to a series of

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sales techniques (operational marketing)- and to underestimate its analytic dimension (strategic marketing). Implicit in this vision of the role of marketing is the idea that marketing and advertising are omnipotent, that they are capable of making the market accept anything through powerful methods of communication. Such hard selling methods are often devised independently of any desire to satisfy the real needs of buyers. The focus is on the needs of the seller in order to achieve a sale. The myth of the supremacy of marketing is a persistent theme, despite the fact that there exists abundant proof to the contrary. For example, the high proportion of new products and brands that have failed prove at least the capacity of the marks is resistance to the allegedly seductive powers of producers. The principle of consumer sovereignty Although the misunderstandings described above goes very deep, the theory or ideology that is the basis of marketing is totally different. The philosophy at the base of marketing -what may be called the marketing concept- rests in fact on a theory of individual choice through the principle of consumer sovereignty. In this framework, marketing is nothing more than the social expression of the principles advocated by classical economists and translated into operational rules of management. These principles form the basis of the market economy and can be summarized as follows: "Society's well-being is the outcome, not so much of altruistic behavior, but rather of matching the buyer and seller's self-interest through competitive exchange." Starting from the principle that the pursuit of personal interest is an unfailing tendency in most human beings -which might be morally regrettable but remains a fact- the earlier economists suggested to accept people as they are, but enhance the development of a system that would make egocentric individuals contribute to the common good despite themselves. This is then the system of voluntary and competitive exchange, administered by the invisible hand, or the selfish pursuit of personal interests which in the end serves the interests of all. Although in modern economies this basic principle has been amended with regard to social (solidarity) and societal (external effects, collective goods, government regulations) issues, it nevertheless remains the main principle driving the economic activity of a successful firm operating in a freely competitive market. Furthermore, it is now clearer than ever, that those countries that rejected the basic free economical ideas are now discovering, to their cost, that they have regressed economically. The relative recent turmoil in Eastern Europe and in the republics of the former Soviet Union gives a clear illustration of this. At the roots of the market economy we find four central ideas. These seem simple, but have major implications regarding the philosophical approach to the market: • Individuals strive for rewarding experiences; it is the pursuit of their self-interest that drives individuals to produce and to work. This quest the engine of growth, of individual development, and eventually determines the overall well-being. • Individual choice determines what is rewarding. This varies according to tastes, culture, values etc. Apart from respecting the ethical, moral and social rules imposed by society, no other judgment is implied as to the value or the triviality of this choice, or what might be regarded as 'true' or 'false' needs. The system is pluralistic and respects the diversity of tastes and preferences. • It is through free and competitive exchange that individuals, and the organizations they deal with, will best realize their objectives. When exchange is free, it only takes place if its terms generate utility for both parties; when it is competitive, the risk of producers making abuse of their market power is limited.

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• The mechanisms of the market economy are based on the principle of individual freedom, and more particularly on the principle of consumer sovereignty. The moral foundation of the system rests on recognition of the fact that individuals are responsible for their own actions and can decide what is or is not good for them. The fields of marketing Marketing is rooted in these four principles. This gives rise to a philosophy of action valid for any organization serving the needs of a group of buyers. The areas of marketing can be subdivided into three main fields: • Consumer marketing, where transactions are between companies and the endconsumers, individuals or households. (B to C) • Organizational or business-to-business marketing, where the two parties in the exchange process are organizations. (B to B) • Social marketing, which covers the field of activity of non-profit organizations such as museums, universities etc. (P to C) The approach implies that all activity within the organization must have the satisfaction of its users' needs as its main objective. Given that this is the best way of achieving its own goals of growth and profitability, it is not altruism, but the organizations' self-interest that dictates this course of action. This is the ideology on which marketing is based. One can imagine that there may be a large gap between what marketing claims to be and what it is in reality. Nevertheless, the successful firm must pursue the ideal of marketing. It may be a myth, but it is a driving myth, which must continuously guide the activities of the firm. As already mentioned earlier, the application of this philosophy of action assumes a twofold approach on the part of the firm (see Figure 1.2). Figure 1.2: The two faces of marketing

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• The objectives of strategic marketing typically include a systematic and continuous analysis of the needs and requirements of key customer groups and the design and production of a product or service package that will enable the company to serve selected groups or segments more effectively than its competition. In serving these objectives, a firm is ensured a sustainable competitive advantage. • The role of operational marketing involves the organization of distribution, sales and communication policies in order to inform potential buyers and to promote the distinctive qualities of the product while reducing the information costs. These objectives are implemented by the firm's branding policy, a key instrument for the application of the marketing concept. We therefore propose the following definition of marketing; "Marketing is a social process, geared toward satisfying the needs and wants of individuals and/or organizations, through the creation of free competitive exchange of products and services that generate values to the buyer" The three key concepts in this definition are need, product and exchange. The notion of need calls into question the motivations and behaviour of the buyer, the individual consumer or the organizational client; product or service refers to the producers' response to market expectations; and exchange directs attention to the market and the mechanisms that ensure the interplay of demand and supply. 2. THE ROLE OF MARKETING IN THE FIRM The term 'marketing' -literally the process of delivering to the market- does not express the inherent duality of the process very well and emphasizes the 'active' side of marketing more than the "analytic' side. The terms strategic and operational marketing are therefore used in practice. Operational marketing Figure 1.3: Role of marketing within the managerial functions

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Operational marketing is an action-oriented process, which is extended over a short- to medium term planning horizon and targets existing markets or segments. The operational marketing plan describes objectives, positioning, tactics and budgets for each brand of the company's portfolio in a given period and geographical zone. The economic role that marketing plays in the operation of the firm is shown in Figure 1.3 hereunder. The main relationships between the four major managerial functions (research and development, operations, marketing and finance) are illustrated. His main task of operational marketing is to generate sales revenues, i.e. the target turnover. This means to 'sell' and to get purchase orders by using the most efficient sales methods while at the same time minimizing costs. The objective of realizing a particular sales volume translates into a manufacturing programme as far as the operations department is concerned, and a programme of storage and physical distribution for the sales department. Operational marketing is therefore a determining factor that directly influences the short-term profitability of the firm. Every product, even those of superior quality, must have a price acceptable to the market, be available in a distribution network adapted to the purchasing habits of the targeted customers, and be supported by some form of communication which promotes the product and enhances its distinctive qualities. Many promising products have failed in the market due to insufficient commercial support. This is particularly the case in firms where the 'engineering' spirit predominates, whereby it is believed that a good quality product can gain recognition all by itself, and when the firm lacks the humility to adapt it to the needs of customers. Latin culture is especially susceptible to this attitude: Mercury was not only the god of merchants but of thieves as well, and Christ expelled the tradesmen from the Temple! As a result, selling and advertising are still often viewed as shameful practices. Operational marketing is the most visible aspect of the discipline, particularly because of the important role played by advertising and promotional activities. Some firms -banks for example- have embarked on marketing through advertising. On the contrary, some other firms -like many producers of industrial goods- have for a long time tended to believe that marketing doesn't apply to their business, thus implicitly linking marketing to advertising. Strategic marketing Strategic marketing is defining the "playground" and answers the question 'Which business are we in?' From the marketing viewpoint, the buyer is not seeking a product as such, but wants the solution to a problem, which the product might provide. This solution may be obtained via different technologies and may come from various sources, which are themselves continually changing. The role of strategic marketing is to follow the evolution of the reference market and to identify various existing or potential product markets or segments on the basis of an analysis of the needs that are to be met. The attractivity of each identified product-market needs to be evaluated. The appeal of a segment is quantitatively measured by the notion of the potential market, and dynamically measured by its economic life or its "life cycle". The competitivity or relative position versus the rivals depends on the availability of a competitive advantage, either because the firm can differentiate itself from the others due to sustainable distinctive qualities, or because of higher productivity, putting it in a cost advantage position. Figure 1.3 shows the various stages of strategic marketing in relation with the firm's other major functions. Irrespective of whether a product is market-pull or technologypush, it has to undergo the process of strategic marketing to evaluate its economic and financial viability. The interface between Research and Development, Operations and Strategic Marketing plays a decisive role in this respect. The choice of the product-

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market that results from this confrontation is of crucial importance in determining production capacity and investment decisions, and hence is vital to the equilibrium of the firm's overall financial structure. The role of strategic marketing is therefore to lead the firm towards attractive economic opportunities; that is, opportunities which are adapted to its resources and know-how, and which offer a potential for growth and profitability. The process of strategic marketing has a medium- to long-term horizon; within the vision of its owners and leaders, its task is to specify the firm's mission, define objectives, elaborate a development strategy in line with its values and ensure a balanced structure of the product portfolio. Figure 1.4: The integrated marketing process

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The integrated marketing process This job of reflection linked to strategic planning is very different from operational planning, and requires different talents of the individuals who exercise it. Nevertheless, the two roles are closely complementary in the sense that the design of a strategic plan must be done in close relation to operational marketing. Operational marketing put the accent on non-product variables (distribution, advertising and promotion), while strategic marketing tends to emphasize the ability to provide a product with superior value at a competitive cost. Strategic marketing leads to the choice of product-markets to be exploited in order of priority and the forecast of demand in each of these segments. Operational marketing, on the other hand, sets out market share objectives as well as the marketing budgets necessary for their realization. As shown in Figure 1.4, the comparison of the market share objective and demand forecast in each product-market makes it possible to develop a sales objective first in volume and then in terms of turnover, given the chosen pricing policy. The expected gross profit is obtained after deducting direct manufacturing costs, possible fixed costs for specific structures, marketing expenditure allocated to the sales force, and advertising and promotion as allowed for in the marketing budget. This gross profit is the contribution of the product-market to the firm; it must cover overhead costs and leave a net profit. 3. THE WHY OF STRATEGIC MARKETING Some firms tend to confine strategic thinking to the managerial staff who support the managing director or CEO and who are based in headquarters, far from the field. But to be efficient, a strategy must be based on a deep knowledge of the market, and its implementation requires coherent plans of market penetration, as well as distribution, price and advertising policies. Without these, even the best plan has little chance of success. The chosen marketing organization must reflect this necessity and ensure that the main goals of strategic marketing are adhered to at all levels of the firm through cross-functional coordination. In large firms, a product management organization has proved to be very successful; in small and medium-sized firms, the same results can be obtained by temporary and periodic structures, such as a strategic planning task force of the key managers. Most successful firms adopt strategic planning in one way or another. This function is clearly becoming significantly more important with the technological, economic, competitive and socio-cultural changes characterizing the end of the 20th century and the advent of the single market in Europe. These changes emphasize the need by the firm to consolidate its strategic marketing in order: - (a) to base its activities on strategic options which are solid and well-defined, - (b) to develop systems of monitoring the marketing environment and analyzing competitiveness, - (c) to reinforce the capacity to adapt to changes in the environment, - (d) to regularly re-evaluate the portfolio of businesses. Market-driven management There is nothing particularly sophisticated about the marketing concept which is widely accepted. In fact, it would probably be hard to find anyone to argue against the idea that gearing all activities of a business to be customer responsive and respecting users' needs is not only sensible, but the only way to run a business.

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A company that adopts this philosophy of action will have to set up a customer sovereignty- and market-driven organization whose behaviour and actions are consistent with the marketing concept. Creating superior value for the buyer at a profit is much more than a marketing function. It is the focus of the entire organization and not merely that of a single department. In other words, "strategic marketing is too important for the organization as a whole to be left to the marketing people" As summarized in Figure 1.4, for an organization to achieve above-normal market performance it must achieve a sustainable competitive advantage, which is the result of continuously creating superior value for customers. The three key behavioural components of a market-driven orientation identified are customer orientation, competitor orientation and inter-functional coordination. • Customer orientation includes the organization's level of customer commitment and its efforts to create value for the customer, to understand customer needs and to anticipate new customers' problems. • Competitor orientation includes understanding of competitor strengths and weaknesses, anticipation of competitors' strategies, and sped of response to competitors' actions. • Inter-functional coordination refers to the dissemination of market information within the organization, functional integration in strategy formulation, and use of the perspectives and skills of departments other than the marketing department to assess customers' needs and problems. We add a fourth component of a market-driven orientation, which is environment monitoring, or the continuing analysis of substitute technologies, social changes and government regulations which constitute opportunities or threats for the firm. Thus strategic marketing covers a field which is much broader than the traditional domain of marketing management, since it includes the organizational culture and climate that most effectively encourages the behaviours that are necessary for the successful implementation of the marketing concept. We therefore propose the following definition of strategic marketing: "The process adopted by a firm, having a market-driven orientation, to achieve above normal market performance by continuously creating products or services which provide the buyer with a higher quality product than the competition". The key concepts here are value to the buyer, competitive superiority and above-normal profit performance. 4. TYPES OF MARKETING STRATEGIES A single marketing strategy is usually not developed for the entire company, especially in a fairly large organization. Similarly, separate strategies are not developed for each and every product -but it makes sense to design strategies around strategic business units (SBUs). An SBU consists of a product-market line, which is fairly unrelated to other lines of products in terms of customers, competitors, prices, elasticity of demand, or other market-related characteristics. Products with shared technologies, production processes, or costs could also constitute an SBU, because such commonalities can have implications for marketing strategy. A single SBU could be a particular division or product line, but could also cross over divisions or lines. A company, or one of its divisions, can have any number of SBUs. Correspondingly, the company needs to develop strategies for each one. There is, however, no one right strategy for a particular SBU. From the long list of possible strategies, any number of quite different approaches could be effective at a particular point in time. The challenge is to find a strategy that profitably matches company strengths to environmental conditions. The major limitations are the

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marketer's creativity and resources. We will provide hereunder a set of characteristics that are useful in evaluating the merits of any one strategy. The four most important marketing strategies: All movements and decisions as to how a company is likely to progress or to position itself in the market are linked to the yet achieved results and the evolution of competitors or economic environment. In trying to formulate the possible strategies, only the imagination restricts the number of ways to consider. With limitless possible alternatives and fuzzy endless choices of outcomes, it is not surprising that managers are more likely to focus on those steps with which their experience makes them comfortable. Globally however, all of the approaches tend to resume into four main lines: defensive-, aggressive-, experimental- and contractive strategies. Defensive strategies: They are characterized by attempt to protect the market share by countering the actions of the most dangerous rivals and installing fences to assure and maintain the competitive position. Many attitudes can be adopted - Consolidate the technological advantage and adjust to a minimum the production and distribution costs. - Correct the weak points and enhance quality and reputation - React on spot to competitors by price adjustments or clear, even comparative, advertising campaigns. Ex: IBM, Coca-cola, Kodak... Aggressive strategies: The objective here is to reap the benefits of experience effects to the maximum and thus improve position and profitability. This can be achieve by; - Develop the market share, entering new sectors & segments or multiplying the presence through new and different distribution channels - Create new applications and uses for existing product range or introduce new technologies and new products for the existing markets. - Make extensive use of marketing tools (publicity, price...) to force a larger marketshare. - Vertical- or horizontal integration by fusion or alliance. Note that there are limits beyond which the cost of increase becomes prohibitive. Furthermore, an excessively dominant position also has the inconvenience that it attracts the attention of public authorities who are in charge of maintaining balanced market conditions. Ex: Microsoft, Interbrew... Experimental strategies: Here the accent is put on growth by diversification, looking for new possibilities of products and/or markets. This can be achieved by - Increasing sales in existing markets with new or modified products - Product line extensions (acquisitions, licences...) - Entering new sectors of activities that are unrelated to the traditional ones of the company either technologically or commercially. Ex: Benetton, Swatch, FN...

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Contractive strategies: This means looking for a °nick" wherein the company is dominant and successful. A nicher is interested in one or few markets but not in the whole market. The objective is to be a large fish in a small pond rather than being a little fish in a large pond. To reach this kind of position one should: - Develop a specialization in products and service - Apply an unique know-how and competence - Focus on specific and rewarding segments Ex: Delvaux, LVMH, Bekaert... Characteristics of Good Strategies Although it is not possible to know whether a particular strategy is the best one available, or even if it will be successful, a good strategy should have certain characteristics. Once a strategy is on the drawing board, the marketer can look systematically for areas for improvement, using the following six criteria: • Suitability. Is the proposed strategy consistent with the foreseeable environmental threats and opportunities? Does the strategy exploit or enhance a current competitive advantage, or create a new source of advantage? • Validity. Are the key assumptions about environmental tends and the outcomes of the strategy realistic? Are the assumptions based on reliable and valid information? • Consistency. Are the basic elements of the strategy consistent with each other and with the objectives being pursued? • Feasibility. Is the strategy appropriate to the available resources? Are the basic elements and premises of the strategy understandable and acceptable to the operating managers who will have the responsibility for implementation? • Vulnerability. To what extent are projected outcomes dependent on data or assumptions of dubious quality and origin? Are the risks of failure acceptable? Are there adequate contingency plans for coping with these risks? Can the decision be reversed in the future? How long will it take? What are the consequences? The management level has the task of translating corporate objectives into: functional and/or unit objectives and ensuring that resources placed at its disposal are used effectively in the pursuit of those activities which will make the achievement of the firm 's goals possible. • Potential rewards. Are the projected outcomes satisfactory in light of the provisional objectives for the business? Are the adjustments to the objectives acceptable to the stakeholders? 5. THE PLACE OF MARKETING; BACKGROUND CONCEPTS The management of any activity normally calls for the following steps: Information gathering ('input'), Objectives setting, Operations and Control procedures The control procedures in turn constitute an 'input' for the next cycle. The process, in this very simplified form, can be described diagrammatically as follows.

The concept applies not only to the management of business problems and activities, it applies to many decision areas in day-to-day life. This is how we manage the purchase of a car. This is how we select a holiday. This is how we choose a new job. Without information the choice of objectives may be ill conceived and without objectives

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operations may be totally irrelevant. Finally, if we do not control what we have done, we cannot judge whether or not we have been successful in what we have set out to achieve. Furthermore, without control procedures we may repeat the same mistakes when we come to plan the next cycle. In a firm we have an intricate conglometation of decision levels. Whilst each level has a different task to perform it is important that everybody in the organisation functions in an integrated way. Once again to simplify the description we can divide the firm into three distinct levels: Strategic - Management - Operation Briefly, the strategic level has to identify the expectations of the stakeholders (e.g. shareholders, employees, the community, the bankers, the unions, the government etc.); determine the firm's objectives (the attainment of which will meet the stakeholders' expectations); decide on the type of resources that will be required if the firm is to attain its objectives and select the most appropriate corporate strategy for the firm to adopt. The operational level is responsible for the effective performance of those tasks, which underlay the achievement of unit/functional objectives. The attainment of the latter will of course be the instrument through which the corporation as a whole can expect to achieve its overall objectives. Thus all three levels are interrelated to such an extent that failure at any level may affect adversely the firm's performance. Having an effective operational level is not enough; similarly having the brightest board of directors (assuming that in most instances the board represents the strategic level) does not guarantee success if the other levels are ineffectual. Figure 1.5: The firm-a conceptual framework

Translating what was said about the three levels of a firm into the 'managerial model' shown earlier we can describe the firm's hierarchy as a pyramid. Functional activities transcend all levels. Thus, for example, the marketing function requires strategic planning as well as management activities, and finally the process is completed by the operational level undertaking the detailed tasks allotted to it such as selling, advertising, administering the warehousing procedures and so on. Each function and each level requires information, 'input', to be able to plan its activities and at the end of the day control procedures are also needed to measure the effectiveness of the performance.

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The 'input' and control are shown outside the pyramid. They do not represent resource management activities in so far as their real role is to provide information that facilitates the managerial process or monitors performance. In other words, they constitute what is called in modern jargon management information systems ('MIS). They are vitally important; they aid all levels of management and without them the firm can hardly survive. However, they are outside the pyramid because the pyramid represents those activities, which are responsible for the attainment of results. The activities outside the pyramid are in no way responsible for results -they assist the planning process by providing information and audit the results. The description of the pyramid as outlined above is illustrated in figure 1.5. This briefly is a conceptual structure for a typical firm. What a Marketing Organisation Most Cater for Before explaining the strategic steps towards a business & marketing plan it is important that the various sub-functions that form the total marketing process are identified and listed. A 'home' must be found for each one of these sub-functions within the framework of the structure. It is often the absence of a suitable 'home' that is the main cause of organizational problems. In line with the firm's conceptual framework, we can divide the various marketing activities of the firm into the four categories: 'INPUT gathering; OBJECTIVES setting; OPERATIONS and CONTROL. This division is consistent with the way any activity, whether large or small, domestic or international, is managed. Figure 1.6 : The sub-activities of the marketing function

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Now we can endeavour to list the various activities into which the marketing function can be divided and place them under each of the four headings. This is shown in figure 1.6. The list is not comprehensive but it covers most of the more important sub-functions. Any omission identified can be added to the appropriate column. What the list is actually trying to convey is: for the marketing function to be effectively constituted and organised it is essential that a number of tasks be performed. The firm must possess the capability of performing these tasks. Some of these activities can of course be delegated to an external resource. Market research need not be carried out by the firm’s own people; nonetheless it is the responsibility of the firm's management to ensure that the task is efficiently performed. Although the market research activity may be carried out by outsiders, the firm’s own organization must be in the position of planning, authorizing and directing such an 'input' gathering effort. The essential concept here is that whoever is responsible for the marketing function must be aware of the fact that the marketing process entails a cluster of activities, which are capable of being segregated into fairly clear-cut compartments. Indeed in very small firms one person may have to undertake the total process. The fact that one person may have to perform the full marketing effort does not mean that the job ceases to be multi-faceted. In summary, a firm must find a way for accommodating in its structure the various subfunctions described earlier. This can be a fairly easy task in a small company operating in a single domestic market. It is more complex in a firm operating in a large number of markets. It can become literally a nightmare in a company that has to serve many markets, with a large number of product groups and on a multinational scale. 6. The Matrix Approach The marketing and sales tend to combine two or three orientations to tackle the contacts with the various segments/n (product-, market- and geographical approach). The underlying concept is that by judicious dovetailing of two structural systems one can achieve the 'best of both worlds'. Thus by combining a product management approach with a market-orientated specialisation one can meet both the needs of markets and of products. The notion that structures must be based on 'pure' systems has been slow to die. The supporter of the matrix approach feel that if marketing effectiveness demands that a mufti-faceted structure is established, a method must be found for accommodating such a flexible orientation. The matrix approach aims to synthesise the demands of a number of parameters and by doing so add strength to the organisation. The easiest way to illustrate this organisational concept is by looking at a simple case: "Southern Aluminium Limited manufactures a range of products that fall into three main categories: sheet, extrusions and film. The Company supplies these products to a large number of markets. However, the main users come under three industry headings: construction, aircraft and packaging. Furthermore the Company markets its products in many countries. Advise how the marketing function should be organised." „ Many organisational options unfold themselves. Each option has its pros and contras. Organising by products would mean that the needs of the specific markets served might be neglected. It is not possible for all three product-groups to have in-depth expertise of the three markets all the time. Organising by markets makes marketing sense but the needs of the products will not be' covered adequately. The construction marketing man may have a blind prejudice against film as a suitable product for the construction industry and that of course means that there is little chance for this product to achieve any penetration of that industry. A geographical structure will be highly results orientated but little or no development progress will be achieved into new applications. Another

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functional structure seems totally inappropriate because it will develop little or no marketing concentration on either products or on markets. And all this has to be done within an international scene. Figure 1.7: The matrix approach to a marketing organisation

The matrix structure seeks to solve this dilemma. "'Why not have a double-pronged organisation that meets the needs of the products as well as the needs of the markets?" say the supporters of this concept. In fact the approach can be best illustrated in a matrix from which this method obtains its name (figure 1.7). The main implication of this structural concept is that there are nine functional inter-sections. At these points one gets the benefit of maximum knowledge and expertise of a product group and a market group. The hope is that no opportunity can be lost as a result of inadvertence, insofar as the infrastructure is there to look after both products and markets. The actual organisation chart would look fairly conventional. The matrix would be shown as two parallel streams of complementary functional activities (see figure 1.8). Thus within a set of marketing objectives the firm possesses two teams of planners/thinkers: one orientated towards the firm's products; the other towards markets. Between them the firm should know all there is to be known both about the needs of specific mark is and the products the firm manufactures. In a highly technological environment such as aluminium producer the firm may decide that one of the two streams described should also be responsible for the selling task. In other words, it may be felt that those responsible either for markets management or for products management are capable of carrying out the selling. In such an event one stream becomes a 'line' responsibility and the other stream becomes a “staff” position.

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Figure 1.8: A matrix style structure based on product I market approach

Experience has shown that where the matrix approach is used it is important that clear job descriptions coupled with individual standards of performance are defined. The nature of this organisational option is such that conflicts can easily arise. What happens if a period of shortages occurs? Who gets priorities of supply, those who look after products or those who seek to satisfy the needs of markets? This problem can be avoided if the answer is defined in advance in clear job specifications. Furthermore if top management decides to attach the selling function to one marketing stream rather than the other it is important that the ultimate responsibility for the attainment of results is attached to that group. The other group, which has gained a staff function, has an important role in advising, persuading and even cajoling but cannot be held responsible for results. In such an event one must also recognise that different types of managers are needed for the two streams of activity. The 'line' stream must consist of active and dynamic 'doers'; the 'staff stream calls for thinkers who 'can walk on water'. The matrix approach in international marketing The matrix style structure has opened many creative solutions to organisational problems in international marketing. The mere fact that one can superimpose a number of organisational 'layers' upon a basic structure means that one need not feel constrained by purist solutions. We discussed in the example shown earlier (Southern Aluminium Limited) two streams of marketing activity running in parallel respectively products management and markets management. It does not require much imagination to conjure a situation where the organisation could cope with three or possibly even more dimensions. If we take the Southern Aluminium Limited case we can add the international dimension as a third geographical axis on the chart. It will represent a third layer responsible for the

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marketing needs of geographical units such as regions or countries as distinct from the marketing needs of products and/or markets. This may seem a formula for chaos. However, it need not be: firms that have learned the art of defining jobs, attaching standards of responsibility and performance to each job and identifying 'interface' problems ahead of them occurring, should find a multi-dimensional structural approach manageable. In fact it offers a creative solution to problems, which often seem intractable. Pictorially the three-dimension matrix approach could look like a cube with many cells, each of which is a local OPU (Operating Unit) as described in figure 1.9. Figure 1.9: Three dimensional matrix approach to an international situation

In the diagram described we have three products, three markets and four countries. Each cell represents an operating product/market/country marketing cell. If the team responsible for results in each 'cell' knows how to optimise their individual knowledge and experience into a single effort they should achieve optimum performance. The theory is sound; the results will only be as sound as the human material of which each cell is constituted. As stated earlier the one essential precaution is to identify which dimension of the 'morphology' is ultimately responsible for the attainment of the firm's marketing objectives. This is particularly important in an era when there may be shortages of raw materials and/or productive capacity. In such circumstances it is not possible to meet the full demands of all three dimensions. It is therefore imperative that one dimension has the last word.

