Chapter 2
DEVELOPING MARKETING STRATEGIES AND PLANS
Marketing & Customer Value
Customer Perceived Value
Customer perceived value (CPV) is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering relative to perceived alternatives.
Key Elements of cost Monetary Cost Energy Cost Time Psychic Cost (costs of added stress)
The Value Delivery Process
Stage 1: Choose The Value …….
Customer Segmentation according to their likely
behavior and potential profitability
Customer Profiling A Competitive economy is
causing decline in customer loyalty and increasing customer turnover >> eroding profit margins
key to understanding your customers
Stage 1: Choose The Value …….
Market Selection/Focus tailors marketing mix for
one or more segments contrasts with mass
marketing two factors to consider….
attractiveness of segment
suitability of market segments to the firm
Stage 1: Choose The Value …….
Market Selection/Focus (Attractiveness of Segment) size of the segment growth rate of the
segment competition in the
segment brand loyalty required market share to
break even expected profit margins
Stage 1: Choose The Value …….
Market Selection/Focus (suitability of market segments to the firm) whether the firm can offer
superior value to customers the impact of serving the
segment on the firm’s image access to distribution channel
The better the firm fit to a market segment, and the more attractive the market segment, the greater the profit potential to the firm.
Stage 1: Choose The Value …….
Value Positioning Value positioning is the
process whereby management decides how the business is positioned relative to competitors and the market segments it aims to penetrate.
Stage 2: Provide the Value…….
Product development Service development Pricing Sourcing/Making Distributing
Stage 2: Provide the Value…….
Product development Idea Generation Idea Screening and
evaluations Business Analysis Prototype development Test marketing
Stage 2: Provide the Value…….
Service development Service is..
the prompt delivery of the product
a customized user or service manual
knowledgeable, cost-effective maintenance, repair, or replacement.
dealer support.
Stage 2: Provide the Value…….
Pricing A well chosen price should
do three things achieve the financial
goals of the company (e.g. profitability)
fit the realities of the marketplace (will customers buy at that price?)
support a product's positioning and be consistent with the other variables in the marketing mix
Stage 2: Provide the Value…….
Sourcing/Making Decide whether to source
or make. Distributing
Channel members Warehousing Market Coverage Location
Stage 3: Communicate the Value…
Sales Force Size of Sales Force. Sales force management
systems
Stage 3: Communicate the Value…
Sales Promotion(Objectives) increase consumer
demand Build product awareness Counter seasonal
decline
Stage 3: Communicate the Value…
Advertising Covert advertising (product
placement) Television commercials Infomercials (DRTV) Radio Newspaper Internet
Value Chain
Value Chain
Value Chain is defined as
a chain of activities that a firm operating in a specific industry performs in order to deliver
something valuable (product or service) to its customers.
Value Chain This model defines an organization as:
“synthesis of activities performed todesign, produce, market, deliver,
and support its products.”
Value Chain cont…
Value Chain cont… Activities divided into
Primary Activities Activities involved in the physical creation of the product and
its sale and transfer to the buyer as well as after sales assistance.
Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, Services
Certain activities are vital for specific industry. For Example: Distributor: Inbound and Outbound Logistics Service Firm: Operations Bank Engaged in Corporate Lending: Marketing and Sales Manufacturer of Heavy Machinery: Operations and Services
Value Chain cont…
Secondary Activities - activities that support primary activities and each other. Procurement – function of purchasing inputs used in the
firm’s value chain such as raw materials, supplies, machinery, laboratory equipment, office, equipment, building, meals and lodging, strategic consultancy.
Technology Development – activities that improve the product and the process such as know-how, procedures, preparing documents, transporting goods as well as technology embodied in products themselves.
Human Resource Management – consist of activities involved in recruiting, hiring, training, development, and compensation. Key for competitive advantage in many firms such as advertising, consultancy, accounting etc.
Firm Infrastructure - consist of a number of activities including management, planning, finance, accounting, legal, government affairs, and quality management.
Value Chain cont…
Value Chain cont… Linkage - crucial for corporate success. The linkages are flows
of information, goods and services, as well as systems and processes for adjusting activities. In the result, the linkages are about seamless cooperation and information flow between the value chain activities.
Margin - depends upon the ability of the firm to manage the linkage among the activities.
Core Competency
Core Competence Core competencies are capabilities that
serve as a source of competitive advantage for a firm over its rivals.
Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products.
Core Competence cont... Firms used to own and control business Today firms outsource less critical resources for better quality
and low cost Focus on core business activities. Rooted in the ability to integrate and coordinate activities Not necessarily an expensive undertaking Gained mostly but not exclusively through technology – reliable
process, close relationship with customers/suppliers, understanding culture etc.
Core Competence cont...Characteristics of Core Competencies Source of competitive advantage Application in a wide array of markets Difficult for competitors to imitate
Core Competence cont...
Core Competence cont...Benefits of Core Competencies Form the basis for launching new businesses Bonds business units into a coherent portfolio Transcend the traditional brand market share to
core product share
Corporate and Division Strategic Planning
Corporate and Division Strategic Planning STRATEGIC PLANNING is an organization's
process of defining its long term strategy, or direction, and making decisions on allocating its resources to pursue this strategy.
