the strategic marketing process

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2 LEARNING OBJECTIVES After reading this chapter you should be able to: LO1

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Developing Successful Marketing and Organizational Strategies WHERE AN “A” IN A CORRESPONDENCE COURSE IN ICE CREAM MAKING CAN LEAD! Here’s what the two founding entrepreneurs who aced their $5 college correspondence course in ice cream making are doing in their organization today:

Describe two kinds of organizations and the three levels of strategy in them.

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They buy their milk and cream from one dairy cooperative whose members guarantee the supplies are bovine growth-hormone free.

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Their PartnerShop, Scoopers Making Change, and Cones 2 Career programs help nonprofit organizations give jobs to at-risk youth.

Describe how core values, mission, organizational culture, business, and goals are important to organizations.

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The summer 2009 limited edition “Goodbye Yellow Brickle Road” (opposite page) ice cream is a partnership with Sir Elton John to help his worldwide AIDS Foundation. The name is a play on one of his most popular song titles. The flavor is “an outrageous symphony of decadent chocolate ice cream, peanut butter cookie dough, butterbrickle and white chocolate chunks.” Will it reappear in 2010?

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They are developing a “Cleaner Greener Freezer” for Ben & Jerry’s U.S. retail locations, an innovative freezer that uses an eco-friendly refrigerant to save the ozone layer and reduce greenhouse gases.

Explain why managers use marketing dashboards and metrics. Discuss how an organization assesses where it is now and seeks to be. Explain the three steps of the planning phase of the strategic marketing process. Describe the elements of the implementation and evaluation phases of the strategic marketing process.

This creative, funky business is Ben & Jerry’s Homemade Holdings, Inc., which links its mission statement to social causes designed to improve humanity, as shown on the opposite page. Their business started in 1978 when, longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to start an ice cream parlor in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 Penn State correspondence course in ice cream making, Ben and Jerry were off and scooping.1 Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is expected to reach $43 billion by 2013.2 While customers love Cherry Garcia and the company’s other rich premium ice cream flavors, many buy its products to support Ben & Jerry’s social mission (opposite page). Chapter 2 describes how organizations such as Ben & Jerry’s, Medtronic, and Kodak set goals to give an overall direction that is linked to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented. The results are then evaluated to assess the degree to which they accomplish the organization’s goals, consistent with its core values and mission.

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TODAY’S ORGANIZATIONS In studying today’s visionary organizations, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels found in many large organizations.

Kinds of Organizations LO1

An organization is a legal entity of people who share a common mission. This motivates them to develop offerings (products, services, or ideas) that create value for both the organization and its customers by satisfying customer needs and wants.3 Today’s organizations can be divided into business firms and nonprofit organizations. A business firm is a privately owned organization such as Amazon or Nike that serves its customers to earn a profit so that it can survive.4 Profit is the money left after a business firm’s total expenses are subtracted from its total revenues and is the reward for the risk it undertakes in marketing its offerings. In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Charities and farm cooperatives affiliated with Ben & Jerry’s are examples of this kind of organization. Both business firms and nonprofit organizations increasingly seek to achieve sustainable development, as described in the Making Responsible Decisions box.5 For simplicity in the rest of the book, the terms firm, company, corporation, and organization are used interchangeably to cover both business and nonprofit operations. Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry.6 As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance.7 The foundation of much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.

Both business firms such as Google and nonprofit organizations like Nature Conservancy use strategies and organizational structures to achieve their goals.

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Making Responsible Decisions > > > > sustainability Corporate executives and world leaders are increasingly asked to address the issue of “sustainable development.” This term was formally defined in a 1987 United Nations report as meeting present needs “without compromising the ability of future generations to meet their own needs.” With more than half of the households in many developing nations below the poverty level, should the immediate goal be a cleaner environment or more food, clothing, housing, and consumer goods for its citizens? What should the heads of these governments do? What should business firms and nonprofit organizations trying to enter these developing nations do? What will be the impact on future generations?

The 3M Company developed an innovative program called Pollution Prevention Pays (3P) to reduce harmful environmental impacts, while making a profit doing so. The company estimates that the 3P program in the last quarter century has cut its pollution by 1.6 billion pounds while saving almost $900 million in raw materials and avoiding fines. The company’s 2010 environmental goal is to improve energy efficiency per pound of product by 20 percent while reducing waste generated from its operations by 20 percent. Should the environment or economic growth come first? What are the societal trade-offs?

What Is Strategy? An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists.8 For our purpose, strategy is an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals.9 Whether explicit or implicit, all organizations set a strategic direction. And marketing helps not only to set this direction but also to move the organization there.

Structure of Today’s Organizations Large organizations such as Medtronic and Kodak are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as shown in Figure 2–1. FIGURE 2–1 The board of directors oversees the three levels of strategy in organizations: corporate, business unit, and functional.

Board of Directors

Corporate-level strategy

Business unit–level strategy

CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

The Global Dilemma: How to Achieve Sustainable Development

Functional-level strategy

Information systems

Finance

Research and development

Marketing

Manufacturing

Human resources

Departments

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Corporate Level The corporate level is where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing overall strategy. The president or chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills and expertise ranging from overseeing the organization’s daily operations to spearheading strategy planning efforts that may determine its very survival. In recent years many large firms have changed the title of the head of marketing from vice president of marketing to chief marketing officer (CMO). These CMOs have an increasingly important role in top management because of their ability to think strategically. Most bring multi-industry backgrounds, cross-functional management expertise, analytical skills, and intuitive marketing insights to their job, which enables them to create and deliver value to the organization and its customers.10 Strategic Business Unit Level Some multimarket, multiproduct firms, such as General Electric or Johnson & Johnson, manage a portfolio or group of businesses.11 Each group is a strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined group of customers. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge.

Functional Level Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (see Figure 2–1). At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level. A key role of the marketing department is to look outward, keeping the organization focused on creating value both for it and for customers. This is accomplished by listening to customers, developing and producing offerings, and implementing marketing program activities. When developing marketing programs for new offerings or for improving existing ones, an organization’s senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.

learning review

1. What is the difference between a business firm and a nonprofit organization? 2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS LO2

Management experts stress that to be successful, today’s organizations must be forward looking. They must both anticipate future events and respond quickly and effectively. This requires a visionary organization to specify its foundation (why does it exist?), set a direction (what will it do?), and formulate strategies (how will it do it?) as shown in Figure 2–2.12

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Organizational foundation (why)

FIGURE 2–2 Today’s visionary organization uses key elements to (1) establish a foundation and (2) set a direction using (3) its strategies that enable it to develop and market its offerings successfully.

