Chapter 2 – Developing Marketing Strategies and Plans
I.  Chapter Overview/Objectives/Outline
A. Overview
A major challenge for marketing-oriented companies as they respond to the rapidly changing marketplace is to engage continuously in market-oriented strategic planning. They must learn how to develop and maintain a viable fit between their objectives, resources, skills, and opportunities. The strategic planning process is carried out at the corporate level, business level, and product level. The objectives developed at the corporate level move down to lower levels where business strategic plans and marketing plans are prepared to guide the company’s activities. Strategic planning involves repeated cycles of planning, implementation, and control.
Corporate strategic planning involves four planning activities. The first is to develop a clear sense of the company’s mission in terms of its industry scope, products and applications scope, competence scope, market segment scope, vertical scope, and geographical scope. A well-developed mission statement provides employees with a shared sense of purpose, direction, and opportunity.
The second activity calls for identifying the company’s strategic business units (SBUs). A business is best defined by its customer groups, customer needs, and technologies. SBUs are business units that can benefit from separate planning, face specific competitors, and can be managed as profit centers.
The third activity calls for allocating resources to the various SBUs based on their market attractiveness and business strength. Several portfolio models, including those developed by the Boston Consulting Group, and General Electric, are available to help determine which SBUs should be built, maintained, harvested, or divested.
The fourth activity calls for expanding present businesses and developing new products to fill the strategic planning gap. The company can identify opportunities by considering intensive growth (market penetration, market development, and product development), integrative growth (backward, forward, and horizontal integration), and diversification growth (concentric, horizontal, and conglomerate diversification).
Each SBU conducts its own business strategic planning which consists of eight steps: defining the business’ mission, analyzing the external environment, analyzing the internal environment, choosing business objectives and goals, developing business strategies, preparing programs, implementing programs, and gathering feedback and exercising control. All of these steps keep the SBU close to its environment and alert to new opportunities and problems. Furthermore, the SBU strategic plan provides the context for preparing market plans for specific products and services.
Marketing plans focus on a product/market and consist of the detailed marketing strategies and programs for achieving the product’s objectives in a target market.  Marketing plans are the central instrument for directing and coordinating the marketing effort. The distinction between the strategic and tactical marketing plans and efforts is very important, because if the firm and its marketing organization fails to recognize the interdependent yet separate activities involved in the strategic and tactical marketing efforts, the results will be less than expected. Without effective value development in the strategy planning, which comes from the firm’s research and analysis programs, the tactical marketing activities likely will not be as successful as when the coordination effort starts from the beginning.   
The marketing planning process consists of five steps: analyzing market opportunities researching and selecting target markets, designing market strategies, planning marketing programs, and organizing, implementing, and controlling the marketing effort.
Marketing planning results in a marketing plan document that consists of the following sections: executive summary, current market situation, opportunity and issue analysis, objectives, marketing strategy, action programs, projected profit and loss statement, and controls. To plan effectively, marketing managers must understand the key relationship between types of marketing-mix expenditures and their sales and profit consequences.
Modern marketing departments are organized in a number of ways. A functional marketing organization is where separate managers head marketing functions, reporting to the marketing vice-president. A geographical marketing organization allocates its sales organization resources along geographic lines, nationally, regionally, or locally. A product management organization assigns products to product managers who work with functional specialists to develop and achieve product plans. A market management organization assigns major markets to market managers who in turn work with functional specialists to develop and implement their plans. Some large companies use a product and market management organization called a matrix organization. Finally, multi-division companies usually operate with a corporate marketing department and divisional marketing departments.
Marketing must work harmoniously with other functional areas. In its pursuit of the customer’s interests, marketing may come into conflict with R&D, engineering, purchasing, manufacturing, operations, finance, accounting, credit, and other functions. These conflicts can be reduced when the company president commits the firm to a customer orientation and when the marketing vice-president learns to work effectively with the other executives. Acquiring a modern marketing orientation requires top executive support, a marketing task force, outside marketing consulting help, in-house marketing training, acquisition of strong marketing talent, a customer-oriented system and other related steps.
