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Marketing Strategy
A Decision-Focused Approach
Eighth Edition
Orville C. Walker, Jr.
James D. Watkins Professor of Marketing,
Emeritus
University of Minnesota
John W. Mullins
Associate Professor of Management Practice
in Marketing and Entrepreneurship
London Business School
MARKETING STRATEGY: A DECISION-FOCUSED APPROACH, EIGHTH EDITION
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY
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Library of Congress Cataloging-in-Publication Data
Walker, Orville C.
Marketing strategy : a decision-focused approach/Orville C. Walker, Jr., John W. Mullins.—8th ed.
p. cm.
Includes index.
ISBN 978-0-07-802894-6—ISBN 0-07-802894-9 1.Marketing—Management. I. Mullins, John W. (John Walker)
II. Title.
HF5415.13.W249 2014
658.8’02—dc23
2012041227
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement
by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites.
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About the Authors
Orville C. Walker, Jr.
Orville C. Walker, Jr., is Professor Emeritus in the University of Minnesota’s Carlson
School of Management, where he served as the James D. Watkins Professor of Marketing
and Director of the PhD Program. He holds a master’s degree in social psychology from
Ohio State University and a PhD in marketing from the University of Wisconsin–Madison.
Orville is the coauthor of three books and has published more than 50 research articles
in scholarly and business journals. He has won several awards for his research, including
the O’Dell award from the Journal of Marketing Research, the Maynard award from the
Journal of Marketing, and a lifetime achievement award from the Sales Management Interest Group of the American Marketing Association.
Orville has been a consultant to a number of business firms and not-for-profit organizations, and he has taught in executive development programs around the world, including
programs in Poland, Switzerland, Scotland, and Hong Kong. Perhaps his biggest business
challenge, however, has been attempting to turn a profit as the owner-manager of a small
vineyard in western Wisconsin.
John W. Mullins
John Mullins is Associate Professor of Management Practice in Marketing and Entrepreneurship at London Business School. He earned his MBA at the Stanford Graduate School of Business and, considerably later in life, his PhD in marketing from the University of Minnesota.
An award-winning teacher, John brings to his teaching and research 20 years of executive
experience in high-growth firms, including two ventures he founded, one of which he took
public.
Since becoming a business school professor in 1992, John has published more than 40
articles in a variety of outlets, including Harvard Business Review, Sloan Management
Review, the Wall Street Journal, the Journal of Product Innovation Management, and the
Journal of Business Venturing. His research has won national and international awards
from the Marketing Science Institute, the American Marketing Association, and the Richard D. Irwin Foundation. John is coauthor of Marketing Strategy: A Strategic DecisionMaking Approach, 8th edition.
John’s consulting, executive education, and case-writing regularly take him to destinations in Africa, India, and Latin America. John’s best-selling trade book, The New Business Road Test: What Entrepreneurs and Executives Should Do Before Writing a Business
Plan, is the definitive work on the assessment and shaping of market opportunities. John’s
newest trade book, coauthored with noted venture capital investor Randy Komisar and also
a bestseller, Getting to Plan B: Breaking Through to a Better Business Model, has won
widespread critical acclaim. It is reshaping the approach entrepreneurs and other innovators take to starting their new ventures.
iii
Brief Table of Contents
Preface
xi
SECTION THREE
Formulating Marketing Strategies
SECTION ONE
Introduction to Strategy
8. Marketing Strategies for New Market
Entries 189
1
1. Market-Oriented Perspectives Underlie
Successful Corporate, Business, and
Marketing Strategies 3
9. Strategies for Growth Markets
2. Corporate Strategy Decisions and Their
Marketing Implications 31
3. Business Strategies and Their Marketing
Implications 58
85
4. Understanding Market Opportunities
87
5. Measuring Market Opportunities:
Forecasting and Market Knowledge 114
11. Marketing Strategies for a Digitally
Networked World 278
SECTION FOUR
305
12. Organizing and Planning for Effective
Implementation 307
13. Measuring and Delivering Marketing
Performance 333
6. Targeting Attractive Market
Segments 139
Name Index
7. Differentiation and Brand Positioning 162
Subject Index
iv
219
10. Strategies for Mature and Declining
Markets 245
Implementation and Control
SECTION TWO
Opportunity Analysis
187
361
364
Table of Contents
Preface
Market Influences on the Corporate Mission 34
Criteria for Defining the Corporate Mission 35
Social Values and Ethical Principles 35
Why Are Ethics Important? The Marketing Implications
of Ethical Standards 36
Getting Caught Can Be Costly 37
xi
SECTION ONE
1
Introduction to Strategy
1
Chapter One 3
Market-Oriented Perspectives Underlie
Successful Corporate, Business,
and Marketing Strategies 3
Corporate Objectives
Strategic Challenges Addressed in Chapter 1 4
Three Levels of Strategy: Similar Components
but Different Issues 6
Gaining a Competitive Advantage
Corporate Growth Strategies 42
What Is a Strategy 6
The Components of Strategy 6
The Hierarchy of Strategies 7
Corporate Strategy 8
Business-Level Strategy 8
Marketing Strategy 10
What Is Marketing’s Role in Formulating
and Implementing Strategies? 10
Variations in Marketing’s Strategic Influence 11
Market-Oriented Management 11
Do Customers Always Know What They Want? 12
Does Being Market-Oriented Pay? 14
Factors That Mediate a Firm’s Market Orientation 15
Recent Developments Affecting the Strategic Role
of Marketing 17
The Future Role of Marketing 20
Formulating and Implementing Marketing Strategy—
An Overview of the Process 21
A Decision-Making Focus 21
Analysis Comes First—The Four “Cs” 21
Integrating Marketing Strategy with the Firm’s Other
Strategies and Resources 21
Market Opportunity Analysis 22
Formulating Marketing Strategies for Specific Situations 24
Implementation and Control of the Marketing Strategy 24
The Marketing Plan—A Blueprint for Action 24
Chapter Two 31
Corporate Strategy Decisions and Their
Marketing Implications 31
Strategic Challenges Addressed in Chapter 2
41
Expansion by Increasing Penetration of Current
Product-Markets 43
Expansion by Developing New Products for Current
Customers 43
Expansion by Selling Existing Products to New Segments
or Countries 44
Expansion by Diversifying 44
Expansion by Diversifying through Organizational
Relationships or Networks 45
Allocating Corporate Resources
45
Portfolio Models 46
Value-Based Planning 49
Using Customer Equity to Estimate the Value of
Alternative Marketing Actions 51
Sources of Synergy
52
Knowledge-Based Synergies 52
Corporate Identity and the Corporate Brand as a Source
of Synergy 52
Corporate Branding Strategy—When Does a Strong
Corporate Brand Make Sense? 53
Synergy from Shared Resources 54
Chapter Three 58
Business Strategies and Their Marketing
Implications 58
Strategic Challenges Addressed in Chapter 3 60
Strategic Decisions at the Business-Unit Level 61
How Should Strategic Business Units Be Designed?
Business-Unit Objectives 62
Allocating Resources within the Business Unit 63
How Do Businesses Compete?
32
Implications for Marketers and Their Marketing Plans 33
Corporate Scope—Defining the Firm’s Mission
38
Enhancing Shareholder Value: The Ultimate
Objective 40
The Marketing Implications of Corporate
Objectives 41
34
61
63
Generic Business-Level Competitive Strategies 63
Do the Same Competitive Strategies Work for SingleBusiness Firms and Start-ups? 66
v
vi Table of Contents
Do the Same Competitive Strategies Work for Service
Businesses 67
Do the Same Competitive Strategies Work for Global
Competitors? 67
Will the Internet Change Everything? 68
How Do Competitive Strategies Differ from One
Another? 69
Differences in Scope 70
Differences in Goals and Objectives 71
Differences in Resource Deployment 71
Differences in Sources of Synergy 72
Deciding When a Strategy Is Appropriate:
The Fit Between Business Strategies and the
Environment 72
Impact and Timing of Event
Appropriate Conditions for a Prospector Strategy 74
Appropriate Conditions for an Analyzer Strategy 74
Appropriate Conditions for a Defender Strategy 74
How Different Business Strategies Influence
Marketing Decisions 76
Product Policies 77
Pricing Policies 79
Distribution Policies 79
Promotion Policies 79
What If the Best Marketing Program for a Product
Does Not Fit the Business’s Competitive Strategy? 80
SECTION TWO
85
Opportunity Analysis
85
Chapter Four 87
Understanding Market Opportunities
Understanding Markets at the Micro Level 104
Understanding Industries at the Micro Level 106
The Team Domains: The Key to the Pursuit of
Attractive Opportunities 107
Mission, Aspirations, and Risk Propensity 107
Ability to Execute on the Industry’s Critical Success
Factors 108
Connectedness: It’s Who You Know, Not What You
Know 108
Putting the Seven Domains to Work 109
Anticipating and Responding to Environmental
Change 110
87
Strategic Challenges Addressed in Chapter 4 89
Markets and Industries: What’s the Difference? 89
Assessing Market and Industry Attractiveness 90
Macro Trend Analysis: A Framework for Assessing
Market Attractiveness, Macro Level 91
The Demographic Environment 91
The Sociocultural Environment 94
The Economic Environment 94
The Regulatory Environment 95
The Technological Environment 97
The Natural Environment 98
Your Market Is Attractive: What about Your
Industry 99
Porter’s Five Competitive Forces 99
A Five Forces Analysis of the Cellular Phone Service
Industry 102
Challenges in Macro-Level Market and Industry
Analysis 103
Information Sources for Macro-Level Analyses 104
110
Swimming Upstream or Downstream: An Important
Strategic Choice 111
Chapter Five 114
Measuring Market Opportunities:
Forecasting and Market Knowledge 114
Strategic Challenges Addressed in Chapter 5
Every Forecast Is Wrong! 116
A Forecaster’s Tool Kit: A Tool for Every
Forecasting Setting 116
115
Statistical Methods 118
Observation 119
Surveys or Focus Groups 119
Analogy 120
Judgment 121
Experiments and Market Tests 121
Other Mathematical Approaches: Chain Ratios and
Indices 122
Rate of Diffusion of Innovations: Another Perspective
on Forecasting 123
The Adoption Process and Rate of Adoption 123
Adopter Categories 124
Implications of Diffusion of Innovation Theory for
Forecasting Sales of New Products and
New Firms 124
Cautions and Caveats in Forecasting
126
Psychological Biases in Forecasting 126
Common Sources of Error in Forecasting 126
Keys to Good Forecasting 127
Why Data? Why Marketing Research 128
Customer Relationship Management: Charting a Path
Toward Competitive Advantage 129
Internal Records Systems 130
Marketing Databases Make CRM Possible
Why CRM Efforts Fail 134
Client Contact Systems 134
Competitive Intelligence Systems 136
130
Table of Contents vii
Marketing Research: A Foundation for Marketing
Decision Making 135
What Users of Marketing Research Should Ask 136
Chapter Six 139
Targeting Attractive Market Segments
139
Strategic Challenges Addressed in Chapter 6 140
Do Market Segmentation and Target Marketing Make
Sense in Today’s Global Economy 141
Most Markets Are Heterogeneous 142
Today’s Market Realities Often Make Segmentation
Imperative 142
How Are Market Segments Best Defined?
