Many facets of Strategic Marketing

Strategic Management
It is the managerial process that helps to develop a strategic and viable fit between the firm’s objectives, skills, resources with the market opportunities available. It helps the firm deliver its targeted profits and growth through its businesses and products

How to go about it?

Defining the corporate mission

Establishing SBUs

Allocating resources for SBUs

Planning for new business

Corporate Mission: This seeks to embody the entire goals of the organization and the objective of its existence. It seeks to provide a sense of purpose, direction and opportunity.The five(5) questions that the firm must ask itself?

n  What is our business?

n  Who is our customer?

n  What does our customer need?

n  What will our business be?

n  What should our business be?

The Concept of Strategic Marketing

The strategic role of marketing is quite different from Marketing Management, which deals with:

n  Developing

n  Implementing

n  Directing Programmes

n  To achieve DESIGNATED DESTINATIONS

CONCEPT OF STRATEGIC MARKETING

Strategic marketing is all about gaining competitive advantage on a continuous basis and finding out the strategies which will give companies such a competitive advantage.  Let us call it Strategic Competitive Advantage.  Planning strategic competitive advantage involves the following:

·         Plan the business scenario: The shape and size of the market after three and five years.

·         Plan market share on the basis of feasibility.

·         Use resources including cash for maximizing the chances of achieving the objectives.

·         Focus on core competencies of the firm and synergise efforts for fully exploiting them.

The core competencies of a firm are:

·         Technology: Both production technology and product technology should provide the firm its cutting edge over competition.  The technology advantage gets better if the firm enjoys exclusive patent.

·         Marketing: The firm needs to be proactive in the marketplace, only then can it take full advantage of the business potential available in the market.

·         Finance: The firm should be able to generate sufficient funds at lowest costs for growth and expansion.

·         Production: The firm’s manufacturing cost, including its time dimension should be better or at least comparable to that of competition.  The firm should also find ways of reducing cost of manufacture by going in for economies of scale and experience curve, newer technology of manufacture and continuous training for the workers.

·         Human resource: Personnel at all levels and in different functional areas should be geared to think and plan their moves for the benefit of the customer.

·         Government relations: The firm should maintain good and healthy relations with the government and avoid confrontations at all times.  The firm should be able to get government approvals where required at the shortest notice.

Once the firm gets the answers to these questions it is ready to take the following strategic marketing decisions:

1.      Who are the firm’s main competitors?

2.      Where should be firm compete – in which markets, geographic areas, and niche markets?

3.      How should the firm compete – on the basis of price?  Quality? Superior service? Availability of genuine spare parts?

4.      What are the areas in which information is lacking and is needed? Is a one-off marketing research enough or should there be continuous flow of information?

5.      How can product multiple be exploited? Bundling of products can help in selling slow-moving products?

6.      Firms should plan business scenario for the next three to five years taking into consideration competitors, plans and likely changes in the business environment.

Strategic marketing decisions which need to be taken are listed below:

·         With international players coming to India, technology is going to be rapidly changing.  Indian firms would do well to either invest in R&D or purchase the state-of-art technology to keep abreast of the competition or even forge ahead of them.

·         If the product is in the maturity stage of its life cycle and demand has stagnated, it may be necessary to go for penetrating pricing to maintain market share or build brand equity to the extent that it can ask for and get a higher price than competition.  Price sensitivity of the market needs to be understood and decision on pricing taken accordingly.

·         If new entrants are likely to enter the market with better product, technology and brand image, the existing firms may be required to invest in the product and the market through extra discounts, increased coverage and if possible, joining hands with a technology leader in the product.

·         The customers of tomorrow are looking for: (i) product performance improvement, (ii) technical superiority, (iii) easy availability of the product, (iv) financial assistance like leasing.

·         Firms should know the benefits the customers are seeking from the product.  It should be understood that no one buys a product, the customers buy only the benefits, which they get form the product.

Exhibit 2-1 shows the role that the marketing function plays at different levels in the organization.  At the corporate level, marketing inputs (e.g. competitive analysis, market dynamics, environmental shifts) are essential for formulating a corporate strategic plan.  Marketing represents the boundary between the marketplace and the company, and knowledge of current and emerging happenings in the marketplace is extremely important in any strategic planning exercise.  At the other end of the scale, marketing management deals with the formulation and implementation of marketing programs to support the perspectives of strategic marketing, referring to marketing strategy of a product/market.  Marketing strategy is developed at the business unit level.

