Marketing Management

CHAPTER 2

MARKETING STRATEGY AND MARKET ENVIRONMENT

Chapter outline
Describe the steps in marketing planning
Explain the strategic planning process.
Discuss some of the important aspects of an organizations internal environment and
understand how factors in the external business environment influence marketing
strategies and outcomes
Understand the big picture of international marketing, including trade flows, market
scope, and global competitive advantage.
Explain the key role of implementation and control on marketing planning
Explain operational planning.
Explain the strategies that a firm can use to enter global markets.

BUSINESS PLANNING
Business planning is an ongoing process of making decisions that guides the firm both in the
short term and for the long term. Planning identifies and builds on a firms strengths, and it helps
managers at all levels make informed decisions in a changing business environment.

A business plan is a plan that includes the decisions that guide the entire organisation.
A marketing plan is a document that describes the marketing environment, outlines the
marketing objectives and strategy, and identifies who will be responsible for carrying out each
part of the marketing strategy.

Ethics and Marketing Planning

A list of highly publicised corporate scandals (Enron, WorldCom, mortgage banking industry
meltdown) emphasise the importance of making ethical marketing decisions and raises the issue
of how damaging unethical practices can be to society at large.

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Codes of Business Ethics

Ethics are rules of conduct, how most people in a culture judge what is right and what is wrong.
Business ethics are basic values that guide a firms behaviour.

Many firms develop their own code of ethics; written standards of behaviour to which everyone
in the organisation must subscribe, as part of the planning process. These documents eliminate
confusion about what the firm considers to be ethically acceptable behaviour by its people, and
also set standards for how the organisation interacts with its stakeholders.

THE THREE LEVELS OF BUSINESS PLANNING

Business planning occurs at three levels: strategic, functional, and operational. The top level is
big picture stuff, while the bottom level specifies the nuts-and-bolts actions the firm will
need to take to achieve these lofty goals.

Strategic planning is the managerial decision process that matches the firms resources (such as
its financial assets and workforce) and capabilities (the things it is able to do well because of its
expertise and experience) to its market opportunities for long-term growth.

Strategic business units (SBUs) - individual units representing different areas of business
within a firm that are different enough to each have their own mission, business objectives,
resources, managers, and competitors.

The next level of planning is functional planning (sometimes called tactical planning). This
level gets its name because the various functional areas of the firm, such as marketing, finance,
and human resources get involved. Vice presidents or functional directors usually do this. We
refer to what the functional planning marketers do as marketing planning.

Operational planning focuses on the day-to-day execution of the functional plans and includes
detailed annual, semi-annual, or quarterly plans.

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All business planning is an integrated activity. This means that the organisations strategic,
functional, and operational plans must work together for the benefit of the whole.

STRATEGIC PLANNING
Listed below are typical steps followed in strategic planning.

Step 1: Define the Mission

Questions asked in this stage include: What business are we in? What customers should we
serve? How should we develop the firms capabilities and focus its efforts? Answers to these
questions become part of the mission statement, a formal document that describes the
organisations overall purpose and what it hopes to achieve in terms of its customers, products,
and resources. The ideal mission statement is not too broad, too narrow, or too short-sighted.

Step 2 :Evaluate the Internal and External Environment

This is referred to as a situation analysis, environmental analysis, or sometimes a business
review. The analysis includes a discussion of the firms internal environment, which can identify
a firms strengths and weaknesses, as well as the external environment in which the firm does
business so the firm can identify opportunities and threats.

The internal environment is all controllable elements inside a firm that influence how well the
firm operates. Examples include the firms people, its technologies, physical facilities, financial
stability, and relationships with suppliers.

The external environment consists of elements outside the firm that may affect it either
positively or negatively. The external environment for todays businesses is global, so
managers/marketers must consider elements such as the economy, competition, technology, law,
ethics, and socio-cultural trends. Unlike elements of the internal environment that management
can control to a large degree, the firm cant directly control these external factors, so
management must respond to them through its planning process.

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A SWOT analysis, a summary of the ideas developed in the situation analysis, allows managers
to focus clearly on the meaningful strengths (S) and weaknesses (W) in the firms internal
environment and opportunities (O) and threats (T) coming from outside the firm (the external
environment).

