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C H A P T E R

StrategicPlanning

CompetitiveAdvantage for

Learning Outcomes

LO1 Understand the importance of strategic marketing and know a basic outline for a marketing plan

LO2 Develop an appropriate business mission statement LO3 Describe the criteria for stating good marketing

objectives LO4 Explain the components of a situation analysis LO5 Identify sources of competitive

advantage LO6 Identify strategic alternatives LO7 Discuss target market strategies LO8 Describe

the elements of the marketing mix LO9 Explain why implementation, evaluation, and control of the marketing plan

are necessary LO10 Identify several techniques that help make strategic planning effective

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CHAPTER 2 Strategic Planning for Competitive Advantage 1 5

“A good strategic plan can help protect and grow

the firm’s resources.”The Nature of Strategic Planning

Strategic planning is the managerial process of creating and maintaining afit between the organization’sobjectives and resources andthe evolving market opportu-nities. The goal of strategicplanning is long-run prof-itability and growth. Thus,strategic decisions requirelong-term commitments ofresources. A strategic errorcan threaten a firm’s survival. On the other hand, a good strategic plan canhelp protect and grow the firm’s resources.

Strategic marketing management addresses two questions: What is the organiza-tion’s main activity at a particular time? How will it reach its goals? Strategic deci-sions affect an organization’s long-run course, its allocation of resources, andultimately its financial success. In contrast, an operating decision, such as changingthe package design for Post’s cornflakes or altering the sweetness of a Kraft saladdressing, probably won’t have a big impact on the long-run prof-itability of the company.

How do companies go about strategic marketing planning?How do employees know how to implement the long-term goalsof the firm? The answer is a marketing plan.

What Is a Marketing Plan?Planning is the process of anticipating future events and deter-mining strategies to achieve organizational objectives in thefuture. Marketing planning involves designing activities relatingto marketing objectives and the changing marketing environ-ment. Marketing planning is the basis for all marketing strategiesand decisions. Issues such as product lines, distribution channels,marketing communications, and pricing are all delineated in themarketing plan. The marketing plan is a written document thatacts as a guidebook of marketing activities for the marketingmanager. In this chapter, you will learn the importance of writinga marketing plan and the types of information contained in amarketing plan.

Things change so quickly that planning is a waste of time.Strongly Disagree Strongly Agree1 2 3 4 5 6 7

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strategic planningthe managerial processof creating and main-taining a fit between theorganization’s objec-tives and resources andevolving marketopportunities

planningthe process of anticipat-ing future events anddetermining strategiesto achieve organiza-tional objectives in thefuture

marketing planningdesigning activitiesrelating to marketingobjectives and thechanging marketingenvironment

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Marketing Plan ElementsMarketing plans can be presented in many differ-ent ways. Most businesses need a written market-ing plan because a marketing plan is large and canbe complex. Details about tasks and activityassignments may be lost if communicated orally.Regardless of the way a marketing plan is pre-sented, some elements are common to all market-ing plans. These include defining the businessmission and objectives, performing a situationanalysis, delineating a target market, and estab-lishing components of the marketing mix. Exhibit2.1 shows these elements, which are alsodescribed further below. Other elements that maybe included in a plan are budgets, implementationtimetables, required marketing research efforts, orelements of advanced strategic planning.

Why Write aMarketing Plan?By specifying objectives anddefining the actions requiredto attain them, a marketingplan provides the basis by

which actual and expected performance can be com-pared. Marketing can be one of the most expensiveand complicated business activities, but it is also oneof the most important. The written marketing planprovides clearly stated activities that help employeesand managers understand and work toward commongoals.

Writing a marketing plan allows you to examinethe marketing environment in conjunction with theinner workings of the business. Once the marketingplan is written, it serves as a reference point for thesuccess of future activities. Finally, the marketingplan allows the marketing manager to enter themarketplace with an awareness of possibilities andproblems.

1 6 PART 1 The World of Marketing

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New products are the result of strategic marketing planning.

ImplementationEvaluation

Control

BusinessMission

Statement

Objectives

Situationor SWOTAnalysis

Marketing Strategy

Target MarketStrategy

Marketing Mix

Product Distribution

Promotion Price

Exhibit 2.1Elements of a Marketing Plan

marketing plana written documentthat acts as a guide-book of marketingactivities for the mar-keting manager


Writing the Marketing PlanThe creation and implementation of a complete mar-keting plan will allow the organization to achievemarketing objectives and succeed. However, the mar-keting plan is only as good as the information it con-tains and the effort, creativity, and thought that wentinto its creation. Having a good marketing informa-tion system and a wealth of competitive intelligenceis critical to a thorough and accurate situation analy-sis. The role of managerial intuition is also importantin the creation and selection of marketing strategies.Managers must weigh any information against itsaccuracy and their own judgment when making amarketing decision.

