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Week 1, "What Is Strategic Marketing?" was derived from Principles of Marketing, which was adapted by the Saylor Foundation under a Creative Commons Attribution-NonCommercial -ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensee. © 2015, The Saylor Foundation. 1 Week 1 What Is Strategic Marketing? What makes a business idea work? Does it only take money? Why are some products a huge success and similar products a dismal failure? How was Apple, a computer company, able to create and launch the wildly successful iPod, yet Microsoft 's first foray into MP3 players was a total disaster? If the size of the company and the money behind a product 's launch were the difference, Microsoft would have won. But for Microsoft to have won, it would have needed something it 's not had in a while —good marketing so it can produce and sell products that consumers want. In the first week of the course, we will focus first on understanding what marketing means as a d iscipline, and how it integrates within an organization. Once we have an understanding of what marketing is and does, we will get more specific as to how marketing activities are planned and implemented. Also, if you are interested in a marketing career, w e outline some of the potential marketing positions most commonly considered the main marketing jobs. We will begin our discussion on marketing ethics and sustainability, two themes you will see frequently throughout the course. 1.1 Defining Marketing LEARNING OBJECTIVES 1. Define marketing. 2. Outline the four components of marketing: creating, communicating, delivering, and exchanging value . Marketing is defined by the American Marketing Association as " the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large " (AMA, 20 09). If you read the definition closely, you see that there are four activities, or components, of marketing: ● Creating . The process of collaborating with suppliers and customers to create offerings that have value. ● Communicating . Broadly, describing those offerings, as well as learning from customers.

● Delivering . Getting those offerings to the consumer in a way t hat optimizes value. 2 ● Exchanging . Trading value for those offerings. The traditional way of viewing the components of marketing is via the four Ps: 1. Product . Goods and services (creating offerings). 2. Promotion. Communication. 3. Place. Getting the product to a point at which the customer can purchase it (delivering). 4. Price. The monetary amount charged for the product (exchange). Introduced in the early 1950s, the four Ps were called the marketing mix, meaning that a marketing plan is a mix of these four components. If the four Ps are the same as creating, communicating, delivering, and exchanging, you might be wondering why there was a change. The answer is that they are not exactly the same. Product, price, place, and promotion are nouns. As such, these words fail to capture all the activities of marketing. For example, exchanging requires transaction mechanisms, which consist of more than simply a price or place. Exchanging requires, among other things, the transfer of ownership.

For example, when you b uy a car, you sign documents that transfer the car 's title from the seller to you. That 's part of the exchange process. Even the term product, which seems pretty obvious, is limited. Does the product include services that come with your new car purchase (such as free maintenance for a certain period of time on some models)? Or does the product mean only the car itself? In this course, we will more commonly refer to products as offerings, which captures the full gamut of tangible product, intangible servic e, augmented benefits like warranties, and all other components that go into a consumer 's decision to buy. Finally, none of the four Ps describes particularly well what marketing people do. However, one of the goals of this book is to focus on exactly what it is that marketing professionals do. Value Creating value for customers is at the center of everything marketing does (Figure 1.1). What does value mean? 3 Figure 1.1 Marketing is composed of four activit ies centered on customer value:

creating, communicating, delivering, and exchanging value. When we use the term value, we mean the benefits buyers receive that meet their needs. In other words, value is what the customer gets by purchasing and consuming a company 's offering. So, although the offering is created by the company, the value is determined by the customer. Furthermore, our goal as marketers is to create a profitable exchange for consumers. By profitable, we mean that the consumer 's perso nal value equation is positive. The personal value equation is value = benefits received – [price + hassle] 4 Hassle is the time and effort the consumer puts into the shopping process. The equation is a personal one because how each consumer judges the benefits of a product will vary, as will the time and effort he or she puts into shopping. Value, then, varies for each consumer. One way to think of value is to think of a meal in a restaurant. If you and three friends go to a restaurant and order the same dish, each of you will like it more or less depending on your own tastes. Yet the dish was exactly the same, priced the same, and served the same way. Because your tastes varied, the benefits you received varied. Therefore, the value varied for each of you. That 's why we call it a personal valu e equation. Creating Offerings That Have Value Marketing creates those goods and services that the company offers at a price to its customers or clients. That entire bundle consisting of the tangible good, the intangible service, and the price is the company's offering . When you compare one car to another, for example, you can evaluate each of these dimensions —the tangible, the intangible, and the price —separately. However, you can 't buy one manufacturer 's car, another manufacturer 's service, and a third manufacturer 's price when you actually make a choice. Together, the three make up a single firm 's offer. Marketing people do not create the offering alone. For example, when the iPhone was created, Apple 's engineers were also involved in its design. Apple 's financial personnel had to review the costs of producing the offering and provide input on how it should be priced. Apple 's operations group needed to evaluate the manufacturing requirements the iPhone would need. The company 's logistics managers had to evaluate the cost and timing of getting the offering to retailers and consumers. Apple 's dealers also likely provided input regarding the iPhone 's service policies and warranty structure. Marketing, however, has the biggest responsibility because it is mar keting's responsibility to ensure that the new phone delivers value. Creating and managing offerings will be the focus of Week 3 , " Market Segmenting, Targeting, and Positioning ," and Week 5 , " Creating Offerings ," in this book. Communicating Offerings Communicating is a broad term in marketing that means describing the offering and its value to your potential and current customers, as well as learning from customers what it is they want and like. Sometimes communicating means educating potential customers about the value of an offering, and sometimes it means simply making customers aware of where they can find a product. Communicating also means that customers get a chance to tell the company what they think. Today , companies are finding that to be succ essful, they need a more interactive dialog ue 5 with their customers. For example, Comcast customer service representatives will watch consumer websites such as Twitter. When they observe consumers "tweeting " (posting) problems with Comcast, the customer ser vice reps will post resolutions to their problems. Similarly, JCPenney has created consumer groups that talk among themselves on JCPenney -monitored web sites. The company might post questions, send samples, or engage in other activities designed to solicit feedback from customers. Figure 1.2 A Porsche Boxster can cost three times as much as a Pontiac Solstice, but why is it worth more?

What makes up the complete offering? Source: (Left) Thomas Doerfer. (2008). Wikimedia Commons. Used under the terms of the Creative Commons Attribution -ShareAlike 3.0 Unported license. (Right) IFCAR. (2007). Wikimedia Commons. In the public domain.

Companies use many forms of communication, including advertising on the w eb or television, on billboards or in magazines, through product placements in movies, and through salespeople.

Other forms of communication include attempting to have news media cover the company 's actions (part of public relations), participating in special events such as the annual International Consumer Electronics Show in which Apple and other companies introduce their newest gadgets, and sponsoring special events such as the Susan G. Komen Race for the Cure. Delivering Offerings Marketing can't just promise value —it also has to deliver value. Delivering an offering that has value is much more than simply getting the product into the hands of the user; it is also making sure that the user understands how to get the most out of the product and is taken care of if he or she requires service later. Value is delivered in part through a company 's supply chain. The supply chain includes a number of organizations and functions that mine, make, assemble, or deliver materials and products from a manufacturer to consumers. The actual group o f organizations can vary greatly from industry to industry, and include wholesalers, transportation companies, and retailers. Logistics, or the actual transportation and storage of materials and 6 products, is the primary component of supply chain management , but there are other aspects of supply chain management that we will discuss during Week 6.

