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LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO1

Developing Successful Marketing and Organizational Strategies

AN "A" IN AN ICE CREAM MAKING COURSE! CAN THIS REALLY BECOME A BUSINESS?

The two entrepreneurs who aced their college course in ice cream making aren't your typical Tom, Dick, or Harry! Here's what the organization they founded is doing today: · It buys all of its milk and cream from one dairy cooperative whose members guarantee the supplies are bovine growth-hormone free. · It launched several Fair Trade CertifiedTM flavors to support smallscale family farms and their workers in the developing world through fair prices and eco-friendly farming practices. · Its PartnerShop, Scoopers Making Change, and Cones 2 Career programs help nonprofit organizations give jobs to and train at-risk youth. · Its new product line includes Body & Soul "low carb/low fat" ice cream flavors, milk shakes, frozen yogurts, sorbets, waffle cones, and ice cream sandwiches. It also sponsors the "Do Us a Flavor Contest" that allows customers to submit a new "euphoric" ice cream flavor. A recent "Flavor Guru" winner was Puttin' on the Ritz, a swirl of vanilla ice cream, caramel, Ritz crackers, and chunks of chocolate. This creative, funky approach to business at Ben & Jerry's Homemade, Inc., links its mission, core values, and prosperity to social causes designed to improve humanity, as shown on its website.1 Ben & Jerry's proves the American dream still lives. In 1978, longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to start an ice cream parlor in a renovated gas station.2 Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 Penn State correspondence course in ice cream making (with perfect scores on their open book tests!), Ben and Jerry were off and running.3 Today, Ben & Jerry's is owned by Unilever and earns about $240 million in annual sales worldwide, mainly from selling its incredibly rich premium ice cream.4 While customers love Cherry Garcia and its other ice cream flavors, many want to support Ben & Jerry's social mission, too. Chapter 2 describes how organizations such as Ben & Jerry's, Medtronic, and Kodak set goals to give an overall direction that is linked to their organizational and marketing strategies. For the marketing department, these strategies are converted into plans that must be implemented. The results are then evaluated to assess the degree to which they accomplish the company's goals, consistent with its core values and mission.

Describe the kinds of organizations that exist and the three levels of strategy in them. Describe how core values, mission, organizational culture, business, and goals are important to organizations. Explain how organizations set strategic directions by assessing where they are now and seek to be in the future. Describe the strategic marketing process and its three key phases: planning, implementation, and evaluation. Explain how the marketing mix elements are blended into a cohesive marketing program.

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Perfect scores on their openbook final exam in ice cream making sent these two entrepreneurs, Ben Cohen and Jerry Greenfield, on their way--to Vermont!

TODAY'S ORGANIZATIONS

In today's global competition, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels found in many large organizations.

Kinds of Organizations

LO1 An organization is a legal entity of people who share a common mission. This motivates them to develop offerings (products, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants.5 Today's organizations can be divided into business firms and nonprofit organizations. A business firm is a privately owned organization that serves its customers in order to earn a profit so that it can survive.6 Profit is the money left after a business firm's total expenses are subtracted from its total revenues and is the reward for the risk it undertakes in marketing its offerings. In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds to continue operations. Charities and farm cooperatives affiliated with Ben & Jerry's are examples of this kind of organization. For simplicity in the rest of the book, the terms firm, company, corporation, and organization are used interchangeably to cover both business and nonprofit operations. Organizations that develop similar offerings, when grouped together, create an industry, such as the computer industry or the automobile industry.7 As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance.8 The foundation of much of an organization's marketing strategy is having a clear understanding of the industry within which it competes.

What Is Strategy?

An organization has limited human, financial, technological, and other resources available to produce and market its offerings--it can't be all things to all people!

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Board of Directors

Corporate-level strategy

Business unit-level strategy

Functional-level strategy

Information systems

Finance

Research & development

Marketing

Manufacturing

Human resources

FIGURE 2­1 The board of directors oversees the three levels of strategy in organizations: corporate, business unit, and functional.

Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists.9 For our purpose, strategy is an organization's long-term course of action designed to deliver a unique customer experience while achieving its goals.10 Whether explicit or implicit, all organizations set a strategic direction. And marketing helps not only to set this direction but also to move the organization there.

Structure of Today's Organizations

Large organizations such as Medtronic and Kodak are extremely complex. They usually consist of three organizational levels whose strategy is linked to marketing, as shown in Figure 2­1.

Corporate Level The corporate level is where top management directs

overall strategy for the entire organization. "Top management" usually means the board of directors, individuals both inside and outside the organization with a variety of skills and experiences that are invaluable in establishing overall strategy. The chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills and expertise ranging from overseeing the organization's daily operations to spearheading strategy planning efforts that may determine its very survival. In recent years many large firms have changed the title of the head of marketing from vice president of marketing to chief marketing officer (CMO). The Marketing Matters box on the next page describes the breadth of responsibilities three key marketing executives--with various titles--in widely different firms have in creating, communicating, and delivering value to their organization's customers. But whatever their titles, the head of marketing in today's organizations not only frame marketing strategy but also see that it is implemented to achieve critical marketing goals.11

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

Marketing Matters > > > > > customer value

Chief Marketing Officers in the Executive Suites--and What They Do Every Day

Key marketing executives--often titled chief marketing officers (CMOs)--have an increasingly important role in top management because of their ability to think strategically. Most bring multi-industry backgrounds, cross-functional management expertise, analytical skills, and intuitive marketing insights to their job, which enables them to create and deliver value to the organization and its customers. Below are three marketing executives who have significant strategic responsibilities within their organizations. Cammie Dunaway is CMO for Yahoo! and is responsible for leading Yahoo!'s worldwide branding efforts and product marketing initiatives. She oversees product planning and positioning as well as the execution of customer acquisition and retention strategies for Yahoo!'s premium and subscription services. Eduardo Conrado is vice president of global marketing and portfolio management for Motorola Networks. He is responsible for portfolio management, global marketing, product positioning, pricing, and the publication of systems road maps in cooperation with engineering division product management teams, among other responsibilities. Leslie Short is president of marketing, advertising, and public relations for FUBU, The Collection and FB Entertainment. She develops marketing and advertising plans, coordinates all public relations initiatives, executes promotional events, and oversees the development of corporate and international licensees.

Strategic Business Unit Level Some multimarket, multiproduct firms, such as General Electric or Johnson & Johnson, really manage a portfolio of businesses called strategic business units (SBUs).12 The term strategic business unit (SBU) refers to a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined group of customers. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry's, the corporate and business unit levels may merge. Functional Level Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (Figure 2­1). At the functional level, the organization's strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level. A key role of the marketing department is to look outward, keeping the organization focused on creating value both for it and for customers. This is accomplished by listening to customers, developing and producing offerings, and implementing marketing program activities. In large organizations, marketing may be called on to assist managers at higher levels to assess environmental trends or aid in their strategic planning efforts. When developing marketing programs for new offerings or for improving existing ones, an organization's senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes

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these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.

learning review

1. What is the difference between a business firm and a nonprofit organization? 2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS

LO2 Management experts stress that to be successful, today's organizations must be visionary--must both anticipate future events and respond quickly and effectively. This requires a visionary organization to specify its foundation (why), set a direction (what), and formulate strategies (how) as shown in Figure 2­2.13 An organization's foundation is its philosophical reason for being--why it exists. So its senior managers must identify its core values and describe its mission and organizational culture--its purpose for being. Next, these managers can set the direction for the organization by defining its business and specifying its long-term and short-term goals. Recently, the "organizational foundation" box in Figure 2­2 and the three elements inside it have taken on greater importance because of the failure of Enron. The organizational culture in Enron lost touch with its core values. Key Enron executives were convicted of crimes, the company was liquidated, and employees and shareholders lost billions of dollars. The result: Many organizations today are reinforcing their foundation elements.