Note that the overall structure of the marketingplan should not be viewed as a series of sequentialplanning steps. Many of the marketing plan elementsare decided on simultaneously and in conjunctionwith one another. Similarly, the skeletal sample mar-keting plan does not begin to cover the intricacies anddetail of a full marketing plan. Further, every market-ing plan has a different content, depending on theorganization, its mission, objectives, targets, and mar-keting mix components.

There is no single correct format for a marketingplan. Many organizations have their own distinctiveformat or terminology for creating a marketing plan.As such, every marketing plan is unique to the firm forwhich it was created; although the format and order ofpresentation should be flexible, the same types ofquestions and topic areas should be covered in anymarketing plan. Keep in mind that creating a completemarketing plan is not a simple or quick effort.

Defining the Business Mission The foundation of any marketing plan is thefirm’s mission statement, which answers thequestion, “What business are we in?” The way afirm defines its business mission profoundlyaffects the firm’s long-run resource allocation,profitability, and survival. The mission statementis based on a careful analysis of benefits soughtby present and potential customers and ananalysis of existing and anticipated environmen-tal conditions. The firm’s mission statementestablishes boundaries for all subsequent deci-sions, objectives, and strategies. As such, a mis-sion statement should focus on the market ormarkets the organization is attempting to serverather than on the good or service offered.Otherwise, a new technology may quickly makethe good or service obsolete and the mission

statement irrelevant to com-pany functions.

Business mission state-ments that are stated too nar-rowly suffer from marketingmyopia—defining a business interms of goods and servicesrather than in terms of the ben-efits that customers seek. Inthis context, myopia means nar-row, short-term thinking, forexample, if Wm. Wrigley, Jr.company defined its mission asbeing a gum manufacturer.(The company actually definesitself as a confectioner.)Alternatively, business mis-sions may be stated too broadly.“To provide products of supe-rior quality and value thatimprove the lives of the world’sconsumers” is probably too broad a mission statementfor any firm except Procter & Gamble. Care must betaken when stating what business a firm is in. By cor-rectly stating the business mission in terms of the ben-efits that customers seek, the foundation for themarketing plan is set.

The organization may need to define a missionstatement and objectives for a strategic business unit(SBU), which is a subgroup of a single business orcollection of related businesses within the larger


LO 2

mission statementa statement of the firm’s business based ona careful analysis ofbenefits sought by pres-ent and potential cus-tomers and an analysisof existing and antici-pated environmentalconditions

marketing myopiadefining a business interms of goods andservices rather than interms of the benefitsthat customers seek

strategic businessunit (SBU)a subgroup of a singlebusiness or collection of related businesseswithin the largerorganization

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Notice how well these objectives do or do not meet thecriteria below.

Carefully specified objectives serve several func-tions. First, they communicate marketing manage-ment philosophies and provide direction forlower-level marketing managers so that marketingefforts are integrated and pointed in a consistentdirection. Objectives also serve as motivators by creat-ing something for employees to strive for. When objec-tives are attainable and challenging, they motivatethose charged with achieving the objectives.Additionally, the process of writing specific objectivesforces executives to clarify their thinking. Finally, objec-tives form a basis for control; the effectiveness of a plancan be gauged in light of the stated objectives.

Conducting a Situation AnalysisBefore specific marketing activities can bedefined, marketers must understand the cur-rent and potential environment that the productor service will be marketed in. A situation analy-sis is sometimes referred to as a SWOT analysis;

that is, the firm should iden-tify its internal strengths (S)and weaknesses (W) and alsoexamine external opportuni-ties (O) and threats (T).

When examining internalstrengths and weaknesses, themarketing manager should focuson organizational resources suchas production costs, marketingskills, financial resources, com-pany or brand image, employeecapabilities, and available tech-nology. For example, a potentialweakness for AirTran Airways isthe age of its airplane fleet,which could project an image ofdanger or low quality. A potentialstrength is the airline’s low oper-ating costs, which translate intolower prices for consumers.Another issue to consider in thissection of the marketing plan isthe historical background of thefirm—its sales and profit history.

When examining externalopportunities and threats, mar-keting managers must analyzeaspects of the marketing envi-ronment. This process is calledenvironmental scanning—the

organization. A properly definedSBU should have a distinct mis-sion and specific target market,control over its resources, itsown competitors, and plansindependent of the other SBUsin the organization.Thus, a largefirm such as Kraft Foods mayhave marketing plans for eachof its SBUs, which include break-fast foods, desserts, pet foods,and beverages.

SettingMarketing Plan ObjectivesBefore the details of a mar-keting plan can be devel-

oped, objectives for the plan must be stated.Without objectives, there is no basis for measur-ing the success of marketing plan activities.

