Synopsis

Marketing 1. The Marketing Management Process Learning Objectives The activities of Samsung’s managers as they worked to redefine the company’s brand image and supporting marketing strategy illustrate the variety of decisions that are crucial to the success of every organisation, whether large or small, profit or nonprofit, manufacturer, retailer, or service firm. The CEO of a high-tech firm like Samsung must decide what technologies to pursue, what goods or services to sell, to whom, with what features and benefits, at what price, and so on. A chief financial officer for a large multinational corporation must market the merits of the company to the capital markets to obtain the resources needed for continued growth. The executive director of a nonprofit community agency must pursue the resources necessary for the agency to achieve its mission, whether those resources come from fees for the services it delivers or from grants and contributions. And all of those managers must market their ideas for improving their organisations’ prospects and performance to their colleagues inside the firm as well as to customers, suppliers, strategic partners, and prospective employees. Thus, most managers engage in tasks involving marketing decisions virtually every day. This course provides prospective managers and entrepreneurs with the marketing tools, perspectives, and analytical frameworks they’ll need to play an effective role in the marketing life and overall strategic development of their organisations, regardless of whether or not they occupy formal marketing jobs. Module 1 begins by addressing a number of broad but important questions all managers must resolve in their own minds: Are marketing decisions important? Does marketing create value for customers and shareholders? What constitutes effective marketing practice? Who does what in marketing and how much does it cost? How might competitive advantage be sustained over a product’s life cycle? And finally, what decisions go into the development of a go-to-market strategy for a particular good or service and how can those decisions be summarised in a marketing plan?

Sections 1.1 1.2 1.3 1.4 1.5

Why Are Marketing Decisions Important? Marketing Creates Value by Facilitating Exchange Relationships What Does Effective Marketing Practice Look Like? The Marketing Management Process The Product Life Cycle The Marketing Plan – A Blueprint for Action 1

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1.6

Who Does What?

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Marketing is pervasive. It is a social process involving the activities that facilitate exchanges of goods and services among individuals and organisations. Customers buy benefits, not products. The benefits a customer receives from a firm’s offering, less the costs he or she must bear to receive those benefits, determine the offering’s value to that customer. Delivering superior value to one’s customers is the essence of business success. Because delivering superior value is a multifunctional endeavour, both marketing and nonmarketing managers must adopt a strong focus on the customer and coordinate their efforts to make it happen. The marketing management process requires an understanding of the 4 Cs: the company and its mission, strategies, and resources; the macroenvironmental context in which it operates; customers and their needs and wants; and competitors. Obtaining an objective, detailed, evidence-based understanding of these factors is critical to effective marketing decision making. Marketing decisions – such as choices about what goods or services to sell, to whom, and with what strategy – are made or approved at the highest levels in most firms, whether large or small. Therefore, managers who occupy or aspire to strategic positions in their organisations need marketing perspectives and analytical skills.

2. The Marketing Implications of Corporate and Business Strategies Learning Objectives The situation at 3M illustrates that large firms with multiple businesses usually have a hierarchy of strategies extending from the corporate level down to the individual product-market entry. As we’ve seen, 3M’s corporate growth strategy focuses primarily on developing new products and new applications for emerging technologies. This strategy is supported by a robust commitment to – and substantial budgets for – R&D across the company. Its business unit strategies address a central question: How should we compete in this business? For instance, 3M’s industrial tape unit attempts to maintain its commanding market share and high profitability by differentiating itself on the basis of high product quality and good customer service. The drug delivery unit, on the other hand, seeks high growth via aggressive new product and market development. Finally, the marketing strategy for each product-market entry within a business unit attempts to allocate marketing resources and activities in a manner appropriate for accomplishing the business unit’s and that product-market entry’s objectives. Thus, most of the marketing efforts within 3M’s drug delivery unit involve relatively

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large expenditures for marketing research and introductory marketing campaigns aimed at achieving sales growth. One key reason for 3M’s continuing success is that all three levels of strategy within the company have usually been characterised by good internal and external consistency, or strategic fit. The company’s managers have done a good job of monitoring and adapting their strategies to the market opportunities, technological advances, and competitive threats in the company’s external environment. The firm’s marketing and sales managers play critical roles both in developing marketoriented strategies for individual products and in influencing and helping to formulate corporate and business-level strategies that are responsive to environmental conditions. At the same time, those strategies are usually internally compatible. Each strategy fits with those at other levels as well as with the unique competitive strengths and competencies of the relevant business unit and the company as a whole. Recent empirical evidence shows that when there is a good fit between a business’s competitive strategy and the marketing strategies of its various product or service offerings, the business will achieve better results in terms of sales growth, market share, and profitability than when the two levels of strategy are inconsistent with one another. In this module, we address two major themes: the implications of corporate strategy for marketing decision makers, followed by the implications of business-unit strategies for marketing decision makers. In addressing the first of these themes, we ask several important questions: While marketing managers clearly bear the primary responsibility for developing strategic marketing plans for individual product or service offerings, what role does marketing play in formulating strategies at the corporate and divisional or business-unit level? Why do some organisations pay much more attention to customers and competitors when formulating their strategies (i.e., why are some firms more market oriented) than others, and does it make any difference in their performance? What do strategies consist of, and are they similar or different at the corporate, business, and functional levels? What kinds of decisions underlie effective corporate strategies, and what are their implications for marketing? In addressing the second theme, we first briefly examine the strategic decisions that must be made at the business level, including how business units should be designed and the question of how a business might choose to compete. What generic competitive strategies might a business pursue, and what is necessary to implement them effectively? We’ll also explore whether the same kinds of competitive strategies are relevant for small, single-business organisations and entrepreneurial start-ups as for large multi-SBU firms such as 3M and whether technological shifts, such as the growth of e-commerce and today’s ubiquity of smartphones, are likely to give birth to new competitive strategies or make some old ones obsolete.

Sections 2.1

What Is Marketing’s Role in Formulating and Implementing Strategies? 3

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2.2 2.3 2.4

Three Levels of Strategy: Similar Components But Different Issues The Marketing Implications of Corporate Strategy Decisions The Marketing Implications of Business-unit Strategy Decisions

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Marketing perspectives lie at the heart of strategic decision making, whether at the corporate, business-unit, or product-market levels. All managers who aspire to general management roles need marketing concepts and tools in their repertoire. Market-oriented firms – those that plan and coordinate company activities around the primary goal of satisfying customer needs – tend to outperform other firms on a variety of dimensions, including sales growth, return on assets, and new product success. Unethical behaviour by a firm’s employees can damage the trust between a firm and its suppliers and customers, thereby disrupting the development of longterm relationships and reducing sales and profits over time. The four major paths to corporate growth – market penetration, market development, product development, and diversification strategies – imply differences in a firm’s strategic scope, require different competencies and marketing actions, and involve different types and amounts of risk. Decisions about which path(s) to pursue should consider all of these factors. The ultimate goal in formulating business-unit strategies is to establish a basis for a sustainable competitive advantage that provides superior value to customers. Doing so requires the development of resources – often marketing resources, such as brand names, marketing information systems and databases, long-term customer relationships, and so on – that other firms do not have and that are hard to acquire. Successful new firm formation typically requires a competitive strategy that delivers superior value to a narrowly defined target segment in a way that either avoids direct confrontation with established competitors or is difficult for them to emulate. Therefore, market sensing – based on insightful use of the 4 Cs – and analysis, market segmentation and targeting, and market positioning skills are usually crucial in helping new firms surmount the long odds against survival.

3. Understanding Market Opportunities Learning Objectives As the examples of the mobile phone manufacturing and service industries show, serving a growing market hardly guarantees smooth sailing. Equally or more important are industry conditions and the degree to which specific players in the industry can, like Nokia or Apple, establish and sustain competitive advantage at least for a while. Thus, as entrepreneurs and marketing decision makers ponder an 4

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opportunity to enter or attempt to increase their share of a growing market like that for mobile phones, they also must carefully examine a host of other issues, including the conditions that are currently prevailing in the industry in which they would compete and the likelihood that favourable conditions will prevail in the future. Similarly, such decisions require a thorough examination of trends that are influencing market demand and are likely to do so in the future, whether favourably or otherwise. Thus, in this module, we address the 4 Cs that were identified in Module 1 as the analytical foundation of the marketing management process. We provide a framework to help managers, entrepreneurs, and investors to comprehensively assess the attractiveness of opportunities they encounter, in terms of the company and its people, the environmental context in which it operates, the competition it faces, and the wants and needs of the customer it seeks to serve. We do so by addressing the three questions crucial to the assessment of any market opportunity: How attractive is the market we serve or propose to serve? How attractive is the industry in which we would compete? Are the right human resources – in terms of people and their capabilities and connections – in place to effectively pursue the opportunity at hand? We frame our discussion of opportunity assessment using the seven domains framework shown in Exhibit 1. As the seven domains framework suggests and the mobile telephony story shows, in today’s rapidly changing and hotly competitive world it’s not enough to have a large and growing market. The attractiveness of the industry is also important, as are the company’s or entrepreneurial team’s resources – human, financial, and otherwise. Before digging more deeply into the framework, however, we first clarify the difference between two oft-confused terms: market and industry.