Exchanging Offerings In addition to creating an offering, communicating its benefits to consumers, and delivering the offering, there is the actual transaction, o r exchange, that has to occur. In most instances, we consider the exchange to be cash for products and services. However, if you were to fly to Louisville, Kentucky, for the Kentucky Derby, you could " pay" for your airline tickets using frequent- flier miles. You could also use Hilton Honors points to "pay " for your hotel, and cash - back points on your Discover card to pay for meals. None of these transactions would actually require cash. Other exchanges, su ch as information about your preferences gathered through surveys, might not involve cash. When consumers acquire, consume (use), and dispose of products and services, exchange occurs, including during the consumption phase. For example, via Apple 's "One -to -One " program, you can pay a yearly fee in exchange for additional periodic product training sessions with an Apple professional. So, each time a training session occurs, another transaction takes place. A transaction also occurs when you are finished wi th a product. For example, you might sell your old iPhone to a friend, trade in a car, or ask the Salvation Army to pick up your old refrigerator. Disposing of products has become an important ecological issue. Batteries and other components of cell phone s, computers, and high -tech appliances can be harmful to the environment, and many consumers don 't know how to dispose of these products properly. Some companies, such as Office Depot, have created recycling centers to which customers can take their old el ectronics.

Apple has a web page where consumers can fill out a form, print it, and ship it along with their old cell phones and MP3 players to Apple. Apple then pulls out the materials that are recyclable and properly disposes of those that aren 't. By les sening the hassle associated with disposing of products, Office Depot and Apple add value to their product offerings. Other companies such as Cycling Solutions or PCDisposal.com have actual ly created offerings for proper and environmentally safe disposal of electronic products. This is a need for which many companies and individuals are willing to pay a fee. 1.1 KEY TAKEAWAY The focus of marketing has changed from emphasizing the product, price, place, and promotion mix to one that emphasizes creating, communicating, delivering, and exchanging value. Value is a function of the benefits an individual receives and consists of the price the consumer paid and the time and effort the person expended making the purchase. 7 1.2 Who Does Marketing?

LEARNING OBJECTIVE 1. Describe how all types of organizations —for profit, nonprofit, governments, and individuals —engage in marketing. The short answer to the question of who does marketing is " everybody!" But that answer is a bit glib and not too useful. Let 's take a moment and consider how different types of organizations engage in marketing. For -Profit Companies The obvious answer to the question, "Who does marketing? " is for -profit companies like McDonald' s, Procter & Gamble (the makers of Tide detergent and Crest toothpaste), and Walmart. For example, McDonald 's creates a new breakfast chicken sandwich for $1.99 (the offering), launches a television campaign (communicating), makes the sandwiches available on certain dates (delivering), and then sells them in its stores (exchanging). When Procter & Gamble (or P&G for short) creates a new Crest tartar control toothpaste, it launches a direct mail campaign in which it sends information and samples to dentists to offer to their patients. P&G then sells the toothp aste through retailers like Walmart, which has a panel of consumers sample the product and provide feedback through an online community. These are all examples of marketing activities. Nonprofit Organizations Nonprofit organizations also engage in marketi ng. When the American Heart Association (AHA) created a heart -healthy diet for people with high blood pressure, it bound the diet into a small book, along with access to a special web site that people can use to plan their meals and record their health -rela ted activities. The AHA then sent copies of the diet to doctors to give to patients.

When does an exchange take place, you might wonder? And what does the AHA get out of it ? From a monetary standpoint, the AHA does not directly benefit, unless it finds a direct correlation with an increase in AHA awareness and donations. Nonetheless, the organization is meeting its mission, or purpose, of getting people to live heart -healthy lives and considers the campaign a success when doctors give the books to their patients. The point is that the AHA is engaged in the 8 marketing activities of creating, communicating, delivering, and exchanging. This won 't involve the same kind of exchange as a for -profit company, but it is marketing. When a nonprofit organization enga ges in marketing activities, this is called nonprofit marketing . Some schools offer specific courses in nonprofit marketing, and many marketing majors begin their careers with nonprofit organizations. Government entities also engage in marketing activities. For example , when the US Army advertises to parents of prospective recruits, sends brochures to high schools, maintains a Facebook page, or brings a Bradley Fighting Vehicle to a state fair, the Army is engaging in marketing. The Army also listens to it s constituencies, as evidenced by research aimed at understanding how to serve military families more effectively. One result was advertising aimed at parents and improving their response to their children' s interest in joining the Army; another was a prog ram aimed at encouraging spouses of military personnel to access counseling services when their spouse s are serving overseas. Similarly, the Environmental Protection Agency (EPA) runs a number of advertising campaigns designed to promote environmentally f riendly activities. One such campaign promoted the responsible disposal of motor oil instead of simply pouring it on the ground or into a storm sewer.

The objective of such a campaign is to communicate the idea that the EPA is doing good things. There is a difference between these two types of activities. When the Army is promoting the benefits of enlisting, it hopes young men and women will join the Army. By contrast, when the EPA runs commercials about how to properly dispose of motor oil, it hopes to ch ange people's attitudes and behaviors so that social change occurs. Marketing conducted in an effort to achieve certain social objectives can be done by government agencies, nonprofit institutions, religious organizations, and others and is called social m arketing . Convincing people that global warming is a real threat via advertisements and commercials is social marketing, as is the example regarding the EPA 's campaign to promote responsible disposal of motor oil. Individuals If you create a résumé, are you using marketing to communicate the value you have to offer prospective employers? If you sell yourself in an interview, is that marketing? When you work for a wage, you are delivering value in exchange for pay. Is this marketing, too? Some people argu e that these are not marketing activities and that individuals do not necessarily engage in marketing. (Some people also argue that social marketing really isn' t marketing, either.) Can individuals market themselves and their ideas? 9 What about politicians in an election campaign? Aren 't they really trying to "sell " you on the idea that they are the best person for the position? Aren 't they using many of the marketing communications techniques of advertising, social media, public relations or personal selli ng? If, as a result of completing this course, you can learn how to more effectively create value, communicate and deliver that value to the receiver, and receive something in exchange, then we 've achieved our purpose. That may come in handy next time you apply for a job. 1.2 KEY TAKEAWAY Marketing can be thought of as a set of business practices that for -profit organizations, nonprofit organizations, government entities, and individuals can use. When a nonprofit organization engages in marketing activities, this is called nonprofit marketing. Marketing conducted in an effort to achieve certain social objectives is called social marketing. 1.3 Why Study Marketing?

LEARNING OBJECTIVE 1. Explain the role marketing plays throughout an individual firm and society as a whole .

Marketing Enables Profitable Transactions to Occur Products don't, contrary to popular belief, sell themselves. Generally, the " build it and they will come " philosophy doesn 't work. Good marketing educates customers so that they can find the products they want, make better choices about those products, and extract the most value from them. In this way, marketing helps facilitate exchanges between buyers and sellers for the mutual benefit of both parties. Likewise, good social marketing provides people with information and he lps them make healthier decisions for themselves and for others. Of course, all business students should understand all functional areas of the firm, including marketing. There is more to marketing, however, than simply understanding its role in the busin ess. Marketing has tremendous impact on society. 10 Marketing Delivers Value Not only does marketing deliver value to customers, but also that value translates into the value of the firm as it develops a reliable customer base and increases its sales and pro fitability. So when we say that marketing delivers value, marketing delivers value to both the customer and the compan y. Franklin D. Roosevelt, the US president with perhaps the greatest influence on our economic system, once said, " If I were starting life over again, I am inclined to think that I would go into the advertising business in preference to almost any other. The general raising of the standards of modern civilization among all groups of people during the past half century would have been impossi ble without the spreading of the knowledge of higher standards by means of advertising " (Famous Quotes & Authors , 2009). Roosevelt referred to advertising, but advertising alone is insufficient for delivering value. Marketing finishes the job by ensuring that what is delivered is valuable. Marketing Benefits Society Marketing benefits society in general by improving people 's lives in two ways. First, as we mentioned, it facilitates trade. As you have learned, or will learn, in economics, being able to tra de makes people 's lives better. Otherwise, people wouldn 't do it. (Imagine what an awful life you would lead if you had to live a Robinson Crusoe -like existence as did Tom Hanks 's character in the movie Cast Away .) In addition, because better marketing means more successful companies, jobs are created. This generates wealth for people, who are then able to make purchases, which, in turn, creates more jobs. The second way in which marketing improves the quality of life is based on the value delivery func tion of marketing, but in a broader sense. When you add together all the marketers who are trying to deliver offerings of greater value to consumers and are effectively communicating that value, consumers are able to make more informed decisions about a wi der array of choices. From an economic perspective, more choices and smarter consumers are indicative of a higher quality of life. Marketing Costs Money Marketing can sometimes be the largest expense associated with producing a product. In the soft drink business, marketing expenses account for about one- third of a product's price —about the same as the ingredients used to make the soft drink itself. At the bottling and retailing level, the expenses involved in marketing a drink to consumers make up the lar gest cost of the product. 11 Some people argue that society does not benefit from marketing when it represents such a huge chunk of a product 's final price. In some cases, that argument is justified. Yet, when marketing results in more informed consumers receiving a greater amount of value, then the cost is justified. Marketing Offers People Career Opportunities Marketing is the interface between producers and consumers. In other words, it is the one function in the organization in which the entire business comes together. Being responsible for both making money for your company and delivering satisfaction to your customers makes marketing a great career. In addition, because marketing can be such an expensive part of a business and is so critical to its success, companies actively seek good marketing people . There's a great variety of jobs available in the marketing profession. These positions represent only a few of the opportunities available in marketing. ● Marketing research. Personnel in marketing research are responsible for studying markets and customers in order to understand what strategies or tactics might work best for firms. ● Merchandising. In retailing, merchandisers are responsible for developing strategies regarding what products wholesaler s should carry to sell to retailers such as Target and Walmart. ● Sales. Salespeople meet with customers, determine their needs, propose offerings, and make sure that the customer is satisfied. Sales departments can also include sales support teams who work on creating the offering. ● Marketing communications. Whether it's for an advertising agency, a web marketing agency, a PR agency, a brand management agency, or inside a company, some marketing personnel work on marketing communications. Television commercia ls and print ads, the communications with which we are most familiar, are only part of the advertising mix.