A marketing objective is astatement of what is to beaccomplished through marketingactivities. To be useful, statedobjectives should meet severalcriteria. First, objectives shouldbe realistic, measurable, and timespecific. It is tempting to statethat the objective is “to be thebest marketer of cat food.”However, what is “best” for onefirm might mean selling one mil-lion pounds of cat food per year,whereas another firm might view“best” as having dominant mar-ket share. It may also be unrealis-tic for start-up firms or newproducts to command dominantmarket share, given other com-petitors in the marketplace.Finally, by what time should theobjective be met? A more realisticobjective would be “To achieve 10percent dollar market share inthe cat food market within 12months of product introduction.”Second, objectives must also beconsistent with and indicate thepriorities of the organization.Specifically, objectives flow fromthe business mission statementto the rest of the marketing plan.


LO 3

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Poorly Stated Objectives

Our objective is to be a leader in the industry in

terms of new-product development.

Our objective is to maximize profits.

Our objective is to better serve customers.

Our objective is to be the best that we can be.

Well-Stated Objectives

Our objective is to spend 12 percent of sales rev-

enue between 2007 and 2008 on research and

development in an effort to introduce at least five

new products in 2008.

Our objective is to achieve a 10 percent return on

investment during 2007, with a payback on new

investments of no longer than four years.

Our objective is to obtain customer satisfaction

ratings of at least 90 percent on the 2007 annual

customer satisfaction survey, and to retain at

least 85 percent of our 2007 customers as repeat

purchasers in 2008.

Our objective is to increase market share from 30

percent to 40 percent in 2007 by increasing pro-

motional expenditures by 14 percent.

marketingobjectivea statement of what isto be accomplishedthrough marketingactivities

SWOT analysisidentifying internalstrengths (S) and weak-nesses (W) and alsoexamining externalopportunities (O) andthreats (T)

environmentalscanningcollection and interpre-tation of informationabout forces, events,and relationships inthe external environ-ment that may affectthe future of theorganization or theimplementation of themarketing plan

Judge for Yourself


collection and interpretation of information aboutforces, events, and relationships in the external envi-ronment that may affect the future of the organizationor the implementation of the marketing plan.Environmental scanning helps identify market oppor-tunities and threats and provides guidelines for thedesign of marketing strategy. For example, Jackson-Hewitt, a tax preparation service, benefits from com-plex changes in the tax codes that motivate citizens tohave their tax returns prepared by a professional.Alternatively, tax-simplification or flat-tax planswould allow people to easily prepare their own returnsand would have a dramatic impact on the company’srevenues. The six most often studied macroenviron-mental forces are social, demographic, economic,technological, political and legal, and competitive.These forces are examined in detail in Chapter 3.

Competitive AdvantagePerforming a SWOT analysis allows firms to iden-tify their competitive advantage. A competitiveadvantage is a set of unique features of a companyand its products that are perceived by the targetmarket as significant and superior to the competi-tion. It is the factor or factors that cause customers

to patronize a firm and notthe competition. There arethree types of competitiveadvantages: cost, product/service differentiation, andniche strategies.

Cost CompetitiveAdvantageCost leadership can result fromobtaining inexpensive rawmaterials, creating an efficient scale of plant operations,designing products for ease of manufacture, controllingoverhead costs, and avoiding marginal customers.Having a cost competitive advantage means being thelow-cost competitor in an industry while maintainingsatisfactory profit margins. A cost competitive advan-tage enables a firm to deliver superior customer value.Wal-Mart is the world’s leading low-cost general mer-chandise store. It offers good value to customersbecause it focuses on providing a large selection of mer-chandise at low prices, and good customer service. Wal-Mart is able to keep its prices down because it has strongbuying power in its relationships with suppliers, whichhelps keep costs low.


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competitiveadvantagethe set of unique fea-tures of a company andits products that areperceived by the targetmarket as significantand superior to thecompetition

cost competitiveadvantagebeing the low-cost com-petitor in an industrywhile maintaining satis-factory profit margins

Environmental scanning revealed thatsales at upscale chocolate retail outlets,like Godiva and Starbucks, grew over 20 percent in 2 years. That informationprompted Mars to launch Ethel's ChocolateLounges, named for the founding matriarch of the American confectioner.


• New methods of service delivery: Medical expenses have

been substantially lowered by the use of outpatient surgery and

walk-in clinics. Airlines are lowering reservation and ticketing costs

by encouraging passengers to use the Internet to book flights and

by providing self-check-in kiosks at the airport.