ⴙ

• Business • Goals (objectives) • Long-term • Short-term

Organizational strategies (how)

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• By level • By offering • Corporate • Product • SBU • Service • Functional • Idea

Organizational Foundation: Why Does It Exist? An organization’s foundation is its philosophical reason for being—why it exists— and rarely changes. Successful visionary organizations use this foundation to guide and inspire their employees through three elements: core values, mission, and organizational culture.

Core Values An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time.13 A firm’s founders or senior management develop these core values, which are consistent with their essential beliefs and character.14 They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and should not change due to short-term financial, operational, or marketing concerns. Finally, core values guide the organization’s conduct. To be effective, an organization’s core values must be communicated to and supported by its top management and employees; if not, they are just hollow words.15 Mission By understanding its core values, an organization can take steps to define

People see this “rising figure” mural in the headquarters of a worldclass corporation. What does it signify? What does it say to employees? To others? For some insights and why it is important, see the text.

its mission, a statement of the organization’s function in society, often identifying its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statement should be clear, concise, meaningful, inspirational, and long-term.16 Medtronic is the world leader in producing heart pacemakers and other medical devices. Earl Bakken, its founder, wrote this mission statement for Medtronic when it was launched a half century ago, which has remained virtually unchanged: “To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.”


• Core values • Mission (vision) • Organizational culture

Organizational direction (what)

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This inspiration and focus appear in the mission statements of both business firms and nonprofit organizations: ●

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In the first half of the 20th century, what “business” did railroads believe they were in? The text reveals their disastrous error.

Southwest Airlines: To be dedicated “to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” American Red Cross: “To provide relief to victims of disaster and help prevent, prepare for, and respond to emergencies.”

Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future. Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile.17 This is what Ben & Jerry’s social mission statement is all about, as shown in the chapter opening. Stakeholders, particularly customers, employees, and now society, are asking organizations to be exceptional citizens by providing long-term value while solving society’s problems.18

Organizational Culture An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them. Medtronic has a “rising figure” wall mural at its headquarters. The firm also presents every new employee with a medallion depicting this “rising figure” on one side and the company’s mission statement on the other. And each December, several patients describe to a large employee holiday celebration how Medtronic devices have changed their lives.19 These activities send clear messages to employees and other stakeholders about Medtronic’s organizational culture, the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

Organizational Direction: What Will It Do? As shown in Figure 2–1, the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals. For the reasons Netflix is altering its “business model” to respond to changing consumer demand and technologies, see the text and Marketing Matters box.

Business A business describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions, “What do we do?” or “What business are we in?” In his famous “Marketing Myopia” article, Theodore Levitt argues that senior managers of 20th century American railroads defined their business too narrowly, proclaiming, “We are in the railroad business!” This myopic focus caused these firms to lose sight of who their customers were and what they needed. Thus, railroads only saw other railroads as direct competitors and failed to develop strategies to compete with airlines, barges, pipelines, and trucks—firms whose offerings carry both goods and people. As a result, many railroads merged or went bankrupt. Railroads would have fared better if they had realized they were in “the transportation business.”20 With today’s increased global competition and worldwide financial crises, many organizations are rethinking their business model, the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. American newspapers are looking for a new business model as former subscribers get their news online and buy cars

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Marketing Matters > > > > > entrepreneurship The Netflix Launch and Its Continually . . . Continually . . . Continually . . . Changing Business Model!

The Original Business Model “Early on, the first concept we launched was rental by mail, but it wasn’t subscription based so it worked more like Blockbuster,” says Hastings, the founder and chief executive officer of Netflix. It wasn’t very popular. So in 1999, he relaunched his idea with a new business model—as a subscription service, pretty much the mail business you see today with 8 million subscribers. “We named the company Netflix, not DVDs by Mail because we knew

that eventually we would deliver movies directly over the Internet,” Hastings says.

Netflix’s Changing Business Model The Netflix DVDs-by-mail model can deliver any one of 100,000 movies on DVD to you for a fixed monthly fee—$9 for one movie, $14 for two. But look where its business model changed over eight months in 2008: from “Watch Now,” enabling regular subscribers to watch any of 1,000 streaming movies on a PC, to using a tiny $100 TV-connect box to let viewers rather awkwardly watch a streaming movie on their TV rather than a PC, to partnering with TiVo, Xbox, and others to enable their systems to let you see one of about 12,000 movies on your TV. With Netflix breaking a series of technology barriers, its “any movie, any time” business model is literally just around the corner.

from Craigslist Inc. rather than using newspaper want ads.21 Microsoft is rethinking its business model in the new era of $200 laptops.22 The Marketing Matters box describes how Netflix founder and Chief Executive Officer Reed Hastings got the idea for his start-up and how his business model is changing continuously to reflect the way Internet breakthoughs are able to deliver movies more conveniently to a consumer’s TV set.23

Goals Goals or objectives (terms used interchangeably in the textbook) are statements of an accomplishment of a task to be achieved, often by a specific time. For example, Netflix may have the goal of being the top provider of online movies by 2011. Goals convert an organization’s mission and business into long- and shortterm performance targets to measure how well it is doing (see Figure 2–2). Business firms can pursue several different types of goals: ●

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●

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Profit. Most firms seek to maximize profits—to get as high a financial return on their investments (ROI) as possible. Sales (dollars or units). If profits are acceptable, a firm may elect to maintain or increase its sales even though profits may not be maximized. Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself. A firm may choose to maintain or increase its market share, sometimes at the expense of greater profits if industry status or prestige is at stake. Quality. A firm may offer the highest quality, as Medtronic does with its implantable medical devices.


If in 1997 a customer had been charged a late fee of $40 for a VHS tape of Apollo 13, what might she or he have done? Maybe just grumble and pay it? In the case of Reed Hastings, he was embarrassed, apparently paid the $40 late fee, and—this is where he’s different—got to thinking that there’s a big market out there. “So I started to investigate the idea of how to create a movie-rental business by mail,” he told a Fortune magazine interviewer.

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●

●

●

Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints it receives. Employee welfare. A firm may recognize the critical importance of its employees by stating its goal of providing them with good employment opportunities and working conditions. Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits.

Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good.

Organizational Strategies: How Will It Do It? As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and organizational direction sets the “what.” To convert these into actual results, the organizational strategies are concerned with the “how.” These organizational strategies vary in at least two ways, partly depending on the level in the organization and the offerings it provides customers:

Variation by Level Moving from the corporate to the strategic business unit to the functional level involves creating increasingly detailed strategies and plans. For example, at the corporate level, top managers may struggle with writing a meaningful mission statement, while at the functional level the issue may involve whether Joan or Adam makes the sales call tomorrow. Variation by Offering Organizational strategies also vary by the organization’s offering. The strategy will be far different when marketing a very tangible physical product (a Medtronic heart pacemaker), a service (Southwest Airlines flight), or an idea (donate to the American Red Cross). The remainder of Chapter 2 covers many aspects of developing these organizational strategies.

learning review

3. What is the meaning of an organization’s mission? 4. What is the difference between an organization’s business and its goals?

