Topic 4 Winning Markets through Market Oriented Strategic Planning

Kotler on Marketing - “It is more important to do what is strategically right than what is immediately profitable.”

In Topic 4, students will look at How Strategic Planning is carried out at the Corporate and Divisional level,  How is Planning carried out at the Business Unit Level, What are the major steps in the Marketing Process, How is Planning carried out at the Product Level and What does a Marketing Plan include?

Market Oriented Strategic Planning

Market-oriented Strategic Planning is the managerial process of developing and maintaining a viable fit between the organization’s objectives, skills, resources and its changing market opportunities.

The aim of Strategic Planning is to shape the company’s businesses, products, services, and messages so that they achieve targeted profits and growth.

Strategic Planning

Strategic Planning calls for action in three key areas.

1.      Managing a company’s businesses as an investment portfolio.

2.      Assessing each business’s strength by considering market growth rate and company’s positioning.

3.      Establishing a strategy

The Strategic Planning process is carried out at four organizational level;

1.      Corporate Level

2.      Divisional Level

3.      Business Unit Level

4.      Product Level 

The Strategic Planning at Corporate Level

Corporate headquarter is responsible for setting the strategic-planning process in motion. The Corporate strategy establishes the framework within which the divisions and business units prepare their strategic plans.

Four Planning Activities at Corporate Level

1.      Defining the Corporate Mission.

2.      Establishing Strategic Business Units (SBU).

3.      Assigning resources to each SBU based on its market attractiveness and its strengths.

4.      Planning new business, downsizing or terminating old business. 

Corporate Mission

When Define its Mission, a Company should look at the following questions;

1.      What is our business?

2.      Who is the customer?

3.      What is the value to the customer?

4.      What will our business be?

5.      What should our business be? 

Mission Statement

A clear thoughtful mission statement provides employees with a shared sense of purpose, direction and opportunity. The Mission Statement should guide geographically dispersed employees to work independently and yet collectively towards realizing the organization’s goals. Mission Statements are at best when they are guided by a vision that provides a direction for the company for the next 10 or 20.

A good Mission Statement should; 1) Have a limited number of Goals 2) Stresses the major policies and 3) Values that the company wants to honour. Defines the major competitive scopes within which the company will operate.

Examples of Mission Statements:

PNG Sustainable Development Program Ltd “Promoting development that meets the needs of the present generation and establishes the foundation for continuing progress for future generations of Papua New Guineans.”

eBay - “We help people trade practically anything on earth. We will continue to enhance the online trading experiences of all collectors, dealers, small businesses, unique item seekers, bargain hunters, opportunity sellers and browsers.” 

Establishing Strategic Business Units

The second planning activity requires the organization to identify its Strategic Business Units (SBUs). It is important that SBUs must benefit from separate planning, face specific competitors and can be managed as individual profit center.

Two best known business portfolio evaluation model that organizations are using to plan for the Strategic Business Units are:

Boston Consulting Group model

Under the Boston Consulting Group model, organizations can use the matrix to decide which of its SBUs should be nurtured or diversified. Combination of two matrix and two variables: (Page 94, Kotler)

·         Market Growth Rate

·         Relative Market Share

The other business portfolio evaluation model that organizations use to plan for the Strategic Business Units is the:

General Electric Model

Under the General Electric Model each business is rated in terms of two major dimensions,

·         Market Attractiveness

·         Business Strength

Companies are successful to the extent that they enter attractive markets & possess the required business strength to succeed in those markets.

Business unit strategic planning process consists of eight steps;

1.      Business Mission - Define its specific mission within the broader company mission.

2.      SWOT Analysis - Overall evaluation of Company’s strengths, weaknesses, opportunities and threats.

3.      Goal formulation - After SWOT analysis, company proceed to develop specific goals for the planning period.

4.      Strategic formulation - Plan on how to achieve your goal – marketing, technology and sourcing strategies.

5.      Program formulation - Plan programs and cost estimation.

6.      Implementation Programs - Style, Skills, Staff and Shared value.

7.      Gathering Feedback - Tracking of results and monitoring new developments.

8.      Exercise Control.       

Cultural Factors

Culture is the fundamental determinant of a person’s want and behaviour. Each culture consists of smaller subcultures that provide most specific identification and socialization for their members. Examples of subcultures: Nationalities, Religion, racial groups and geographical region.          (Beliefs, Languages, custom, dressing etc.)