Product/Service Differentiation Competitive AdvantageBecause cost competitive advantages are subject to con-tinual erosion, product/service differentiation tends toprovide a longer lasting competitive advantage. Thedurability of this strategy tends to make it more attrac-tive to many top managers. A product/service differenti-ation competitive advantage exists when a firm providessomething unique that is valuable to buyers beyond sim-ply offering a low price. Examples include brand names(Lexus), a strong dealer network (Caterpillar Tractor forconstruction work), product reliability (Maytag appli-ances), image (Neiman Marcus in retailing), or service(FedEx). A great example of a company that has a strongproduct/service competitive advantage is Nike. Nike’s

advantage is built around onesimple idea – product innova-tion. The company even letsconsumers design their ownathletic shoes at its NikeIDstores and Web site.1

Niche Competitive AdvantageA niche competitive advantage seeks to target andeffectively serve a single segment of the market (seeChapter 7). For small companies with limited resourcesthat potentially face giant competitors, niching may be

Costs can be reduced in avariety of ways.

• Experience curves: Experiencecurves tell us that costs decline at a pre-

dictable rate as experience with a prod-

uct increases. The experience curve

effect encompasses a broad range of

manufacturing, marketing, and administra-

tive costs. Experience curves reflect

learning by doing, technological advances,

and economies of scale. Firms use histori-

cal experience curves as a basis for pre-

dicting and setting prices. Experience

curves allow management to forecast

costs and set prices based on anticipated

costs as opposed to current costs. The

experience curve was conceived by the

Boston Consulting Group in 1966.

• Efficient labor: Labor costs can be

an important component of total costs in

low-skill, labor-intensive industries such as product assembly and

apparel manufacturing. Many U.S. apparel manufacturers have gone

offshore to achieve cheaper manu-

facturing costs. Many American

companies are also outsourcing

activities such as data entry and

other labor intensive jobs.

• No-frills goods and ser-vices: Marketers can lower costs

by removing frills and options from

a product or service. Southwest Airlines, for example, offers low

fares but no seat assignments or meals. Low prices give

Southwest a higher load factor and greater economies of scale,

which, in turn, mean even lower prices.

• Government subsidies: Governments may provide grants

and interest-free loans to target industries. Such government

assistance enabled Japanese semiconductor manufacturers to

become global leaders.

• Product design: Cutting-edge design technology can help off-

set high labor costs. BMW is a world leader in designing cars for

ease of manufacture and assembly. Reverse engineering—the

process of disassembling a product piece by piece to learn its

components and obtain clues as to the manufacturing process—

can also mean savings. Reverse engineering a low-cost competi-

tor’s product can save research and design costs.

• Reengineering: Reengineering entails fundamental rethinking

and redesign of business processes to achieve dramatic improve-

ments in critical measures of performance. It often involves reor-

ganizing from functional departments such as sales, engineering,

and production to cross-disciplinary teams.

• Production innovations: Production innovations such as

new technology and simplified production techniques help lower

the average cost of production. Technologies such as computer-

aided design and computer-aided manufacturing (CAD/CAM) and

increasingly sophisticated robots help companies like Boeing, Ford,

and General Electric reduce their manufacturing costs.


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experience curvescurves that show costsdeclining at a pre-dictable rate as experi-ence with a productincreases

product/servicedifferentiationcompetitiveadvantagethe provision of some-thing that is unique andvaluable to buyersbeyond simply offeringa lower price than thecompetition’s

niche competitiveadvantagethe advantage achievedwhen a firm seeks totarget and effectivelyserve a small segmentof the market

The experience curve wasconceived by the Boston

Consulting Group in 1966.


strategy and plans. Imitationrequires a competitor to iden-tify the leader’s competitiveadvantage, determine how it isachieved, and then learn howto duplicate it.

StrategicDirectionsThe end result of the SWOT analysis and identifi-cation of a competitive advantage is to evaluatethe strategic direction of the firm. Selecting astrategic alternative is the next step in marketingplanning.

Strategic AlternativesTo discover a marketing opportunity, managementmust know how to identify the alternatives. Onemethod for developing alternatives is Ansoff’s strate-gic opportunity matrix (see Exhibit 2.2), whichmatches products with markets. Firms can explorethese four options:

• Market penetration: A firm using the market penetrationalternative would try to increase market share among existing cus-

tomers. If Kraft Foods started a major campaign for Maxwell House

coffee, with aggressive advertising and cents-off coupons to existing

customers, it would be following a penetration

the only viable option. A market segment that has goodgrowth potential but is not crucial to the success ofmajor competitors is a good candidate for developing aniche strategy. Many companies using a niche strategyserve only a limited geographic market. Other compa-nies focus their product lines on specific types of prod-ucts, like the Orvis Company, which manufactures andsells everything you would need for fly fishing.

Building SustainableCompetitive AdvantageThe key to having a competitive advantage is the abil-ity to sustain that advantage. A sustainable competi-tive advantage is one that cannot be copied by thecompetition. Examples of companies with a sustain-able competitive advantage include Rolex (high-quality watches), Nordstrom department stores(service), and Cirque du Soleil (entertainment).Without a competitive advantage, target customersdon’t perceive any reason to patronize an organiza-tion instead of its competitors.