Tracking Strategic Performance with Marketing Dashboards LO3

Although marketing managers can set strategic directions for their organizations, how do they know if they are making progress in getting there? One answer is to measure performance by using marketing dashboards.

Car Dashboards and Marketing Dashboards A marketing dashboard is the visual computer display of the essential information related to achieving a marketing objective.24 Often, it is an Internet-based display with real-time information and active hyperlinks to provide further detail. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new TV advertising campaign is on a product’s sales. This also increases the CMO’s accountability in using marketing resources effectively.25 The idea of a marketing dashboard really comes from that of a car’s dashboard. On a car’s dashboard we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a

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graph or table and makes a decision whether to take action or to analyze the problem further.26

Dashboards, Metrics, and Plans The marketing dashboard of Oracle, a large software firm, appears in Figure 2–3. It shows graphic displays of key performance measures of a product category such as sales versus cost of sales.27 Each variable in a marketing dashboard is a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result.28 The choice of which marketing metrics to display is critical for a busy marketing manager, who can be overwhelmed with too much or with inappropriate information.29 Dashboard designers take great care to show graphs and tables in easy-to-understand formats to enable clear interpretation at a glance.30 The Oracle marketing dashboard, in Figure 2–3 presents several marketing metrics on the computer screen. The threestep “challenge-findings-action” format in the Using Marketing Dashboards box for Ben & Jerry’s on the next page is the one used throughout the textbook. This format stresses the importance of using marketing dashboards and the metrics contained within them to produce effective marketing strategy and program actions. The Ben & Jerry’s dashboard shows that both its dollar sales and dollar market share grew from 2008 to 2009. Most organizations tie the marketing metrics they track in their marketing dashboards to the quantitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later in this chapter) usually results in a marketing plan that sets the direction for the marketing activities of an organization. Appendix A at the end of this chapter provides guidelines for writing a marketing plan and also presents a sample marketing plan for Paradise Kitchens® Inc., a firm that produces and distributes a line of spicy chili under the Howlin’ Coyote® brand name. Appendix A also links each section of the marketing plan to the relevant textbook chapter to assist students who are writing marketing plans.


FIGURE 2–3 An effective marketing dashboard, like this one from Oracle, helps managers assess a business situation at a glance.

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Using Marketing Dashboards How Well Is Ben & Jerry’s Doing? As the marketing manager for Ben & Jerry’s, you have been asked to provide a snapshot of the firm’s total super-premium ice cream product line performance for the United States. You choose the following marketing metrics: dollar sales and dollar market share.

Ben & Jerry’s Dollar Sales Sales ($ millions)

$280

Your Challenge Information Resources, Inc. (IRI), provides scanner data from grocery stores and other retailers. It has just sent you a report showing that the total ice cream sales for 2009 were $25 billion. Of that total, 5 percent or $1.25 billion (0.05 $25 billion) comprises the super-premium category—the segment of the market that Ben & Jerry’s competes in. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit in 2009.

Average price Quantity sold $5.00 50 million units $250 million

Ben & Jerry’s sales ($) Dollar market share (%) ___ Total industry sales ($) $250 million __ $1.25 billion 0.20 or 20%

240

$240

$250

220 200 0

2008

2009

Ben & Jerry’s Dollar Market Share

Your Findings Each of the metrics you chose (dollar sales and dollar market share) are goals that firms such as Ben & Jerry’s use to measure performance. They can be calculated for 2009 using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows: Dollar sales ($)

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20% 15% 10%

18.4 (2008)

5%

25% 20.0 (2009)

30% 35%

Your dashboard displays show that from 2008 to 2009 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent. Your Action The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. NOTE: Marketers also find it useful to calculate market share based on the number of units sold, if data are available.

SETTING STRATEGIC DIRECTIONS LO4

To set a strategic direction, an organization needs to answer two difficult questions: (1) Where are we now? (2) Where do we want to go?

A Look Around: Where Are We Now? Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors.

Competencies Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies, and resources—that distinguish

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it from other organizations and provide customer value. Exploiting these competencies can lead to success.31 Medtronic’s competencies include world-class technology, training, and service that respond to life-threatening medical needs. BusinessWeek magazine calls Medtronic “the standard setter for quality.”32 Competencies should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.33

and frozen yogurt eaters who have different preferences (form, flavor, health, and convenience). Medtronic’s customers are cardiologists and heart surgeons who serve patients. Lands’ End communicates a remarkable commitment about its customer experience and product quality with these unconditional words:

Lands’ End’s unconditional guarantee for its products highlights its focus on customers.

Guaranteed. Period.® The Lands’ End Web site points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers, it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have a satisfying experience.34

Competitors In today’s global competition, the distinctions among competi-

Kodak today must make a series of difficult marketing decisions. From what you know about cameras and photos, assess Kodak’s sales opportunities for the four products shown here. For some possible answers and a way to show these opportunities graphically, see the text and Figure 2–4.

Kodak digital cameras

tors are increasingly blurred. Lands’ End started as a catalog retailer. But today, Lands’ End competes with not only other clothing catalog retailers but also traditional department stores, mass merchandisers, and specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing in any of these stores directly competes with Lands’ End offerings, all these retailers have Web sites to sell their offerings over the Internet. This means there’s a lot of competition out there.

Growth Strategies: Where Do We Want to Go? Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques

Kodak digital picture frames

Kodak ink-jet printers and cartridges to print photos at home


Customers Ben & Jerry’s customers are ice cream

Kodak film

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2

3

40 Question marks

Stars

Kodak digital picture frames

Market growth rate (% per year)

30

1

1

High 20 ?

?

10

2

3

Kodak ink-jet printers and cartridges to print photos at home

0 ?

Low 10 20

4

? Cash cows

Dogs

4

10

1 Low Relative market share (share relative to largest competitor)

0.1

High

Kodak digital cameras

FIGURE 2–4 Boston Consulting Group business portfolio analysis for Kodak’s consumer-related SBUs as they appeared in 2003 (solid red circle) and might appear in 2010 (white circle).

Kodak film

to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis strategies.

Business Portfolio Analysis The Boston Consulting Group (BCG), a nationally known management consulting firm, uses business portfolio analysis to quantify performance measures and growth targets to analyze its clients’ strategic business units (SBUs) as though they were a collection of separate investments.35 The purpose of the tool is to determine the appeal of each SBU or offering and then determine the amount of cash, if any, each should receive. The BCG analysis can also be applied at the offering, product, or brand level. More than 75 percent of the largest U.S. firms have used this analytical tool. The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is the relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of 10 (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1 (at the right end of the scale) means it has only 10 percent of the share of its largest competitor. The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization: ●

●

Cash cows are SBUs that generate large amounts of cash, far more than they can invest profitably in themselves. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs. Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.