Subcultures –When subcultures grow large and affluent enough, companies often design specialized marketing programs to serve them.

Such programs designed to serve large sub cultures are known as diversity marketing a practice which was pioneered during the 1980’s by large companies such as Coca-Cola, Sears Roebuck and others. Diversity marketing grew out of careful marketing research, which revealed that different ethnic and demographic niches did not always respond favourably to mass-market advertising.

Social Classes: Virtually all human societies exhibit social stratification. Stratification sometimes takes the form of caste system where the members of different castes are reared for certain roles and cannot change their caste membership.    Most frequently, such caste system takes the form of social classes. Social classes reflect not only income, but other indications such as occupation, education, and areas of residence.

Social Classes have several characters.

1.      Those within each class tend to behave more alike than persons from two different social classes.

2.      Persons are perceived as occupying inferior or superior positions according to social class.

3.      Social class is indicated by a cluster of variables – for example, occupation, and income, wealth, and education and value orientation – rather than by any single variable.

4.      Individuals can move up and down the social class during their lifetime

Social Classes show distinct product and brand preferences in many areas, including clothing, home furnishing, leisure activities, and automobiles. There are also language differences so advertising and dialogue must ring true to the targeted social class

Characteristics of Major US Social Classes:

·         Upper Uppers (Less than 1%) – Social elite who live on inherited wealth.

·         Lower Uppers (about 2%) – Earning high income & wealth through profession.

·         Upper Middles (12%) – Professionals, independent businessperson & corporate managers.

·         Middle Class (32%) – Average white & Blue collar workers.

·         Working Class (38%) – Average pay blue collar workers.

·         Upper lowers (9%) – Unskilled workers, poorly paid.

·         Lower lowers (7%) – On welfare and poverty stricken. 

Social Factors

Consumer behaviour is influenced by such social factors as reference groups, family, and social roles and statuses. Reference Groups – consist of all the groups that have a direct (face to face) or indirect influence on a person’s attitude or behaviour. Examples: Membership groups (direct influence), Primary groups (family, friends etc.), Secondary groups (religious, professional).

Family – The family is the most important consumer-buying organization in society and family constitute the most influential primary reference group. From parents, a person acquires an orientation toward religion, politics, and economics, a sense of personal ambition, self-worth and love. Personal characteristic also influences a buyer’s decision. (Age, lifestyle, occupation and economic circumstances).

Social Roles & Statues – A person standing in a community, e.g. family, clubs, organization. The person’s position in each group can be defined in terms of roles and statues. Roles consist of activities that the person is expected to perform and each role carries a status. Example: A Supreme Court judge has more status then a sales manager.    

Personal Factors

 Age and Stages in the Life Cycle:  Personal characteristic also influences a buyer’s decision;

Stages In Family life Cycle:

·         Bachelor Stage – Young, single, not living at home.

·         Newly married couples – Young married, no children, purchase high

·         Full Nest 1- Youngest child under 6. Buy many home goods

·         Full Nest 2 – Youngest child over 6. Better financial position

·         Full nest 3 – Older couples with dependent children. Financially better

·         Empty Nest 1 – Older couple. No children living with them

·         Empty Nest 2 – Older couple. No children living at home

·         Solitary Survivor – Income still good but likely to sell home

·         Solitary Survivor – Retired. Special need for attention

Occupation and Economic Circumstance – People buy different goods and services over a lifetime. A blue collar worker will buy work clothes, work shoes and lunch box. A company president will buy expensive suits, air travel and club membership. Product choice is greatly affected by economic circumstances (spendable income, savings and assets).

Lifestyle - People from the same subculture, social class, and occupation may lead quite different lifestyles. Person’s pattern of living in the world as expressed in activities, interests, and opinions. Marketers search for relationships between their products and lifestyle groups.

Psychographics – Is the science of using psychology and demographics to better understand consumers. Each person has personality characteristics that influence his or her buying behavior. By personality, we mean a set of distinguishing human psychological traits that lead to a relatively consistent and enduring response to environment stimuli.