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Exhibit 1

The seven domains of attractive opportunities

Sections 3.1 3.2 3.3

Markets and Industries: What’s the Difference? Assessing Market and Industry Attractiveness Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro Level 3.4 Your Market Is Attractive: What About Your Industry? 3.5 Challenges in Macro-Level Markets and Industry Analysis 3.6 Understanding Markets at the Micro Level 3.7 Understanding Industries at the Micro Level 3.8 The Team Domains: A Critical Key to the Pursuit of Attractive Opportunities 3.9 Putting the Seven Domains to Work 3.10 Anticipating and Responding to Environmental Change 3.11 Swimming Upstream or Downstream: An Important Strategic Choice

Learning Summary •

Macro trends can and will profoundly influence the success of any business. Serving attractive markets, where trends are favourable – swimming with the tide – is likely to bring more success than serving markets where trends are unfavourable.

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Similarly, competing in structurally attractive industries – those where the five forces are, on balance, favourable – is likely to generate better returns than in less attractive industries. Notwithstanding the first two points above, the degree to which a company’s goods or services resolve genuine customer needs of a clearly defined target market and the degree to which its competitive advantage is sustainable over time are probably even more crucial to long-term success. Understanding market opportunities is about more than understanding customers, competitors, and the environmental context. The capabilities and resources brought by the company itself are also important and are often overlooked. The seven domains are not additive – simply scoring each domain and summing the scores won’t do. Strong scores, especially at the micro level or on the team domains, can outweigh the effects of flat or declining markets or structurally unattractive industries.

4. Understanding Consumer Buying Behaviour Learning Objectives The ability of the global cruise industry to generate substantial new and profitable growth in a market that had been stagnant for years illustrates why examining the needs, desires, and purchasing behaviour of existing and potential customers is a critical step in analysing market opportunities. Consumers buy goods and services as means to an end, as potential solutions to their unsatisfied needs and wants. And they select particular brands or deal with a specific supplier (Carnival Cruise Line) because they perceive them to offer desirable benefits (an interesting itinerary, great food, attentive service, romantic atmosphere, programmes for the kids, etc.) and superior value. Consumer decision making is essentially a problem-solving process. Most customers, whether individual consumers or organisational buyers, go through similar mental processes in deciding which products and brands to buy. Despite this similarity, different customers often end up buying different things. Some holidayers take two-week luxury cruises, some take four-day ‘contemporary’ cruises, while many others go to Disney World or visit Paris instead. These differences reflect variations in consumers’ personal characteristics – their needs, benefits sought, attitudes, values, past experiences, and lifestyles – and their social influences – their social class, reference groups, and family situations. The more marketers know about the factors affecting their customers’ buying behaviour, the greater their ability to design attractive product or service offerings, to define and target meaningful market segments, and to develop marketing programmes to fit the concerns and desires of those segments. This module provides a framework to help organise an analysis of the mental processes individual 7

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consumers go through when making purchase decisions and the individual and environmental factors affecting those decisions. Not all purchase decisions are equally important or psychologically involved. The decision to spend several thousand dollars on a cruise is a bigger deal for most people than the decision to add bananas to their shopping cart. The first question we explore, then, is whether consumers’ mental processes are different when they purchase high-involvement goods or services than when they buy more mundane, low-involvement products. If so, what are the implications of those decision-making differences for the marketing manager or entrepreneur charged with developing the marketing strategy for a particular product or service? Regardless of their involvement with a particular purchase decision, different people often choose different products or brands. This fact raises two important questions that we’ll explore later in the module. How do a person’s psychological processes and traits – such as perception, memory, attitudes, personality and lifestyle – affect his or her buying behaviour? And what impact do social influences – like culture, social class, reference groups, and the family – have on purchase decisions?

Sections 4.1 4.2 4.3

The Psychological Importance of the Purchase Affects the Decision-Making Process Why People Buy Different Things: Part 1 – The Marketing Implications of Psychological and Personal Influences Why People Buy Different Things: Part 2 – The Marketing Implications of Social Influences

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Not all purchase decisions are equally important or psychologically involving for the consumer. People engage in a more extensive decision-making process, involving a more detailed search for information and comparison of alternatives, when buying high-involvement goods and services than when purchasing more mundane, low-involvement items. Consumers increasingly use digital tools and technologies to facilitate decision making with the result that the process has become less linear and more interactive, featuring many feedback loops, influences and touchpoints. Because of the differences in the decision-making process, a given marketing strategy will not be equally effective for both high- and low-involvement products. The consumer marketer’s first task, then, is to determine whether the majority of potential customers in the target segment are likely to be highly involved with the purchase decision or not. By understanding consumers’ level of involvement and the more circular consumer decision-making process, marketers can be selective in their use of digital tools and techniques through the different stages of the buying process, directing their promotional and brand building activities to reach target customers at the optimum moments (the key touchpoints). 8

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Because consumers are generally unwilling to spend much time or effort evaluating alternative brands in a low-involvement product category before making a purchase, marketers need to focus their promotional messages on only a few frequently repeated points and to distribute such products extensively to make them convenient for customers to buy. Regardless of the consumer’s level of involvement with a product category, consumers often prefer different brands because of differences in their psychological or personal characteristics, such as their perceptions, memories, attitudes, and lifestyles. Understanding how such characteristics influence consumers’ decisions in a product category provides an important foundation for marketing decisions concerning the definition of market segments, the selection of target markets, and the design of marketing programmes to appeal to those markets. Regardless of the consumer’s level of involvement with a product category, consumers often prefer different brands because of differences in their social relationships, such as their culture, social class, reference groups, and family circumstances. Understanding how such social influences impact consumers’ decisions in a product category provides an important foundation for marketing decisions concerning the definition of market segments, the selection of target markets, and the design of marketing programmes to appeal to those markets.

5. Understanding Business Markets and Buying Behaviour Learning Objectives The fact that the DHL Supply Chain Division markets its logistics services to business customers rather than individual consumers makes it like the great majority of business firms. Worldwide, business markets account for more than twice the dollar value of purchases as consumer markets. About half of all manufactured goods in most countries are sold to business buyers. In addition, organisations such as Cargill, Nestlé, and BP buy nearly all minerals, farm and forest products, and other raw materials for further processing. Finally, organisations buy many services from accounting firms, banks, financial advisers, advertising agencies, law firms, consultants, railroads, airlines, security firms, and other suppliers. As we’ll see later, business customers are different in some ways from consumers, and those differences have important implications for designing effective marketing strategies. But at the most basic level, business to business (B2B) marketers need to answer the same set of questions about business markets as about consumer markets in order to develop a solid foundation for their marketing plans. Who are the target customers and what are their needs and wants? How do those customers decide what to buy and what suppliers to buy from? Do their decision processes vary depending on their past experiences, the nature of the product being purchased, and other situational factors? If so, what are the marketing strategy implications of those variations? This module provides a framework to help you address these questions. 9

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We begin our examination of ‘who is the customer?’ by comparing business markets to consumer markets and pointing out differences between the two types of customers, differences that often dictate varying marketing approaches. One of those differences is simply the number of participants in the purchase decision. While consumers are influenced by family and friends, they often decide what to buy − and make the actual purchase − on their own. That is typically not the case in business purchasing, especially when the product or service involved is relatively complex and expensive. For instance, it is likely that a number of top managers from purchasing, manufacturing, finance, and other functions were involved in negotiating Volvo Cars’ new contract with DHL Supply Chain, and managers from several levels within the Latin American satellite television service client would be involved in reviewing and renegotiating the firm’s service agreement. Therefore, we will discuss the different kinds of participants in business purchase decisions, the roles they play, and the different types of buying situations they encounter. Next, we examine the process that business customers go through in deciding what to buy and from whom. As with individual consumers, this process varies depending on the past experience the organisation has in buying the particular product or service and with a given supplier. As illustrated by DHL Supply Chain, a primary goal should be to develop long-term relationships − and ideally cooperative alliances − with customers to ensure repeat purchases and capture full lifetime value. We discuss these issues as well as the impact of digital technology on business decision-making processes. We then consider how differences in relation to the roles played by various members of the buying centre, buying situation, and decision processes impact on the development of marketing strategy. In doing so, we reflect on the new decisionmaking realities in the digital context, and the various digital tools and techniques marketers can now use to facilitate business purchase decisions. Finally, we conclude this module with an examination of how business purchasing processes differ across various categories of goods and services, and the special challenges faced in marketing to government organisations.

