Ch. 2

1. Imperatives for Market-Driven Strategy

2. Markets and Competitive Space

3. Strategic Market Segmentation

4. Strategic Customer Relationship Management

5. Capabilities for Learning about Customers and Markets

6. Market Targeting and Strategic Positioning

7. Strategic Relationships

8. Innovation and New Product Strategy

9. Strategic Brand Management

10. Value Chain Strategy

11. Pricing Strategy

12. Promotion, Advertising and Sales Promotion

Strategies

13. Sales Force, Internet, and Direct Marketing Strategies

14. Designing Market-Driven Organizations

15. Marketing Strategy Implementation And Control

Strategic Marketing

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Strategic Plans Lose Favor Strategic Plans Lose Favor Slump Showed Bosses Value of Flexibility, Quick DecisionsSlump Showed Bosses Value of Flexibility, Quick Decisions

By JOANN S. LUBLIN and DANA MATTIOLI By JOANN S. LUBLIN and DANA MATTIOLI

During the recession, as business forecasts based on seemingly During the recession, as business forecasts based on seemingly plausible swings in sales smacked up against reality, plausible swings in sales smacked up against reality, executives discovered that strategic planning doesn't always executives discovered that strategic planning doesn't always work. work.

Some business leaders came away convinced that the new Some business leaders came away convinced that the new priority was to be able to shift course on the fly. Office Depot priority was to be able to shift course on the fly. Office Depot Inc., for example, began updating its annual budget every Inc., for example, began updating its annual budget every month, starting in early 2009. Other companies started to month, starting in early 2009. Other companies started to factor more extreme scenarios into their thinking. A few even factor more extreme scenarios into their thinking. A few even set up "situation rooms,'' where staffers glued to computer set up "situation rooms,'' where staffers glued to computer screens monitored developments affecting sales and screens monitored developments affecting sales and finances.finances.

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Coke Bottle Is Part Plant Coke Bottle Is Part Plant But It Feels and Functions Like a Regular Plastic ContainerBut It Feels and Functions Like a Regular Plastic Container

By CHRIS HERRING By CHRIS HERRING

Coca-Cola Co., under fire from environmentalists for using plastic bottles, has Coca-Cola Co., under fire from environmentalists for using plastic bottles, has introduced a new packaging material made partly from plants. The container introduced a new packaging material made partly from plants. The container has "the same weight, the same feel, the same chemistry, and functions has "the same weight, the same feel, the same chemistry, and functions exactly the same way" as a regular plastic bottle, a Coke spokeswoman says. exactly the same way" as a regular plastic bottle, a Coke spokeswoman says.

Coke isn't the only beverage concern trying to reduce its carbon footprint. Rival Coke isn't the only beverage concern trying to reduce its carbon footprint. Rival PepsiCo Inc. has introduced a compostable bag made from plants for its PepsiCo Inc. has introduced a compostable bag made from plants for its SunChips snacks. But Coke is the world's biggest drink maker, and Coke SunChips snacks. But Coke is the world's biggest drink maker, and Coke Chairman and Chief Executive Muhtar Kent calls the new container, which Chairman and Chief Executive Muhtar Kent calls the new container, which uses material derived from sugar cane, "the first generation of the bottle of uses material derived from sugar cane, "the first generation of the bottle of the future." the future."

Coke touted its "plantbottle" at the Climate Change Summit in Copenhagen last Coke touted its "plantbottle" at the Climate Change Summit in Copenhagen last month, and it plans another push next month at the Winter Olympics in month, and it plans another push next month at the Winter Olympics in Vancouver, where all the sodas and water it provides will be packaged in the Vancouver, where all the sodas and water it provides will be packaged in the plantbottle. "Preliminary research" shows the new container leaves a smaller plantbottle. "Preliminary research" shows the new container leaves a smaller carbon footprint than regular plastic bottles, Coke says.carbon footprint than regular plastic bottles, Coke says.

Chapter 2

Markets andCompetitive

Space

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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MARKETS AND STRATEGIESMARKETS AND STRATEGIES

The Challenges ―The Challenges ―

Markets are increasingly complex, turbulent, and interrelated.Markets are increasingly complex, turbulent, and interrelated.