Many people who work in marketing communications spend all their time creating advertising fo r electronic media, such as web sites and their pop-up a ds, podcasts, and the like. Others plan trade shows, buzz campaigns, contests, generate positive press for the company, or engage in crisis public relations management. ● Product development. People in product development are responsible for identifying and creating features that meet the needs of a firm 's customers. They often work with engineers or other technical personnel to ensure that value is created. ● Direct marketing. Professionals in direct marketing communicate directly with customers about a compan y's product offerings via channels such as e -mail, chat lines, blogs, social media, telephone, or direct mail. 12 ● Event marketing. Some marketing personnel plan special events, orchestrating face- to- face conversations with potential and current customers in a special setting. A career in marketing can begin in a number of different ways. Entry -level positions for college graduates are available in many of the positions mentioned above. A growing number of CEOs are people with marketing backgrounds. Some legendary CEOs like Ross Perot and Mary Kay Ash got their start in marketing. CEOs such as Mark Hurd, who runs Oracle Corporation, and Jeffrey Immelt at GE are showing how marketing careers can lead to the highest pinnacles of the organization. 1.3 KEY TAKEAWAY By facilitating transactions, marketing delivers value to both consumers and firms. At the broader level, this process creates jobs and improves the quality of life in a society. Marketing can be costly, so firms need to hire good people to manage their marketing activities . Being responsible for both making money for your company and delivering satisfaction to your customers makes marketing a great career.

1.4 How Is Marketing Done?

LEARNING OBJECTIVES 1. Understand that marketing is both a firm -wide activity and a functional-level department.

2. Identify the strategic planning elements that are included in a corporate strategic plan and how functional plans such as marketing flow fro m the corporate strategic plan. 3. Appreciate the changes in the marketing environment. Marketing's Role in the Organization We previously discussed marketing as a set of activities that can affect an entire organization.

Marketing is also a functional area in companies, just like operations and accounting. Within a company, marketing might b e the title of a department, but some marketing functions, such as sales, might be handled by another department. Marketing activities do not occur separately from the rest of the company, however. As previously explained, pricing an offering, for example , will involve a company's finance and accounting departments in addition to the marketing department. Similarly, a marketing strategy is not created solely by a firm' s marketing personnel. Instead, it flows from the company 's overall strategy. 13 Everything Starts with Customers Most organizations start with an idea of how to serve customers better. Apple 's engineers began working on the iPod by looking at the available technology and thinking about how customers would like to have their music more available, as well as more affordable, through downloading MP3 files or live streaming services such as iTunes Radio. Many companies think about potential markets and customers when they start. John Deere, for example, founded his company on the principle of serving customers. When admonished for making constant improvements to his products even though farmers wou ld take whatever they could get, Deere reportedly replied, " They haven 't got to take what we make and somebody else will beat us, and we will lose our trade" (John Deere [a.], 2009 ). He recognized that if his company failed to meet customers ' needs, someone else would. The mission of the company then became the following (John Deere [b.], 2009 ):

We aspire to distinctively serve customers— those linked to the land—through a great business, a business as great as our products. To achieve this as piration, our strategy is:

• Exceptional operating performance • Disciplined SVA growth • Aligned high- performance teamwork Here are a few mission statements from other companies. Note that they all refer to their customers, either directly or by making references to relationships with them. Note also how these are written to inspire employees and others who interact with the company and may read the mission statement. IBM IBM will be driven by these values: ● Dedication to every client 's success. ● Innovati on that matters, for our company and for the world. ● Trust and personal responsibility in all relationships (IBM, 2009) . Coca-Cola Everything we do is inspired by our enduring mission: ● To refresh the world…in body, mind, and spirit. ● To inspire moments of optimism…through our brands and our actions. ● To create value and make a difference…everywhere we engage (Coca-Cola Company, 2009 ). 14 McDonald' s ● To be our customers' favorite place and way to eat (McDonald's , 2009). Merck ● To provide innovative and distinctive products and services that save and improve lives and satisfy customer needs, to be recognized as a great place to work, and to provide investors with a superior rate of return (Merck & Co. , 2009). Not all companies create mission statements that reflect a marketing orientation. Apple, for example, does not publish a mission statement, yet most consumers recognize Apple as a need - fulfilling company. Apple 's mission statement used to be: "Apple ignited the personal computer revolution in the 1 970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award -winning computers, OS X operating system , and iLife and professional applications. Apple is also heading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone " (Apple, Inc.). This antiquated mission statement reflects a productio n orientation, or an operating philosophy based on the premise that Apple' s success is due to great products and that simply supplying them will lead to demand for them. The challenge, of course, is how to create a " great" product without thinking too much about the customer 's wants and needs. Apple, and for that matter, many other companies, have fallen prey to thinking that they knew what a great product was without asking their customers. In fact, Apple 's first attempt at a graphic user interface (GUI) was the LISA, a dismal failure. Clearly, the old mission statement needed to go . The Marketing Plan The marketing plan is the strategy for implementing the components of marketing: creating, communicating, delivering, and exchanging value. Once a company has decided what business it is in and expressed that in a mission statement, the firm then develops a corporate strategy. This is the first level of strategic planning. Marketing strategists subsequently use the corporate strategy and mission and combine that with an understanding of the market to develop the company' s marketing plan. This is the third level of strategic planning. (We 'll cover the second level a little bit later .) 15 Figure 1. 3 Steps in Creating a Marketing Plan Once this information is gathered and digested, the planners can then work to create the right offering. Products and services are developed, bundled at a price, and then tested in the market.