Within a given environment, marketing strategy deals essentially with the interplay of three forces know as the strategic three Cs: the customer, the competition, and the corporation.   Marketing strategies focuses on ways in which the corporation can differentiate itself effectively form its competitors, capitalizing on its distinctive strengths to deliver better value to its customers.  A good marketing strategy should be characterized by (a) a clear market definition; (b) a good match between corporate strengths and the needs of the market; and (c) superior performance, relative to the competition, in the key success factors of the business.

Together, the strategic three Cs form the marketing strategy triangle (see Exhibit 2-2).  All three Cs –customer, corporation, and competition – are dynamic, living creatures with their own objectives to pursue.  If what the customer wants does not match the needs of the corporation, the latter’s long-term viability may be at stake.  Positive matching of the needs and objectives of customer and corporation is required for a lasting good relationship.  But such matching is relative, and if the competition is able to offer a better match, the corporation will be at a disadvantage over time.  In other words, the matching of needs between customer and corporation must not only be positive, it must be better or stronger than the match between the customer and the competitor.  When the corporation’s approach to the customer is identical to that of the competition, the customer cannot differentiate between them.  The result could be a price war that may satisfy the customer’s but not the corporation’s needs.

Marketing strategy, in terms of these three key constituents, must be defined as an endeavor by a corporation to differentiate itself positively from its competitors, using its relative corporate strengths to better satisfy customer needs in a given environmental setting.

     Based on the interplay of the strategic three Cs, formation of marketing strategy requires the following three decisions:

1.      Where to compete; that is, it requires a definition of the market (for example, competing across an entire market or in one or more segments).

2.      How to compete; that is, it requires a means for competing (for example, introducing a new product to meet a customer need or establishing a new position for an existing product).

3.      When to compete; that is, it requires timing of market entry (for example, being first the market or waiting until primary demand is established).

     

Thus, marketing strategy is the creation of a unique and valuable position, involving a different set of activities.  Thus, development of marketing strategy requires choosing activities that are different from rivals.

 The concept of strategic marketing may be illustrated with reference to the introduction by Gillette Company of a new shaving product, Mach 3, in April 1998.  For some time, Gillette had faced slow growth in its razor’s division, partly because Schick, its smaller rival, had recently launched a new razor of its own.  Investors had begun to fret about slowing growth and lackluster sales at Gillette.  This threatened its basic business, that is, razor and blades market, in which it had 71% of the North American and European market.  Apparently, Gillette needed a marketing strategy to protect its razor and blades territory.  Looking around, Gillette decided to introduce a new razor that its research laboratory had been developing and that was ready to be launched.  Gillette had an unusual approach to innovation.  Most companies tweaked their offerings in response to competition or demand.  Gillette launched a new product only when it had made a genuine technical advance.  To make the Mach 3, Gillette had found a way to bond diamond-hard carbon to slivers of steel.  The time was on Gillette’s side.  It needed something revolutionary to strengthen its market position, and its research laboratory had a unique product ready to be launched.  Gillette delineated the following marketing strategy:

·         Market (where to compete) – Gillette decided to introduce Mach 3 throughout the U.S. on the same day.

·          Means (how to compete) – Gillette decided to offer Mach 3 as a premium product that was priced 3% more than Sensor Excel, which itself was 60% more expensive than Atra, is predecessor.  Gillette reasoned: “People never remember what they used to pay.  But they do want to feel they are getting value for money.”

·         Timing (when to compete) – Gillette decided to introduce the new product before its CEO, Mr. Al Zein, retired.  Mr. Zein’s ability to communicate had been a hit on both Wall Street and in the company.  Much of the Gillette’s recent success was attributed to Mr. Zein, and the company wanted Mach 3 to adequately settle in a dominant position before Mr. Zein retired.