The notion of competitive advantage means that asuccessful firm will stake out a position unique in somemanner from its rivals. Imitation by competitors indi-cates a lack of competitive advantage and almostensures mediocre performance. Moreover, competitorsrarely stand still, so it is not surprising that imitationcauses managers to feel trapped in a seemingly endlessgame of catch-up. They are regularly surprised by thenew accomplishments of their rivals.

Companies need to build their own competitiveadvantages rather than copya competitor. The sourcesof tomorrow’s competitiveadvantages are the skillsand assets of the organi-zation. Assets includepatents, copyrights, loca-tions, and equipmentand technology that aresuperior to those of thecompetition. Skills arefunctions such as cus-tomer service and pro-motion that the firmperforms better than itscompetitors. Marketingmanagers should contin-ually focus the firm’sskills and assets on sus-taining and creatingcompetitive advantages.

Remember, a sus-tainable competitiveadvantage is a functionof the speed with whichcompetitors can imitatea leading company’s


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sustainablecompetitiveadvantagean advantage that can-not be copied by thecompetition

market penetrationa marketing strategythat tries to increasemarket share amongexisting customers

No Competition

It’s hard to find a direct competitor for Montréal’s Cirque du Soleil.

That’s because

32 talent scouts maintain a database containing 20,000 names of

potential additions to the company’s 2,700-member cast.

Each stage show has a life of 10–12 years.

The company runs 5 world tours and maintains

5 permanent shows, each with a return approaching $500 million.

More than 300 seamstresses, engineers, and makeup

artists sew, design, and build custom materials for

exotic shows with names like Mystère, La

Nouba, O, Dralion, Varekai, and Zumanity.

All that plus an Emmy-award-winning series on

Bravo make Cirque du Soleil a tough act to follow. (In

marketing terms, that means sustainable competitive

advantage has been achieved.)2

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Selecting a Strategic Alternative

Selecting which alternative to pursue depends on theoverall company philosophy and culture. The choicealso depends on the tool used to make the decision.Companies generally have one of two philosophiesabout when they expect profits. Even though marketshare and profitability are compatible long-termgoals, companies either pursue profits right away orfirst seek to increase market share and then pursueprofits.

Companies sometimes make the mistake of focus-ing on building market share, assuming that profitswill follow. For example, Detroit automakers haveconsistently sacrificed short-term profits to achievemarket share by offering high-dollar incentives toincrease sales of new cars. The average cash incentiveoffered by Detroit’s Big Three is $2,500. (Ford has goneas high as $5,000!) That strategy, however, has resultedin tremendous losses year after year.5

Portfolio MatrixRecall that large organizations engaged in strategicplanning may create strategic business units. EachSBU has its own rate of return on investment, growthpotential, and associated risk. Management must finda balance among the SBUs that yields the overall orga-nization’s desired growth and profits with an accept-able level of risk. Some SBUs generate large amountsof cash, and others need cash to foster growth. Thechallenge is to balance the organization’s “portfolio” ofSBUs for the best long-term performance.

To determine the future cash contributions andcash requirements expected for each SBU, managerscan use the Boston Consulting Group’s portfoliomatrix. The portfolio matrix classifies each SBU by itspresent or forecast growth and market share. Theunderlying assumption is that market share and prof-itability are strongly linked. The measure of marketshare used in the portfolio approach is relative mar-ket share, the ratio between the company’s share andthe share of the largest competitor. For example, if afirm has a 50 percent share and its competitor has 5percent, the ratio is 10 to 1.

Exhibit 2.3 shows a portfolio matrix for a computermanufacturer. The size of the circle in each cell of thematrix represents dollar sales of the SBU relative to dol-lar sales of the company’s other SBUs.The following cat-egories are used in the matrix:

• Stars: A star is fast-growing market leader. For example,

computer manufacturers have identified

subnotebook, handheld models, and

tablets as stars. Star SBUs have large

profits but need lots of cash to finance

growth. The best tactic is to protect

existing market share by reinvesting

earnings in product improvement, bet-

strategy. Customer databases, discussed

in Chapters 8 and 19, would help man-

agers implement this strategy.

• Market development: Marketdevelopment means attracting new cus-

tomers to existing products. Ideally, new

uses for old products stimulate additional

sales among existing customers while

also bringing in new buyers. For example,

the growing emphasis on continuing edu-

cation and executive development by col-

leges and universities is a market

development strategy.

• Product development: A productdevelopment strategy entails the creation

of new products for present markets. Several

makers of men’s suits have introduced new

suits designed to be worn in hot weather,

some of which contain the same fibers

NASA developed for spacesuits to prevent

astronauts from getting overheated.3

Managers following the product development strategy can rely

on their extensive knowledge of the target audience. They usually

have a good feel for what customers like and dislike about current

products and what existing needs are not being met. In addition,

managers can rely on established distribution channels.