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Chapter 2: THE STRATEGIC SEGMENTATION

One of the first strategic decisions a firm has to make is to define its reference market and to choose the customer segment(s) to target. This choice implies the splitting of the total market into groups of customers with similar needs and behavioural or motivational characteristics, and which constitute distinct market opportunities. A firm can elect to serve all possible customers or to focus on one or several specific segments within the reference market. This segmentation of the reference market is generally done in two steps, corresponding to different levels of total market disaggregation. The first step, called macro-segmentation, has the objective of identifying 'product markets', while in the second step, called micro-segmentation, the goal is to uncover customer 'segments' within each product market previously identified. Using this mapping of the reference market, the firm will then evaluate the attractiveness of each product market and/or segment and assess its own competitiveness. This chapter describes a general methodology for segmenting a market. 1. MACRO-SEGMENTATION ANALYSIS In the majority of markets, it is almost impossible to satisfy all customers with a single product or service. Different consumers have varying desires and interests. This variety stems from diverse buying practices and basic variations of customers' needs and the benefits they seek from products. Increasingly, therefore, companies have found it essential to move away from mass marketing toward target marketing strategy, where the focus is on a particular group of customers. This identification of target customer groups is market segmentation, where the total market is disaggregated into subgroups, with similar requirements and buying characteristics. Knowing how to segment a market is one of the most important skills a firm must possess. Segmentation defines what business the firm is in, guides strategy development and determines the capabilities needed in the business unit. Defining the reference market in terms of 'solution' Implementing a market segment strategy should begin with a business definition statement that reveals the true function or purpose of the firm in a customer-oriented perspective. Three fundamental questions should be addressed: • Which business(es) are we in? • Which business(es) should we be in? • Which business(es) shouldn't we be in? To answer these questions in a customer-oriented perspective, the business definition should be made in generic terms, i.e. in terms of the 'solution' sought by the customer and not in technical terms, to avoid the risk of myopia. The rationale behind the 'solution approach' can be summarized as follows: • To the buyer, the product is what it does.

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• No one buys a product per se. What is sought is a solution to a problem. • Different technologies can produce the same function. • Technologies are fast changing, while generic needs are stable. It is therefore important for the market-oriented firm to define its reference market in terms of a generic need, rather than in terms of a product. Her& are some examples of market reference definitions. - Derbit Belgium is operating in the European roofing market and manufactures membranes of APP-modified bitumen. The company defines its market as follows: 'we are selling guaranteed waterproof solutions to roofing problems in partnership with exclusive distributors and highly qualified roofing applicators'. - Otis Elevators serves two closely related markets: (a) the design, manufacture and installation of elevators, escalators and moving sidewalks and (b) the subsequent servicing of the equipment. Their business definition is: '...our business is moving people and materials horizontally and vertically over relatively short distances, and '...when elevators are running well, people do not notice them ...our objective is to go unnoticed'. - Sedal, a small French company manufacturing ventilation metallic grids, defined its business as the 'air and temperature control' business and expanded its offerings to air ventilation and air conditioning systems. - Bata used to see itself as a 'leather' specialist. The company now defines its business as a shoe specialist, using plastic, textile or leather as basic material. Ideally, the business definition should be stated in terms narrow enough to provide practical guidance, yet broad enough to stimulate imaginative thinking, such as openings for product line extensions or for diversification into adjacent product areas. The business definition is the starting point for strategy development. It helps identify the customers to be served, the competitors to surpass, the key success factors to master and the alternative technologies available for producing the service or the function sought. Conceptualisation of the reference market A reference market can be defined in three dimensions: customer group, or 'who' is being satisfied; customer functions or needs, or 'what' is being satisfied; and the technologies used to meet the needs, or 'how' customer needs are being satisfied. We thus have a three-dimensional framework, as shown in figure 2.1. To segment the market, the first step is to identify the relevant criteria for describing each of these three dimensions. Functions: We refer here to the “WHAT”, or the need to be fulfilled by the product or the service. Examples of functions would be home interior decoration; transportation of goods; waterproof roof protection; rust prevention; teeth cleaning; deep versus shallow drilling etc. Functions have to be conceptually separated from the way the function is performed (i.e. the technology). The dividing line between 'functions' and 'benefits' is not always clear, as functions are narrowly subdivided or as assortments of functions are considered, for example, teeth cleaning plus decay prevention, shampoo with antidandruff treatment. Thus, functions can also be defined as a package of benefits sought by different customer groups. Customers: We describe the different customer groups, or “WHO”, that might buy the product. The most common criteria used are households versus industrial buyers, socioeconomic class, geographical location, type of activity, company size, decision-making units etc. In most situations, several criteria are required. At this level of macro-segmentation, only broad customer characteristics are retained. For consumer goods, more detailed criteria are often necessary, such as age group,

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benefits sought, life style, purchase behaviour etc. This is the object of microsegmentation. Technologies; These describe the “HOW” or alternative ways in which a particular function can be performed for a customer. For example, paint or wallpaper for the function of home interior decoration; road, air, rail or sea for international transportation of goods; bitumen or plastic for roof protection; toothpaste or mouthwash for teeth cleaning; X-ray or ultrasound or NMR scanning for diagnostic imaging etc. As underlined above, the technology dimension is dynamic, in the sense that one technology can displace another over time. For example, X-rays are displaced by ultrasound and NMR scanning as alternative imaging diagnostic techniques. Similarly, electronic mail tends to displace printed materials in the field of written communication. Figure 2.1: Market boundaries definition

Market boundary definitions Using this framework, we may distinguish between a 'product-market', a 'market' and an industry' (figure 2.2). • A product-market is defined by a specific customer group seeking a specific function or assortment of functions based on a single technology. • A market is defined by the performance of given functions in given customer groups, but including all the substitute technologies to perform those functions. • An industry is based on a single technology, but covers several businesses, i.e. several functions or assortments of functions and several customer groups. These alternative boundaries definitions correspond to different market coverage strategies, each having their own merits and weaknesses. - The industry definition is the most traditional one, but also the least satisfactory because it is supply-oriented and not market-oriented. From a marketing point of view, this definition of the reference market is much too general, since it includes a large variety of functions and customer groups. In the household :appliances industry, for example, this would include microwave ovens and laundry irons, two very different products in terms of growth potential and of customers' behaviour characteristics. However, most industrial and foreign trade statistics are industry-based and it is therefore difficult to be more precise and to avoid the standard industry definitions. - The market definition is very close to the generic need concept and has the merit of emphasizing the existence of substitute technologies for performing the same function. A

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technological innovation can dramatically change existing market boundaries. The monitoring of substitute technologies is enhanced by this reference market definition. The major difficulty stems from the fact that the technology domains involved may be very different. For example, customers with a need for a 6 mm hole will normally use a metal twist drill, but some segments are finding lasers or high-pressure water jets to be a better solution. Figure 2.2: Defining the reference market

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The market definition is very useful for giving directions to research and development and for suggesting diversification strategies. - The product- market definition is the most market-oriented definition. It corresponds to the notion of 'strategic business unit' (SBU) and is very close to the real world market. This market definition automatically dictates four key elements of the firm's strategic thrust: • The customers to be served. • The package of benefits to be provided. • The competitors to surpass. • The capabilities to acquire. This partitioning of the total reference market into product markets will guide the market coverage decisions and will determine the type of organizational structure to adopt. One shortcoming of this market definition is the difficulty of finding appropriate market measurements, most government statistics being industry-based and not market-based. Development of a macro-segmentation grid Once the relevant segmentation variables are identified, the next task is to combine them for developing a segmentation grid. To illustrate this process, let us consider the market of heavy duty trucks. The identified segmentation variables are the following: • Functions: regional, national and international transport of goods or persons. • Technologies: air, rail, water and road (below and above 16 tons). • Customers: types of activity; own account and professional transporters; size of fleet: small (1 -4 trucks), medium (4-10 trucks) and large (>10 trucks). If we consider all possible combinations, we have here a total of 108 (3 x 4 x 3 x 3) possible segments. Ignoring transportation modes other than road transportation (below and above 16 tons), the number of potential segments remains very great. In developing an operational segmentation grid, the following rules should be adopted. • The analyst should start with the longest list of segmentation variables to avoid overlooking meaningful criteria. • Only those variables with a truly significant strategic impact should be isolated. • Collapsing together variables that are correlated can reduce the number of variables. • Some cells are generally infeasible combinations of segmentation variables and therefore can be eliminated. • Some segments can be regrouped if the differences among them are not really significant or their size too small. • The segmentation grid should include potential segments as well and not only segments that are currently occupied. In the case of our truck manufacturer the final segmentation grid can be reduced to some 5 main segments representing 80 % of the users: The international haulers, the civil engineering, the army, the bus platforms, the local distribution trucks. 2. MICRO-SEGMENTATION ANALYSIS The objective of micro-segmentation is to analyse the diversity of customers' requirements in a more detailed way within each of the product markets (or macrosegments) identified at the stage of macro-segmentation analysis. Within a particular product market, customers seek the same core service, for instance, time measurement in the watches market. However, keeping in mind the multi-attribute product concept, the way the core service is provided and the secondary services that go with the core service can be very different. The goal of micro-segmentation analysis is to identify

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customer groups searching for the same package of benefits in the product. This can lead to a differentiation strategy to obtain a competitive advantage over rivals by doing a better job of satisfying customer requirements. Market segmentation versus product differentiation A distinction should be clearly made between segmentation and differentiation, two key marketing concepts. Product differentiation provides a basis upon which a supplier can appeal to selective buying motives. A general class of product is differentiated if any significant basis exists for distinguishing the goods (or services) of one seller from those of another. Such a basis may be real or fancied, so long as it is of any importance whatever to buyers, and leads to a preference for one variety of a product over another. The products are differentiated if the consumer believes that they are different. While product differentiation is based on distinctions among products, market segmentation is based on distinctions among prospects that constitute the market. Recognition of the heterogeneity of customers has led firms to appeal to segments of what once might have been considered a homogeneous market. Generally, segmentation is viewed as a process of market desegregation. It may be useful to view it as a process of consumer aggregation. Thus, product differentiation is S supply concept, while market segmentation is a demand concept. Steps in market segmentation The implementation of a micro-segmentation analysis consists of four basic steps: • Segmentation analysis, or subdividing product markets into distinct groups of potential buyers having the same expectations or requirements (homogeneity condition), and being different from customers who are in other segments (heterogeneity condition). • Market targeting, or selecting particular segment(s) to target, given the firm's strategic ambition and distinctive capabilities. • Market positioning, or deciding how the firm wants to be perceived in the minds of potential customers, given the distinctive quality of the product and the positions already occupied by competitors. • Marketing programming, aimed at target segments. This last step involves the development and deployment of specific marketing programme(s) specially designed for achieving the desired positioning in the target segment(s). The first step, segmentation analysis, can be implemented in four different ways: • Descriptive segmentation, which is based on socio-demographic characteristics of the customer irrespective of the product category. • Benefit segmentation, which considers explicitly the product category and the person's system of values. • Life style segmentation, which is based on socio-cultural characteristics of the customer, irrespective of the product category. • Behavioural segmentation, which classifies customers on the basis of their actual purchasing behaviour in the marketplace. Those segmentation ways derive from the selection of criteria used to identify the individuals in the considered population and to regroup the customers and prospects into homogeneous sub-groups (figure 2.3).

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Figure 2.3: The main segmentation criteria OBJECTIVE CRITERIA

INDUCTIVE CRITERIA

GENERAL CRITERIA Demographic (age, sex...) Socio-economic (revenue, job...) Geographic (rural, urban...) … Social position (leadership, ...) Life-style (lonely, social...) Extravert – introvert …

SPECIFIC CRITERIA Level of consumption Brand loyalty Purchase behaviour … Attitude, values Perception & preferences Benefit expected …

Figure 2.4: Major potential bases for Industrial Market Segmentation by the 'nesting method'

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Industrial markets segmentation Conceptually, there is no difference between industrial and consumer market segmentation. The distinction between macro- and micro-segmentation can be retained but a so-called `nested' approach seems to be more applied. Rather than a two-step process, the nested approach allows up to five steps. An illustration is given under figure 2.4. Here, macro bases are in the outermost boxes (e.g., company size), with the micro characteristics in the innermost boxes (e.g. personal characteristics of members of the buying centre). This method assumes a hierarchical structure of segmentation bases, which move from very broad or general bases to very organization- specific bases. Moving from very macro through intermediate to very micro, each more specific segmentation base is contained within the one that preceded it. The end result is a very practical framework within on can find virtually any imaginable base for breaking down an industrial market into subgroups on which the sales activities can be focalised. To implement the nested approach, let us look at an example. A firm selling mail equipment (e.g. postage meters, weighting scales...) may first segment the market based on broad organizational characteristics, such as company size and location. It may decide to focus only on companies with 1.000 employees or more. However, rather than stop here and focus on all such companies, the firm then segments the market based on operating characteristics, such as whether the company has a mail department. This pinpoints only those companies that emphasize low price as a key attribute in the purchase decision, and so on... The marketer can move through all five nests if he or she wants that much specialization, or can stop at any point. Also, any one level could be skipped over, such as where the marketer starts with purchasing approaches, and then goes to personal data of people in the decision unit. 3. IMPLEMENTATION OF A SEGMENTATION STRATEGY Having completed the market segmentation analysis, management has to make decisions regarding the segments to target and regarding the positioning to adopt within the targeted segments. The final stage is to define the type of marketing programme to adopt within each chosen segment. Figure 2.5: Three basic options for marketing strategies

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Market targeting strategies Having analysed the reference market's diversity, the next task is to decide what type of market coverage strategy to adopt. The options open to the firm are of three types: undifferentiated, differentiated or focused marketing. (Figure 2.5) By adopting an undifferentiated marketing strategy, the firm ignores market segment differences and decides to approach the entire market as a whole and not take advantage of segmentation analysis. It focuses on what is common in the needs of buyers rather than on what is different. The rationale of this middle-of-the-road or standardization strategy is cost savings, not only in manufacturing, but also in inventory, distribution and advertising. In affluent societies, this strategy is more and more difficult to defend, as it is rarely possible for a product or a brand to please everyone. In a differentiated marketing strategy, the firm also adopts a full market coverage strategy, but this time with tailor-made programmes for each segment. This was the slogan of General Motors, claiming to have a car for every 'purse, purpose and personality'. This strategy enables the firm to operate in several segments with a customized pricing, distribution and communication strategy. Selling prices will be set on the basis of each segment's price sensitivity. This strategy generally implies higher costs, since the firm is losing the benefits of economies of scale. On the other hand, the firm can expect to hold a strong market share position within each segment. Differentiated marketing does not necessarily imply full market coverage. The risk may be to over-segment the market, with the danger of cannibalism among the excess brands of the same company. In a focused marketing strategy, the firm is concentrating its resources on the needs of a single segment or on a few segments, adopting a specialist strategy. The specialization can be based on a function (functional specialist) or on a particular customer group (customer specialist). Through focused marketing, the company can expect to reap the benefits of specialization and of improved efficiency in the use of the firm's resources. The feasibility of a focused strategy depends on the size of the segment and on the strength of the competitive advantage gained through specialization. The choice of any one of these market coverage strategies will be determined a) By the number of identifiable and potentially profitable segments in the reference market (b) By the resources of the firm. If a company has limited resources, a focused marketing strategy is probably the only option. Requirements for effective segmentation To be effective and useful a segmentation strategy should identify segments that meet four criteria: differential response, adequate size, measurability and accessibility. ` - Differential response. This is the most important criterion to consider when choosing a segmentation strategy. The segments must be different in terms of their sensitivity to one or several marketing variables under the control of the firm. The segmentation variable should maximize the behavioural difference between segments (heterogeneity condition) while minimizing the differences among customers within a segment (homogeneity condition). - Adequate size. Segments should be defined so that they represent enough potential customers to provide sufficient sales revenue to justify the development of different products and marketing programmes. A trade-off must be made here between two logics: the logic of marketing, which tries to me et the needs of the market through

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narrow definition of segments, and the logic of production, which emphasizes the benefits of economies of scale through standardization and long production runs. - Measurability. Before target segments can be selected, the size, the purchasing power and the major behaviour characteristics of the identified segments must be measured. If the segmentation criteria used are very abstract, such information is hard to find. For example, if the prospects are companies of a certain size, it would be easy to find information about their number, location, turnover etc. But a segmentation criterion like 'innovativeness of companies' does not lend itself to easy measurement and the firm would probably have to conduct its own market survey. Abstract criteria are often used in benefit and life style segmentations, while descriptive segmentation is based on more concrete and observable criteria. - Accessibility. This refers to the degree to which a market segment can be reached through a unique marketing programme. There are two ways to reach prospects: controlled coverage and customer self-selection. Controlled coverage is very efficient because the firm reaches target customers with little wasted coverage of individuals or firms who are not potential buyers. Customer self-selection involves reaching a more general target while relying on the product's and advertising's appeal to the intended target group. These consumers select themselves by their attention to the advertisements. A controlled coverage approach is economically more advantageous. 4. SUMMARY This chapter has introduced the concept of market segmentation as an approach to the strategic decision making. While segmentation is not appropriate in some cases, it is often a means to achieve efficiencies and specialization in the firm's marketing efforts. To use this strategic tool effectively, the marketer should follow a systematic process in which segments are carefully identified, evaluated, selected, targeted with marketing programs, and monitored. When using segmentation, the marketer must evaluate three key decision areas: (1) As a general practice, is segmentation realistic for our firm? (2) Which bases of segmentation are most appropriate, given our resources? (3) How should the firm's marketing resources be allocated to specific segments Although a number of approaches for segmenting markets exist, two closely related techniques were emphasized, macro / micro segmentation and nested segmentation. Overall, segmentation is still an underused practice mainly in industrial firms. The practice of segmentation is applied unevenly and, in some cases, has been completely ignored by members of the industrial market. All too often, companies enter the market with no specific target group in mind. Then, much later, when they have determined who appears to be purchasing their product or service, they argue that this was how they segmented the market. In this sense, segmentation becomes a post ad hoc justification for an unplanned result.

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Chapter 3: THE COMPETITIVE STRUCTURE ANALYSIS

Having evaluated the intrinsic appeal of the product-markets and segments in the reference market, the next stage of strategic marketing is to analyse the climate or the competitive structure of each of the product-markets, and then evaluate the nature and intensity of the competitive advantage held by the various competitors in each market. A product market may be very attractive in itself, but not so, for a particular firm, given its strengths and weaknesses and compared to its most dangerous competitors. Therefore, the aim of measuring business competitiveness is to identify the kind of competitive advantage that a firm or a brand can enjoy and to evaluate to what extent this advantage is sustainable, given the competitive structure, the balance of existing forces and the positions held by the competitors. Assuming that a firm's corporate objectives are clear and well communicated to all managers involved, one must gauge the impact that competition may have on one's freedom to manipulate one's market-mix elements. 1. THE VARIOUS LEVELS OF COMPETITION A company's competitive position is defined by the number, size, and intensity of rivalry among the firms that make up an industry. Other important factors include the availability of substitute products, the existence of barriers to market entry, and the bargaining power of firm's suppliers and buyers. Basic changes in each of these areas indicate a much more threatening competitive environment for all players in the market. The competition includes all rival offers, present or potential, which customers or prospects can take in consideration. Let's suppose that an individual needs to find a way of traveling or moving around. He won't only consider purchasing a car but will also consider the other possibilities as public transportation, bicycle, motorbike... One can distinguish different levels of product-competition, according to the possible choices a consumer can have to satisfy his needs. Figure 3.1 gives an example of those levels for the car market • The 'brand competition'. It is the most known by the consumer. It is based on the knowledge and perception he has of the brand, as well as his conviction and confidence that will enable him to make his choice. • The 'model or range competition'. In a given market-segment and in the offer of a given brand, the customer must make a choice between the proposals made by the constructor-distributor he has selected. This is linked to range of products a given brand is proposing and is, in fact, a kind of 'internal rivalry' between models offered in a given brand portfolio. • The 'producers competition'. The enterprise considers here all firms that manufacture and offer the same or similar products and services in the same price interval and for comparable segments. This is mostly regarded by the enterprises as being the 'direct competition'

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• The 'generic competition'. The enterprise has also to take account with all alternatives satisfying the same needs. Those rivals are considered as 'indirect competitors'. • The 'basic choice competition'. Finally, the enterprise must cope with the fundamental choices made, and priorities given, by the consumers in the hierarchy of the needs that they want to satisfy. This is clearly linked with the allocation of revenue and the degree of urgency that each need presents. Figure 3.1: The levels of product-competition in the automobile market

Competition, whether it is of the brand type or of the functional type, can be so powerful that the marketer is virtually forced to follow the leadership of the major manufacturer in

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the market (certainly in terms of pricing policy), unless he puts the emphasis on differentiation and specific market segments. Besides this form of rivalry due to the choice of product or service, which is suitable to fulfill the expressed needs, one should also consider the choice of the place where to acquire the chosen goods. This is called the distribution competition. Many products and brands are available in various places from the corner-shop up to hypermarkets or specialized outlets. As such the manufacturer have to balance carefully their presence in each possible channel according to the market segments they are willing to contact. 2. THE NOTION OF COMPETITIVE ADVANTAGE Competitive advantage refers to those characteristics or attributes of a product or a brand that give to the firm some superiority over its direct competitors. These characteristics or attributes may be of different types and may relate to the product itself (the core service), to the necessary or added services accompanying the core service, or to the modes of production, distribution or selling specific to the product or to the firm. When it exists, this superiority is relative and is defined with respect to the best-placed competitor in the product market or segment. We then speak of the most dangerous competitor, or the priority competitor. A competitor's relative superiority may result from various factors. Generally speaking, these can be classified into two main categories, according to the competitive advantage they provide. One will note internal or external competitive advantages. A competitive advantage is external when it is based on some distinctive qualities of the product that give superior value to the buyer, either by reducing its costs or by improving its performance. An external competitive advantage gives the firm increased market power. It can force the market to accept a price above that of its priority competitor, which may not have the same distinctive quality. A strategy based on an external competitive advantage is a differentiation strategy, which calls into question the firm's marketing know-how, and its ability to better detect and meet those expectations of buyers which are not yet satisfied by existing products. Companies differentiate themselves based on quality, service, features, distribution, warranties, reputation... The marketing mix is used to emphasize this uniqueness. A competitive advantage is internal when it is based on the firm's superiority in matters of cost control, administration and product management, which bring value to the producer by enabling it to have a lower unit cost than its priority competitor. Internal competitive advantage results from better productivity, thus making the firm more profitable and more resistant to price cuts imposed by the market or by the competition. A strategy based on internal competitive advantage is a cost domination strategy, which mainly calls into question the firm's organizational and technological know-how. Cost leadership is often achieved by taking advantage of economy of scale and the cost reduction from high volume production. To succeed with an external advantage strategy, the price premium the customer is willing to pay must exceed the cost of providing that extra value. Similarly, a cost strategy must offer acceptable value to customers, so that prices are close to the average of competitors. If too much quality is sacrificed for achieving a low-cost position, the price discount demanded by customers will more than offset the cost advantage. These two types of competitive advantage have distinct origins and natures, which are often incompatible because they imply different abilities and traditions. • Market power to what extent are buyers willing to pay a price higher than the price charged by our direct competitor? • Productivity: is our unit cost higher or lower than the unit cost of our direct competitor?

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In certain specific markets, a producer can position himself using some of both competitive elements by putting its effort to a specialized segment with non standardized products or services. A focus or niche marketing strategy does not seek to capture as much of the entire market as possible. Instead, this is a segmentation and targeting strategy; where the firm specializes in meeting the needs of a particular niche of customers. Through specialization, the company is able to tailor products or services to exact requirements of a group of customers, and can completely penetrate that segment. A focus strategy may be achieved through utmost differentiation at a controlled cost, but only within the aimed segment. This set of strategic approaches is illustrated by figure 3.2 hereunder. Figure 3.2: The three generic competitive strategies (M. Porter)

3. FORCES DRIVING INDUSTRY COMPETITION The notion of extended rivalry (M. Porter) is based on the idea that a firm's ability to exploit a competitive advantage in its reference market depends not only on the direct competition it faces, but also on the role played by rival forces, such as potential entrants, substitute products, customers and suppliers. The first two forces constitute a direct threat; the other two an indirect threat, because of their bargaining power. It is the combined interplay of these five competitive forces, shown in Figure 3.3, which determines the profit potential of a product market. Clearly, the dominant forces determining the competitive climate vary from one market to another. Using Porter's analysis, we will examine the role of these four external competitive forces successively. The analysis of rivalry between direct competitors, which is in the centre of this global approach, will be left for later in this chapter. Threat of new entrants Potential competitors, likely to enter a market, constitute a threat that the firm must limit and protect itself against, by creating barriers to entry. Potential entrants can be identified as follows: • Firms outside the product market which could easily surmount the barriers to entry. • Firms for which entry would represent a clear synergy. • Firms for which entry is the logical conclusion of their strategy. • Clients for suppliers who can proceed to backward or forward integration. The importance of the threat depends on the barriers to entry and on the strength of reaction that the potential entrant can expect. Possible barriers to entry are as follows: - Economies of scale. These force the entrant to come in at large scale or else risk having to bear a cost disadvantage.

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- Legal protection obtained through patents, as we have seen in the case of the conflict between Kodak and Polaroid. - Product differentiation and brand image, leading to a high degree of loyalty among existing customers who show little sensitivity to newcomers. - Capital requirements, which can be considerable, not only for production facilities, but also for things like inventories, customer credit, advertising expenses, start-up losses etc. - Switching costs, that is, one-time real or psychological costs that the buyer must bear to switch from an established supplier's product to that of a new entrant. - Access to distribution channels: distributors might be reluctant to give shelf space to a new product; sometimes the new entrant is forced to create an entirely new distribution channel. - Experience effects and the cost advantage held by the incumbent, which can be very substantial, especially in highly labour-intensive industries. Figure 3.3: The forces driving industry competition

Other factors which may influence the entrant's degree of determination are the expectation of sharp reactions from existing firms and of the dissuasive nature of the retaliations they may organize. The following factors will in particular influence the degree of deterrence in the response: - A history and reputation of aggressiveness vis-à-vis new entrants.

