Chapter 2 – Strategic Planning & The Marketing Environment
- Explain how companies develop the objectives driving their strategies.
- Describe the different types of product strategies and market entry strategies that companies pursue.
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 measurable, if possible. “To increase sales by 2% by the end of the year” is an example of an objective an organization might develop.
Objectives help guide and motivate a company’s employees and give its managers reference points for evaluating the company’s marketing actions. Although many organizations publish their mission statements, most for-profit companies do not publish their objectives.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 increased 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 company’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.” The way companies analyze their different divisions or businesses will be discussed later in the chapter.
Strategies are the means to the ends, the game plan, or what a company is going to do to achieve its objectives. Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily. Tactics include specific actions, such as coupons, television commercials, banner ads, and so on, taken to execute the strategy. PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including “mega brands,” which include nineteen individual brands that generate over $1 billion in sales each. The tactics may consist of specific actions (commercials during the Super Bowl; coupons; buy one, get one free, etc.) to advertise each brand.
Companies 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 inexpensively), Walmart has simultaneously pursued a strategy of opening new stores and its online presence rapidly around the world. Many companies develop marketing strategies as part of their general, overall business plans. Other companies prepare separate marketing plans.
A marketing plan is a strategic plan at the functional level that provides a company’s marketing group with direction. It is a road map that improves the company’s understanding of its competitive situation. The marketing plan also helps the company 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. Next, let’s take a look at the different types of basic market strategies companies pursue before they develop their marketing plans.
This theory uses a two by two matrix with products on the horizontal axis and markets on the vertical access. When looking at markets, it refers to existing markets (customers which are already targeted) and new markets (customers that are not currently targeted). Let’s look at each of these in some detail. ‡
Market penetration strategies focus on increasing a company’s sales of its existing products to its existing customers. Getting existing customers to buy more, more often or attract target customers who haven’t purchase before. Companies often offer consumers special promotions or low prices to increase their usage 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 utilizing a penetration strategy. For example, many of the consumer-packaged goods companies such as Coke and Pepsi will often feature their beverages in the weekly flyers of various retailers. The thinking is by offering the product on sale, it gets existing customers to buy more of or more often the product that they already purchase.
Product development strategies involve creating new products for existing target 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. Gatorade Zero, introduced by PepsiCo in 2018, is an example (Arthur, 2018). Some of their existing customers want the thirst quenching and replenishing benefits, but didn’t want the calories. Keep in mind, 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 recent economic downturn, 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 for 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 such as Russia, China, and India. Decisions to enter foreign markets are based on a company’s resources as well as the complexity of factors such as the political environmental, economic conditions, competition, customer knowledge, and probability of success in the desired market. As Figure 2.7 “Product and Market Entry Strategies” shows, there are different ways, or strategies, by which companies can enter international markets. The strategies vary in the amount of risk, control, and investment that companies face. Companies 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 companies export their products to foreign markets.
Companies can also license, or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or companies in foreign markets. Licensing is a popular strategy, but companies must figure out how to protect their interests 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 products, which cut into Louis Vuitton’s profits.
Diversification strategies involve entering new markets with new products or doing something outside a company’s current businesses. Companies 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. Googles purchase of Picassa (a photo sharing site) is an example of a diversification attempt that failed.
Developing Sustainable Competitive Advantage (SCA)
Another way companies develop strategies is by developing a sustainable competitive advantage (SCA). SCA is when a company develops an advantage over the competition that cannot easily be copied and can be maintained over the long term. There are four types of SCA. They include; locational excellence, operational excellence, product excellence and customer excellence. Let’s look at these individually (Treacy and Wiersema, 1995). ‡
Locational excellence is a form of SCA that is developed by creating an advantage for your company through the number of locations a company has or through their internet presence. This type of SCA is particularly important for retailers and service providers. The reason locational excellence is sustainable is because it is not easy for competitors to add locations as they typically require significant capital investments and or franchise partners. An example of a company that has developed sustainable competitive advantage based on location is Tim Hortons. In many markets, the density of their stores makes it difficult for a competitor to copy (Treacy and Wiersema, 1995). ‡
Developing SCA through operational excellence is often done by focusing on improving your company operations through strong supplier relationships, supply chain management & efficient operation, in order to be able to offer customer better pricing. Efficient operations help to ensure that customers get the product they want to purchase, when they want it, in the quantities they want, at a lower delivered price than the competition. This helps to ensure good value for the customer. An example of a company that has developed SCA based on operational excellence is Walmart. They have strong supplier relationships, significant purchase power and efficient operations which allows them to offer better pricing to customers (Treacy and Wiersema, 1995).‡
SCA through product excellence is developed by having and offering customers products that have a high perceived value and or effective branding & positioning. This can only be achieved if your company’s offering is unique and competitors cannot easily offer a similar product. A customer believes there is high perceived value from a product when they feel like they are getting more from the purchase of a product than what they must give up to purchase the product (remember the value equation from Chapter 1). Sometimes, high perceived value can also be achieved through branding and positioning (more on this later). A good example of a company that has developed a sustainable competitive advantage through product excellence is the Brand Supreme. Through their positioning and unique product offering in limited supply, Supreme customers believe that Supreme products have high perceive value (Treacy and Wiersema, 1995). ‡
Customer excellence is another form of developing SCA. Customer excellence is achieved by developing value-based strategies for retaining loyal customers and providing them excellent customer service. It is about creating strategies that help build customer loyalty. Customer loyalty is not simply preferring one brand over another, but it is more about the reluctance to shop with competitor companies. Customer excellence can also be achieved by offering superior customer service. While it is more difficult to develop SCA through offering excellent customer service, because of the variability of humans offering the customer service, once a company develops a reputation for offering good customer service, it makes it difficult for competitors to match. An example of a company that has developed SCA through customer excellence would be Apple or Amazon. Each of these companies has a strong reputation for excellent customer service which has created loyal customers who regularly buy from them (Treacy and Wiersema, 1995). ‡