Chapter 2 Capturing Marketing Insights:

Market Opportunity Analysis

To evaluate opportunities, companies can use Market Opportunity Analysis to determine the attractiveness & probability of success:Can the benefits involved in the opportunity be articulated convincingly to a defined target market?Can the target market be located and reached with cost-effective media and trade channels?Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?Can the company deliver the benefits better than any actual or potential competitors?Will the financial rate of return meet or exceed the company’s required threshold for investment?

The Strategic Planning, Implementation & Control Process

Explanation of the Process & Each Step:

Marketing Plan is the central instrument for directing & controlling the marketing effort. It operates at two levels:

(1) Strategic Marketing Plan: it lays out the target markets & the value proposition that will be offered, based on an analysis of the best market opportunities.

(2) Tactical Marketing Plan: it specifies the marketing tactics including product features, promotion, merchandising, pricing, sales channels & service.

These plans are then implemented at the appropriate levels of the organization. Results are monitored & necessary corrective action taken.

Corporate Headquarters Planning Activities:

1) Defining the corporate Mission2) Establishing Strategic Business Units3) Assigning resources to SBU 4) Assigning growth opportunities

Explanation of each step:

1) Defining the Corporate Mission:To define the Mission, a company should address Peter Ducker’s classic questions:

What is our business? Who is the customer What is of value to the customer? What will our business be? What should our business be?

Successful companies continuously raise these questions & answer them thoughtfully & thoroughly. A company must redefine its mission if that mission has lost credibility or no longer defines an optimal course for growth.

Organizations develop mission statement to share with managers, employees & customers. A clear, thoughtful mission statement provides employees with a shared sense of purpose, direction & opportunity. Mission statements are their best when they reflect a vision.

Good mission statements have three major characteristics:

1) They focus on a limited number of goals2) Mission statements stress the company’s major policies & values.3) They define the major competitive spheres within which the company will operate:

a) Industry: the range of industries in which a company will operate. Some many operate in one industry; some only in a set of related industries; some only in industrial goods, consumer goods, or services& some in any industry. E.g.: DuPont Prefers to operate in the industrial market, whereas Dow is willing to operate in the industrial & consumer markets.

b) Products & applications: the range of products & applications a company will supply.E.g.: St. Jude Medical aim to “serve high quality products for cardiovascular care.

c) Competence: the range of technological & other core competencies that a company will master & leverage. E.g.: Japan’s NEC has built its core competencies in computing, communications, & components to support production of laptop computers, television receivers, & handheld telephones.

d) Market Segment: the type of market or customers a company will serv.E.g.: Porsche makes only expensive cars.

Gerber serves primarily the baby market.e) Vertical: the number of channel levels from raw material to final product &

distribution in which a company will participate. f) Geographical: the range of regions, countries, or country groups in which a

company will operate.4) Short Memorable & Meaningful5) Long term view

2) Establishing Strategic Business Units:An autonomous division or organizational unit, small enough to be flexible and large enough to exercise control over most of the factors affecting its long-term performance. Because strategic business units are more agile (and usually have independent missions and objectives), they allow the owning conglomerate to respond quickly to changing economic or market situations.In business, a strategic business unit (SBU) is a profit centre which focuses on product offering and market segment. SBUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even though they may be part of a larger business entity.An SBU may be a business unit within a larger corporation, or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability. General Electric is an example of a company with this sort of business organization. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation.

Characteristics of SBU:

It is a single business or collection of related businesses It has its own set of competitors It has a leader responsible for strategic planning and profitability

Business Unit Strategic Process

a) Business Mission: Each business unit needs to define its specific mission within the broader company mission. “A mission describes the organisation’s basic function in society, in terms of the products and services it produces for its customers”.

b) Swot Analysis: it is the overall evaluation of a company’s strengths, weakness, opportunities, & threats.

c) Goal Formulation: A manager uses the term goals to describe objectives that are specific with respect to magnitude & time. Most business unit pursue a mix of objectives including profitability, sales growth, market share improvement, risk containment, innovation & reputation. The business units set these objectives & then manage by objectives. For an MBO system the unit’s objectives must meet four criteria:

They must be arranged hierarchically, from the most to the least important Objectives should be stated quantitatively whenever possible Goal should be realistic Objectives must be consistentd) Strategic Formulation: goals include what a business unit wants to achieve; strategy

is a game plan for getting there. Every business must design a strategy for achieving goals, consisting of a marketing strategy, & a compatible technology strategy & sourcing strategy.

Porter’s Generic Strategies: Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking.