143
Who They Are: Segmenting Demographically 144
Where They Are: Segmenting Geographically 146
Geodemographic Segmentation 146
How They Behave: Behavioral Segmentation 147
Innovative Segmentation: A Key to Marketing
Breakthroughs 150
Choosing Attractive Market Segments: A Five-Step
Process 151
Step 1: Select Market Attractiveness and Competitive
Position Factors 152
Step 2: Weight Each Factor 154
Step 3: Rate Segments on Each Factor, Plot Results on
Matrices 154
Step 4: Project Future Position for Each Segment 155
Step 5: Choose Segments to Target, Allocate
Resources 156
Different Targeting Strategies Suit Different
Opportunities 156
Niche-Market Strategy 157
Mass-Market Strategy 157
Growth-Market Strategy 158
Global Market Segmentation
159
Strategic Challenges Addressed in Chapter 7 163
Differentiation: One Key to Customer Preference and
Competitive Advantage 164
Differentiation among Competing Brands 164
165
Limitations of Physical Positioning
The Outcome of Effective Positioning: Building
Brand Equity 181
Managing Brand Equity
181
Positioning Decisions in Global Markets
Some Caveats in Positioning
Decision Making 183
SECTION THREE
183
187
Formulating Marketing Strategies
187
Chapter Eight 189
Marketing Strategies for New Market
Entries 189
Strategic Challenges Addressed in Chapter 8 190
Sustaining Competitive Advantage over the Product
Life Cycle 191
Market and Competitive Implications of Product LifeCycle Stages 192
Strategic Implications of the Product Life Cycle 196
Limitations of the Product Life-Cycle Framework 197
Chapter Seven 162
Differentiation and Brand
Positioning 162
Physical Positioning
Step 1: Identify a Relevant Set of Competitive
Products 168
Step 2: Identify Determinant Attributes 170
Step 3: Collect Data about Customers’ Perceptions for
Brands in the Competitive Set 171
Step 4: Analyze the Current Positions of Brands in the
Competitive Set 171
Step 5: Determine Customers’ Most Preferred
Combination of Attributes 176
Step 6: Consider Fit of Possible Positions with Customer
Needs and Segment Attractiveness 177
Step 7: Write Positioning Statement or Value
Proposition to Guide Development of Marketing
Strategy 178
165
Perceptual Positioning 166
Levers Marketers Can Use to Establish Brand
Positioning 167
Preparing the Foundation for Marketing Strategies:
The Brand Positioning Process 168
New Market Entries—How New Is New? 197
Objectives of New Product and Market
Development 199
Market Entry Strategies: Is It Better to Be a Pioneer or
a Follower? 201
Pioneer Strategy 201
Not All Pioneers Capitalize on Their Potential
Advantages 203
Follower Strategy 204
Determinants of Success for Pioneers and
Followers 205
Strategic Marketing Programs for Pioneers
Mass-Market Penetration 207
Niche Penetration 207
Skimming and Early Withdrawal
209
207
viii Table of Contents
Marketing Program Components for a Mass-Market
Penetration Strategy 209
Marketing Program Components for a Niche Penetration
Strategy 215
Marketing Program Components for a Skimming
Strategy 215
Strategies for Maintaining Competitive
Advantage 250
Methods of Differentiation 251
Methods of Maintaining a Low-Cost Position 256
Customers’ Satisfaction and Loyalty Are Crucial for
Maximizing Their Lifetime Value 258
Marketing Strategies for Mature Markets
Chapter Nine 219
Strategies for Growth Markets
219
Strategic Challenges Addressed in
Chapter 9 220
Opportunities and Risks in Growth
Markets 222
Strategies for Declining Markets
Gaining Share Is Easier 222
Share Gains Are Worth More 223
Price Competition Is Likely to Be Less Intense 224
Early Entry Is Necessary to Maintain Technical
Expertise 224
Growth-Market Strategies for Market Leaders
225
Marketing Objectives for Share Leaders 226
Marketing Actions and Strategies to Achieve ShareMaintenance Objectives 226
Fortress, or Position Defense, Strategy 228
Flanker Strategy 231
Confrontation Strategy 232
Market Expansion Strategy 233
Contraction, or Strategic Withdrawal, Strategy 233
Share-Growth Strategies for Followers
233
Marketing Objectives for Followers 233
Marketing Actions and Strategies to Achieve Share
Growth 234
Deciding Whom to Attack 236
Frontal Attack Strategy 238
Leapfrog Strategy 239
Flanking and Encirclement Strategies 240
Guerrilla Attack 241
Supporting Evidence 242
246
Challenges in Mature Markets 246
Challenges in Declining Markets 247
Shakeout: The Transition from Market Growth to
Maturity 247
Characteristics of the Transition Period 247
Strategic Traps during the Transition 248
Strategic Choices in Mature Markets
249
268
Relative Attractiveness of Declining Markets
Divestment or Liquidation 271
Marketing Strategies for Remaining
Competitors 271
268
Chapter Eleven 278
Marketing Strategies for a Digitally
Networked World 278
Strategic Challenges Addressed in
Chapter 11 279
Does Every Company Need a Digital or Social
Media Strategy? 280
Threats or Opportunities? The Inherent Advantages
and Disadvantages of the Digitally Networked World
for Marketers 282
The Ability to Optimize 282
The Syndication of Information 283
Increasing Returns to Scale of Network Products 284
The Ability to Efficiently Personalize and Customize
Market Offerings 285
Disintermediation and Restructuring of Distribution
Channels 286
Global Reach, 24/7 Access, and Instantaneous
Delivery 287
Are These Digital World Fundamentals
Opportunities or Threats? 287
First-Mover Advantage: Fact or Fiction? 289
Developing a Strategy for a Digitally Networked
World: A Decision Framework 290
Chapter Ten 245
Strategies for Mature and Declining
Markets 245
Strategic Challenges Addressed in Chapter 10
260
Strategies for Maintaining Current Market
Share 260
Strategies for Extending Volume Growth 262
Marketing Applications for a Digitally Networked
World 290
Developing Digital World Marketing Strategies:
The Critical Questions 296
Managing Digitally Networked Strategies: The Talent
Gap 300
Developing Strategies to Serve Digital and Social
Networking Markets 301
Serving the Digitally Networked Markets of
Tomorrow 301
Table of Contents ix
SECTION FOUR
305
Implementation and Control
305
Chapter Twelve 307
Organizing and Planning for Effective
Implementation 307
Strategic Challenges Addressed in Chapter 12 308
Designing Appropriate Administrative Relationships
for the Implementation of Different Competitive
Strategies 310
Business-Unit Autonomy 311
Shared Programs and Facilities 311
Evaluation and Reward Systems 312
Designing Appropriate Organizational Structures and
Processes for Implementing Different Strategies 313
Functional Competencies and Resource Allocation 313
Additional Considerations for Service
Organizations 315
Organizational Structures 316
Recent Trends in Organizational Design 320
Organizational Adjustments as Firms Grow and Markets
Change 321
Organizational Designs for Selling in Global
Markets 322
Marketing Plans: The Foundation for Implementing
Marketing Actions 323
The Situation Analysis 327
Key Issues 328
Objectives 329
Marketing Strategy 329
Action Plans 329
Projected Profit-and-Loss Statement
Contingency Plans 330
Chapter Thirteen 333
Measuring and Delivering Marketing
Performance 333
Strategic Challenges Addressed in Chapter 13 334
Designing Marketing Metrics Step by Step 335
Setting Standards of Performance 336
Specifying and Obtaining Feedback Data
Evaluating Feedback Data 342
Taking Corrective Action 343
Design Decisions for Strategic Monitoring
Systems 343
Identifying Key Variables 344
Tracking and Monitoring 344
Strategy Reassessment 345
Design Decisions for Marketing Metrics
345
Who Needs What Information? 345
SEO and SEM Analysis 349
When and How Often Is the Information Needed? 350
In What Media and in What Format(s) or Levels of
Aggregation Should the Information Be Provided? 351
Does Your System of Marketing Metrics
Measure Up? 352
What Contingencies Should Be Planned For? 353
Global Marketing Monitoring 355
A Tool for Periodic Assessment of Marketing
Performance: The Marketing Audit 355
Types of Audits
355
Measuring and Delivering Marketing
Performance 357
Name Index
330
341
Subject Index
361
364
Preface
WHY THIS COURSE?