Decisions have to be made as to when to alter the offerings, add new ones, or drop ol d ones. Have you ever wondered how an organization decides which products and services to develop, price, promote, and sell? Organizations typically develop plans and strategies that outline how they want to go about this process. Such a plan must take in to account a company's current internal conditions, such as its resources, capabilities, and technology. The plan must also account for conditions in the external environment, such as the economy, competitors, and government regulations that could affect what the firm wants to do. Just as your personal plans —such as what you plan to major in or where you want to find a job — are likely to c hange, organizations also have contingency plans. Individuals and organizations both must develop long- term (longer than a year) strategic plans, match their strengths and resources to available opportunities, and adjust their plans to changing circumstanc es. The Changing Marketing Environment At the beginning of this week, we mentioned that the view of marketing has changed from a static set of four Ps to a dynamic set of processes that involve marketing professionals as well as many other employees in an organization. The way business is being conducted today is changing, too, 16 and marketi ng is changing along with it. We will incorporate many of these changes throughout the course in the coming weeks. Some of these changes include ethics and social respo nsibility. Businesses exist only because society allows them to. When businesses begin to fail society, society will punish them or revoke their license. The crackdown on companies in the subprime mortgage- lending industry is one example. The collapse of E nron and the jailing of its executives is another. Scandals such as these illustrate how society responds to unethical business practices. However, whereas ethics require that you only do no harm, the concept of social responsibility requires that you must actively seek to improve the lot of others. Today, people are demanding businesses take a proactive stance in terms of social responsibility, and they are being held to ever -higher standards of conduct. Sustainability is an example of social responsibili ty and involves engaging in practices that do not diminish the earth 's resources. SC Johnson, the company that makes Pledge and Windex, was among the first companies to engage in manufacturing practices that reduced or eliminated pollution. Right now, comp anies do not have to engage in these practices, but because firms really represent the people behind them (their owners and employees), forward -thinking executives are seeking ways to reduce the impact their companies are having on the planet. You might h ave noticed that we use the word offering a lot instead of the term product. That 's because of service -dominant logic , the approach to business that recognizes that consumers want value no matter how it is delivered. That emphasis on value is what drives t he functional approach to value —that is, creating, communicating, delivering, and exchanging value. Finally, technology has increased the amount of information available to decision makers. As such, the amount and quality of data for evaluating a firm's performance is increasing. Earlier in our discussion of the marketing plan, we explained that customers communicate via transactions.

Although this sounds both simple and obvious, better information technology has given us a much more complete picture of each exchange. Using this data, we can build more effective marketing metrics that can then be used to create better offerings and better communication plans. 1.4 KEY TAKEAWAY A company's marketing plan flows from its strategic plan. Both begin with a focus on customers. The essential components of the plan are understanding customers, creating an offering that delivers value, communicating the value to the customer, exchanging with the customer, and evaluating the firm's performance. A marketing plan is influenced by environmental trends such as social responsibility, sustainability, service-dominant logic, the increased availability of data, and effective metrics. 17 1.5 The Value Proposition LEARNING OBJECTIVES 1. Explain the concept of a company's or product's value proposition. 2. Understand why a company may develop different value propositions for different target markets. What Is a Value Proposition?

Individual buyers and organizational buyers both evaluate products and services to see if they provide desired benefits. For example, when you 're exploring your vacation options, you want to know the benefits of each destination and the value you will get by going to each place. Before you (or a firm) can develop a strategy or create a strategic plan, you first have to develop a value proposition. A value proposition is a 30-second "elevator speech " stating the specific benefits a product or service offering provides a buyer. It s hows why the product or service is superior to competing offers. The following is an example of a value proposition developed by a sales consulting firm: " Our clients grow their business, large or small, typically by a minimum of 30 –50% over the previous year. They accomplish this without working 80 -hour weeks and sacrificing their personal lives " (Lake, 2009). Note that although a value proposition will hopefully lead to profits for a firm, when the firm presents its value proposition to its customers, i t doesn't mention its own profits. That's because the goal is to focus on the external market, or what customers want. 18 Figure 1. 4 Like any other company, Beaches, an all -inclusive chain of resorts for families, must explain what its value proposition is to customers. In other words, why does a Beaches resort provide more value to vacationing families than do other resorts? Source: Photo by Matt H. Wade (UpstateNYer) (2006) . Wikimedia Commons. Used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license.

Firms typically identify different target markets , or groups of customers, they want to reach when they are developing their value propositions. Target markets will be discussed in more detail in Week 4 , " Marke t Segmenting, Targeting, and Positioning ." For now, be aware that companies sometimes develop different value propositions for different target markets. The value proposition tells each group of customers why they should buy a product or service, vacation to a particular destination, or donate to an organization. Once the benefits of a product or service are clear, the firm must develop strategies that support the value proposition. The value proposition serves as a guide for this process. In the case of our sales consulting firm, the strategies it develops must help clients improve their sales by 30 percent -50 percent. Likewise, if a company 's value proposition states that the firm is the largest retailer in the region with the most stores and best produc t selection, opening stores or increasing the firm 's inventory might be a key part of the company 's strategy. 1.5 KEY TAKEAWAY A value proposition is a 30 -second "elevator speech" stating the specific value a product or service provides to a target market. Firms may develop different value propositions for different groups of customers. The value proposition shows why the product or service is superior to competing offers and why the customer should buy it. 19 1.6 Where Strategic Planning Occurs Within Firms LEARNING OBJECTIVES 1. Identify the different levels at which strategic planning may occur within firms. 2. Understand how strategic planning that occurs at multiple levels in an organization helps a company achieve its overall corporate objectives. Strategic planning is a process that helps an organization allocate its resources to capitalize on opportunities in the marketplace. Typically, it is a long -term process. So how and where does strategic planning occur within organizations? In large organizations, s trategic planning is likely to occur at a number of different levels. For example, top executives will develop strategic plans for the corporation as a whole. These are corporate level plans . In addition, many large firms have different divisions, or businesses, c alled strategic business units. A strategic business unit (SBU) is a business or product line within an organization that has its own competitors, customers, and profit center for accounting purposes. A firm 's SBUs may also have their own mission statement s (purpose) and will generally develop strategic plans for themselves. These are called business level plans . The different departments, or functions (accounting, finance, marketing, and so forth) within a company or SBU might also develop strategic plans. For example, a company may develop a marketing plan or a financial plan . They are functional level plan s. Figure 1. 5 Many consumers recognize the Goodyear blimp. Goodyear 's strategic business units are North American Tire; Latin American Tire; Asia Pacific Tire; and Europe, Middle East, and Africa Tire. Goodyear' s SBUs are set up to satisfy customers' needs in different worldwide markets (Goodyear Tire and Rubber Company) . Source: Photo by Regular Daddy. (2009) . Wikimedia Commons. Used under the terms of the Creative Commons Attribution -ShareAlike 3.0 Unported license. 20 Figure 1. 6, " Strategic Planning Levels in an Organization, " shows an example of different strategic planning levels that can exist within an organization's structure. The number of levels can vary, depending on the size and structure of an organization. Not every organization will have every le vel or have every type of plan. Figure 1.6 Strategic Planning Levels in an Organization The strategies and actions implemented at the functional (department) level must be consistent with and help an organization achieve its objectives at both the business and corporate levels and vice versa. The SBUs at the business level must also be consistent with and help an organization achi eve its corporate- level objectives. For example, if a company wants to increase its profits at the corporate level and owns multiple business units, each unit might develop strategic plans to increase its own profits and thereby the firm 's profits as a who le. At the functional level, a firm 's marketing department might develop strategic plans to increase sales and the market share of the firm 's most profitable products, which will increase profits at the business level and help the corporation 's profitabili ty. Both business level and functional plans should help the firm increase its profits, so that the company' s corporate-level strategic objectives can be met. For example, take PepsiCo, which has committed itself to achieving business and financial success while leaving a positive imprint on society. PepsiCo identifies its three divisions (business units) as (1) PepsiCo Americas Beverages, which is responsible for Pepsi soft drinks, Aquafina waters, 21 Tropicana juices, and Gatorade products; (2) PepsiCo Amer icas Foods, which is responsible for Frito- Lay and Quaker Oats products; and (3) PepsiCo International, which consists of PepsiCo 's businesses in Asia, Africa, Europe, and Australia (PepsiCo [a.] , 2009) . To support PepsiCo 's overall corporate strategy, all three business units must develop strategic plans to profitably produce offerings while demonstrating that they are committed to society and the environment. Figure 1. 7 The new Aquafina bottle uses less p lastic and has a smaller label, reducing waste a nd helping the environment. Source: Wikipedia.