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Organizational Foundation

An organization's foundation or ideology says, "This is what we are; this is what we stand for." It rarely changes, regardless of the environment or latest strategy planning fad.14 Successful visionary organizations use this foundation to provide guidance and inspiration to its employees through three elements: core values, mission, and organizational culture.

FIGURE 2­2 Today's visionary organization uses key elements to (1) establish a foundation and (2) set a direction using (3) its strategies that enable it to develop and market its offerings successfully.

Core Values An organization's core values are the fundamental, passionate, and enduring principles that guide its conduct over time.15 An example of core values is Hewlett-Packard's the "HP Way." These core values of Hewlett-Packard (HP) originated with William Hewlett and David Packard, who co-founded the company in a garage in 1939. When their fledgling company was struggling in the 1940s, the two men composed the core values that came to be known as the "HP Way." These core values include "a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to

Organizational foundation (why) · Core values · Mission · Organizational culture

Organizational direction (what) · Business · Goals (objectives) · Long-term · Short-term

Organizational strategies (how) · By level · Corporate · SBU · Functional · By offering (product, service, idea)

To discover what is probably the best known mission statement in America for this starship, which has stimulated astronauts and inventors, see the text.

make technical contributions for the advancement and welfare of humanity."16 The current "HP Way" at www.hp.com derives from Hewlett and Packard's 1940s statement and guides future decisions of the company. Let's analyze this core values idea. First, core values are developed by an organization's founders or senior management and are consistent with their essential beliefs and character.17 Second, core values capture the collective heart and soul of the organization. They should inspire and motivate employees to take productive action. Third, core values are timeless; they should not change due to short-term financial, operational, or strategic concerns. Last, core values guide the organization's conduct. They shape its mission, establish the norms of its organizational culture, and influence its strategy. To be effective, an organization's core values must be supported by the chief executive officer and board of directors. They also must be communicated to employees and other stakeholders, the people who are affected by what the company does and how well it performs. This group includes employees, shareholders, and board members, as well as suppliers, distributors, creditors, unions, government, local communities, and, of course, customers. If the values are not communicated and supported, they are hollow words--one of the reasons for Enron's failure.18

Mission By understanding its core values, an organization can take steps to define its mission, a statement of the organization's function in society, often identifying its customers, markets, products, and technologies. Today, often used interchangeably with vision, a mission statement should be clear, concise, meaningful, inspirational, and long-term.19 Here is perhaps the best known mission statement in America:

To explore strange new worlds, to seek out new life and new civilizations, to boldly go where no one has gone before.

This mission for the Starship Enterprise as Gene Roddenberry wrote it for the Star Trek adventure series is inspirational for many NASA astronauts. This 40-year-old television series has had tremendous impact on American society: Inventors of many of today's taken-for-granted technologies (personal computers, cellular phones, magnetic resonance imaging) claim they were inspired by technical devices they saw in the TV program.20 This inspiration and focus appears in the mission of many organizations, including:

American Red Cross: "To provide relief to victims of disaster and help prevent, prepare for, and respond to emergencies." Southwest Airlines: To be dedicated "to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit." Medtronic: "To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life."

Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future. Recently, organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile.21 This is what Ben & Jerry's social mission statement is all about, as shown in the chapter opening. Stakeholders, particularly customers, employees, and now society, are asking organizations to be exceptional citizens by providing long-term value while solving society's problems.22

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People see this "rising figure" mural in the headquarters of a world-class corporation. What does it signify? What does it say to employees? To others? For some insights and why it is important, see the text. Medtronic www.medtronic.com

Organizational Culture An organization must be connected with all of its stakeholders. So an important corporate-level marketing function is communicating its core values and mission. Some organizations print these statements on cards or placards. Others take a more dramatic approach--like the "rising figure" wall mural at Medtronic's headquarters, which powerfully communicates the inspiration and focus of its mission to its employees, doctors, and patients alike.23 These activities shape an organizational culture. Whether at the corporate, strategic business unit, or functional level, an organizational culture exists, which is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. At Medtronic, a corporate officer presents each new employee with a medallion depicting a "rising figure" on one side and the company's mission on the other. Each December, five or six patients, accompanied by their physicians, describe to a large employee holiday celebration how Medtronic products have changed their lives. These activities send clear messages to employees and other stakeholders about Medtronic's cohesive organizational culture. When corporations merge or are acquired, organizational cultures can collide, often resulting from conflicts in missions and goals. However, when Unilever acquired Ben & Jerry's in April 2000, it allowed the firm to keep and even expand its social mission, as described earlier in this chapter.

Organizational Direction

In the first half of the 20th century, what "business" did railroads believe they were in? The text reveals their disastrous error.

As shown in Figure 2­2, the organization's foundation enables it to set a direction, in terms of (1) the "business it is in" and (2) its specific goals.

Business A business describes the clear, broad, underlying industry category or

market sector of an organization's offering. To help define its business, an organization can start by looking at the set of organizations that sell similar offerings--those that are in direct competition with each other, such as "the automobile business" or "the personal computer business." So, the organization can begin to answer the questions, "What do we do?" or "What business are we in?" To help us, professor Theodore Levitt argues in his now-famous "Marketing Myopia" article that American railroads in the first half of the 20th century had a narrow, production-oriented statement of their business. They proclaimed, "We are in the railroad business!" This narrow business definition lost sight of who their customers were and what these needs were. Railroads saw only other railroads as competitors and failed to develop strategies to compete with airlines, barges, pipelines, trucks, bus lines, and cars--offerings that carried both goods and people. As a result, many

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

railroads eventually merged or went bankrupt. Railroads would probably have fared better over the past century by recognizing they were in "the transportation business."24 Disney is not in the movie and theme park business; rather it is in the entertainment business, creating fun and fantasy for its customers. Similarly, Medtronic is the world leader in developing, producing, and marketing heart pacemakers and other implantable medical devices. Yet Medtronic is not in the medical device business. It is in the business of alleviating pain, restoring health, and extending life.

Goals Goals or objectives (terms used interchangeably in this textbook) are

statements of an accomplishment of a task to be achieved, often by a specific time. For example, Kodak may have the goal of being the top seller of digital cameras by 2010 (currently, it is third). Goals and objectives convert the organization's mission and business into performance targets to measure how well it is doing. As shown in Figure 2­2, goals get converted into organizational strategies at the corporate, strategic business unit, and functional levels. All lower-level goals must contribute to achieving goals at the next, higher level. Later in the chapter we'll look into "marketing dashboards" as an aid in evaluation, the final step in the strategic marketing process. Marketing dashboards and the evaluation step require specific goals against which actual results can be compared. Useful criteria for writing effective goals are given by the acronym SMART:

Specific: Be a precise description of what is to be achieved Measurable: Be a quantitative value to show attainment Attainable: Be achievable, but challenging Relevant: Be pertinent to the organization's mission Time-based: Have a deadline for completion Profit. Classic economic theory assumes a firm seeks to maximize profits--to get as high a financial return on its investments (ROI) as possible. Sales (in terms of dollars or units). If profits are acceptable, a firm may elect to maintain or increase its sales level even though profitability may not be maximized. Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself. A firm may choose to maintain or increase its market share, sometimes at the expense of greater profits if industry status or prestige is at stake. Quality. A firm may target the highest quality, as Medtronic does with its implantable medical devices. Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Their satisfaction can be measured directly with surveys or tracked with proxy measures such as number of customer complaints or percentage of orders shipped within 24 hours of receipt. Employee welfare. An organization may recognize the critical importance of its employees by having an explicit goal stating its commitment to good employment opportunities and working conditions for them. Social responsibility. A firm may seek to balance conflicting goals of consumers, employees, and stockholders to promote overall welfare of all these groups, even at the expense of profits. U.S. firms manufacturing products abroad increasingly seek to be good global citizens by engaging in sustainable development practices: paying reasonable wages and reducing pollution. For example, as described in the Making Responsible Decisions box, 3M has an environmental goal of reducing its solid waste generated from its operations by 20 percent by 2010.25

Business firms can pursue several different types of goals:

Nonprofit organizations (such as museums, symphony orchestras, and hospitals) also have goals such as to strive to serve consumers as efficiently as possible. Similarly, in seeking to serve the public good, government agencies also set performance goals.