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Question marks are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest. Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they do not hold the promise of ever becoming real winners for the organization. Dropping SBUs that are dogs may be required, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.36

An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on the market growth rate, its main alternative is to try to change its relative market share. To accomplish this, management decides what role each SBU should have in the future and either injects or removes cash from it. Kodak provides an example of how new technology and changing consumer tastes force a company to convert a crisis into potential long-run opportunities.37 Until 2000, Kodak relied on its film for the bulk of its revenues and profits because of the billions of photos taken every year. The company made money on repeat business from traditional film sales and not on camera purchases. The appearance of digital cameras radically changed Kodak’s business forever as film sales began to evaporate. Four Kodak SBUs (see the solid red circles in Figure 2–4) are shown as they may have appeared in 2003 and can serve as an example of BCG analysis. The area of each solid red circle in Figure 2–4 is roughly proportional to the SBU’s 2003 sales revenue. In a more complete analysis, Kodak’s other SBUs would be included. This example also shows the agonizing strategic decisions that executives must make in an industry facing profound change—the situation Kodak confronted due to the arrival of digital technology. The success of Kodak’s new digital strategy and its product lines shown in Figure 2–4 depends on how millions of consumers (1) take photos and convert them into printed or online images in the coming years and (2) continue to be affected by the global economic recession. Here is a snapshot of where sales revenues were for four Kodak consumer product lines in 2003 (the solid red circles) and where they now appear headed in 2010 (the white circles). 1. Kodak digital cameras. In 2008, about 80 percent of U.S. consumers owned a digital camera because it is now easier to use than a film camera, is cheaper, and allows images to be uploaded and shared online. But Kodak’s digital camera sales may flatten due to high household penetration, the economic downturn, and increased competition. Kodak remains No. 3 in market share behind Canon and Sony. Today more women are buying digital cameras because they are small and light. Bottom line: Kodak expects this SBU to continue to be a cash cow, with its new digital camera models generating mainly replacement sales.38 2. Kodak digital picture frames. In 2007, Kodak introduced a line of digital picture frames that allowed consumers to upload, store, and view digital images. In 2008, Kodak expanded its line with more than 10 items ranging in price from $60 to $230. And in 2009, it introduced the $999 OLED (organic light-emitting diode) digital picture frame that features a high-resolution flat-panel display to present extremely sharp photo images. Global demand has exploded, and today Kodak is the market leader—clearly a star. By 2012, sales could approach 50 million units.39 3. Kodak ink-jet printers and cartridges to print digital photos at home. In 2008, the ink-jet printer market dramatically changed as consumers shifted from single-purpose to multi-function machines designed to print photos, make


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How can Ben & Jerry’s develop new products and social responsibility programs that contribute to its mission? The text describes how the strategic marketing process and its SWOT analysis can help.

copies, scan images, and send faxes. Today Kodak now offers only multifunction models. Moreover, Kodak’s high-quality ink cartridges make photos at half the cost of Hewlett-Packard’s (HP) printers. The result: In two short years, Kodak has sold over 1 million printers. Consumers buy an average of eight ink cartridges a year. Because HP is the entrenched 300-pound gorilla in this market, the future of this question mark could evolve into a star if Kodak is able to double or triple unit sales. Or this SBU may turn into a dog because online printing and sharing have taken off and may soon reach $1 billion.40 4. Kodak film. An $8 billion cash cow in 2003, Kodak film sales were the company’s biggest single source of revenue. Now in a free fall because of digital cameras, Kodak film sales dropped to $3 billion in 2008, moving it from being a cash cow to a potential dog. Kodak stopped producing its Kodachrome slides in late 2009. Experts believe film sales will evaporate by 2012.41 The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.42

Diversification Analysis Diversification analysis is a tool that helps a firm search for growth opportunities from among current and new markets as well as current and new products.43 For any market, there is both a current product (what the firm now sells) and a new product (what the firm might sell in the future). And for any product there is both a current market (the firm’s existing customers) and a new market (the firm’s potential customers). As Ben & Jerry’s attempts to increase sales revenues, it must consider all four of the market-product strategies shown in Figure 2–5: ●

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FIGURE 2–5 Four market-product strategies: alternative ways to expand sales revenues for Ben & Jerry’s using diversification analysis.

Market penetration is a marketing strategy to increase sales of current products in current markets, such as Ben & Jerry’s current ice cream products to U.S. consumers. There is no change in either the basic product line or the markets served. Increased sales are generated by selling either more ice cream (through better promotion or distribution) or the same amount of ice cream at a higher price to its current customers. Market development is a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news and bad news for this strategy: As household incomes of Brazilians increase, consumers can buy more ice cream; however, the Ben & Jerry’s brand may be unknown to Brazilian consumers.

PRODUCTS Markets Current

Current

New

New

Market penetration Selling more Ben & Jerry’s superpremium ice cream to Americans

Product development Selling a new product such as children’s clothing under the Ben & Jerry’s brand to Americans

Market development Selling Ben & Jerry’s superpremium ice cream to Brazilians for the first time

Diversiﬁcation Selling a new product such as children’s clothing under the Ben & Jerry’s brand to Brazilians for the first time

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learning review

Product development is a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States. This strategy is risky because Americans may not see a clear connection between the company’s expertise in ice cream and children’s clothing. Diversification is a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s because the firm has neither previous production nor marketing experience on which to draw to market the offerings to Brazilian consumers.

5. What is the difference between a marketing dashboard and a marketing metric? 6. What is business portfolio analysis? 7. Explain the four market-product strategies in diversification analysis.

THE STRATEGIC MARKETING PROCESS After an organization assesses where it is and where it wants to go, other questions emerge, such as: 1. How do we allocate our resources to get where we want to go? 2. How do we convert our plans into actions? 3. How do results compare with our plans, and do deviations require new plans? To answer these questions, an organization uses the strategic marketing process, whereby an organization allocates its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation, as shown in Figure 2–6. Planning phase Step 1

Step 2

Step 3

Situation (SWOT) analysis Chapters 2–8

Market-product focus and goal setting Chapters 9 and 10

Marketing program Chapters 10–21

Implementation phase Chapter 22

Corrective Actions

Marketing plan

CHAPTER 2

FIGURE 2–6 The strategic marketing process has three vital phases: planning, implementation, and evaluation. The figure also shows where these phases are discussed in the text.

DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

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Results

Evaluation phase Chapter 22

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The Planning Phase of the Strategic Marketing Process LO5

Figure 2–6 shows the three steps in the planning phase of the strategic marketing process: (1) situation (SWOT) analysis, (2) market-product focus and goal setting, and (3) the marketing program.