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- Degree of commitment of established firms in the product-market. - Availability of substantial resources to fight back. - Possibility of retaliation in the entrant's home market. Put together, sustainable entry barriers and the ability to respond are the elements that determine the entry-deterring price. Threat of substitute products Substitute products are products that can perform the same function for the same customer groups, but are based on different technologies. Substitute products go hand in hand with the definition of a market which is the 'set of all technologies for a given function and a given customer group'. Such products are a permanent threat because a substitution is always possible. The threat can be intensified, for instance, as a result of a technological change which modifies the substitute's quality / price ratio as compared to the reference product market. Prices of substitute products impose a ceiling on the price firms in the product market can charge. The more attractive the price-performance alternative offered by substitutes, the stronger the limit on the industry's ability to raise prices. Clearly, substitute products that deserve particular attention are those that are subject to trends improving their price-performance trade-off with the industry's product. Moreover, in such a comparison, special attention needs to be given to switching costs (real or psychological) which can be very high and, as far as the buyer is concerned, offset the impact of the price differential. Identifying substitute products is not always straightforward. The aim is to search systematically for products that meet the same generic need or perform the same function. This can sometimes lead to industries far removed from the main industry. It would be insufficient simply to look at the uses made in the major customer groups, because the information risks appearing too late. Therefore it is necessary to have a permanent monitoring system of major technological developments in order to be able to adopt a proactive rather than a reactive behaviour. Bargaining power of buyers Buyers, as they may come into a monopsonistic situation, can have a bargaining power vis-à-vis their suppliers. They can influence an activity's potential profitability by forcing the firm to cut prices, demanding more extensive services, asking for better credit facilities or even by playing one competitor against another. The degree of influence depends on a number of conditions: • The buyer group is concentrated and purchases large volumes relative to seller sales; this is so for large distributors, and, in France, for large shopping centers. • The products that buyers purchase from the industry represent a significant fraction of their own costs, which drives them to bargain hard. • The products purchased are standard or undifferentiated. Buyers are sure that they can always find alternative suppliers. • The buyers' switching costs, or costs of changing suppliers, are few. . Buyers pose a credible threat of backward integration, and are therefore dangerous potential entrants. • The buyers have full information about demand, actual market prices and even supplier costs. These conditions apply equally to consumer goods as well as industrial goods; they also apply to retailers as against wholesalers, and to wholesalers as against manufacturers. Such a situation, where buyers' bargaining power is very high, is seen in Europe in the food sector and consumer goods, where large-scale distribution is highly concentrated and where their 'Buying Centrals' can even dictate its terms to manufacturers.

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These considerations underline the fact that the choice of buyer groups to sell to is a crucial strategic decision. A firm can improve its competitive position by a customer selection policy, whereby it has a well-balanced portfolio of customers and thus avoids any kind of dependence on the buyer group. Bargaining power of suppliers Suppliers can exert bargaining power because of their monopolistic situation. They can raise the prices of their deliveries, reduce product quality or limit quantities sold to a particular buyer. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices. For instance, the increase in the price of basic steel products imposed by the announcement of extra custom duties in USA may contribute to profit erosion in the downstream steel transformation sector (as this was the case in Europe in the early 80t. Intense competition can prevent firms in this sector from raising their prices to their customers. The conditions making suppliers powerful are similar to those making buyers powerful: • The supplier group is dominated by a few companies and is more concentrated than the industry it sells to. • It is not facing other substitute products for sale to the industry. • The firm is not an important customer of the supplier. • The supplier's product is an important input to the buyer's business. • The supplier group has differentiated its products or has built up switching costs to lock the buyers. • The supplier group poses a credible threat of forward integration. Note that the labour force used in a firm must also be recognized as a supplier. As such, and according to its degree of organization and unionisation, labour exercises a significant bargaining power, which can greatly affect potential profits in an industry. These four factors of external competition, together with rivalry among existing firms within the same product market, determine a firm's potential profitability and market power. Achieving competitive advantage through market power The intensity and form of the competitive struggle between direct rivals in a product market varies according to the nature of the actual competitive structure. This defines the degree of interdependence between rivals and the extent of market power held by each competitor. To analyse a particular market situation, it is convenient to refer to the various competitive structures proposed by economists, for which numerous theoretical and empirical studies exist. Four competitive structures are generally distinguished: pure (or perfect) competition, oligopoly, monopolistic (or imperfect) competition and monopoly. We will examine each of these alternatives successively and underline the expected competitive behaviour in each case. The figure 3.4 gives an overview of the most important objectives in each competitive situation. ¾ Pure or perfect competition Perfect competition is characterized by the existence in the market of a large number of sellers facing a large number of buyers. Neither of the two groups is powerful enough to influence prices. Products have clearly defined technical characteristics, are perfect substitutes and sell at the market price, which is strictly determined by the interplay between supply and demand. In this kind of market, sellers have no market power whatsoever, and their behaviour is not affected by their respective actions. Key features are therefore the following:

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• Large number of sellers and buyers. • Undifferentiated and perfectly substitutable products. • Complete absence of market power for each player. This kind of situation can be seen in industrial markets for unbranded products, and in the 'commodities' market, such as soft commodities (food & vegetables) and the minerals and metals market. In a perfectly competitive market, the interplay between supply and demand is the determinant factor. Figure 3.4: Summary of the most important competitive strategic objectives

Important criteria

ST strategy

LT strategy

Pure competition

Oligopoly

- Number of competitors - Level of production of competitors - Choice of activity level

- Market share and growth possibilities - Competitors' behaviour

- Look for a form of differentiation (product, brand, service...)

- Adopt an attitude versus competition: Leader, aggressive, adaptive... - Try to be dominant by alliance, fusion or absorption - Differentiate from the others

Monopolistic competition - Value of the differentiation - Nature and position of products - Exploit position by adapting marketing mix

- Reinforce the protection. Put fences (brand or product and technology registration)

Monopoly - Possible substitutes - Nature of protection - Make good use of monopoly situation to enhance consumption -Adapt to needs & satisfy customers - Secure position - Prepare new products

To improve performance, the firm's only possible courses of action are either to modify its deliveries to the market, or to change its production capacity upward or downward, depending on the market price. In the short term, it is essential for the firm to keep an eye on competitors' production levels and on new entrants in order to anticipate price movements. In the long term, it is clearly in the firm's interest to release itself from the anonymity of perfect competition by differentiating its products to reduce substitutability, or by creating switching costs to the buyers in order to create some form of loyalty. One way of achieving this, for example, is to exercise strict quality control accompanied by a branding policy. A number of countries exporting food products follow this kind of strategy to maintain their product's price and demand levels: Columbian coffee, Spanish oranges, Cape fruits, Chiquita bananas... are attempts at this type of differentiation. Another way is to develop, downstream in the industrial chain, higher added value activities incorporating the commodity, with the objectives of stabilizing the level of demand and gaining protection from wild price fluctuations (Q8 petroleum). ¾ Oligopoly Oligopoly is a situation where the number of competitors is low or a few firms are dominant. As a result rival firms are highly interdependent. In markets concentrated in this way, each firm knows well the forces at work and the actions of one firm are felt by the others, who are inclined to react. Therefore, the outcome of a strategic action depends largely on whether or not competing firms react. The more undifferentiated the products of existing firms, the greater the dependence between them will be; in this case we talk about undifferentiated oligopoly, as opposed to differentiated oligopoly, where goods have significant distinctive qualities of value to the buyers. Oligopoly situations tend to pr it in product markets having reached the maturity phase of their life cycle, where total demand is stagnant and non-expansible.

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In undifferentiated oligopoly, products are perceived as 'commodities' and buyers' choices are mainly based on price and the service rendered. These conditions are therefore ripe for intense price competition, unless a dominant firm can impose a discipline and force a leading price. This situation is one of price leadership, in which the dominant firm's price is the reference price used by all competitors. On the other hand, if price competition does develop, it generally leads to reduced profitability for everyone, especially if total demand is non- expansible. This can lead to `price war' where lack of cooperation or discipline causes everyone's situation to deteriorate. In a non-expansible market, competition becomes a zero sum game. Firms seeking to increase sales can only achieve it at the expense of direct competitors. As a result, competition is more aggressive than when there is growth, where each firm has the possibility of increasing ids sales by simply growing at the same pace as total demand, with constant market share. In a stagnant oligopoly, ex plicit6onsideration of competitors' behaviour is an essential aspect of strategy development. Competitive behaviour refers to the attitude adopted by a firm in its decision-making process, with regards to its competitors' actions and reactions. The attitudes observed in practice can be classified into five typical categories: Independent-, Cooperative-, Follower-, Leader- and Aggressive or warfare behaviour. The most frequent behaviours in undifferentiated oligopoly are of the follower or leader kind. ¾ Imperfect or monopolistic competition Monopolistic competition is halfway between competition and monopoly. There are many competitors whose market powers are evenly distributed. But their products are differentiated, in the sense that, from the buyer's point of view, they possess significantly distinct characteristics and are perceived as such by the whole product market. Differentiation may take different forms: for example the taste of a drink, a particular technical characteristic, an innovative combination of features which provides the possibility of a variety of different uses, quality and extent of customer services, the distribution channel, power of brand image etc. Monopolistic competition is therefore founded on a differentiation strategy based on external competitive advantage. For a differentiation strategy to be successful, a number of conditions need to be present: • Differentiation of any kind must represent some value to buyers. • This value can either represent a better performance (higher satisfaction), or reduced cost. • The value to buyers must be high enough for them to be prepared to pay a price premium to benefit from it. • The element of differentiation must be sustainable; in other words, other rivals should not be able to imitate it immediately. • The price premium paid by buyers must exceed the cost supplement borne by the firm to produce and maintain the element of differentiation. • Finally, in so far as the element of differentiation is not very apparent and is unknown by the market, the firm must produce signals to make it known. The effect of differentiation is to give the firm some degree of market power, because it generates preferences, customer loyalty and weaker price sensitivity. The buyer's bargaining power is thus partially neutralized. Differentiation also protects the firm from rival attacks, given that as a result of the element of differentiation, substitution between products is reduced. The monopolistic firm is relatively independent in its actions vis-àvis its rivals. Finally, it also helps the firm to defend itself better against suppliers and

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substitute products. This is the typical competitive situation that strategic marketing seeks to create. In monopolistic competition, the firm offers a differentiated product and thus holds an external competitive advantage. This 'market power places it in a protected position, and allows the firm to earn profits above the market average. Its strategic aim is therefore to exploit this preferential demand, while keeping an eye on the value and duration of the element of differentiation. ¾ Monopoly This type of competitive structure is a limiting case, as for perfect competition. The market is dominated by a single producer facing a large number of buyers. Its product is therefore, for a limited period of time, without any direct competitor in its category. This kind of situation is observed in the introductory stage of a product's life cycle, namely in emerging industries characterized by high technology innovations. If monopoly exists, the firm has a market power, which in principle is substantial. In reality, this power is rapidly threatened by new entrants who are attracted by the possibility of growth and profits. The foreseeable duration of monopoly then becomes an essential factor. It will depend on the innovation's power and the existence of sustainable barriers to entry .A monopoly situation is always temporary, due to the rapid diffusion of technological innovations or to competition coming from substitute products. The logic of state or government monopolies is different from that of private firms. It is no longer the logic of profit, but that of public good and public service. Fulfilling these objectives in public services is hard because there is no incentive for adopting a market orientation. On the contrary, the public or state organization favours the adoption of a self-centred or internal orientation. This is one of the reasons in favour of the policy of deregulation adopted nowadays in many European countries. This problem is dealt with in the field of social service marketing, or marketing of nonprofit organizations, which has developed quite substantially over the last few years. 4. THE DYNAMICS OF COMPETITION Concluding the analysis of competitive forces, it is clear that market power and profit potential can vary widely from one market situation to another. We can thus put two limiting cases aside: one is the case where profit potential is almost zero; in the other case, it is very high. In the first case, the following situation will be observed: • Entry into the product market is free. • Existing firms have no bargaining power over their clients and suppliers. • Competition is unrestrained because of the large number of rival firms. • Products are all similar and there are many substitutes. This is the model of perfect competition, which is so dear to economists. The other limiting case is where profit potential is extremely high: • There are powerful barriers that block entry to new competitors. • The firm has either no competitors or a few weak competitors. • Buyers cannot turn to substitute products. • Buyers do not have enough bargaining power to make prices go down. • Suppliers do not have enough bargaining power to make increased costs acceptable. This is the ideal situation for the firm, which will have a very strong market power. Market reality is obviously somewhere in-between these two limits. It is the interplay of competitive forces that favours one or the other of these situations. A competitive advantage can be obtained in different ways, depending on the competitive structure and on the market characteristics. A classification of market

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situations has been proposed which helps in identifying the type of competitive advantage to pursue. Two classification criteria are used: • The size of the competitive advantage & the sensitivity to volume. • The number of ways of achieving competitive advantage & the sensitivity to differentiation. One then obtains a matrix, presented in Figure 3.5. Horizontally, we have the size of the advantage, which can be small or large. Vertically, we have the number of ways to achieve advantage, which can be few or many. Figure 3.5: The competitive advantage matrix Differentiation Sensitiveness /

Sensitiveness for volume /

Number of ways to achieve Size of the competitive advantage competitive advantage Low / Small High / Many Fragmented Low / Few Stalemate

High / Large Specialised Volume geared

To each of the quadrants corresponds a particular market situation requiring a specific strategic approach. The four types of industry are: volume, specialised, fragmented and stalemate industries. - Volume geared industries are those where sources of competitive advantage are few and where cost advantage is the major opportunity. It is typically in this market situation that experience and/or scale effects manifest themselves, and where a large relative market share is a precious asset. Profitability is closely related to the size of market share as postulated by the experience - Specialised industries are those with many ways of obtaining a sizeable competitive advantage. In these markets, the potential for differentiation is high, as is the case in situations of monopolistic competition, described earlier. Products have significant distinctive qualities from buyers' points of view, and they in turn are prepared to pay prices above those of direct competitors. In this kind of situation, the scale/experience effect brings no particular advantage. It is the value of differentiation or specialization that counts and determines profitability. Total market share has little value; it is market share in a specific segment or niche which is critical, even if the size of the niche is small. - Fragmented industries. Here the sources of differentiation are many, but no firm can create a sustainable and decisive advantage over its rivals. Scale brings no significant economies and a dominant market share does not lead to lower costs. On the contrary, increased costs (linked to the complexity of the situation) limit the optimal size of the firm. Many service firms are good examples of the fragmented sector. Large and small firms can co-exist with very different profitability. Market share has no effect, irrespective of the way it has been calculated. In this category one can classify women's clothing, restaurants and car repair or maintenance services. In many cases, the best strategy is to transform a fragmented activity into a volume or specialized activity. - Stalemate industrial situation. In this case the ways of obtaining a competitive advantage are few, as in the volume industries. But unlike these, accumulated experience does not constitute a competitive advantage. On the contrary, it is sometimes the newcomers who have the most efficient tools of production, because they have the most recent investment. In situations where technology is easily available, as in the steel industry or basic chemicals, competitiveness is more dependent on the age of the investment rather than the size of the firm: the last firm to invest benefits from lowest operating costs.

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We can therefore see that an experience-based strategy can in fact only be applied in commodity based, volume-sensitive industries, in which low cost is one of the few potential sources of achieving competitive advantage. 5. CONCLUSION The marketing goal is to look for a competitive advantage, which is the ability of a firm to win consistently over the long term in a competitive situation. The competitive advantage is created through the achievement of following guidelines - Doing things better than others do them - Doing things that are difficult for others to replicate - Doing things that the customers do value Doing things that are difficult to substitute - Doing things that have greater than average cost-value margins Once understood the environment in which organizations and firms do compete, it is obvious that one should frame the organisation and use the internal capabilities and resources at the best in order to give a sound response to the demand of the customers and to make use the market opportunities.

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Chapter 4: MARKET ATTRACTIVENESS ANALYSIS & STRATEGIES

The objective of this chapter is to examine how a market-driven firm can select the appropriate competitive strategy to achieve an above-average profit performance in the different business units included in its product portfolio. Two sets of factors determine the performance of a particular business unit; first, the overall attractiveness of the reference market where it operates, and second, the strength of its competitive position relative to direct competition. Forces outside the firm's control largely determine the reference market's attractiveness while the business unit's competitiveness can be shaped by the firm's strategic choices. Product portfolio analysis relates attractiveness and competitiveness indicators to help guide strategic thinking by suggesting specific marketing strategies to achieve a balanced mix of products that will ensure growth and profit performance in the long run. In this chapter, we shall first define the product life cycle and the conceptual bases of portfolio analysis and then describe the types of mission or objectives the firm should assign to each of its business units given their differentiated positions along the attractiveness-competitiveness dimensions. 1. GROWTH OPPORTUNITY ANALYSIS Before tackling the product side of our analysis, it would be good to remind the basic definition of what the global demand is. There is a great difference between the market share a company has acquired and the possibilities offered by a given market profile. The global demand is generally much larger than appears at a first look. The gap between the current and the absolute level of primary demand is indicative of the rate of development or underdevelopment of a product-market. The larger the gap, the greater is the growth opportunity; conversely, the smaller the gap, the closer the market is to the saturation level. One can refer to a framework to analyse the gaps between absolute market potential and current company sales. Four growth opportunities are identified as shown in figure 4.1; the usage gap, the distribution gap, the product line gap and the competitive gap. The competitive gap is due to sales of directly competitive brands within the product market and also to substitute products. The other gaps present growth opportunities that will be briefly reviewed below. Usage gaps The usage gap is due to insufficient use of the product. Three types of usage gap can be identified: • The non-user gap, i.e. the customers who could potentially use the product but are not using it because they don't know it or aren't directly interested.

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• The light-user gap, i.e. the customers who use the product but do not use it on every opportune occasion • The light-usage gap, i.e. the customers who use the product but by less than a full use on each use occasion. A strategy aiming at closing these gaps will contribute to the development of primary demand and will therefore benefit all competing firms as well (campaigns for dental care which booster the use of toothpaste!). Figure 4.1: Growth opportunity analysis

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Distribution gaps The distribution gap is due to absence or inadequate distribution within the product market. Three types of distribution gap can be observed. • The coverage gap exists when a firm does not distribute the relevant product line in all geographic regions desired. • The intensity gap exists when a firm's product line is distributed in an inadequate number of outlets within a geographic region where the firm has distribution coverage. The exposure gap exists when a firm's product lines have poor or inadequate shelf space, location displays etc. within outlets wh re the firm does have distribution for the product. Sales of a particular product line can be adversely affected by any or all of these three different distribution gaps. Before adopting new product lines, the firm should try to close these distribution gaps. Product line gaps The product line gap is caused by the lack of a full product line. Seven types of product line gap could exist: • Size-related product line gaps. Product 'size' can be defined along three dimensions: 'packaging' for consumables like soft drinks or detergents, 'capacity' for durables like refrigerators or computers and 'power' for automobile engines or industrial machinery. • Options-related product line gaps. A firm desiring to cater to specific demands of individual customers can offer optional features. Automobiles serve as one good example. By offering a large number of options, car manufacturers can produce a large number of cars, each one in some way different from, every other one. • Style, colour, flavour and fragrance-related product line gaps. Style and colour can be important for clothing, shoes, appliances, automobiles etc.; favours and fragrances can become important means of expanding product lines in food and drink products, tobaccos, toiletries etc. • Form-related product line gaps. One form of a product may be more attractive for customers than another. Possible dimensions of form include method or principle of operation (petrol versus electric mowers), product format (antacids: chewable, liquid, effervescent powder or tablets); product composition (corn oil, vegetable oil margarine) and product containers (returnable, throwaway bottles, easy-open cans). • Quality-related product line gaps. Price lining is a popular practice used by marketers to provide consumers with a choice of products differentiated by overall quality and prices. Sporting goods manufacturers market tennis rackets and golf clubs in a range from beginners' models (low price) up to professional models (high price). • Distributor brand-related product line gaps. Many manufacturers realize a significant proportion of their sales through selling to retailers who then put their own brand names on the products. For manufacturers who recognize the private brand market as a separate segment, private brands can account for product line gaps. • Segment related product line gaps. As discussed before, a firm can adopt different market coverage strategies. A firm has a product line gap for any segment for which it does not have a product. Each of these identified product line gaps constitutes a growth opportunity for the firm through innovation or product differentiation. The types of development strategies to be considered to close these gaps are briefly presented in figure 4.1. In addition to these development strategies operated by the firms, one must add the natural changes in the size of the industry market potential, which is linked to the product life cycle.

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2. THE PRODUCT LIFE CYCLE In attractiveness analysis, market potential analysis is a first, and essentially quantitative, step. The analysis must be completed by a study of the product life cycle, or the evolution of the potential demand for a product or service over time. An essentially dynamic concept borrowed from biology, the product life cycle (PLC) model takes the form of an S-shaped graph comprising five phases. The first phase is a take-off, or introductory phase, followed by an exponential growth phase, a shakeout or turbulent phase, a maturity phase and a decline phase. Figure 4.2(a) presents an idealized representation of the product life cycle, while Figure 4.2(b) portrays the life cycle of audiovisual products in Belgium, and in particular black and white TV. The determinants of the product life cycle Before moving to an explanation of the product life cycle, its stages and its marketing implications, it is important to explain what type of products should be dealt with in a life cycle analysis. Should it be a category of products (typewriters), a particular type of product within the category (electric typewriters), a specific model (portable electric typewriters) or a specific brand (Canon)? While a life cycle analysis at any level can have value if properly conducted, the most useful level of analysis is that of a productmarket. A product-market lends itself best to a life cycle analysis because, as we saw previously, it best describes buying behaviours in a particular market segment it most clearly defines the frame of reference: a product seen as a specific package of benefits, targeted to a specific group of buyers. Every product market has its own life cycle that reflects not only the evolution of the product, largely determined by technology, but also the evolution of primary demand and its determinants. The product market life cycle model For a product-market, primary demand is the principal driving force and its determining factors are both non-controllable environmental factors and industry's total controllable marketing variables. One of the most important non-controllable factors is the evolution of technology, which pushes towards newer, higher performance products, and makes older products obsolete. A second factor is the evolution of production and consumption norms, which makes certain products no longer suitable for the market and calls for others. Thus, the PLC model portrays the sales history of a particular product technology, which constitutes one specific solution (among many others) for a specific group of buyers to a market need. These factors exist in all business sectors, which does not however exclude the possibility that certain better-protected product-markets have a much longer life cycle than others. The life cycle remains largely influenced by industry marketing efforts, particularly when the market is expanding. Dynamic companies are the driving force in a market, guiding its evolution, development and eventual re-launch sparked by modifications to the product. The product life cycle is thus not fixed, and research in the field has identified a great variety of life cycle patterns. Strategic implications of the product life cycle As product-markets grow, mature and decline over time, marketing strategy must evolve to the changing buyer's behaviour and competitive environment. To say that a product has a life cycle implies four things: • The economic and competitive environment is different at each phase.

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• The priority strategic objective must be redefined at each phase. • Products' cost and profit structures are different at each phase. • The marketing program must be adapted in each stage of the PLC. Figure 4.2:

(a) Idealized representation of the product life cycle (b) The product life cycle of television and video in Belgium

The shortening of the product life cycle is a major challenge for the innovative firm, which has less and less time to achieve its objectives.

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¾ The introductory phase In the introductory phase, the market is often (not always) characterized by a slow growth of sales because of various environmental factors. The first of these is the technology uncertainty, which is often not yet entirely mastered by the innovating company. In addition, the technology may be still developing or evolving in reaction to the first applications, and thus the producer cannot yet hope to produce at maximum efficiency. Distributors are a second environmental force, and can be very reluctant at this stage to distribute a product that has not yet proven itself on the larger market. The potential buyers make up a third environmental factor. They can often be slow to change their consumption or production habits because of switching costs and caution towards the innovation. Only the most innovative of consumers will be the first to adopt the new product. A final environmental force is the competition. Typically, the innovating company is without direct competition for a period of time, depending on the strength of the patent protection if any. Substitute product competition can still be very strong, however, excepting in the case of breakthrough innovation. This phase is often characterized by a high degree of uncertainty because current and potential competitors are not well known, the market is poorly defined and information is scattered. Internal company factors, which also characterize the introduction phase, include highly negative cash flows, large marketing expenses, high production costs, and often large research and development costs to be amortized. All of these factors put the new product in a very risky financial position. For this reason, the shorter the introduction phase of the product, the better for the company's profitability. The marketing strategy in the early phase of the PLC typically stresses market education objectives. To respond to these priorities, the marketing programme in the introduction phase will tend to have the following characteristics: • A basic, core version of the product. • An exclusive or selective distribution system. • A high price elasticity situation. • An informative communication programme. Several alternatives exist as to the types of launching strategies, particularly in terms of pricing: the dilemma of 'skimming versus penetration' pricing is of utmost importance. ¾ The growth phase If the product successfully passes the test of its introduction to the market, it enters the growth phase. This phase is characterized by growth of sales at an accelerating rate. The causes of this growth are the following: • The first satisfied users become repeat customers and influence other potential users by word of mouth; thus the rate of occupation of the market increases. • The availability of the product due to wider distribution gives the product more visibility, which then further increases the product's diffusion in the market. • The entrance of new competitors increases the total marketing pressure on demand at a moment when it is expansible and strongly elastic. An important characteristic of this phase is the regular decrease of production costs due to the increase in the volume produced. An effect of experience also begins to be felt. Prices have a tendency to decrease, which allows the progressive coverage of the entire potential market. Marketing expenses are thus spread over a strongly expanding sales base, and cash flows become positive. The marketing programme will also be modified, as follows: • Product improvements and features addition strategy.

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• Intensive distribution and multiple channels strategy. • Price reductions to penetrate the market. • Image building communication strategy. This primary demand development strategy requires important financial resources, and, if the cash flows are positive and profits rising, the equilibrium breakeven point is not necessarily reached yet. At this time, there is no intensive competitive rivalry in the product-market, since the marketing efforts of any firm contribute to the expansion of the total market and are therefore beneficial for other firms. ¾ The shake-out or turbulent phase This is a transitory phase where the rate of sales growth is decelerating, although primary demand is still growing. The target group is now the majority of the market. The weakest competitors start dropping out, as the result of successive decreases in the market price, and the market is becoming more concentrated. The key message of the shakeout phase is that things will be more difficult in the market because of the slowing down of total demand. Competing firms are led to redefine their priority objectives in two new directions. • First, the strategic emphasis must shift from developing primary demand to building up or maximizing market share. • Second, market segmentation must guide the product policy to differentiate the firm from the proliferation of 'me too' products and to move away from the core market. The marketing programme will stress the following strategic orientations: • Product differentiation guided by market segmentation. • Expansion of distribution to get maximum market exposure. • Pricing based on the distinctive characteristics of the brands. • Advertising to communicate the claimed positioning to the market. The shakeout period can be very short. The competitive climate becomes more aggressive and the key indicator of performance is market share. ¾ The maturity phase Eventually, the increase of primary demand slows down and stabilizes at the growth rate of the real GNP or the rhythm of demographic expansion. The product is in the phase of maturity. The majority of products can be found in this phase, which usually has the longest duration. The causes of this stabilization of the global demand are the following: • The rates of occupation and penetration of the product in the market are very high and very unlikely to increase further. • The coverage of the market by distribution is intensive and cannot be increased further. • The technology is stabilized and only minor modifications to the product can be expected. At this stage, the market is highly segmented as companies try to cover all the diversity of needs by offering a wide range of product variations. Over the course of this phase the probability of a technological innovation to re-launch the PLC is high, as everyone in the industry tries to extend the life of the product. The marketing program will aim to defend, and if possible to expand, market share and to gain a sustainable competitive advantage over direct competitors. The tools to be used for achieving this objective are basically of three types: • To differentiate the products through quality, features or style improvements. • To enter new market segments or niches. • To gain a competitive advantage through the non-product variables of the marketing mix. Price competition is more frequent, but has little or no impact on total demand, which has become inelastic to price. It will only affect the market share of the existing

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competitors. In as much as the industry succeeds in avoiding price wars, this is the phase where profitability is highest, as shown in figure 4.3 Figure 4.3: Financial implications throughout the PLC

¾ The decline phase The decline phase is characterized by a structural decrease in demand for one of the following reasons: • New, more technologically advanced products make their appearance and replace existing .products with the same function. • Preferences, tastes, or consumption habits change with time and render products outdated. • Changes in the social, economic and political environment, such as modifications in environmental protection laws, make products obsolete or simply prohibited. As sales and potential profits decrease, certain companies disinvest and leave the market, while others try to specialize themselves in the residual market. This represents a valid option if the decline is progressive. Except in a turnaround of the market, which is sometimes observed, the abandon of the technologically outdated product is inevitable. The table presented in figure 4.4 gives a sound resume of the various decisions and observation linked to each of the PLC phases. It mentions in particular the attitude taken by the marketers in terms of the 4 P's: Product, Price, Promotion and Place.