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Making Responsible Decisions > > > > sustainability

The Global Dilemma: How to Achieve Sustainable Development

Corporate executives and world leaders are increasingly asked to address the issue of "sustainable development." This term was formally defined in a 1987 United Nations report as meeting present needs "without compromising the ability of future generations to meet their own needs." What often happens is the achievement of profits for a firm and economic development for a country by adding jobs in highly polluting industries, thereby pushing cleanup actions into the future. Eastern Europe and the nations of the former Soviet Union provide an example. Tragically, poisoned air and dead rivers are the legacies of seven decades of Communist rule. With more than a third of the households of many of these nations below the poverty level, should the immediate goal be a cleaner environment or more food, clothing, housing, and consumer goods? What should the heads of these governments do? What should Western firms trying to enter these new, growing markets do? What will be the impact on future generations? The 3M Company developed an innovative program called Pollution Prevention Pays (3P) to reduce harmful environmental impacts, while making a profit doing so. The company estimates that the 3P program in the last quarter century has cut its pollution by 1.6 billion pounds while saving almost $900 million in raw materials and avoiding fines. The company's current environmental goals are to improve energy efficiency per pound of product by 20 percent while reducing waste per pound by 25 percent. Should the environment or economic growth come first? What are the societal trade-offs? Will profit-making firms adopt and implement a 3P kind of program?

learning review

3. What is the meaning of an organization's mission? 4. What is the difference between an organization's "business" and its "goals"?

SETTING STRATEGIC DIRECTIONS

LO3 Setting strategic directions involves answering two difficult questions: (1) Where are we now? and (2) Where do we want to go?

A Look Around: Where Are We Now?

Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors. More detailed approaches to assessing where the company is now include SWOT analysis, discussed later in this chapter, and environmental scanning (Chapter 3).

Competencies Senior managers of an organization must ask a critical question: What do we do best? The answer involves a frank assessment of the organization's core competencies, which are its special capabilities, including skills, technologies, and resources that distinguish it from other organizations and that provide value to its customers. Exploiting these competencies can lead to success, particularly if other organizations cannot copy them.26 Medtronic's competencies include worldclass technology plus training, service, and marketing activities that respond to lifethreatening medical needs and wants. BusinessWeek magazine calls Medtronic "the standard setter for quality."27 Competencies should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors, often based on quality, time, cost, or innovation.28 For example, if 3M's goal of generating a specific portion of its sales from new products is to be a competitive advantage, then it must have a supporting competency in research and development, new-product innovation, and marketing.

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Lands' End's unconditional guarantee for its products highlights its focus on customers. Lands' End www.landsend.com

Hewlett-Packard has developed a competitive advantage with its fast cycle time, which allows it to bring innovative products to markets rapidly in large volumes.29 Many firms seek a competence in total quality management (TQM). Quality involves improving those features and characteristics of an offering that influence its ability to satisfy customer needs. Firms often try to improve quality or shorten new product cycles through benchmarking--discovering the best practices of organizations in its own and other industries and then imitating them to leapfrog its competitors. Benchmarking often involves studying operations of best-of-class organizations in completely different businesses. When General Mills sought ideas on how to reduce the time to convert its production lines from one cereal to another, it sent a team to observe the pit crews at the Indianapolis 500 race. The result: General Mills cut its plant changeover time by more than half.

Customers Ben & Jerry's customers are primarily ice cream and frozen yogurt eaters. But these customers have different form, flavor, fat, and convenience preferences. Medtronic's customers are cardiologists and heart surgeons who serve patients. An organization that has a clear customer focus is Lands' End. Its stores and website communicate a remarkable statement about its commitments to customer experience and product quality with these unconditional words: Guaranteed. Period.® The Lands' End guarantee has always been an unconditional one. Its website reads: "If you're not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price." But to get the message across more clearly to its customers, it created the two-word guarantee above. However, Lands' End (now part of Sears) minimizes returns because many of its customers (a quarter of them are new) order their clothes based on their exact measurements. The crucial point: Strategy must provide genuine value and benefits to present and prospective customers to ensure they have a satisfying customer experience, which is the central goal of marketing today.30

Competitors In today's global competition, the distinctions among competitors

are increasingly blurred. Take Lands' End. It started in the catalog retailing industry, but identifying its competitors today simply as other catalog retailers would be

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a huge oversimplification. Now Lands' End competes not only with other clothing catalog retailers but also with traditional department stores, mass merchandisers, and specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing in any of these stores may compete directly with Lands' End offerings, all these outlets have websites to sell over the Internet. This means there's a lot of competition out there! Now part of the merged Sears­Kmart operations, Lands' End also operates departments within Sears stores, almost competing with itself. Successful firms such as Lands' End must continuously assess who their competitors are and how they change in order to develop their own unique strategies.

Growth Strategies: Where Do We Want to Go?

Knowing where the organization is at the present time enables managers to set a direction for the firm and start to allocate resources to move in that direction. Two techniques to aid in these decisions are (1) business portfolio analysis and (2) hedgehog and blue ocean strategies.

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Business Portfolio Analysis The Boston Consulting Group (BCG), a nationally known management consulting firm, uses business portfolio analysis to quantify performance measures and growth targets to analyze its clients' SBUs as though they were a collection of separate investments.31 The purpose of the tool is to determine the appeal of each SBU or offering and then determine the amount of cash, if any, each should receive. The BCG analysis can also be applied at the offering, product, or brand level. More than 75 percent of the largest U.S. firms have used this analytical tool. The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2­3 on the next page). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU's industry. The horizontal axis is the relative market share, defined as the sales of the

Kodak today must make a series of difficult marketing decisions. From what you know about cameras and photos, assess Kodak's sales opportunities for the four products shown here. For some possible answers and a way to show these opportunities graphically, see the text and Figure 2­3. Kodak digital cameras Kodak www.kodak.com

Kodak ink-jet printers and cartridges to print photos at home

Kodak film

Kodak self-service kiosks in retail outlets

2 Market growth rate (% per year)

40 30 High 20 10 0 Low 10 20 Cash cows 10x High 1x 1 Dogs ? 4 Stars ? 2 ? 3

Question marks

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Kodak digital cameras 1

Kodak ink-jet printers and cartridges to print photos at home 4

Kodak film sales in the U.S., Canada, and Western Europe FIGURE 2­3 Boston Consulting Group business portfolio analysis for Kodak's consumer-related SBUs as they appeared in 2003 (solid circle) and might appear in 2010 (hollow circle).

Low

0.1x Kodak self-service kiosks in retail outlets

Relative market share (share relative to largest competitor)

SBU divided by the sales of the largest firm in the industry. A relative market share of 10 (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1 (at the right end of the scale) means it has only 10 percent of the share of its largest competitor. BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization:

Cash cows are SBUs that generate large amounts of cash, far more than they can invest profitably in themselves. They have dominant shares of slow-growth markets and provide cash to cover the organization's overhead and to invest in other SBUs. Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows. Question marks or problem children are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The names imply management's dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest. Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they do not hold the promise of ever becoming real winners for the organization. Dropping SBUs that are dogs may be required, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.32 Some new offerings may start out as dogs, and as the market grows, they can become a question mark, a star, or even a cash cow.

In its business portfolio analysis, an organization's SBUs often start as question marks and proceed counterclockwise around Figure 2­3 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on market growth rate, its main alternative is to try to change its relative market share. To accomplish this, management decides what role each SBU should have in the future and either injects or removes cash from it. Nicknamed "Big Yellow" for the color of its film packages, Kodak relied until about 2000 not on its cameras but on its film for the bulk of its revenues and profits because of the billions of photos taken every year. Called the "razor and blades" strategy, the company made money on the repeat business from the lower-cost disposables

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FPO

Antonio Perez is betting that Kodak's new high-tech ink-jet printers can reenergize the company's sales revenues.