Sections 5.1 5.2 5.3

Who Is the Customer? How Do Businesses Make Purchase Decisions? Implications for Marketing Strategy

Learning Summary •

While business customers are different in some ways from consumers, marketers need to answer a similar set of questions to develop a solid foundation for their marketing plans. Who are our target customers? What are their needs, wants, and preferences? How do those customers decide what to buy and which suppliers to buy from?

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Organisations buy things for one of three reasons: (1) to facilitate the production of another product or service; (2) for use by the organisation’s employees in carrying out its operations; or (3) for resale to other customers. Organisations are social constructions. Therefore, ‘organisations’ do not buy things. Rather, individual employees – usually more than one from different departments and business levels – make purchase decisions on the organisation’s behalf. Understanding the personal motivations of these individuals, and their influence on different stages of the purchasing process, is essential for marketing success. Business purchase decision making often involves several different people from several different departments which is referred to as a buying centre. Participants in the decision process can be categorised as users, influencers, gatekeepers, buyers and deciders. The process that individual organisations go through in deciding what to buy and from whom depends on the past experience the organisation has in buying the particular product or services with a given supplier. There are different types of buying situations: the straight rebuy, the modified rebuy, and the new-task buy. Marketing strategies must vary accordingly. Digital technology is influencing business purchase decision making. The decision process is now less linear and more complex, involving various iterations and interactions with numerous touchpoints. The majority of business buyers use digital channels to facilitate decision making and the process has become more social, with increased importance placed on the opinions and experiences of peer networks. Marketing strategies need to take into account the participants in the purchase decision process, the buying situation, and the kinds of goods and services being marketed. Digital tools make possible different marketing strategies and mutual trust and commitment are required to sustain long-term buyer–supplier relationships.

6. Measuring Market Opportunities: Forecasting and Market Knowledge Learning Objectives Entrepreneurs and managers in established firms like Intel need to develop knowledge about their market and industry and synthesise that knowledge into tangible plans that their organisations can act on. These plans can take many forms. For entrepreneurs a business plan may be needed to raise the necessary capital to start the venture. For new product managers in established firms, marketing plans must be developed to win support and resources to permit the product’s launch. In organisations of all kinds, annual budgets are prepared to guide decision making for the coming year. These decisions determine staffing, investments in productive

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capacity, levels of operating expense, and so on. In almost every case, these planning and budgeting activities begin with a sales forecast. Once a sales figure is agreed to, the various activities and investments needed to support the planned sales level are budgeted. Thus, in Module 6, we deal with some key issues that enable managers and entrepreneurs to bring life to their dreams. First, we address the challenges in estimating market potential and forecasting sales, for both new and existing products or businesses. We provide a menu of evidence-based forecasting methods, each of which is useful in some situations, but not others, and we discuss their limitations. We also examine the process by which innovative new products diffuse into the market over time, a source of insight into the particularly difficult task of forecasting sales of innovative new products. Next, we address several systematic sources of information – internal record systems, marketing databases, competitive intelligence systems, and systems that organise and track information about client contact – that keep marketers in touch with what’s going on in the marketplace. Designing such systems effectively is crucial for marketers, who need to be well informed about the market and competitive context that we’ve dealt with in the previous modules of this book. Finally, and very briefly, we touch on marketing research, where data are gathered about a particular marketing challenge or situation. Making strategic marketing decisions based on hunches – instead of more carefully thought-out research inquiries, even modest ones done quickly – can be a risky proposition indeed. Thus we probe some of the common pitfalls that users of marketing research will encounter, and we identify some of the questions such users should ask.

Sections 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8

Every Forecast Is Wrong! A Forecaster’s Toolkit: A Tool for Every Forecasting Setting Rate of Diffusion of Innovations: Another Perspective on Forecasting Cautions and Caveats in Forecasting Why Data? Why Marketing Research? Customer Relationship Management: Charting a Path toward Competitive Advantage Marketing Research: A Foundation for Marketing Decision Making What Users of Marketing Research Should Ask

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Every forecast and estimate of market potential is wrong! Evidence-based forecasts and estimates, prepared using the tools provided in this module, are far more credible – and generally more accurate – than hunches or wild guesses. A menu of evidence-based forecasting approaches is provided in this module. Forecasts have powerful influence on what companies do, through budgets and other planning procedures. Thus, forecasting merits significant management attention and commitment. 12

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Superior market knowledge is not only an important source of competitive advantage, but it also results in happier, higher volume of, and more loyal customers. Thus, the systematic development of market knowledge is a critically important activity in any organisation. Much can go wrong in marketing research and often does. Becoming an informed and critical user of marketing research is an essential skill for anyone who seeks to contribute to strategic decision making. Tools for obtaining this skill are presented in this module.

7. Targeting Attractive Market Segments Learning Objectives Targeting the most attractive market segments is an issue that arises for marketers everywhere, not just in emerging economies. Different groups of customers – different market segments – have different wants and needs, both tangible and intangible. SMEs may measure their progress by looking at their balance sheet, but the real benefits that Simon Loong offers through WeLab and its WeLend and Wolaidai offerings – such as being able to raise finance without the need to visit a bank branch – are more difficult to quantify. In virtually any market, if different segments can be clearly identified, specific goods or services with specific marketing programmes can be developed to meet the physical needs of the customer (access to credit) and also possibly the emotional needs too (peace of mind, security). In Module 7, we draw on the foundation of market knowledge and customer understanding established in the first six modules to introduce what are probably the most important and fundamental tools in the marketer’s tool kit: market segmentation and target marketing. Together with differentiation and brand positioning, which we address in Module 8, these tools provide the platform on which most effective marketing strategies are built. Learning to apply these tools effectively, however, requires addressing several important questions. Why do market segmentation and target marketing make sense? Why not sell the same credit services – or fitness programmes, automobiles, or whatever – to everyone? How can potentially attractive market segments be identified and defined? Finally, how can these segments be prioritised so that the most attractive ones are pursued? Answering these questions should enable an entrepreneur in Hong Kong, a venture capital investor in Silicon Valley, or a marketing manager in a multinational firm to decide which market segments should be targeted and provide insight into which investments should be made.

Sections 7.1 7.2

Do Market Segmentation and Target Marketing Make Sense in Today’s Global Economy? How Are Market Segments Best Defined?

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7.3 7.4 7.5

Choosing Attractive Market Segments: A Five-Step Process Different Targeting Strategies Suit Different Opportunities Global Market Segmentation

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Marketers and entrepreneurs who find new and insightful ways to segment mature markets often uncover opportunities for uncontested market entry and rapid growth. Sharply focused target marketing enables marketers to differentiate from massmarket leaders by giving consumers in a narrowly defined market segment what they want. Focused market entry strategies conserve resources and facilitate early success. The five-step procedure provided in this module identifies segments having the highest potential. The market-attractiveness/competitive-position matrix is a useful analytical framework for deciding which markets or market segments to enter and from which to withdraw.