Importance of a broad view of the market.Importance of a broad view of the market.

Essential to develop a vision about how the market is likely to Essential to develop a vision about how the market is likely to change in the future.change in the future.

Continuous Monitoring is Necessary to:Continuous Monitoring is Necessary to:

Find promising opportunitiesFind promising opportunities

Identify shifts in value requirementsIdentify shifts in value requirements

Understand competitors’ positioningUnderstand competitors’ positioning

Guide targeting and positioningGuide targeting and positioning

decisionsdecisions

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OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX

The Competitive Box

Traditional Competitors

New Types of Competition

New Business Models

New Customers

New CustomersConventional Value

Propositions

Existing Customer Base

New Customer Base(s)

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* Market changes often require altering Market changes often require altering strategiesstrategies

* Forces of change create both market Forces of change create both market opportunities and threatsopportunities and threats

* Inherent danger in faulty market sensingInherent danger in faulty market sensing

Markets Impact StrategiesMarkets Impact Strategies

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DEFINING AND ANALYZING PRODUCT-MARKETS

Determine the Boundaries and Structure of the Product-Market

Form the Product-Market

Describe and Analyze End-Users

Analyze Competition

Forecast Market Size and Rate of Change

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Matching Needs with Product Matching Needs with Product BenefitsBenefits

* A product – market matches people with A product – market matches people with needs to the product benefits that satisfy needs to the product benefits that satisfy those needsthose needs

““A product – market is the set of products A product – market is the set of products judged to be substitutes within those usage judged to be substitutes within those usage situations in which similar patterns of situations in which similar patterns of benefits are sought by groups of benefits are sought by groups of customers.”*customers.”*

*Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

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INNOVATION FEATUREINNOVATION FEATURE

* In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the to $9.5 billion, and ranks high in the Business WeekBusiness Week Top 50 U.S. companies for Top 50 U.S. companies for shareholder value creation.shareholder value creation.

* The company invents new ways of providing services to save customers time, The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time.money and irritation, while often lowering costs at the same time.

* Loss adjusters are sent to the road accidents rather than working at head office, Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot.and they have the power to write checks on the spot.

* Progressive reduced the time needed to see a damaged automobile from seven Progressive reduced the time needed to see a damaged automobile from seven days to nine hours.days to nine hours.

* Policy holders’ cars are repaired quicker, and the focus on this central customer Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive.need has won much automobile insurance business for Progressive.

* These initiatives also enable Progressive to reduce its own costs – the cost of These initiatives also enable Progressive to reduce its own costs – the cost of storing a damaged automobile for a day is $28, about the same as the profit from a storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy.six-month policy.

Progressive Insurance: Customer Needs at the Center of Strategy

Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

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Product – Market Boundaries and StructureProduct – Market Boundaries and Structure

* Determining Product-Market StructureDetermining Product-Market Structure

1.1. Start with the generic need satisfied by Start with the generic need satisfied by the product category of interest to the product category of interest to managementmanagement

2.2. Identify the product categories (types) that Identify the product categories (types) that can satisfy the generic needcan satisfy the generic need

3.3. Form the specific product – markets within Form the specific product – markets within the generic product – marketthe generic product – market

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SUPER MARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONAL RESTAURANTS

Illustrative Fast-Food Product-Market Structure

FAST-FOOD MARKET

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Extent of Market ComplexityExtent of Market Complexity

* Three characteristics of markets:Three characteristics of markets:

* 1. Functions or uses of the product 1. Functions or uses of the product

* 2. The enabling technology of the 2. The enabling technology of the productproduct

* 3. Customer segments in the product-3. Customer segments in the product-marketmarket

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Illustrative Product – Market StructureIllustrative Product – Market Structure

•Generic Product Class

•Product Type

•Variant A

Regular•Variant B

•Brands

Food and beveragesfor breakfast meal

Cereals

Ready to eat

NaturalPre-sweetened

Life

Nutritional

Special KProduct 19

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Identifying and Describing End-UsersIdentifying and Describing End-Users