The best of the leading business schools and other executive education programs offer
capstone or other elective courses in marketing whose strategic perspective challenges
students to “pull it all together” and integrate what they have learned in earlier courses—
including those in marketing and other disciplines—in making strategic marketing decisions. Whether called Marketing Strategy, Strategic Market Planning, Strategic Brand
Management, or something else, such courses typically ask students to apply what they
learn to decision making in case studies that bring alive real marketing situations. Many
also ask students to complete a term-long project of some kind, such as the development
of a marketing plan for a new or existing product or a new venture. We have written this
text to serve exactly these kinds of case-based and project-based capstone and advanced
elective courses.
WHY THIS BOOK?
Why did your instructor choose this book? Chances are that it was for one or more of the
following reasons:
• Among your instructor’s objectives is to give you the necessary tools and frameworks
to enable you to be an effective contributor to marketing decision-making, whether as
an entrepreneur or in an established firm. This book’s focus on decision making sets it
apart from other texts that place greater emphasis on description of marketing phenomena than on the strategic and tactical marketing decisions that marketing managers and
entrepreneurs must make each and every day.
• Your instructor prefers a tightly written text whose strategic perspectives serve as a
concise foundation around which a broader set of materials, such as case studies or
supplementary readings that fit the specific theme of the course, are assembled. This text
assumes student familiarity with—and thus does not repeat—the basics of buyer behavior, the 4 Ps, and other marketing fundamentals typically covered in earlier courses.
• Your instructor wants to use the most current and web-savvy book available. We integrate the latest new-economy developments into each chapter, and we devote an entire
chapter—Chapter 11—to the development of marketing strategies for the new economy. In addition, we supplement the book with an interactive website to help you learn
and to help your instructor choose the best case and other materials and in-class activities. Our goal—and probably that of your instructor, as well—is to make both the latest
web-based tools as well as time-tested marketing principles relevant to those of you
who will work in either old- or new-economy companies.
• Your instructor appreciates and believes you will benefit from the real-world, global
perspectives offered by the authors of this book. Our combined entrepreneurial, marketing management, case-writing, and consulting experience spans a broad variety of
manufacturing, service, software, and distribution industries and has taken us—and
thereby you, the reader—around the world many times over.
As the reader will see from the outset in Chapter 1, marketing decision making is a critical
activity in every firm, including start-ups—not just in big companies with traditional marketing departments. Further, it is not just marketing managers who make marketing decisions. People in nearly every role in every company can have a powerful influence on how
happy its customers are—or are not—with the goods and services the company provides.
xi
xii Preface
Stockbrokers must attract new customers. Accounting and consulting firms must find ways
to differentiate their services from other providers so their customers have reasons to give
them their business. Software engineers developing the next great internet or mobile application must understand how their technology can benefit the intended customer, for
without such benefits, customers will not buy. Thus, we have written this book to meet
the marketing needs of readers who hope to make a difference in the long-term strategic
success of their organizations—whether their principal roles are in marketing or otherwise.
In this brief preface, we want to say a bit more about each of the four distinctive benefits—
bulleted previously—that this book offers its readers. We also point out the key changes
in this edition compared to previous ones, and we thank our many students, colleagues,
and others from whom we have learned so much, without whom this book would not have
been possible.
A FOCUS ON DECISION MAKING
This eighth edition of Marketing Strategy: A Decision-Focused Approach retains the strategic perspectives that have marked the earlier editions, while providing, in each chapter,
specific tools and frameworks for making marketing decisions that take best advantage
of the conditions in which the firm finds itself—both internally, in terms of the firm’s mission and competencies, and externally, in terms of the market and competitive context in
which it operates.
This decision-focused approach is important to students and executives who are our
readers, because in most advanced marketing management classes and executive courses, the
students or participants will be asked to make numerous decisions—decisions in case studies
about what the protagonist in the case should do; decisions in a course project, such as those
entailed in developing a marketing plan; or decisions in a marketing simulation game.
Our decision-focused approach is also important to employers, who tell us they want
today’s graduates to be prepared to “hit the ground running” and contribute to the firm’s
decision making from day one. The ability to bring thoughtful and disciplined tools and
frameworks—as opposed to seat-of-the-pants hunches or blind intuition—to marketing
decision making is one of the key assets today’s business school graduates offer their employers. This book puts the tools in the toolbox to make this happen. In the end, employers
want to know what their new hires can do, not just what they know.
A CONCISE STRATEGIC FOUNDATION
This eighth edition serves as a concise foundation for a capstone or advanced elective
course in marketing whose focus is on strategic issues. By combining this book with supplemental readings and/or cases, instructors can design a rich and varied course in which
students learn experientially, as they focus on the various strategic decisions that define
contemporary marketing theory and practice.
Because the book is concise, students learn the key strategic principles quickly, so they
can devote most of their reading and prep time to the application of those principles to
cases or a course project. The book’s concise strategic focus also helps instructors build
specialized elective courses—in Strategic Brand Management or in Marketing in the Socially Networked Economy, for example—that draw on supplemental readings to complete the thematic picture.
WEB-SAVVY INSIGHTS
Because this book has been written by authors from web-savvy institutions who work with
web-savvy companies, it brings a realistic, informed, and web-savvy perspective to an
important question many students are asking: “Have the advent of Internet, Facebook, and
Preface xiii
Twitter, and the latest mobile apps changed all the rules?” Our answer is “well, yes and no.”
On one hand, today’s digitally networked world has made available a host of new marketing
tools—from blogs to tweets to e-mail marketing to delivery of digital goods and services
over the Internet—most of which are available to companies in the so-called old and new
economies alike. On the other hand, time-tested marketing fundamentals—such as understanding one’s customers and competitors and meeting customer needs in ways that are differentiated from the offerings of those competitors—have become even more important in
today’s fast-moving world, as the many dot-com failures a few years ago attest.
Thus, throughout the book, we integrate examples of young entrepreneurial companies,
high-tech, and no-tech—both successful and otherwise—to show how both yesterday’s
and today’s marketing tools and decision frameworks can most effectively be applied.
A REAL-WORLD, GLOBAL PERSPECTIVE
Theory is important because it enhances our understanding of business phenomena and
helps managers think about what they should do. It is in the application of theory—to the
world of marketing practice—where we believe this book excels. Our decision focus is all
about application. But we don’t just bring an academic perspective to the party, important
as that perspective is.
Both of us have successfully started and managed entrepreneurial companies—a vineyard in Orville’s case and a fresh pasta company and an outdoor products company as
part of the 20 years of executive experience with large companies and small ones that
preceded John’s academic career. In short, both of us have practiced the marketing lessons
we preach, and we have the battle scars to prove it.
Both of us bring a rich variety of both domestic American and international consulting
and executive education experience, with the latter ranging from Scotland to South Africa,
from London to Lagos, from Hyderabad to Hong Kong and more. John’s platform at London Business School, one of the world’s most global institutions, keeps us in touch with
the latest developments on the global business scene.
Both of us have contributed the fruits of our research to the growing body of knowledge in
the marketing management, marketing strategy, new products, and entrepreneurship arenas.
The result of our collective and varied experience and expertise is a book marked by its
real-world, global perspective. The book’s many examples of real people from around the
world making real strategic marketing decisions include examples of start-ups and highgrowth companies as well as examples of larger, more established firms.
WHAT’S NEW IN THIS EDITION?
In this eighth edition of Marketing Strategy, we’ve gone to considerable lengths to address
four key trends that are sweeping the world of marketing theory and practice, trends that
are creating opportunities for well-educated graduates to bring new tools and ideas to their
employers or to their own entrepreneurial ventures:
• The growing interest among students everywhere in learning what it will take to run
their own companies, whether now—upon, or even before, graduation—or later in their
careers.
• The growing importance of emerging markets such as India, China, Brazil, and Russia
on the global economic stage and the growing realization in companies everywhere that
business today is a global game.
• The increasing attention being given in many companies to issues concerning the measurement of marketing performance and the extent to which marketing activities and
spending contribute to the creation of shareholder value.
xiv Preface
• The changing nature of marketing research. These changes are being driven by
two factors: the power of the Internet to make many kinds of research both less
expensive and faster to carry out, and by a growing recognition that understanding
customer desires in today’s complex world requires more than an occasional customer survey.
• The growing ubiquity of social networks—Facebook, LinkedIn, Twitter, and the like—
which provide powerful new communications tools for marketers of all kinds, whether
companies with goods to sell or political organizations out to change the world.
We’ve addressed the first of these issues, students’ growing interest in all things entrepreneurial, by adding more examples throughout the book of how entrepreneurial companies—not just large, established ones—are using the strategic tools and frameworks
that this book brings to life. A new chapter-opening vignette on opportunities in the “app
economy” should prove to be of interest to our many entrepreneurially minded readers. As
the author team knows from personal experience, the entrepreneurial path is a long and
difficult—but always exciting—one, and we’d like our readers who choose such a path to
be well equipped for the journey.
Recent editions of this book have been known for their global perspective, and this edition is no exception. We have worked especially hard to add examples from fast-growing
emerging economies like India, China, and Russia, and we’ve added two new global case
vignettes—one on the emerging middle class in the developing world and another on
Swedish appliance maker Electrolux’s global strategy. We have also added a new section on positioning decisions in global markets in Chapter 6, and new material on some of
the unique problems encountered in marketing across cultures, such as the discussion of
stricter international bribery laws in Chapter 2.