Step 1: Situation (SWOT) Analysis The essence of situation analysis is taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. The situation (SWOT) analysis box in Figure 2–6 is the first of the three steps in the planning phase. An effective summary of a situation analysis is a SWOT analysis, an acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats. The SWOT analysis is based on an exhaustive study of four areas that form the foundation upon which the firm builds its marketing program: ● ● ● ●

Identify trends in the organization’s industry. Analyze the organization’s competitors. Assess the organization itself. Research the organization’s present and prospective customers.

Assume you are responsible for doing the SWOT analysis for Unilever, Ben & Jerry’s parent company shown in Figure 2–7. Note that the SWOT table has four cells formed by the combination of internal versus external factors (the rows) and favorable versus unfavorable factors (the columns) that identify Ben & Jerry’s strengths, weaknesses, opportunities, and threats. The task is not simply to conduct a SWOT analysis but to translate its results into specific actions to help the firm grow and succeed. The ultimate goal is to identify the critical strategy-related factors that impact the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats. The Ben and Jerry’s SWOT analysis in Figure 2–7 can be the basis for these kinds of specific actions. An action in each of the four cells might be: FIGURE 2–7 Ben & Jerry’s: a SWOT analysis to keep it growing. The picture painted in this SWOT analysis is the basis for management actions.

Location of Factor

Internal

External

TYPE OF FACTOR Favorable

Unfavorable

Strengths • Prestigious, well-known brand name among U.S. consumers • Complements Unilever’s other ice cream brands • Recognized for its social mission, values, and actions

Weaknesses • B&J’s social responsibility actions could reduce focus • Experienced managers needed to help growth • Modest sales growth and profits in recent years

Opportunities • Growing demand for quality ice cream in overseas markets • Increasing U.S. demand for 100-calorie novelties such as cones and bars • Many U.S. firms successfully use product and brand extensions

Threats • B&J customers read nutritional labels and are concerned with sugary and fatty desserts • Competes with General Mills and Nestlé brands • Increasing competition in international markets

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Build on a strength. Find specific efficiencies in distribution with Unilever’s existing ice cream brands. Correct a weakness. Recruit experienced managers from other consumer product firms to help stimulate growth. Exploit an opportunity. Develop new product lines of low-fat, low-carb frozen yogurts and sorbets as well as 100-calorie novelty items to respond to consumer health concerns.44 Avoid a disaster-laden threat. Focus on less risky international markets, such as Canada and Mexico.

products will be directed toward which customers (step 2 of the planning phase in Figure 2–6) is essential for developing an effective marketing program (step 3). This decision is often based on market segmentation, which involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. This enables an organization to identify the segments on which it will focus its efforts—its target market segments—and develop specific marketing programs to reach them. As always, understanding the customer is essential. In the case of Medtronic, executives researched a potential new market in Asia by talking extensively with doctors in India and China. They learned that these doctors saw some of the current state-of-the-art features of heart pacemakers as less essential and too expensive. Instead, they wanted an affordable pacemaker that was reliable and easy to implant. This information led Medtronic to develop and market a new product, the Champion heart pacemaker, directed at the needs of these Asian market segments. Goal setting involves setting measurable marketing objectives to be achieved. For a specific market, the goal may be to introduce a new product, such as Medtronic’s Champion pacemaker in Asia or Toyota’s launch of its Prius hybrid car in the United States. For a specific brand or product, the goal may be to create a promotional campaign or pricing strategy to get more consumers to purchase. Let’s examine Medtronic’s five-year plan to reach the “affordable and reliable” segment of the pacemaker market:45 ●

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The Champion: Medtronic’s high-quality, long-life, lowcost heart pacemaker for Asian market segments.

Set marketing and product goals. The chances of new-product success are increased by specifying both market and product goals. Based on their market research showing the need for a reliable yet affordable pacemaker, Medtronic executives set the following as their goal: Design and market such a pacemaker in the next three years that could be manufactured in China for the Asian market. Select target markets. The Champion pacemaker will be targeted at cardiologists and medical clinics performing heart surgery in India, China, and other Asian countries. ● Find points of difference. Points of difference are those characteristics of a product that make it superior to competitive substitutes. Just as a competitive advantage is a unique strength of an entire organization compared to its competitors, points of difference are unique characteristics of one of its products that make it superior to competitive products it faces in the marketplace. For the Champion pacemaker, the key points of difference are not the state-of-the-art features that drive up production costs and are important to only a minority of patients. Instead, they are high quality, long life, reliability, ease of use, and low cost. ● Position the product. The pacemaker will be “positioned” in cardiologists’ and patients’ minds as a medical device that is high


Step 2: Market-Product Focus and Goal Setting Determining which

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FIGURE 2–8 The 4 Ps elements of the marketing mix must be blended to produce a cohesive marketing program.

Marketing manager

Product Features Brand name Packaging Service Warranty

Price List price Discounts Allowances Credit terms Payment period

Promotion Advertising Personal selling Public relations Sales promotion Direct marketing

Place Outlets Channels Coverage Transportation Stock level

Promotion Place

Product Price

Cohesive marketing program

quality and reliable with a long, nine-year life. The name Champion was selected after testing acceptable names among doctors in India, China, Pakistan, Singapore, and Malaysia. So step 2 provides a solid foundation to use in developing the marketing program, step 3 in the planning phase of the strategic marketing process.

Step 3: Marketing Program Activities in step 2 tell the marketing manager which customers to target and which customer needs the firm’s product offerings can satisfy—the who and what aspects of the strategic marketing process. The how aspect—step 3 in the planning phase—involves developing the program’s marketing mix (the 4 Ps) and its budget. Figure 2–8 shows that each marketing mix element is combined to provide a cohesive marketing program. The five-year marketing plan of Medtronic’s Champion pacemaker includes these marketing mix activities: ●

●

●

●

Product strategy. Offer a Champion brand heart pacemaker with features needed by Asian patients. Price strategy. Manufacture the Champion to control costs so that it can be priced below $1,000 (in U.S. dollars)—an affordable price for Asian markets. Promotion strategy. Feature demonstrations at cardiologist and medical conventions across Asia to introduce the Champion and highlight the device’s features and application. Place (distribution) strategy. Search out, utilize, and train reputable medical device distributors across Asia to call on cardiologists and medical clinics.

Putting this marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast (see Chapter 8) and budget that must be approved by top management.

learning review

8. What are the three steps of the planning phase of the strategic marketing process? 9. What are points of difference and why are they important?

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The Implementation Phase of the Strategic Marketing Process As shown in Figure 2–6, the result of the tens or hundreds of hours spent in the planning phase of the strategic marketing process is the firm’s marketing plan. Implementation, the second phase of the strategic marketing process, involves carrying out the marketing plan that emerges from the planning phase. If the firm cannot put the marketing plan into effect—in the implementation phase—the planning phase was a waste of time. There are four components of the implementation phase: (1) obtaining resources, (2) designing the marketing organization, (3) developing planning schedules, and (4) actually executing the marketing program designed in the planning phase. Kodak provides a case example.