ANALYSE THE GLOBAL MARKETING ENVIRONMENT

Once a marketer makes initial decisions about whether or not to go global and about what
country or countries provide attractive opportunities, he must gain a good understanding of the
local conditions in the targeted country or region.

The Economic Environment

Understanding the economy of a country in which a firm does business is vital to the success of
marketing plans.

Indicators of Economic Health

The most commonly used measure of economic health of a country is the gross domestic
product (GDP): the total value of goods and services a country produces within its borders in a
year. A similar but less frequently used measure of economic health is the gross national
product (GNP), which measures the value of all goods and services a countrys individuals or
organisations produce, whether located within the countrys borders or not. In addition to total
GDP, marketers may also compare countries on the basis of per capita GDP: the total GDP
divided by the number of people in a country.
GDP alone does not provide the information marketers need to decide if a countrys economic
environment makes for an attractive market. They also need to consider whether they can
conduct business as usual in another country. The economic infrastructure refers to the
quality of a countrys distribution, financial, and communications systems.

Level of Economic Development

Level of economic development takes into consideration the broader economic picture of a
country.

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A countrys standard of living is an indicator of the average quality and quantity of goods and
services a country consumes.

Economists describe the following three basic levels of development:

A country at the lowest stage of economic development is a least developed country
(LDC). In most cases, its economic base is agricultural. In least developed countries, the
standard of living is low, as are literacy levels.
When an economy shifts its emphasis from agriculture to industry, standards of living,
education, and the use of technology rise. These countries are developing countries and
there may be a viable middle class, often largely composed of entrepreneurs working
hard to run successful small businesses. Because over three-quarters of the worlds
population live in developing countries, the number of potential customers and the
presence of a skilled labour force attracts many firms to these areas.
A developed country boasts sophisticated marketing systems, strong private enterprise,
and plenty of market potential for many goods and services. Such countries are
economically advanced, and they offer a wide range of opportunities for international
marketers.

The Business Cycle

The business cycle is the overall pattern of changes or fluctuations of an economy. All
economies go through cycles of prosperity (high levels of demand, employment and income),
recession (falling demand, employment and income), and recovery (gradual improvement in
production, lowering unemployment, and increasing income). A severe recession is a depression;
a period during which prices fall but there is little demand because few people have money to
spend and many are out of work. Inflation occurs when prices and the cost of living rise while
money loses its purchasing power because the cost of goods escalates

Competitive Environment
Firms must keep abreast of what the competition is doing so they can develop new product
features, new pricing schedules, or new advertising to maintain or gain market share.

Analyse the Market and the Competition

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An increasing number of firms around the globe engage in competitive intelligence (CI)
activities, the process of gathering and analysing publicly available information about rivals. The
firm uses this information to develop superior marketing strategies

Competition in the Microenvironment

Competition in the microenvironment represents alternatives from which members of a target
market may choose. We think of these choices at three different levels. At a broad level,
marketers compete for consumers discretionary income: the amount of money people have left
after paying for necessities such as housing, utilities, food, and clothing. A second type of choice
is product competition, in which competitors offering different products attempt to satisfy the
same consumers needs and wants. The third type of choice is brand competition, in which
competitors offering similar goods or services compete for consumer expenditure.

Competition in the Macro-environment

When we talk about examining competition in the macro-environment, we mean that marketers
need to understand the big picture , the overall structure of their industry.

Four structures describe differing amounts of competition.

A monopoly exists when one seller controls a market.
In an oligopoly, there are a relatively small number of sellers, each holding substantial
market share, in a market with many buyers.
In a state of monopolistic competition, there are many sellers who compete for buyers in
a market.
Finally, perfect competition exists when there are many small sellers, each offering
basically the same good or service.

The Technological Environment

Changes in technology can dramatically transform an industry. A patent is a legal document a
countrys patent office issue that gives inventors, or individuals and firms , exclusive rights to
produce and sell a particular invention in that country. Marketers monitor government patent
applications to discover innovative products they can purchase from the inventor.

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The Political and Legal Environment

The political and legal environment refers to the local, state, national, and global laws and
regulations that affect businesses.