At the functional (marketing) level, to increase PepsiCo 's profits, employees responsible for different products or product categories such as beverages or foods might focus on developing healthier products and making their packaging more environmentally friendly so the company captures more market share. For example, the new Aquafina bottle uses less plastic and has a smaller label, which helps the environment by reducing the amount of waste. Organizations can use multiple methods and strategies at different levels in the corporation to accomplish their various goals just as you may use different strategies to accomplish your goals.

However, the basic components of the strategic planning process are the same at each of the different levels. Next, we' ll take a closer look at the components of the strategic planning process. 1.6 KEY TAKEAWAY Strategic planning can occur at different levels (corporate, business, and functional) in an organization.

The number of levels may vary. However, if a company has multiple planning levels, the plans must be consistent, and all must help achieve the overall goals of the corporation. The best strategic plans are customer- focused. 22 1.7 Components of the Strategic Planning Proc ess LEARNING OBJECTIVES 1. Explain how a mission statement helps a company with its strategic planning. 2. Describe how a firm analyzes its internal environment. 3. Describe the external environment a firm may face and how it is analyzed. The strategic planning process includes conducting a situation analysis and developing the organization 's mission statement, objectives, value proposition, and strategies. Figure 1. 8, " The Strategic Planning Process ," shows the components of strategic planning. Let' s now look at each of these components. Figure 1. 8 The Strategic Planning Process 23 Conducting a Situation Analysis As part of the strategic planning process, a situation analysis must be conducted before a company can decide on specific actions. A situation analysis involves analyzing both the external (outside the organization) and the internal (company) environments, as Figure 1. 8, " The Strategic Planning Process ," shows. The firm' s internal environment— such as its financial resources, technological resourc es, and the capabilities of its personnel and their performance— has to be examined. It is also critical to examine the external environment the firm faces, such as the economy and its competitors. The external environment significantly affects the decisions a firm makes, and thus must be continuously evaluated. For example, during the economic downturn in 2008 –2009, businesses found that many competitors cut the prices of their products drastically.

Other companies reduced package sizes or the amount of pro duct in packages. Firms also offered customers incentives (free shipping, free gift cards with purchase, rebates, etc.) to purchase their goods and services online, which allowed businesses to cut back on the personnel needed to staff their brick -and -morta r stores. While a business cannot control what competitors do, it must decide what actions to take to be proactive to changes in the internal and external environments and remain competitive. Conducting a SWOT Analysis Based on the situation analysis, organizations analyze their strengths, weaknesses, opportunities, and threats, conducting what is called a SWOT analysis . Strengths and weaknesses are internal factors and are somewhat controllable. For example, an organization 's strengths might include its brand name, efficient distribution network, reputation for great service, and strong financial position. A firm 's weaknesses might include lack of awareness of its products in the marketplace, a lack of human resources talent, and a poor location. Oppo rtunities and threats are factors that are external to the firm and largely uncontrollable. Opportunities might entail the international demand for the type of products the firm makes, few competitors, and favorable social trends such as people living longer. Threats might include a bad economy, high interest rates that increase a firm 's borrowing costs, and an aging population that makes it hard for the business to find workers. 24 Figure 1.9 Elements of a SWOT Analysis The easiest way to determine if a factor is external or internal is to take away the company, organization, or individual and see if the factor still exists. Internal factors such as strengths and weaknesses are specific to a company or individual, whereas external factors such as opport unities and threats affect multiple individuals and organizations in the marketplace. For example, if you are doing a situation analysis on PepsiCo and are looking at the weak economy, take PepsiCo out of the picture and see what factors remain. If the fac tor—the weak economy —is still there, it is an external factor. Even if PepsiCo hadn' t been around in 2008–2009, the weak economy reduced consumer spending and affected a lot of companies. Assessing the Internal Environment As we have indicated, when an or ganization evaluates which factors are its strengths and weaknesses, it is assessing its internal environment. Once companies determine their strengths, they can use those strengths to capitalize on opportunities and develop their competitive advantage. Fo r example, strengths for PepsiCo are what are called "mega " brands, or brands that individually generate over $1 billion in sales (PepsiCo [b.], 2009 ). These brands are also designed to contribute to PepsiCo' s environmental and social responsibilities. Pe psiCo 's brand awareness, profitability, and strong presence in global markets are also strengths. Especially in foreign markets, the loyalty of a firm' s employees can be a major strength, which can provide it with a competitive advantage. Loyal and knowled geable employees are easier to train and tend to develop better relationships with customers. This helps organizations pursue more opportunities. 25 Although the brand awareness for PepsiCo 's products is strong, smaller companies often struggle with weaknesses such as low brand awareness, low financial reserves, and poor locations. When organizations assess their internal environments, they must look at factors such as performance and costs as well as brand awareness and location. Managers need to examine both the past and current strategies of their firms and determine what strategies succeeded and which ones failed.

This helps a company plan its future actions and improves the odds those actions will be successful. For example, a company might look at packaging that worked very well for a product and use the same type of packaging for new products. Firms may also look at customers' reactions to changes in products, including packaging, to see what works and doesn 't work. When PepsiCo changed the packaging of major brands in 2008, customers had mixed responses. Tropicana switched from the familiar orange with the straw in it to a new package , and customers did not like it. As a result, Tropican a changed back to its familiar orange with a straw after spending $35 million for the new package design. Assessing the External Environment Analyzing the external environment involves tracking conditions in the marketplace that, although largely uncontro llable, affect the way an organization does business. As we have mentioned, these factors include competition and the economy. Other external factors include cultural and social trends, political and legal regulations, technological changes, and the price and availability of natural resources. When firms globalize, analyzing the environment becomes more complex because they must examine the external environment in each country in which they do business. Regulations, competitors, technological development, a nd the economy may be different in each country and will affect how fi rms do business.

Although the external environment affects all organizations, companies must focus on factors that are relevant for their operations. For example, government regulations on food packaging will affect PepsiCo but not Goodyear. Similarly, students getting a business degree don' t need to focus on job opportunities for registered nurses. The Competitive Environment All organizations must consider their competition, whether it is direct or indirect competition vying for the consumer's dollar. Both nonprofit and for -profit organizations compete for customers ' resources. Coke and Pepsi are direct competitors in the soft drink industry, Hilton and Sheraton are competitors in the hospitality industry, and organizations such as United Way and the American Cancer Society compete for resources in the nonprofit sector. However, hotels must 26 also consider other options that people have when selecting a place to stay, such as hostels, do rms, bed and breakfasts, or rental homes. A group of competitors that provide similar products or services form s an industry. Michael Porter, a professor at Harvard University and a leading authority on competitive strategy, developed an approach for anal yzing industries. Called the five forces model (Porter, 1980, p. 3 – 33) and shown in Figure 1.1 0, " Five Forces Model ," the framework helps organizations understand their current competitors as well as organizations that could become competitors in the future. As such, firms can find the best way to identify their market position. This tells the company if it is the market leader, market challenger, market follower, or market nicher. Figure 1.1 0 Five Forces Model Source: Porter. (1980). p. 4. Competitive Analysis When a firm conducts a competitive analysis, it tends to focus on direct competitors and tr ies to determine a nother firm 's strengths and weaknesses, its image, and its resources. Doing so helps the firm figure out how much money a competitor may be able to spend on things such as research, new product development, promotion, and new locations. Comp etitive analysis involves looking at any information (annual reports, financial statements, news stories, observation details obtained on visits, etc.) available on competitors. Mystery shoppers , or people who act like customers, might visit competitors to learn about their customer service and their products.

Competitors battle for the customer 's dollar and they must know what other firms are doing.