8. Differentiation and Brand Positioning Learning Objectives The success of a brand offered to a given target market often depends on how well it is positioned within that market segment – that is, how well it performs relative to competitive offerings and to the needs of the target audience. Brand positioning refers to both the place a brand occupies in customers’ minds relative to their needs and competing brands and to the marketer’s decision making intended to create such a position. Thus, positioning comprises both competitive and customer considerations. Brand positioning is basically concerned with differentiation. Ries and Trout, who popularised the concept of positioning, view it as a creative undertaking whereby an existing brand in an overcrowded marketplace of similar brands can be given a distinctive position in the minds of targeted prospects. While their concept was concerned with an existing brand, it is equally applicable for new brands. While typically thought of in relation to the marketing of consumer goods, it has equal value for industrial goods and for services, which require essentially the same procedure as consumer goods. Because services are characterised by their intangibility, perishability, consumer participation in their delivery, and the simultaneous nature of their production and consumption, they are generally more difficult for marketers to position successfully. In Module 8, we take the final step in preparing the foundation on which effective marketing strategies are based. Drawing on decisions made about target markets, as discussed in Module 7, we address the critical question: ‘How should a 14

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business position its product offering – whether goods or services – so customers in the target market perceive the offering as providing the benefits they seek, thereby giving the product an advantage over current and potential future competitors?’ For Marks & Spencer, sustainability is the company’s answer to creating a distinctive positioning in the crowded retailing industry in which it competes. As we shall see, the brand positioning decision is a strategic one, with implications not only for how the firm’s goods or services should be designed, but also for developing the other elements of the marketing mix. Pricing decisions, promotion decisions, and decisions about how products are to be distributed all follow from and contribute to the effectiveness of the positioning of the product in its competitive space. Thus, the material in this module provides a foundation for virtually all of the strategic decision making that follows in the balance of this book.

Sections 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8

Differentiation: One Key to Customer Preference and Competitive Advantage Physical Positioning Perceptual Positioning Levers Marketers Can Use to Establish Brand Positioning Preparing the Foundation for Marketing Strategies: The Brand Positioning Process The Outcome of Effective Positioning: Building Brand Equity Positioning Decisions in Global Markets Some Caveats in Positioning Decision Making

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Clear and distinctive positioning that differentiates a brand from others with which it competes is usually essential for developing a winning marketing strategy. The positioning process outlined in this module helps decision makers choose a position that maximises their chance of establishing sustainable competitive advantage. Distinctive and intense positioning is best accomplished when based on one or at most two attributes. More are likely to be confusing to customers. Writing clear and succinct positioning statements or value propositions can play an important role in ensuring effective development and execution of a marketing strategy. This module provides templates for writing these materials. Effective brand positioning decisions establish the foundation upon which successful marketing strategies are built, thereby setting the stage for the creation of brand equity.

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9. Product Decisions Learning Objectives As the story of IWC illustrates, decisions about product attributes – whether for goods or services – can make a huge difference in attracting customers. In this module, we examine the first of the four Ps – the many kinds of product decisions that marketers must make to provide the value that customers want. As we shall see, such decisions include those about attributes to include in the product (such as IWC’s decision to offer a mid-sized watch), how to design the product (the feminine style), as well as decisions about branding, services related to the product, warranties, and so on. These decisions grow out of the need to differentiate one’s products from those of competitors, as we discussed in Module 8, the brand positioning module. As we observed in Module 8, going to market with an undifferentiated product can be hazardous. Thus, Module 9 addresses several critical questions that marketers face in differentiating their offerings from those of their competitors. How should our product offering, whether a good or a service, be designed to give it a chance to win competitive advantage? What product decisions must we make to deliver the benefits and value promised in our positioning statement or value proposition? Finally, given the importance of new products in the long-term success of most firms, how can new product development be managed, from a process perspective, to ensure a timely flow of new products that enjoy favourable reception by customers? Answering these questions thoughtfully, using evidence-based and up-to-date market knowledge as a foundation, often gives the firm its best chance to offer goods and services that consumers want – as opposed to products its engineers can develop (‘It’s the latest technology!’), its merchants are excited about (‘I have a hunch purple will be hot this year!’), or its CEO loves. In the first portion of the module, we address the content of product decision making: decisions about product quality and features, packaging, brand names, related services, and so on. These decisions, which we refer to as whole product or augmented product decisions (see Exhibit 2), are applicable to existing and new products, and they comprise the heart of any marketer’s product decision making. Then we address the process of new product development. An abundance of recent evidence indicates that how the new product development process is managed – whether for new-to-the-world products born in high-tech research labs or simple product modifications or line extensions – can have important implications for time to market and, ultimately, for product success or failure.

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Exhibit 2

The augmented product concept

Sections 9.1 9.2 9.3

Product Design Decisions for Competitive Advantage Managing Product Lines for Customer Appeal and Profit Performance New Product Development Process Decisions

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Decisions about product design – including product features, brand names, related services, and warranties, for both goods and services – are among the most critical in differentiating one’s brand from others to achieve competitive advantage. Factors to consider in making product decisions are provided in this module. While speed to market is important in today’s fast-paced business climate, bringing the right products to market and keeping them current are far more important than seeking first-mover advantage for a product that customers don’t want. Decisions about the depth and breadth of product lines must be carefully considered in market segmentation terms. Product lines that are too long or too short can place the company at a competitive disadvantage. Customer-driven innovation approaches like crowdsourcing, cocreation and collective customer commitment can reduce the likelihood of new product failure and create high levels of customer engagement. How the new product development process is managed, from a process perspective, is as important as what product decisions are made. The stage-gate system helps companies strike a balance between entrepreneurial creativity and business discipline in their new product efforts. 17

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Though new products constitute the lifeblood of long-term success for most firms, most new products fail! Thus, product decisions, in both content and process terms, are critical to the successful implementation of business strategies.

10. Pricing Decisions Learning Objectives Pricing is an area where managers ‘feel the most pressure to perform and the least certain that they are doing a good job. The pressure is intensified because, for the most part, managers believe that they don’t have much control over price. It is dictated by [the firm’s costs and by forces in] the market.’ And those forces have increased in recent years. The maturing of many basic industries, slower growth, improved productivity, the growing power of retailers and their private labels, the increased aggressiveness of low-cost global competitors such as Ryanair, and the growing ability of customers to compare suppliers’ prices on the Internet have made many markets more price competitive. The perception that pricing decisions are dictated by factors beyond the marketer’s control, however, is a dangerous one. As we shall see later in this module, many firms base their pricing decisions largely on what is necessary to recover their costs or match competitors. For instance, a company may try to determine the costs of making a product or delivering a service and then add a standard markup to achieve a target return on investment. Such an approach can be justified given that firms cannot price their products or services below cost, at least not for long. The danger is that prices set solely on the basis of cost or competitive considerations may not reflect customer value: the customer’s perception of what the good or service is really worth. The price may be higher than the customer is willing to pay, resulting in a loss of potential sales and market share. Alternatively, the price may be much lower than customers think the product is worth, resulting in low margins and the sacrifice of potential profits. While pricing a product below its perceived value may delight customers and stimulate short-term demand, it may also depress the earnings the firm needs to compensate its employees, fund capital investments, and pay for the product development and other marketing activities necessary for long-term growth. Even small changes in price can have major implications for the firm. For example, in a study of over 2400 firms, it was found that a 1 per cent improvement in price realisation (a 1 per cent increase in the average price received with sales volume remaining constant) led to an improvement in operating profit of 11.1 per cent, while a 1 per cent improvement in sales volume (with no change in average price) increased profitability by 3.3 per cent. The aggressive use of price to extract maximum value from every transaction can be misguided – aggrieved customers who sense a lack of fairness can be quick to

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react and have social media at their fingertips to share their experience with others. As we will find out later in the module, this can have quite devastating consequences for the companies concerned. Therefore, these days, momentum is building towards the creation of a fairer sense of shared value in exchange transactions. The critical question addressed in this module is: How can a marketer determine a price that captures a fair share of the value customers receive from a product or service without violating the constraints imposed by its strategic objectives, cost structure, and competitive environment? To answer that question, the first part of this module describes a price-setting process that begins by considering a variety of strategic, market demand, cost, and competitive factors. It then discusses methods that different firms use to set a price level, with emphasis on methods geared to reflect the product’s value as perceived by customers in the target market. Determining an appropriate price level for a good or service is complicated, and most firms do not charge the same list price to every customer all the time. Instead, they develop a price structure that establishes guidelines for adapting the price to variations in costs and demand across different markets. Consequently, the last half of this module examines some price adjustments marketers often make to accommodate differences across (1) geographic territories, (2) national boundaries, (3) levels of the distribution channel, (4) types of distribution channels, especially the Internet, (5) items within the product line, and (6) customer segments.

Sections 10.1 A Process for Making Pricing Decisions 10.2 Methods Managers Use to Determine an Appropriate Price Level 10.3 Deciding on a Price Structure: Adapting Prices to Market Variations

Learning Summary •

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Pricing decisions involve an inherent conflict between (1) the need to win customers by allowing them to retain a portion of the value inherent in a product or service and (2) the need to maintain profit margins sufficient to compensate employees, fund growth, and satisfy the firm’s various stakeholders. The price of a good or service must be high enough to cover per unit costs – at least in the long term – but cannot exceed its value as perceived by the customer. Therefore, the region between unit cost and perceived value represents the range of feasible prices. The decision about what price to select from within the range of feasible prices should be based on a careful analysis of competitors’ costs and prices, the product’s strategic objectives, and consistency with other components of the marketing plan. Perhaps the key concept in setting a price is the notion of perceived value. An essential purpose of the price set by a marketing manager should be to enable the firm to capture a fair share of the value of the product as perceived by the intended customer.