Obtaining Resources In 2003, Kodak announced a bold plan to reenergize the film marketer for the new age of digital cameras and prints. Kodak needed huge sums of cash to implement the plan. So by early 2009, it had sold or transformed several of its SBUs that provided over $300 billion to develop and market new products, such as the exciting Zi6 pocket video camera, which takes HD quality videos that can be uploaded to YouTube.46 Designing the Marketing Organization A marketing program needs a Kodak’s new Zi6 pocket video camera can upload its videos to YouTube.

FIGURE 2–9 Organization of a typical manufacturing firm, showing a breakdown of the marketing department.

marketing organization to implement it. Figure 2–9 shows the organization chart of a typical manufacturing firm, giving some details of the marketing department’s structure. Four managers of marketing activities are shown to report to the vice president of marketing. Several regional sales managers and an international sales manager may report to the manager of sales. The product or brand managers and their subordinates help plan, implement, and evaluate the marketing plans for their offerings. However, the entire marketing organization is responsible for converting these marketing plans to reality as part of the corporate marketing team.

Developing Planning Schedules To implement marketing plans, members of the marketing department hold meetings to identify the tasks that need to be done, the

President/Chief Executive Officer

Vice President Information Systems Department

Vice President Research and Development Department

Product or Brand Manager

Associate Product Managers

Vice President Manufacturing Department

Manager Marketing Research

Marketing Assistants

Vice President* Marketing Department

Manager Sales

Vice President Accounting and Finance Department

Vice President Human Resources Department

Manager Advertising and Promotion


LO6

Sales Regions and Representatives *Called chief marketing officer (CMO) in many corporations

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time to allocate to each one, the people responsible, and the deadlines for their accomplishment. In most cases, each team member works on different parts of the plan.

Executing the Marketing Program Marketing plans are meaningless pieces of paper without effective execution of those plans. This effective execution requires attention to detail for both marketing strategies and marketing tactics. A marketing strategy is the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. The term implies both the end sought (target market) and the means to achieve it (marketing program). At this marketing strategy level, Kodak will seek to increase sales of digital cameras, ink-jet printers, and digital picture frames. To implement a marketing program successfully, hundreds of detailed decisions are often required. These decisions, called marketing tactics, are detailed day-today operational decisions essential to the overall success of marketing strategies. At Kodak, writing ads and setting prices for its new lines of digital cameras are examples of marketing tactics.

The Evaluation Phase of the Strategic Marketing Process The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it (see Figure 2–6). Accomplishing this requires the marketing manager to (1) compare the results of the marketing program with the goals in the written plans to identify deviations and (2) act on these deviations—correcting negative deviations and exploiting positive ones.

Comparing Results with Plans to Identify Deviations Suppose you

FIGURE 2–10 The evaluation phase of the strategic marketing process requires that the organization compare actual results with goals to identify and act on deviations to fill in its “planning gap.” The text describes how Kodak hopes to fill in its planning gap by 2010.

Annual sales revenues ($ billions)

are on a Kodak task force in 2003 responsible for making plans through 2010. You observe that Kodak’s sales revenues from 1998 through 2003, or AB in Figure 2–10, exhibit a very flat trend. Extending the 1998–2003 trend to 2010 along BC shows very flat sales revenues, a totally unacceptable, no-growth strategy. Kodak’s growth target of 5 to 6 percent annually, the line BD in Figure 2–10, would give sales revenues of $16 billion in 2006 and $20 billion in 2010. This reveals a wedge-shaped shaded gap in the figure. Planners call this the planning gap, the difference between the projection of the path to reach a new goal (line BD) and the projection of the path of the results of a plan already in place (line BC). The ultimate purpose of the firm’s marketing program is to “fill in” this planning gap—in the case

Target sales revenues with new plans and actions

$20 18

D

16 14

Planning gap A B

12 10

Actual sales revenues

8 Past

C Trend of sales revenues in 2003 without new plans and actions Future

E

0 1998

2000

2002

2004

2006

2008

2010

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Acting on Deviations When evaluation shows that actual performance failed to meet expectations, managers need to take corrective actions. Two possible Kodak midcourse corrections for both positive and negative deviations from targets illustrate these management actions your Kodak task force might take in 2009:47 Exploiting a positive deviation. If Kodak’s innovative digital cameras sell better than expected, Kodak might try to move quickly to offer these to international customers—such as those in France. Correcting a negative deviation. However, if Panasonic is able to surpass Kodak in global market share of digital cameras, Kodak may need to reduce prices. ●

To help fill in its planning gap, Kodak is pursuing opportunities for sales of digital cameras in France.

●

Kodak also might (1) develop more feature-laden digital cameras that use its proprietary sensor technologies that improve image (picture) quality to (2) launch a new aggressive global marketing program that integrates its digital camera images into its Kodak digital picture frame.

10. What is the implementation phase of the strategic marketing process?

learning review

11. How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?

LEARNING OBJECTIVES REVIEW LO1 Describe two kinds of organizations and the three levels of strategy in them. An organization is a legal entity of people who share a common mission. There are two kinds. One is a business firm that is a privately owned organization that serves its customers to earn a profit so that it can survive. The other is a nonprofit, nongovernmental organization that serves its customers but does not have profit as a goal. Most large business firms and nonprofit organizations are divided into three levels of strategy: (a) the corporate level, where top management directs overall strategy for the entire organization; (b) the strategic business unit level, where managers set a more specific strategic direction for their businesses to set value-creating opportunities; and (c) the functional level, where groups of specialists actually create value for the organization.

LO2 Describe how core values, mission, organizational culture, business, and goals are important to organizations. Organizations exist to accomplish something for someone. To give organizations direction and focus, they continuously assess their core values, mission, organizational culture, business, and goals. Today’s organizations specify their foundation, set a direction, and formulate strategies—”why,” “what,” and “how” factors, respectively. Core values are the organization’s fundamental, passionate, and enduring principles that guide its conduct over time—what Enron forgot when it lost sight of its responsibilities to its stakeholders. The organization’s mission is a statement of its function in society, often identifying its customers, markets, products, and technologies. Organizational culture is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an


of your Kodak task force, to move its future sales revenue line from the no-growth line BC up to the challenging target of line BD. But poor performance can result in actual sales revenues being far less than the targeted levels, the actual situation faced by Kodak in 2009 (line BE), where sales were expected to be about $8 billion. This is the essence of evaluation: comparing actual results with goals set. In this example, the Kodak task force in 2003 used trend extrapolation to project the historic trend through 2010. But as shown by the discrepancy between line BC (the trend extrapolation) and BE (Kodak’s actual annual sales revenues), serious forecasting problems can occur. In this case, Kodak failed to anticipate the drastic decline in sales of its film and film cameras.