·         Self confidence

·         Dominance

·         Autonomy, deference, sociability, defensiveness,

·         Adaptability

Personality and self-concept

Personality can be a useful variable in analyzing consumer brand choices. Marketers attempts to develop brand personality that will attract consumers with the same self-concept.

Psychological factors

A person buying choices are influenced by four major psychological factors;

Motivation – A need becomes a motive when it is aroused to a sufficient level of intensity. A motive is a need that is sufficiently pressing to drive the person to act.

Perception – Perception is the process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world.

Learning – Most human behaviour is learned. Learning involves changes in an individual behaviour arising from experiences.

Belief & Attitudes – Through doing and learning, people acquire beliefs and attitudes. These in turn influence buying behavior.

Abraham Maslow sought to explain why people are driven by particular needs at particular times. Why does one person spend considerable time and energy on personal safety and another on pursuing the high opinion of others? Maslow’s answer is that human needs are arranged in a hierarchy, from the most pressing needs, esteem needs, and self-actualization needs.

 

 

The Buying Decision Process

Marketers are interested in the beliefs people carry in their heads about their products and brands. Marketers have to go beyond the various influences on buyers and develop an understanding of how consumers actually make their buying decision. Marketers must identify the following factors:

1.      Who makes the buying decision?

2.      The type of buying decision.

3.      Steps in the buying process.
 

Marketers must also understand the buying roles of consumers. Example; identifying buyers for many products, Women buying cosmetics and a carpenter buying nails/timber etc.).

Buying Behaviour

1.      Complex Buying Behaviour - (Beliefs & Attitudes about the products e.g. Toyota brand MV).

2.      Dissonance-Reducing Buyer Behaviour - (Shop around & check quality & price).

3.      Habitual Buying Behaviour – (Out of habit they go for a certain brand of product.

4.      Variety-Seeking Buying Behaviour – (Consumer do a lot of brand switching).

 

The Marketing Process

Marketing process is an important element of planning at the corporate, division, and at the business unit levels. Marketing Process can be broken down into the following key points;

Choosing The Value	Provide the Value	Communicate the Value
Segment Markets Target Markets Positioning the Offering	Develop the Service Product Price & Distribute the Product Provide Back-up Services	Utilize Sales force Sales Promotion Advertising

 The Marketing Planning Process

The first step in business planning is the marketing step, where the target market and product-positioning strategy are defined and sales goals and needed resources are established for achieving these goals.

The role of Finance, Purchasing, Manufacturing, Logistic or Physical Distribution, and Personnel Departments is to make sure that the proposed marketing plan can be supported with enough money, materials, machines and personnel.

 

The marketing process consists of analyzing marketing opportunities, researching and selecting target markets, designing marketing strategies, planning marketing programs and organizing, implementing and controlling the marketing effort.

Analysis Market Opportunities – Identifying potential long run opportunities & market experience & core competencies.

Developing Marketing Strategies – Focus on market and develop a positioning strategy taking into account changing global opportunities and challenges.

Planning Marketing Programs – Transforming marketing strategy into marketing programs marketers must make basic decisions on marketing expenditures, marketing mix, and market allocation (budget).

Managing Marketing Effort – Company must build a marketing organization that is capable of implementing the marketing plan. 

Research and Selecting Target Markets and Positioning the Offer.

The firm should now be ready to research and select target markets. It needs to know how to measure and forecast the attractiveness of any given market.

This requires estimating the market’s overall size, growth and profitability. Marketers must understand the major techniques for measuring market potential and forecasting future demand.

Modern day marketing practices calls for dividing the market into major market segments, evaluating them and selecting and targeting those market segments that the company can best serve.

What is Market Segmentation?

Is the task of breaking the “Total Market” (which is typically too large to serve), into segments that share common properties or characteristics.

This can be done in a number of ways, such as by;

·         Customer Size (large, medium, small)

·         Customer Buying Criteria (Quality, Price, Service)

·         Customer Industry (Banks, Professional Firms, Manufacturing Companies, etc)

Designing Marketing Strategies

Given that a particular company wants to pursue a particular market or market segment, it needs to develop a differentiating and positioning strategy for that target market.