Political Constraints on Trade

Global firms know that the political actions a government takes can drastically affect their
business operations. Short of war, though, a country may impose economic sanctions that
prohibit trade with another country, so access to some markets may be cut off. Nationalisation is
when the domestic government reimburses a foreign company (often not for the full value) for its
assets after taking it over. Expropriation is when a domestic government seizes a foreign
companys assets (and that firm is just out of luck).

Regulatory Constraints on Trade

Governments and economic communities impose numerous regulations about what products
should be made of, how they should be made, and what can be said about them. Local content
rules are a form of protectionism stipulating that a certain proportion of a product must consist
of components supplied by industries in the host country or economic community

Human Rights Issues

Some governments and companies are vigilant about denying business opportunities to countries
that mistreat their citizens. They are concerned about conducting trade with local firms that
exploit their workers or that keep costs down by employing children as slave wages.

The Socio-cultural Environment

Another element of a firms external environment is the socio-cultural environment. This term
refers to the characteristics of the society, the people who live in that society, and the culture that
reflects the values and beliefs of the society. Whether at home or in global markets, marketers
need to understand and adapt to the customs, characteristics, and practices of its citizens.
Demographics

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Demographics are statistics that measure observable aspects of a population, such as size, age,
gender, ethnic group, income, education, occupation, and family structure.

Values
Every society has a set of cultural values, or deeply held beliefs about right and wrong ways to
live, that influence its members.

In collectivist cultures, such as those found in Venezuela, Pakistan, Taiwan, Thailand, Turkey,
Greece, and Portugal, people tend to subordinate their personal goals to those of a stable
community. In contrast, consumers in individualist cultures, such as the United States,
Australia, Great Britain, Canada, and the Netherlands, tend to attach more importance to
personal goals, and people are more likely to change memberships when the demands of the
group become too costly.

Norms and Customs

Norms are specific rules dictating what is right or wrong, acceptable or unacceptable. Some
specific types of norms include the following:

A custom is a norm handed down from the past that controls basic behaviours, such as
division of labour in a household.
Conventions are norms regarding the conduct of everyday life. These rules deal with the
subtleties of consumer behaviour, including the correct way to furnish ones house,
wear ones clothes, or host a dinner party.

Language
Language barriers can affect product labelling and usage instructions, advertising and personal
selling.

Ethnocentrism

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In marketing, we call the tendency to prefer products or people of ones own culture over those
from other countries ethnocentrism.

Ethical Issues for Global Business

Understanding the environment where you do business means staying on top of the ethical values
and norms of the business culture in the marketplace. Bribery occurs when someone voluntarily
offers payment to get an illegal advantage. Extortion occurs when someone in authority extracts
payment under duress

Step 3: Set Organizational or SBU Objectives

Organizational objectives are a direct outgrowth of the mission statement and broadly identify
what the firm hopes to accomplish within the general time frame of the firms long-range
business plan. Objectives need to be specific, measurable, attainable, and sustainable. Objectives
may relate to a number of elements such as revenue and sales, profitability, the firms standing in
the market, or return on investment.

Step 4: Establish the Business Portfolio

For companies with several different SBUs, strategic planning includes making decisions about
how to best allocate resources across these businesses to ensure growth for the total organization.
Each SBU has its own focus within the firms overall strategic plan, and each has its own target
market and strategies for reaching its objectives.

Just as we call the collection of different stocks an investor owns a portfolio, the range of
different businesses that a large firm operates is its business portfolio.

Portfolio analysis is a tool management uses to assess the potential of a firms business
portfolio. It helps management decide which of its current SBUs should receive moreor less
of the firms resources, and which of its SBUs are most consistent with the firms overall
mission.

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The BCG growth-market share matrix is one model managers use to assist in the portfolio
management process. The BCG model focuses on determining the potential of a firms existing
successful SBUs to generate cash that the firm can then use to invest in other businesses.

SBUs are categorized as:

Stars are SBUs with products that have a dominant market share in high-growth markets.

Cash cows have a dominant market share in a low-growth potential market.

Question markssometimes called problem children , are SBUs with low market shares in
fast-growth markets.

Dogs have a small share of a slow-growth market.