* Illustrative buyer characteristics in consumer Illustrative buyer characteristics in consumer markets:markets:

Family size, age, income, geographical Family size, age, income, geographical location, sex, and occupation location, sex, and occupation

* Illustrative factors in organizational markets:Illustrative factors in organizational markets: Type of industryType of industry Company sizeCompany size Location Location Type of productsType of products

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How Buyers Make ChoicesHow Buyers Make Choices

BUYING DECISION PROCESS:BUYING DECISION PROCESS:

1.1. Problem recognitionProblem recognition

2.2. Information searchInformation search

3.3. Alternative evaluationAlternative evaluation

4.4. Purchase decisionPurchase decision

5.5. Post-purchase behaviorPost-purchase behavior

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Environmental Environmental InfluencesInfluences

* External factors influencing buyers’ External factors influencing buyers’ needs and wants: needs and wants:

Government, social change, Government, social change, economic shifts, technology etc.economic shifts, technology etc.

* These factors are often non-These factors are often non-controllable but can have a major controllable but can have a major impact on purchasing decisionsimpact on purchasing decisions

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Building Customer ProfilesBuilding Customer Profiles

* Start with generic product – marketStart with generic product – market

* Move next to product- type and variant Move next to product- type and variant profiles >> profiles >> increasinglyincreasingly more more specificspecific

* Customer profiles guide decision Customer profiles guide decision making (e.g. targeting, positioning, making (e.g. targeting, positioning, market segmentation etc.)market segmentation etc.)

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ANALYZING COMPETITION

1.1. Define the Competitive Arena for the Generic, Specific, and Variant Product Markets

2. Identify and Describe Key Competitors

4. Identify and Evaluate Potential Competitors

3. Evaluate Key Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS

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Examples of Levels of CompetitionExamples of Levels of Competition

Diet-RiteCola

Diet PepsiDiet Coke

Product from competition:

diet colas

Regular colas Diet lemon

limes

Lemon limes

Fruitflavored

colas

Product categorycompetition:soft drinks

Bottlewater

Wine

Beer

Coffee

Juices

Generic competition:beverages

Baseballcards

FastFood

VideoGames

IceCream

Budget competition:food & entertainment

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Key Competitor AnalysisKey Competitor Analysis

* Business scope and objectivesBusiness scope and objectives* Management experience, capabilities, and Management experience, capabilities, and

weaknessesweaknesses* Market position and trendsMarket position and trends* Market target(s) and customer baseMarket target(s) and customer base* Marketing program positioning strategyMarketing program positioning strategy* Financial, technical, and operating capabilitiesFinancial, technical, and operating capabilities* Key competitive advantages (e.g., access to Key competitive advantages (e.g., access to

resources, patents)resources, patents)

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Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

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MARKET SIZE ESTIMATIONMARKET SIZE ESTIMATION

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

Product-Market Forecast Relationships (area denotes sales in $’s)

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0

100

200

300

400

500

600

700

800

900

Sales (in 1000sof units)

2003 2004 2005 2006 2007 2008 2009 2010

MarketPotential

Sales Forecast

Company XYZ Sales Forecast

Product-Market Forecast Relationships for Product-Market Forecast Relationships for Industrial Painting UnitsIndustrial Painting Units

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DEVELOPING A STRATEGIC VISION DEVELOPING A STRATEGIC VISION ABOUT THE FUTUREABOUT THE FUTURE

Industry Boundaries Blurring and EvolvingIndustry Boundaries Blurring and Evolving

Competitive Structure and Players ChangingCompetitive Structure and Players Changing

Value Migration PathsValue Migration Paths

Product Versus Business Design Product Versus Business Design CompetitionCompetition

Firms are Collaborating to Influence Industry Firms are Collaborating to Influence Industry StandardsStandards

Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

1. Imperatives for Market-Driven Strategy

2. Markets and Competitive Space

3. Strategic Market Segmentation

4. Strategic Customer Relationship Management

5. Capabilities for Learning about Customers and Markets

6. Market Targeting and Strategic Positioning

7. Strategic Relationships

8. Innovation and New Product Strategy

9. Strategic Brand Management

10. Value Chain Strategy

11. Pricing Strategy

12. Promotion, Advertising and Sales Promotion

Strategies

13. Sales Force, Internet, and Direct Marketing Strategies

14. Designing Market-Driven Organizations

15. Marketing Strategy Implementation And Control

Strategic Marketing

StrategicMarket

Segmentation

Chapter 3

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Strategic market segmentation (1)Strategic market segmentation (1)

* Levels and types of market Levels and types of market segmentationsegmentation

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Levels and types of market Levels and types of market segmentationsegmentation

OperationalSegmentation

ManagerialSegmentation

StrategicSegmentation

VisionStrategic intentProduct benefits

Resource allocationAlignmentPlanning

Marketing programs - Advertising

- Sales - Distribution

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Best Buy segmentation strategyBest Buy segmentation strategy

* Jill’s - “soccer moms”Jill’s - “soccer moms”* Barry’s - wealthy professionalsBarry’s - wealthy professionals* Buzz’s - “tech enthusiasts”Buzz’s - “tech enthusiasts”* Ray’s - the family manRay’s - the family man* Mr Storefront - the small business customerMr Storefront - the small business customer* Carrie’s - young, single femalesCarrie’s - young, single females* Helen and Charlie’s - older couples whose Helen and Charlie’s - older couples whose

children have left homechildren have left home* Gov. Palin’s “_________________” momsGov. Palin’s “_________________” moms

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From Mass Markets to Micro MarketsFrom Mass Markets to Micro MarketsOLD NEW

CONSUMERS Passively receive Empowered media userswhatever TV control and shape contentnetworks thanks to TiVo, iPod and

broadcast InternetASPIRATIONS To keep up with To standout from the

the crowd crowdTV CHOICE Three networks Hundreds of channels

plus maybe a plus video on demand PBS station

MAGAZINES Age of the big Age of the special interestglossies: Time, magazine for every age

Life, Newsweek and affinity groupADS Everyone hums Talking to a group of

the Alka-Seltzer one, ads go everjingle narrower

BRANDS Rise of the big, Niche brands, productubiquitous brands extensions and mass

from Coca-Cola customization mean manyto Tide product variations

Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

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* Market-driven strategy and Market-driven strategy and segmentationsegmentation* Market segmentation, value opportunities Market segmentation, value opportunities

and new market spaceand new market space* Market targeting and strategic positioningMarket targeting and strategic positioning

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Segmentation and Market-Driven Segmentation and Market-Driven StrategyStrategy

SEGMENTS

VALUE OPPORTUNITIES

CAPABILITIES/ SEGMENT

MATCH

TARGET(S)

POSITIONING STRATEGY

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* Activities and decisions in market Activities and decisions in market segmentationsegmentation

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Market Segmentation Activities Market Segmentation Activities and Decisionsand Decisions

Market to beSegmented

Decide Howto Segment

FormSegments

FinerSegmentation

Strategies

StrategicAnalysis

of Segments

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* Activities and decisions in market Activities and decisions in market segmentationsegmentation

* Defining the market to be segmentedDefining the market to be segmented

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* Identifying market segmentsIdentifying market segments* Segmentation variablesSegmentation variables* Characteristics of people and organizationsCharacteristics of people and organizations

* Consumer marketsConsumer markets* Organizational marketsOrganizational markets* Product use situation segmentationProduct use situation segmentation* Buyers’ needs and preferencesBuyers’ needs and preferences

* Consumer needsConsumer needs* AttitudesAttitudes* PerceptionsPerceptions

* Purchase behaviorPurchase behavior

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PurchaseBehavior

Characteristicsof People/

Organizations

UseSituation

Buyers’ Needs/Preferences

Segmentation Variables

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Illustrative Segmentation VariablesIllustrative Segmentation Variables