Individuals and teams also compete for jobs, titles, and prizes and must figure out the 27 competitors ' weaknes ses and plans in order to take advantage of their strengths and have a better chance of winning. According to Porter, in addition to their direct competitors (competitive rivals), organizations must consider the strength and impact the following could hav e (Porter, p. 3 –33) : ● Substitute products ● Potential entrants (new competitors) in the marketplace ● The bargaining power of suppliers ● The bargaining power of buyers When any of these factors change, companies may have to respond by changing their strategies.

For example, because buyers are consuming fewer soft drinks, companies such as Coke and Pepsi have had to develop new, substitute offerings such as vitamin water and sports drinks. However, other companies such as Dannon or Nestlé may also be potential entrants in the flavored water market. When you select a hamburger fast -food chain, you also had the option of substitutes such as getting food at the grocery or going to a pizza place. When computers entered the market, they wer e a substitute for typewriters. Figure 1.11 When personal computers were invented, they were a serious threat to typewriter makers like Smith Corona. Source: (Left) Photo by mpclemens, Flickr. Used under the terms of the Creative Commons Attribution 2.0 Generic license . (Right) Flickr.

Porter's Five Forces Model is only one way to look at competition. Some companies commit themselves so totally to serving customer needs that they spend little if any time worrying about the competition. These strategies are called value proposition as suggested by Treacy and Wiers ema (1997). They include operational excellence (deliver quality, price, and ease of purchase 28 and use), product leadership (creating the best products or services), and customer intimacy (delivering what specific customers want). An addition to the literature on competitive strategies is Blue Ocean Strategy , which suggests a firm should strive to make the competition irrelevant b y finding an uncontested market space, or a blue ocean ( Kim & Mauborgne, 2005) . Firms do this by finding customers with needs that thus far have been unmet by any organization. A good example is again Apple, with the development of the first tablet product. The iPad filled a need for mobile connectivity and productivity consumers needed and wanted. This is the uncontested market space Apple managed to fill and many companies have since copied. Suppliers, the companies that supply ingredients as wel l as packaging materials to other companies, must also be considered. If a company cannot get the supplies it needs, it's in trouble.

Also, sometimes suppliers see how lucrative their customers' markets are and decide to enter them. Buyers, who are the foc us of marketing and strategic plans, must also be considered because they have bargaining power and must be satisfied. If a buyer is large enough, and doesn' t purchase a product or service, it can affect a selling company' s performance. Walmart, for instance, is a buyer with a great deal of bargaining power. Firms that do business with Walmart must be prepared to make concessions if they want their products on the company 's store shelves. Finally , the world is becoming " smaller" and a more of a global mark etplace. Companies everywhere are finding that no matter what they make, numerous firms around the world are producing the same "widget " or a similar offering (substitute) and are eager to compete with them. Employees are in the same position. The Internet has made it easier than ever for customers to find products and services and for workers to find the best jobs available, even if they are abroad. Companies are also acquiring foreign firms. These factors all have an effect on the strategic decisions comp anies make. The Political and Legal Environment All organizations must comply with government regulations and understand the political and legal environments in which they do business. Different government agencies enforce the numerous regulations that have been established to protect both consumers and businesses. For example, the Sherman Act (1890) prohibits US firms from restraining trade by creating monopolies and cartels. The regulations related to the act are enforced by the Federal Trade Commission (FTC), which also regulates deceptive advertising . The US Food and Drug Administration (FDA) regulates the labeling of consumable products, such as food and medicine.

One organization that has been extremely busy is the Consumer Product Safety Commission, the 29 group that sets safety standards for consumer products. Unsafe baby formula and toys with lead paint caused a big scare among consumers in 2008 and 2009. Figure 1.1 2 The US Food and Drug Administration prohibits companies from using unacceptable levels of lead in toys and other household objects, such as utensils and furniture. Mattel voluntarily recalled Sarge cars made in mid -2000. Source: US Consumer Product Safety Commission. In the public domain.

As we have explained, when organizations conduct business in multiple markets, they must understand that regulations vary across countries and across states. Many states and countries have different laws that affect strategy. For example, suppose you are opening a new factory because you cannot keep up with the demand for your products. If you are considering opening the factory in France (perhaps because the demand in Europe for your product is strong), you need to know that it is illegal for employees in that country to work more than 35 hours per week. The Economic Environment The economy has a major impact on spending by both consumers and businesses, which, in turn, affects the goals and strategies of organizations. Economic factors include variables such as inflation, unemployment, interest rates, and whether the economy is in a growth p eriod or a recession. Inflation occurs when the cost of living continues to rise, eroding the purchasing power of money. When this happens, you and other consumers and businesses need more money to purchase goods and services. Interest rates often rise when inflation rises. Recessions can also occur when inflation rises because higher prices sometimes cause low or negative growth. During a recessionary period, it is possible for both high -end and low -end products to sell well.

Consumers who can afford luxu ry goods may continue to buy them, while consumers with lower 30 incomes tend to become more value -conscious. Other goods and services, such as products sold in traditional department stores, may suffer. In the face of a severe economic downturn, even the sal es of luxury goods can suffer. The economic downturn that began in 2008 affected consumers and businesses at all levels worldwide. Consumers reduced their spending, holiday sales dropped, financial institutions went bankrupt, the mortgage industry collapse d, and the "Big Three" US auto manufacturers (Ford, Chrysler, and General Motors) asked for emergency loans. The Social and Cultural Environment The social and cultural environment —including social trends, such as people 's attitudes toward fitness and nutrition; demographic characteristics, such as people 's age, income, marital status, education, and occupation; and culture, which relates to people 's beliefs and values— is changing in the global marketplace. Fitness, nutrition, and health trends are affecti ng the product offerings of many firms. For example, PepsiCo produces vitamin water and sports drinks. More women are working, which has led to a rise in the demand for services such as house cleaning and day care.

US baby boomers are reaching retirement a ge, sending their children to college, and trying to take care of their elderly parents all at the same time. Firms are responding to the time constraints their buyers face by creating products that are more convenient, such as frozen meals and nutritious snacks. The composition of the population is also constantly changing. Hispanics are the fastest -growing minority in the United States. Consumers in this group and other diverse groups prefer different types of products and brands. In many cities, stores cater specifically to Hispanic customers.

Technology The technology available in the world is changing the way people communicate and the way firms do business. Everyone is affected by technological changes. Self -scanners and video displays at stores, ATM s, the Internet, and mobile phones are a few examples of how technology is affecting businesses and consumers. Many consumers get information, read the news, use text messaging, and shop online. As a result, marketers have begun allocating more of their pr omotion budgets to online ads and mobile marketing and not just to traditional print media such as newspapers and magazines. Natural Resources Natural resources are scarce commodities, and consumers are becoming increasingly aware of this fact. Today, man y firms are doing more to engage in " sustainable" practices that help protect the environment and conserve natural resources. Green marketing involves marketing environmentally safe products and services in a way that is good for the environment. Water 31 sho rtages often occur in the summer months, so many restaurants now only serve patrons water upon request. Hotels voluntarily conserve water by not washing guests ' sheets and towels every day unless they request it. Reusing packages (refillable containers) and reducing the amount of packaging, paper, energy, and water in the production of goods and services are becoming key considerations for many organizations, whether they sell their products to other businesses or to final users (consumers). Green marketing not only helps the environment but also saves the company, and ultimately the consumer, money. Sustainability, ethics (doing the right things), and social responsibility (helping society, communities, and other people) influence an organization' s planning process and the strategies it implements . Once the situation analysis is complete, it becomes a critical input to an organization 's or an individual 's strategic plan. Let' s look at the other components of the strategic planning process. The Mission Statement The firm's mission statement states the purpose of the organization and why it exists. Both profit and nonprofit organizations have mission statements, which they often publicize.