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organization. To answer the question, “What business are we in?” an organization defines its “business”—the clear, broad, underlying industry category or market sector of its offering. Finally, the organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time. LO3 Explain why managers use marketing dashboards and metrics. Marketing managers use marketing dashboards to visually display on a single computer screen the essential information to make a decision to take an action or further analyze a problem. This information consists of key performance measures of a product category, such as sales or market share, and is known as a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result. Most organizations tie their marketing metrics to the quantitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years. LO4 Discuss how an organization assesses where it is now and seeks to be. Managers of an organization ask two key questions to set a strategic direction. The first question, “Where are we now?” requires an organization to (a) reevaluate its competencies to ensure that its special capabilities still provide a competitive advantage; (b) assess its present and prospective customers to ensure they have a satisfying customer experience—the central goal of marketing today; and (c) analyze its current and potential competitors from a global perspective to determine whether it needs to redefine its business. The second question, “Where do we want to go?” requires an organization to set a specific direction and allocate resources to move it in that direction. Business portfolio and diversification analyses help an organization do this. Managers use business portfolio analysis to assess its strategic business units (SBUs), product lines, or individual products as though they were a collection of separate investments (cash cows, stars, question marks, and dogs) to determine the amount of cash each should receive. Diversification analysis is a tool that helps managers use one or a combination of four strategies to increase revenues: market penetration (selling more of an existing product to existing markets); market development (selling an existing product to new markets); product development (selling a new product to exist-

ing markets); and diversification (selling new products to new markets). LO5 Explain the three steps of the planning phase of the strategic marketing process. An organization uses the strategic marketing process to allocate its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation. The planning phase consists of: (a) a situation (SWOT) analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed. This assessment focuses on the organization’s internal factors (strengths and weaknesses) and the external forces and trends affecting it (opportunities and threats); (b) a marketproduct focus through market segmentation—grouping buyers into segments with common needs and similar responses to marketing programs—and goal setting, which in part requires creating points of difference—those characteristics of a product that make it superior to competitive substitutes; and (c) a marketing program that specifies the budget and activities (marketing strategies and tactics) for each marketing mix element. LO6 Describe the elements of the implementation and evaluation phases of the strategic marketing process. The implementation phase of the strategic marketing process carries out the marketing plan that emerges from the planning phase. It has four key elements: (a) obtaining resources; (b) designing the marketing organization to perform product management, marketing research, sales, and advertising and promotion activities; (c) developing schedules to identify the tasks that need to be done, the time that is allocated to each one, the people responsible for each task, and the deadlines for each task’s accomplishment; and (d) executing the marketing strategies, which are the means by which marketing goals are to be achieved, and their associated marketing tactics, which are the detailed day-to-day operational decisions of a firm’s marketing strategies. These are the marketing program actions a firm takes to achieve the goals set forth in its marketing plan. The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction that was established in the marketing plan. This requires the marketing manager to compare the results from the marketing program with the marketing plan’s goals to (a) identify deviations or “planning gaps” and (b) take corrective actions to exploit positive deviations or correct negative ones.

FOCUSING ON KEY TERMS business p. 30 business portfolio analysis p. 36 competitive advantage p. 35 core values p. 29 corporate level p. 28 cross-functional teams p. 28 diversification analysis p. 38 functional level p. 28 goals p. 31

market segmentation p. 41 market share p. 31 marketing dashboard p. 32 marketing metric p. 33 marketing plan p. 33 marketing strategy p. 44 marketing tactics p. 44 mission p. 29 objectives p. 31

organizational culture p. 30 points of difference p. 41 profit p. 26 situation analysis p. 40 strategic business unit (SBU) p. 28 strategic marketing process p. 39 strategy p. 27 SWOT analysis p. 40

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APPLYING MARKETING KNOWLEDGE shown in Figure 2–7. Suggest an action that a marketing manager there might take to address each factor. 5 What is the main result of each of the three phases of the strategic marketing process? (a) planning, (b) implementation, and (c) evaluation. 6 The goal-setting step in the planning phase of the strategic marketing process sets quantified objectives for use in the evaluation phase. What does a manager do if measured results are below objectives? Above objectives?

building your marketing plan Read Appendix A, “Building an Effective Marketing Plan.” Then write a 600-word executive summary for the Paradise Kitchens marketing plan using the numbered headings shown in the plan. When you have completed the draft of your own marketing plan, use what you learned in writing an executive summary for Paradise Kitchens to write a 600-word executive summary to go in the front of your own marketing plan.

1

Using Chapter 2 and Appendix A as guides, give focus to your marketing plan by (a) writing your mission statement in 25 words or less, (b) listing three nonfinancial goals and three financial goals, (c) writing your competitive advantage in 35 words or less, and (d) doing a SWOT analysis table. 3 Draw a simple organization chart for your organization. 2

video case 2 BP: Transforming Its Strategy “Beyond Petroleum” “We want to get people to drive an extra block or cut across an extra lane of traffic to choose BP over its competitors,” claims Ann Hand, senior vice president—Global Brand Marketing and Innovation (photo below). BP, formerly known as British Petroleum, is one of the world’s largest producers and marketers of petroleum products. Through innovative marketing and with a focus on the environment, BP has been transforming itself into a consumer-centric provider of energy products and services that are broader than just oil and gas.

KEY ELEMENTS IN BP’S “BEYOND PETROLEUM” TRANSFORMATION Increased energy demand due to the growing economies of both the developed and developing countries as well as supply constraints have caused oil

prices to rise sharply during the past few decades. This, along with the heightened awareness of global climate change in the late 1990s, created an opportunity for BP to transform its mission statement to the following: Our business is about finding, producing, and marketing the natural energy resources on which the modern world depends.

BP then reorganized itself primarily into two strategic performance (i.e., business) units to support its mission. These “SPUs” consist of activities related to the (1) discovery and production of oil and natural gas and (2) refining and marketing of petroleum products. BP also identified and evaluated many opportunities to increase its sales and profits. One strategy was through acquisitions. During the late 1990s, BP invested $120 billion to add competitors Amoco, ARCO, and


(a) Using Medtronic as an example, explain how a mission statement gives it a strategic direction. (b) Create a mission statement for your own career. 2 What competencies best describe (a) your college or university and (b) your favorite restaurant? 3 Why does a product often start as a question mark and then move counterclockwise around the BCG’s growthshare matrix shown in Figure 2–4? 4 Select one strength, one weakness, one opportunity, and one threat from the Ben & Jerry’s SWOT analysis 1

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Castrol to its business portfolio. BP now produces about 3 percent of the planet’s oil and gas, operates in over 100 countries around the world, and serves 13 million customers per day at 24,600 retail sites, including 12,300 stations in the United States. The benefits to its stakeholders: BP global sales now exceed $360 billion. In 2000, BP introduced a new brand identity to reflect the integrated company it had become. The BP shield and Amoco torch were replaced by a new Helios logo that more appropriately reflects BP’s corporate and retail brand image as a green, environmentally friendly company. Because a brand image communicates the brand’s essence—an emotional tie between the company and its customers—it provides confidence to customers: They know they can get high-quality gas, conveniently purchase food and beverages, and travel onwards refreshed. Thus, BP is not just about gasoline—it goes “beyond petroleum.” Within its refining and marketing SPU, BP sells gasoline at its branded retail gas stations, which include the BP, Amoco Ultimate, Wild Bean Café, BP Connect, and BP Express brands (eastern United States) and the ARCO and am/pm brands (western United States). In the near term, BP’s retail strategy will focus on high-growth metropolitan areas in the United States through new and franchised service stations. In the long term, BP plans to transform the retail gasoline landscape with its new Helios House and Helios Power strategies.