Characteristicsof people/

organizations

ConsumerMarkets

Industrial/Organizational Markets

Age, gender, income,family size, lifecycle stage, geographic

location,lifestyle

Type of industry, size, geographic location,

corporate culture, stage ofdevelopment, producer/

intermediary

Use situation Occasion, importance ofpurchase, prior

experience with product, user status

Application, purchasingProcedure (new task,

modified rebuy, straightrebuy

Buyers’ needs/preferences

Brand loyalty status, brandpreference, benefits sought,quality, proneness to make

a deal

Performance requirements, brand preferences, desired

features, servicerequirements

Purchasebehavior

Size of purchase,frequency of purchase

Volume, frequencyof purchase

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* Forming market segmentsForming market segments* Requirements for segmentationRequirements for segmentation

* Response differencesResponse differences* Identifiable segmentsIdentifiable segments* Actionable segmentsActionable segments* Cost/benefitsCost/benefits* StabilityStability

* Approaches to segment identificationApproaches to segment identification* Customer group identificationCustomer group identification* Forming groups based on response differencesForming groups based on response differences

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Miller Brewing’s beer brand targetsMiller Brewing’s beer brand targets

* Miller Genuine DraftMiller Genuine Draft - “mainstream - “mainstream sophisticates”sophisticates”

* Milwaukee’s Best LightMilwaukee’s Best Light - “hardworking - “hardworking men”men”

* Pilsner UrquellPilsner Urquell - “beer afficionados” - “beer afficionados”

* Miller IcehouseMiller Icehouse - for “drinking buddies” - for “drinking buddies”

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Requirements for SegmentationRequirements for Segmentation

SegmentationRequirements

Responsedifferences

Identifiablesegments

Actionablesegments

Favorablecost/benefit

Stabilityover time

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Approaches to Segment Approaches to Segment IdentificationIdentification

IDENTIFIERS OF CUSTOMER

GROUPS

CUSTOMER RESPONSEPROFILE

Characteristics of People and Organizations

Use Situation

Buyers Needs and Preferences

Purchase Behavior and

Loyalty

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Segment Dimensions for Hotel Lodging ServicesSegment Dimensions for Hotel Lodging Services

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Illustrative Example: Gasoline BuyersIllustrative Example: Gasoline Buyers

RoadWarriors

TrueBlues

GenerationF3 (Fuel,

Food & Fast)

Homebodies

PriceShoppers

Higher-income, middle-aged men, drive 25-50000 miles a year… buy premium with a

credit card … purchase sandwiches and drinks from the convenience store… will sometimes

use carwash

16% ofbuyers

Men and women with moderate tohigh incomes, loyal to a brand andsometimes a particular station …

frequently buy premium, pay in cash

16% ofbuyers

Upwardly mobile men and women -half under 25 years of age -

constantly on the go … drive a lotsnack heavily from the convenience store

27% ofbuyers

Usually housewives who shuttlechildren around during the day and

use whatever gas station is based ontown or on route of travel

21% ofbuyers

Not loyal to brand or station andrarely buy premium … frequently on

tight budgets.

20% ofbuyers

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* Selecting the segmentation strategySelecting the segmentation strategy* Deciding how to segmentDeciding how to segment* Strategic analysis of market segmentsStrategic analysis of market segments

* Customer analysisCustomer analysis* Competitor analysisCompetitor analysis* Positioning analysisPositioning analysis* Estimating segment attractivenessEstimating segment attractiveness* Segmentation “fit” and implementationSegmentation “fit” and implementation

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CustomerAnalysis

PositioningAnalysis

Financial andMarket

Attractiveness

CompetitorAnalysis

Strategic Analysis of Market SegmentsStrategic Analysis of Market Segments

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Segmentation “Fit” for ImplementationSegmentation “Fit” for Implementation

Segment Attractivenessand Internal Compatibility

Internal Compatibility

Market SegmentAttractiveness

High Low

High

Low

Attractive segmentsthat match with

companycapabilities

Attractive segmentsbut with poor match

with companycapabilities

Unattractive segmentsthat do not match withcompany capabilities

Unattractive segmentsbut with match to

companycapabilities

Ch. 2

Business

Transcript of Ch. 2