To reflect the growing interest—some would say concern—about the measurement of
marketing performance, we’ve added a new section to Chapter 13 to address the tools for
analyzing and making the most of search engine optimization (SEO) and search engine
marketing (SEM) techniques, two now essential arrows in every marketer’s quiver that
didn’t even exist just a few editions ago. New technology that can bring up-to-the-minute
performance data to managers’ desktops is having profound effects on how today’s most
forward-thinking companies are run. Readers of this eighth edition should be equipped to
contribute to the development of executive dashboards and other systems for measuring
and tracking marketing performance.
Perhaps nothing, however, provides a greater opportunity for today’s marketing graduates than the continuing rise of Internet penetration around the world and its growing
importance for marketers—whether as a vehicle for promoting one’s brand and building
loyalty, a means of conducting marketing research, a way to disintermediate one’s distribution channel and reach customers directly, or for other reasons. In this eighth edition, we’ve
completely updated and revamped Chapter 11, which now focuses on the marketing implications of today’s digitally and socially networked world. Though further innovations in
this arena will no doubt have hit our readers’ cell phones, laptops, and iPads by the time the
ink is dry on this edition, Chapter 11 provides an underpinning to help students and faculty
discuss why and how it’s all happening, and to draw meaningful managerial implications
for both marketers and aspiring entrepreneurs.
In addition to these more significant changes, every chapter has been refreshed, its
examples updated, and the latest empirical evidence of what works and what doesn’t
incorporated. We’ve made a special effort to increase our coverage of recent conceptual developments and empirical findings in the academic literature as well as insights
from the popular business press. However, the overall structure and flow of this eighth
Preface xv
edition remains unchanged. Perhaps most importantly, its emphasis on strategic decision making remains intact. This book’s decision-focused approach remains its key
strength.
SPECIAL FEATURES
There are several special features we’ve used to call reader’s attention to key concepts and
examples, to make the book more readable and its key themes more engaging, and to direct
both readers and instructors to additional resources to help make our marketing strategy
subject matter come alive. These features include the following:
• Case vignettes: We open each chapter with a brief case vignette to illustrate how some
of that chapter’s key themes have been applied in a real company, chosen with the
book’s global focus clearly in mind.
• Strategic issues: We note in the margins key concepts or questions that are addressed
more thoroughly in the adjacent text, to ensure that time-pressed readers don’t overlook
critical information or crucial questions they should ask.
• Global and Internet icons: We place icons in the margins to call the reader’s attention
to global examples as well as examples of how marketing strategy concepts are playing
out in the Internet arena.
• Marketing plan exercises: Because many of our readers will be asked to prepare a marketing plan, whether on the job or as a class project, we highlight at the end of each
chapter how that chapter’s material might be effectively put to use in developing a
marketing plan.
• Online learning center at www.mhhe.com/walker8e: We have placed a variety of supplemental materials for students and instructors on the book’s website. To help students
“crack tomorrow’s case” or “pass the exam,” the student resources include chapter
quizzes and review material. Instructor resources include an instructor’s manual, PowerPoint slides, and a test bank. In addition, we provide a list of recommended readings
and cases to enable instructors to choose the most current and compelling materials in
designing or updating a case-based or project-based course that’s focused on marketing
strategy or related issues
THANKS!
Simply put, this book is not solely our work—far from it. Many of our students, colleagues, and those we work with in industry have made contributions that have significantly shaped our perspectives on marketing decision making. We are grateful to
all of them. We wish to give special thanks to Rebecca Quinn and Elizabeth Philp,
both recent graduates of of London Business School. Rebecca’s experience at social
networking up-and-comer Wildfire has been hugely helpful in the extensive updating of Chapter 11. Without Elizabeth’s research skills, the examples in this book and
the references to current academic research would be fewer in number and far less
compelling.
We would also like to thank the following reviewers for their outstanding comments:
Chris Moberg, Ohio University; Robert M. Morgan, University of Alabama; Michael A.
Petrochuk, Walsh University; and Karl S. Rutter, Columbia University.
We also thank a small army of talented people at McGraw-Hill/Irwin for their work
that has turned our rough manuscript into an attractive and readable book. In particular,
our editors, Laura Spell, Mary Jane Lampe, and Lori Bradshaw have been instrumental in
giving birth to this edition. Without them, we’d probably still be writing!
xvi Preface
Finally, we thank our parents, without whom, of course, neither of us would be here.
To all of you we extend our love, our respect, and our gratitude for passing on to us your
curiosity and your passion for learning. We therefore dedicate this book to Jeannette and
Orville Walker, Sr., and to Alice and Jack Mullins.
Orville C. Walker, Jr.
John W. Mullins
Madison, Wisconsin, and London
Summer 2012
Section One
Introduction to Strategy
1. Market-Oriented Perspectives Underlie Successful Corporate, Business,
and Marketing Strategies
2. Corporate Strategy Decisions and Their Marketing Implications
3. Business Strategies and Their Marketing Implications
©Rena Schild/Shutterstock
Chapter One
Market-Oriented Perspectives
Underlie Successful Corporate,
Business, and Marketing
Strategies
Samsung—Changing Strategies to Build a Global Brand1
Samsung Electronics is the largest component of
South Korea’s largest chaebol—one of the giant
family-controlled conglomerates that have been instrumental in building the country’s economy over
the last half century. Samsung’s electronics unit
started out in 1970 making cheap TV sets for the
Sanyo label. Over time it morphed into a technically
innovative company that was one of the pioneers in
developing flat-screen displays, plasma TVs, multifunction cell phones, and other digital devices. But
until the mid-1990s, the unit competed primarily
by (a) producing technical components or low-cost
manufactured products for firms with better-known
brands, such as Dell, Hewlett-Packard, and
General Electric and (b) selling me-too consumer
products—such as TVs and microwave ovens—
under the Samsung brand through discount chains
such as Wal-Mart at very low prices.
Samsung’s cost-driven competitive strategy
worked well until 1996, but then several shocks in its
market and competitive environments forced a major reevaluation. First, the global market for memory
chips and other components Samsung supplied for
other electronics brands softened due to increased
competition and excess capacity. At about the same
time, sales of Samsung’s own branded products
were also declining. As Yun Jong-yong—a company
veteran who was brought in as CEO of the electronics unit—complained, Samsung could build a TV that
was technically as good as a Sony, but because of the
down-market image of the Samsung brand, its TVs
sat at the back of the store or piled up in discount
chains. Finally, the Asian financial crisis of 1997 made
a major strategic shift essential for the unit’s survival.
New Competitive
and Marketing Strategies
Mr. Yun initiated an ambitious new competitive
strategy aimed at developing and marketing technically superior products while building an image
of Samsung as a stylish, high-quality brand commanding a premium price. The objective was to
establish a unique competitive position using technical innovation and design to appeal to younger
and relatively upscale customers around the world.
“If we were to continue competing only on price,”
Mr. Yun argued, “the Chinese would slaughter us.”
Technical Innovation and R&D
In order to implement its new competitive strategy,
Samsung had to become a pioneer in developing
new digital technologies. While Sony and other
3
4
Section One Introduction to Strategy
rivals had a substantial lead in consumer electronics, that lead was rooted in the analog world.
The digital world required new technical innovations. Consequently, the firm shifted substantial
resources into R&D focused on technologies such as
large-area LCDs, display drivers and chip sets, and
mobile telephony. In the 2010 fiscal year it spent
9.1 trillion won ($7.9 billion)—about 6 percent of
the unit’s total revenue—on R&D. One quarter of
the company’s workforce—some 44,000 people—
are engaged in R&D activities in more than
40 research centers around the world.
New Product Development and Design
But cutting-edge technology does not guarantee
market success. It must be incorporated into products that deliver benefits that at least some segment of consumers will consider to be worth the
price. Some of those benefits may be subjective—
attractive styling, or a cool image. Therefore, new
product development at Samsung usually involves a
team of designers who collaborate closely with the
firm’s engineers, manufacturing people, and marketers. To ensure they stay in touch with consumer
tastes in different countries, the firm’s 450 designers are assigned to design centers in cities such as
London, Tokyo, Shanghai, and San Francisco, and
the company’s market researchers run focus groups
and user surveys in many markets around the world.
Marketing Programs to Build
the Samsung Brand
Revamping Samsung’s marketing efforts was also
critical to the success of its new competitive strategy because even the most technically sophisticated and well-designed products are likely to fail
unless potential customers know they exist, can
acquire them easily, and think they are worth the
money. Therefore, Eric Kim was recruited from
outside the firm to head a global marketing effort
for Samsung Electronics. One of his first moves
was to reorganize the firm’s distribution channels.
Consistent with the strategic objective of establishing Samsung as a high-quality brand worthy of a
premium price, many of the company’s products
were pulled out of low-priced discount chains and
distributed through service-oriented electronics
specialty stores and web retailers—such as Best
Buy and Amazon.com—instead.
To ensure consistency in Samsung’s marketing
communications across world markets, Mr. Kim
consolidated the firm’s roster of advertising agencies from 55 down to a single global advertising
group—British-based WPP. He then launched the
firm’s first brand-building campaign with fashionforward TV commercials showing off the company’s cool sense of style as well as the technical
sophistication of its products.
The firm also makes extensive use of more
contemporary promotional tools such as product
placements, sponsorships, and internet advertising
to strengthen its brand. For instance, Samsung provides both financial and technical support for a variety of sporting and cultural events in every major
region of the world. It is a sponsor of the Olympics,
Asian Games, and other international events, but
it also supports regional and local events—such as
the Montreal Jazz Festival and the Chelsea Football
Club in the United Kingdom—as a means of staying close to local customers.