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51

RAPIDGROWTH (Normalintroductory panemfor a very low learningproduct)

MARKET DEVELOPMENT (lntroduclory P€riodfor high learningproducts only)

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STRATEGY OB.JECTIVE

Minimire leaming requiremenls, locale and remedy offerirp d€locls quictly, develop wilesPead awareness ol benefrts. and gnrn trial by eady a@iers

To establish I slrong brand rnarket and distribution nich€ as quk*ly as possible

To maintain and str€nglhen tho markel niche achieved lhrough dealer and consumef loyalty

To delend kand posilirx against comp€ting brands and producl calegory against other polential producls, through constanl stlention lo product improvement opporlunities and lresh promotional and cristribulion approaches

To milk the oflering dry of all possibl€ profit

OUTLOOK FOR COMPETITION

None is likely lo be anracled In the early. unp(olitable slag€s

Early entrance ol numerous aggressive omulalors

Price and dislri. bulron sque€z€ on lhe induslry. shaking o{rl lhs w€aker onlrents

Comp€tition statilized, wilh lew or no new snlrants and martel shares nol subiecl lo subst nthl charçe in the absonca of I sôctanlial perceived improrement h eome brand

Similar compelition declining and dropping oul because ol decrease in oonsumer interesl

PRODUCT DESIGN OBJECTIVE

Limited numbor ol models with Èysrcal prodrrt ard otlering clesgns both loqlsed on mintmizing learnirç requirements. Desgns cost- and use-engrneered to appeal to rnost .ocsptive s€0' ment Urmost angnlion lo quality control and qurck elimination ol market-rev€aled dolecrs in (bs€n

Modular desQn lo lacilitate llexible addition of varianls lo appeal lo evory now segmenl and nory us€-syslem as last as discovered

lntensilied anonlion lo product improvement, lighlening up of line lo eliminale unoecessiary speciallies with finlg markel app€al

A constanl alort for rnartet gyramiding opportunities thror.rgh eilher bold costand price-penetralion of new markels or major prodrrcf changes. Introduction of flanker pfod|,cts. funstanl anention to possitrilities lor producl improvem€nt and cosl cunirp. Reexamination of næessity ol design compromises

Constanl pruning of line to eliminate any items nol rotuantng a diroct profit

PRIClNG OB.JECTIVE

To impoce thc minimum ol value: percapoon leaming and to matô ths value relerence Porcoption of the rrcst roc€Pti\re s€gmenls. Hbh ùad€ discounts and sâmpltns acVisable

A pnc€ line lor €very taslo, kom krrr+nd to promiutn models. Custornary lrad€ discounB. Aggressive promolkrôel pËng, wilh prices cut as lac as oosts decline du€ lo accrrmublod production exporbrca. lntenil'rcation of samplirtg

lncreased atlention to market-b,roadoning and promotional Pr*Jng opportLlnili€€

Delensive p,ricirlg to prosorv€ product €legory francfiise. Search lor iæremental pricing opportunities, induding privale label contracls, to boosl volume and gain an experierrce advantage

Mainlenance of prolit lorol priing vrith corny'ele disregard ol any eflecl on markol shar€

PROMOTIONAL GUIOELINES Cornmunrcatbns ofi€ctn06

a)

Create and strongthcô band prelererrce arnong lrado 8nd final usors Stimulate general tsiel

Maintain consumor lrancàise and strerlgthen dealor lies

Maintain consumer and trade loyalty, with strong emphasis on dealers and distributors. Promotion of groalor us€ frequency.

Pheso our" keeplng iusr ônough lo marnlain proliùable distribu6on

Mass media Personal saleg Sales prornofion, indudirp samplirp Publicity

Mass modla Dealer promtirns Personal selling to doaleflt Sales promotions Publitity

Mass media Dealeroriented

Cul do*r all modh to lho bon€-us€ no sales prormtions of any kirÉ

Inlonsivo and oxlen. sive, and a sttong emphasis on keeçing dealer well supplied, hrl wilh minimum invenlory cost lo him

Intensiv€ and exlerisivo, with srong emphasis on keeçling doaler well supy'ied. but at minimum irwentory cosl lo him

Phase oul outlets as th€y bæorn€ marginal

Clos€ anention lo prodirt improvemenl needs, to markel-broadeniqg chancas, and to possible lrestt prornotbn lhemoo

Intensified atlention lo possibl€ prducl irnprovements. Sharp alert lor potonlral new inter-producl compotition ancl lor signs ol beginnirp prodwl dedine

lnlormation helprng to idontity th€ point al hôich Û|o prodircl should be phâs€d oul

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In order ol vah,p Publirity Personal sales llass communi(ztions

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Create widesPraad arYarenass and undorstandirP of ollering bonefits Gain trial by early acroPlers

mix

DISTRIBUTION POLICY

Exclusive or seledive, with distributor margins hrgh eriough to justity fieevy Prornotional spexlirp

INTELLIGENCE FOCUS

To kfertity aclual develoçtng uso-systems and lo uncover anY p.odrJct weakness

lntensive and enensivt, wiih dealer margins jusf hilh enough to hoop thom intefestod. Close .'enention to rapid teatPflY ol disributor slodcs and heavy inventorbs at all levels

O€tail€d attentbn lo brand po-sitbn. to gaps in modol and rnarket covorag€, end to opporlunities lor rnatk€l segrrnentation

promotions

alongthe PLCphases Figure 4,4 : Résuméof thevariousdecisionsand obseruations

MANAGING THE STRATEGIC MARKETING PROCESS

Limits of the product life cycle model The life cycle model is not unanimously accepted among market analysts and certain of them recommend the complete abandon of the concept. Several legitimate criticisms should lead to a nuanced use of the model, though its utility remains nonetheless important. ¾ Circular reasoning The first criticism is methodological. It holds that the product life cycle model uses circular reasoning; its phases are defined by the rate of growth of sales, then the phases are used to predict sales. This purely endogenous definition is indeed very unsatisfactory. It is from the comprehension of the driving forces of the PLC model that one can formulate predictions. The potential explanatory variables are known, yet the measure of their influence is difficult to establish. By accumulating empirical observations, one can progressively improve this comprehension. ¾ Deterministic model A second criticism questions the deterministic nature of the model, which assumes the existence of a predefined sequence of phases in time. The company, which considers the life cycle as inevitable, risks acting in such a manner that the life cycle becomes a self-fulfilling prophecy. The company's strategy should rather be to try to affect the life cycle to its greatest advantage. This criticism is based on an assumption that the life cycle is in fact a dependent variable, entirely determined by the actions of the company. On the level of a product category or of a product market, the dependence of primary demand on environmental factors is however important and cannot be overlooked in a strategic analysis. ¾ Diversity of actual PLC profiles A third source of difficulty comes from the fact that available experimental observations show that the PLC profile does not always follow an S-curve as suggested by the model. One can indeed identified as many as twelve different profiles. Sometimes products escape the introduction phase and enter directly into growth,- others skip the maturity phase and pass directly from growth to decline,- still others skip decline and find a new vigour after a brief slowdown etc. (see figure 4.5). Thus there is not only one type of evolution that will invariably intervene, and it is often difficult to determine in which phase a product is currently situated. This difficulty reduces the utility of the concept as a planning tool, and even more so as the duration of the phases varies from one product to another, not to mention from one country to another for the same product. The different profiles observed can be explained by the evolution of the following explanatory factors: technology, consumption habits, and company dynamism. The PLC model does not exempt the market analyst from a systematic analysis of the driving forces at the origin of these changes. The obvious difficulty is to determine, before the facts, the type of evolution that will prevail. Another explanation of the observed differences in the profiles comes from the fact that companies can act upon the pattern of the PLC profile by innovating, repositioning the product, promoting its diffusion to other groups of consumers, or modifying it in various manners. Throughout the life cycle, the dynamic firm will try to pursue the following objectives: • Shortening the introduction phase. • Accelerating the growth process.

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53

(o) Highleorningproduct

(b) Low leorningproducf

( c ) T h ef o d

(d) Thefod with o significonf residuolmorket

(e) Theinstontbust

(f) Themorketspeciolity

(g) Thepyromidedcycle

(h) Thenew life

(i) Theoborted introduction

0) Thefoshioncycle

Figure 4.5 : Commonvaiants of the productlife cycte

MANAGING THE STRATEGIC MARKETING PROCESS

• Prolonging the maturity phase. • Slowing the decline phase. The ideal profile of a product life cycle is one where the development phase is short, the introduction brief, the growth phase rapid, the maturity phase long and the decline long and progressive. More than a planning tool, the life cycle model is a conceptual framework for analysing the forces which determine the attractiveness of a product market and which provoke its evolution. Markets evolve because certain forces change, provoking pressures or inciting changes. This evolutionary process and changing forces are important to identify, and for that purpose the product life cycle model is useful. The application of the PLC model implies the ability to formulate forecasts of the evolution of primary demand in a given product market, be they qualitative or quantitative. This problem has become particularly complex in our Western economies because of the turbulence of the environment and the radical nature of the changes observed over the course of the last decade. In light of these difficulties and the importance of forecasting errors, certain analysts came to speak of the futility of forecasting. In reality, forecasting is an inevitable task that all companies must perform, whether explicitly or implicitly. In addition to the PLC approach, a product portfolio analysis should help a multibusiness firm to decide how to allocate scarce resources among the product markets they compete in. In the general case, the procedure consists in cross-classifying each activity with respect to two independent dimensions: the attractiveness of the reference market where the firm operates, and the firm's capacity to take advantage of opportunities within the market. Various portfolio models have been developed, using matrix representations where different indicators are used to measure attractiveness and competitiveness. Here we shall concentrate on the three most representative methods: the Boston Consulting Croup's method (BCG) called the 'growth-share' matrix, the 'multifactor portfolio' matrix attributed to General Electric and Mc Kinsey, and the A.D. Little market life-cycle grid. Although those methods have the same objectives, their implicit assumptions are different and the approaches will likely yield different insights. 3. THE BCG GROWTH-SHARE MATRIX The BCG matrix is built around two criteria: the reference market's growth rate (corrected for inflation), acting as an indicator of attractiveness, and market share relative to the firm's largest competitor, measuring competitiveness. As shown in figure 4.6, we have a double entry table where a cut-off level on each axis creates a grid with four quadrants. Along the market growth axis, the cut-off point distinguishing high-growth from lowgrowth markets corresponds to the growth rate of the GNP in real terms. Similarly, on the relative market share axis the dividing line is usually put at 1 or 1.5. Beyond this level, relative market share is high; below, it is low. Thus the matrix relies on the concept of relative market share to leading competitor, which calculates the ratio of unit sales for one firm with unit sales for the largest share firm. If company A, for example, has a 10 per cent share of the market and the largest share belongs to company B, with 20 per cent, then company A has a relative market share of 0.5 (10 % 120 %). It has a low market share since the ratio is less than one. Similarly, company B has a relative market share of 2 (20 % / 10%). It has a high share of the market. The use of relative market share is based on the assumption that market share is positively correlated with experience and therefore with profitability. Therefore the

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competitive implications of holding a 20 per cent market share are quite different if the largest competitor is holding 40 per cent or only 5 per cent. Figure 4.6: The BCG growth-share matrix

We thus obtain four different quadrants, each of which defines four fundamentally different competitive situations in terms of cash flow requirements and which need to be dealt with by specific objectives and marketing strategies. Basic assumptions of the growth-share matrix There are two basic assumptions underlying the BCG analysis: one concerns the existence of experience effects, and the other the product life cycle (PLC) model. These two assumptions can be summarized as follows; - Higher relative market share implies cost advantage over direct competitors because of experience effects; where the experience c e concept applies, the largest competitor will be the most profitable at the prevailing price level. Conversely, lower relative market share implies cost disadvantages. The implication of this first assumption is that the expected cash flow from products with high relative market share will be higher than those with smaller market shares. - Being in a fast growing market implies greater need for cash to finance growth, added production capacity, advertising expenditures etc. Conversely, a product operating in a mature market can generate cash. Thus, the product life cycle model is employed because it highlights the desirability of a balanced mix of products situated in the different phases of the PLC. The implication of this second assumption is that the cash needs for products in rapidly growing markets are expected to be greater than they are for those in slower growing ones. Defining the type of business Keeping in mind these two key assumptions, we can identify four groups of product markets having different characteristics in terms of their cash flow needs and/or contributions:

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• Low growth/high share or 'Cash cow' products: These products usually generate more cash than is required to sustain their market position. As such, they are a source of funds for the firm to support diversification efforts and growth in other markets. The priority strategy is to 'harvest'. • Low growth/low share, “Dogs” or 'La a ducks' products: Dogs have a low market share in a low-growth market, the least desirable market position. They generally have a cost disadvantage and few opportunities to grow, since the war is over in the market. Maintaining these products generally turns into a financial drain without any hope of improvement. The priority strategy here is to 'divest' or in any case to adopt a low profile and to live modestly. • High growth/low share or 'Problem children' or 'Question mark' products: In this category we find products with low relative market shares in a fast growing market. Despite their handicap vis-à-vis the leader, these products still have a chance of gaining market share, since the market has not yet settled down. However, supporting these products implies large financial means to finance share-building strategies and to offset low profit margins. If the support is not given, these products will become dogs as market growth slows down. Thus, the alternatives here are to build market share or to divest. • High growth/high share or 'Stars' products: Here we have the market leaders in a rapidly growing market. These activities also require a lot of cash to finance growth, but because of their leading position they generate significant amounts of profits to reinvest in order to maintain their market position. As the market matures, they will progressively take over as cash cows. Every activity can be placed in the matrix but a circle of size proportional to sales volume, sales revenue or profit contribution can represent the significance of an activity. This analysis should be made in a dynamic way, i.e. by tracking the progression or movements of each business unit or product group, over a period of time as illustrated in figure 4.7. Figure 4.7: Product portfolio trajectory analysis

Other functional guidelines concerning the 4 Ps, production, personnel, distribution... derived or suggested by the BCG portfolio matrix are bundled in the grid illustrated on following page.

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MANAGING THE STRATEGIC MARKETING PROCESS

Diagnosing the product portfolio In this approach, it is important to properly define the reference market in which the activity is competing. Relative market share compares the strength of a firm relative to its competitors. If the market is defined too narrowly the firm appears as the segment leader; if it is too wide, the firm appears too weak. The following points arise from the analysis. • The position in the matrix indicates the credible strategy for each product: maintain leadership for stars; abandon or low profile for dogs; selective investment and growth for problem children; maximum profitability for cash cows. • The position in the matrix helps evaluate cash requirements and profitability potential. Profits are usually a function of competitiveness; cash requirements generally depend on the phase of the product's life cycle, that is, on the reference market's degree of development. • Allocation of the firm's total sales revenue or profit contribution according to each quadrant allows balancing of the product portfolio. The ideal situation is to have products that generate cash and, products in their introductory or growing stage that will ensure: the firm's long-term viability. The needs of the second category will be financed by the first. Based on this type of diagnostic, the firm can envisage various strategies either to maintain or to restore the balance of its product portfolio. To be more specific, it allows the firm: • To develop portfolio scenarios for future years on the basis of projected growth rates and tentative decisions regarding the market share strategies for the various activities, assuming different competitive reaction strategies. • To analyse the potential of the existing product portfolio, and to put a figure to the total cash-flow it can expect from each activity, every year, until the end of its planning horizon. • To analyse the strategic gap, that is the observed difference between expected performance and desired performance. • To identify the means to be employed to fill this gap, either by improving existing products' performances, or by abandoning products that absorb too much cash without any realistic hope of improvement, or finally by introducing new products that will rebalance the portfolio structure. Too many ageing products indicate a danger of decline, even if current results appear very positive. Too many new products can lead to financial problems, even if activities are quite healthy, and this type of situation inevitably risks loss of independence. Limitations of the growth-share matrix The most important merit of the BCG method is undoubtedly that it provides an appealing and elegant theoretical development, which establishes a clear link between strategic positioning and financial performance. It is true that the initial assumptions are restrictive. But if they are true, they allow accurate analysis and valuable recommendations. General managers can thus concentrate on the major strategic problems and analyse the implications of alternative business strategies. Furthermore, the method is based on objective indicators of attractiveness and competitiveness, thus reducing the risk of subjectivity. Finally, it should also be added that the matrix provides a visual, vivid and easy to comprehend synthesis of the firm's activities, thus facilitating communication.

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4. THE MULTI-FACTOR PORTFOLIO MATRIX: MC KINSEY- GE GRID The BCG matrix is based on two single indicators. But there are many situations where factors other than market growth and share determine the attractiveness of a market and the strength of a competitive position. In the approach of Mc Kinsey - GE, a battery of indicators is selected to measure the attractiveness of market sectors and another set of criteria are taken to evaluate the competitiveness of the company in those sectors vis-àvis its rivals in terms of specific criteria as costs, product-line, sales efficiency, technical know-how... Since each situation is different, the relevant list of factors has to be identified and the selection is a delicate task, which should involve marketers and persons of the other departments as well. Each product-market segment is to be evaluated against each indicator (as given in the example of figure 4.8 relative to a textile industry). Figure 4.9: The Mc. Kinsey - GE Business Screen

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- A scale of 5 points is used, with 'low', 'average' and 'high' as reference points for scores equal to 1, 3 and 5, respectively. - As far as indicators of competitiveness are concerned, ratings are not attributed 'in abstract', but relative to the most dangerous competitor in each product market or segment. - If some indicators appear to be more important than others, weighting can be introduced, but the weights must remain the same for every activity considered. - The ratings should reflect, as much as possible, future or expected values of the indicators and not so much their present values. - A summary score can then be calculated for each product market's global attractiveness and the firm's potential competitiveness. Contrary to the BCG approach, subjective evaluations enter into these measures of attractiveness and competitiveness. But the process may nevertheless gain in interpersonal objectivity, to the extent that many judges operate independently. Their evaluations are then compared in order to reconcile or to explain observed differences and disagreements. This process of reconciliation is always useful in itself. Figure 4.9: The Mc. Kinsey - GE Eusrness Screen

Interpretation of the multi-factor grid We then obtain a two-dimensional classification grid similar to the BCG matrix. It is current practice to subdivide each dimension into three levels (low, average, high), thus

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getting nine squares, each corresponding to a specific strategic position. Each zone corresponds to a specific positioning. The firm's different activities can be represented by circles with an area proportional to their contribution in terms of share in total sales revenue and/or gross margin generated. Figure 4.9 provides an example of the business screen, with sample industry attractiveness factors and business strengths. Each circle is a distinct product-market segment, or SBU. The size of the circle represents the sales contribution of the given sector. The pie-shaped area within each circle identifies the gross margin generated by the considered segment. The three cells in the upper left hand corner contain opportunities in which the firm should invest resources with an eye toward long-term growth. The diagonal cells, moving from top right to bottom left, are equivalent to question-mark products in the growthshare matrix. These receive a medium priority in terms of investment. The strategy is to maintain position and selectively focus the firm's profit-seeking efforts. The remaining cells in the lower right hand corner contain products that are equivalent to dogs, where the industry is not all that attractive, and the company has few real strengths with which to capitalize on the market. The fuzzy value of the summary scores can reflect either very high marks on some indicators and very low marks on others, or simply an average evaluation on all the criteria. The latter case is often observed in practice and reflects imprecise information or simply lack of it. Choice of future strategy We thus have a visual representation of the firm's growth potential. By extrapolating each activity's expected growth under the assumption of 'no change' strategy, the firm is in a position to assess its future position. Alternative strategic options can also be explored, such as: • Investing to hold aims at maintaining the current position and keeping up with expected changes in the market. • Investing to penetrate aims at improving the business position by moving the business unit to the right of the grid. • Investing to rebuild aims at restoring a position which has been lost. This revitalization strategy will be more difficult to implement if the market attractiveness is already medium or low. • Low investment aims at harvesting the business, i.e. the business position is exchanged for cash, for example, by selling the activity at the highest possible price. • Divestment aims at leaving markets or segments of low attractiveness or segments where the firm has not the capacity to acquire or to sustain a competitive advantage. Evaluation of the multi-factor portfolio grid The multi-factor portfolio model leads to the same kind of analyses as the BCG matrix, with one major difference: the link between competitive and financial performance (i.e. cash flow) is lost. However, since this model is not based on any particular assumption, it does overcome many of the shortcomings of the BCG method and it is more widely applicable. Furthermore, it is much more flexible because the indicators used are company-specific. The two approaches will very likely yield different insights. But as the main purpose of a product portfolio analysis is to help guide, but not substitute for, strategic thinking, the process of reconciliation will be useful. Thus it is desirable to employ both approaches and compare results.

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5. THE A.D.L BUSINESS LIFE-CYCLE APPROACH This alternative portfolio approach is illustrated in figure 4.10. Here, strategies are developed around a firm's competitive position in a given business area, and the degree of maturity of this particular business segment. The market leader generally is the firm that either is largest, has the biggest market share, or has the most favourable cost position. Challengers and followers are runnersup in terms of market share. However, the challenger is aggressively attempting to overtake the leader, while the follower is satisfied with the status quo. Followers may achieve satisfactory returns by imitating the successful programs of leaders and challengers. Marginal competitors are barely holding on to a piece of the market. A policy of specializing on a segment or niche may prove profitable for marginal types of firms. Figure 4.10: The life-cycle portfolio matrix

The criteria for classification of competitive position formulated by A.D. Little are described as follows: - "Dominant": Dominant competitors are very rare. Dominance often results from a quasi monopoly or from a strongly protected technological leadership. - "Strong": Not all industries have dominant or strong competitors. Strong competitors can usually follow strategies of their choice, irrespective of their competitors' moves. - "Favourable": When industries are fragmented, with no competitor clearly standing out, the leaders tend to be in a favourable position. - "Tenable": A tenable position can usually be maintained profitable through specialization in a narrow or protected market niche. This can be a geographic specialization or a product specialization.

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- "Weak": Weak competitors can be intrinsically too small to survive independently and profitable in the long term, given the competitive economics of their industry, or they can be larger and potentially stronger competitors, but suffering from costly past mistakes or from a critical weakness. The portfolio in figure 4.10 encourages management to objectively determine what its competitive position has been, as well as the competitive posture it is capable of assuming. Different objectives, strategies, and resource allocations are appropriate, depending on this competitive posture. But subsequent modifications must be made in these areas as a product moves through the life cycle. The strategic positioning in terms of Market share suggested by the life-cycle portfolio matrix is illustrated in the following grid (figure 4.11) Figure 4.11 : Strategic positioning in terms of market share suggested by the ADL grid

6. HOW TO SET STRATEGIC OBJECTIVES: THE ANSOFF MATRIX The Ansoff matrix can be introduced here as a useful tool for thinking about marketing objectives. A firm's competitive situation can be simplified to two dimensions only: products and markets. To put it even more simply, Ansoff s framework is about what is sold (the 'product'), and whom it is sold to (the 'market'). Within this framework Ansoff identifies four possible courses of action for the firm: • Selling existing products to existing markets • Extending existing products to new markets • Developing new products for existing markets • Developing new products for new markets The matrix in Figure 4.12 depicts these concepts. It is clear that the range of possible marketing objectives is very wide, since there will be degrees of technological newness and degrees of market newness. Nevertheless, Ansoffs matrix provides a logical framework in which marketing objectives can be developed under each of the four main headings above. In other words, marketing objectives are about products and markets only. Common sense will confirm that it is only by selling something to someone that the company's financial goals can be Scanné par PHAN Thanh Tu

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achieved, and that advertising, pricing, service levels, and so on, are the means by which it might succeed in doing this. Thus, pricing objectives, sales promotion objectives, advertising objectives, and the like should not be confused with marketing objectives and strategic options. Figure 4.12: Ansoff matrix

Ansoff defines a strategic option as a possibility offered in the resource-conversion process. Thus, in the long run, it is only by selling something (a 'product') to someone (a 'market') that any firm can succeed in staying in business profitably. Simply defined, product/market strategy means the route chosen to achieve company goals through the range of products it offers to its chosen market segments. Thus the product/market strategy represents a commitment to a future direction for the firm. The general marketing directions flow of course from the life cycle and portfolio analysis conducted in the audit and revolve around the following logical decisions: - Maintain. This usually refers to the 'cash cow' type of product/market and reflects the desire to maintain competitive positions. - Improve. This usually refers to the 'star' type of products/market and reflects the desire to improve the competitive position in attractive markets. - Harvest. This usually refers to the 'dog' type of product/market and reflects the desire to relinquish competitive position in favour of short- term profit and cash flow. - Exit. This also usually refers to the 'dog' type of product/market, also sometimes the 'question mark', and reflects a desire to divest because of a weak competitive position or because the cost of staying in it is prohibitive and the risk associated with improving its position is too high: - Enter. This usually refers to a new business area. The Ansoff approach to growth defines two different directions: - A growth within the reference market it operates and we called it intensive growth - A growth objective based on opportunities outside the normal field of activity. This is diversification Another option is to be added that we will treat in the same run: - A growth within the industrial chain, this is integrative growth To each of these growth objectives there correspond a number of possible strategies. It is interesting to examine them briefly. -

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a. Intensive growth A strategy of intensive growth is called for when a firm has not yet fully exploited the opportunities offered by its products within its 'natural' reference market. Various strategies may be envisaged: market penetration (by adaptation), market development (by modification) and product development (by renovation) strategies. Market penetration strategies: Adaptation of the product portfolio to suit more customers A market penetration strategy consists of trying to increase or maintain sales of current products in existing markets. Several options are open: • Primary demand development: to increase size of total market by expanding primary demand, for example: - Broadening the customer base by converting non-users into users. - Increasing the frequency of purchase among present users. - Increasing the average quantity purchased per use occasion. - Identifying and promoting new uses. Note that this strategy can benefit all competitors since it influences primary demand more than selective demand. • Market share increase strategy: to increase sales by attracting buyers from rival brands through significant spending on marketing mix variables. For example: - Improved product or service offering. - Repositioning the brands. - Aggressive pricing. - Significant reinforcement of the distribution and service network. - Major promotional efforts. This more aggressive strategy will be mainly observed in market situations where primary demand is non-expansible, having reached the maturity phase of the product life cycle. • Market acquisition: to increase market share substantially by; acquisition or joint venture. For example: - Acquisition of a competitor to obtain its market share. - Joint venture to achieve control of a significant market share. • Market position defense: to defend current market position (i.e. customer relationships, network, share, image etc.) by adjusting the marketing mix. For example: - Product or service minor adaptations or repositioning. - Defensive pricing. - Sales and distribution network reinforcement. - Stepped-up or redirected promotional activities. • Market rationalization: to modify significantly the markets served to reduce costs and/or increase marketing effectiveness. For example: - Concentration on the most profitable segments. - Use of the most effective distributors. - Limiting individual customers served via minimum volume requirements. - Selective abandonment of market segments. • Market organization: to influence, using legally accepted practices, the level of competition within one's industry to enhance economic viability. For example: - Establishment of industry-wide competitive rules or guidelines, usually under government supervision. - Creation of joint marketing research organizations to improve information systems. - Agreement on capacity stabilization or reduction.