Those responsible for the marketing function must not only develop effective marketing plans but also implement them successfully. Marketing implementation is the process of turning plans into action exercises describing who does what, when, and how. Effective implementation requires skills in allocating, monitoring, organizing, and interacting at all levels of the marketing effort.  Evaluations and control include annual-plan control, profitability control, efficiency control and strategy control. The capstone effort in this process is the marketing audit.
B.  Learning Objectives
• Understand the organization of the marketing and sales functions.
• Recognize how marketing relates to other key business functions.
• Learn the skills needed for effective implementation.
• Understand how a company may improve its marketing implementation skills.
• Recognize the characteristics of high performance business.
• Understand what is meant by “strategic” planning.
• Know the major steps in strategic planning and their contribution to development of a successful strategy.
• Understand the strengths and weaknesses of the business portfolio techniques.
• Know what is meant by the “marketing management process” and its various steps.
• Understand the contents of a marketing plan.
C.  Outline
I. Introduction
II Marketing and Customer Value
 A. The Value Delivery Process
1. Traditional marketing consists of creating a product and then finding a market to sell it to
  2. Value Creation marketing consists of identifying the market,     establishing needs and demand, and then creating the product that     will optimally meet the needs while returning the targeted profit
  3. Establishing a strategy for each business (long-term)
  4. Kumar “3 V’s” approach
  5. Webster’s process: value definition, value development, value     delivery
B. The Value Chain
1. Five Primary Strategic Activities (Michael Porter Generci Value Chain  Model) - Inbound logistics, operations, outbound logistics,  marketing  and sales, services
2. Four Support Activities – firm infrastructure, HR, technology  development, procurement
3. Five core business processes
a. Market sensing  - gather intelligence, disseminate and act on it
b. New offering realization – research, develop and launch quickly  and within budget
c. Customer acquisition
d. Customer relationship management
e. Fulfillment management 
C. Core Competencies
1. Three characterisitics
 a. Source of competitive advantage in that it makes a significant   contribution to perceived customer benefits
 b. It has applications in a wide variety of markets
 c. It is difficult for competitors to imitate
2. Distinctive capabilities differ from core competencies by describing  excellence in broader business processes.
3. Competitive advantage derived from balancing core competencies and  distinctive capabilities, into activity systems
4. George Day defines three distinctive capabilites as:
 a. Market sensing
 b. Customer linking
 c. Channel bonding

D. A Holistic Marketing Orientation and Customer Value
1. Value exploration
2. Value creation
3. Value delivery
E. The Central Role of Strategic Planning
1. Organizational levels:  corporate, division, business unit, and product.  corporate sets guidelines for entire enterprise, division creates plan and  allocates funds for all business units within the division, business units  are revenue producers and create plans to generate profits, product  strategies are created within each business unit
2. Marketing Plan – two levels
 a. Strategic – identifies target markets and value propositions
 b. Tactical – specifies marketing tactics, e.g. 4 P’s
3. Planning, implementation and control cycle exhibited in Fig. 2.1

III. Corporate and Division Strategic Planning

A. Defining the corporate mission 
1.  Peter Drucker’s classic questions:
 a. What is our business?
 b. Who is the customer?
 c. What is of value to the customer?
 d. What will our business be?
 e. What should our business be? 
2. Mission statements, based on limited goals, stress major policies and  values, and define the major competitive scopes for the firm. Statements  should be short, memorable and meaningful.
B. Establishing Strategic Business Units
 1. Three dimensions (customer groups, customer needs, technology)    describe business in terms of customer satisfaction and not goods    producing process
 2. Target market definition focuses on current market while strategic    market definition focuses also on the potential market. 