The Results
Samsung Electronics’ revamped competitive strategy and the marketing programs designed to implement it have been a smashing success. According
to studies by Interbrand (a brand consultancy),
the global value of Samsung’s brand increased by
more than 200 percent over the first decade of
the twenty-first century, overtaking Sony as the
most valuable consumer electronics brand. And in
spite of the fact that Apple’s iPhone and iPad gatecrashed Samsung’s position as the “cool designer”
in the smartphone market, the brand’s value increased another 20 percent in 2011. As a result,
the unit’s global revenues reached 165 trillion won
(about $143 billion) in the 2011 fiscal year, and
after-tax profits were 13.7 trillion won.
STRATEGIC CHALLENGES ADDRESSED IN CHAPTER 1
Samsung’s experiences in the consumer electronics industry illustrate some important points
about the nature of business strategy and the interrelationships among different levels of
strategy in an organization, points that will recur as major themes throughout this book. They
Chapter One
Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 5
also demonstrate the importance of timely and accurate insights into customer desires, environmental trends, and competitors’ actions in formulating successful strategies at every level.
Most firms, particularly larger corporations with multiple divisions or business units such
as Samsung, pursue a hierarchy of interdependent strategies. Each strategy is formulated at
different levels in the organization and deals with different sets of issues. For example,
Samsung’s decision to increase the resources devoted to R&D in order to become a pioneer
in digital technology reflected the chaebol’s overarching corporate strategy which stressed
engineering excellence and the organization’s competencies in related product areas, such
as semiconductors. This level of strategy provides direction concerning the organization’s
overall mission, the kinds of businesses it should be in, and its growth policies.
On the other hand, attempts to establish a unique competitive position for its products
by using technical innovation and cool design to appeal to younger and relatively upscale
customer segments around the world reflect Samsung Electronics’ business-level strategy. This level of strategy primarily addresses how a business will compete in its industry
in order to attain a sustainable advantage over its rivals.
Finally, interrelated functional decisions about how to divide the market into segments,
which segments to target, what products to offer each target segment, what channels to
use to distribute those products, what promotional tools and appeals to employ, and what
prices to charge all reflect the marketing strategies for each of Samsung Electronics’
various product-market entries.
Because a major part of the marketing manager’s job is to monitor and analyze the
needs and desires of potential customers, emerging challenges posed by competitors, and
opportunities and threats related to trends in the external environment, they often play a
crucial role in influencing strategies formulated at higher levels in the firm. While the need
for a new competitive strategy at Samsung became obvious because of stagnating sales and
declining profits, decisions about the content of those new strategies were influenced by
information and analyses supplied by the firm’s marketing and sales personnel.
Some firms systematically incorporate such market and competitive analyses into their
planning processes. They also coordinate their activities around the primary goal of satisfying unmet customer needs. Such firms are market-oriented and follow a business philosophy commonly called the marketing concept. Market-oriented firms have been shown
to be among the more profitable and successful at maintaining strong competitive positions
in their industries over time. As we shall see later in this chapter, however, companies do
not always embrace a market orientation—nor rely as heavily on inputs from their marketing and sales personnel—in developing their strategies. Some firms’ strategies are driven
more by technology, production, or cost concerns.
Regardless of their participation or influence in formulating corStrategic Issue
porate
and business-level strategies, marketing managers’ freedom of
Each level of strategy must be consistent
action is ultimately constrained by those higher-level strategies. The
with—and therefore influenced and
constrained by—higher levels within the
objectives, strategies, and action plans for a specific product-market
hierarchy.
are but one part of a hierarchy of strategies within the firm. Each level
of strategy must be consistent with—and therefore influenced and constrained by—higher levels within the hierarchy. For example, not only the cool new digital
products developed by Samsung, but also the retail outlets used to distribute them, their
advertising appeals, promotional media, prices, and other aspects of their marketing programs were shaped by the unit’s competitive strategy of establishing Samsung as a stylish,
high-quality brand commanding a premium price.
These interrelationships among the various levels of strategy raise several questions of importance to marketing managers as well as managers in other functional areas and top executives.
What do strategies consist of, and do they have similar or different components at the corporate,
business, and functional levels? While marketing managers clearly bear the primary responsibility
for developing strategic marketing plans for individual product offerings, what role do they play in
6
Section One Introduction to Strategy
formulating strategies at the corporate and divisional or business unit level? Why do some organizations pay much more attention to customers and competitors when formulating their strategies
(i.e., why are some firms more market-oriented) than others, and does it make any difference in
their performance? What specific decisions and analytical processes underlie the formulation and
implementation of effective marketing strategies? These are the questions tackled in this chapter.
While our primary focus in this book is on the various analyses and program decisions
that underlie the development of a sound marketing strategy for a good or service, that
strategy and its various elements need to be periodically summarized and communicated
to other people and functional departments in the organization. The marketing plan is an
important tool for such communication. It spells out the objectives to be accomplished, the
actions necessary to achieve those objectives, and the timing and locus of responsibility for
each action. Consequently, the last section of this chapter briefly outlines the components
and organizational framework of a formal marketing plan. Each of the plan’s components
will be examined in more detail in one or more future chapters, and each of those chapters
will conclude with a detailed marketing planning exercise.
THREE LEVELS OF STRATEGY: SIMILAR COMPONENTS
BUT DIFFERENT ISSUES
What Is a Strategy?
Although strategy first became a popular business buzzword during the 1960s, it continues
to be the subject of widely differing definitions and interpretations. The following definition, however, captures the essence of the term:
A strategy is a fundamental pattern of present and planned objectives, resource deployments,
and interactions of an organization with markets, competitors, and other environmental factors.2
Our definition suggests that a strategy should specify (1) what (objectives to be accomplished), (2) where (on which industries and product-markets to focus), and (3) how
(which resources and activities to allocate to each product-market to meet environmental
opportunities and threats and to gain a competitive advantage).
The Components of Strategy
A well-developed strategy contains five components, or sets of issues:
1. Scope. The scope of an organization refers to the breadth of its strategic domain—the number and types of industries, product lines, and market segments it competes in or plans to
enter. Decisions about an organization’s strategic scope should reflect management’s view
of the firm’s purpose or mission. This common thread among its various activities and
product-markets defines the essential nature of what its business is and what it should be.
2. Goals and objectives. Strategies also should detail desired levels of accomplishment on
one or more dimensions of performance—such as volume growth, profit contribution,
or return on investment—over specified time periods for each of those businesses and
product-markets and for the organization as a whole.
3. Resource deployments. Every organization has limited financial and human resources.
Formulating a strategy also involves deciding how those resources are to be obtained
and allocated across businesses, product-markets, and functional departments and activities within each business or product-market.
4. Identification of a sustainable competitive advantage. One important part of any strategy
is a specification of how the organization will compete in each business and productmarket within its domain. How can it position itself to develop and sustain a differential
Chapter One
Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 7
advantage over current and potential competitors? To answer such questions, managers
must examine the market opportunities in each business and product-market and the
company’s distinctive competencies or strengths relative to its competitors.
5. Synergy. Synergy exists when the firm’s businesses, product-markets, resource deployments, and competencies complement and reinforce one another. Synergy enables the
total performance of the related businesses to be greater than it would otherwise be: The
whole becomes greater than the sum of its parts.
The Hierarchy of Strategies
Explicitly or implicitly, these five basic dimensions are part of all strategies. However,
rather than a single comprehensive strategy, most organizations have a hierarchy of interrelated strategies, each formulated at a different level of the firm. The three major
levels of strategy in most large, multiproduct organizations are (1) corporate strategy,
(2) business-level strategy, and (3) functional strategies focused on a particular product-market entry. These three levels of strategy are diagrammed in Exhibit 1.1. In small
EXHIBIT 1.1 The Hierarchy of Strategies
Corporate
mission
Environmental
factors
Corporate
strategy
Corporate
goals and
objectives
Corporate
development
strategy
Deployment
of
resources
Strategic
business
unit 1
SBU 2
SBU n
Business
strategy
Business
unit’s
objectives
Marketing
strategy
for product
market entry X
Competitive
strategy
R&D
strategy
and plans
Deployment of
resources across
product-markets
and functions
Human
resources
strategy
and plans
Operations
strategy
and plans
Functional
strategy
Tactical
marketing plan
for product
market entry X
8
Section One Introduction to Strategy
single-product-line companies or entrepreneurial start-ups, however, corporate and business-level strategic issues merge.
Our primary focus is on the development of marketing strategies and programs for
individual product-market entries, but other functional departments—such as R&D
and operations—also have strategies and plans for each of the firm’s product-markets.
Throughout this book, therefore, we examine the interfunctional implications of productmarket strategies, conflicts across functional areas, and the mechanisms that firms use to
resolve those conflicts.
Strategies at all three levels contain the five components mentioned earlier, but because
each strategy serves a different purpose within the organization, each emphasizes a different set of issues. Exhibit 1.2 summarizes the specific focus and issues dealt with at each
level of strategy; we discuss them in the next sections.
Corporate Strategy
At the corporate level, managers must coordinate the activities of multiple business units
and, in the case of conglomerates, even separate legal business entities. Decisions about
the organization’s scope and resource deployments across its divisions or businesses are
the primary focus of corporate strategy. The essential questions at this level include: What
business(es) are we in? What business(es) should we be in? and What portion of our total
resources should we devote to each of these businesses to achieve the organization’s overall goals and objectives? Thus, when top-level managers at IBM decided to pursue future
growth primarily through the development of consulting services and software rather
than computer hardware a few years ago, they shifted substantial corporate resources—
including R&D expenditures, marketing and advertising budgets, and vast numbers of customer service personnel—into the corporation’s service and software businesses to support
the new strategic direction.