Gillette’s Mach 3 strategy emerged from a thorough consideration of the strategic three Cs.  First, market entry was dictated by customer’s willingness to adopt new products in the toiletry field.  Eight years ago, Gillette was losing its grip on the razor market to cheap throwaways.  Sensor, the decision to enter the market was based on full knowledge of the completion, which includes its own substitute products, such as Sensor and Atra shavers, as well s companies like Schick.  The company was more concerned about its own products competing with Mach 23, launch, and, therefore it ran down stocks of its Sensor and Atra shavers ahead of Mach 3’s launch.  Third, Gillette’s strength as an aggressive successful marketer of packaged goods with its vast experience in shaving products business and adequate financial resources (Gillette spent over $750 million in developing Mach 3) properly equipped it to enter the market.  Finally, the environment (in this case, a trend toward acceptance of technologically advanced products; Mach 3 was covered by 35 patents) substantiated the opportunity.

This strategy seems to have worked well for Gillette. In nine months ending 1998, Gillette shaving products sales were up 28%.  And yet, the company has to introduce the product in Europe (with 71% market) as well as in developing countries (Latin America, where the company has 91% market for blades, and India with 69% of the market).

Inasmuch as Gillette did not tailor its product to local peculiarities, it was able to achieve vast economies of scale in manufacturing.  The economies of scale were mirrored on the distribution side as well.  The company with razors and then jumped into batteries, pens, and toiletries through the established sales channels.

ORIGIN OF STRATEGIC MARKETING

Strategic marketing did not originate systematically.  As already noted, the difficult environment of the early 1970s forced managers to develop strategic plans for more centralized control of resources.  It happened that these pioneering efforts at strategic planning had a financial focus.  Certainly, it was recognized that marketing inputs were required, but they were gathered as needed or were simply assumed.  For example, most strategic planning approaches emphasized cash flow and return on investment, which of course must be examined in relation to market share.  Perspectives on such marketing matters as market share, however, were either obtained on an ad hoc basis or assumed as constant.  Consequently, marketing inputs, such as market share, became the result instead of the cause: a typical conclusion that was drawn was that market share must be increased to meet cash flow targets.  The financial bias of strategic planning systems demoted marketing to a necessary but not important role in the long-term perspective of the corporation.

In a few years’ time, as strategic planning became more firmly established, corporations began to realize that there was a missing link in the planning process.  Without properly relating the strategic planning effort to marketing, the whole process tended to be static?  Business exists in a dynamic setting, and by and large, it is only through marketing inputs that perspectives of changing social, economic, political, and technological environments can be brought into the strategic planning process.

In brief, while marketing initially got lost in the emphasis on strategic planning, currently the role of marketing is better understood and has emerged in the form of strategic marketing.

ASPECTS OF STRATEGIC MARKETING

Strategic thinking represents a new perspective in the area of marketing.  In this section we will examine the importance, characteristics, origin, and future of strategic marketing.

IMPORTANCE OF STRATEGIC MARKETING

Marketing plays a vital role in the strategic management process of a firm.  The experience of companies well versed in strategic planning indicates that failure in marketing can block the way to goals established by the strategic plan.  A prime example is provided by Texas Instruments, a pioneer in developing a system of strategic planning called the OST system.  Marketing negligence forced Texas instruments to withdraw from the digital watch business.  When the external environment is stable, a company can successfully ride on its technology lead, manufacturing efficiency, and financial acumen.  As the environment shifts, however, lack of marketing perspective makes the best-planned strategies treacherous.  With the intensification of competition in the watch business and the loss of uniqueness of the digital watch, Texas Instruments began to lose ground.  Its experience can be summarized as follows:

The lack of marketing skills certainly was a major factor in the . . . demise of its watch business.  T.I. did not try to understand the consumer, nor would it listen to the marketplace.  They had the engineer’s attitude.

Philip Morris’s success with Miller Beer illustrates how marketing’s elevated strategic status can help in outperforming competitors.  If Philip Morris had accepted the conventional marketing wisdom of the beer industry by basing its strategy on cost efficiencies of large breweries and competitive pricing, its Miler Beer subsidiary might still be in seventh place or lower.  Instead, Miller Beer leapfrogged all competitors but Anheuser-Busch by emphasizing market and customer segmentation supported with large advertising and promotion budgets.  A case of true strategic marketing, with the marketing function playing a crucial role in overall corporate strategy, Philip Morris relied on its corporate strengths and exploited its competitor’s weaknesses to gain a leadership position in the brewing industry.