 3. Strategic Business Units (SBU) have three characterisitics:
  a. Single business or collection of related businesses which can be    planned separately from the rest of the organization
  b. Have own set of competitors
  c. Has its own strateivc planning and profit performance
C. Assigning Resources to Each Strategic Business Unit
 1. Decision to assign resources usually based upon shareholder value    analysis and SBU potential
 2. Potential growth based upon global expansion, repositioning and    strategic outsourcing
D. Assessing Growth Opportunities
 1. Intensive growth  (Ansoff matrix)
a. Market penetration strategy - current products to current markets
b. Market development strategy - current products to new markets
c. Product development strategy - new products to current markets
2. Integrative growth - backward, forward, or horizontal integration
3. Diversification growth - new products to new markets. Three types are   possible: concentric, horizontal, and conglomerate
E. Organization, Organizational Culture, and Innovation
1. Organization consists of its structures, policies, and corporate culture
2. Corporate culture has been defined as “the shared experiences, stories,  beliefs, and norms that characterize an organization”
3. Scenario analysis - developing plausible representations of a firm’s  possible future that make different assumptions about forces driving the  market and include different uncertainties
IV. Business Unit Strategic Planning – Eight steps (refer to figure 2.2)
A. Business mission - SBUs’ specific mission within the broader company mission
B. SWOT analysis (External Opportunities and Threats)
1. Macro environment forces/actors analysis - discerning new marketing  opportunities
2. Marketing opportunity analysis (MOA) - classified according to  attractiveness and probability of success
3. Environmental threat - challenge posed by an unfavorable external trend  or development that would lead, in absence of defensive marketing  action, to lower sales or profit
 SWOT analysis (Internal Strengths and Weakness)
 An evaluation of internal strenths and weaknesses across multiple discplines such as marketing, finance, manufacturing, distribution, purchasing and other organizational capabilities.
C. Goal formulation – after SWOT is completed, establish objectives that are  specific with respect to magnitude and time. To be effective goals must:
1. Be arranged hierarchically
2. Be stated quantitatively whenever possible
3. Be realistic
4. Be consistent
D. Strategy Formulation - the game plan for achieving the stated objectives
1. Three generic types of strategic thinking (Porter): 
a. Overall cost leadership: lower costs allow lower prices, which  can lead to increased market share
b. Differentiation
c. Focus on specific market segment(s) and pursue cost leadership  or differentiation strategies within target segment
2. Firms that pursue the same strategy directed to the same target market  constitute a strategic group.
3. Operational effectiveness and strategy - based on strategic groups to  achieve distinctive market position
3. Strategic alliances
a)  In the form of marketing alliances - product or service,  promotional,   logistical,  and pricing collaborations.
b) Partnership Relationship Management (PRM) – the ability to  form and manage partnerships to complement  or leverage  existing marketing capabilities and resources. 
E. Program Formulation  and Implementation
1. Develop detailed programs to support the strategy
2. Establish ROI on programs
3. Implementation - McKinsey 7S framework
F. Feedback and control
1. Marketplace dynamics require organizations to track results and monitor  new developments
2. Stratgeic fit with environment will erode as market changes faster than  the organization’s seven S’s

V. The Marketing Plan and Marketing Performance
A marketing plan is a written document that summarizes what the marketer has learned about the marketplace and how the firm plans to reach its marketing objectives