1. Kodak film. An $8 billion cash cow in 2003, Kodak film sales are still the company's biggest single source of revenue. But now in a free fall because of digital cameras, Kodak film sales are expected to decline 10 to 15 percent per year indefinitely. 2. Kodak digital cameras. Perez saw sales of Kodak's popular line of EasyShare digital cameras double to $2 billion from 2003 to 2006. Kodak clearly expects its digital cameras to be a star soon. The challenge: In 2007 it is third in market share behind Canon and Sony in the United States with new rivals emerging, such as cell phones with digital cameras.35 3. Kodak ink-jet printers and cartridges to print digital photos at home. In 2007 about 56 percent of digital camera owners printed their images at home. In that year Kodak launched a line of multipurpose machines to print high-quality photos, make copies, and send faxes. It's a "razor and blade" strategy again with high-quality ink cartridges that will make photos at half the cost of Hewlett-Packard's (HP) printers. Perez counts on this printer-and-cartridge combination becoming a star in the Kodak portfolio. But HP is the entrenched 300-pound gorilla in this market. So the future of this question mark could range from being a star to a dog.36

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(the "blades" or film), not on the product with which they are used (the "razor" or film camera). The appearance of digital cameras changed Kodak's business forever because of disappearing film sales. Shortly after Antonio M. Perez became Kodak's president in 2003, he peered into a microscope in one of Kodak's labs. Perez was astounded to see droplets of a new ink invented by Kodak scientists that could produce vivid colors lasting 100 years--not the 15 years of many current color prints. "It was the holy grail of ink-jet printing, and they had it here," he remembers.33 So he launched Kodak's super-secret "Goya" project to convert the technology into real products. These ink-jet droplets were a key element in Kodak's shift of its strategic priorities from film to digital technology. Our analysis here focuses on consumer-related product lines and SBUs, but the Goya ink-jet technology is also expected to revolutionize the commercial offset printing of four-color magazines and catalogs.34 Four Kodak SBUs in solid circles in Figure 2­3 are shown as they might have appeared to Antonio Perez in 2003 and can serve as an example of BCG analysis. The area of each circle in Figure 2­3 is roughly proportional to the corresponding SBU's 2003 sales revenue. In a more complete analysis, its other SBUs would be included. This Kodak example also shows the agonizing strategic decisions that must be made by executives in firms in an industry facing revolutionary change--the situation Kodak confronts with the arrival of digital technology. The success of Kodak's new digital strategy and its product lines shown in Figure 2­3 depends on how millions of consumers take photos and convert them into printed images over the next decade. Here is a snapshot of the sales opportunities and threats Perez might have envisioned in 2003 and looks to in 2010 (in the hollow circles) for the four consumer product lines, reflected in the comments of industry analysts:

4. Kodak self-service kiosks in retail outlets. These self-service printers initially were too much of a hassle for many consumers. But new easy-to-use Kodak machines won many consumers' hearts. By 2007, 80,000 photo kiosks were in retail stores around the world. A potential star? Maybe. But in early 2007 Xerox announced a venture with Kodak's archrival Fuji to put self-service kiosks in retailers!37 Are these BCG projections valid? Your use of digital cameras and how you make your prints hold the answer. Some industry experts believe this may determine Kodak's ability to survive. The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive information into business portfolio analysis.38

Hedgehog and Blue Ocean Analyses Today an organization needs to

differentiate itself from its competitors to succeed in this highly competitive marketplace. It must be unique. Two recent ideas can help an organization go from "good to great" by either (1) becoming the best in its industry or (2) going outside of it. Can we be the best in our industry and become a hedgehog? Jim Collins, author of Good to Great, believes that an excellent organization must employ the "Hedgehog Concept."39 The Greek parable of the hedgehog and the fox says that "the fox knows many things but the hedgehog knows one big thing." An organization using the Hedgehog Concept develops a simple, excellent offering that captures the imagination of its employees and its customers. Top managers at Walgreens might give these answers to Collins' three basic questions in developing a compelling offering:

What can we be the best at in the world? For example, Walgreens can become the best at offering great customer service in the most convenient drugstores in any geographic market. What drives our economic engine? For Walgreens, it can be customer profit per visit--a very measurable goal that can be tracked using a dashboard. What are we deeply passionate about? Walgreens is passionate about providing the best possible customer experience at the most convenient locations.

Can we go outside our industry and swim into Blue Oceans? W. Chan Kim and Renée Mauborgne, co-authors of Blue Ocean Strategy, believe that an organization must swim out of the "red ocean of bloody competition" and into a "blue ocean having less competition."40 We can use the strategy of Southwest Airlines to see both oceans:

Red oceans. These represent an organization's existing industry--such as airlines--whose boundaries are well defined and accepted by its sellers and buyers. Here, an organization, such as American Airlines, competes for market share. Over time, the number of competitors increases and they begin to look alike so that their offerings and brands become commodities--barely distinguishable to consumers. So the ocean (market) becomes blood red as competitors (sharks) eat each other up battling for market share. For the airlines, the result has been a wave of mergers and bankruptcies. Blue oceans. These denote all industries (1) not yet in existence or (2) that are created by expanding industry boundaries. An organization that follows a blue ocean strategy reduces or eliminates some factors an industry competes on while raising and creating value to buyers on other factors. This creates a leap in value for both the organization and its customers.41

Southwest Airlines reached a blue ocean by providing a unique customer experience. This expanded existing industry boundaries through coupling friendly service

40

FIGURE 2­4 An effective marketing dashboard, like this one of Oracle's, helps managers assess a business situation at a glance.

and high-speed transportation with a flexible schedule and low price. This allowed Southwest to differentiate itself from its competitors such as American Airlines.42 Southwest's blue ocean strategy has been hard to imitate because (1) it generates economies of scale--attracting large numbers of customers quickly while reducing operating costs--and (2) competitors have difficulty changing their offerings to compete due to corporate inertia.43

Tracking Strategic Directions with Marketing Dashboards

Although marketing managers can set strategic directions for their organizations, how do they know if they are making progress in getting there? One answer is increasingly common: By using marketing dashboards.

Car Dashboards and Marketing Dashboards A marketing dashboard

is the visual display on a single computer screen of the essential information related to achieving a marketing objective.44 Often it is an Internet-based display with realtime information, and active hyperlinks to provide further detail. An example is when a chief marketing officer wants to see hourly what the effect of a new TV advertising campaign is on a product's sales. The idea of a marketing dashboard really comes from that of a car's dashboard. On a car's dashboard we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table and makes a decision whether or not to take action, or often to do more analysis to understand the problem better.45

Marketing Metrics and Graphics in Designing Marketing Dashboards

Oracle's marketing dashboard in Figure 2­4 shows graphic displays of key measures of a product category's performance, such as sales, cost of sales, and percent margin.46 Each performance variable is a marketing metric, a measure of the quantitative value or trend of a marketing activity or result.47 The choice of which marketing metrics to display is critical for a busy manager, who can be overwhelmed with too much information. So, as with the Oracle

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

Using Marketing Dashboards

Which States Are Underperforming?

As a marketer, before stepping on the gas in your business, you ask "how fast is my business going?" It is now January 2010. Three years ago, you started your own company to sell a snack that includes a top-secret ingredient you discovered while volunteering in the Amazon after graduation. The snack is really delicious and adds IQ and strength with every bite! Your Challenge The snack is sold in all 50 states. Your goal is 10 percent growth annually. You want to get 2010 off to a fast start. You want to act quickly to solve any sales problems. You know that pockets of sales stagnation or decline (0 percent or negative growth) are offset by growth markets with greater than 10 percent growth. Studying a table of the sales and percent change versus a year ago in each of the 50 states would work but be very time consuming. A good graphic is better. You choose the following marketing metric, where "sales" is measured in units: Annual % Sales Change (2009 Sales Your Findings At a glance you see that sales growth in the Northeastern states is weaker than the 10 percent target, and sales are actually declining in many of states. Your Action Marketing is often about grappling with sales shortfalls. You'll need to start by trying to identify and correct the problems in the largest volume states that are underperforming--in this case in the Northeastern U.S. You'll want to do the marketing research to see if the problem starts with (1) an external factor like changing consumer tastes or (2) an internal factor like a breakdown in your distribution system.