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These last three strategies gies are more defensive, aiming at maintaining the level of market penetration. Market development strategies: Modify and modulate product portfolio to enter new markets A market development strategy refers to a firm's attempt to increase the sales of its present products by tapping new markets. This objective can be achieved using three alternative approaches. • New market segments: to reach new groups of buyers within the same geographic market. For example: - Introducing an industrial product to the consumer market or vice versa. - Selling the product to another consumer age group (sweets to adults). - Selling the product to another industrial sector. • New distribution channels: to distribute the product through another channel of distribution, complementary to the current ones. For example: - Adopting a direct marketing system for specific groups of buyers. - Distributing the products through vending machines. - Developing a franchise system parallel to the existing network. • Geographic expansion towards other parts of the country or to other countries. For example: - Shipping existing products to foreign markets relying on local agents or on an independent worldwide trading company. - Creating an exclusive network of distributors to handle foreign business - Acquiring a foreign company in the same sector. Market development strategies rely mainly on the distribution and marketing know-how of the firm. Product development strategies: New or renovated product portfolio to the clients A product development strategy consists of increasing sales by developing improved or new products aimed at current markets. Several different possibilities exist. • Features addition strategy: to add functions or features to existing products in order to expand the market. For example: - Increasing the versatility of a product by adding functions. - Adding an emotional or social value to an utilitarian product. - Improving the safety or convenience of the product. ~ • Product line extensions strategy.- to increase the breadth of the product line by introducing new varieties to increase or maintain market share. For example: - Launching different packages of different sizes. - Increasing the number of flavours, scents, colours or composition. - Offering the same product in different forms or shapes. The strategy of line extension can lead to product proliferation and the question of cannibalisation and synergistic effects should be addressed explicitly. • Product line rejuvenation strategy: to restore the overall competitiveness of obsolete or inadequate products by replacing them with technologically or functionally superior products. For example: - Developing a new generation of more powerful products. - Launching environmentally friendly new models of existing products. - Improving the aesthetic aspects of the product. • Product quality improvement strategy: to improve the way a product performs its functions as a package of benefits. For example: - Determining the package of benefits sought by each customer group.

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- Establishing quality standards on each dimension of the package of benefits. - Establishing a program of total quality control. • Product line acquisition: to complete, improve or broaden the range of products through external means. For example: - Acquisition of a company with a complementary product line. - Contracting for the supply of a complementary product line to be sold under the company's name. - Joint venture for the development and production of a new product. • Product line rationalization: to modify the product line to reduce, production or distribution costs. For example: - Product line and packaging standardization. - Selective abandonment of unprofitable or marginal products. - Minor product redesign. The lever used in product development strategies is essentially R&D. These strategies are generally more costly and risky than market, development strategies. b. Integrative growth An integrative growth strategy is justified when a firm can improve profitability by controlling different activities of strategic importance within the industrial chain. It describes a variety of make-or-buy arrangements firms use to obtain a ready supply of strategic raw materials and a ready market for their outputs. Examples include ensuring stability of supplies, controlling a distribution network, or having access to information in a downstream activity to secure captive markets. There is a distinction between backward integration, forward integration and horizontal integration. Backward integration A backward integration strategy is driven by the concern to maintain or to protect a strategically important source of supplies, be it raw or semi-processed materials, components or services. In some cases, backward integration is necessary because suppliers do not have the resources or technological know-how to make components or materials, which are indispensable to the firm. Another objective may be to have access to a key technology that might be essential to the success of the activity. For example, many computer manufacturers have integrated backwards in the design and production of semiconductors in order to control this fundamental activity. Forward integration The basic motivation for a forward integration strategy is to control outlets without which the firm will choke. For a firm producing consumer goods, this involves controlling distribution through franchises or exclusive contracts, or even by creating its own chain stores, such as Yves Rocher (cosmetics) or Bata (shoes). In industrial markets, the aim is mainly to ensure the development of downstream industries of transformation and incorporation that constitute natural outlets. This is how some basic industries actively participate in creating intermediary transformation activity. In the steel industry, for example, Cockerill in Belgium (now part of Arcelor) has created. Phoenix Works, specialized in coating and galvanizing sheet steel, Polypal, developing and manufacturing industrial storage systems, and Polytuile, manufacturing roof coverings with steel sheet. In some cases, forward integration is done simply to have a better understanding of the needs of buyers of manufactured products. The firm creates in this case a subsidiary

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playing the role of a pilot unit to understand problems of users in order to meet their needs more effectively. Horizontal integration A horizontal integration strategy has a totally different perspective. The objective is to reinforce competitive position by absorbing or controlling some competitors. There can be various arguments for this: neutralizing a dangerous rival, reaching the critical volume so as to benefit from scale effects, benefiting from complementarities of product lines and having access to distribution networks or to restricted market segments. c. Growth by diversification A strategy of growth by diversification is justified if the firm's industrial chain presents little or no prospect of growth or profitability. This may happen either because competitors occupy a powerful position, or because the reference market is in decline. Diversification implies entry into new product and markets. This kind of growth strategy is as such more risky, since the jump into the unknown is more significant. It is usual to establish a distinction between concentric diversification and pure diversification. Concentric diversification In a concentric diversification strategy, the firm goes out of its industrial and commercial network and tries to add new activities: which are related to its current activities technologically and/or commercially. The objective is therefore to benefit from synergy effects due to complementarities of activities, and thus to expand the firm ' s reference market. For example, the Sports Division of Fabrique Nationale (FN) in Belgium, the leading European manufacturer of hunting weapons, has gradually diversified and added to its product line other sporting goods, such as golf clubs, fishing rods, tennis racquets and windsurfing boards. The aim was on the one hand to compensate for the decline in the hunting market, and on the other hand to take full advantage of a specialized distribution network of sporting goods controlled by FN, the Browning network in the USA in particular. A concentric diversification strategy usually has the objectives of attracting new groups of buyers and expanding the reference market of the firm. Pure diversification In a pure diversification strategy, the firm enters into new activities that are unrelated to its traditional activities, either technologically or commercially: The aim is to turn towards entirely new fields so as to rejuvenate the product portfolio. Around 1980, for example, Volkswagen bought Triumph-Adler, which specializes in informatics and office equipment, for this very reason. Diversification strategies are undoubtedly the most risky and complex strategies, because they lead the firm into unknown territory. To be successful, diversification requires important human as well as financial resources. The alternative growth, strategies are summarized hereunder in figure 4.13. Figure 4.93: Alternative growth strategies 1 Intensive growth: to grow within the reference market 1.1 Penetration strategy Increase sales of existing products in existing markets: • Primary demand development. • Market share increase. • Market acquisition,

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• Market position defence. • Market rationalization. • Market organization. 1.2 Market development strategy Increase sales of existing products in new markets: • Target new market segments. • Adopt new distribution channels. • Penetrate new geographic markets. 1.3 Product development strategy Increase sales in existing markets with new or modified products: • Features addition strategy. • Product line extensions strategy. • Product line rejuvenation strategy. • Product quality improvement strategy. • Product line acquisition. • Product line rationalization. • New product development strategy. 2 Integrative growth: to grow within the industrial chain 2.1 Backward integration. 2.2 Forward integration. 2.3 Horizontal integration. 3 Growth by diversification: to grow outside the industrial chain 3.1 Concentric diversification, 3.2 Pure diversification 7. CONCLUSION This chapter began by introducing the concept of growth opportunity, with a specific focus on marketing strategy. Marketing strategy is a specification of the target markets a company is after, and the related marketing mix to satisfy each distinct market. Marketing strategy serves to coordinate marketing activities in a manner that reflects current and anticipated future market conditions, and addresses customer problems to provide a distinctive competitive advantage. The enterprises not only need to build their marketing efforts around coherent strategies, but they also need to adopt a strategic marketing perspective. Products are seen as playing different roles, making different contributions to the overall performance of a company. Recognizing the large variety of potential strategies open to the marketer, a number of conceptual tools can be useful in successful planning. Among these tools are the product life cycle, product portfolios, and product-market developments. Each of these were explained, with implications drawn for the determination of strategy. Strategic thinking have become a must for all commercial oriented companies. The competitive environment is changing at a pace unlike any time in the history of enterprise. Dynamic, threatening change creates uncertainty; a strategic approach is a way for understanding and coping with a complex, turbulent world. In fact, the most successful firms in any industry are almost always the ones doing more and better strategic planning.

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Chapter 5: THE MARKETING-MIX AND THE STRATEGIC OPTIONS

A firm selling products in markets within the scope of its business and mission purpose will, it is hoped, have chosen markets that relate to its thrust and entered segments in which the firm's buying inducement constitutes a critical advantage. A firm will exploit its critical advantage with a competitive strategy of market share advancement, using a well-balanced and competitive marketing-mix. But, with the passage of time, critical advantages erode as rival offerings improve and intensify their market appeal. Action can sometimes be taken to prevent this erosion but, on occasions, nothing the firm can do will prevent the decline in market share, and harvesting or divesting may have to be considered. Even if a firm's product-service package holds on to a dominant market position, growth is limited by the size of the market, and further development may depend on new product development or a rearrangement of the whole marketing-mix. It is all too apparent that no firm can stand still. The question arises whether the firm can forearm so that it is not simply overtaken by events. 1. WHICH PRODUCTS SHALL WE OFFER, AND TO WHOM? Product considerations enter into all major company decisions. What products are produced, for example, affects investment decisions, since these deal with the facilities needed to make and market products, while those concerned with recruitment and training must consider the tasks that supplying such products will impose on the business. The investment objectives for the business and the thrust of the business are the major determinants of product policy and strategy, which in turn, relate to product goals (see Figure 5.1 Such goals are, in terms of the earnings, classified into one of the following objectives: - Immediate earnings; - Steady earnings; - Lure growth (or future high level) of earnings. ° If the goal is immediate earnings, the firm builds on known strengths and aids projects that call for extensive technical development or necessitate substantial capital expenditure. The focus is on improving profitability by cost reduction and product improvement. Where more ambitious strategies are adopted, they are likely to be in response to competitive attack. Where a steady net cash stream is sought, the search for new products is likely to be more passive than active -passive in the sense of being undertaken as a reaction to competition-. Line development and product improvement will be a major focus of such a reactive strategy. A proactive strategy, on the other hand, is based on pre-empting competition by being first to market a product, preferably with a critical advantage that competitors either

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cannot copy, are not disposed to try and copy or, if they do, cannot match. A proactive strategy suggests that the strategic goal is future growth (or future high level) of earnings. Such a strategy usually implies (depending on the product) an R&D (innovation) or a marketing thrust as the focus lies in developing new products and/or markets. The main product strategies a marketer should consider are: - cost reduction; - product improvement; - line development; - new products. We should add the product-'repositioning'. If in repositioning a product the product remains unchanged, the problem is one of market segmentation. Otherwise it is covered by the strategies we just mentioned and that are shown in Figure 5.1. Figure 5.1: Company Goals and Product Strategies a. Cost reduction

a. Cost reduction In the context of cost reduction, marketing has a responsibility to generate immediate earnings by: - eliminating products from the product mix; - determining variety within the product line. Before talking about product deletions and variety reduction, a few definitions are needed: What is a product? The product is the heart of the marketing mix because: - If the product fails to satisfy consumers, expenditure or effort on Price, Place or Promotion will be wasted

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- Companies depend on products for their existence From a marketing point of view, the product is defined in terms of what it does for the customer or what function and need it has to fill in. The product is a problem solver, and it is important that the product we sell really matches what the customers want as primary benefit by acquiring it! ((A drill manufacturer sells holes » the drill is only a means to achieve the primary benefit, which is making holes! The 'core product' is in fact the functional product and the `tangible product` the shape the solution takes as answer to the primary benefit. The 'augmented product' is adding all what the customer is likely to have as additional service, warranty, help, maintenance... The 3 levels in the definition of a product are showed hereunder in figure 5.2. Figure 5.2: The Product Concept

So far we haven't mentioned services such as consulting, banking, insurance, lodging... The reason for this is simply that the marketing of services is not in essence very

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different from the marketing of physical goods. The most important differences lie in the intangibility, variability, indivisibility and perish-ability of the services versus the real tangible products. The major problem seems to lie in the difficulty many service product companies have in actually perceiving and presenting their offerings as `products'. For example; an airline seat is a service-product but if not utilized at the time of the flight, it is gone forever... whereas a physical product can be stored and used at a later date. In fact, if one considers the total definition of the product, all products have a service component and all services do present some tangible stuff that makes them `visible'. The consumer goods can be classified along with their use or in connection with the buying behaviour of the customer. The industrial goods are generally ranked on base of the role they play in the production process (Figure 5.3). Figure 5.3 : Product classification A. Consumer goods USE

BEHAVIOUR

- Fast moving consumer goods - Shopping goods - Durable goods - Services (theater, insurance...)

- commodity - comparison - conviction

B. Industrial goods - Capital investment items - Manufacturing materials and parts - Operational items and services: A product portfolio reassembles the many references that a company can present and sell to the customers under whatever form or packaging. The products are ranked in product lines or families. • product line or range: usually refers to a set of products that are related in that they fall within the same product class (for example, the different coffee products of General Foods); • product mix: refers to the set of product lines produced by one of the firm's businesses (for example, Gillette's various men's products). The more product lines we have, the larger the breadth and the more different products in a same line, the greater the length of the portfolio. The depth is given by the amount of varieties a same product presents in a given line (differences in colours, shape...) Figure 5.4 illustrates this product portfolio or product-mix. Product deletions : Certain products may need to be eliminated either by immediate divesting or more slowly via harvesting. The sales department often resists product deletions, where attention is frequently channelled more to revenue rather than to profits. Yet retaining even marginally profitable products can be costly in terms of opportunity cost. Elimination can save valuable executive time and release resources for other, more profitable, purposes. This is not to suggest that profitability be the sole criterion. A product may make no contribution to profit as conventionally measured, but may still be retained on the grounds that - it is an integral part of the firm's product line; - it helps keep out competition; - it helps satisfy certain key distributors;

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- it contributes to corporate image; - it is expected to eventually become profitable. Figure 5.4: The product-service portfolio

If it is decided to eliminate a product or product line, this must not be done overnight. The more unprofitable items in the line can be deleted first and promotional support gradually withdrawn from the rest in a way consistent with a harvesting strategy. This is assuming that thought has been given to making the product profitable via product improvement; product promotion, price change, channel change, selling in bulk for others to market; licensing, etc. Variety reduction : Variety or depth (for example, sizes, colours, shapes, etc.) within a product line must relate to segment demands and justify the extra cost involved in the manufacture and marketing. But it is often difficult to measure the extra costs and losses involved. The problem of disentangling cost is less than that of lost sales, in that variety is often a factor facilitating overall sales: sales of some particular product variations may be uneconomic but their mere presence in the line may facilitate sales on the remainder of the line. Value analysis : Both value analysis and value engineering are standard techniques for reducing the cost of a product without sacrificing market appeal. The value analysis takes into account following steps: - Information collection stage (where information is collected on who is using the product and why, and on the other hand what does it cost to manufacture ail the specific items in a given range) - Brainstorming and evaluation (what are the positive part and the negative part of having the products in the range? Can we support the product in the future?) Value analysis is generally applied to existing products. The techniques can also be applied at the design stage. Where the techniques are applied before the product is produced, the approach is known as value engineering. Where changes are made in a

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product to reduce costs, there is a need to check against consumer perceptions whether the product is still regarded as highly as before. b. Product improvement and adaptation Product improvement involves changing the features, quality or style of a product to give a better fit to the demands of the market. It is difficult to draw a sharp line between an old product that has been improved and a new product. The answer often depends on whether basic changes in strategy are required. DYMO did not add much to the established method of labelling via relief lettering; it merely used coloured plastic tape instead of metal strips. Similarly, the cassette innovation was no more than a convenient way of holding a magnetic tape. Yet both these products required very different marketing strategies from the originals. Product improvement is never-ending. Even if a firm invented the product and created the market for it, there is a granted necessity that product improvement is possible and necessary if the firm is to hold on to the market. A feature is a 'physical and functional characteristic or component of the basic product that may be used to distinguish it from competing products of similar quality', including the company's other products. Features can evoke an intense preference from some group or market segment. They can give a progressive image to the firm. They must be considered as a flexible competitive tool, since they can be added, dropped or made optional. Features can also be used to attract distributors and provide the sales force with something to sell that might not be available to competition. Features are commonly identified with ancillary and convenience-in-use functions. Both can be the basis for creating new segments. Where such different purposes operate in the market, promotional appeals indicating the firm's brand is specifically designed for one or the other purpose will tend to be more effective. `Quality' is an evaluative term: defining a product on its quality is to rank it in relation to similar products. The ambiguity of the term arises from the different criteria used to do the ranking: - Technical criteria. A product made of more expensive materials than are typically used, constructed with more attention to detail... is regarded as a quality product. It is superior technically. - Commercial quality. If a product is perceived and ranked as a quality product by the market and commands a premium price as a consequence, the product is a quality product commercially. Generally in discussions on product quality, however, the focus is on those technical attributes of the product that make for a high, reliable, non-injurious performance in coreuse functions and in addition, the related services. Style preferences are usually intrinsic but need not be, in that certain styles might be perceived as more socially appropriate or more geared to use function. Frequent style changes may be essential to keep the product in line with current tastes. In fact, style changes can be deliberately planned to make old models 'psychologically obsolescent'. But style changes usually cost money, as new investment is needed. Where a style preference is simply a matter of taste, it is difficult to predict market reaction or promote the style exclusively to those who might prefer it. One should stress the importance of knowing not only how many prefer the new style and how many prefer the new feature but also who prefers what. But style can be key as consumers often seek a style that fits their surroundings or other set of purchases. Thus successful style appeals have induced women to buy several purses, pairs of shoes, etc., while the style innovation of the Swatch watch did much to revive the Swiss watch industry.

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c. Line development Consumers within a market segment more resemble each other in what they seek than they resemble those in other segments. However, they still differ and firms may have to provide a whole range of sizes, etc... within the product line to cater to individual groups within the segment. Thus we have variety variation, modifications on request and tailormade products, all accommodated within the same marketing strategy. Variety variation; This is the situation where resources are dispersed over a wide number of variations of a product -for example, the number of sizes and colours. Such variations can proliferate unless controlled. Nonetheless variety variation based on colour, size or flavour can be the basis of benefit segmentation (for example, flavour segmentation with coffee). Individual modification on request or tailor-made; A basic product may have to be modified to fit the specific, if not the unique, requirements of some individual buying firm. This is often the case with industrial products. A supplier might also offer modifications on request as an additional service. The problem of determining the optimal composition and size of the product line is very complex involving what features to add, styles to adopt, flavours to produce, etc. In practice, of course, it may not be the product itself that is improved but some other component of the offering. d. New products Product improvement and line development are product strategies associates with market penetration and market development. But high earnings or even survival may depend on introducing new products. On occasions new products may be introduced to utilize excess capacity (in manufacturing or elsewhere) or to consume by-products currently viewed as waste. In these cases, there is a danger of entering a market without adequately exploring market wants and of under-estimating the additional resources that will be needed. In recent years, attention has been directed to developing procedures for, ensuring more success in new product introductions because, in whatever way 'new product' and 'failure' are defined, surveys show that a high percentage of new products fail. Unfortunately, it is not easy to identify the reasons for failure. Reasons given by companies can be misleading. Seldom are they based on thorough post-mortems, and single factors are often quoted when several factors are likely to have been at work. Even if an analysis is thorough, it is often impossible, ex post facto, to eliminate all rival hypotheses to the one chosen. There are, of course, conditions that are conductive to market success. If the product has a critical advantage based on the firm's thrust; suppliers are numerous (non-powerful), the market is growing and competition is fragmented... we have fertile ground for reaping success. Figure 5.5 relates product strategies to the two main relevant competitive strategies 'Hold & Defend' and 'Growth'. The various policies on 'cost reduction', 'product improvements', Line development', or 'introduce new products' that have been explained before are here positioned in regard of the two main competitive strategies, which in their turn are determined by their principal decisions. e. Product-Market positioning Once the firm has defined his product and did analyse the segments, the problem becomes one of market positioning into the most appropriate segment of the market. The term segment positioning is also being used to describe the problem of fitting the

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firm's product most advantageously within the segment itself. Perceptual maps can facilitate product positioning so that Figure 5.5: Product Strategies relating to relevant Competitive Strategies e. Product-Market positioning

- Product performance matches the criteria of segmentation of the market. - Account is taken of the level of competition likely to be encountered - The different products presented are recognised as to avoid cannibalism The market mapping is a technique that measures the value of a company's offering (products and brands) in relation to consumer choice criteria and competitive performance. It becomes more and more clear that we are not taking merely about a physical product or a particular service but about a relationship with the customer, a relationship that is personified eitherby the company's name or by the brand name of the product itself. - ICI, BMW, IBM... are excellent examples of company brand names. - Persil, Omo, Stella, Castrol..L are excellent examples of product brand names. It is a fact that whenever brand names are neglected, what is known as 'the commodity slide' begins. At that moment, the physical characteristics of products are becoming

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increasingly difficult to differentiate and only 'price' starts to be the sole argument of choice. Figure 5.6 : An example of brand positioning for the Belgian Car Market (1995)

Brand is of primary importance! However the marketer if faced with certain decisions and choices: - Should the product be distributed under the producer's or distributor's brand? - Shall he introduce the product in the portfolio as a primary or secondary brand? - Is the product to be identified under an umbrella of a specific individual brand? The `Cascade Branding': The adoption of a brand policy may take different ways: Versus the product, the brand can be used for; - A specific product: This is the typical product brand where an association is made between a name and the specific promises (Adel, Vizir, Badoit...) - A series -of similar products: This is the family brand, which covers a full line of homogeneous products (Spa, Martini...); this is often mentioned as 'sub brand'. - A broader range of products: This is the range brand or main brand which covers product of the same kind and for the same use (Findus, Dim, Nescafe...) - A group of heterogeneous products: This is the umbrella brand or endorsement brand which covers more product lines with each specific promises but adds credibility to the products by fame and recognition

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80

Corporate Mission & Vision Corporate Objectives andStrategies (Productian, Sa/es coverage, Finances, Reputation.. ) Strategic Positioning andSegmentation SBU- LevelofHoizontal andVeftical

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MANAGING THE STRATEGIC MARKETING PROCESS

Figure 5.7: The 'cascade branding'

2. CLARIFYING ATTITUDE TO PRICING Before any product can be marketed it must have a price. Not every producer, however, is in a position to set his own prices, which may instead be controlled by the government as to regulate the inflation rate! When products are undifferentiated and competitors numerous, the firm has no market power and must take the price level imposed by the market. But when the firm has developed strategic marketing and thus has gained some degree of market power setting the price is a key decision which conditions the success of its strategy, to a large extent. Until recently, pricing decisions were still considered from a purely financial viewpoint, and largely determined by costs and profitability constraints. This approach changed because of the upheavals in the economic and competitive situation during the crisis years: double digit inflation, increased costs of raw materials, high interest rates, price controls, increased competition, lower purchasing power, consumerism etc... All these factors play an important part in making pricing decisions of strategic importance. When the seller can set prices, the pricing decision is critical, since even modest price differences can have a dramatic effect on profit and a price at odds with the rest of the marketing mix can spell disaster. This is because what is being priced is not simply a product but a bundle of benefits. The definition of price is often given out the producer's viewpoint and reflects the need of making profit. The only right price however is what the customer is willing to pay. Another more pragmatic definition is related to the « exchange » between producer and consumer: "The price represents the amount of money to acquire a combination of products & services that can satisfy the needs expressed by a group of consumers in a given environment". Figure 5.8: price definition and leverage effect

A firm that fails to recognize that it has to price an offering and not just a product can be stampeded into reducing price when buyers and sales people complain about rival brands being cheaper. The opposite error lies in simply assuming that the consumer is

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prepared to pay in proportion to the extra benefits provided. In a matter of fact, the price plays a leverage role vis-à¬vis the other marketing tools. Any effort in communication, product shape, or distribution and additional services allows the price to be screwed up, (trading up) where a lack of pressure on the other tools obliges the producer to lower its price to make his product attractive to the consumer (trading down). In general, pricing decisions have to be carefully coordinated with the other elements of the marketing mix within the framework of the segmentation strategy. Price, along with the product itself, determines a brand's value to the customer. Bad price decisions can undermine good products. The price sensitivity of a market is given by the Price-Demand elasticity which, often difficult to calculate accurately, gives an idea of how the volumes sold may be altered by a given change in price. The knowledge of the price sensitivity can be a tool for the marketer to decide or not on aggressive prices. (Figure 5.9) Figure 5.9: What is the meaning of "price elasticity"?

Figure 5.10: The main objectives in price settings

Although the super ordinate goal of pricing may be to maximise the rate of return on the total assets of the firm, modern approaches to pricing must recognize that business executives may be interested not only in profit but in factors such as prestige, social responsibility, reputation, ... Any set of operational objectives for pricing will take account of the particular market situation.

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Cost related pricing methods are basically used by the producers to set a price at a level, which allows covering all costs involved in making and distributing the products. The aim is, on a given period, to target for revenue of sales that will bring the firm over the break-even level. The price obtain in this way may be far from what the consumer can accept! Figure 5.11: The Break even approach to pricing

- The mark-up price is based on adding a(or more) fixed percentage(s) to the unit cost of a product. - The target price is based on setting a price consistent with a given profit target, as shown in the break-even approach. Market related pricing is usually based on an inquiring of what the market or market segment is willing to pay. This way is mostly adopted by consumer products companies. PRICE = Cost + Profit is the WRONG way Market PRICE - Costs = Profit is the RIGHT way Many factors can influence the pricing decision - Consumer Demand - Production Capacity - Competition - Marketing Strategy - The Organisation -The Distribution Channel The main pricing strategies and tactics are listed in the figure 5.12. The two main and opposite philosophies are: - The Skimming price, which is appropriate for innovative new products, especially if a short product life cycle, is anticipated and the product is protected by patent or advanced technology. - The Penetration price when the product has a mass-market appeal, especially if a long product life cycle is anticipated and unit costs expected to decrease rapidly with the augmenting production level. One should anyhow be aware of certain limits in price settings: - If one increases the price too much, not only the demand will fall gradually, but from a certain level alternative products can be more attractive and customers will switch over or stop buying as one reaches the economical barrier that is set into their minds.