A. Contents of a Marketing Plan
1. Executive summary and table of contents
2. Situation analysis - relevant background on sales, costs, profits, the  market, competition, and macro environment
3. Marketing strategy and programs - mission, marketing, and financial  objectives
4. Financial projections - sales and expense forecasts
5. Implementation controls
B. From Marketing Plan to Marketing Action
1. Start in advance to allow time for marketing research, review, analysis
            and coordination
2. Define metrics for measuring effectiveness and efficiency..
C. Measuring Market Performance
 1. Marketing Metrics (also discussed in Chapter 18)
 a.  Marketing metrics are a set of measures an organization uses to    quantify, compare, and interpret marketing performance
 b. Tim Ambler suggests splitting metrics into two parts
  1. short term results (e.g. sales turnover, shareholder value)
  2. changes in brand equity (e.g. awareness, retention,
attitudes, behavior, market share, perceived, quality, loyalty, # of complaints/returns)
 
  2. Marketing Dashboards
 a. Marketing dashboard - set of relevant internal and external    measures made available in real or close to real time
b. Customer performance scorecards - percentage of new customers  to average number of customers and the percentage of target  market customers who have brand awareness or recall
c. Stakeholder performance scorecards - track satisfaction of  entities (employees, suppliers, banks, etc.) who have a critical  interest and impact on the organization’s performance 

D. Marketing Plan Performance
1. Sales analysis - measure and evaluate actual sales to goals
2. Sales-variance analysis - measures relative contribution of different  Factors to a gap in sales performance
3. Microsales-analysis - analyze specific products, territories, and other  marketing components that fail to produce expected sales levels
4. Overall market share - sales expressed as a percentage of total market  sales
5. Served market share - sales expressed as percentage of the total sales to  its served market (all buyers who are able and willing to buy the  organization’s products)
6. Relative market share - share in relation to its largest competitor
7. Marketing expense-to-sales ratio components - expense-to-sales, sales  force-to-sales, advertising-to-sales, sales-promotion-to-sales, marketing- research-to-sales, sales-administration-to-sales
8. Rate of return on net worth – ratio of the company’s return on assets and  its financial leverage
9. Asset composition - (profit margins and asset turnovers)
a. Increase profit margin by increasing sales or cutting costs
b. Boost the asset turnover by increasing sales or reducing assets
E. Profitability Analysis
1. Identify the functional expenses, assigning the functional expenses to the  marketing entities
2. Prepare a profit-and-loss statement for each marketing entity
3. Determining corrective action
4. Increased adoption of marketing profitability analysis and activity  based accounting
VI  Executive Summary
II.  Lectures
A. “Establishing a Winning Strategic Planning Formula” 
The focus is on strategy in a market-oriented setting, and specifically the role and value of selecting clear and effective approaches in the overall marketing process and strategy for the company or organization. The discussion begins by considering examples of particular strategies as a means of maintaining or increasing the firm’s market position. This leads into a discussion of the implications for the introduction of related strategies for the firm and the industry.
Teaching Objectives
• To stimulate students to think about the critical issues, pro and con, for a firm when it moves toward adoption of a market-oriented strategy. 
• To consider and reinforce various points from the marketing environment before proceeding with specific strategy plans and programs
• To describe and illustrate the processes and policies utilized in helping the firm achieve a balanced strategic position within the industry. 
Discussion
INTRODUCTION
In the years following the energy crises of the 1970s, our style of living has changed considerably. Most businesses today are forced to deal strategically with a global world in which markets experience little or no real growth.  There have been attempts to find a way to “re-strategize,”  “restructure,” and “downsize” in order to overcome this malaise.  Unfortunately, virtually none of these approaches have worked, and many of the organizations that tried them are no longer around.  
The firms that do well tend to employ simple strategies in which they identify real customers and give those customers what they want. These firms recognize that customers choose one product or service over another for a very simple reason: They believe it’s a better value than they could expect to get from the alternatives. Among the more successful endeavors in this area are firms that recognize the consumer’s desire for value and high quality products and engage in marketing strategy and activity to raise the perception of their product from a commodity to a differentiated product. They also pursued a policy designed to offer a combination of “high-tech” and “high-touch,” depending on the needs of the target market(s).
OBSOLESCENCE OR SUCCESS? - STRATEGY, THE CUSTOMER,  AND COMPETITIVE ADVANTAGE
In attempts to ensure that their product or service is a value leader, many firms have gone the way of the horse and buggy, setting themselves up for obsolescence. While most firms profess to follow accepted accounting principles, with relatively uniform descriptions of financial goals and financial measurements, few firms have ever moved toward a similar acceptance of strategy development rules. If firms really believed in the concepts of customer value creation and incorporated them into their corporate philosophies, there would be far fewer business failures. There has been little agreement on how the components of competitive advantage should be pursued or how to measure progress. This has made it hard for people in organizations to work together to achieve competitive success.
The objective in effective strategic planning should be based on the recognition that companies succeed by providing superior customer value. Of course, value is simply quality, however the customer defines it, offered at the right price. This clear strategic principle is both simple and powerful because superior customer value is the best leading indicator of market share and competitiveness. And, market share and competitiveness in turn drive the achievement of long-term financial goals such as profitability, growth, and shareholder value.  