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•

The final step in deciding what price to charge for a product or service involves the development of a price structure that adapts the price to variations in cost and demand across geographic territories, national boundaries, customer segments, and items within the product line.

11. Distribution Channel Decisions Learning Objectives The importance of good distribution decisions in designing a marketing plan is simple: customers won’t buy your good or service unless it is readily available when and where they want to buy it. An effective distribution channel makes the right quantities of the right product available in the right place at the right time to satisfy the target customer. An efficient distribution channel also reduces the costs of marketing and acquiring the product. As Coca-Cola’s experience in Africa makes apparent, however, the manager really faces two separate but closely related sets of decisions concerning distribution channels. First come channel design decisions concerned with developing a channel structure that links the firm’s marketing strategy with the needs of its target market. These decisions focus on questions such as how many levels of middlemen should be included in the distribution system and what types of institutions, and how many of each, should be included at each level. Unfortunately, as Coca-Cola discovered in Kenya, sufficient numbers of appropriate middlemen may not exist in developing markets. In that case, channel design may involve facilitating the development of new institutions through financial assistance, extensive training programmes, promotional materials, and the like. Once a product’s distribution channel has been designed, a second set of decisions concerns how that channel should be managed. Channel management decisions involve the development of policies and procedures to gain and maintain the cooperation of – and often to form mutually beneficial long-term relationships with – the various institutions within the channel. Such decisions focus on selecting and recruiting individual channel members, motivating them to perform specific marketing functions on behalf of the supplier’s product or service, coordinating their efforts, assessing their performance, and resolving conflicts that arise. This module examines both the channel design and channel management decisions a marketer faces. We begin by discussing the economic rationale for having multiple institutions involved in distributing a given product or service. Why are channels involving networks of many independent firms often more efficient and effective than distributing things directly from the producer to the consumer? Next, we discuss the various marketing objectives a distribution channel might be designed to accomplish. We then examine some alternative channel designs for both consumer and organisational goods and services, including the various types of

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institutions and the numbers of those institutions that might be included in a distribution channel given different objectives and strategic circumstances. Finally, we examine the twenty-first century retailing revolution that the Internet has spawned, major issues involved in managing an existing channel, starting with various legal mechanisms, such as vertical integration and franchising, that some firms employ to control channel activities. However, because most channel systems consist of networks of legally independent firms, we devote most of our attention to examining the incentives that can be used to motivate those firms to act in concert with the manufacturer’s marketing programme. We conclude with a discussion of channel conflicts and the strategies firms employ to resolve them.

Sections 11.1 Why Do Multi-firm Marketing Channels Exist? 11.2 Designing Distribution Channels: What Are the Objectives to Be Accomplished? 11.3 Designing Distribution Channels: What Kinds of Institutions Might Be Included? 11.4 The Twenty-first Century Retailing Revolution 11.5 Channel Design Alternatives 11.6 Which Alternative Is Best? It Depends on the Firm’s Objectives and Resources 11.7 Channel Design for Foreign Markets 11.8 Channel Design for Services 11.9 Channel Management Decisions

Learning Summary • • • •

The importance of good distribution decisions in designing a marketing plan is simple: customers won’t buy your good or service unless it is conveniently available when and where they want to buy it. Distribution channel decisions have a major economic impact because distribution costs, many or which do not even appear in the firm’s income statement, often exceed the costs of producing a good or service. Channel design involves decisions about the appropriate types and numbers of middlemen to include in the distribution channel in order to link the marketing strategy for the good or service to the needs of the target customers. Distribution channels can be designed to accomplish a number of objectives, including maximising the product’s availability, satisfying customer service requirements, encouraging promotional effort, obtaining timely market information, minimising distribution costs, and maintaining flexibility. However, each design alternative is better for achieving some objectives than others, and there are trade-offs across objectives; increasing availability and customer service, for example, tends to increase distribution costs. Therefore, good channel design decisions require compromise and careful judgement. 21

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•

A manufacturer or service provider can attempt to gain the support and direct the efforts of its channel partners through vertical integration, by legal contracts (e.g., franchise agreements), by providing economic incentives, and/or by developing mutually beneficial relationships based on trust and the expectation of future benefits. Given the large investments required for vertical integration and the difficulty of writing enforceable contracts when market conditions are changing rapidly, the development of effective incentives and long-term relationships with channel members is increasingly vital to the market success of most firms.

12. Integrated Promotion Decisions Learning Objectives Assessing markets, analysing industries, and uncovering customers’ unsatisfied wants and needs often leads to the development of new goods or services with huge potential, at least in the eyes of the marketing managers or entrepreneurs who introduce them. So far, we’ve seen how these activities, together with decisions about final product configuration, pricing, and distribution – three of the four Ps – bring companies to the brink of marketing success. With these important building blocks in place, a critical marketing task remains – to let a waiting world know of the new product and invite it to purchase. The entrepreneur with a new product is not alone; countless marketing managers face similar decisions every day, not only for new products of which customers are unaware, but also for established products trying to win in today’s highly competitive markets. In Module 12, we address the considerable challenges entailed in the last of the four Ps – promotion – and we provide tools and analytical frameworks for addressing several age-old marketing questions. To whom should marketing messages be directed, inside the company and outside, to consumers and other stakeholders? How can the marketing manager most effectively and efficiently inform the target market about the product? How can the manager persuade them to try or buy? What messages should be delivered? How much should the firm spend to deliver them? In what media, or with what promotion tools? Finally, how might the manager assess whether the promotion strategy has been both effective and efficient? These are not easy questions to answer. We begin by introducing the promotion mix, the collection of promotion elements from which marketers can choose. We then explore the communication process and the barriers that make it difficult to get promotion messages across to their intended audiences. Finally, we provide tools for marketing managers or entrepreneurs to use in answering the questions just raised, in order to prepare evidence-based marketing plans that stand a good chance of meeting their marketing objectives.

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Sections 12.1 The Promotion Mix: A Communication Toolkit 12.2 Developing an Integrated Marketing Communications Plan 12.3 The Nitty-Gritty of Promotion Decision Making

Learning Summary • •

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The key elements in the promotion mix include: advertising, personal selling, sales promotion and public relations, all of which can be implemented with traditional or digital tools or some combination thereof. Getting marketing communications messages – of any kind, in any medium – noticed and understood is no easy task. Many ads and other communication attempts simply don’t meet their objectives. Following the five-step decision sequence guidelines in this module will mitigate this risk. A clear understanding of one’s target market is essential for planning and implementing an effective promotion programme. Without such an understanding, money is likely to be wasted. Many marketing communications efforts are not easy to evaluate. Setting clear and measurable objectives up front facilitates doing so. There are a number of ways to prepare the promotion budget, including: percentage-of-sales, competitive-parity, and the objective-and-task methods. In designing the promotion mix marketers must decide: which promotion components to use; the specific activities within each promotion component; and within each activity, the specific promotion vehicle to be used. Evaluation of the results should be based on whether the objectives of the promotion campaign have been achieved. Digital marketing has revolutionised promotion spending, because its results – like those for direct marketing programmes – can often be better targeted and directly measured. In companies of all sizes, technology will play an increasingly meaningful role in managing sales and customer service efficiency and effectiveness. Caution must be exercised, however, to avoid sacrificing effectiveness for efficiency. For new product launches on limited budgets, sales promotion alone can deliver substantial impact at a fraction of the cost of conventional approaches.

13. Digital Marketing Decisions Learning Objectives As Marriott International’s strategy reveals there is a variety of ways in which a firm can utilise digital tools, techniques and tactics to better engage with customers. In this module we consider how digital marketing, as part of an integrated marketing 23

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communications programme, can contribute to a company’s efforts to acquire new customers as well as retain and build long-term loyal relationships with existing customers. But first we shall address several timely and important questions that marketing managers in today’s companies and entrepreneurs must ask. Does every company need digital marketing as part of its promotion mix? How exactly does digital marketing add value to the promotion mix? Which digital tools and technologies should we use to realise particular promotion objectives? We begin by reviewing several trends that highlight the growing importance of social networking and other related digital developments. We then consider how digital adds value to promotion and brand-building activity by reviewing key digital touchpoints through the customer decision-making process. Next we address how the growing array of digital tools might be best used in promotion and brand building as part of an integrated marketing communications programme. Finally, we review some of the challenges managers face in managing digital marketing programmes.

