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Chapter 2

Principles of Marketing_Chapter 2 Notes.docx

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Management Core
MGCR 352
Sameer Mathur

Chapter 2: Company and Marketing Strategy - Partnering to Build Customer Relationships Companywide Strategic Planning: Defining Marketing’s Role  Strategic planning: process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities  Companies start planning by defining purpose and mission  Headquarters decides what portfolio of businesses/products is best for company  Marketing planning occurs at business-unit, product, and market levels  Steps in strategic planning: a) Corporate level: i) Defining the company mission ii) Setting company objectives and goals iii) Designing the business portfolio b) Business unit, product and market level i) Planning marketing and other functional strategies Defining a Market-Oriented Mission  What is our business? Who is our customer? What do consumers value? What should our business be? o Questions are continuously raised in successful companies  Mission statement: statement of the organization’s purpose – what it wants to accomplish in the larger environment o Acts to guide people in organization o Firms with better mission statements perform better  Myopic mission statements = in product or technology terms o Ex: We make and sell furniture  Should be market-oriented = in terms of satisfying customer needs o Ex: Canadian Tire “to offer products and services to meet everyday needs of Canadian families – today and tomorrow” o Ex: eBay “to provide a global trading platform where practically anyone can trade practically anything”  Should be meaningful, specific yet motivating – emphasize strengths in marketplace  Simultaneously inspirational, achievable ,and completely graspable  Make employees’ work feel significant, therefore not sales/profit-oriented Setting Company Objectives and Goals  Turning broad mission into detailed supporting objectives  Ex: BASF (chemical company) turns broad mission into many objectives, include business and marketing ones o Invests in R&D, improving profits, local partnerships, etc. o Targeted Chinese farmers by forming relationships with Chinese research organizations Designing the Business Portfolio  Business portfolio: collection of businesses and products that make up the company  Best business portfolios fit company’s strengths and weaknesses to opportunities in environment  2 steps in planning a business portfolio: o Analyze current business portfolio o Shape future portfolio by developing strategies for growth and downsizing Analyzing the Current Business Portfolio  Portfolio analysis: process by which management evaluates the products and businesses that make up the company o Strong resources into profitable businesses, and phase down/drop weaker ones  First step: identify key businesses that make up company  called Strategic Business Units (SBUs) o SBUs can be company divisions, product lines, or single products o Assess attractiveness of SBUs, decide how much support each deserves  2 dimensions: attractiveness of SBU’s market/industry and strength of SBU’s position in that market/industry  Boston Consulting Group Approach (BCG) growth share matrix: portfolio-planning method that evaluates a company’s strategic business units in terms of its market growth rate and relative market share. SBUs are classified as stars, cash cows, question marks or dogs o o Stars: high-growth, high-share  Need heavy investments to finance rapid growth.  Eventually, growth slows down  turn into cash cows o Cash cows: low-growth, high-share  Need less investment to hold market share  Product lots of cash for company – supports other SBUs o Questions marks: high-growth, low-share  Require a lot of cash to hold share  Management has to decide whether to build into stars or phase out o Dogs: low-growth, low-share  Generate enough cash to maintain themselves  Don’t promise to be large source of cash o SBUs are placed on matrix in circles – size of circle is proportional to SBUs dollar sales o 4 strategies for deciding SBUs’ futures:  Build its share  Hold its share  Harvest – milking short-term cash flow regardless of long-term effect  Divest – selling, phasing out and using resources elsewhere o SBUs change their positions in matrix with time  Problems with matrix approaches: o Difficult, time consuming, and costly to implement o Hard to define SBUs and measure market share/growth o Focus on current businesses, little advice for future planning o Centralized approach – requires decentralized planning  cross-functional teams o Ex: Walt Disney Company in 1980s set up centralized strategic planning group which was successful  got too big, now has to manage in decentralized functions Developing Strategies for Growth and Downsizing  Objective is to manage profitable growth  Marketing: identify, evaluate and select market opportunities  Product/market expansion grid: portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development or diversification. o Market penetration: strategy for company growth by increasing sales of current products to current market segments without changing product  Ex: Tim Hortons routinely upgrades and refurbishes outlets, adds drive-thrus and creates outlets in hospitals and retail stores  bringing restaurant to the consumer o Market development: strategy for company growth by identifying and developing new market segments for current company products  Ex: Tim Hortons could target new demographic markets (ethnic, seniors), or geographic markets (US) o Product development: strategy for company growth by offering modified or new products to current market segments  Ex: Tim Hortons introduced cappuccinos, bagels, sandwiches, etc. o Diversification: strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets  Ex: Tim Hortons could add gas bars to complement drive-thrus (related), or develop sportswear line (unrelated)  Downsizing: reducing business portfolio by eliminating products or business units that are not profitable or no longer fit the company’s overall strategy. o Reasons for downsizing: environment changes, lack experience, went in without proper research, new product that didn’t turn out as expected, or mature market Planning Marketing: Partnering to Build Customer Relationships  Marketing plays key role in company’s strategic planning by: o Providing guiding philosophy/marketing concept about building profitable relationships with important consume groups o Provides inputs to strategic planners  defining market opportunities o Designed strategies for reaching objectives  Must work with partners to develop effective value chain that serves customer  Work with other companies to form a value delivery network Partnering with Other Company Departments  Value chain: series of departments that carry out value-creating activities to design, produce, market, deliver, and support a firm’s products o Departments must be well-coordinated o Ex: Walmart – marketers learn what customers want and stock store shelves, prepare advertising and merchandising programs. Also needs help from suppliers to get lowest cost. IT department provides information about which products are selling. Operations people provide effective, low-cost merchandise handling.  A company’s value chain is only as strong as its weakest link o Ex: if suppliers can’t supply low prices, Walmart can’t offer low prices to its consumers  Marketing thinks in terms of consumer, but not every other department  “thinking consumer” could mean disrupting production schedules, increasing inventories, etc Partnering with Others in the Marketing System  People go to McDonald’s because of the system itself, not just its products o Its standards are called QSCV – quality, service, cleanliness and value o “Others” in marketing system = franchisees, suppliers  Value delivery network: network made up of company, suppliers, distributors, and, ultimately, customers who “partner” with each other to improve the performance of the entire system o Ex: Toyota builds close relationships with suppliers  US competitors set annual cost targets and do anything to reach them - suppliers are hurt  In contrast, Toyota works with suppliers to meet expectations – can rely on suppliers to improve quality, redu
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