• Diversification: Diversification is a strategy of increasing

sales by introducing new products into new mar-

kets. Cirque du Soleil has begun to diversify

its creative entertainment empire into

apparel, accessories, fragrance,

gifts, and cosmetics. The com-

pany is even considering open-

ing its own stores.4 A

diversification strategy can be

risky when a firm is entering

unfamiliar markets, but diversifi-

cation can be very profitable when

a firm is entering markets with little

or no competition.


Exhibit 2.2Ansoff’s Strategic Opportunity Matrix

Market Penetration

Starbucks sells morecoffee to customers withreloadable Starbucks cardsand Duetto Visa cards.

Market Development

Starbucks opens stores inBrazil and Chile.

Product Development

Starbucks develops ready-to-drink coffee beveragesDouble Shot and bottledFrappuccino.

Diversification

Starbucks launches HearMusic and buys EthosWater.

marketdevelopmenta marketing strategythat entails attractingnew customers to exist-ing products

productdevelopmenta marketing strategythat entails the creationof new products forcurrent customers

diversificationa strategy of increasingsales by introducingnew products into newmarkets

portfolio matrixa tool for allocatingresources among prod-ucts or strategic busi-ness units on the basisof relative market shareand market growth rate

Cool dude in a cool suit.Product development.

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a dog. The options for dogs are to

harvest or divest.

After classifying the com-pany’s SBUs in the matrix,managers must next allocatefuture resources for each. Thefour basic strategies are to

• Build: An organization with an SBU

that it believes has star-potential

(probably a problem child at present)

may decide to give up short-term prof-

its and use its financial resources to

build. Procter & Gamble built Pringles

from a money loser to a profit maker.

• Hold: If an SBU is a successful

cash cow, a key goal would be to

preserve market share so that the

organization can take advantage of

the positive cash flow.

• Harvest: This strategy is appro-

priate for all SBUs except stars. The

goal is to increase the short-term

cash return without much concern

for the long-run impact. It is espe-

cially worthwhile when more cash is

needed from a cash cow with unfa-

vorable longrun prospects. For

instance, Lever Brothers has harvested Lifebuoy soap for

years with little promotional backing.

• Divest: Getting rid of SBUs with

low shares of low-growth markets, like

problem children and dogs, is often a

strategically appropriate decision. In a five-

year period, GE exited four flagging businesses

and entered seven new ones that were more promising.7

Describing the Target MarketMarketing strategy involves the activities ofselecting and describing one or more targetmarkets and developing and maintaining amarketing mix that will produce mutuallysatisfying exchanges with target markets.

Target Market StrategyA market segment is a group of individuals ororganizations that share one or more characteris-tics. They therefore may have relatively similarproduct needs. For example, parents of newbornbabies need formula, diapers, and special foods.

The target market strategy identifies the marketsegment or segments on which to focus. This

ter distribution, more

promotion, and produc-

tion efficiency.

Management must cap-

ture new users as they

enter the market.

• Cash cows: A cashcow is an SBU that gen-

erates more cash than it

needs to maintain its mar-

ket share. The product

has a dominant share in a

low-growth market.

Personal computers and

laptops are categorized as cash cows in Exhibit 2.3. The strategy for

a cash cow is to maintain market dominance by being the price

leader and making technological improvements. Managers should not

extend the basic line unless they can dramatically increase demand.

Instead, they should allocate excess cash to the product categories

where growth prospects are the greatest.

• Problem children: A problem child, also called a

question mark, shows rapid growth but poor profit margins.

It has a low market share in a high-growth industry. Problem

children need lots of cash support to keep from becoming dogs.

The strategies are to invest heavily to improve market share,

acquire competitors to get the necessary market share, or drop the

SBU. Sometimes a firm can reposition a problem child into a star.

• Dogs: A dog has low growth potential and a

small market share. Most dogs eventu-

ally leave the marketplace. For com-

puter manufacturers, the

mainframe computer has become


The strategy for a cash cow is to maintain market

dominance.

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Low

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et

gro

wth

rate

(in

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nsta

nt

do

llars

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Low

Market share dominance (share relative to largest competitor)

High10x 1x 0.1x

Subnotebooks,

handheld computers,

and tablet PCs (stars)

Laptop and personal

computers (cash cows)

Integrated phone/palm

device (problem child or

question mark)

Mainframe computer

(dog)

Exhibit 2.3Portfolio Matrix for a Large Computer Manufacturer

LO 7

starin the portfolio matrix, abusiness unit that is afast-growing marketleader

cash cowin the portfolio matrix, abusiness unit that usu-ally generates more cashthan it needs to main-tain its market share

problem child(question mark)in the portfolio matrix, abusiness unit thatshows rapid growth butpoor profit margins

dogIn the portfolio matrix, abusiness unit that haslow growth potentialand a small market share

marketing strategythe activities of select-ing and describing oneor more target marketsand developing andmaintaining a marketingmix that will producemutually satisfyingexchanges with targetmarkets

BCG—A History

1963, Boston Consulting Group (BCG)

is born.