Sections 13.1 Does Every Company Need a Digital Marketing Strategy as Part of its Promotion Mix? 13.2 How Does Digital Marketing Add Value to Promotion and Brand-Building Activities? 13.3 How to Develop Digital Marketing Strategies as Part of an Integrated Marketing Communications Programme 13.4 Managing Digital Marketing Strategies

Learning Summary •

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Today’s digitally networked world offers powerful new tools for marketers – not to mention opportunities for entrepreneurs – from social networks to apps plus many more. Their power and ubiquity demand that virtually every company needs a social media strategy today. The customer experience has been fundamentally changed through the use of digital tools and technologies. The marketing discipline has become increasingly technology-driven in its efforts to deliver a more personal, immediate and integrated customer experience. Digital marketing has the potential to add value to promotion and brandbuilding activities as it can influence buyer decision making as well as provide deep customer insights to better inform the development of marketing strategy. Digital tools and technologies may be used at different stages (touchpoints) in the decision-making process, both pre- and post-commitment. The five-step decision sequence for the development of an integrated marketing communications plan can be used to plan digital marketing strategy.

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• •

Digital media options include paid, earned and owned media. Integration with other elements of the promotion mix is important to ensure a unified and consistent approach is taken to marketing communications. One of digital marketing’s primary strengths is its ability to be evaluated. A range of metrics can be used, including: counting, foundation, outcome and business value metrics.

14. Marketing Strategies for New Market Entries Learning Objectives Canon’s success – whether growing fast in the boom times or surviving under crisis – illustrates several important points about new product and market development. First, both sales growth and cost cutting can help improve profits. But although it is often easier to cut R&D spending in the short term (especially when times are tough), revenue growth – particularly growth generated by the development of innovative new products – can have a bigger impact on a firm’s profitability and shareholder value over the long haul. This point is confirmed by a study of 847 large corporations conducted long ago by Mercer Management Consulting. The authors found that the compound annual growth rate in the market value of companies that achieved higher-than-average profit growth but lower revenue growth than their industry’s average – companies that increased profits mostly by cutting costs, in other words – was 11.6 per cent from 1989 to 1992. By contrast, companies that achieved higher-than-average profits as the result of higher-than-average revenue growth saw their market value jump at an annual rate double that – 23.5 per cent. It’s likely that this pattern holds true today, and Canon, thanks to its strong balance sheet and portfolio of innovative new products, stands ready to take off when (and if!) the global economy gets fully back on track. Canon’s history also illustrates that new product introductions can involve products that differ in their degree of newness from the perspective of the company and its customers. Some of the products developed by the firm, such as its first office copier, presented a new technical challenge to the company but did not seem very innovative to potential customers who viewed the copiers merely as simpler and cheaper versions of Xerox’s machines. But some of the firm’s new product introductions – such as its digital radiology system – were truly innovations that were new to potential customers and the company alike. This module examines marketing strategies and programmes appropriate for offerings that are new to the target customers. Our primary focus is on strategies used by the pioneer firm – or first entrant – into a particular product-market. Being the pioneer gains a firm a number of potential competitive advantages, but it also involves some major risks. Some pioneers capitalise on their early advantage (such as Xerox for many years) and maintain a leading market share of the product category, earning substantial revenues and profits, well into the later stages of the product’s life cycle. Other pioneers are less successful, such as search engine 25

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pioneers Alta Vista and Overture, which were trumped by Google. This leads to an interesting strategic question: is it usually better for a firm to bear the high costs and risks of being the pioneer in hopes of maintaining a profitable position as the market grows or to be a follower that watches for possible design or marketing mistakes by the pioneer before joining the fray with its own entry? We examine this question later in this module. Not all pioneers are intent on remaining the overall share leader as the market grows. Some adopt a niche market strategy geared to making substantial profits from specialised market segments where they will face fewer large competitors. Others – like Canon – try to stay one jump ahead of the competition by introducing a constant stream of new products and withdrawing from older markets as they become more competitive. Which strategy is best? It depends on the firm’s resources and competencies, the strength of likely future competitors, and characteristics of the product and its target market. Therefore, we will examine some alternative strategies that might be adopted by a pioneer and the situations where each makes most sense.

Sections 14.1 14.2 14.3 14.4

First-Mover Advantage: Fact or Fiction? New Market Entries – How New Is New? Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? Marketing Strategies for Pioneers

Learning Summary •

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Being the pioneer in a new product or service category gains the firm a number of potential advantages. But not all pioneers are able to sustain a leading position in the market as it grows. A pioneering firm stands the best chance for long-term share leadership and profitability when the market can be insulated from the rapid entry of competitors by patent protection or other means and when the firm has the necessary resources and competencies to capitalise on its first-mover advantages. Some pioneers attempt to penetrate the mass market and remain the share leader as that market grows. Others adopt a strategy geared to making profits from specialised niche markets where they will face fewer direct competitors. Still others try to stay one jump ahead of competitors by introducing a stream of new products and withdrawing from older markets as they become more competitive. The appropriate strategy to adopt depends on the firm’s resources and competencies, the strength of likely competitors, and the characteristics of the product and its target market. There are many ways to ‘go global’, to suit various kinds of circumstances. Decisions about how to do so should not be taken lightly.

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15. Strategies for Growth Markets Learning Objectives Although Nike was clearly not the pioneer of the athletic shoe industry, the firm’s technical innovations, stylish designs, and savvy market segmentation strategy have spurred a sustained record of market growth. Both conventional wisdom and the various portfolio models suggest there are advantages to be gained from a strategy of investing heavily to build and sustain a commanding share of a growing market, a strategy similar to Nike’s. But a market is neither inherently attractive nor unattractive simply because it promises rapid future growth. Not all competitors have the resources and capabilities necessary to dominate an entire market, as Vans – with its limited marketing budgets – seems well aware. Consequently, managers competing in such markets – whether market leaders like Nike or challengers like Vans – must consider how customer desires and the competitive situation are likely to evolve as a market grows and determine whether their firms can exploit market growth to establish and maintain a sustainable advantage. Therefore, in the first section of this module we examine both the opportunities and competitive risks often found in growing markets. The primary objective of the early share leader, typically the market pioneer, in a growth market is usually share maintenance. In the pre-Nike era, the athletic shoe share leader globally was Adidas. From a marketing perspective, the share leader must accomplish two important tasks: (1) retain repeat or replacement business from its existing customers and (2) continue to capture the major portion of sales to the growing number of new customers entering the market for the first time. The leader might use any of several marketing strategies to accomplish these objectives. It might try to build on its early scale and experience advantages to achieve low-cost production and reduce its prices. Alternatively, the leader might focus on rapid product improvements, expand its product line to appeal to newly emerging segments, or increase its marketing and sales efforts. Alas, Nike with its sport-bysport journey across the athletic shoe market, did the latter much better than did Adidas, convincing athletes worldwide that we needed specifically designed (and endorsed!) shoes for each of our athletic endeavours. How many pairs of athletic shoes are in your closet today? We explore strategies for maintaining one’s marketleading share in the middle portion of the module. A challenger’s strategic objective in a growth market, on the other hand, is usually to build its share by expanding its sales faster than the overall market growth rate, as Nike has done. Firms do this by stealing existing customers away from the leader or other competitors, capturing a larger share of new customers than the market leader, or both. Once again, challengers might use a number of strategies to accomplish these objectives. These include developing a superior product technology (Nike’s original waffle sole for its running shoes); differentiating through rapid product innovations (its air-cushioned Air Jordan basketball shoes propelled it to success in that category), line extensions (running, then tennis, basketball and more), or customer service; offering lower prices (definitely not Nike’s game); or focusing on market niches where the leader is not well established, as Nike did in tennis and 27

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basketball and Vans did in the skateboarding segment. We explore these and other share-growth strategies that market challengers use under various conditions later in this module. The success of a firm’s strategy during the growth stage is a critical determinant of its ability to reap profits, or even survive, as a product-market moves toward maturity. Unfortunately, the growth stage is often short; one recent study of 30 product categories found that the growth stage lasted just a little over eight years, and in some industries where rapid technological change is the norm or barriers to entry are low, the growth stage can be even shorter. The so-called flash sales industry, in which companies like Vente Privée and Privalia offer ‘private’ deals on fashion clothing closeouts – entered its growth phase in 2006, with venture capital backed players like Gilt and Rue La La entering in 2007 and 2008 and growing very fast. But by 2012, the party was over, a shakeout was under way, and it was becoming increasingly clear that profits were extremely difficult to achieve. The brief duration of the growth stage concerns many firms – particularly late entrants or those who fail to acquire a substantial market share – because as growth slows during the transition to maturity, there is often a shakeout of marginal competitors. Thus, when choosing marketing strategies for competing in a growing market, managers should keep one eye on building a competitive advantage that the business can sustain as growth slows and the market matures.