Earlier , we discussed the mission statements of John Deere, IBM, C oca-Cola, McDonald' s and Merck. Sometimes SBUs develop separate mission statements. For example, PepsiCo Americas Beverages, PepsiCo Americas Foods, and PepsiCo International might each develop a different mission statement. SBU mission statements must support the corporate mission statement and be specifically customer -focused to those customers served by the SBU. 1.7 KEY TAKEAWAY A firm must analyze factors in the external and internal environments it faces throughout the strategic planning process. These factors are inputs to the planning process. As they change, the company must be prepared to adjust its plans. Different factors are relevant for different companies. Once a company has analyzed its internal and external environments, managers can begin to decide which strategies are best, given the firm's mission statement. 1.8 Developing Organizational Objectives and Formulating Strategies LEARNING OBJECTIVES 1. Explain how companies develop the objectives driving their strategies. 2. Describe the different types of product strategies and market entry strategies that companies pursue. 32 Developing Objectives Objectives are what organizations want to accomplish —the end results they want to achieve— in a given time frame. In addition to being accomplished within a certain time frame, objectives should be realistic (achievable) and be measurable, if possible. "To increase s ales by 2 percent by the end of the year " is an example of an objective an organization might develop. You have probably set objectives for yourself that you want to achieve in a given time frame. For example, your objectives might be to maintain a certain grade-point average or find a new career within two years. Objectives help guide and motivate a company's employees and give its managers reference points for evaluating the firm 's marketing actions. Although many organizations publish their mission stat ements, most for -profit companies do not publish their objectives. Accomplishments at each level of the organization have helped PepsiCo meet its corporate objectives over the course of the past few years. PepsiCo 's business units (divisions) have increase d the number of their facilities to grow their brands and enter new markets. PepsiCo 's beverage and snack units have gained market share by developing healthier products and products that are more convenient to use. A firm 's marketing objectives should be consistent with the company' s objectives at other levels, such as the corporate level and business level. An example of a marketing objective for PepsiCo might be " to increase by 4 percent the market share of Gatorade by the end of the year. " While a comp any generally has one mission statement, there are usually numerous corporate objectives. Formulating Strategies Strategies are the means to the ends, or what a firm is going to do to meet its objectives.

Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily. PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including "mega brands, " which are 18 individual brands that generate over $1 billion in sales each. Firms often use multiple strategies to accomplish their objectives and capitalize on marketing opportunities. For example, in addition to pursuing a low -cost strategy (selling products inexpe nsively), Walmart has simultaneously pursued a strategy of opening new stores rapidly around the world. Many companies develop marketing strategies as part of their general, overall business plans. Other companies pr epare separate marketing plans. 33 A marketing plan is a strategic plan at the functional level that provides a firm 's marketing group with direction. It is a road map that improves the firm 's understanding of its competitive situation. The marketing plan also helps the firm allocate resources and divvy up the tasks that employees need to do for the company to meet its objectives. The different components of marketing plans will be discussed throughout the book and then discussed together at the end of the book. Next, let 's take a look at the diffe rent types of basic market strategies firms pursue before they develop their marketing plans. Figure 1.1 3 Product and Market Entry Strategies The different types of product and market entry strategies a firm can pursue in order to meet their objectives. Market penetration strategies focus on increasing a firm 's sales of its existing products to its existing customers. Companies often offer consumers special promotions or low prices to increase their us e and encourage them to buy products. When Frito -Lay distributes money- saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is u sing a penetration strategy. The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using its soup as an ingredient for cooking quick meals. Product development strategies involve creating new products for existing customers. A new product can be a totally new innovation, an improved product, or a product with enhanced value, such as one with a new feature. Cell phones that allow consumers to charge purchases with the phone or take pictures are examples of a product with enhanced value. A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, 34 however, that what works for one company might not work for another. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkin' Donuts announced it was adding items to its lunch menu. Market development strategies focus on entering new markets with existing products. For example, during the economic downturn of the first decade of the 2000s , manufacturers of high - end coffee makers began targeting customers who go to coffee shops. The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home fo r a fraction of what they spend at Starbucks. New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Many companies, including PepsiCo and Hyundai, have entered —and been successful in —rapidly emerging markets su ch as Russia, China, and India. As Figure 1.1 3, " Product and Market Entry Strategies ," shows, there are different ways, or strategies, by which firms can enter international markets. The strategies vary in the amount of risk, control, and investment that firms face. Firms can simply export, or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Many small firms export their products to fore ign markets. Firms can also license, or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or firms in foreign markets. Licensing is a popular strategy, but firms must figure out how to protect their int erests if the licensee decides to open its own business and void the license agreement. The French luggage and handbag maker Louis Vuitton faced this problem when it entered China. Competitors started illegally putting the Louis Vuitton logo on different p roducts, which cut into Louis Vuitton 's profits. 35 Figure 1.1 4 The front of a KFC franchise in Asia may be much larger than KFC stores in the United States. Selling franchises is a popular way for firms to enter foreign markets. Source: Photo by Christopher Augapfel. (2008). Wikimedia Commons. Used under the terms of the Creative Commons Attribution 2.0 Generic license. Franchising is a longer -term form of licensing that is extremely popular with service firms, such as restaurants like McDonald 's and Subway, hotels such as Holiday Inn Express, and cleaning companies such as Stanley Steamer. Franchisees pay a fee for the franchise and must adhere to certain standards; however, they benefit from the advertising and brand recognition the franchising company provides. Contract manufacturing allows companies to hire manufacturers to produce their products in another country. The manufacturers are provided specifications for the products, which are then manufactured and sold on behalf of the company that contracted the manufacturing. Contract manufacturing may provide tax incentives and may be more profitable than manufacturing the products in the home country. Examples of products in which contract manufacturing is often used include cell phones, com puters, and printers. Joint ventures combine the expertise and investments of two companies and help companies enter foreign markets. The firms in each country share the risks as well as the investments. Some countries such as China often require companie s to form a joint venture with a domestic firm in order to enter the market. After entering the market in a partnership with a domestic firm and becoming established in the market, some firms may decide to separate from their partner and become their own b usinesses. Fuji Xerox Co., Ltd., is an example of a joint venture between the Japanese Fuji Photo Film Co. and the American document management company Xerox. Another example of a joint venture is Sony Ericsson. The venture combined the Japanese company So ny's electronic expertise with the Swedish company Ericsson 's telecommunication expertise. 36 Direct investment (owning a company or facility overseas) is another way to enter a foreign market. For example, In Bev, the Dutch maker of Beck 's beer, was able to capture market share in the United States by purchasing St. Louis -based Anheuser -Busch. A direct investment strategy involves the most risk and investment but offers the most control. Other companies such as advertising agencies may want to invest and dev elop their own businesses directly in international markets rather than trying to do so via other companies. Figure 1.15 Market Entry Methods Diversification strategies involve entering new markets with new products or doing something outside a firm's current businesses. Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies.

Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy. Warner Music Group 's purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed. 1.8 KEY TAKEAWAY The strategic planning process includes a company's mission (purpose), objectives (end results desired), and strategies (means). Sometimes, the different SBUs of a firm have different mission statements. A firm's objectives should be realistic (achievable) and measurable. The different pro duct market strategies firms pursue include market penetration, product development, market development, and diversification.

Global expansion generally involves a market development strategy with different ways to enter global markets based on the degree of risk a company wishes to assume. 1.9 Strategic Portfolio Planning Approaches LEARNING OBJECTIVES 1. Explain how SBUs are evaluated using the Boston Consulting Group matrix. 2. Explain how businesses and the attractiveness of industries are evaluated using the General Electric approach. 37 If a company has several strategic business units (SBUs), each is generally treated for strategic planning purposes as a separate compan y. When a firm such as PepsiCo has multiple strategic business units, it must decide what are the objectives and strategies for each business and how to allocate resources among them. A group of businesses can be considered a portfolio , just as a collection of artwork or investments com pose a portfolio. In order to evaluate each business, companies sometimes use what is called a portfolio planning approach. A portfolio planning approach involves analyzing a firm 's entire collection of businesses relative to one another. Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach.