Indeed, marketing strategy is the most significant challenge that companies of all types and sizes face.  As a study by Coopers & Lybrand and Yankelovich, Skelly, and White notes, “American corporations are beginning to answer a new call to strategic marketing,’ as many of them shift their business planning priorities more toward strategic marketing and the market planning functions.”

Strategic marketing holds different perspectives from those of marketing management.  Its salient features are described in the paragraphs that follow.

Emphasis on Long-term implications. Strategic marketing decisions usually have far-reaching implications.  In the words of one marketing strategies, strategic marketing is a commitment, not an act.  For example, a strategic marketing decision would not be matter of simply providing an immediate delivery to a favorite customer but of offering 24-hour delivery service to all customers.

In 1980 the Goodyear Tire Company made a strategic decision to continue its focus on the tire business.  At a time when other members of the industry were deemphasizing tires, Goodyear opted for the opposite route.  This decision had wide-ranging implications for the company over the years.  Looking back, Goodyear’s strategy worked.  In 1990s, it continues to be a globally dominant force in the tire industry.

The long-term orientation of strategic marketing requires greater concern for the environment.  Environmental changes are more probable in the long run than in the short run.  In other words, in the short run, one may assume that the environment will remain stable, but this assumption is not at all likely in the long run.

Proper monitoring of the environment requires strategic intelligence inputs.  Strategic intelligence differs from traditional marketing research in requiring much deeper probing.  For example, simply knowing that a competitor has a cost advantage is not enough.  Strategically, one ought to find out how much flexibility the competitor has in further reducing price.

Corporate Inputs.  Strategic marketing decisions require inputs from three corporate aspects: corporate culture, corporate publics, and corporate resources.  Corporate culture refers to the style, whims, fancies, traits, taboos, customs, and rituals of top management that over time have come to be accepted as intrinsic to the corporation.  Corporate publics are the various stakeholders with an interest in the organization.  Customers, employees, vendors, governments, and society typically constitute an organization’s stakeholders.  Corporate resources include the human, financial, physical, and technology assets/experience of the company. Corporate inputs set the degree of freedom a marketing strategist has in deciding which market to enter, which business to divest, which business to invest in, etc. the use of corporate-wide inputs in formulating marketing strategy also helps to maximize overall benefits for the organization.

Varying Roles for Different Products/Markets.  Traditionally it has been held that all products exert effort to maximize profitability.  Strategic marketing starts from the premise that different products may be in the growth stage of the product life cycle, some in the maturity stage, others in the introduction stage.  Each position in the life cycle requires a different strategy and affords different expectations.  Products in the growth stage need extra investment; those in the maturity stage should generate a cash surplus.  Although conceptually this concept – different products serving different purposes – has been understood for many years, it has been articulated for real world application in recent years.  This lead in this regard was provided by the Boston Consulting Group, which developed a portfolio matrix in which products are positioned on a two-dimensional matrix of market share and growth rate, both measured on a continuous scale from high to low.

           

The portfolio matrix essentially has two properties: (a) it ranks diverse businesses according to uniform criteria, and (b) it provides a tool to balance a company’s resources by showing which businesses are likely to be resource providers and which are resource users.

The practice of strategic marketing seeks first to examine each product/market before determining its appropriate role.  Further, different products/markets are synergistically related t maximize total marketing effort.  Finally, each product/market is paired with a manager who has the proper background and experience to it.

Organizational Level. Strategic marketing is conducted primarily at the business unit level in the organization. At General Electric, for example, major appliances are organized into separate business units for which strategy is separately formulated.  At Gillette Company, strategy for the Duracell batteries is developed at the batteries business unit level.

Relationship to Finance. Strategic marketing decision-making is closely related to the finance function.  The importance of maintaining a close relationship between marketing and finance and, for that matter, with other functional areas of a business is nothing new. But in recent years, frameworks have been developed that make it convenient to simultaneously relate marketing to finance in making strategic decisions.