Step 5: Develop Growth Strategies

Part of the strategic planning at the SBU level entails evaluating growth strategies. The product-
market growth matrix is used to analyze different growth strategies. The matrix provides four
different fundamental marketing strategies.
Market penetration: increasing sales of existing products to existing markets.
Market development: introducing existing products to new markets.
Product development: selling new products in existing markets.
Diversification: emphasizing both new products and new markets to achieve growth.

MARKETING PLANNING
An important distinction between strategic planning and marketing planning, however, is that
marketing professionals focus much of their planning efforts on issues related to the marketing
mixthe firms product, its price, promotional approach, and distribution (place) methods.

The following steps are involved in the marketing planning process:

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Step 1: Perform a Situation Analysis

The first step in developing a marketing plan is for marketing managers to conduct an analysis of
the marketing environment. To do this, managers build on the companys SWOT analysis by
searching out information about the environment that specifically affects the marketing plan.

Step 2: Set Marketing Objectives

Marketing objectives are specific to the firms brands, sizes, product features, and other
marketing-mix elements.

Step 3: Develop Marketing Strategies

Marketing strategies are decisions about what activities must be accomplished to achieve the
marketing objectives. Usually this means deciding which markets to target and actually
developing the marketing mix strategies (product, price, promotion, and place [supply chain]) to
support how the product is positioned in the market.

Select a Target Market

The target market is the market segment(s) a firm selects because it believes its offerings are
most likely to win those customers. The firm assesses the potential demandthe number of
consumers it believes are willing and able to pay for its productsand decides if it is able to
create a sustainable competitive advantage in the marketplace among target consumers.

Develop Marketing Mix Strategies

Marketing mix decisions identify how marketing will accomplish its objectives in the firms
target markets by using product, price, promotion, and place.

Product strategies include decisions such as product design, packaging, branding,

support services (such as maintenance), if there will be variations of the product, and
what product features will provide the unique benefits targeted customers want.
The pricing strategy determines how much a firm charges for a product. In addition to
setting prices for the final consumer, pricing strategies usually establish prices the

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company will charge to wholesalers and retailers. A firm may base its pricing
strategies on costs, demand, or the prices of competing products.
A promotional strategy is how marketers communicate a products value proposition
to the target market. Marketers use promotion strategies to develop the products
message and the mix of advertising, sales promotion, public relations and publicity,
direct marketing, and personal selling that will deliver the message.
Distribution strategies outline how, when, and where the firm will make the product
available to targeted customers (the place component). In developing a distribution
strategy, marketers must decide whether to sell the product directly to the final
customer or to sell through retailers and wholesalers.

Step 4: Implement and Control the Marketing Plan

In practice, marketers spend much of their time managing the various elements involved in
implementing the marketing plan.

During the implementation phase, marketers must have some means to determine to what degree
they are actually meeting their stated marketing objectives. Often called control, this formal
process of monitoring progress entails three steps: (1) measuring actual performance, (2)
comparing this performance to the established marketing objectives or strategies, and (3) making
adjustments to the objectives or strategies on the basis of this analysis.

Effective control requires appropriate marketing metrics, which, as we discussed in Chapter 1,

are concrete measures of various aspects of marketing performance. You will note throughout the
book a strong emphasis on metrics within each chapter. Todays CEOs are keen on quantifying
just how an investment in marketing has an impact on the firms success, financially and
otherwise. Think of this overall notion as return on marketing investment (ROMI).

How does the implementation and control step actually manifest itself within a marketing plan?
One very convenient way is through the inclusion of a series of action plans that support
thevarious marketing objectives and strategies within the plan. We sometimes refer to action

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plans as marketing programs. The best way to use action plans is by including a separate action
plan for each important element involved in implementing the marketing plan.

Four elements of the action plan form the overall implementation and control portion of the
marketing plan.
Responsibility
Time line
Budget
Measurements and controls

CREATE AND WORK WITH A MARKETING PLAN

Make Your Life Easier: Use the Marketing Planning Template

Operational Planning: Day-to-Day Execution of Marketing Plans

The best plan ever written is useless if its not properly carried out. Thats what operational
plans are for. They put the pedal to the metal by focusing on the day-to-day execution of the
marketing plan.