In doing so, the organization tries to achieve its mission.
Corporate and Division Strategic Planning…
Four Planning Activities1. Define the Corporate Mission2. Establish Strategic Business Unit3. Assigning Resources to each SBU4. Assessing Growth Opportunities
Corporate and Division Strategic Planning…Corporate Mission What is our business? Who is the customer? What is of value/benefit to the customer? What will our business be? What is our business’s philosophy?
Corporate and Division Strategic Planning…Examples of Mission Statements
1. Ford: “We are a global family with a proud heritage, passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve people's lives”
2. Proctor & Gamble “We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper”
Corporate and Division Strategic Planning…Establish SBUs and Assign ResourcesAn SBU has three characteristics
1. It is a single business or collection of businesses that can be planned separately from the rest of the company
2. It has its own set of competitors
3. It has a manager who is responsible for strategic planning and profit performances and who controls most of the factors affecting profit.
Assessing Growth Opportunities
Corporate and Division Strategic Planning…
Intensive GrowthMarket Penetration Aim
Increase share of the current market (segment) with current products
Secure dominance in growth market Restructure a mature market by driving out competition
Achieved through slightly adjusting the marketing mix – decrease price, better quality, increasing the number of salespersons, increasing advertising, offering extensive sales promotion items, or increasing publicity efforts.
Intensive GrowthHow Market Penetration is Achieved? Increase usage by existing customers Attract customers away from rivals Devise and encourage new applications Encourage non buyers to buy
Intensive GrowthUse Market Penetration When… the market is not saturated market shares of the major competitors is declining while the
total share is increasing increased volumes lead to economies of scale historical relationship between dollar promotion expenditure and
dollar sales has been positive
Intensive GrowthMarket Development Selling the same product to different markets
OR Entering new markets or segments with same products Entering overseas markets Will require major changes into marketing strategy
New distribution channels Different pricing policy New promotional strategy
Intensive GrowthUse Market Development When… channels of distribution are available or could be built an organization has a strong marketing department new untapped and unsaturated markets exists firm has excess capacity
Intensive GrowthProduct Development Developing new products for existing markets Entails large research and development expenditure New products come in the form of
New products to replace current products New innovative products New products to complement existing products
Intensive GrowthUse Product Development When… Organization has successful products in the maturity stage Competes in an industry characterized by rapid technological
development Organization has strong R&D department
Integrative GrowthForward Integration
Gaining ownership or increased control over distributors or retailers
Use Forward Integration When…. Present distributors are expensive, unreliable, or
incapable of meeting firm’s needs. Have the capital and Human Resource Distributors are few in number When distributor’s margins are very high. Company can gain a competitive advantage
Integrative Growth
Backward Integration Seeking ownership or increased control over
firm’s suppliers.
Use Backward Integration When…. A firm’s suppliers are expensive or unreliable. Number of suppliers is small and number of
competitors is large Company can gain a competitive advantage
Integrative GrowthHorizontal Integration
Seeking ownership of firm’s competitors M&As
Use Horizontal Integration When…. Firm can gain monopolistic characteristics Organization competes in a growing industry When competitors are faltering due to lack of
managerial expertise or a resource that your firm has.
DiversificationDiversification New products sold to new markets In the past, pursued to diversify the risk of failure Today on a retreat Famous examples
General Electric Viacom Samsung
Diversification
Concentric Diversification results in new product lines or services that have
technological and/or marketing synergies with existing product lines
For example; Dell Computers, News Corporation.
Diversification Conglomerate Diversification
New unrelated products for new wide array of markets For example; Nishat Group, GE, Hashoo Group, Dewan Group.
Nishat Group Hashoo Group Dewan Group1 Nishat Mills2 D.G. Khan Cement3 MCB Bank Limited4 Adamjee Insurance5 Nishat Power Limited6 Pakgen Power Limited7 Nishat Chunian Limited8 Nishat Hotels and Properties Limited9 Nishat Dairy
1 Hotels and resorts2 Tours and travels3 Information technology4 Oil and gas5 Minerals6 Pharmaceuticals7 Ceramics8 Investments9 Trading companies10 Welfare
1 Automobile manufacturing2 Polyester staple fibre manufacturing3 Sugar manufacturing4 Textile manufacturing5 Cement manufacturing6 Petroleum
1. Intensive Growth
Ansoff’s Product/Market Expansion Grid
Ansoff’s Product/Market Matrix Cont...
Developed in 1957 by Igor Ansoff A framework for identifying corporate growth opportunities Two dimensions determine the scope of options – product
and market Four Generic Strategies
Market Penetration (existing products, existing markets) Market Development (existing products, new markets) Product Development (new products, existing markets) Diversification (new products, new markets)
Ansoff’s Product/Market Matrix Cont...
Ansoff Matrix and Risk
Ansoff’s Product/Market Matrix Cont...Ansoff Matrix and Risk Market Penetration – Little Risk Involved Product Development – Moderate Risk Market Development – High Risk Diversification – Extreme Risk