Sections 15.1 Opportunities and Risks in Growth Markets 15.2 Growth-Market Objectives and Strategies for Market Leaders 15.3 Objectives and Share-Growth Strategies for Followers in Growth Markets

Learning Summary • •

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There are good reasons why followers are often attracted to rapidly growing markets. But there are risks, too; commonly held assumptions often fail to pan out; and many followers fail to achieve their objectives. If the market leader wants to maintain its number-one share position as the product category moves through rapid growth, it must focus on two important objectives: (1) retaining its current customers and (2) stimulating selective demand among later adopters. Marketing strategies a leader might adopt to achieve these objectives are position defence, flanker, confrontation, market expansion, and contraction. The best one to choose depends on the homogeneity of the market and the firm’s resources and competencies relative to potential competitors. For a challenger to increase its market share relative to the leader, it must first decide whom to attack. Then it must differentiate its offering by delivering superior product benefits, better service, or a lower price than the leader. Challenging a leader solely on the basis of price, however, is a highway to disaster unless the challenger has a sustainable cost advantage.

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16. Strategies for Mature and Declining Markets Learning Objectives Many managers, particularly those in marketing, seem obsessed with growth. Their objectives tend to emphasise annual increases in sales volume, market share, or both. But the biggest challenge for many managers in future years, especially in developed markets like Europe and North America, will be making money in markets that grow slowly, if at all. The majority of product-markets in those nations are in the mature or decline stages of their life cycles. As accelerating rates of technological and social change continue to shorten life cycles, today’s innovations will move from growth to maturity – and ultimately to decline – ever faster. A period of competitive turbulence almost always accompanies the transition from market growth to maturity in an industry. This period often begins after approximately half the potential customers have adopted the product and the rate of sales growth starts to decline. As the growth rate slows, many companies tend to overestimate future sales volume and consequently end up developing too much production capacity. Competition becomes more intense as firms battle to increase sales volume to cover their high fixed costs and maintain profitability. As a result, such transition periods are commonly accompanied by a shakeout during which weaker businesses fail, withdraw from the industry, or are acquired by other firms, as has happened to some of Johnson Controls’ competitors in the US and European automotive interior and battery industries. Thus, in the first portion of this module, we examine the shakeout period during which markets transition from growth to maturity (see Exhibit 3), in order to prepare readers for some of the traps that lie therein. Exhibit 3

Diet foods hit the skids

Since its launch in 1981, Lean Cuisine’s low-calorie, low-fat frozen meals had grown for nearly 30 years, thanks to consumers’ views about diet and weight loss in North America. But in 2010, sales started slipping and by 2015, the Nestlé-owned brand’s sales had fallen by nearly 25 per cent. Sometimes the shakeout period can move into maturity or decline very quickly! Surprisingly – or perhaps predictably – sales of foods having the words ‘diet’, ‘light’, ‘low’, or ‘reduced’ in their names fell by 11 per cent in 2013 alone, according to Nielsen. But Nestlé is unwilling to complacently accept maturity, never mind decline. In July 2015, the company opened a new $50 million research centre for frozen and chilled foods in Ohio. The goal? Create new and reformulated products with the kind of ingredients consumers would find in their own gardens and kitchens, instead of industrial ingredients born in a chemicals factory having unpronounceable names. For Nestlé, the stakes are significant, as its foods account for one-third of US frozen food sales. ‘It’s not about just reducing fat and salt anymore’, says Nestlé’s Sean Westcott, who heads the new research centre, ‘We need a much deeper understanding, it’s a richer story. What we’re seeing is a pivot in the way consumers expect us to make products.’ Sources: Beth Kowitt, ‘The War on Big Food’, Fortune, June 1, 2015, pp. 60–70; and Lindsay Whipp, ‘Changing Tastes Spur Nestle to Take Fresh Approach to Frozen Food’, Financial Times, July 22, 2015, at www.ft.com, accessed July 22, 2015.

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Next we address the strategic choices that are available to marketers doing business in the slow-growing and mature markets that are so prevalent in much of the developed world today. As a market matures, total volume stabilises; replacement purchases rather than first-time buyers account for the vast majority of that volume. A primary marketing objective of all competitors in mature markets, therefore, is simply to hold onto their existing customers – to sustain a meaningful competitive advantage that will help ensure the continued satisfaction and loyalty of those customers. Thus, a product’s financial success during the mature life-cycle stage depends heavily on the firm’s ability to achieve and sustain a lower delivered cost or some perceived product quality or customer-service superiority. Some firms tend to passively defend mature products while using the bulk of the revenues produced by those items to develop and aggressively market new products with more growth potential. This can be shortsighted, however. All segments of a market and all brands in an industry do not necessarily reach maturity at the same time. Therefore, in this module we examine the basic business strategies necessary for survival in mature markets as well as marketing strategies a firm might use to extend a brand’s sales and profits, including the strategies that were so successful for Johnson Controls for many years. Finally, to close the module, we examine declining markets, like that for processed food, where sales of many ‘big food’ brands are sliding due to changing consumer preferences for more natural and organic foods, and we explore the various strategic options available therein. In the food market and elsewhere, eventually, technological advances, changing customer demographics, tastes, or lifestyles, and development of substitutes result in declining demand for most product forms and brands. As a product starts to decline, managers face the critical question of whether to divest or liquidate the business. Unfortunately, many firms support dying products too long at the expense of current profitability and the aggressive pursuit of future breadwinners. An appropriate marketing strategy, however, can produce substantial sales and profits even in a declining market. If few exit barriers exist, an industry leader might attempt to increase market share via aggressive pricing or promotion policies aimed at driving out weaker competitors. Or it might try to consolidate the industry, as Johnson Controls has done in its automotive components businesses, by acquiring weaker brands and reducing overhead by eliminating both excess capacity and duplicate marketing programmes. Alternatively, a firm might decide to harvest a mature product by maximising cash flow and profit over the product’s remaining life.

Sections 16.1 16.2 16.3 16.4

Shakeout: the Transition from Market Growth to Maturity Strategic Choices in Mature Markets Strategic Choices in Declining Markets Don’t Forget the Customer!

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Learning Summary • •

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Strategic choices in mature, or even declining, markets are by no means always bleak. Many of the world’s most profitable companies operate largely in such markets. A critical marketing objective for all competitors in a mature market is to maintain the loyalty of existing customers. To accomplish that goal, firms must pursue improvements in the perceived value those customers receive from their offerings – either by differentiating themselves on the basis of superior quality or service, by lowering costs and prices, or both. An important secondary objective for some firms, particularly share leaders, in mature markets is to stimulate further volume growth by taking actions to convert nonusers into users, to increase use frequency among current users, or to expand into untapped or underdeveloped markets. Declining markets can still offer attractive opportunities for sales revenues and profits. Their attractiveness – and the appropriate marketing strategy to follow – depends on, among other things, the pace and certainty of market decline, the presence of exit barriers, the firm’s competitive strengths, and the likely intensity of future competition.