The task falls to the first-line supervisors we discussed earlier, such as sales managers, marketing
communications managers, and marketing research managers. Operational plans generally cover
a shorter period of time than either strategic plans or marketing plans ;perhaps only one or two
months, and they include detailed directions for the specific activities to be carried out, who will
be responsible for them, and time lines for accomplishing the tasks.

GLOBAL MARKETING: PLAY ON AN INTERNATIONAL STAGE

The successful global business needs to set its sights on far-flung markets around the world, but
it needs to act locally by being willing to adapt its business practices to unique conditions in
other parts of the globe , and hopefully to provide benefits to the people who live there as well.

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World Trade
World trade refers to the flow of goods and services among different countries ,the value of all
the exports and imports of the worlds nations. World trade activity steadily increases year by
year.

In some countries, because sufficient cash or credit is simply not available, trading firms work
out elaborate deals in which they trade (or barter) their products with each other or even supply
goods in return for tax breaks from the local government. This counter trade accounts for about
25 percent of all world trade.

Figure 2.1 Decision Model for Entering Foreign Markets

Deciding to Go Global
When firms consider going global, they must make a number of decisions. The first two crucial
decisions are as follows:

1. Go or no goIs it in the best interest of the firm to remain in its home market or to go
elsewhere where there are good opportunities?
2. If the decision is go, which global markets are most attractive?

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Key factors in these decisions are the domestic and foreign market conditions and the unique
capabilities of the firm that would provide a competitive advantage abroad. Finally, the company
must consider the extent to which opportunities for success may be hampered by regulations or
other constraints on trade that local governments or international bodies impose.

Look at Market Conditions

Many times, a firm makes a decision to go global because domestic demand is declining while
demand in foreign markets is growing.

Identify Competitive Advantage

Firms hope to create competitive advantage over rivals. When firms compete in a global
marketplace, this challenge is even greater because there are more players involved, and
typically some of these local firms have a home-court advantage. Firms need to capitalise on
their home countrys assets and avoid competing in areas in which they are at a disadvantage.

ROADBLOCKS AT THE BORDERS

Often a companys efforts to expand into foreign markets are hindered by roadblocks designed to
favour local businesses over outsiders.

Protected Trade: Quotas, Embargoes, and Tariffs

In some cases, a government adopts a policy of protectionism in which it enforces rules on
foreign firms designed to give home companies an advantage.

Many governments set import quotas on foreign goods to reduce competition for their domestic
industries. Quotas can make goods more expensive to a countrys citizens because the absence of
cheaper foreign goods reduces pressure on domestic firms to lower their prices.

An embargo is an extreme quota that prohibits specified foreign goods completely.

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Governments also use tariffs, or taxes on imported goods, to give domestic competitors an
advantage in the marketplace by making foreign competitors goods more expensive than their
own products.

Initiatives in International Regulation and Cooperation

The World Trade Organization (WTO) replaced the General Agreement on Tariffs and Trade
(GATT) and helped reduce the problems that protectionism creates. The World Trade
Organization has made giant strides in creating a single open world market. The objective of the
WTO is to help trade flow smoothly, freely, fairly, and predictably.

Economic Communities
Groups of countries may also band together to promote trade among themselves and make it
easier for member nations to compete elsewhere. These economic communities coordinate
trade policies and ease restrictions on the flow of products and capital across their borders.

Economic communities are important to marketers because they set policies in areas such as
product content, package labelling, and advertising regulations that influence strategic decisions
when they do business in these areas.

HOW GLOBAL SHOULD A GLOBAL MARKETING STRATEGY BE?

Going global is not a simple task. If a firm decides to expand beyond its home country, it must
make important decisions about how to structure its business and whether to adapt its product
marketing strategy to accommodate local needs

Company-level Decisions: Choose a Market Entry Strategy

Just like a romantic relationship, a firm deciding to go global must determine the level of
commitment it is willing to make to operate in another country. At one extreme, the firm simply
exports its products, while at the other extreme it directly invests in another country by buying a
foreign subsidiary or opening its own stores. The decision about the extent of commitment
entails a trade-off between control and risk. Direct involvement gives the firm more control over
what happens in the country, but risk also increases if the operation is not successful.