It will need to define how it differ from it’s significant competitors and how it wants to come across to its buyers. 

Q: Should it be the firm offering a superior product, at a premium price, with excellent service that is well advertised, and aimed at the more affluent buyer?

Q: Should it built a simple low-priced product aimed at the more price-conscious market?

The company needs to study carefully the position taken by its major competitors in the same target market.

Notes on Product Positioning Map

The main point is companies today must carefully choose not only their consumer targets, but also their competitor targets. In an era of slow-growth markets, planning for the competitors is as important as planning for the consumers.

Once the company decides on it’s product positioning, it now has to undertake the difficult work of new-product development, testing and launching.

Planning Marketing Programs

Company Planners must not only formulate the broad business strategies to help the company achieve its objectives, but also must plan marketing strategies and tactics for specific products.

Marketing Strategy; - comprise the broad principles by which marketing management expects to achieve its business and marketing objectives in a target market. It consists of basic decisions on marketing expenditures, marketing mix, and marketing allocation.

Marketing Management must decide what level of Marketing Expenditure is required (objectives). Normally, you check on competitor’s Marketing Budget- to-Sales Ratio, prior to deciding on some expenditure level.

The company also has to decide how to divide the total marketing budget among the various tools in the “Marketing Mix”.

Marketing Mix: - is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. There are literally dozens of marketing tools. McCarthy popularized a four factor classification of these tools called the four Ps while Robert Lauterborn suggested the four Cs:

·         4 Ps                             4Cs

·         Product                       Customer Solution

·         Price                            Customer Cost

·         Place                            Convenience

·         Promotion                   Communication

Organizing, Implementing and Controlling the Marketing Effort

Annual-plan Control – is the task of making sure that the company is achieving the sales, profits and other goals that it established in it’s annual plan. It is broken into four steps; 

Management must state well-defined goals in the annual-plan for each month, quarter, or other period during the year. Management must have ways to measure its on-going performance in the market place.

Management must determine the underlying causes of any serious gaps in performance.

Management must decide on the best corrective action to take to close the gaps between goals and performance.( implementation, programs, strategy etc.)

Profitability Control – Companies need to analyze periodically the actual profitability of their various products, customer groups, trade channels and order sizes. A company’s accounting system is seldom designed to report the real profitability of different marketing entities and activities.

Marketing Profitability Analysis – is the tool used to measure the profitability of different marketing activities.

Marketing Efficiency Study – also need to be undertaken to study how the various marketing activities could be carried on more efficiently.

Marketing Audit – Because of the rapid changes in the marketing environment, each company needs to reassess their marketing effectiveness through the controlled process of marketing audit. 

Marketing Plan

The Marketing Plan is one of the most important outputs of the marketing process and it should contain the following elements;

·         An Executive Summary

·         Table of Contents

·         Current marketing situation 

·         Opportunities and Issues facing the products

·         Objectives

·         Marketing Strategy

·         Action Programs

·         Financial Projections

·         Implementation Controls  

An Executive Summary and Table of Contents

The Marketing Plan should open with a brief summary of the main goals and recommendation. The executive summary permits senior management to grasp the plan’s major thrust. The table of content should follow the executive summary.

Current marketing situation       

This section presents relevant background data on sales, costs, profits, the markets, competitors, channels, and the forces in the macro-environment. This information is used to carry out a SWOT (strength, weaknesses, opportunities, threats) analysis.

Opportunities and Issues facing the products

Here, management reviews the main opportunities found in SWOT analysis and identifies the key issues likely to affect the organization’s attainment of its objectives.

Objectives

Here, the product manager outlines the plan’s major financial and marketing goals, expressed in sales volume, market share, profit, and other relevant terms.

Marketing Strategy

Here the product manager defines the target segments namely those groups and needs the market offerings are intended to satisfy. The manager than establishes the product line’s competitive positioning, which will inform the game plan to accomplish the plans objectives. All these is done with inputs from other organizational areas, such as purchasing, manufacturing, sales, finance, and human resources to ensure proper support. 

Source: Marketing Management 11^th Edition; Philip Kotler (2003) Prentice Hall