STRATEGIC MARKETING PLANNING PROCESS

Let us understand the formal process of planning marketing strategies in today’s competitive age.  Plans should be short term and long term.  Most firms make annual plans, which are divided into quarterly plans. To be market proactive the plans should be kept flexible to enable firms to alter them to dovetail the changing market environment.  The following steps are needed for making the plans:

·         Customer behavior analysis

·         Analysis of external environment

·         Study of the firm’s internal strengths and weakness

·         Idea generation for planning

·         Brainstorming for prioritizing the ideas generated

·         Customer behavior analysis

·         Analysis of competitors

·         Market analysis

·         Drafting annual and Short-term plans

·         Drawing up final plans with sales and cash flow forecasts.

Customer’s Behaviour Analysis

We have discussed earlier why, where, when and how much customers buy, which can be ascertained with a degree of accuracy through market research.  Let us take a simple customer behavior pattern.  It includes the following elements of internal information processing, guided by external information and stimuli:

·         Belief: It is the customer’s conviction and firm opinion of a product/brand.

·         Perception: it comes from a customer’s recognition of a product as desirable based on intuition and information gathered at the sensory plane.

·         Attitude: It is the customer’s way of thinking about the product, his opinion about it.

·         Preference: Out of his belief, perception and attitude the customer makes his preference of one product over other products, and tries to buy it.

Thus, we can define the multi-attribute decision-making process as one ‘based on concepts Beliefs, Attitudes, Perceptions and Preferences’ from the basis of multi-attribute decision-making.  It is the notion that objects in a choice-set (product attributes and related benefit) can lead to external behavior purchase or no purchase.  Each object in the set has a value on each attribute used to define the choice-set.

Let us take an example to illustrate the point.  The purchase of a car in a family is a major event and the decision-making process is multi-dimensional one. While the affluent buy cars as status symbols, the middle class person buys it as a means of transport.  Let us take three symbols; the middle class person buys it as a means of transport.  Let us take three cars in the economy segment and plot their benefits to customers.  The figures given in Exhibit 2.3 are only arbitrary and not conclusive.  The figures are based on a scale of 0-10.

EXHIBIT 2.3: Comparative Benefits of three economy cars

Benefits                                   Zen                              Santro                                      Matiz

Comfort                                  7.5                               8                                              8.5                  

Economy                                 4                                  5                                              6

Safety                                      3.8                               4.5                                           5

Brand equity                           4                                  7                                              6

Service facilities                      9                                  6                                              5

On a different plane another matrix can be made with benefits on one axis and decision-making concepts for each car separately, before the final decision is taken as per Exhibit 2.4.

The decision-making process, therefore, calls for a three-dimensional matrix.  This is done in the following way:

1.      What is attributes are used to define the product? (for example, for a car it could be brand name, comfort or economy. For a house it could be location, construction and area).

2.      How much of the attribute is present in the product? (Is the car more economical than other cars in the same category)? This is really the value of the attribute and its perception in the customer’s mind.  Another example could be airlines, where passenger safety is of prime concern.  However, airlines never talk about this aspect as it is taken for granted.  They prefer to talk about ease of getting their tickets, food, in-flight service and entertainment and easy check-in. and customers form attitudes on the basis of these attributes.

3.      What is the relative importance of each attribute in the overall product performance? For instance, in the airline business is in-flight service more important than ease of getting tickets?

4.      Do customers weigh each of the attributes to reinforce their perception of overall product performance? How much weightage is given to each of the attributes and does it differ from customer to customer, or is it product specific?

EXHIBIT 2.4: Purchase Decision Matrix

Decision concepts/Benefits                 Comfort          Economy         Safety              Brand equity

Beliefs

Attitudes

Perceptions

Preferences

Note: An Attributes-Perception study for different products is to be done to find out how customer’s perceptions and preferences are formed.

It will be found that different customers have different yardsticks for measuring the various attributes.  They trade off one against the other while making purchase decisions, as can be seen from the following example.  Some people buy a car for its brand name, e.g. Mercedes. Some buy car for speed and power, and some due to fuel efficiency.  Many look for several of the attributes in some order of importance.  This is called the Dictionary Rule.

According to this rule, if a customer finds the first or the most important attribute to the equality present in two products, and then he looks for disparity in the next level attribute.  He keeps doing so till he finds on attribute where there is a difference in the two products. (When you look for a word in a dictionary you first match the first letter then the next and so on, till you find the exact word, hence the name).