Overall cost leadership: the business works hard to achieve the lowest production & distribution costs so that it can price lower than its competitors & win a large market share.Differentiation: the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. The firm cultivates those strengths that will contribute to the intended differentiation.Focus: the business focuses on one or more narrow market segments. The firm gets to know these segments intimately & purses either cost leadership or differention within the target segment.

e) Problem Formulation & Implementation:Once the business unit has developed its principle strategies, it must work out detailed support programs. A great marketing strategy can be sabotaged by poor implementation.E.g.: if the unit has decided to attain technological leadership, it must plan programs to strengthen its R&D department, gather technological intelligence, develop leading edge products, train the technical sales force & develop ads to communicate its technological leadership.

In implementing strategy, companies also must not lose sight of their multiple stakeholders & their needs. A company can aim to deliver satisfaction levels above the minimum for the different stake holders.E.g.: it might aim to delight its customers, perform well for its employees, & deliver a thousand level of satisfaction to its suppliers. In setting these levels, a company must be careful not to violate the various stakeholders’ groups’ sense of fairness about the relative treatment they are receiving.According to Mckinsey & Company, strategy is only one of seven elements in successful business practice. The first three elements- strategy, structure, & systems-are considered as hardware of success. The next four style, skills, staff, shared values are the software.

f) Feedback & Control: As the firm implements the strategy, a firm needs to track the results & monitor new developments. Some environments are friendly stable from year to year. Other environment evolves slowly in a fairly predictable way. Once an organization fails to respond to a changed environment, it becomes increasingly hard to recapture its lost position.

3) Assigning Resource to SBU:Now after identifying the company’s strategic business units it is to develop separate strategies & assign appropriate funding. According to the identification of the strategic unit the company has to assign resources to its SBU according to its needs & importance of that particular unit in the organization.

4) Assigning Growth Opportunities:Assigning growth opportunities involves planning new businesses, downsizing, or terminating older businesses. The company’s plans for existing businesses allow it to project total sales & profit. If there is a gap between future desired sales & projected sales, corporate management will have to develop to acquire new businesses to fill it.

The need of assigning growth opportunities would be that there is a gap between strategic planning for a manufacturer.

The figure illustrates the strategic planning gap for a major manufacturer of blank compact disks called Mu

sicale. The lowest curve projects the expected sales over the next five years from the current business portfolio. The highest curve describes desired sales over the same period.

Evidently the company wants to grow much faster than its current businesses will permit. How can fill the strategic planning gap?

The first option is to identify opportunities to achieve further growth within current businesses i.e. intensive opportunities.

Second option is to identify opportunities to build or acquire businesses that are related to the current businesses i.e. integrative opportunities.

Third option is to identify opportunities to add attractive businesses that are unrelated to current businesses i.e. diversification opportunities.

Explanation of each strategy:

Intensive Growth: Corporate management’s first course of action should be a review of opportunities for improving existing businesses.

Ansoff proposed a useful framework for detecting new intensive growth opportunities

Called a “product- market expansion grid.

The company considers whether it could gain more market share with its current products in their current market i.e. market penetration strategy. Next it considers whether it can find or develop new markets for its current products i.e. market development Strategy. Then it considers whether it can develop new products of potential interest to its current market i.e. product development strategy. Later it will also review opportunities to develop new products for new markets i.e. diversification strategy.

Present Products New Products

Present Markets Market Penetration: Amul selling milk to existing customer base.

Product Development: Amul Develops flavored Yogurt.

New Markets Market Development: Amul enters the markets of Mauritius, UAE, Australia and Singapore.

Diversification: Amul enters Pizza, Ice cream and Body warmers clothes business.

Market Penetration Strategy: A product market strategy hereby an organization seeks to gain greater dominance in a market in which it already has an offering. This strategy often focuses on capturing a larger share of an existing market.

Product Development Strategy: Developing new products or modifying existing products so they appear new, and offering those products to current or new markets is the definition of product development strategy. There is nothing simple about the process. It requires keen

attention to competitors and customer needs now and in the future, the ability to finance prototypes and manufacturing processes, and a creative marketing and communications plan. There are several subsets of product development strategy.

Market Development Strategy: A product-market strategy whereby an organization introduces its offerings to markets other than those it is currently serving. In global marketing, this strategy can be implemented through exportation licensing, joint ventures or direct investment.

Diversification: Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally via investing in a promising business outside of the scope of the existing business unit.

Integrative Growth: A growth strategy in which a company increases its sales and profits through backward, forward, or horizontal integration within its industry. A company may acquire one or more of its suppliers to gain more control or generate more profits (backward integration). It might acquire some wholesalers or retailers, especially if they are highly profitable (forward integration). Or finally, it might acquire one or more competitors through acquisition (horizontal integration).

E.g.: Drug company giant Merck has gone beyond just developing & selling ethical pharmaceuticals. It purchased Medco, a mail-order pharmaceutical distributor in 1993, formed joint venture with & Johnson & Johnson to bring some of its ethical more basic research, & another joint venture with Johnson &Johnson to bring some of its ethical products into the over-the-counter market.