1968, BCG introduced the growth share

matrix, or portfolio matrix.

2006, BCG counted nearly 3,000consultants in 61 offices in 37 countries

and generated annual revenue of $1.5billion (the company’s first month of

billings totaled $500).6

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strategies to gain advantages over competitors andbest serve the needs and wants of a particular targetmarket segment. By manipulating elements of themarketing mix, marketing managers can fine-tune thecustomer offering and achieve competitive success.

Product StrategiesTypically, the marketing mix starts with the product“P.”The heart of the marketing mix, the starting point,is the product offering and product strategy. It is hardto design a place strategy, decide on a promotion cam-paign, or set a price without knowing the product tobe marketed.

process begins with a marketopportunity analysis (MOA)—the description and estimationof the size and sales potential ofmarket segments that are ofinterest to the firm and theassessment of key competitorsin these market segments. Afterthe firm describes the marketsegments, it may target one ormore of them. There are threegeneral strategies for selectingtarget markets.

Target market(s) can beselected by appealing to theentire market with one mar-keting mix, concentrating onone segment, or appealing tomultiple market segmentsusing multiple marketingmixes. The characteristics,advantages, and disadvantagesof each strategic option are

examined in Chapter 7. Target markets could besmokers who are concerned about white teeth (thetarget of Topol toothpaste), or college students need-ing inexpensive about-town transportation (YamahaRazz scooter).

Any market segment that is targeted must be fullydescribed. Demographics, psychographics, and buyerbehavior should be assessed. Buyer behavior is cov-ered in Chapters 5 and 6. If segments are differenti-ated by ethnicity, multicultural aspects of themarketing mix should be examined. If the target mar-ket is international, it is especially important todescribe differences in culture, economic and techno-logical development, and political structure that mayaffect the marketing plan. Global marketing is cov-ered in more detail in Chapter 4.

The Marketing MixThe term marketing mix refers to a

unique blend of product, place (distribution),promotion, and pricing strategies (often referredto as the four Ps) designed to produce mutuallysatisfying exchanges with a target market. Themarketing manager can control each compo-nent of the marketing mix, but the strategies forall four components must be blended to achieveoptimal results. Any marketing mix is only asgood as its weakest component. The best pro-motion and the lowest price cannot save a poorproduct. Similarly, excellent products with poorplacing, pricing, or promotion will likely fail.

Variations in marketing mixes do not occur bychance. Astute marketing managers devise marketing

“

”

The best promotion andthe lowest price cannot

save a poor product.

LO 8

marketopportunityanalysis (MOA)the description andestimation of the sizeand sales potential ofmarket segments thatare of interest to thefirm and the assess-ment of key competi-tors in these marketsegments

marketing mixa unique blend of prod-uct, place, promotion,and pricing strategiesdesigned to producemutually satisfyingexchanges with a targetmarket

four Psproduct, place, promo-tion, and price, whichtogether make up themarketing mix

Target Market for Beacon Street Girls: 9- to 13-year-old girls (market worth $40 billion)Product—books and accessoriesPlace—independent booksellersPromotion—public relationsPrice—$2.99–$54



24-hour grocery store withinwalking distance or fly toAustralia to pick your own? Apart of this place “P” is physicaldistribution, which involves allthe business activities con-cerned with storing and trans-porting raw materials orfinished products. The goal isto make sure products arrive in usable condition at

designated places whenneeded. Place strategies arecovered in Chapters 12 and 13.

PromotionStrategies

Promotion includes advertising, public relations, salespromotion, and personal selling. Promotion’s role inthe marketing mix is to bring about mutually satisfyingexchanges with target markets by informing, educating,persuading, and reminding them of the benefits of anorganization or a product. A good promotion strategycan dramatically increase sales. Good promotion strate-gies do not guarantee success, however. Despite mas-sive promotional campaigns, much-anticipated moviesoften have disappointing box-office returns. Each ele-ment of the promotion “P” is coordinated and managedwith the others to create a promotional blend or mix.These integrated marketing communications activitiesare described in Chapters 14, 15, and 16. Technology-driven aspects of promotional marketing are covered inChapter 19.

Pricing StrategiesPrice is what a buyer must give up to obtain a product.It is often the most flexible of the four marketing mixelements—the quickest element to change. Marketerscan raise or lower prices more frequently and easilythan they can change other marketing mix variables.Price is an important competitive weapon and is veryimportant to the organization because price multi-plied by the number of units sold equals total revenuefor the firm. Pricing decisions are covered in Chapters17 and 18.

Following Up on the Marketing PlanImplementationImplementation is the process that turns amarketing plan into action assignments andensures that these assignments are executed ina way that accomplishes the plan’s objectives.