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Exporting
If a firm chooses to export, it must decide whether it will attempt to sell its products on its own
or rely on intermediaries to represent it in the target country. These specialists understand the
local market and can find buyers and negotiate terms. An exporting strategy allows a firm to sell
its products in global markets and cushions it against downturns in its domestic market.

Contractual Agreements
The next level of commitment a firm can make to a foreign market is a contractual agreement
with a company in that country to conduct some or all of its business there.

In a licensing agreement, a firm (the licensor) gives another firm (the licensee) the right to
produce and market its product in a specific country or region in return for royalties on goods
sold.

Figure 2.2 Market-Entry Strategies

Franchising is a form of licensing that gives the franchisee the right to adapt an entire way of
doing business in the host country.

Strategic Alliance
Firms seeking an even deeper commitment to a foreign market develop a strategic alliance with
one or more domestic firms in the target country. These relationships often take the form of a
joint venture: Two or more firms create a new entity to allow the partners to pool their resources
for common goals. Strategic alliances also allow companies easy access to new markets,

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especially because these partnerships often bring with them preferential treatment in the partners
home country.

Direct Investment
An even deeper level of commitment occurs when a firm expands internationally through
ownership, usually by buying a business in the host country outright. Instead of starting from
scratch in its quest to become multinational, buying part or all of a domestic firm allows a
foreign firm to take advantage of a domestic companys political savvy and market position in
the host country.

Ownership gives a firm maximum freedom and control, and it also dodges import restrictions.
But direct investment also carries greater risk. Firms that own businesses in foreign countries
could suffer losses of their investment if economic conditions deteriorate or if political instability
leads to nationalisation or expropriation.

Born-Global Firms
The appeal of catering to a global market is so strong that its even spawning a new breed of
start-up companies we call born-global firms. These companies deliberately try to sell their
products in multiple countries from the moment theyre created rather than taking the usual path
of developing business in their local market and then slowly expanding into other countries.

PRODUCT-LEVEL DECISIONS: CHOOSE A MARKETING MIX STRATEGY

In addition to big picture decisions about how a company will operate in other countries,
managers must decide how to market the product in each country. They may need to modify the
marketing mix to suit local conditions.

Standardisation versus Localisation

When top management makes a company-level decision to expand internationally, the firms
marketers have to answer a crucial question: How necessary is it to develop a customised
marketing mix for each country?

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Gillette decided to offer the same products in all its markets , a standardisation strategy. In
contrast, Proctor & Gamble (P&G) adopted a localisation strategy in Asia, where consumers like
to experiment with different brands of shampoo.

Advocates of standardisation argue that the world has become so small that basic needs and
wants are the same everywhere. In contrast, those in favour of localisation feel that the world is
not that small; you need to tailor products and promotional messages to local environments.
These marketers feel that each culture is unique and that each country has a national character, a
distinctive set of behavioural and personality characteristics.

To P or Not to P: Tweak the Marketing Mix

Product Decisions
A firm seeking to sell a product in a foreign market has three choices: sell the same product in
the new market, modify it for that market, or develop a brand-new product to sell there.
A straight extension strategy retains the same product for domestic and foreign markets.
A product adaptation strategy recognises that in many cases people in different cultures
do have strong and different product preferences.
A product invention strategy means a company develops a new product as it expands to
foreign markets. In some cases, a product invention strategy takes the form of backward
invention. A firm may find that it needs to offer a less complex product than it sells
elsewhere.

Promotion Decisions
Marketers must also decide whether its necessary to modify their product promotions for a
foreign market. Some firms endorse the idea that the same message will appeal to everyone
around the world, while others feel the need to customise it.

Price Decisions

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Costs stemming from transportation, tariffs, differences in currency exchange rates, and even
bribes paid to local officials often make a product more expensive for a company to manufacture
for foreign markets than in its home country. One danger of pricing too high is that competitors
will find ways to offer their product at a lower price, even if they do this illegally. Gray market
goods are items that are imported without the consent of the trademark holder. Another unethical
and often illegal practice is dumping, in which a company prices its products lower than they are
offered at homeoften removing excess supply from home markets and keeping prices up there.

Distribution Decisions
Getting the product to consumers in a remote location is half the battle. Thus, its essential for a
firm to establish a reliable distribution system if its going to succeed in a foreign market.

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