The Boston Consulting Group Matrix Figure 1.1 6 The Boston Consulting Group (BCG) Matrix The Boston Consulting Group (BCG) matrix helps companies evaluate each of its strategic business units based on two factors: (1) the SBU 's market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and (2) the SBU 's r elative market share (i.e., how the unit 's share of the market compares to the market share of its competitors). Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investme nt decisions. However, the BCG matrix is subjective , and managers should also use their judgment and other planning approaches before making 38 decisions. Using the BCG matrix, managers can categorize their SBUs (products) into one of four categories, as shown in Figure 1.1 6, "The Boston Consulting Group (BCG) Matrix." Stars Everyone wants to be a star. A star is a product with high growth and a high market share. To maintain the growth of its star products, a company may have to invest money to improve t hem and how they are distributed as well as promote them. The iPod, when it was first released, was an example of a star product. Cash Cows A cash cow is a product with low growth and a high market share. Cash cows have a large share of a shrinking market . Although they generate a lot of cash, they do not have a long -term future.

For example, DVD players are a cash cow for Sony. Eventually, DVDs are likely to be replaced by digital downloads, just like MP3s replaced CDs. Companies with cash cows need to manage them so that they continue to generate revenue to fund star products. Question Marks or Problem Children Did you ever hear an adult say they didn 't know what to do with a child? The same question or problem arises when a product has a low share of a high- growth market. Managers classify these products as question marks or problem children . They must decide whether to invest in them and hope they bec ome stars or gradually eliminate or sell them. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage. However, some manufacturers have a very low share of this market. These manu facturers now have to decide what they should do with these products. Dogs In business, it is not good to be considered a dog. A dog is a product with low growth and low market share. Dogs do not make much money and do not have a promising future. Compani es often get rid of dogs. However, some companies are hesitant to classify any of their products as dogs. As a result, they keep producing products and services they shouldn 't or invest in dogs in hopes they' ll succeed. The BCG matrix helps managers make resource allocation decisions once different products are classified. Depending on the product, a firm might decide on a number of different strategies for it. One strategy is to build market share for a business or product, especially a product that might 39 become a star. Many companies invest in question marks because market share is available for them to capture. The success sequence is often used as a means to help question marks become stars. With the success sequence, money is taken from cash cows (if available) and invested into question marks in hopes of them becoming stars. Holding market share means the company wants to keep the product 's share at the same level.

When a firm pursues this strategy, it only invests what it has to in order to maintain the product 's market share. When a company decides to harvest a product, that company lowers its investment in the product. The goal is to try to generate short -term profits from the product regardless of the long -term impact on its survival. If a company decides to divest a product, the firm drops or sells it. That 's what Procter & Gamble did in 2008 when it sold its Folgers coffee brand to Smuckers. Proct er & Gamble also sold Jif peanut butter brand to Smuckers. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio. As competitors enter the mark et, technology advances, and consumer preferences change, the position of a company 's products in the BCG matrix is also likely to change. The company has to continually evaluate the situation and adjust its investments and product promotion strategies acc ordingly. The firm must also keep in mind that the BCG matrix is just one planning approach, and that other variables can affect the success of products. The General Electric Approach Another portfolio planning approach that helps a business determine whe ther to invest in opportunities is the General Electric (GE) approach . The GE approach examines a business' s strengths and the attractiveness of the industry in which it competes. As we have indicated, a business's strengths are factors internal to the com pany, including strong human resources capabilities (talented personnel), strong technical capabilities, and the fact that the firm holds a large share of the market. The attractiveness of an industry can include aspects such as whether or not there is a g reat deal of growth in the industry, whether the profits earned by the firms competing within it are high or low, and whether or not it is difficult to enter the market. For example, the automobile industry is not attractive in times of economic downturn s uch as the recession in 2009, so many automobile manufacturers don 't want to invest more in production.

They want to cut or stop spending as much as possible to improve their profitability. Hotels and airlines face similar situations. Companies evaluate t heir strengths and the attractiveness of industries as high, medium, and low.

The firms then determine their investment strategies based on how well the two correlate with 40 one another. As Figure 1.1 7, " The General Electric (GE) Approach " shows, the investment options outlined in the GE approach can be compared to a traffic light. For example, if a company feels that it does not have the business strengths to compete in an industry and that the industry is not attractive, this will result in a low rating, which is comparable to a red light. In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automoti ve manufacturers. Figure 1.1 7 The General Electric (GE) Approach Although many people may think a yellow light means "speed up, " it actually means caution.

Companies with a medium rating on industry attractiveness and business strengths should be cautious when investing and attempt to hold the market share they have. If a company rates itself high on business strengths and the indu stry is very attractive (also rated high), this is comparable to a green light. In this case, the firm should invest in the business and build market share.

During bad economic times, many industries are not attractive. However, when the economy improves , businesses must reevaluate opportunities. 1.9 KEY TAKEAWAY A group of businesses is called a portfolio. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them.

Portfolio planning approaches help firms analyze the businesses relative to each other. The BCG and GE approaches are two of the most common portfolio planning methods. WEEK 2 PREVIEW Week 1 emphasized the central role of customers in all marketi ng activities. To quote Sam Walton, founder of Walmart, "There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else" (Brainyquote). 41 Therefore, the focus of Week 2 is on customers and companies' relationship with them. We will explore the role technology plans in empowering customers to be an integral part in the creating, communication, delivering and exchanging value, the importance of loyalty and customer satisfacti on in retaining customers, and some of the ethical and legal issues in customer empowerment. Week 1 References Section 1.1 American Marketing Association (AMA). (20 09). About AMA. Definition of marketing. Retrieved December 3, 2009 , from https://www.ama.org/AboutAMA/Pages/Definition- of-Marketing.aspx Section 1.3 Famous Quotes & Authors. (2009). Franklin D. Roosevelt quotes and quotations. Retrieved December 7, 2009 , from http://www.famousquotesandauthors.com/authors/franklin_d__ro osevelt_quotes.html Section 1.4 Apple, Inc. (2009). Apple's app store downloads top 1.5 billion in first year. Retrieved December 3, 2009, from http://www.apple.com/hk/en/pr/library/2009/07/14apps.html The Coca- Cola Company. (2009). Mission, vision, & v alues. Retrieved December 3, 2009, from http://www.thecoca- colacompany.com/ourcompany/mission_vision_values.html IBM. (20 09). About IBM. Retrieved December 3, 2009, from http://www.ibm.com/ibm/us/en/ John Deere. [a.] (2009). John Deere: A biography. Retrieved December 3, 2009, from http://www.deere.com/en_US/compinfo/history/johndeere2.html John Deere [b.] (2009). John Deere strategy. Retrieved December 3, 2009, from http://www.deere.com/en_US/compinfo/strategy/index.html McDonald's. (2009). Our company. Retrieved December 3, 2009, from http://aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html#1 Merck & Co., Inc. (2009). The new Merck. Retrieved Decembe r 7, 2009, from http://www.merck.com/about/Merck%20Vision%20Mission.pdf Section 1.5 Lake, L. (2009). Develop your value proposition. Retrieved December 7, 2009 from http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm Section 1.6 Goodyear Tire and Rubber Company. (2009). Retrieved December 7, 2009, from http://goodyear.com PepsiCo. Inc. [a]. (2009). The PepsiCo family. Retrieved December 7, 2009, from http://www.pepsico.com/Company/The -Pepsico -Family.html Section 1.7 PepsiCo. Inc. [b] PepsiCo brands . Retrieved December 7, 2009 from http://www.pepsico.com/Company/Our -Brands.html Porter, M. E. (1980). Competitive strategy. New York: The Free Press . p. 3–33. 42 Treacy, M., & Wier sema, F. (1997). The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus: Dominate Your Market. Massachusetts: Addison -Wesley. Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy . Massachusetts: Harvard Business School Press. Week 2 Preview Brainyquote. (n.d.). Retrieved January 28, 2015 from http://www.brainyquote.com/quotes/quotes/s/samwalton146810.html#SEk6cB5tGW3Be5GM.99