Diversification Growth: diversification growth makes sense when good opportunities can be found outside the present businesses. A good opportunity is one in which the industry highly attractive & the company has the right mix of business strengths to be successful.

E.g.: From its origins as an animated film producer, Walt Disney Company has moved into licensing characters for merchandised goods, entering the broadcast industry with its own Disney Chanel as well as ABC & ESPN acquisitions, & developed theme parks & vacation & resort properties.

Marketing Plan: A marketing plan is the central instrument for directing and coordinating the marketing effort. It operates at a strategic and tactical level. There are two levels of marketing Plan: 1. Strategic Plan 2. Tactical Plan

1. Strategic Plan: the strategic marketing plan lays out the target markets & the value preposition that will offered, based on the analysis of the best marketing opportunities.

2. Tactical Plan: the tactical plan specifies the market tactics, including product features, promotion, merchandising, pricing, sales channels & service.

Strategic Plan Tactical Plan

1. It is for a long term 1. It is for a short term.

2. It analyses for the future It analyses for the current period

3. It is based on the prediction of future it is based on the known circumstances which exits in the market

Contents of a Marketing Plan:

Executive Summary

Table of Contents

Situation Analysis

Marketing Strategy

Financial Projections

Implementation Controls

Evaluation of a Marketing Plan:

Is the Plan simple?

Is the plan is specific?

Is the plan is realistic?

Is the plan can be complete?

Value Creation & Delivery Sequence:

The traditional view of marketing is that the firm makes something & then sells it. The company knows what to make & the market will buy enough units to produce profits. Companies that subscribe to this view have the best chance of succeeding in economies marked by goods shortages where consumers are not fussy about quality, features, or style. The traditional view of the business process will not work in economies where people face abundant choices. Thus the mass market is splitting in the numerous micro markets, each with its own wants, perceptions, preferences, & buying criteria. Due to this marketing place at the beginning of planning.

The above process consist of three phase as you can see from the above diagram. The first phase, “choosing the vale” represents the “homework” marketing must do before any product exist. The marketing staff must segment the market, select the appropriate market target, & develop the offering’s value positioning. The segmentation & target positioning it’s the essence of strategic marketing. Once the business unit has chosen the value, the second phase is providing the value. Marketer must determine specific product features, prices, distribution. The task in the third phase is communicating tools to announce & promote the product.

Value Chain: The value chain is a tool for identifying ways to create more customer value because every firm is a blend of primary and support activities performed to design, produce, market, deliver, and support its product.

To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:

The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin.

The primary value chain activities are:

Inbound Logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing & Sales: the identification of customer needs and the generation of sales.

Service: the support of customers after the products and services are sold to them.

These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company culture, etc.

Human resource management: employee recruiting, hiring, training, development, and compensation.

Technology development: technologies to support value-creating activities.

Procurement: purchasing inputs such as materials, supplies, and equipment.

The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation.

Product Orientation v/s Market Orientation:

A market orientated company is one that organises its activities, products and services around the wants and needs of its customers. By contrast, a product-orientated firm has its primary focus on its product and on the skills, knowledge and systems that support that product.

Market orientation gets the right product: product orientation gets the product right.

Company Product Definition Market Definition

Missouri-Pacific Railroad

We run a railroad We are a people & goods mover

Xerox We make copying equipment

We help improve office productivity

Standard oil We sell gasoline We supply energy

Columbia Pictures We make movies We market entertainment

Encyclopaedia Britannica

We sell encyclopaedias We distribute information

Carrier We make air conditions & furnaces

We provide climate control in the room

Core business process

01.Market-sensing process

02.New-offering realization process

03.Customer acquisition process

04.Customer relationship management

Holistic Marketing: Holistic marketing sees itself as integrating the value exploration, value creation, and value delivery activities with the purpose of building long-term, mutually satisfying relationships and prosperity among key stakeholders.

Corporate Culture: Corporate culture is the shared experiences, stories, beliefs, and norms that characterize an organization.

Categories of Marketing Alliances:

Product or service alliances: one company licenses another to produce its product, or two companies jointly market their complementary products or a new product. E.g.: H&R Block & Hyatt Legal Services – two service businesses have joined together in a marketing alliance.

Promotional alliances: One company agree to carry a promotion for another company product or service. E.g.: McDonald’s has often teamed up with Disney to offer products

related to current Disney films as part of its meals for children.

Logistics alliances: one company offers logistical services for another company product. E.g.: Abbott Laboratories warehouses & delivers all of 3M’s medical & surgical products to hospitals across the U.S.

Pricing Collaborations: one or more companies join in a special pricing collaboration. E.g.: Hotel & rental car companies often offer mutual price discounts.