Annual Percentage Change in Unit Volume by State

2008 Sales) 2008 Sales

100

You want to act quickly to improve sales. In your map growth that is greater than 10 percent is GREEN, 0 to 10 percent growth is ORANGE, and decline is RED. Notice that you (1) picked a metric, and (2) made your own rules that GREEN is good, ORANGE is bad, and RED is very bad.

marketing dashboard, often only six or seven marketing metrics are shown on the marketing dashboard computer screen to be checked throughout the day. Dashboard designers also take great care to show graphs and tables in easy-to-understand formats to enable clear interpretation at a glance.48 Often a manager's glance at a marketing dashboard is a decision to "drill down" into the company's databases to understand the problem better. The Using Marketing Dashboards box is an example. In running your own company, you want to track your snack's sales. So you choose to drill down into your databases to analyze sales by state--and then decide on an action. The three-step "challenge-findings-action" format in the box is one used in the Using Marketing Dashboards boxes throughout the textbook. The format stresses the importance of using marketing dashboards and data as a means to taking effective actions. Most organizations tie the marketing metrics they track in their marketing dashboards to the qualitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years. Appendix A at the end of this chapter

42

Planning phase Step 1 Situation (SWOT) analysis Chapters 2­8 · Identify industry trends · Analyze competitors · Assess own company · Research customer Step 2 Market-product focus and goal setting Chapters 9 and 10 · Set market and product goals · Select target markets · Find points of difference · Position the product Marketing plan Step 3 Marketing program Chapters 10­21 · Develop the program's marketing mix · Develop the budget, by estimating revenues expenses, and profits

Implementation phase Chapter 22 · Obtain resources · Design marketing organization · Develop schedules · Execute marketing program

Results

Evaluation phase Chapter 22 · Compare results with plans to identify deviations · Act to correct negative deviations; exploit positive ones

FIGURE 2­5 The strategic marketing process has three vital phases: planning, implementation, and evaluation. The figure also shows where these phases are discussed in the text.

provides guidelines for writing a marketing plan and also presents a sample marketing plan for Paradise Kitchens,® Inc., a firm that produces and distributes a line of spicy chilies under the Howlin' Coyote® brand name. Appendix A also links each section of the marketing plan to the relevant textbook chapter to assist students who are writing marketing plans. The sequence of activities in the strategic marketing process shown in Figure 2­5 also parallels the elements of the marketing plan than that appear in Appendix A. The strategic marketing process is concerned is covered in detail in the next section.

5. What is business portfolio analysis?

learning review

6. What is the difference between a hedgehog strategy and a blue ocean strategy? 7. What are marketing dashboards and why are they important?

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

Corrective Actions

THE STRATEGIC MARKETING PROCESS

LO4 After the organization assesses where it's at and where it wants to go, other questions emerge, such as: 1. How do we allocate our resources to get where we want to go? 2. How do we convert our plans to actions? 3. How do our results compare with our plans, and do deviations require new plans? To answer these questions, an organization uses the strategic marketing process, whereby an organization allocates its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation (Figure 2­5).

Strategic Marketing Process: The Planning Phase

As shown in Figure 2­5, the planning phase of the strategic marketing process consists of the three steps shown at the top of the figure: (1) situation analysis, (2) market-product focus and goal setting, and (3) the marketing program. Let's use the recent marketing planning experiences of several companies to look at each of these steps. Figure 2­5 also shows how the strategic marketing process integrates the chapters in this book. Chapters 2 through 8 provide the information for the situation (SWOT) analysis, step 1 of the planning phase. Step 2, developing a market-product focus and goals for the product, is covered in Chapters 9 and 10. The elements of the marketing program in step 3--the 4Ps--are discussed in Chapters 10 through 21. The book concludes with Chapter 22, which ties together the planning, implementation, and evaluation phases of the strategic marketing process.

How can Ben & Jerry's develop new products and social responsibility programs that contribute to its mission?

Step 1: Situation (SWOT) Analysis The essence of situation analysis is taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization's plans and the external factors and trends affecting it. The situation analysis box in Figure 2­5 is the first of the three steps in the planning phase. An effective shorthand summary of the situation analysis is a SWOT analysis, an acronym describing an organization's appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats. Both the situation and SWOT analyses can be done at the level of the entire organization, the business unit, the product line, or the specific product. As an analysis moves from the level of the entire organization to the specific product, it, of course, gets far more detailed. For small firms or those with basically a single product line, an analysis at the firm or product level is really the same thing.

44

FIGURE 2­6 Ben & Jerry's: a SWOT analysis to keep it growing. The picture painted in this SWOT analysis is the basis for management actions.

Location of Factor

TYPE OF FACTOR Favorable Strengths · Prestigious, well-known brand name among U.S. consumers · Large share of the U.S. super premium ice cream market · Complements Unilever's other ice cream brands (Breyers, Good Humor) · Widely recognized for its social mission, values, and actions Opportunities · Growing demand for quality ice cream in overseas markets · Increasing U.S. demand for frozen yogurt, sorbet, and other low-fat, low-carb desserts · Success of many U.S. firms in extending successful brand from one product category to others Unfavorable Weaknesses · Danger that B&J's social responsibility actions may add costs, reduce focus on core business, and alienate some customers · Need for experienced managers to help growth · Modest sales growth and profits in recent years Threats · Consumer concern with sugary and fatty desserts; B&J customers are the type who read new government-ordered nutritional labels · Competes with General Mills' Häagen-Dazs and Nestlé's Dreyer's brands · International downturns increase the risks for B&J in European and Asian markets

Internal

External

The SWOT analysis is based on an exhaustive study of the four areas shown in step 1 of the planning phase of the strategic marketing process (Figure 2­5). Knowledge of these areas forms the foundation on which the firm builds its marketing program: Identify trends in the organization's industry. Analyze the organization's competitors. Assess the organization itself. Research the organization's present and prospective customers. Let's assume you are the Unilever vice president responsible for integrating Ben & Jerry's into Unilever's business. You might do the SWOT analysis shown in Figure 2­6. Note that your SWOT table has four cells formed by the combination of internal versus external factors (the rows) and favorable versus unfavorable factors (the columns) that summarize Ben & Jerry's strengths, weaknesses, opportunities, and threats. A SWOT analysis helps identify the strategy-related factors in these four cells that can have a major effect on the firm. The goal is not simply to develop the SWOT analysis but to translate the results of the analysis into specific actions to help the firm grow and succeed. The ultimate goal is to identify the critical factors affecting the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats. That is a big order. The Ben and Jerry's SWOT analysis in Figure 2­6 can be the basis for these kinds of specific actions. An action in each of the four cells might be: Build on a strength. Find specific efficiencies in distribution with Unilever's existing ice cream brands. Correct a weakness. Recruit experienced managers from other consumer product firms to help stimulate growth. Exploit an opportunity. Develop a new line of low-fat, low-carb frozen yogurts and sorbets to respond to consumer health concerns. Avoid a disaster-laden threat. Focus on less risky international markets, such as Canada and Mexico.

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Examples of more in-depth study in these four areas appear in the SWOT analysis in Figure A­1 in the marketing plan in Appendix A and the chapters in this textbook cited in that plan.