Attempts to develop and maintain distinctive competencies at the corporate level focus
on generating superior human, financial, and technological resources; designing effective
organizational structures and processes; and seeking synergy among the firm’s various
businesses. Synergy can provide a major competitive advantage for firms where related
businesses share R&D investments, product or production technologies, distribution channels, a common salesforce, and/or promotional themes.3
Business-Level Strategy
How a business unit competes within its industry is the critical focus of business-level
strategy. A major issue in a business strategy is that of sustainable competitive advantage. What distinctive competencies can give the business unit a competitive advantage?
Which of those competencies best match the needs and wants of the customers in the
business’s target segment(s)? For example, a business with low-cost sources of supply
and efficient, modern plants might adopt a low-cost competitive strategy. One with a
strong marketing department and a competent salesforce may compete by offering superior customer service.4
Another important issue a business-level strategy must address is appropriate scope:
how many and which market segments to compete in and the overall breadth of product offerings and marketing programs to appeal to these segments. Finally, synergy
should be sought across product-markets and across functional departments within the
business.
Chapter One
Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 9
EXHIBIT 1.2 Key Components of Corporate, Business, and Marketing Strategies
Strategy Components
Corporate Strategy
Business Strategy
Marketing Strategy
Scope
•
Corporate domain—
“Which businesses
should we be in?”
•
Business domain—
“Which product-markets
should we be in
within this business or
industry?”
• Target market definition
• Product-line depth and
breadth
• Branding policies
•
Corporate development
strategy
Conglomerate
diversification
(expansion
into unrelated
businesses)
Vertical integration
Acquisition and
divestiture policies
Overall corporate
objectives aggregated
across businesses
Revenue growth
Profitability
ROI (return on
investment)
Earnings per share
Contributions to
other stakeholders
•
Business development
strategy
Concentric
diversification
(new products for
existing customers
or new customers
for existing
products)
•
•
Allocation among
businesses in the
corporate portfolio
Allocation across
functions shared by
multiple businesses
(corporate R&D, MIS)
Primarily through
superior corporate
financial or human
resources; more
corporate R&D better
organizational processes
or synergies relative to
competitors across all
industries in which the
firm operates
Shared resources,
technologies, or
functional competencies
across businesses within
the firm
•
Constrained by
corporate goals
Objectives aggregated
across product-market
entries in the business
unit
Sales growth
New product or
market growth
Profitability
ROI
Cash flow
Strengthening bases
of competitive
advantage
Allocation among
product-market entries
in the business unit
Allocation across
functional departments
within the business unit
•
Allocation across
components of the
marketing plan
(elements of the
marketing mix) for a
specific product-market
entry
•
Primarily through
competitive strategy;
business unit’s
competencies relative
to competitors in its
industry
•
Primarily through
effective product
positioning; superiority
on one or more
components of the
marketing mix relative
to competitors within a
specific product-market
•
Shared resources
(including favorable
customer image) or
functional competencies
across product-markets
within an industry
•
Shared marketing
resources, competencies,
or activities across
product-market entries
Goals and objectives
Allocation of resources
•
•
•
Sources of competitive
advantage
•
Sources of synergy
•
•
•
•
•
•
Product-market
development plan
Line extension and
product elimination
plans
Constrained by
corporate and business
goals
Objectives for a specific
product-market entry
Sales
Market share
Contribution margin
Customer satisfaction
10 Section One
Introduction to Strategy
Marketing Strategy
The primary focus of marketing strategy is to effectively allocate and coordinate marketing resources and activities to accomplish the firm’s objectives within a specific productmarket. Therefore, the critical issue concerning the scope of a marketing strategy is
specifying the target market(s) for a particular product or product line. Next, firms seek
competitive advantage and synergy through a well-integrated program of marketing mix
elements (primarily the 4 Ps of product, price, place, and promotion) tailored to the needs
and wants of potential customers in that target market.
WHAT IS MARKETING’S ROLE IN FORMULATING
AND IMPLEMENTING STRATEGIES?
The essence of strategic planning at all levels is identifying threats to avoid and opportunities to pursue. The primary strategic responsibility of any manager is to look outward
continuously to keep the firm or business in step with changes in the environment. Because
they occupy positions at the boundary between the firm and its customers, distributors, and
competitors, marketing managers are usually most familiar with conditions and trends in
the market environment. Consequently, they not only are responsible for developing strategic plans for their own product-market entries, but also are often primary participants and
contributors to the planning process at the business and corporate levels as well.
The wide-ranging influence of marketing managers on higher-level strategic decisions
is clearly shown in a survey of managers in 280 U.S. and 234 German business units of
firms in the electrical equipment, mechanical machinery, and consumer package goods
industries.5 The study examined perceptions of marketing managers’ influence relative to
managers from sales, R&D, operations, and finance on a variety of strategic and tactical
decisions within their businesses. Exhibit 1.3 summarizes the results.
EXHIBIT 1.3 Influence of Functional Units over Various Business Decisions
Decisions
Marketing
Sales
R&D
Operations
38
29**
11**
9**
Finance
Business strategy decisions
Strategic direction of the business
14**
Expansion into new geographic markets
39
45**
3**
3**
10**
Choices of strategic partners
33
38*
7**
9**
12**
New product development
32
23**
29**
Major capital expenditures
13
11**
13
Advertising messages
65
29**
3**
Customer satisfaction measurement
48
35**
Customer satisfaction improvement
40
37*
Distribution strategy
34
52**
Customer service and support
31
47**
Pricing
30
41**
9**
7**
29**
35**
1**
2**
5**
8**
4**
7**
10**
6**
1**
6**
6**
5**
10**
7**
4**
9**
16**
Marketing strategy decisions
The number in each cell is the mean of the amount of points given by responding managers to each function, using a constant-sum scale of 100. A t-test was performed to
compare column 2 (mean of relative influence of marketing) with columns 3 through 6 (relative influence of sales, R&D, operations, and finance). Statistically significant differences with marketing are indicated by asterisks, where: * p < .05; ** p < .01. Source: Reprinted with permission from Journal of Marketing, published by the American Marketing Association, Christian Homburg, John P. Workman Jr., and Harley Krohmer, “Marketing’s Influence within the Firm,” Journal of Marketing 63 (April 1999), p. 9. Chapter One Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 11 The study found that, on average, marketing and sales executives exerted significantly more influence than managers from other functions on strategic decisions concerning traditional marketing activities, such as advertising messages, pricing, distribution, customer service and support, and measurement and improvement of customer satisfaction. Interestingly, though, the influence of sales executives was perceived to be even greater than that of marketing managers on some of these decisions. One reason—particularly in the industrial goods firms selling electronic equipment and machinery—may be that sales managers have more detailed information about customer needs and desires because they have direct and continuing contact with existing and potential buyers. More surprisingly, marketing managers also were perceived to wield significantly more influence than managers from other functional areas on cross-functional, business-level strategic decisions. While the views of finance and operations executives carry more weight in approving major capital expenditures, marketing and sales managers exert more influence on decisions concerning the strategic direction of the business unit, expansion into new geographic markets, the selection of strategic business partners, and new product development. Might the relative influence of the different functions become more similar as firms adopt more integrative organizational forms, such as cross-functional work teams? The study’s results suggest not. Marketing’s influence was not significantly reduced in companies that had instituted cross-functional structures and processes. Variations in Marketing’s Strategic Influence Although marketing managers often have substantial influence on strategy formation at the corporate and business unit levels, the strength of that influence varies across organizations. For one thing, marketing managers may not play as pervasive a strategic role in other cultures as they do in the United States. For example, the study detailed in Exhibit 1.3 found that marketers’ influence on both tactical and strategic issues was significantly lower in German firms. As one of the study’s authors points out, “Germany has traditionally stressed technology and operations more than the softer, customer-oriented aspects central to marketing.”6 Other variables appear to impact marketing’s influence regardless of national culture. For instance, marketing managers tend to have greater strategic influence in firms that spend relatively heavily on R&D and that seek a competitive advantage based extensively on innovative product and service offerings. Similarly, marketing is more influencial in firms that have strong “customer-connecting” capabilities, especially when marketing has responsibility for the sales force.7 Market-Oriented Management Another reason marketing managers do not play an equally extensive strategic role in every firm is because not all firms are equally market-oriented. Not surprisingly, marketers tend to have a greater influence on all levels of strategy in organizations that embrace a market-oriented philosophy of business.8 More critically, managers in other functional areas of market-oriented firms incorporate more customer and competitor information into their decision-making processes as well. Market-oriented organizations tend to operate according to the business philosophy known as the marketing concept. As originally stated by General Electric six decades ago, the marketing concept holds that the planning and coordination of all company activities around the primary goal of satisfying customer needs is the most effective means to attain and sustain a competitive advantage and achieve company objectives over time. Thus, market-oriented firms are characterized by a consistent focus by personnel in all departments and at all levels on customers’ needs and competitive circumstances in the market environment. They also are willing and able to quickly adapt products and 12 Section One Introduction to Strategy EXHIBIT 1.4 Guidelines for Market-Oriented Management 1. Create customer focus throughout the business. 9. Measure and manage customer expectations. 2. Listen to the customer. 10. Build customer relationships and loyalty. 3. Define and nurture your distinctive competence. 11. Define the business as a service business. 4. Define marketing as market intelligence. 12. Commit to continuous improvement and innovation. 5. Target customers precisely. 13. Manage culture along with strategy and structure. 6. Manage for profitability, not sales volume. 14. Grow with partners and alliances. 7. Make customer value the guiding star. 15. Destroy marketing bureaucracy. 