Multi-attribute analysis helps sellers understand customers who represent identifiable segments in terms of their perceptions and preferences.

Let us consider the levels of competition, or competitor’s hierarchy.  A competitor can be defined as the seller who competes for the same customer rupee in the widest competition level.  Narrowing it down competitors are those who sell the same products from the same industry.  Further narrowing the definition would be the market segment competitors.

To clarify the above let us take the banking business. At the first level would be the banking system, which would include banks, financial institutions, non-banking financial institutions, merchant bankers and moneylenders.  At the second level would be banks that cater to customers with a few banking products.  At the third level would be banks in the same town or the same street.

That competition is becoming diversified can be seen from the following:

1.      Banking services have competition from software companies now, as a lot of online Internet banking is being done with the help of software.

2.      Used cars compete with new cars.

It is therefore possible to define competition by analyzing customer’s data. It can be done as given below:

·         Define the product.

·         Le the prospective customers decide the possible uses and benefits, as many as they can imagine the product to be possessing.  Can they think of other ways of getting the same benefits? This way firms can get differential competitive analysis from the customer’s viewpoint.

·         The customers should determine the products, whose performance is satisfactions, and the benefits which they accrue from the product’s use.

·         The data thus obtained can be listed as per the priority given by the customers.

The data will provide the firm with information on the competitors for each product in the same range as the firm itself.

Summarizing it can be said that, Competitors analysis requires the prudent use of secondary and primary information to determine current and likely strategies. Customers can be used to classify uses and benefits of products and to rank competitors.

Let us see the assets and skills grid for competitors.  These can be divided into two parts:

1.      Primary: Product development, product quality, product manufacturing cost, product differentiation, customer satisfaction and market share.

2.      Secondary: Flexi-production, financial muscle, sales force, distribution network, brand image/equity, advertising and promotion, quality of service and growth of the market for the product.

MARKET ANALYSIS                     

The following aspects need to be understood while analyzing the market:

·         Market size – actual and potential

·         Market growth prospects

·         Product-wise profitability

·         Cost structure

·         Distribution pattern

·         Success parameters

Market size and its growth can be assessed by knowing the demographic changes taking place in the market, income and salary growth of people in the market and changes in government policies relating to business of the products.  In the maturity and decline stage of the product life cycle (PLC), the firm has to identify the following points:

·         Price wars start if these is no product differentiation and there is production over-capacity.

·         Level of buyer’s sophistication.

·         Availability of substitution products.

·         It there is no growth, is there a new competitive product in the market?

To analyse the profit picture of a market the following points need to be seen:

·         Competition in the market – is it a monopoly, an oligopoly or a fragmented market with a vast number of sellers.  What is the market share of competitors and how are they safeguarding it – through price-cutting or brand management?

·         How many new players are likely to join the competition?  How serious are they and what is their potential threat as a competitor? 

·         How strong are the substitute products vying for the customer’s money?

·         What is the bargaining power of the suppliers?

·         What is the bargaining power of the buyers?

·         The firm should know the number of competitors, their size, similarity of product, level of fixed costs, and exit barriers.  It should know keep track of the capital requirements of new entrants economies of scale, availability of distribution channels, raw materials and product differentiations.

It can be seen that high-growth markets can suffer from severe competition with overcrowding of players, penetrating prices, technology changes and resources crunch.

 

Environment analysis helps the firm know the effects of changes in technology, macroeconomics, government policies, culture, demography and global.

THE PROCESS OF STRATEGIC MARKETING: AN EXAMPLE

The process of strategic marketing planning, charted in Exhibit 2-5, may be illustrated with an SBU (health-related remedies) of the New England Products Company (a fictional name).  Headquarters in Hartford, Connecticut, NEPC is a worldwide manufacturer and marketer of a variety of food and nonfood products, including coffee, orange juice, cake mixes, toothpaste, diapers, detergents, and health-related remedies.  The company conducts its business in more than 100 countries, employs approximately 110,000 people, operates more than 147 manufacturing facilities, and maintains three major research centers.  In 1998 (year ending June 30), the company’s worldwide sales amounted to $37.3 billion.

 Strategic Analysis

1. Corporate Appraisal

2. Understanding Competition

3. Strategic Marketing Process