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- On the other hand, when price is going down, demand normally increases. But for too low a level in price, the consumer doesn't believe anymore in the quality of the product and demand is vanishing progressively. This is the psychological barrier above which one has to stay to get the maximum demand. Figure 5.12: An overview of 'price strategies and settings'

- In practice, it is the 'perceived value' the customer is paying and this translates his confidence in quality and security that comes out of his balance between utility and risk. - One should never screw up the price over the 'maximum acceptable price, which is dictated by the available alternatives to respond to the customers need. Figure 5.13: Factors affecting price

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85

D o m i n a t i o bn y iow costs

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MANAGING THE STRATEGIC MARKETING PROCESS

3. PERSUASIVE COMMUNICATION Marketing is an action-oriented process as well as a business philosophy. To be effectively implemented, the firm's strategic choices must be supported by dynamic action programmes, without which there is very little hope for commercial success. To sell, it is not enough to have a competitively priced product made available to target potential buyers through a well-structured distribution network. It is also necessary to advertise the product's distinctive features to the target segment, and to stimulate the demand through selling and promotional activities. An effective marketing strategy requires the development of a communication programme having the two interrelated objectives of informing potential buyers about products and services and persuading them to buy. Such a programme is based on various means of communication, the most important of which are personal selling, advertising, promotion and public relations. We will here examine the major strategic decisions facing a firm when developing its communication programme. Those for whom a product is designed and developed have to be told about it if they are to buy it. How the target customer group is to be told, kept informed or reminded about a new, improved or repositioned product is of key concern to the marketer. Even where word of mouth communication is important, as in the case of music, movies, theatre or books, persuasive communications by the seller can both increase the level of business and accelerate the diffusion process. Where the firm neglects the problem, late entrants are admirably positioned to capture the market with a me-too product backed by persuasive communication. In persuasive communication, a seller seeks to transfer a set of meanings, feelings and tones about a product to some target audience so that the audience's perceptions of the product mirror the same set. The key steps in communication bring the prospect to be a customer. The process goes from the unawareness to the buying action. Figure 5.14: The key steps in communication

The tools or elements of persuasive communication are globally: - Personal selling - Advertising - Sales promotion and sales support - Public Relation and Publicity (articles in the press, sponsoring...) - Internal communication

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Advertising can take various forms according to the media that is adopted for: - Print media advertising: trade journals or newspapers, magazines... - Broadcast media: Commercial television and radio - Display advertising: Outdoor posters, indoor cinema advertising The Direct Mail and any form of catalogue are more one to one communication tools and are used to make the prospect aware of what the product and promises are. Many literatures (technical sheets, booklets...) however can be used as support for a personal contact or as a means of educating the potential customer on the benefits the product may bring him. The traditional advertising in media is usually considered as part of the Pug technique, as it addresses a large group of individuals not properly segmented. The aim is to attract them to the selling place by enhancing the awareness and understanding. Figure 5.15: Classification of media for sales communication

The effectiveness of a good ad can be evaluated using the V I P's formula: •V is for Visibility - standout, impact •I is for Identity - effective branding closely linked with the message

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•P is for Promise - clear main benefit and value offered •S is for Singled-minded - simple message with no distracting information The Push technique is complementary to the pull and consists of all means used to force the product sales through the distribution channel, including the personal selling function. The intermediaries (distributor, counsellor, consultant...) play a considerable role in this approach. All forms of encouragement of sales are present here, going from the monetary incentives to the presents and other promotional articles addressed to the seller or to the buyer. More specifically, the sales promotions aimed for the customer tries to accelerate buying decision by giving an extra for a moment in time. The many forms are: - A gratis offer: gift, prime, sample, event... - Offering the same product at a lower price. - Offering more products for the same price. - Offering various product in on shot with better price conditions The cost per contact is usually compared to the effectiveness of the tool. All the communication tools do not have the same impact and the evaluation of the effectiveness is to be compared with the cost involved. Figure 5.16: Comparing components of promotion-mix

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Strotegicobjectives Cost leodership

Differentiotion

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An overuiewof strategic communicationdeclsions

MANAGING THE STRATEGIC MARKETING PROCESS

The personal sales are known to be the most effective but also the most expansive tool! The role of the marketer is to put together a mix of the most pertinent tools and let them act in synergy. The Persuasive Communication Mix depends on - Marketing and communication objectives; i.e. which tools are right for the job. - Spectrum of awareness; Advertising builds knowledge, sales promotion gets the consumer to try and buy. - Product life cycle; Launch advertising is different from sustaining brand sales - A thorough communication pattern and easy flow in the enterprise itself. People are motivated by what they know and defend what they stand for! 4. THE DISTRIBUTION SCENE In most markets, the physical and psychological distance between producers and endusers is such that intermediaries are necessary to ensure an efficient matching between segments of demand and supply. Distributors and facilitating agencies are required because manufacturers are unable to assume by themselves, at a reasonable cost, all the tasks and activities implied by a free and competitive exchange process. The use of intermediaries means a loss of manufacturer control of certain distributive functions, since the firm sub-contracts activities that could, in principle, be assumed by marketing management. Thus, from the firm's point of view, channel decisions are critical decisions, which involve developing a channel structure that fits the firm's strategy and the needs of the target segment. The design of a channel structure is a major strategic decision, neither frequently made nor easily changed. Even if the firm's offering is 'right' for the segment in terms of product, proposed advertising and price, no sales occur unless arrangements are made that allow the customer to purchase and receive the product when needed and ordered. Not only the availability of the product in a specific place is important but if buyers are to be retained as future customers, and sales are to be developed, certain pre- and postsale Services may need to be provided by the channel that is charged to bring the product from the producer to the customer or user. Figure 5.17: The distribution framework

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The selection of an appropriate distribution system is a key decision area as it usually binds the firm for the LT, involves heavy investments and can be the deciding factor in determining the success or failure of a marketing strategy. The ways from producer to consumer can be short or long and in many cases one makes use of a combination of various channels at the same time (multi channel approach). In addition, and according to the latest developments of the ICT (Information & Communication Technology), one should also integrate the more direct virtual distribution channels as: Internet, Telesales, and Minitel... The role and function of distribution channels are bundled into four factors. • Creating purchases opportunity: 'Place utility' is the function mostly associated with the distribution. Although shopping can be fun for many consumers, it requires effort, time and expenses. The greater the perceived cost of shopping the fewer buyers. Convenience and pleasure in buying can be the right inducement for certain customers where others shall be attracted by the general availability of the product anywhere anytime! Nature and attractiveness of the selling place is of capital importance. • The promotional role: The channel acts actively in the promotion of products and brands. Promotion at the point of sale can activate latent or passive demand, while habits and picking behaviour can each be affected by novel distributors promotions or salesmanship. • The service role: Certain services which are frequently an integral and necessary part of a firm's offering are best provided by the channel. Advice on the suitability of products for some application, -advice on storing, use, maintenance, - provision for speedy repair, - provision for credit and financial assistance... are services which can be the major criterion in evaluating alternative distribution systems. The distribution is `the contact' with the customer! • The social role: From the society's viewpoint, the major function of distributors is to bring into a convenient location the variety and assortment of benefits that buyers seek, so that each consumer does not have to deal directly with numerous individual manufacturers. The distribution channel provides the means of achieving the widest possible and the most effective market coverage at a lower unit cost. The obligation and objectives of the provider are sometimes opposed to those of the distributor whose requirements are used to bargain. The figure of distribution organization below shows that using an intermediary carries benefits for the manufacturer, but also involves significant 'costs' the most important of which is the loss of direct control on the sales. The main flows in distribution Ensuring that the 'right product is available at the right time in the right place', implies some organisation of resources into channels through which the product moves to the customer. Three main flows are observed: • The flow of products which is the most obvious role of the various channels • The flow of information giving from the customer level to the producer (and viceversa) the data on characteristics, needs, reactions and attitudes concerning the nature of products offered • The flow of funds as the end consumer receives the total added value, and is paying for, money is going back to the source of production remunerating each of the intermediaries. • The inverse flow by which waste and used products are to be recuperated and centralized to be eliminated or recycled.

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Figure 5.18: The distribution channel

The degree of exclusivity and the number off outlets: A firm must decide on an intensive, selective or exclusive system of distribution • An intensive distribution system seeks maximum market penetration as an aid to customer attraction and retention. This method is only likely to be adopted for convenience goods. A typical example is the distribution of Coca-Cola. • A selective distribution system is based on selecting only those outlets that are likely to perform well in promoting and selling the product to the target or segment of the market. Hence selective distribution is associated with shopping goods such as high prices consumer durables. • An exclusive system whereby the firm selects one or two outlets per defined geographical area is adopted when exclusivity characterizes the product or when dealer cooperation is sought to provide adapted promotion, technical service, ... Luxury products are usually sold through exclusive shops.

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Componygenerolobjectives

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MANAGING THE STRATEGIC MARKETING PROCESS

Chapter 6: THE WAY TO STRATEGIC & OPERATIONAL MARKETING PLANNING

Sound strategic thinking about the future must be spelled out in a written document, which describes the ends and means required to implement the chosen development strategy. In the short term, the firm's success is directly dependent on the financial performance of its ongoing activities. In the longer run, however, its survival and growth imply the ability to anticipate market changes and to adapt the structure of its product portfolio accordingly. To be effective, this strategic and proactive thinking must be organized in a systematic and formal way. The role of strategic marketing planning is the design of a desired future and of effective ways of making things happen. Its role is also to communicate these choices to those responsible for their implementation. 1. THE PLANNING AS MARKETING MANAGEMENT BACKBONE The business- and marketing plans are, within the enterprise, a topic of preoccupation and attention of the leaders. The term 'plan' is so popular in the professional jargon that many are referring to it even if it's almost non-existent in their firm! But what is a plan, and especially what is it needed for? Let's suppose that in the line of its market expansion, a firm would like to increase its market-share with 3% during next year. All be it that the level of demand allows for this movement, it is not possible to reach the objective without a concentrated effort of the whole organization. It will be necessary to define the product portfolio but especially to determine a systematic marketing approach. Is it necessary to increase the advertising budget? What are the brands & models to promote? What is the competitive situation? Is it necessary to change the target segment? Must some of the products or services be reinforced?... Each of those questions must be analysed. It is than necessary to elaborate a complete and detailed action plan that can assure the convergence of the activities. Why should we make a marketing plan? The given example permits to distinguish two types of justification: - One reason is of strategic order and puts evidence on the analysis of the business situation, to control the evolution of products & markets in the competitive market place. The planning permits to evaluate the competitive advantages and strengths or weakness of the enterprise in order to enable an adjustment of the activities in light of the events and in function of the actual results. - Another reason is of organizational order and put the accent on the necessity to define the responsibilities at a given time, to inventory the resources & means available... It will be necessary moreover to worry about the coordination between the different departments of a same business and to consider the possible repercussions of activities upstream (on the suppliers) and downstream (on the chain of distribution).

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It is, in a way, important that the managers could take a certain receding as to formulate their views, ideas and projects concerning the future of their enterprise and its activities. It's anyway necessary to set priorities and to evaluate the possibilities (or impossibilities) for a successful implementation as well as to translated the ideas in objectives and application schemes. a. Managing the ideas: A lot of ideas and projects are in fact issued from the daily activities and their continuous adaptation to the socio-economic environment of the market. But if one wants to materialize the projects, it is necessary to take time to consider them seriously. One can classify the ideas in five categories: - “to apply immediately in order to solve the present problems” - «good idea! To discuss next week with the management team and to apply as soon as possible» - «interesting idea but still to be developed! Analyse pros and cons as to see if it is worthwhile to concretise, and then consider the how and when of its application» - «original idea but non applicable now! To review later» - «fun idea, but completely unrealistic». How much of these ideas do really reach maturity and how many are materialized? And if one decides to go for it, is it done in a systematic way as to guarantee the chances of success? b. Organizing the system: The essential condition for a good planning is to proceed in a structured way. This means ordering the different phases as to define who will do what and when. In this structure of scheduling we will distinguish three levels while reserving a specific place for studies and projects. Figure 6.1: The different planning domains of the enterprise

• The functional programming This concerns the daily work organization in each of the sections (sales, production, administration...). One must coordinate all activities efficiently in order to answer all demands and orders in the right time. At this level, the tools are: - Personal diaries

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-

The weekly program The calendar of sales contacts The delivery planning The maintenance programs The invoice and payment periodicity

• The operational planning At this level, the aim is to distribute on the ST (short term), generally one year, the different main operations that form the framework of activities for the enterprise. This takes into account the different foreseeable events, the seasonality, the projects, the investments... and especially the objectives that the management assigned itself. The operational plan is divided in quarterly and monthly periods, or even weekly, in order to permit a step by step control and follow up. This allows the possibilities of modifications and necessary corrections. The retained topics are, among others: - The forecasting of sales - The investments in equipment, tools and material - The planning of human resources, in number and skills - The pricing policy - The material replenishment program - The introduction of new models and services - The communication, advertisement, promotion, open doors, PR • The strategic plan This is the LT level (long term) in which one formulates the propositions for future development. In the operational level one defines the means and methods to achieve the objectives! At the strategic level one tries however to formulate more global objectives and to define the possible ways to reach them. This level calls more on the intuition and vision of the entrepreneur. The retained topics answer questions as: - How does the market evolve? - What are the socio-political impacts on the activities? - How will competition be in the future and what will be our place? - What markets do we want to cover and with which products? - How do we assure the viability of the enterprise? - What are then the consequences concerning staff, infrastructure, technology...? - How shall we finance the activities in the future? •

Studies and specific projects

The conclusions of the strategic approach entail the necessity to consider with more attention some vital points imposed by the business evolution or emanating from ideas and intentions of the leaders. These projects try to question, review, and even reorganize in depth the structure of the enterprise and its activities in order to construct a profile that confers a guarantee of continuity. This is not the business of one man only! These studies and projects mobilize the management and calls in, if needed, outside contributions (consulting, counsellors, bankers...). What are the topics? - Development of the products and services - New activities - Development or concentration of the activities and infrastructure - Search for partnership - Introduction of the new CIT (Communication and Information Technology) -

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Setting up project teams is a necessity in case of - Non conformity of present activity with the market development - Confidentiality of steps undertaken - Diversifications and external alliances - Major turn around in relation to the present situation (reorganisation) - Introduction of new methods of management (ISO 9000...) etc. The figure 6.2 illustrates once again the different planning needs and their level of impact on management. One should note that the different stages are interrelated and that studies and projects, with their strategic views nourishes the decision making on the operational and functional levels by showing the way and setting the steps in relation with the basic strategic and global approach. Figure 6.2: The functional features of every planning level

c. Impact on the management: A plan poses clearly the problems of forecast and of translating the ideas in sound proposals and detailed budgets. It also obliges to consider the assessment and analysis of results while providing precise criterions for measure, control and follow-up. The plan is a document that helps to take bearings and to evaluate the possibilities the enterprise is given to settle or enlarge its market coverage and to construct a marketing strategy enhancing the achievement of objectives in sales volume, market share, profitability... in harmony with the mission of the enterprise. As such, it isn't a priori a difficult document to elaborate, but it is anyway the indispensable tool to undertake strategic actions. The realization and the formulation of a plan suppose that one follows systematically and rigorously the different phases of problem analysis, determination of the objectives and development of a strategy. Being essentially a work tool, the business- and marketing plans aren't abstract documents. They reflect the analysis of a situation and an engagement for the future. It is necessary to take into account the possibilities of variations in market demand and the competitors' reactions. The planning must be sufficiently flexible and adaptive to be reviewed and modified during the running period. It must also be accepted by all those that should contribute to its implementation and shouldn't be imposed arbitrarily by one or another manager.

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d. General implications The 'planning mechanism' entails the actions and reactions in behaviour and attitude of staff, the relevance of the systems and pertinence of the operational processes. Everything is integrated in a 'well oiled machine' that leads to efficient results without dawdling and without too many emotional implications. The program enhances the inner strengths of the enterprise and introduces people in an ascending qualitative spiral reinforcing and nourishing the functionalities in creating a real corporate culture. This corporate culture changes and evolves. It is based on the mutual and intense collaboration of all employees. This culture stands on a bilateral cohesion between staff and management. All are called to show evidence of «OPEN» behaviour: O = Open: Open-thinking! This is to encourage the dialogue, to listen to the other, to accept, discuss and support different views and opinions... P = Personal impact: Each one knows his role and function. This enhances recognition of expertise, acceptation of challenges, increase of individual contribution... E = Empowering: Improving skills, capabilities & commitment? This permits to give and to let the initiative, to stimulate and to delegate, to take responsibility... N = Networking: Sharing information to achieve objectives. This means to work in team, to form a network, to encourage success, to create a shared vision... Figure 6.3 gives a representation of the movement of vitalisation, zing and emulation resulting from the implementation of a planning system in the enterprise. Figure 6.3: The ascending spiral of the zing of the enterprise

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2. OVERVIEW OF STRATEGIC PLANNING The raison d'être of a strategic plan is to formulate the main strategic options taken by the firm, in a clear and concise way, in order to ensure its long-term development. These strategic options must be translated into decisions and action programmes. We shall briefly examine the overall structure of a plan and the benefits expected from strategic planning. a. The basic charter: One cannot start a valid business planning without clarifying beforehand the definition of the strategic mission of the enterprise. It is in fact a fundamental charter in which the enterprise describes its field of activity and its reference market, expresses its basic vocation and its leading principles concerning its economic and non-economic performance as well as its system of values. This charter is the intellectual and philosophical framework of the corporate culture. It is the expression of what the enterprise wants to be and what it wants to do. The charter consists of three parts: The vision: It expresses the fundamental will of the leaders, shareholders and directors. The vision describes the existence reason of the enterprise. It is the "boat" on which the staff and collaborators are embarked. /~ The mission: It expresses the goals and objectives that the enterprise intends to ach and translates the fundamental strategic will. It is in a way, the "chosen cape or habour". A mission statement reveals the company's long-term vision in terms of what it wants to be and whom it wants to serve. It defines the organization's value system and its economic and non-economic objectives The values: They determine the behaviours and ways of handling for the people directly or indirectly linked to the enterprise. They concretise the "rules on board" and specify the harmony of expertise, capacities and attitudes allowing an efficient and dynamic teamwork. The charter expresses the value system, philosophies and views of top management. This information gives people a sense of direction and a sense of how to behave. The strategic process can, in fact, be summarized around six key questions. The answers provided to these questions constitute the backbone of the plan and also the objectives for the firm. 1. What business are we in, and what is the firm's mission in the chosen reference market? 2. Within the defined reference market, what are the targeted product markets or segments and what is the positioning strategy likely to be adopted within each segment? 3. What are the key business attractiveness factors in each segment and what are the opportunities and threats presented by the environment? 4. Within each segment, what are the firm's distinctive qualities, strengths and weaknesses and competitive advantages? 5. Which development strategy and strategic ambition should be adopted for each activity in the firm's product portfolio? 6. How do these strategic options translate into operational marketing programmes defined in terms of product, distribution, pricing and communications decisions? Once the answers to these questions are obtained as the result of a thorough audit, the task remains to summarize the options taken, to define the means required to achieve the stated objectives, to design the specific action programmes and, last but not least, to

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prepare projected profit and loss statements for each activity and for the company as a whole. The charter gives an answer to the traditional fundamental question: " Which business are we in, and why?", it determines the general politics that expresses the vocation of the enterprise in its reference market, and the role it wants to play. He charter takes into account the possibilities (strengths and weakness) of the enterprise and its differentiation vis-à-vis its competitors and determines the priorities in its development. The strategic plan has direct implications for all the functions of the firm. • Commercial: market needs must be met through new, improved or adapted products and services, distributed along the appropriate ways. This is the specific marketing plan. • Finance: the marketing programme is subject to financial constraints and to availability of resources. • Operations: sales objectives are subject to production capacity and to physical delivery constraints. • Human resources: the implementation of the plan implies the availability of qualified and well-trained personnel. Thus strategic planning will result in a better integration of all the company's functions and contribute to maximization of efforts in reaching corporate goals. In a market-driven organization, the mission of strategic marketing is to identify prospects for growth and profit given the company resources and savoir-faire. As already emphasized in this book, this role is much broader than the traditional domain of marketing management, and implies inter-functional coordination. b. The commercial or marketing plan It gives the range of possibilities that the enterprise possesses and uses to adequately meet the demand of the market in working zone. This plan is based on a detailed analysis of the global situation and of the results already booked up to now. It formulates ways of action and steps to go in the realization of the agreed objectives. It stipulates; • The market tendencies of market in qualitative and quantitative terms. And on this base, it shows how to adapt the actions the customers' needs while taking into account their purchase behaviours. • The present and future competitive position • The influences of the socio-economic environment and the technological evolution. • The way of regrouping the customers into specific segments • The manner to communicate the messages concerning the products and services, their nature, packaging, utility... • An analysis of the tariff conditions and the price policy retained • The ways and forms of delivering the products and services to the customers • The position that the concession wants to take in its market in terms of penetration, market share... The sales planning: The sales objectives are derived from the indications expressed in the marketing plan and reflect the enterprise's dynamics vis-à-vis the market. What is one going to sell, to whom, when and how? Will the company make use of it own sales forces or shall it call on some agents or distributors to better reach the aimed customer segments? It implies an education, training, motivation of all people geared toward attraction, persuasion, satisfaction and retention of the customers.

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c. The operational plan This plan has as duty to organise the optimal use of production capacity and infrastructure. One puts the accent here on the best utilization of tools, room, equipment... and one aims for efficiency improvement through cost reduction, minimal stocks, shorter delivery times, higher qualitative norms... We aren't bound to the ST (short time) and it is imperative to take on time the necessary steps in order to avoid the risk of being passed quickly by the competitors. In this approach, one has to • Cope with the technical development that influences the quality and the rhythm of production. • Foresee the extension (or compression) of the systems, space, tools... and the introduction of the new techniques and automation. • Recognise the future projects in terms of new products or services and organize their introduction, manufacture and delivery at the chosen time. d. The organizational plan The organizational scheme and in particular the 'organigram' visualize the organizational plan. It determines who will be in charge of each activity. It gives an answer to some basic questions as: • Whom and what do we need to reach the agreed objectives? • How can one distribute the tasks and responsibilities within the enterprise? • What are the available expertises and how can we reinforce them? • How can we describe the functions and roles in order to assure that all goals would be reached in time and value? • What are the shapes and the content of the information flows? How can we motivate staff and enhance teamwork? The staffs plan or Human Resources plan: One of the main factors that greatly influence the outcome at ST & LT is certainly the human factor. The HR-plan starts with an inventory of the available persons and individuals with their own skills and, on this base, value the expertise present and needed according to what has to be done regarding the proposed objectives. It is necessary to determine the gaps and consequently consider filling them either by a training of existing workforces or by hiring in new adequate skills. The principles of 'knowledge management' should be applied in order to maintain and enhance the overall level of know how and intellectual capacity. The corporate culture must be so well perceived that each individual in the company should take account of his possibilities to reach a larger customer's satisfaction! A realistic and clear-sighted approach should however respect the psychological and emotional side that all decisions imply. e. The financial plan The financial needs are evidently influenced by the proved results and the set of proposed objectives, but also by the reality of the financial market (rate of interests...) and by the fundamental choices made by the leader (own or borrowed funds... ). Money often remains the 'nerf de la guerre'. The financial plan will have a short-term impact; • How am I going to finance my activities this year and what are the expected results • “What is, and what will be, the debt/equity ratio? There will be, no doubt, a LT dimension;

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• What are the possibilities to fund the extension? • How is it necessary to profile the enterprise as to facilitate a partnership or a take over of (or by) a third party? • What is the potential real of my zone in terms of results? What am I in right to wait like total Losses and Profits? The budgets and controls: In general, the budgets and forecasts depend on the decisions taken on ST and LT policies. The budget is in fact the monetary and temporal translation of the ideas and projects proposed in the different plans. The structure of the budget will be bound to the distribution of responsibilities within the enterprise and every department will have the possibility to follow its progression in relation to the given plan. The control of the sales is, by evidence, a must since they activate the financial movements. It is not the same way for qualitative elements whose repercussions are indirect (reputation, quality,...) and for which one should find quantitative ways of appreciation as to permit a constant assessment and follow-up (Customer Satisfaction Index, Service quality level...). f. An integrated planning approach Besides the commercial & marketing projects and objectives, every company, even those resistant to the idea of formal planning, has to formulate forecasts in a minimum of three areas: • The calibration of the investment programme required to meet the level of market demand or to penetrate a new product market. • The production programme organization needed, given the seasonality of sales and the periodicity of orders. • The financial liquidity, based on income and expenses forecasts, which is required to meet the financial liabilities. These managerial problems are common to all companies and they imply that reliable sales forecasts be handled properly. In addition to this argument of necessity, other arguments in favour of formal integrated strategic business planning exist; • The plan presents the facts on 'where the business has come from and where it stands'. The situation analysis helps to understand the reasons for the strategic options taken by top management. • The plan facilitates coordination among the different functions, maintains consistency in the objectives, and facilitates trade-offs among conflicting goals. • The plan is a monitoring instrument which provides the opportunity to review the progress made in implementing the plan and to redirect parts of the action programme that are off target. • The plan encourages a more rigorous management of scarce resources by using standards, budgets, schedules etc., thereby, reducing the risk of improvisation. Most strategic plans are complemented by some form of contingency plan to be activated if certain events occur. Contingency plans are developed for factors which are key to the survival of the company. The figure 6.4 gives us a global view of the integrated strategic approach.