Many corporations, including General Electric, AT&T, and others, have developed strategy-making programs to prove that these strategy considerations are valid. Technical improvement in the quality of products tends to be followed in three to six months by changes in the consumer perception of the quality of those products. Changes in perceived quality, on the other hand, are followed a mere two months afterward by changes in market share.  
The first step toward achieving leadership in market-perceived quality and value is to understand what causes customers in the targeted market to make their decisions—to decide that one product offers better value than another. This understanding is the most important objective of a customer value analysis.  
The factors that contribute to quality in the customer’s mind are not mysteries. Customers can readily tell a researcher what the critical value factors are to him or her. A customer value analysis uses consumer value and purchasing information to show how consumers make decisions in the marketplace. With this information, managers should be able to understand what changes should be made to ensure that more of their customers would buy from the firm.  
The simplest customer value analysis consists of two phases. First, the firm should create a customer value profile that compares their performance with that of one or more competitors.  This customer value profile itself usually has two elements: A market-perceived quality profile and a market-perceived price profile. The former summarizes the aspects of the marketplace that are usually easiest to change to improve the business. In many markets, market-perceived price may be a greater driver of customer decisions than market-perceived quality; however, cutting prices won’t usually improve the bottom line for the firm, despite some common misconceptions.
 
The process of creating a market-perceived quality profile is relatively simple.  Here are the steps: 
1. Ask people in the targeted market, both the firm’s customers and those of the competitors, to list the factors that are important in their purchase decisions. This can be done in focus groups or individually.  
2. Using either approach it is possible to establish how the various quality attributes are weighted in the customer’s decision.
3. Customers also may be asked directly how they weight the various factors.
4. Also, customers may be able to rate, on a scale of 1 to 10, the performance of each business on each competing factor. 
5. Multiply each business’s score on each factor by the weight of that factor, and add the results to get an overall customer satisfaction score.  
Results of the market-perceived quality profile:
• Identifies what quality really means to customers in the marketplace.
• Tells which competitors are performing best on each aspect of quality.
• Provides overall quality performance measures based on the definition of quality that customers actually use in making their purchase decisions.  
CUSTOMER VALUE ANALYSIS
The second phase of the customer value analysis follows: Once the customer value profile has been established, it is possible to draw a customer value map.
Very few companies have developed customer value analysis/profiles, and fewer still have customer value maps, but executives often argue that most operating managers have an “implicit model” in their heads. Managers supposedly have a “feel” for who their competitors are, for what is important to purchases, and for how their company performs versus competitors.  
Sometimes in organizations with exceptionally good leadership, these implicit models work well and are truly aligned to the real needs of customers. But marketers should check the situation in their organizations. This can be done via the Delphi Technique by simply asking top-ranking members of the management team to produce, individually, a picture of the customer value profile for the business and its key competitors.
If it is determined that all top managers have similar opinions, there is a reasonable chance that the implicit models in their heads are accurate. This is particularly true if several members of the top-management team spend most of their time with customers. But the firm should check management perceptions carefully to ensure that the purchase-selection criteria, weights, and relative performance scores are appropriately aligned within the management group—and with customers in the targeted market. 
Most organizations find that when they make this implicit model check there is much less alignment within the organization than was expected. Thus, if the managers can’t agree among themselves about the purchase criteria and desires of the customers, it is unlikely they can achieve rapid progress toward fulfilling those needs.
CONCLUSION
A key implication is that firms that tend to base their business strategy more on the basis of accounting principles alone fundamentally hamstring their efforts. An income statement provides only a financial history. It tells much about the components of sales and costs, and tells the amount of resulting profit, but the accounting data will not tell much about why sales are growing or shrinking.  
By contrast, the customer value map shows where the firm ranks with the customer, compared to the competition. The customer value profile shows why customers rank one firm higher or lower than the competitors. Thus, the income statement looks at the past while customer value maps and customer value profiles look to the future.  
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