The product includes not only the physical unit butalso its package, warranty, after-sale service, brand name,company image, value, and many other factors. A Godivachocolate has many product elements: the chocolateitself, a fancy gold wrapper, a customer satisfaction guar-antee, and the prestige of the Godiva brand name. Webuy things not only for what they do (benefits) but alsofor what they mean to us (status, quality, or reputation).

Products can be tangible goods such as computers,ideas like those offered by a consultant, or servicessuch as medical care. Productsshould also offer customervalue. Product decisions arecovered in Chapters 9 and 10,and services marketing isdetailed in Chapter 11.

Place (Distribution) StrategiesPlace, or distribution, strategies are concerned withmaking products available when and where customerswant them. Would you rather buy a kiwi fruit at the

Price is an importantcompetitive weapon.

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implementationthe process that turns amarketing plan intoaction assignments andensures that theseassignments are exe-cuted in a way thataccomplishes the plan’sobjectives

LO 9



Although the main purpose of the marketing auditis to develop a full profile of the organization’s mar-keting effort and to provide a basis for developing andrevising the marketing plan, it is also an excellent wayto improve communication and raise the level of mar-keting consciousness within the organization. It is auseful vehicle for selling the philosophy and tech-niques of strategic marketing to other members of theorganization.

Effective Strategic PlanningEffective strategic planning requires continualattention, creativity, and management commit-ment. Strategic planning should not be anannual exercise, in which managers go throughthe motions and forget about strategic planninguntil the next year. It should be an ongoingprocess because the environment is continuallychanging and the firm’s resources and capabili-ties are continually evolving.

Sound strategic planning is based on creativity.Managers should challenge assumptions about thefirm and the environment and establish new strate-gies. And above all, the most critical element in suc-cessful strategic planning is top management’ssupport and participation.

Implementation activitiesmay involve detailed jobassignments, activity descrip-tions, timelines, budgets,and lots of communication.Although implementation isessentially “doing what yousaid you were going to do,”many organizations repeat-edly experience failures instrategy implementation.Brilliant marketing plans aredoomed to fail if they are not properly implemented.These detailed communica-tions may or may not be partof the written marketingplan. If they are not part of

the plan, they should be specified elsewhere assoon as the plan has been communicated.

Evaluation and ControlAfter a marketing plan is implemented, it should beevaluated. Evaluation entails gauging the extent towhich marketing objectives have been achieved dur-ing the specified time period. Four common reasonsfor failing to achieve a marketing objective are unre-alistic marketing objectives, inappropriate marketingstrategies in the plan, poor implementation, andchanges in the environment after the objective wasspecified and the strategy was implemented.

Once a plan is chosen and implemented, its effec-tiveness must be monitored. Control provides themechanisms for evaluating marketing results in lightof the plan’s objectives and for correcting actions thatdo not help the organization reach those objectiveswithin budget guidelines. Firms need to establish for-mal and informal control programs to make the entireoperation more efficient.

Perhaps the broadest control device available tomarketing managers is the marketing audit—a thor-ough, systematic, periodic evaluation of the objectives,strategies, structure, and performance of the market-ing organization. A marketing audit helps manage-ment allocate marketing resources efficiently.

Characteristics of a Marketing Audit:

Comprehensive: covers all major marketing issues facing an

organization and not just trouble spots.

Systematic: takes place in an orderly sequence and covers the

organization’s marketing environment, internal marketing system,

and specific marketing activities. The diagnosis is followed by an

action plan with both short-run and long-run proposals for improv-

ing overall marketing effectiveness.

Independent: normally conducted by an inside or outside party

who is independent enough to have top management’s confidence

and to be objective.

Periodic: for maximum benefit, should be carried out on a regular

schedule instead of only in a crisis.

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Elements of themarketing mix,

quadrants in the BCG matrix. >

4 Average cash rebateoffered by a Detroit

automaker >$2,500

Debut of the BCGportfolio matrix > 1966

< Number of languages spoken by

Cirque du Soleil’s2,700-member cast

27< Macroenvironmentalforces affecting marketing6 < Approximate return on

investment for a permanentCirque du Soleil show

$500 million

4

LO 10

evaluationgauging the extent towhich the marketingobjectives have beenachieved during thespecified time period

controlprovides the mecha-nisms for evaluatingmarketing results inlight of the plan’s objec-tives and for correctingactions that do not helpthe organization reachthose objectives withinbudget guidelines

marketing audita thorough, systematic,periodic evaluation ofthe objectives, strate-gies, structure, and per-formance of themarketing organization


Ads aretypes of

promotion

Chain drug, food, andmass market

retailers = place

Marketdevelopment =sell anti-aging

cream to men (not

just women)

Men =targetmarket

Moisturizeris the

product

Competitiveadvantage?

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lhm-pg ch02 14-27 ver1

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