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103

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MANAGING THE STRATEGIC MARKETING PROCESS

3. A STEP-BY-STEP MARKETING PLANNING The elaboration of a Planning System calls for a step-by-step approach where first the strategic frame is set up and second the operational marketing plan is presented. It boils down to a logical sequence of activities leading to the setting of marketing objectives and the formulation. op plans for achieving them. What ever the form of the plan may be, one has to start with a serious analysis of the global situation. This audit will embrace four main points (figure 6.5) - The Market - The Competition - The Macro environment - The Company itself. Figure 6.5: The main pillars of the marketing audit

a. External audit market attractiveness analysis This external audit -also called opportunities and threats analysis- is the first part of the situation analysis. As explained earlier, an attractiveness analysis examines the major external factors, i.e. the factors which are out of the control of the firm, but that may have an impact on the marketing plan. The following areas should be reviewed: • Market trends • Buyer behaviour. • Distribution structure. • Competitive environment. • Macro-environmental trends • International environment. These external factors may constitute opportunities or threats that the firm must try to anticipate and monitor through its marketing information system and through business intelligence. In what follows, we shall simply list the critical questions to rise in each of

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these areas. The precise type of information required will of course differ by product category: consumer durable or non-durable goods, services or industrial goods. ¾ Market trends analysis The objective is to describe, segment by segment, the total demand's general trends within a three- to five-year horizon. The task is to position each product market in its life cycle and to quantify the market size. Both unit volume and monetary values should be identified. Questionnaire 1: Total market trends - What is the size of the total market, in volume and in value? - What are the trends: growth, stagnation, decline? - What is the average per capita consumption? - How far are we from the saturation level? - What is the rate of equipment per household or per company? - What is the average lifetime of the product? - What is the share of replacement demand in total demand? - What is the seasonal pattern of total sales? - What are the main substitute products performing the same service? - What are the major innovations in the sector? - What is the structure of the distributive system? - How will supply-demand relationships affect price levels? - What is the level of total advertising intensity? - What are the most popular advertising media? This list is certainly incomplete. It simply illustrates the type of information required. If the product studied is an industrial good, several information items should pertain not only to the direct customers' demand, but also to the demand expressed further down the line in the industrial chain (derived demand). ¾ Buyer behaviour analysis The task here is to examine buyer behaviour in terms of purchasing, use and possession. In addition to this buyers' purchasing habits description, it is also useful to know the buying process and to identify the influencing factors. Questionnaire 2: Buyer behaviour analysis - Per segment, what is the buyers' socio-demographic profile? - What is the composition of the buying centre? - Who is the buyer, the user, the decider, the influencer...? - What is the decision process adopted by the buyer? - What is the level of involvement of the buyer? - What are the main motivations of the buying decision? - What is the package of benefits sought by the buyer? - What are the different uses of the product? - What changing customer demands and needs do we anticipate? - What are the purchasing frequency and periodicity? - To which marketing factors are customers most responsive? - What is the rate of customer satisfaction or dissatisfaction? These descriptive data must be complemented with measures of the cognitive and affective response (recall, attitudes, preferences, intentions etc.), as well as with brand or company image analyses.

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¾ Distribution structure analysis This part of the external audit is probably more relevant in the field of consumer goods than in the sector of industrial goods, where direct distribution is more common practice. The objective is to assess the future development of distribution channels and to understand the motivations and expectations of the company's trading partners. Questionnaire 3: Structure and motivation of distribution - What are industry sales by type of outlet? - What are product type sales by type of outlet? - What are product type sales by method of distribution? - What is the concentration ratio of distribution? - Is distribution intensive, selective or exclusive? - What is the share of advertising assumed by distributors? - What change does one observe in the assortments? - What is the market share held by private brands? - Which market segments do the different channels cover? - What are the total distribution costs? - What is the distribution margin for each channel of distribution? - What kind of distributor support is currently provided? - What is the potential of direct distribution? The distributor, as a business partner, has strong negotiation powers vis-à-vis the firm. One of the roles of a distribution analysis is to assess the degree of autonomy or dependence of the firm in the distributive system. ¾ Competitive environment The competitive structure of a market s is the framework within which the firm will operate. The essence of strategy formulation is co ng with competition. The basic attractiveness of a market segment is largely determined by the strength of competitors' capabilities. Assessment of what is driving competition is of vital importance to the firm. Questionnaire 4: Competition analysis - What is the market's competitive structure? - What is the market share held by the top three to five rivals? - What type of competitive behaviour is dominant? - What is the strength of competing brands' images? - What is the nature of the competitive advantage of direct competitors? - To what extent are these competitive advantages well protected? - What are the competitors' major objectives? - What is the current strategy being used to achieve the objectives? - What are the strengths and weaknesses of competitors? - What are their likely future strategies? - Are there entry barriers in this market? - Which are the main substitute products? - What is the bargaining power of customers and suppliers? The gathering of this type of information implies the development of a competitor intelligence system. ¾ Macro-environmental trends This section describes the macro-environmental trends also called "PEST factors" political/legal, economic, socio-cultural and technological- that bear on the studied

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market's future development. These external factors can opportunities or severe limitations for the company's products.

provide

productive

- Politics : Questionnaire 5(a) Political and legal macro-environment -

Are there any specific changes in the law that affect our company? Are there legal or political areas that affect our customers? Which regulations could affect our advertising or selling strategy? Is our industry subject to criticisms from consumer organizations? Are there political or legal trends that could be used to our advantage?

One should add here the legislation and obligations in terms of ecology: -

Questionnaire 5(b) Ecological environment Are our products environmentally friendly? Do we use processes or raw materials that threaten the environment? Is green marketing a potential strategy for our company? Is our industry a potential target for environmentalists? How can we improve the ecological quality of our products?

- Economics: Questionnaire 5(c) Economic macro-environment -

What is the expected GNP rate of growth? What major economic changes could affect our business? What is the expected level of employment? What is the expected rate of inflation? Do these trends affect our business and how?

One should also consider the international data that favour or break the import / export situation Questionnaire 5(d) International environnant -

To what extent are we dependent on imports for key components? What is the economic and political stability of the supplier country? What alternatives do we have should our imports be interrupted? What is the economic and political stability of the customer countries? What opportunities does the European Single Market represent? Are their emerging global segments in our business? Is our business affected by changing world trade patterns?

- Social-demographic influences : Questionnaire 5(e) Socio-demographic and cultural macro-environment -

What are the major demographic trends that affect our business? What is the cultural climate within which our business operates? Are present and future life styles favourable to our business? Is society's attitude towards our business changing? Are there changes in society's values that could affect our business?

A particular look as to be given to the industry attitude and behaviour: Questionnaire 5(f) Industry and corporate ethics

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Does our company or industry have a stated code of ethics? What is the ethical level of our industry? Are industry values in alignment with those expected by society? How could our industry improve its ethical practice?

- Technology and progress; Questionnaire 5(g) Technological environment - What major changes are occurring in product technology? - How can we adjust our activities to cope with these changes? - What major generic substitutes might replace our product? - Do we have the required R&D capabilities? - Do we need to update our equipment and at what cost? This information, dealing with the macro-environment of the firm, is indispensable for exploring alternative scenarios of market development and are the duty of Business- & Competitive Intelligence. The sources of information are numerous and varied, but often very scattered. Professional organizations and local chambers of commerce have economic data available for their members to use in planning. In addition to national statistics and foreign trade institutes, international financial institutions like the International Monetary Funds (IMF), the World Bank (WB), the Office for Economic and Cooperation Development (OECD), the United Nations (UN) etc. are the major public sources, with periodic publications readily available. University research centres and large international consulting firms, like Andersen, Mc Kinsey, ... also publish newsletters, articles and monographs that are very useful for planning purposes. b. Internal audit - company competitiveness analysis The objective of the internal audit, also called the company strengths and weaknesses analysis, is to assess company resources and to identify the type of sustainable competitive advantage on which to base the development strategy. Strengths and weaknesses are internal factors, in contrast with opportunities and threats, which are external factors. Company strengths (or distinctive qualities) point to certain strategies the company might be successful in adopting, while company weaknesses point to certain things the company needs to correct. A competitiveness analysis should not be abstract. Reference to competition in general is too vague. Therefore, competition should be referred to in terms of the most dangerous competitors, called priority competitors. The strengths of the company or of the brand constitute potential competitive advantages on which to base the positioning and the communication strategy. The weaknesses determine the vulnerability of the brand and require remedial action. Some weaknesses may be structural, i.e. linked to the size of the firm and therefore difficult to correct. Examples of structural weaknesses are: • National market share leadership, if not accompanied by international distribution, creates home country vulnerability to the extent that the local company has little freedom for retaliation in the country of foreign competitors. • If a single powerful distributor generates total sales volume, the company has weak bargaining power. • A small or medium-sized company does not have the financial capability to use the most powerful media, like television advertising. So a distinction must be made between the weaknesses that the company can correct and therefore which become priority issues that must be addressed in the plan, and the

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high risk structural weaknesses which are beyond the control of the firm and which require a high degree of surveillance. Competitiveness analysis is organized much like attractiveness analysis. The major difference comes from the fact that the company, and not the market, is the central subject of the analysis. ¾ Company current marketing situation Data on the served markets for each of the products of the company's portfolio, in volume and market shares for several years and by geographical areas, are presented, as well as data on the current marketing mix. Questionnaire 6: Product portfolio analysis -

What is the rate of current sales per product, segment, distributive channel, region and country etc. in volume and value? - What is the current market share per product category, segment, distributive channel, region, country etc.? - How strong is the company's product brand image? - Does the firm have a complete product line? - How does the quality of our products compare with that of competition? - What is the structure of our portfolio of customers? - How concentrated is our total turnover? - What is the age profile of our product portfolio? - What is the contribution margin per product, segment, channel ...? This analysis is to be repeated for each product of the company's portfolio. Profit and loss statements for the last three years should be presented along with the current budget. ¾ Priority competitor analysis Priority competitors should be identified for each product-market. For each of these competitors, the same data collected as for the company own products will be gathered and compared. Other information is required to assess the strength of priority competition. Questionnaire 7: Priority competition analysis - What is the relative market share? - Does competition have a cost advantage? - What is the relative price? - What is the competitive behaviour of rivals? - How strong is the image of competing products? - On what basis are competing products differentiated? - What is their retaliation capacity in case of frontal attack? - Which are their major sources of vulnerability? - What type of aggressive actions could they take? - What changes could modify the present balance of power? - Is competition able to destroy our competitive advantage? With the information provided by questionnaires 6 and 7, a product portfolio analysis can be conducted and the conclusions compared and registered. ¾ Distribution penetration analysis Distributors, a company's partners in the marketing process, control the access to the end-users' market and play an important role in ensuring the success of the

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contemplated marketing programme. In addition, if they are powerful buyers they have a strong bargaining power vis-à-vis their suppliers. In fact, distributors must be viewed as intermediate customers just like end-user customers. The role of 'trade marketing' is to analyse the needs and requirements of these intermediate customers in order to develop a mutually satisfactory exchange relationship. Questionnaire 8: Distribution analysis - How many distributors do we have in each channel? - What is our penetration rate in number and value in each channel? - What are the growth potentials of the different channels? - What are the efficiency levels of the different distributors? - Should the firm consider changing its distribution channels? - What is the potential of direct marketing in our business? - Are the present trade terms motivating for distributors? - What changes could modify relationships with our dealer network? - Are there new forms of distribution emerging in the market? The objectives pursued by the firm and by its distributors are not exactly the same and conflicts can arise in the channels. Distributors are no longer passive intermediaries in most markets. The role of 'trade marketing' is to en sure that distributors are viewed by the firm as partners and as intermediate customers. ¾ Communication programme analysis Mass media advertising, interactive advertising, personal selling, publicity etc. are powerful competitive weapons if properly used, i.e. when the target markets are well chosen and when the content of the communication programme is well in line with the product positioning, pricing and distribution strategies. Questionnaire 9: Communication programme analysis -

What is the advertising intensity compared to direct competition? What is the advertising cost per thousand target buyers per medium? What is the communication effectiveness of media advertising? What are the consumers' opinions on the advertisement content? What is the number of reply coupons stimulated by direct advertising? How well are the advertising objectives defined? What is the impact of advertising on awareness, attitude and intentions? What is the average number of sales call per sales representative per week? What is the number of new customers per period? What is the sales forces cost as a percentage of total sales?

¾ The Value Chain To diagnose the sources of competitive advantage, it is indicated to divide the activities performed by a firm into distinct groups. The value chain (M. Porter), displayed in figure 6.6, provides a framework for categorizing these activities. Primary activities are those involved in the availability of adequate basic material, physical creation of the product, the marketing and logistical program, and the after sales services. Support activities provide the infrastructure and inputs that allow the primary activities to occur. Every activity employs purchased inputs, human resources, and a combination of technologies. Likewise, the firm's infrastructure, including such functions as general management, supports the entire value chain. "A firm may possess two types of competitive advantage: low relative cost or differentiation and its ability to perform the activities in its value chain better or in a unique way relative to its competitors." A firm

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that competes in the international market must decide how to spread the activities among countries. Central to this decision is the need to distinguish upstream from downstream activities. Downstream activities involve those primary activities that are closely tied to where the buyer is located. By contrast, upstream activities (e.g., operations) and support activities (e.g., procurement) are not tied directly to the buyer's location. Figure 6.6 : The "Value Chain"

Secondary or 'Support' activities give the internal frame facilitating the whole production commercial process. This assessment provides a foundation for valuable strategic insights and permits to focus on those factors of performance that have to be consistently good. Those elements or criteria are called "Critical Success Factors". . Competitive advantage created by downstream activities is largely country-specific: a firm 's reputation, brand name, and service network grow out of the firm's activities in a particular country. Competitive advantage in upstream (e.g., manufacturing) and support activities stems more from the entire network of countries in which a firm competes than from its position in any one country. The questionnaires that we have mentioned before should be used as guidelines for periodically reviewing the company's marketing situation as well as to evaluate the "do wells" within the value chain during the marketing audit. c. The situation analysis Once having tackled the external and internal elements that determine the attractiveness of the market and the competitiveness of the company within its environment, the purpose of the situation report (Sitrep) is to identify marketing problems ands opportunities. The output of the full analysis is summarized in key-point form under the heading SWOT (Strengths, Weaknesses, Opportunities and Threats) and. This summary, generally presented as a four-quadrant matrix, becomes part of the marketing plan. The outcome of the situational analysis includes a set of assumptions about future conditions as well as an estimate or forecast on potential market demand during the

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period covered by the plan. Based on these estimates and assumptions, marketing objectives are established and the strategies and programmes are than formulated. 4. OBJECTIVES AND ACTION PROGRAMMES At this point, management knows the major issues and has to make some basic decisions about the objectives. Using the information provided by the strategic marketing audit and by the positioning statement, the firm's identified priority objectives must then be translated into operational action programmes. a. Definition of objectives Every firm has several objectives, which can be regrouped into two broad categories: marketing and non-marketing objectives. Non- marketing objectives have been described in the firm's mission statement. They describe the overall value system of the company and as such they apply for all market targets. Marketing objectives are of three types: sales, profit and customers. They should be defined for each product market or segment. ¾ Sales objectives It is a quantitative measure of the impact the firm 'wants' to achieve in the future within a particular product market. It is not simply a forecast of what one 'expects' may occur in the future. It is an active, not a passive, statement about the future. Sales objectives can be stated in currency, in volume or in market share. • Sales revenue objectives are the most convenient way to express a sales objective because they are easily integrated in the accounting and financial system. Sales revenue may be misleading; however, if not adjusted for inflation and also for modifications in the sales mix if, for example, the share of high-priced products has changed from one period to another. • Unit sales represent the best indicator provided there is no change in the volume definition. In the soft drink sector, for example, it is current practice to think in terms of cases sales. What about cases of 12 or 18 bottles? Conversion to 'litres equivalent cases' must be made. In many markets a meaningful unit definition simply does not exist. For example, in life insurance the number of contracts subscribed is not a good indicator of sales performance. • Market share is the best indicator of competitive performance. Also, in volume industries where experience effects occur, high market share implies a cost competitive advantage over direct competition. Sales data are a key element in the projected income statement. They must be translated into financial terms. ¾ Profit objectives Marketing, as for all other functions within the firm, must be accountable for profits. The inclusion of formal profit objectives (ROI, ROACE...) forces marketing people to estimate the cost implications of the stated sales objectives. The definition of profit objectives implies a close inter-functional coordination within the firm. A statement of profitability cannot be made without a close look at the cost-volume relationship and capacity constraints. For new products, the investment in fixed costs and working capital, in addition to manufacturing and marketing costs, should be analysed before launching. Similarly, the marketing expenses involved in implementing the proposed marketing strategy must be carefully evaluated and their expected contribution to sales and/or market share development assessed.

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¾ Customer objectives Customer objectives are deduced from the positioning statement. They describe the type of behaviour or attitude the firm would want customers to have towards its brands or services. These customer objectives are important because they provide directions to advertising people for the development of communication strategies and for supporting the positioning theme adopted. b. Integration of objectives The best way of process is to start with the profit objectives and deducing the required sales and customer objectives. This logical and apparently simple procedure is however difficult to implement in the real world because it implies complete knowledge of the functional relationships between market share and price, market share and distribution, market share and awareness etc. The merit of this approach is to identify clearly the required information for sound marketing planning. ¾ Characteristics of good objectives Sound marketing objectives should have the following characteristics. They must • be clear and concise, avoiding long statements and phrases; • be presented in a written form to facilitate communication and to avoid altering objectives over time; • be stated within a given time period • be given in measurable terms; • be consistent with overall company objectives and purpose; • be attainable but of sufficient challenge to stimulate effort; • name specific results in key areas, such as sales, profits and consumer behaviour or attitudes In a nutshell, the formulation of the objectives should follow the SMART acronym - Specific: is it linked to the business and can we evaluate progress? - Measurable: what must be attained? How can we know that we have reached it? - Acceptable: is the objective agreed with by people due to achieve it? - Realistic: can we reach it with the given resources? - Time linked: is the delay well fixed? c. Selection of the strategic path To define an objective is one thing. To know how to reach that objective is another story, since the very same objective can be achieved in different ways. A 10 % revenue increase can be obtained, for instance, by increasing the average selling price, or by expanding total demand through a price decrease, or by increasing market share without a price change but through intensive advertising or promotional actions. Clearly these alternative actions are not substitutes and their efficiency will vary according to market and competitive situations. Thus, beyond the general directions given by the basic strategic options, it is necessary to specify the action programmes segment by segment. If the strategic option is to defend current market position with existing products in an existing segment, the alternative actions to consider in a market position defence strategy could be: • Product or service modifications, e.g. new features or packaging, or product repositioning through concept advertising. • Sales, distribution and service network reinforcement.

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• Stepped-up or redirected promotional activities. • Defensive pricing through bundling or premium pricing. If the objective is to complete, improve or broaden the range of products, the alternative of a product line extension strategy could be: • Filling gaps in the existing product line. • Introduction of new products to serve untapped segments in related business areas. • Systematic brands proliferation to blanket the market. • Acquisition of a company with a complementary product line. • Contracting for the supply of a complementary product line to be sold under the company's name. • Joint venture for the development and production of a new product line. If the objective is international development by shipping existing products to foreign markets, the alternatives could be: • Use of an independent, worldwide trading company. • Use of a network of export agents to handle all foreign business. • Setting up of a network of distributors or import agents in target markets. • Acquisition of a foreign company in the same industrial sector. • A joint venture to enter a restricted foreign market. These alternative strategy paths may have very different implications in terms of resources, both financial and human, and their feasibility must be carefully assessed. d. The strategy statement The strategy statement requires making basic choices among the strategy alternatives. It is a summary overview designed to state 'how' the objectives for the business unit will be met. The strategy statement will govern not only marketing planning, but the manufacturing, financial and R&D functions. It is the mainstream guidance from which all subsequent planning functions flow. The strategy statement should address the following: • Market segments selected and targeted. • Positioning relative to direct competition. • Product line requirements, mix, extensions etc. • Channels of distribution, direct, indirect etc. • Pricing and price structure. • Personal selling. • Advertising and promotion. • After-sale, warranty, services etc. • Marketing research. The strategy statement should not exceed two or three pages of text. At this point, general management should review and approve the objectives. ¾ Criteria for selecting a strategic option A certain number of simple rules, inspired by military strategy, should be followed in selecting a strategy. • Feasibility: assess skills and resources constraints. • Strength: always try to have a strength advantage: • Concentration: avoid scattering of efforts. • Synergy: ensure coordination and consistency in efforts. • Adaptability: be ready to respond to the unexpected. • Parsimony: avoid waste of scarce resources. In the 2000s environment, forward thinking is a dynamic exercise that requires adaptability and flexibility.

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e. Gap analysis In summarizing the strategies and objectives of each business unit, it is instructive to project the current performance trends to verify whether the projected performance is satisfactory. Gaps will appear between the current and the desired performances and strategic changes will need to be considered. If there is nothing done to improve the market position, competition will actively outrange the company. The graph presented in figure 6.7 illustrates the contribution of growth opportunities under two growth scenarios: • A 'normal marketing effort and continuity scenario', where growth is achieved through a penetration strategy based on existing products and existing markets, assuming no dramatic change in the current strategy, but making active use of the marketing tools to maintain a good position. • A 'desired performance', where growth is the outcome of the proposed strategic programmes and of different growth opportunities. Figure 6.7: Gap analysis

As shown, the gaps between these two performance levels can be seen as: • An “operational gap”, which reveals the improvement potential of existing businesses that could be achieved through a market and product rationalization strategy, i.e. reducing costs and/or improving marketing effectiveness, while keeping the structure of the product portfolio unchanged (conservative measures). • A “strategic gap”, which requires new growth opportunities, i.e. new products, new markets, international development, diversification or integration (strategic decisions : aggressive, experimental, contractive, defensive). These growth opportunities should be listed in order of priority and their potential financial contribution to the desired performance evaluated.

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f. The marketing budget Once the course of action is identified, a detailed description of the means required will be made for each component of the marketing mix. The strategy statement allows the product manager to prepare a supporting budget, which is basically a projected profit and loss statement. A standard structure of a projected profit and loss statement is presented in figure 6.8. Figure 6.8: Projected profit and loss statements form ............................................................................................................................................. Variables t-2 t-1 Curent t+1 t+2 f+3 1. Total demand in units 2. Company market share 3. Average selling price 4. Unit direct cost 5. Unit gross profit margin (3-4) ............................................................................................................................................. 6. Company sales in units (1x2) 7. Company sales revenue (3x6) 8. Total gross profit margin (5x6) 9. Overhead costs ............................................................................................................................................. 10. Net profit margin (8-9) 11. Advertising and promotion 12. Sales force 13. Market research ............................................................................................................................................. 14. Operating profit 10 - (11+12+13) ............................................................................................................................................. In addition to financial considerations, the budget should also specify the timing of the action programmes and the responsibilities, i.e. who is in charge of what. It is finally on the base of the budgets that one will be able to follow the progress made in the execution and application of strategies and tactics that evolve from the planning exercise. The analytical accounts and the periodic P & L statements will help to observe the repercussions on the results of the company as a whole or for each of the SBU's (Strategic Business Unit) or departments, BDU's & OPU's (Business Development Units - Operating Units) involved. 5. OVERVIEW OF THE PLANNING SYSTEM As we have seen in this chapter that the elaboration of a marketing plan forces us to take a step by step approach that brings us through three mains phases: (figure 6.9) - The analytical phase of the situation producing a conclusion under the form of a SWOT grid - The strategic phase which is formulated on the base of vision and mission of the enterprise and produces a strategic plan incorporating the main functions of the company in a MT and LT view - The operational phase which allows to set proposals form a ST period articulated around the marketing tools (4 Ps) and is translated into a practical budget.

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Figure 6.9: The three main phases in Marketing planning

This planning cycle is a real corner stone for the corporate management and should result in a set of guidelines permitting a control and a FU at any time, integrating when and where needed the results of specific projects and studies embarking the enterprise in new directions according to the formulated strategy. One should not ignore that inside and outside the firm, each decision and the progress of business should be submitted, either contractually or legally, to a series of bodies who are charged with control, advice or agreement for each action or direction taken. Those bodies are in many cases representatives of the stakeholders. (Board of Directors, HSE committee, Works council, Fiscal Control, Comptrollers ...) The figure 6.10 hereunder illustrates the place of the planning cycle in the corporate management. The whole of the marketing activities are linked in a system that starts with the evaluation of global demand in the given environmental framework and permits, by feedback, to reorganise and refine the marketing-mix in order to continuously improve the results. (figure 6.11)

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Figure 6.10: The planning cycle and the Corporate Management

Figure 6.12: Marketing planning for competitive advantage

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The barriers to marketing planning and the principles to overcome them No doubt that during the process a number of barriers to effective marketing planning will emerge. The ten principal barriers are: 1. Confusion between marketing tactics and strategy, 2. Isolating the marketing function from operations, 3. Confusion between the marketing function and the marketing concept. 4. Organizational barriers -the tribal mentality, for example the failure to de fine strategic business units (SBUs) correctly. 5. Lack of in-depth analysis, 6. Confusion between process and output. 7. Lack of knowledge and skills. 8. Lack of a systematic approach to marketing planning, 9. Failure to prioritize objectives, 10. Hostile corporate cultures, Those obstacles should be considered one by one and steps should be taken to overcome each of the barriers. Figure 6.12 summarizes the 'Ten S' approach developed by Mc Donald helping in this process by giving ten fundamental principles of marketing planning. Marketing planning - Principle I Develop the strategic marketing plan first. This entails greater emphasis on scanning the external environment. The early identification of the emanating base lines permits to develop appropriate strategic responses, involving all levels of management in the process. A strategic plan should cover a period of between three and five years, and only when this has been developed and agreed should the one-year operational marketing plan be developed. Never write the one-year plan first and extrapolate it. Marketing planning - Principle 2 For the purpose of marketing planning, put marketing as close as possible to the consumers on the base of 'customer sovereignty'. Where practicable, have both marketing and sales report to the same person, who should not normally be the chief executive officer. Marketing planning - Principle 3 Marketing is a management process whereby the resources of the whole organization are utilized to satisfy the needs of selected customer groups in order to achieve the objectives of both parties. Marketing, then, is first and foremost an attitude of mind rather than a series of functional activities. It should the Alpha & Omega of corporate management Marketing planning - Principle 4 If possible, organize company activities around customer groups or market segments rather than around functional activities and get marketing planning done in these strategic business units. Without excellent marketing planning in SBUs, corporate marketing planning will be of limited value. Marketing planning - Principle 5 For an effective marketing audit to take place one should scan thoroughly the environment:

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-

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Checklists of questions customized according to level in the organization should be agreed. These should form the basis of the organization's MIS. The marketing audit should be a required activity. Managers should take care of the PEST factors that influence the commercial activities and shouldn't be allowed to hide behind vague terms like 'poor economic conditions'. Managers should be encouraged to incorporate the practical tools of marketing in their audits, e.g. product life cycles, portfolios etc...

Marketing planning - Principle 6 Elaborating a SITREP calls for a thorough observation of the environment and the evaluation of internal, market and competitive positions in a SWOT approach that should: - Be focused on each specific segment of crucial importance to the organization's future. - Be a summary emanating from the marketing audit. - Be brief, interesting and concise. - Focus on key factors only. - List differential strengths and weaknesses vis-à-vis competitors, focusing on competitive advantage. - List key external opportunities and threats only. - Identify and pin down the real issues. It should not be a list of unrelated points. - The reader should be able to grasp instantly the main thrust of the business, even to the point of being able to write marketing objectives. - Follow the implied question 'which means that ...9 to get the real implications. - Not over-abbreviate. Information is the foundation on which a marketing plan is built. From information (internal and external) comes intelligence. The marketing plan is the intellectualisation of how managers perceive their own position in their markets relative to their competitors (with competitive , advantage accurately defined -e.g. cost leader, differentiation, niche), what objectives they want to achieve over some designated period of time, how they intend to achieve their objectives (strategies), what resources are required, and with what results (budget). Marketing planning - Principle 7 Ensure all those responsible for marketing in SBU's have the necessary marketing knowledge and skills for the job. Marketing personnel require communications and interpersonal skills. One should in particular, ensure they understand and use the more important tools of marketing, such as: - Information How to get it How to use it - Positioning Market segmentation Ansoff Porter - Product life cycle analysis Gap analysis - Portfolio management BCG matrix Directional policy matrix Mc Kinsey grid ADL grid - 4 Ps management Product -Price - Place- Promotion

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Marketing planning - Principle 8 It is essential to have a set of written procedures and a well-argued common format for marketing planning. The systematic approach should ensure that all key issues are considered. It forces to pull together the essential elements of the strategic planning of each SBU in a consistent manner. It helps corporate management to compare diverse businesses and to understand the overall condition of, and perspectives for, the organization. Marketing planning - Principle 9 Ensure that all objectives are prioritised according to their impact on the organization and their urgency and that resources are allocated accordingly. Marketing planning - Principle 10 Marketing planning will not be effective without the active support and participation of the culture leaders. But even with their support, the type of marketing planning has to be appropriate and in line with the firm's organizational life. This acceptability be measured, and if needed corrected, before attempting to introduce marketing planning. The flow table given hereafter shows an overview of the various stages of our step-bystep approach (figure 6.13).