Step 2: Market-Product Focus and Goal Setting Determining which

products will be directed toward which customers (step 2 of the planning phase in Figure 2­5) is essential for developing an effective marketing program (step 3). This decision is often based on market segmentation, which involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. This enables an organization to identify the segments on which it will focus its efforts--its target market segments--and develop specific marketing programs to reach them. As always, understanding the customer is essential. In the case of Medtronic, executives researched a potential new market in Asia by talking extensively with doctors in India and China. They learned that these doctors saw some of the current state-ofthe-art features of heart pacemakers as less essential and too expensive. Instead, they wanted an affordable pacemaker that was reliable and easy to implant. This information led Medtronic to develop and market a new product, the Champion heart pacemaker, directed at the needs of this Asian market segment. Goal setting involves setting measurable marketing objectives to be achieved. Such objectives would be different depending on the level of marketing involved. For a specific market, the goal may be to introduce a new product, such as Medtronic's Champion pacemaker in Asia or Toyota's launch of its hybrid car, the Prius. For a specific brand or product, the goal may be to create a promotional campaign or pricing strategy that will get more consumers to purchase. For an entire marketing program, the objective is often a series of actions to be implemented over several years. Using the strategic marketing process shown in Figure 2­5, let's examine Medtronic's five-year plan to reach the "affordable and reliable" segment of the pacemaker market:49

Set marketing and product goals. The chances of new-product success are increased by specifying both market and product goals. Based on their market research showing the need for a reliable yet affordable pacemaker, Medtronic executives set the following as their goal: Design and market such a pacemaker in the next three years that could be manufactured in China for the Asian market. Select target markets. The Champion pacemaker will be targeted at cardiologists and medical clinics performing heart surgery in India, China, and other Asian countries. Find points of difference. Points of difference are those characteristics of a product that make it superior to competitive substitutes. Just as a competitive advantage is a unique strength of an entire organization compared to its competitors, points of difference are unique characteristics of one of its products that make it superior to competitive products it faces in the marketplace. For the Champion pacemaker, the key points of difference are not the state-of-the-art features that drive up production costs and are important to only a minority of patients. Instead, they are high quality, long life, reliability, ease of use, and low cost. Position the product. The pacemaker will be "positioned" in cardiologists' and patients' minds as a medical device that is high quality and reliable with a long, nine-year life. The name Champion is selected after testing acceptable names among doctors in India, China, Pakistan, Singapore, and Malaysia.

Details in these four elements of step 2 provide a solid foundation to use in developing the marketing program, step 3 in the planning phase of the strategic marketing process. LO5

Step 3: Marketing Program Activities in step 2 tell the marketing manager which customers to target and which customer needs the firm's product offerings

46

FIGURE 2­7 The elements of the marketing mix must be blended to produce a cohesive marketing program. Product Features Brand name Packaging Service Warranty

Marketing manager

Price List price Discounts Allowances Credit terms Payment period

Promotion Advertising Personal selling Sales promotion Public relations Direct marketing

Place Outlets Channels Coverage Transportation Stock level

Cohesive marketing program

Promotion Product Price Place

can satisfy--the who and what aspects of the strategic marketing process. The how aspect--step 3 in the planning phase--involves developing the program's marketing mix and its budget. Figure 2­7 shows components of each marketing mix element that are combined to provide a cohesive marketing program. For the five-year marketing plan of Medtronic, these marketing mix activities include the following:

Product strategy. Offer a Champion brand heart pacemaker with features needed by Asian patients. Price strategy. Manufacture the Champion to control costs so that it can be priced below $1,000 (in U.S. dollars)--an affordable price for Asian markets. Promotion strategy. Feature demonstrations at cardiologist and medical conventions across Asia to introduce the Champion and highlight the device's features and application. Place (distribution) strategy. Search out, utilize, and train reputable medical distributors across Asia to call on cardiologists and medical clinics.

Putting this marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast (see Chapter 9) and budget that must be approved by top management.

8. What is the difference between a strength and an opportunity in a SWOT analysis? 9. What is market segmentation? 10. What are points of difference and why are they important?

learning review

Strategic Marketing Process: The Implementation Phase

As shown in Figure 2­5, the result of the tens or hundreds of hours spent in the planning phase of the strategic marketing process is the firm's marketing plan. Implementation,

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President/Chief Executive Officer

Vice President Information Systems Department

Vice President Research and Development Department

Vice President Manufacturing Department

Vice President* Marketing Department

Vice President Accounting and Finance Department

Vice President Human Resources Department

Manager Product Planning

Manager Marketing Research

Manager Sales

Manager Advertising and Promotion

Sales Regions and Representatives

*Called chief marketing officer (CMO) in many corporations

FIGURE 2­8 Organization of a typical manufacturing firm, showing a breakdown of the marketing department.

the second phase of the strategic marketing process, involves carrying out the marketing plan that emerges from the planning phase. If the firm cannot put the marketing plan into effect--in the implementation phase--the planning phase was a waste of time. Figure 2­5 also shows the four components of the implementation phase: (1) obtaining resources, (2) designing the marketing organization, (3) developing schedules, and (4) actually executing the marketing program designed in the planning phase. Kodak provides a case example.

Dubbed "Queen of the Geeks" by her employees, Susan H. Tousi set exacting quality standards in leading Kodak's ink-jet research and development.

Obtaining Resources In late 2003, Kodak announced its bold plan (discussed earlier) to reenergize the film manufacturer for the new age of digital cameras and prints. Antonio Perez needed money to implement the plan. So Perez in 2007 sold Kodak's medical imaging unit for $2.5 billion and announced continuing painful employment cuts to 28,000 by the end of the year, down from its 145,000 peak in 1984.50 Designing the Marketing Organization A marketing program needs a marketing organization to implement it. Figure 2­8 shows the organization chart of a typical manufacturing firm, giving some details of the marketing department's structure. Four managers of marketing activities are shown to report to the vice president of marketing. Several regional sales managers and an international sales manager may report to the manager of sales. This marketing organization is responsible for converting marketing plans to reality as part of the corporate team. Developing Schedules Effective implementation

requires goals, deadlines, and schedules. To implement his plan to focus on Kodak's digital business opportunities, Kodak and Perez set a key goal in 2003:51

Boost sales from $13 billion in 2003 to $16 billion in 2006. Boost sales from $16 billion in 2006 to $20 billion in 2010.

48

To help fill in its planning gap, Kodak is pursuing opportunities for sales of digital cameras in China.

Executing the Marketing Program Marketing plans are meaningless pieces of paper without effective execution of those plans. This effective execution requires attention to detail for both marketing strategies and marketing tactics. A marketing strategy is the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. The term implies both the end sought (target market) and the means to achieve it (marketing program). At this marketing strategy level, Kodak will seek to increase sales of digital cameras and ink-jet printers for consumers and products for commercial printers. To implement a marketing program successfully, hundreds of detailed decisions are often required. These decisions, called marketing tactics, are detailed day-today operational decisions essential to the overall success of marketing strategies. At Kodak, writing ads and setting prices for its new lines of digital cameras are examples of marketing tactics. Marketing strategies and marketing tactics blend into each other. Effective marketing program implementation requires excruciating concern for both.

Strategic Marketing Process: The Evaluation Phase

The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it (see Figure 2­4). Accomplishing this requires the marketing manager to (1) compare the results of the marketing program with the goals in the written plans to identify deviations and (2) act on these deviations--correcting negative deviations and exploiting positive ones.

Comparing Results with Plans to Identify Deviations In late 2003,

as Antonio Perez looked at Kodak's sales revenues from 1998 through 2003, he didn't like what he saw: the very flat trend, or AB in Figure 2­9 on the next page. Extending the 1998­2003 trend to 2010 along BC shows declining sales revenues, a totally unacceptable, no-growth strategy. Kodak's growth target of 5 to 6 percent annually, the line BD in Figure 2­9, would give sales revenues of $16 billion in 2006 and $20 billion in 2010. This reveals a wedge-shaped shaded gap in the figure. Planners call this the planning gap, the difference between the projection of the path to reach a new goal (line BD) and the projection of the path of the results of a plan already in place (line BC). The ultimate purpose of the firm's marketing program is to "fill in" this planning gap--in Kodak's case, to move its future sales revenue line from the no-growth line BC up to the challenging target of line BD. But poor performance can result in actual sales revenues being far less than the targeted levels. This is the essence of evaluation: comparing actual results with goals set.