BP’S FOUR CORE VALUES BP specifies four core values to express the way the organization does business and help translate the mission into practical action: ●

Progressive: BP is always looking for new and better ways to conduct business. It has developed a relation-

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ship with Ford to build hydrogen vehicles and fueling stations in California, Michigan, and elsewhere. BP also has reformulated its BP Amoco Ultimate fuel to reduce air pollutants. Innovative: Through the creative approaches of employees, and the development and application of cuttingedge drilling technology, BP seeks breakthrough solutions for its customers. Green: BP is committed to environmental leadership— the proactive and responsible treatment of the planet’s natural resources and developing lower carbon emission energy sources. As a result, BP now stores its gasoline in double-skinned tanks to prevent spills and leaks. Performance-driven: BP sets the global standards of performance on financial and environmental dimensions, as well as safety, growth, and customer and employee satisfaction.

HELIOS HOUSE: TRANSFORMING BP’S GASOLINE RETAILING Since 1977, the percentage of gasoline stations in the United States that also contain a convenience store has gone from 5 percent to more than 50 percent. To support the demand for convenience store offerings, BP developed a very successful convenience store concept called am/pm. This branded offering was created and tested on ARCO sites in the western United States; in the future, am/pm will partner with the BP retail brand and penetrate the eastern United States. Currently, the am/pm stores sell both fuel and more than 2,000 convenience items (snacks, beverages, necessities, etc.). Sales from the more than 1,000 am/pm stores now exceed $6 billion; both the number and sales revenues are expected to grow significantly during the next several years as BP transforms many of its existing gas stations into am/pm stores.

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HELIOS POWER: BP’S PROMOTION OF ITS GASOLINE RETAILING The second part of BP’s strategy was a promotional campaign to transform BP’s retail brand image at its locations in the United States. Buying gasoline is a low involvement purchase and consumers have low expectations regarding their purchase experiences. Armed with that consumer insight, BP created and executed the $45 million Helios

Power advertising and brand-building campaign, which is an extension of BP’s “Beyond Petroleum” corporate campaign that began in the early 2000s. The Helios Power campaign consisted of the following marketing tactics: ●

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“A little better” tagline. BP customers can expect to receive “a little better” experience at its service stations and other retail outlets compared to those of its competitors. Hand elaborates, “In this market, a little better means a lot. People see refueling as a necessary and unpleasant chore. However, BP can be cleaner and friendlier, and that’s why people will choose us rather than our competitors.” And this choice will be made on an emotional basis because customers “like what we stand for.” • Animated TV ads. These feature a family of characters (the Lighthouse family, the Babies, and the Beeps) and a catchy tune designed to reinforce the emotional appeal of the BP brand. The TV ads aired during some of the top U.S. TV shows (American Idol, Ugly Betty) and also had exposure on YouTube. The purposes of the ads were to generate awareness of and an emotional connection to the BP brand and its offerings. In-store give-aways. At the launch in April 2007, environmentally friendly paper bags, T-shirts with a fun new look from the campaign, kids activity books and trading cards featuring the campaign characters, and sunflower seed packets were handed out to customers throughout the entire network of BP stations. Unique Web site. The www.alittlebettergasstation .com Web site features the “Gas Mania” interactive game, selected animations, ringtones, screensavers, a sweepstakes, and the TV ads. Street teams. BP and Ford teamed up to promote the use of BP’s Ultimate gasoline in Ford’s new Edge automobile. Videos featuring groups of college-aged students were created to showcase the BP brand in Florida and the ARCO brand in California.

Questions (a) What is BP’s “Helios” strategy? (b) How does this strategy relate to BP’s mission and core values? 2 Conduct a SWOT (strengths, weaknesses, opportunities, and threats) analysis for BP’s “Helios” initiative— looking forward globally to the next three years. 3 What are some ways BP could use to effectively communicate its “Helios” strategy to consumers? 4 What are the long-term benefits to (a) society and (b) BP of its “Helios” initiative? 5 Looking at BP’s Helios Power marketing strategy and its “street team” marketing tactic: (a) What objectives would you set for this tactic? (b) How would you propose BP measure the results? 1


In early 2007, BP launched a two-part strategy to change the way consumers think about its gas stations. One part was Helios House, a new-look gasoline station located in Los Angeles that will serve as a living laboratory to test ideas in a real environment (photo below). Ann Hand, who manages BP’s $280 million global marketing programs, was instrumental in the planning and implementation of Helios House. Becoming operational during April 2007, Helios House was designed to be eco-friendly from the top down. The building itself was constructed from recycled, sustainable, and nontoxic materials. Moreover, its canopy has 90 solar panels to generate its own electricity. The roof is covered with grass to reduce the building’s heating and cooling needs and has rain collectors to irrigate the surrounding drought-tolerant landscape. The facility also has energy-efficient lighting, using one-fifth less energy than a traditional gas station. As a result of these and other design features, Helios House became the first gas station to be certified as green by the U.S. Green Building Council. Helios House also offers customers (1) clean, wellmaintained restrooms, (2) friendly “green team” employees who will not only greet customers with a smile but also check their cars’ tire pressure to ensure proper inflation— which boosts gas mileage, and (3) tips on creating a green lifestyle through its www.thegreencurve.com Web site. According to Kathy Seegebrecht, BP’s U.S. advertising manager, “Helios House will serve as a place where BP can have a conversation with its customers about green ideas and how its gas station can play a part in creating a better environment. It was designed to serve as a beacon to inspire the employees and franchisees through the U.S.” Helios House is not a prototype of BP’s station of the future. However, it will be an incubator of green ideas that can be implemented among its existing and new stations. It is just too costly to replace 25,000 existing stations throughout the world. Seegebrecht concludes, “Helios House is showing us that in a more brand-conscious world, where we all want the best of everything, people might actually want a better gas station.” How successful has the Helios House been? “The site has nearly doubled its fuel volumes.”

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