8. Let the customer define quality. Source: Reprinted with permission from Marketing Management, published by the American Marketing Association, Frederick E. Webster Jr., “Executing the New Marketing Concept,” Marketing Management 3, 1 (1994), p. 10. functional programs to fit changes in that environment. Such firms pay a great deal of attention to customer research before products are designed and produced. They embrace the concept of market segmentation by adapting product offerings and marketing programs to the special needs of different target markets. Market-oriented firms also adopt a variety of organizational procedures and structures to improve the responsiveness of their decision-making, including using more detailed environmental scanning and continuous, real-time information systems; seeking frequent feedback from and coordinating plans with key customers and major suppliers; decentralizing strategic decisions; encouraging entrepreneurial thinking among lower-level managers; and using interfunctional management teams to analyze issues and initiate strategic actions outside the formal planning process.9 For instance, Samsung uses cross-functional teams of engineers, designers, marketers, market researchers, and process engineers to manage new product development projects and to adapt existing products to varying customer preferences in different markets around the world. These and other actions recommended to make an organization more market-driven and responsive to environmental changes are summarized in Exhibit 1.4. Do Customers Always Know What They Want? Some managers—particularly in high-tech firms—question whether a strong focus on customer needs and wants is always a good thing. They argue that customers cannot always articulate their needs and wants, in part because they do not know what kinds of products or services are technically possible. As Akio Morita, the late visionary CEO of Sony, once said: Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do. So instead of doing a lot of marketing research, we refine our thinking on a product and its use and try to create a market for it by educating and communicating with the public.10 Others have pointed out that some very successful new products, such as the Chrysler minivan and Compaq’s pioneering PC network server, were developed with little or no market research. On the other hand, some famous duds, such as Ford’s Edsel, New Coke, and McDonald’s McLean low-fat hamburger, were developed with a great deal of customer input.11 The laws of probability dictate that some new products will succeed and more will fail regardless of how much is spent on marketing research. But the critics of a strong customer focus argue that paying too much attention to customer needs and wants can stifle innovation and lead firms to produce nothing but marginal improvements or line Chapter One Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 13 extensions of products and services that already exist. How do marketers respond to this charge? Although many consumers may lack the technical sophistication necessary to articulate their needs or wants for cutting-edge technical innovations, the same is not true for industrial purchasers. About half of all manufactured goods in most countries are sold to other organizations rather than individual consumers. Many high-tech industrial products are initiated at the urging of one or more major customers, developed with their cooperation (perhaps in the form of an alliance or partnership), and refined at customer beta sites. As for consumer markets, one way to resolve the conflict between the views of technologists and marketers is to consider the two components of R&D. First there is basic research, and then there is development—the conversion of technical concepts into actual salable products or services. Most consumers have little knowledge of scientific advancements and emerging technologies. Therefore, they usually don’t— and probably shouldn’t—play a role in influencing how firms allocate their basic research dollars. However, a customer focus is critical to development. Someone within the organization must have either the insight and market experience or the substantial customer input necessary to decide what product to develop from a new technology, what benefits it will offer to customers, and whether customers will value those benefits sufficiently to make the product a commercial success. The importance of a customer focus often becomes clear when a firm attempts to develop a variety of successful new product offerings from a single well-established technology, as illustrated by the travails of LEGO, the Swedish toy company, described in Exhibit 1.5. EXHIBIT 1.5 How LEGO Revived Its Brand Not many toy companies in the world have as much brand recognition as LEGO. Three generations of kids around the world have built cars, fire trucks, even entire cities, with the Swedish company’s plastic bricks. But despite its widely known and respected brand, the firm’s profits declined dramatically in the early to mid-2000s. One reason for the decline was a loss of strategic focus. LEGO launched a kid’s TV series, a set of action figures drawn from that series, and other products in highly competitive categories that were largely unrelated to the firm’s popular bricks and where the firm had no experience or special expertise. More critically, LEGO began foundering within its core product line as well. Top management had given free reign to the firm’s designers to develop more imaginative creations for kids to build with LEGO bricks. The designers happily embraced their new freedom and developed many increasingly complex and artistic designs. Unfortunately, those complex designs incorporated thousands of new components, many of which were not interchangeable with those of other products in the line. As a result, parts inventories exploded and supply costs went through the roof. To make matters worse, many of the new designs did not appeal to the kids who are the firm’s ultimate consumers, and sales of the company’s core products went downhill. Paradoxically, the solution to LEGO’s product design and profitability problems involved reducing the creative freedom of the firm’s designers. Top executives decreed that new product development projects should be managed by teams involving marketing managers familiar with tastes, preferences, and purchase behaviors in different countries, manufacturing managers who could help control production and supply costs, market researchers who could test kids’ reactions to various product prototypes, as well as designers. While innovative product design is LEGO’s primary competitive strength, the company has found that designers function most successfully when placed under some constraints, namely that the products being designed appeal to the customers who will use them. As Mads Nipper, LEGO’s vice president of products and markets points out, “Children are . . . very demanding about what they want to buy. If your offer does not stack up, they will go somewhere else.” Source: Jay Greene, “How LEGO Revised Its Brand,” www .businessweek/design.com, July 23, 2010. See also, Jay Greene, Design Is How It Works (New York: Portfolio/Penguin Group, 2010). 14 Section One Introduction to Strategy In the case of an innovative new technology, it often must be developed into a concrete product concept before consumers can react to it and its commercial potential can be assessed. In other cases, consumers can express their needs or wants for specific benefits even though they do not know what is technically feasible. They can tell you what problems they are having with current products and services and what additional benefits they would like from new ones. For instance, before Apple introduced the iPod, few consumers would have asked for such a product because they were unfamiliar with the possibilities of digitization and miniaturization in the electronics industry. But if a market researcher had asked whether they would buy a product smaller than a Sony Walkman that could store and play thousands of songs they could download from their computer without messing with cassette tapes or CDs, many probably would have said, “Certainly!” A strong customer focus is not inconsistent with the development of technically innovative products, nor does it condemn a firm to concentrate on satisfying only current, articulated customer wants. More important, although firms can sometimes succeed in the short run even though they ignore customer desires, a strong customer focus usually pays big dividends in terms of market share and profit over the long haul. As one CEO pointed out, “I don’t know how else you can sell in a consumer marketplace without understanding product design and usage. You have to know what the end user wants.”12 Does Being Market-Oriented Pay? Since an organization’s success over time hinges on its ability to provide benefits of value to its customers—and to do that better than its competitors—it seems likely that marketoriented firms should perform better than others. By paying careful attention to customer needs and competitive threats—and by focusing activities across all functional departments on meeting those needs and threats effectively—organizations should be able to enhance, accelerate, and reduce the volatility and vulnerability of their cash flows.13 And that should enhance their economic performance and shareholder value. Indeed, profitability is the third leg, together with a customer focus and cross-functional coordination, of the threelegged stool known as the marketing concept. Sometimes the marketing concept is interpreted as a philosophy of trying to satisfy all customers’ needs regardless of the cost. That would be a prescription for financial disaster. Instead, the marketing concept is consistent with the notion of focusing on only those segments of the customer population that the firm can satisfy both effectively and profitably. Firms might offer less extensive or costly goods and services to unprofitable segments or avoid them. For example, in recent years Samsung Electronics has resumed distributing some of its products through discount chains such as Walmart and Carrefour, but such low-price channels are largely reserved for the firm’s older, no-frills models rather than its more stylish, cutting-edge new releases. Substantial evidence supports the idea that being market-oriented pays dividends, at least in a developed economy such as the United States. A number of studies involving more than 500 firms or business units across a variety of industries indicate that a market orientation has a significant positive effect on various dimensions of performance, including return on assets, sales growth, new product success, customer equity, and market capitalization.14 Even entrepreneurial start-ups appear to benefit from Strategic Issue a strong customer orientation. One study of start-ups in Japan and the United States found that new firms that focused on marketing A market orientation has a significant positive effect on various dimensions of first, rather than lowering costs or advancing technology, were less performance, including return on assets, likely to be brought down by competitors as their product-markets sales growth, and new product success. developed.15 Chapter One Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 15 Factors That Mediate a Firm’s Market Orientation Despite the evidence that a market orientation boosts performance, many companies around the world are not very focused on their customers or competitors. Among the reasons firms are not always in close touch with their market environments are these: • Competitive conditions may enable a company to be successful in the short run without being particularly sensitive to customer desires. • Different levels of economic development across industries or countries may favor different business philosophies. • Firms can suffer from strategic inertia—the automatic continuation of strategies successful in the past, even though current market conditions are changing. Competitive Factors Affecting a Firm’s Market Orientation The competitive conditions some firms face enable them to be successful in the short term without paying much attention to their customers, suppliers, distributors, or other organizations in their market environment. Early entrants into newly emerging industries, particularly industries based on new technologies, are especially likely to be internally focused and not very market-oriented. This is because there are likely to be relatively few strong competitors during the formative years of a new industry, customer demand for the new product is likely to grow rapidly and outstrip available supply, and production problems and resource constraints tend to represent more immediate threats to the survival of such new businesses. Businesses facing such market and competitive conditions are often productoriented or production-oriented. They focus most of their attention and resources on such functions as product and process engineering, production, and finance in order to acquire and manage the resources necessary to keep pace with growing demand. The business is primarily concerned with producing more of what it wants to make, and marketing generally plays a secondary role in formulating and implementing strategy. Other functional differences between production-oriented and market-oriented firms are summarized in Exhibit 1.6. EXHIBIT 1.6 Differences between Production-Oriented and Market-Oriented Organizations Business Activity or Function Production Orientation Marketing Orientation Product offering Company sells what it can make; primary focus on functional performance and cost. Company makes what it can sell; primary focus on customers’ needs and market opportunities. Product line Narrow. Broad. Pricing Based on production and distribution costs. Based on perceived benefits provided. Research Technical research; focus on product improvement and cost cutting in the production process. Market research; focus on identifying new opportunities and applying new technology to satisfy customer needs. Packaging Protection for the product; minimize costs. Designed for customer convenience; a promotional tool. Credit A necessary evil; minimize bad debt losses. A customer service; a tool to attract customers. Promotion Emphasis on product features, quality, and price. Emphasis on product benefits and ability to satisfy customers’ needs or solve problems. 