17. Organising and Planning for Effective Implementation Learning Objectives Electrolux’s recent history illustrates that a business’s success is determined by two aspects of strategic fit. First, its competitive and marketing strategies must fit the needs and desires of its target customers and the competitive and technological realities of the marketplace. Thus, the entry of low-cost Asian manufacturers into the global major appliances market forced Electrolux to adopt a new strategy aimed at building a widely recognised global brand with a reputation for premium quality and innovative design. But even if a firm’s competitive strategy is appropriate for the circumstances it faces, it must be capable of implementing that strategy effectively. A business’s competencies, internal processes, and organisational structure must fit its chosen strategy or else implementation will fall short. For instance, the firm’s old structure with multiple brands organised into largely autonomous business units each with its own manufacturing would obviously not be effective for implementing the new strategy focused on strengthening the global image and customer appeal of the Electrolux brand and making the company more efficient cost-wise. We address the issues of competencies and administrative fit in the first two sections of this module. In the third section, we examine several questions related to the second aspect of strategic fit – the issue of organisational fit – the fit between a business’s competitive and marketing strategies and the organisational structures and processes 31

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necessary to effectively implement those strategies. This part of the module addresses several key questions: •

For companies with multiple business units or product lines, what is the appropriate administrative relationship between corporate headquarters and the individual SBUs? How much autonomy should business unit managers be given to make their own strategic decisions, how much control should they have over the SBU’s resources and programmes, and how should they be evaluated and rewarded? • Within a given business unit, whether it’s part of a larger corporation or a oneproduct entrepreneurial start-up, what organisational structures and coordination mechanisms are most appropriate for implementing different competitive strategies? Answering this question involves decisions about variables such as the desired level of technical competence of the various functional departments within the business, the manner in which resources are allocated across those functions, and the mechanisms used to coordinate and resolve conflicts among the departments. • How should organisational structures and policies be adjusted, if at all, as an organisation moves into international markets? However, even if a business has crafted brilliant competitive and marketing strategies, and it has the necessary organisational arrangements and wherewithal to implement them, implementation is unlikely to be very effective unless all of the business’s people are singing from the same hymnal. This fact underlines the importance of developing formal, written marketing plans – or go-to-market plans, as they are sometimes called – to document all the decisions made in formulating the intended strategy for a given product or service so the strategy can be clearly communicated to everyone responsible for its implementation and make it clear who is responsible for doing what and when. As we’ll see in Module 18, formal plans also establish the timetables and objectives that are the benchmarks for management’s monitoring of the firm’s marketing strategies and their effectiveness. Given the importance of formal plans as tools to aid implementation and performance measurement, we will return in the last part of this module to the planning framework we introduced briefly in Module 1. We will examine the content of effective marketing plans in more detail and review the many strategic decisions involved in formulating that content. The purpose of these strategic planning decisions is to lay a wellconceived foundation that permits effective implementation of the strategy.

Sections 17.1 The Crucial Role of Organisational Competencies in Strategy Implementation 17.2 Designing Administrative Relationships for Implementing Different Strategies 17.3 Designing Organisational Processes and Structures for Implementing Different Strategies 17.4 Marketing Plans: The Foundation for Implementing Marketing Actions

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Learning Summary •

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•

•

•

While much of this course has covered the various analytical tools and frameworks necessary to develop effective marketing strategies, such strategies are worthless without good implementation. Therefore, marketing managers, and general managers concerned about marketplace issues, must attend to organisational design issues. A business’s competencies, processes, and structure must fit its chosen strategy or else implementation will probably fall short. For firms with multiple businesses or product lines, different administrative relationships between the business unit and corporate headquarters are appropriate for different competitive strategies. Prospector businesses perform better with high levels of autonomy, fewer shared resources, and more top-line focused reward systems than defender businesses. Within a given business – whether it’s part of a larger organisation or a oneproduct entrepreneurial start-up – different functional competencies, levels of specialisation, extent of employee participation in decision making, and mechanisms for the resolution of internal conflicts are needed to effectively implement varying competitive strategies. Several organisational designs incorporate differences in both structural variables (formalisation, centralisation, and specialisation) and mechanisms for resolving interfunctional conflicts. These include functional, product management, market management, and various types of matrix organisational designs. Writing a formal marketing plan is a key step toward ensuring the effective execution of a strategic marketing strategy because it spells out what actions need to be taken, when, and by whom. Written plans also provide the benchmarks by which the marketing strategy can be evaluated and controlled, as discussed in Module 18.

18. Measuring and Delivering Marketing Performance Learning Objectives In Module 17, we said that planning is important and that effective implementation is crucial. The Walmart example demonstrates how effective planning and implementation can, over good times and bad, play out in the performance of a company. Together, these two activities constitute the heart of most business endeavours. In the end, however, it is neither planning nor implementation that really counts. What really counts? Results. Results are what managers like Walmart’s Doug McMillon and entrepreneurs are paid to deliver. Results are what attract investment capital to permit a company – whether a large public company such as Walmart or an emerging start-up – to grow. Just watch what happens to a public company’s stock price when the results are not what Wall Street expects. The share price plummets and, sometimes, heads roll. Weak sales and profit performance at Nokia, the once highflying mobile phone maker, cut its stock price by 90 per cent from 2007 to 2012 and 33

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led to a series of middle- and upper-management changes and ultimately the distressed sale of the company’s mobile handset business to Microsoft. The focus on results is not restricted to for-profit organisations either. Exhibit 4 shows how one nonprofit organisation is adapting rigorous performance measurement to its own environment. Exhibit 4

Customer analytics at the Red Cross

When major disasters strike, generous donors respond in droves with gifts to the Red Cross and other nonprofit organisations. While such generosity in times of need is a very good thing, a key challenge for the Red Cross is retaining such donors after the disaster. Only 10 per cent of those who give following a major disaster become repeat donors, according to Tony DiPasquale of the Red Cross, despite the fact that much of what the Red Cross does, such as responding to some 60 000 house fires annually in the United States, requires stable funding year after year. To address this challenge, the Red Cross has teamed up with a consortium of researchers including the Wharton Customer Analytics Initiative to find ways to encourage onetime donors to remain on board. In its embrace of customer analytics, the Red Cross is following what has become clear to leading-edge companies in the for-profit world: leveraging data adds some rigour to the creativity of marketing. According to research firm Gartner, the market for business intelligence, analytics, and performance management software was more than $10 billion in 2010. But there are psychological and other barriers to overcome in making use of such techniques, says Wharton marketing professor Peter Fader. ‘People are afraid to trust data too much. They often trust their gut more.’ Adds Gartner research director Gareth Herschel, ‘There is a lot of organisational inertia to be overcome.’ Source: Knowledge@Wharton, ‘Customer Analytics: A New Lifeline for the Red Cross and Other Nonprofits?’, February 1, 2012, at http://knowledge.wharton.upenn.edu. For more on the Red Cross, see www.redcross.org.

In Module 18, we address several critical questions that provide the link between a company’s efforts to plan and implement marketing strategies and the actual results that those strategies produce. How can we design strategic monitoring systems to make sure our strategies remain in sync with the changing market and competitive environment in which we operate, such as the smartphone onslaught that decimated Nokia? How can we design systems of marketing metrics, like those on which Walmart’s Greg Foran and Doug McMillon depend, to ensure that the marketing results we plan for are the results we deliver? In other words, if the ship gets off course during the journey, either strategically or in terms of execution of the marketing strategy, how can we make sure that we know quickly of the deviation so that midcourse corrections can be made in a timely manner? In today’s rapidly changing markets, even the best-laid plans are likely to require changes as their implementation unfolds. We begin by developing a five-step process for monitoring and evaluating marketing performance on a continuous basis. We then apply the process to the issue of strategic monitoring: How can we monitor and evaluate our overall marketing strategy to ensure that it remains viable in the face of changing market and competitive realities? Next, we apply the process to tracking the performance of a particular 34

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product-market entry and to the marketing actions taken to implement its marketing plan, or marketing performance measurement. Are we meeting sales and margin targets in the aggregate and for various products and market segments? Is each element of the marketing mix doing its job? Which items in the product line are selling best, are the ads producing enough sales leads, is the salesforce generating enough new accounts, are our Internet marketing efforts working, and so on? Finally, we show how marketing audits can be used periodically to link the overall performance measurement process – that for both strategic control and for measuring current marketing performance – with marketing planning.

Sections 18.1 18.2 18.3 18.4

Designing Marketing Metrics Step by Step Design Decisions for Strategic Monitoring Systems Design Decisions for Marketing Metrics A Tool for Periodic Assessment of Marketing Performance: The Marketing Audit 18.5 Measuring and Delivering Marketing Performance

Learning Summary •

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• •

Most managers and entrepreneurs are evaluated primarily on the results they deliver. Effective design of performance monitoring, whether for strategic or for marketing performance measurement purposes, helps ensure the delivery of planned results. Performance monitoring systems that deliver the right information – in a timely manner and in media, formats, and levels of aggregation that users need and can easily use – can be important elements for establishing competitive advantage. Four key questions that designers of such systems should address are discussed in this chapter. Building a dashboard to track the crucially important metrics in your business makes good sense, for companies large and small. From time to time, it is useful to step back from day-to-day results and take a longer view of marketing performance for a company or an SBU. A marketing audit, as outlined in this module, is a useful tool for conducting such an assessment.

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