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Achieving Kodak's 2010 goal of $20 billion in annual sales is especially difficult because actual annual sales revenues have declined slightly since 2003. To help achieve this aggressive sales target, Perez picked Susan H. Tousi to run Kodak's ink-jet research and development--project "Goya," which must succeed to reach the 2010 goal. Spraying ink through 3,840 nozzles at 24,000 drops per second to yield vibrant, long-lasting color prints required the latest chemistry and nanotechnology. Getting the ink formula right required 24-hour marathons. Tousi repeatedly sent researchers back to their labs because results didn't meet her standards. And Kodak's new line of ink-jet printers was launched in February 2007. For her exacting quality standards, Tousi's employees named her "Queen of the Geeks!"52 To achieve these goals, Perez also worked with key Kodak executives to schedule the acquisition of and partnering with firms having digital expertise.

Annual sales revenues ($billions)

FIGURE 2­9 The evaluation phase of the strategic marketing process requires that the organization compare actual results with goals to identify and act on deviations to fill in its "planning gap." The text describes how Kodak hopes to fill in its planning gap by 2010.

$20 18 16 14 12 A

Target sales revenues set in 2003 with new plans and actions

D

Planning gap B Actual sales revenues C Trend of sales revenues in 2003 without new plans and actions Future 2002 2004 2006 2008 2010

Past 0 1998 2000

Acting on Deviations When evaluation shows that actual performance fails to meet expectations, managers need to take corrective actions. And when actual results are far better than the plan called for, creative managers find ways to exploit the situation. Two possible Kodak midcourse corrections for both positive and negative deviations from targets illustrate these management actions:

Exploiting a positive deviation. If Kodak's innovative "Goya" ink-jet printers sell better than expected, Kodak might try to move quickly to offer these to international customers. Correcting a negative deviation. However, if the Xerox-Fuji joint venture to market self-service kiosks in retail outlets is effective, Kodak might launch a new aggressive marketing program to reach this segment.

The strategic marketing process is discussed in greater detail again in Chapter 22.

11. What is the implementation phase of the strategic marketing process?

learning review

12. How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?

LEARNING OBJECTIVES REVIEW

LO1 Describe the kinds of organizations that exist and the

three organizational levels of strategy. An organization is a legal entity of people who share a common mission. There are two kinds. One is a business firm that is a privately owned organization that serves its customers in order to earn a profit so that it can survive. The other is a nonprofit organization that is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Most large business firms and nonprofit organizations are divided into three levels of strategy: (a) the corporate level, where top management directs overall strategy for the entire organization; (b) the strategic business unit level, where managers set a more specific strategic direction for their businesses to set value-creating opportunities; and (c) the functional level, where groups of specialists actually create value for the organization.

LO2

Describe how core values, mission, organizational culture, business, and goals are important to organizations.

Organizations exist to accomplish something for someone. To give organizations direction and focus, they continuously assess their core values, mission, organizational culture, business, and goals. Today's organizations specify their foundation, set a direction, and formulate strategies--`why,' `what,' and `how' factors, respectively. Core values are the organization's fundamental, passionate, and enduring principles that guide its conduct over time--what Enron forgot when it lost sight of its responsibilities to its stakeholders. The organization's mission is a statement of its function in society, often identifying its customers, markets, products, and technologies. Organizational culture is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. To answer the question, `What business are we in?' an organization defines its "business"--the clear, broad, underlying industry category or market sector of its offering. Finally, the organization's goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time.

50

LO3 Explain how organizations set strategic directions by as-

LO4 Describe the strategic marketing process and its three key phases: planning, implementation, and evaluation. An organization uses the strategic marketing process to allocate its marketing mix resources to reach its target markets. This process consists of three phases, which are usually formalized in a marketing plan. The planning phase consists of (a) a situation (SWOT)

FOCUSING ON KEY TERMS

business p. 33 competencies p. 35 competitive advantage p. 35 core values p. 31 corporate level p. 29 cross-functional teams p. 30 functional level p. 30 goals p. 34 market segmentation p. 46 market share p. 34 marketing dashboard p. 41 marketing metric p. 41 marketing plan p. 43 marketing strategy p. 49 marketing tactics p. 49 mission p. 32 objectives p. 34 organizational culture p. 33 points of difference p. 46 profit p. 28 situation analysis p. 44 strategic business unit (SBU) p. 30 strategic business unit level p. 30 strategic marketing process p. 44 strategy p. 29 SWOT analysis p. 44

APPLYING MARKETING KNOWLEDGE

1 (a) Using Medtronic as an example, explain how a mission statement gives a strategic direction to its organization. (b) Create a mission statement for your own career. 2 What competencies best describe (a) your college or university and (b) your favorite restaurant? 3 Why does a product often start as a question mark and then move counterclockwise around BCG's growth-share matrix shown in Figure 2­3? 4 What is the main result of each of the three phases of the strategic marketing process? (a) planning, (b) implementation, and (c) evaluation.

Select one strength, one weakness, one opportunity, and one threat from the SWOT analysis for Ben & Jerry's, shown in Figure 2­6. Suggest a single action that Unilever might take to address each one. 6 The goal-setting step in the planning phase of the strategic marketing process sets quantified objectives for use in the evaluation phase. What does a manager do if measured results are below objectives? Above objectives?

5

building your marketing plan

1

Read Appendix A, "Building an Effective Marketing Plan." Then write a 600-word executive summary for the Paradise Kitchens marketing plan using the numbered headings shown in the plan. When you have completed the draft of your own marketing plan, use what you learned in writing an executive summary for Paradise Kitchens to write a 600-word executive summary to go in the front of your own marketing plan.

2

Using Chapter 2 and Appendix A as guides, give focus to your marketing plan by (a) writing your mission statement in 25 words or less, (b) listing three nonfinancial goals and three financial goals, (c) writing your competitive advantage in 35 words or less, and (d) doing a SWOT analysis table.

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

sessing where they are now and seek to be in the future. Managers of an organization ask two key questions to set a strategic direction. The first question, Where are we now? requires an organization to (a) reevaluate its competencies to ensure that its special capabilities still provide a competitive advantage; (b) assess its present and prospective customers to ensure they have a satisfying customer experience--the central goal of marketing today; and (c) analyze its current and potential competitors from a global perspective to determine whether it needs to redefine its business. The second question, Where do we want to go? requires an organization to set a specific direction and allocate resources to move it in that direction. Business portfolio, hedgehog, and blue ocean analyses help do this.

analysis of the organization's strengths, weaknesses, opportunities, and threats; (b) a market-product focus through market segmentation, points of difference analysis, and goal setting; and (c) a marketing program that specifies the budget and activities (marketing strategies and tactics) for each marketing mix element. The implementation phase carries out the marketing plan that emerges from the planning phase. It has four key elements: obtaining resources, designing the marketing organization, developing schedules, and executing the marketing program. The evaluation phase compares the results from the implemented marketing program with the marketing plan's goals to identify the "planning gaps" and take actions to exploit positive deviations or correct negative ones.

LO5 Explain how the marketing mix elements are blended into a cohesive marketing program. A marketing manager uses information obtained during the SWOT analysis, market-product focus, and goal-setting steps in the planning process to develop marketing strategies and marketing tactics for each marketing mix element for a given product, which are then implemented, as specified in the marketing plan, as a marketing program.

video case 2 BP: Transforming Its Strategy "Beyond Petroleum"

"We want to get people to drive an extra block or cut across an extra lane of traffic to choose BP over its competitors," claims Ann Hand, Senior Vice President--Global Brand Marketing and Innovation.53 BP, formerly known as British Petroleum, is one of the world's largest producers and marketers of petroleum products. Through innovative marketing and with a focus on the environment, BP has recently been transforming itself into a consumer-centric provider of energy products and services that are broader than just oil and gas. Within its refining and marketing SPU, BP sells gasoline at its branded retail gas stations, which include the BP, Amoco Ultimate, Wild Bean Café and BP Connect brands (eastern U.S.) and the ARCO and am/pm brands (western U.S.). In the near term, BP's retail strategy will focus on high-growth metropolitan areas in the U.S. through new and franchised service stations. In the long-term, BP plans to transform the retail gasoline landscape with its new Helios House and Helios Power strategies (see below).