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Questions & Exercises

ROLE & PLACE OF MARKETING True- False Questions 1- The combination of marketing instruments to form a cohesive strategy is called "Marketing Mix" 2- The whole Marketing effort is to achieve customer satisfaction with collaboration of the commercial department who has to sell the product with a good profit 3- If the Marketing team after having considered the customers need, get the right product to the right place at the right time and at the right price, they can be satisfied that they have done their job effectively 4- Apart from the marketing people themselves, many others in the organisation have a part to play in improving the marketing effort 5- The fundamental key behavioural component of a market-driven organisation is to be shareholder oriented

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Multiple Choice Questions a. The real core of Marketing is best explained by: 1. The exchange of values between people 2. Please the customer in the exchange of goods for money and make profit as well 3. Discovering the customer wants & needs and proposing a suitable productservice package which suits him in exchange for payment. 4. Knowing that one has to face non-profit situations b. The "Marketing System" which implies a sound approach of the Cy to the aimed market is: 1. A tool-box enabling the marketers to get the maximum out of their promotion and communication efforts 2. A given procedure in time and tasks imposed by the planning division 3. A global, sequential and continuous process which, in a sound environment, leads to a proposal and adaptation of a marketing-mix, followed by an audit of the results in terms of sales and profit. 4. The way and process by which the company organizes its logistics in order to bring its products into the market (direct, indirect...) c. Which of the following description fits the best to an "optimal Marketing Mix»? 1. One develops first a product responding to the customers' needs and possibilities. This is than followed by an adapted price and communication strategy along with the choice of the appropriate distribution channel 2. The 4 P's are developed all together to enhance or attract the demand

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3. The order in which one tackle the 4 P's depends of the Cy and its planning routine 4. The 4 P's and their definition or amplitude are only set in function of the Cy goals d. The four most important marketing strategies are the; 1. Defensive-, aggressive-, experimental- and competitive strategies 2. Accommodating-, decisive-, aggressive-, and protective strategies 3. Defensive-, aggressive-, experimental-, and contractive strategies 4. Protective-, combative-, evasive-, proactive strategies e. The main sub-activities or basic steps in marketing organization are: 1. Input, objectives, operations and cash flow, 2. Input, objectives, operations and control 3. Hiring people, setting objectives, selling, earning 4. Information, optimisation, action, valuation Application a. « Northern Sea nts Ltd» manufactures a range of adhesives that fall into two main categories: seals and seal nts. The Cy supplies these products to a large number of markets. However, the main users come under four industry headings; - Gas, oil and petrochemical - Automotive industry - Electrical manufacture - Original Equipment Manufacturers (OEM) Advise how the marketing function should be organized b. What are the main differences between Strategic marketing and Operational marketing? Why should one make a difference? Is there any form of complementarities between the two concepts? c. The new appointed Pan Am Chairman in 1990 told the following during his introduction speech to staff: "All we have to do is to answer on the phone, provide on time a ticket to the customer, smile for a while, give him what food and drinks, bring him to his destination in the right time (preferably with his luggage). If this is done correctly, he will certainly come back to us... because those in our industry who do this correctly are as seldom as diamonds" THE STRATEGIC SEGMENTATION True- False Questions 1. A "Market Segment" is a group of existing or potential customers with common characteristics which explain their similar appreciation of a product and show the same reactions on marketing stimuli 2. In a “differentiated marketing” the products and services are adapted to each specific market segment 3. Market segmentation is a basic principle that enhances a targeting marketing. The more one splits the market in clusters the better! As such, the 'hyper-segmentation' is definitely the way to go. 4. A market approach by which the Cy focuses on a particular part of the market with specific characteristics is called `undifferentiated marketing' 5. As segmentation criterion, `demography' is a objective & specific element

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Multiple Choice Questions a. Market segmentation has as main duty 1. The optimal awarding of marketing budget 2. To determine a gap in the market mainly for LMC (Little & Medium size ties) 3. To recognize the scope of influences and drives in heterogeneous markets 4. To split the consumers into clusters on base of their common characteristics (geographic, sociologic, demographic...) b. A study made by "Heinz" showed that the barbecue sauces used in USA where mostly used by young families with an income above average and having two or more kids. In addition the study indicated that the sauces were mainly bought in the summer period. Those data are; 1. General - Objective criteria 2. Specific - Inductive criteria 3. General - Specific criteria 4. Specific - Inductive criteria c. The four main requirements of effective segmentation are: 1. Differential response, adequate size, optimal localization, accessibility 2. Discriminating, adequate size, good revenues, accessibility 3. Differential response, adequate size, measurability, accessibility 4. 4. Localization, accessibility, acceptability, availability d. The four steps in implementation of micro-segmentation are: 1. Segmentation analysis, market targeting, market positioning, marketing programming 2. Discrimination, market targeting, market penetration, market share 3. Selecting criteria, analysis of results, specific marketing-mix, harvesting 4. Targeting, product adaptation, selling, harvesting e. The three elements to define the reference market are: 1. Functions, technologies, customers 2. Utilisation, buyers group, product development 3. Suppliers, buyers, users 4. Products, competitors, users Application a. The Yage Corporation, a producer of safety nets for use in high ride construction, is planning to introduce an improved polyurethane-coated nylon net to the construction industry. Considering the basic options for marketing strategies, which way should Yage go? Should they rely more on undifferentiating marketing, or more on concentration marketing and why? b. If the product being sold is virtually a commodity, such as motor oil, copper wire, computer paper, or coffee, segmentation of the market really makes little sense. Agree or disagree? Why? What is the possible benefit if segmentation is applied? c. "German Machine Tool" concentrates its sales and marketing efforts on `large mechanical manufacturing companies' (more than 500 employees) with the logic that these firms represent much greater sales potential. Why might size, as the only selection criterion, be a poor basis for market segmentation?

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THE COMPETITIVE STRUCTURE ANALYSIS True- False Questions 1. Within the FIAT group, Lancia, Fiat and Alfa Romeo are brand competitors 2. The "competitive advantage" refers to the preference of choice by the customer who is only due to lower prices in the market 3. In teeth care, toothpaste is in `generic competition' with water-picks chewing-gum, toothpowder, mouthwash and even an apple! 4. The three generic competitive strategies are: differentiation, cost leadership and mass distribution 5. The competitive advantage matrix defines four types of industries according to their relative position in the market: fragmented, specialization, stalemate, volume

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Multiple Choice Questions a. When we say that PSA and VAG are competitors in the automobile world, the form of competition we refer to is 1. Generic competition 2. Model/segment competition 3. Producers competition 4. Brand competition b. According to M. Porter, the five main forces driving industry competition are 1. Substitutes, customers, suppliers, government, rivals 2. Public opinion, substitutes, new entrants, rivals, technology 3. New entrants, government, market potential, direct rivals, globalization 4. Direct rivals, suppliers, customers, substitutes, new entrants c. The "monopolistic competition" is characterized by 1. On single producer of certain products in the market 2. An obliged supplier of services owned by state 3. A producer that is regarded as unique because of the differentiation in products and services 4. A manufacturer of specific products protected by a patent d. The washing powders Tide and Persil are presented to the same customers for the same utilization. Those products are in a fierce competition which is called 1. Generic competition 2. Brand competition 3. Merchandising competition 4. Distribution competition e. The group LVMH, specialized in luxury products is applying a competitive strategy categorized as: 1. Differentiation marketing 2. Cost leadership marketing 3. Niche marketing 4. Mass marketing

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Application: a. Michael Porter notes: " It is vigorous domestic competition that ultimately pressures domestic companies to look at global markets and it toughens them to succeed in their move." - Explain and determine what king of approach those firms should take to succeed. b. The deregulation imposed by the EC authorities gives a larger scope for competitive activities. Which kind of competition do we leave and which one do we enter? c. The development of hypermarkets might be critical for the little commerce (butchers, confectioners, bakers...). What should the latter do to cope with this competitive situation? d. Give an example of external and defendable competitive advantage that can be developed by: - a mineral water producer - a portable PC manufacturer - a producer of sophisticated machine tools Explain why MARKET ATTRACTIVENESS True- False Questions 1. A gap in the market doesn't necessarily mean there is an opportunity for each rival company at a given time 2. The multi-factor grid (Mc Kinsey) gives the position of each productmarket segment following two dimensions; the market attractiveness ands the competitiveness of the firm in this sector 3. In the BCG approach of a product-portfolio a "cash cow" stands for a product which has a relative high market share in a growing market 4. The "PLC" or Product Life Cycle indicates the largest time possible a product can stand in a given market before being pushed out by a competitor 5. In a "concentric diversification" the firm moves to totally new markets with products and technology it had not developed before

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Multiple Choice Questions a. The BCG (Boston Consulting Group) portfolio analysis classifies the products into a quadrant matrix according to the market growth and the relative market share. They call those 4 quadrants: 1. Problem children, Stars, Cash cows, Bad dogs 2. Stars, Exceptions, Cash cows, Reserves 3. Cash cows, New products, Minors, Majors 4. Innovations, Cash cows, Stars, Minors b. The "PLC" a product life-cycle concept is based on the principle that all products go through an "organic evolution" which brings them in 5 successive stadia. Those steps are: 1. The birth, ape years, adolescence, adult, obsolescence 2. The development, design, manufacture, sale, dumping 3. The introduction, growth, turbulence, maturity, decline 4. The demand, selection, buying, consumption, waste.

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c. The product-market development matrix (Ansoff matrix) gives basically four possible product strategies: 1. Adaptation, renovation, segmentation, diversification 2. Renovation, specialisation, segmentation, modification 3. Adaptation, modification, renovation, diversification 4. Specialisation, concentration, segmentation, diversification d. When in 1997 the chairman of Procter & Gamble did consider with satisfaction the selling figures of "Tide" around the world, he thought: "The marketing gurus and professors might well be wrong in their approach of PLC! Tide is on the market since 50 years and the sales are still progressing! Tide is an everlasting product!" The Brand Manager of Tide however had another opinion. "The wash powder Tide has certainly been modified more than 80 times since it was launched on the market. Each time aspect, formula, packaging... where adapted to cope with the new needs and preferences of the consumers (washing machines, environment, distribution...)! Which of following statements does best cover this situation? 1. "Clearly the PLC... is a dependent variable which is determined by marketing, actions... Marketing Management itself can alter the shape and duration of a brand's life cycle." (Dhalla & Yuspeh, Forget about the PLC concept, Harvard Business Review). 2. "It is fallacious to apply PLC theory to brand or market share situations that are dependent upon a completely different set of variables." (Harrel & Taylor, Modelling the PLC for consumer durables, Journal of Marketing) 3. "As the market expands, there are new opportunities for segmentation. There is a need for adaptation of the product or service to better fit the wants of customer groups whose requirements were previously too modest to be served with a tailored offering." (Day, The PLC: analysis and application issues, Journal of Marketing). 5. "Sales Managers sometimes forget that sales and profits are generated by the customer..." (Shapiro, Manage the customer, Harvard Business Review) e. With which of following statement should you not agree? 1. It is better to tackle one single diversification opportunity but really go for it 2. Increasing product market share in a maturity phase is mostly linked with a huge financial effort. 3. Regarding `Problem Children' the best strategy is to quickly grow its market share 4. Increase the market share in a growing market is difficult and very costly Application a. How would you expect your sales, costs, cash flow, unit profits, customer demand and competition to change in moving from the growth stage to the maturity stage if you were a manufacturer of automated teller machines sold to financial institutions? b. Would portfolio thinking be useful in developing marketing strategies for a small company that makes and sells video production services (e.g., for television commercials, training films, PR films, industrial process films, convention supports, ...) but also sells and lease video equipment (e.g., monitors, cameras, recorders) as well as video accessories (e.g., cables, switchers, tripods, carts, tapes, jacks, plugs...)? c. - Is `market share' all that it's cracked up' to be? - Research suggests that the direct impact of market share on profitability is substantially less than commonly assumed and, in fact, is relatively minor. Discuss the product-market strategic implications.

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THE MARKETING MIX & THE STRATEGIC OPTIONS The Product function: True- False Questions 1. A product doesn't make sense if one considers it out of the potential market. One should better speak of the "Product-Market" 2. A product portfolio is defined by three dimensions: the "Breadth", "Depth" and the "Volume" 3. Many large F.M.C.G. companies try to use the "brand" concept to develop a unique "brand name" which should on the LT stand as name for the "generic product" 4. The main product strategies a marketer should consider are: Cost reduction, product improvement, new packaging, new products 5. "Shopping goods" are products bought by the customers as a routine they do not make any effort to compare them with other alternatives

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Multiple Choice Questions a. Among the 3 product concepts: Core, Tangible & Augmented, the "Tangible Product" describes: 1. The pure technical characteristics of the product 2. The primary benefit to the customer 3. The primary benefit and the associated services 4. The basic product, the brand, design, styling and packaging b. In the product portfolio; the "Breadth" is the dimension which represents: 1. The amount of different products in a given line 2. The total number of products presented to the customer 3. The range of brands available 4. The number of product lines and product families presented to the customers c. The Product-Market positioning is a technique which permits 1. To situated the product according to its market share an profitability 2. To visualize the relative position of the product versus its rivals in the distribution 3. To visualize the products/brands in relation to consumer choice criteria and perceived competitive performance 4. To give the position of a product line according to growth of market and relative reached market share Clarifying attitudes to pricing True- False Questions 1. Price is the factor which determines a brand's value to a consumer 2. Price elasticity means charging different prices to different consumers 3. The price is playing a leverage role vis-à-vis the other marketing-mix components Scanné par PHAN Thanh Tu

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4. A "going rate" price is a price which fluctuates permanently with seasonality 5. A Penetration price is indicated when the product is a commodity for mass consumption and is not protected by any kind of patent.

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Multiple Choice Questions a. The "market skimming" price is justified if: 1. The producer wants to win in the demand surplus 2. The company cannot afford the financial weight of a launching campaign 3. The product is technologically new and well protected by a registered patent 4. The price has a large impact on the buying attitude b. You are the Commercial Manager of Carrefour. We are mid-October and the toy manufacturers complain about the lack of sales since the latest summer period. They are ready to make some extra pricing conditions to assure their annual proceeds, what shall you do regarding the coming December period (Santa Klaus, Christmas, New year...)? 1. Use the extra rebate you get from the producer to lower your selling prices and promote this heavily as an `appeal product' 2. Slightly increase the price to integrate the normal inflation rate 3. Take the same margin than last year and use the extra conditions to increase your profitability 4. Let your local site-managers decide in function of the local environment. c. Whatever the method of calculation adopted, the only reality is that the price level: 1. Is based on costs plus profit 2. Is set by what the customer is willing to pay 3. Is fixed once for all by the ministry of economic affairs 4. Only depends of the competition Persuasive Communication True- False Questions 1. The "Personal Selling" is an important form of commercial communication 2. A "Push" technique means pushing the end consumer towards the selling place 3. The "Public Relation" is the most effective way to convince the customer of the product value 4. Persuasive communication aims to bring the prospects from the unawareness to the buying action 5. The "Pull" techniques use all means to globally enhance the attention and awareness of potential customers

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Multiple Choice Questions a. A consumer who is not really concerned by a product: 1. Memorises quickly the advertisements on this product 2. Develops a negative attitude towards the brand 3. Is attracted by the brand and receptive to the "atmosphere" of the publicity message (pleasure, cocooning...)

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4. Is directly interested in the characteristics and performances of the product announced b. The "Advertiser" is: 1. The company who is proceeding with an advertising campaign 2. The advertising agency that has created the message 3. The owner of the media support 4. The media planning agent who has reserved the space and timing for the various media c. The effectiveness of a good advertisement can be evaluated through the VIP'S formula, that is: 1. Visibility, Identity, Personalization, Simplicity 2. Variation, Information, Promise, Simplicity 3. Visibility, Identity, Promise, Single-minded 4. Value, Information, Permanence, Single-minded The Distribution Scene True- False Questions 1. The intermediaries in a distribution channel allows the producer to reduce his numbers of contacts 2. The "e-commerce" permits to bridge over one or more levels of distribution 3. The selling organisation of AVON products is qualified as a form of direct marketing 4. By choosing an "intensive distribution" a manufacturer aims to have the most possible contacts in order to cover a broad market 5. The "Exclusive Distribution" of cars through selected concessionaires or dealers is countered by new European legislation

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Multiple Choice Questions a. Which kind of product is generally not sold by "mail order" 1. Clothes 2. Furniture 3. Vegetables 4. Audio-video equipment b. The distribution is characterised by taking a major part in the main commercial "flows" or "fluxes". Which of following flows is not concerned by the distribution function? 1. The flow oR products 2. The flow of funds 3. The flow of people 4. The flow of information c. The "Vertical Integration" of distribution means: 1. A merge of two or more distributors to get a better grip on the market 2. A distributor having different departments at different floors in one location 3. A movement by which a distributor becomes also grocer and producer 4. A distributor whose decision levels are very centralised in the headquarters. Application Questions for the Marketing-Mix Options

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a. Walker Wire Corporation manufactures copper wire for use in electrical cords. A number of companies compete with Walker, and each produces an almost identical line. Given this apparent homogeneity in what is being sold, what are some ways in which walker might differentiate its product offerings? b. You are a concessionaire of the car brand FIAT in the region of Dunkirk, and you have to face the deregulation of the market announced for October 2002. How should you consider your actual product-service portfolio and which are the possibilities you should envisage assuring the continuity of your business? c. Caterpillar and Komatsu are two dominant manufacturers of earth moving Machines in civil engineering (shovels, cranes, bulldozers...). Engaged in rather high competitive market sector, Caterpillar managed to keep his position as leader even after a serious price war. He applied a new offering system called LTV (Life Time Value). What does it mean? How did they use it to keep high prices and still be market leader? d. "Mont Blanc" is the manufacturer of luxury fountain pens they commercializes through professional bureau-articles shops, the product range is of high quality and prices are above 250 €. They want to enlarge their present sales to younger target segments. What should be, in your opinion, the crucial decisions they have to make on product, price, distribution and communication? Explain why. e. Describe specific product and market conditions that lend themselves to - A direct channel of distribution - A indirect channel of distribution f. One categorizes the distributors in two large ways: - The trading Up - The trading Down What are the differences? How do they manage their marketing-mix? Give at least two examples for each group. g. A district manager of a class furniture manufacturer made following remark one sales meeting: " A good sales reap costs 40.000 € per year; Why shouldn't we scrap half of the monthly advertisements we make in `Life Magazine' and which cost 20.000 € each? We could then engage 2 a 3 new reps! A sales representative shall certainly sell more than 1 page in one issue of Life!" Give your comments. h. The lubricating oil specialist BP- CASTROL would like you to develop a communication campaign for their newest range of `universal oils' for agriculture machines. Upon request, BP-Castrol marketing research department will provide you with any data that they have concerning the products and the concerned markets. Outline the approach that you follow in selecting the different media and means, and developing messages for the campaign. STRATEGIC & OPERATIONAL MARKETING PLAN True- False Questions 1. The planning mechanism entails a OPEN cultural behaviour 2. In a step by step marketing planning The PEST factors stand for Politics, Efficiency, Strategy, Techniques 3. The budget is in fact the financial translation of the operational marketing plan 4. Besides the commercial projects, a strategic planning incorporates also the production, financial and organizational elements 5. A `Contingency' plan give in short the fall back situation in case of appearance of critical factors touching the firm's survival

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Multiple Choice Questions a. The three main phases in the elaboration of a marketing plan are: 1. Analysis, action plan, budget, 2. Strategy, action, control, 3. Audit (analysis), strategy, tactics (operation), 4. Audit, tactics, action b. The Gap analysis determines a difference between normal and desired performance levels which can filled in by 1. Operational and strategic decisions 2. Competitive and pro-active measures 3. Buying in competence and know how 4. Research & development and additional services c. The `value chain' permits an `internal analysis' by dividing the primary activities into five sequential items 1. Inbound logistics, operations, control, human resources, sales 2. Inbound logistics, operations, outbound logistics, marketing, service 3. Operations, distribution, sales, human resources, Admin & accounts 4. R & D, procurement, operations, sales, financial FU. d. In a step-by-step marketing planning the first phase is the `audit' which embraces: 1. Environment-, market-, technology-, and consumer behaviour analysis 2. Environment-, competition-, business-, technology analysis 3. Environment-, market-, competition-, and internal analysis 4. Environment-, competition-, financial-, and stakeholders analysis e. The SWOT grid is the outcome of the audit phase that gives a situation report (Sitrep). SWOT stands for: 1. Sweet, Willing, Open, Tender 2. Severe, Wishful, Ordinary, Traceable 3. Strengths, Weaknesses, Orders, Transactions 4. Strengths, Weaknesses, Opportunities, Threats Application a. The successful implementation of a strategic marketing plan starts with the clarification of the existence reason and role of the enterprise; this is called the `basic charter'. Imagine you are the owner and boss of a rather important automobile concession in the region of Dunkirk. What should be your basic charter? b. In your opinion, how should one associate the various organization levels of the enterprise in the construction of a strategic marketing plan? What do you think of the topdown versus the bottom-up approach? What are the merits of both ways? How should you conciliate them? c. All-Pro Chemical produces a line of fertilizers used in home gardening applications. The distribution is done in'/2 Kg up to maximum 5 Kg packs, via specialized garden centres and flower shops. The company recently announced the successful development of a new fertilizer, to be called Ultragrow, which has been shown to increase fruit tree output by 25 %. Consequently unexpected inquires from fruit growers have been overwhelming, and demand ?? ., seems to be very strong. They ask you as marketing specialist to help them in formulating their way to go to establish a strategy and a marketing plan. What do you suggest?

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CASE STUDY: Whirlpool; Planning for the Next Century The management of Whirlpool -one of the world's largest appliance manufacturersfaced a critical but not uncommon question: how to continue the company's growth into the 21st century. Several growth options were available to Whirlpool: to diversify into related product areas, to integrate vertically (by entering the retail industry), or to expand internationally. Whirlpool decided instead to "stick to its knitting" and rededicate itself to what it did best: sell large appliances. Its long-term goal was to become the global market leader of major appliances. That quiet decision had an enormous impact on the entire corporation. Like any company engaged in planning its long-term course, Whirlpool used the goal of becoming the global market leader as its launch pad into planning efforts in all areas of the company. The goal drove strategies that involved the company's geographic presence, its management structure, and its marketing efforts. On the way toward its goal, Whirlpool formed a joint venture with N.V. Philips of the Netherlands, and later took full ownership of Philips' major appliance business. Joint ventures in various countries also followed, including the fast-growing Asian markets. Closer to home, Whirlpool integrated its U.S., Canadian, and Mexican major appliance operations and created the North American Appliance Group (NAAG). It placed stronger emphasis on major appliances, as opposed to smaller ones, to remain consistent with the overall long term global goal. Another major change involved the company structure. For years, Whirlpool had been organized around strategic business units for each brand franchise, typical of the industry. This had al lowed employees to manage their own brands separately from the rest of the brands. With the new global initiative, the company disbanded the brand management structure and adopted a cross-functional team structure called "Product Business Teams" (PBT's). Each PBT included professionals from marketing, engineering, procurement, logistics, and other functions. In turn, each PBT was assigned to a specific product -such as dishwashers- and was accountable for all the elements that determine the success of that product. The team approach allowed the company to push decision making down the trenches, to the employees who knew the marketplace intimately. Whirlpool also adopted the "Dominant Consumer Franchise" strategy, defined as "giving the consumer a compelling reason beyond price for buying Whirlpool's products over the competitors' products." The Dominant Consumer Franchise was the driver of all plans that related to the marketing of Whirlpool's products. Through marketing research, Whirlpool discovered six distinct appliance consumer segments, all women: (I) the Traditionalist (who has a very strong home focus), (2) the Housework Rebel (who juggles her responsibilities between a full-time job and housework well), (3) the Achiever (who is educated and sees an opportunity to display her good taste by acquiring the right appliances), (4) the Self-Assured (a younger, well educated woman who takes a casual view of housework), (5) the Proven Conservative (similar to the Traditionalist, but younger ), and (6) the Homebound Survivor (an older woman who has few outside interests) . Using the Dominant Consumer Franchise strategy, a PBT would determine which market segment best fit its product, and planned all its activities around this segment. In its planning efforts, Whirlpool clearly decided to narrow its product focus to large appliances but to broaden its geographic focus to global markets. Will this product focus allow Whirlpool to become the global market leader? Whirlpool's planning will undoubtedly have a major impact on its business in the 21st century, and the success of

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that planning remains to be seen. But Whirlpool now manufactures products in 13 countries and markets products in about 140 countries worldwide. QUESTIONS 1. What steps did Whirlpool take in its planning to change its strategic direction? 2. Is Whirlpool's Product Business Team structurç very different from its original brand management structure? Explain. 3. Though Whirlpool has clearly decided to narrow its product focus to large appliances, it has expanded its geographic focus to global markets. In your opinion, will this trade-off sustain long-term growth? Support your opinion. Sources: - "Dedication to Majors," Appliance Manufacture, May 1994, pp. W-4, W-35; - Jennifer J. Laabs, "Whirlpool Managers Become Global Architects" Workforce Magazine online, accessed at http:/ /www.workforceonline.com/archive/2310.htm1 on October 7, 1998 - "How We Got Here," from the Whirlpool Corporation Web page timeline, accessed at http:/ /www.whirlpoolcorp.com on October 7, 1998. Exercise: making up a BCG grid The product-market portfolio of an electronic industrial devices manufacturer is divided over 5 product lines each of which being similar with those of their competitors. The sales results have been recorded by the professional chamber and are given below. The Cy has a good reputation and is recognise for its technical skills. Product line A B C D E

Sales (million units) / Contr. to OH 000 € 1.0 / 300 3.2 / 800 3.8 /1640 6.5 /2600 0.7 / 210

Number of competitors 7 18 12 5 9

Sales for the 3 leading firms 1.4/1.4/1.0 3.2/3.2/2.0 3.8/3.0/2.5 6.5/1.6/1.4 3.0 / 2.5 / 2.0

Market growth rate 15% 20% 7% 4% 3%

Use the BCG portfolio analysis method and formulate a diagnostic of the situation. Which recommendations should you make? What should you adopt as strategic development for each of the lines? Explain your decisions.

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