16 Section One Introduction to Strategy As industries grow, they become more competitive. New entrants are attracted and existing producers attempt to differentiate themselves through improved products and more efficient production processes. As a result, industry capacity often grows faster than demand, and the environment shifts from a seller’s market to a buyer’s market. Firms often respond to such changes with aggressive promotional activities—such as hiring more salespeople, increasing advertising budgets, or offering frequent price promotions—to maintain market share and hold down unit costs. Unfortunately, this kind of sales-oriented response to increasing competition still focuses on selling what the firm wants to make rather than on customer needs. Worse, competitors can easily match such aggressive sales tactics. Simply spending more on selling efforts usually does not create a sustainable competitive advantage. As industries mature, sales volume levels off, and technological differences among brands tend to disappear as manufacturers copy the best features of each other’s products. Consequently, a firm must seek new market segments or steal share from competitors by offering lower prices, superior services, or intangible benefits other firms cannot match. At this stage, managers can most readily appreciate the benefits of a market orientation, and marketers are often given a bigger role in developing competitive strategies.16 It is not surprising, then, that many of America’s most market-oriented firms—and those working hardest to become market-oriented—are well-established competitors in relatively mature industries. Of course, a given industry’s characteristics may make some components of a market orientation more critical for good performance than others. For example, in an industry dominated by large, dynamic competitors—as in the global automobile industry (e.g., Toyota, BMW, Ford, etc.)—being responsive to competitor actions may be even more important than a strong customer focus.17 But the bottom line is that an orientation toward the market—competitors, customers, and potential customers—is usually crucial for continued success in global markets. The Influence of Different Stages of Development across Industries and Global Markets The previous discussion suggests that the degree of adoption of a market orientation varies not only across firms, but also across entire industries. Industries that are in earlier stages of their life cycles or that benefit from barriers to entry or other factors reducing the intensity of competition are likely to have relatively fewer market-oriented firms. For instance, in part because of governmental regulations that restricted competition, many service industries—including banks, airlines, physicians, lawyers, accountants, and insurance companies—were slow to adopt the marketing concept. But with the trend toward deregulation and the increasingly intense global competition in such industries, many service organizations are working much harder to understand and satisfy their customers. Given that entire economies are in different stages of development around the world, the popularity—and even the appropriateness—of different business philosophies also may vary across countries. A production orientation was the dominant business philosophy in the United States, for instance, during the industrialization that occurred from the mid-1800s through World War I.18 Similarly, a primary focus on developing product and production technology may still be appropriate in developing nations that are in the midst of industrialization. International differences in business philosophies can cause some problems for the globalization of a firm’s strategic marketing programs, but it can create some opportunities as well, especially for alliances or joint ventures. Consider, for example, The partnership between French automaker Renault-Nissan and the Russian car manufacturer AvtoVAZ discussed in Exhibit 1.7. Chapter One Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 17 EXHIBIT 1.7 Renault’s Partnership with Russian Automaker AvtoVAZ Benefits Both Parties The AvtoVAZ car factory in the central Russian city of Togliatti is a decrepit, mile-long building where the company’s Lada sedans are turned out by 40-year-old equipment. Nevertheless, the French carmaker Renault-Nissan recently paid $1 billion for a 25 percent stake in AvtoVAZ. Even after investing more millions to modernize the plant, Renault figures that Russia’s low labor and energy costs will make the plant ideal for producing the Logan lineup of cars that the firm introduced in 2004. The no-frills Logan, starting at about $9,000, has become the world’s most successful cheap car. Its partnership with AvtoVAZ should also help Renault appeal to Russian car buyers and capture a larger share of that country’s growing market. But AvtoVAZ will also benefit from the partnership, especially on the production side. The key reason the firm agreed to the deal with Renault was “the modern technology and know-how the company will provide us,” according to Chairman Sergei Chemezov. The partnership may also encourage global auto parts suppliers to build new, more efficient plants near the AvtoVAZ factory. Source: Based on material in Carol Matlack, “Renault’s Ghosen Takes on a Russian Relic,” www.businessweek.com, February 29, 2008, and Carol Matlack, “Carlos Ghosen’s Russian Gambit,” BusinessWeek, March 17, 2008, pp. 57–58. For more information about Renault’s acquisitions and alliances, see the company website at www.renault.com. Strategic Inertia In some cases, a firm that achieved success by being in tune with its environment loses touch with its market because managers become reluctant to tamper with strategies and marketing programs that worked in the past. They begin to believe there is one best way to satisfy their customers. Such strategic inertia is dangerous because customers’ needs and competitive offerings change over time. Thus, in environments where such changes happen frequently, the strategic planning process needs to be ongoing and adaptive. All the participants, whether from marketing or other functional departments, need to pay constant attention to what is happening with their customers and competitors. Recent Developments Affecting the Strategic Role of Marketing In the future, strategic inertia will be even more dangerous in many industries because they are facing increasing magnitudes and rates of change in their environments. These changes are rapidly altering the context in which marketing strategies are planned and carried out and the information and tools that marketers have at their disposal. These developments include (1) the increased globalization of markets and competition, (2) the growth of the service sector of the economy and the importance of service in maintaining customer satisfaction and loyalty, (3) the rapid development of new information and communications technologies, and (4) the growing importance of relationships for improved coordination and increased efficiency of marketing programs and for capturing a larger portion of customers’ lifetime value. Some recent impacts of these four developments on marketing management are briefly summarized below and will be continuing themes throughout this book. We will also speculate from time to time about how these ongoing trends may reshape the tasks, tools, and techniques of marketing in the future. It is impossible to predict exactly how these trends will play out. Consequently, new business school graduates who both understand the marketing management process and are savvy with respect to one or more of these ongoing developments can play an important role—and gain a potential competitive advantage—within even the largest firms. Such newly minted managers can bring fresh perspectives and valuable insights concerning how these emerging trends are likely to impact their organizations’ customers, competitors, and marketing strategies. 18 Section One Introduction to Strategy Globalization International markets account for a large and growing portion of the sales of many organizations. But while global markets represent promising opportunities for additional sales growth and profits, differences in market and competitive conditions across country boundaries can require firms to adapt their competitive strategies and marketing programs to be successful. Even when similar marketing strategies are appropriate for multiple countries, international differences in infrastructure, culture, legal systems, and the like often mean that one or more elements of the marketing program—such as product features, promotional appeals, or distribution channels—must be tailored to local conditions for the strategy to be effective. Increased Importance of Service A service can be defined as “any activity or benefit that one party can offer another that is essentially intangible and that does not result in the ownership of anything. Its production may or may not be tied to a physical product.”19 Service businesses such as airlines, hotels, restaurants, and consulting firms account for roughly two-thirds of all economic activity in the United States, and services are the fastest-growing sector of most other developed economies around the world. Although many of the decisions and activities involved in marketing services are essentially the same as those for marketing physical goods, the intangible nature of many services can create unique challenges for marketers. We will discuss these challenges— and the tools and techniques firms have developed to deal with them—throughout this book. As the definition suggests, services such as financing, delivery, installation, user training and assistance, and maintenance often are provided in conjunction with a physical product. Such ancillary services have become more critical to firms’ continued sales and financial success in many product-markets. As markets have become crowded with global competitors offering similar products at ever-lower prices, the creative design and effective delivery of supplemental services have become crucial means by which a company may differentiate its offering and generate additional benefits and value for customers. Those additional benefits, in turn, can justify higher prices and margins in the short term and help improve customer satisfaction, retention, and loyalty over the long term.20 Of course, bad customer service can have the opposite effect. This is especially a danger when intense price competition pushes a firm to cut costs by reducing customer service and support. For instance, a few years ago Dell attempted to maintain its long-standing low-cost position in the personal computer industry by—among other things—reducing the number of technicians in its customer call centers and limiting each technician’s training to only a few specialized problem areas. As a result, increasing numbers of customers spent 30 minutes or more on hold when they called Dell for help, and 45 percent were transferred at least once before they found a technician with the expertise to solve their problem. Consequently, Dell’s customer satisfaction rating in the United States plummeted, and despite expensive attempts to improve service—including the use of independent retail outlets to sell and service Dell equipment—the firm’s market share, profits, and stock price have still not fully recovered.21 Information Technology The computer revolution and related technological developments are changing the nature of marketing management in two important ways. First, new technologies are making it possible for firms to collect and analyze more detailed information about potential customers and their needs, preferences, and buying habits, and about their competitors’ offerings and prices. For instance, a recent study of chief marketing officers conducted by IBM across 19 industries in 64 different countries found that while 80 percent still relied on traditional marketing research and corporate benchmarking as their primary sources of Chapter One www Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies 19 market feedback, 26 percent said they are currently tracking blogs, 42 percent examine third-party reviews, and 48 percent are tracking customer reviews and ratings.22 Thus, information technology is making it possible for many firms to identify and target smaller and more precisely defined market segments—sometimes segments consisting of only one or... Purchase answer to see full attachment

  
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