BP'S FOUR CORE VALUES

BP specifies four core values to express the way the organization does business and help translate the mission into practical action:

KEY ELEMENTS IN BP'S "BEYOND PETROLEUM" TRANSFORMATION

Increased energy demand due to the growing economies of both the developed and developing countries as well as supply constraints have caused oil prices to rise sharply during the past few decades. This, along with the heightened awareness of global climate change in the late 1990s, created an opportunity for BP transform its mission statement to the following: "Our business is about finding, producing, and marketing the natural energy resources on which the modern world depends." BP then reorganized itself primarily into two strategic performance (i.e. business) units to support its mission. These "SPUs" consist of activities related to the (1) discovery and production of oil and natural gas and (2) refining and marketing of petroleum products. BP also identified and evaluated many opportunities to increase its sales and profits. One strategy was through acquisitions. During the late 1990s, BP invested $120 billion to add competitors Amoco, ARCO, and Castrol to its business portfolio. BP now produces about three percent of the planet's oil and gas, operates in over 100 countries around the world, and serves 13 million customers per day at 24,600 retail sites, including 12,300 stations in the United States. The benefits to its stakeholders: BP global sales now exceed $250 billion. In 2000, BP introduced a new brand identity to reflect the integrated company it had become. The BP shield and Amoco torch were replaced by a new Helios logo that more appropriately reflects BP's corporate and retail brand image as a green, environmentallyfriendly company. Because a brand image communicates the brand's essence--an emotional tie between the company and its customers--it provides confidence to customers: they know they can get high-quality gas, conveniently purchase food and beverages, and travel onwards refreshed. Thus, BP is not just about gasoline--it goes "beyond petroleum."

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Progressive: BP is always looking for new and better ways to conduct business. It has developed a relationship with Ford to build hydrogen vehicles and fueling stations in California, Michigan, and elsewhere. BP also has reformulated its BP Amoco Ultimate fuel to reduce air pollutants. Innovative: Through the creative approaches of employees, and the development and application of cutting-edge drilling technology, BP seeks breakthrough solutions for its customers. Green: BP is committed to environmental leadership-- the proactive and responsible treatment of the planet's natural resources and developing lower carbon emission energy sources. As a result, BP now stores its gasoline in double-skinned tanks to prevent spills and leaks. Performance-driven: BP sets the global standards of performance on financial and environmental dimensions, as well as safety, growth, and customer and employee satisfaction.

HELIOS HOUSE: TRANSFORMING BP'S GASOLINE RETAILING

Since 1977, the percentage of gasoline stations in the United States that also contain a convenience store has gone from 5 percent to more than 50 percent. To support the demand for convenience store offerings, BP developed a very successful convenience store concept called am/pm. This branded offering was created and tested on ARCO sites in the western U.S.; in the future, am/pm. will partner with the BP retail brand and penetrate the eastern U.S. Currently, the am/pm stores sell both fuel and over 2,000 convenience items (snacks, beverages, necessities, etc.). Sales from the over 1,000 am/pm stores now exceed $6 billion; both the number and sales revenues are expected to grow significantly

Questions (a) What is BP's "Helios" strategy? (b) How does this strategy relate to BP's mission and core values? 2 Conduct a SWOT (strengths, weaknesses, opportunities, and threats) analysis for BP's "Helios" initiative-- looking forward globally to the next three years. 3 What are some ways BP could use to effectively communicate its "Helios" strategy to consumers? 4 What are the long-term benefits to (a) society and (b) BP of its "Helios" initiative? 5 Looking at BP's Helios Power marketing strategy and its "street team" marketing tactic: (a) What objectives would you set for this tactic? (b) How would you propose BP measure the results?

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HELIOS POWER: BP'S PROMOTION OF ITS GASOLINE RETAILING

The second part of BP's strategy was a promotional campaign to transform BP's retail brand image at its locations in the U.S. Buying gasoline is a low involvement purchase and consumers have low expectations regarding their purchase experiences. Armed with that consumer insight, BP created and executed the $45 million Helios Power advertising and brand building campaign, which is an extension of BP's

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CHAPTER 2 DEVELOPING SUCCESSFUL MARKETING AND ORGANIZATIONAL STRATEGIES

forms many of its existing gas stations into am/pm stores. In early 2007, BP launched a twopart strategy to change the way consumers think about its gas stations. One part was Helios House, a newlook gasoline station located in Los Angeles that will serve as a living laboratory to test ideas in a real environment. Ann Hand, who manages BP's $280 million global marketing programs, was instrumental in the planning and implementation of Helios House. Becoming operational during April 2007, Helios House was designed to be eco-friendly from the top down. The building itself was constructed from recycled, sustainable, and non-toxic materials. Moreover, its canopy has 90 solar panels to generate its own electricity. The roof is covered with grass to reduce the building's heating and cooling needs and has rain collectors to irrigate the surrounding drought-tolerant landscape. The facility also has energy-efficient lighting, using just one-fifth less energy compare to a traditional gas station. As a result of these and other design features, Helios House became the first gas station to be certified as green by the U.S. Green Building Council. Helios House also offers customers (1) clean, wellmaintained restrooms, (2) friendly "green team" employees who will not only greet customers with a smile but also check their cars' tire pressure to ensure proper inflation--which boosts gas mileage, and (3) tips on creating a green lifestyle through its www.thegreencurve.com website. According to Kathy Seegebrecht, BP's U.S. Advertising Manager, "Helios House will serve as a place where BP can have a conversation with its customers about green ideas and how its gas station can play a part in creating a better environment. It was designed to serve as a beacon to inspire the employees and franchisees through the U.S." Helios House is not a prototype of BP's station of the future. However, it will be an incubator of green ideas that can be implemented among its existing and new stations. It is just too costly to replace 25,000 existing stations throughout the world. Seegebrecht concludes, "Helios House is showing us that in a more brand-conscious world, where we all want the best of everything; people might actually want a better gas station." How successful has the Helios House been? "The site has nearly doubled its fuel volumes."

"Beyond Petroleum" corporate campaign that began in the early 2000s. The Helios Power campaign consisted of the following marketing tactics: "A little better" tagline. BP customers can expect to receive "a little better" experience at its service stations and other retail outlets compared to those of its competitors. Hand elaborates, "In this market, a little better means a lot. People see refueling as a necessary and unpleasant chore. However, BP can be cleaner and friendlier, and that's why people will choose us rather than our competitors." And this choice will be made on an emotional basis because customers "like what we stand for."54 Animated TV ads. These feature a family of characters (the Lighthouse family, the Babies, and the Beeps) and a catchy tune designed to reinforce the emotional appeal of the BP brand. The TV ads aired during some of the top U.S. TV shows (American Idol, Ugly Betty) and also had exposure on YouTube. The purposes of the ads were to generate awareness of and an emotional connection to the BP brand and its offerings. In-store give-aways. At the launch in April 2007, environmentally-friendly paper bags, T-shirts with a fun new look from the campaign, kids activity books and trading cards featuring the campaign characters, and sunflower seed packets were handed out to customers throughout the entire network of BP stations. Unique website. The www.alittlebettergasstation.com website features the "Gas Mania" interactive game, selected animations, ringtones, screensavers, a sweepstakes, and the TV ads. Street teams. BP and Ford teamed up to promote the use of BP's Ultimate gasoline in Ford's new Edge automobile. Videos featuring groups of college-aged students were created to showcase the BP brand in Florida and the ARCO brand in California.

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