Marketing Management-I:

Lecture 2
 How does marketing affect customer value?

 How is strategic planning carried out at

different levels of the organization?
The value chain is a tool for identifying ways to
create more customer value because every firm
is a synthesis of primary and support activities
performed to design, produce, market, deliver,
and support its product.
 Firm infrastructure
Activities

Human resource management

Support

Technology Development

Procurement

Market- Serv-
Out-
Inbound Opera- ing ice
bound
Logistics tions and
Logistics
sales

Primary Activities
A source of competitive advantage
 Applications in a wide variety of
markets
 Difficult to imitate
 Analysis
of organization’s strengths and
weaknesses. Identification of organization’s
opportunities and threats.

 Organizational mission and goals

 Corporate and business-unit strategies

Revising Marketing Strategies to Address
Evolving Customer Needs

Mid-1920s: Model
Model T A
produced using launched in more
an assembly than 20 different
line styles

Ford and
1960s: Launched 2004: Launched Microsoft has
Mustang, a sporty Escape, the first cooperated to
car hybrid SUV develop the
SYNC
 Factors that mediate marketing’s
strategic role
 Competitive conditions may enable a
company to be successful in the short
run without being particularly sensitive
to customer desires.
 Product-orientation or production-
orientation
 Sales-orientation
 Factorsthat mediate marketing’s
strategic role
 Different levels of economic development
across industries or countries may favour
different business philosophies
 Firms can suffer from strategic inertia—the
automatic continuation of strategies successful
in the past, even though current market
conditions are changing.
A strategy is a fundamental pattern of
present and planned objectives, resource
deployments, and interactions of an
organization with markets, competitors, and
other environmental factors.
 The hierarchy of strategies
 Corporate strategy
 Business-level strategy
 Functional strategies
 The components of strategy:
 Scope
 Goals and objectives
 Resource deployments
 Identification of a sustainable
competitive advantage
 Synergy
 Corporate strategy
 Decisions about the firm’s scope and resource
deployments across its businesses are the primary
focus of corporate strategy.
 Essential questions at this level:
 What business(es) are we in?

 What business(es) should we be in?

 What portion of our total resources should we

devote to each of these businesses?

 Business-level strategy
A major issue in a business strategy is that
of sustainable competitive advantage.
 It must address appropriate scope.
 Synergy should be sought across product-
markets and across functional departments
within the business.
 Marketing strategy
 The primary focus is to effectively
allocate and coordinate marketing
resources and activities to accomplish
the firm’s objectives within a specific
product-market.
 A critical issue is specifying the target
market(s) for a particular product or
product line.
A corporate mission statement should
clearly define the organization’s strategic
scope.
 It should answer the following
fundamental questions:
 What is our business?
 Who are our customers?
 What kinds of value can we provide to these
customers?
 What should our business be in the future?
 Corporate sources of competitive
advantage
A sustainable competitive advantage at the
corporate level is based on company
resources: resources that other firms do
not have, that take a long time to develop,
and that are hard to acquire.
The business portfolio is the collection of
businesses and products that make up the
company.
The company must:
 analyze its current business portfolio or Strategic
Business Units (SBU’s),
 decide which SBU’s should receive more, less, or
no investment,
 develop growth strategies for adding new
products or businesses to the portfolio.
A firm can go in two major directions in
seeking future growth:
 Expansion of its current businesses and
activities.
 Diversification into new businesses, either
through internal business development or
acquisition.
 Expansion by increasing penetration of current
product-markets
 Expansion by developing new products for
current customers
 Expansion by selling existing products to new
segments or countries
 Existing New
products products

Existing 1. Market 3. Product

markets penetration development

New 2. Market
markets development 4. Diversification
Can be Difficult, Time-Consuming, Costly to Implement

Difficult to Define SBU’s & Measure Market Share/Growth

Focus on Current Businesses, But Not Future Planning

Can Lead to Unwise Expansion or Diversification

 Value-based planning
A resource allocation tool that attempts
to address such questions by assessing
the shareholder value a given strategy is
likely to create.
 The amount of return a strategy or
operating program generates in excess
of the cost of capital is commonly
referred to as its economic value added,
or EVA.
 Discounted cash flow model.
 Shareholder value created by a strategy
is determined by the cash flow it
generates, the business’s cost of capital,
and the market value of the debt
assigned to the business.
 Strategicbusiness units, or SBUs are the
components of a firm engaged in multiple
industries or businesses.
 Deciding how to divide into SBUs.
 SBU managers must recommend:
 The unit’s objectives.

 The scope of its target customers and

offerings.
 Which broad competitive strategy to
pursue.
 How resources should be allocated.
 Ideally,
strategic business units have
the following characteristics:
A homogeneous set of markets to serve
with a limited number of related
technologies.
 A unique set of product-markets.
 Control over those factors necessary for
successful performance.
 Responsibility for their own profitability.
 The dimensions that define the scope and
mission of the entire corporation also define
individual SBUs.
 Gaining a competitive advantage: To be
successful over the long haul, a competitive
strategy should have three characteristics.
 It should generate customer value.

 The superior value must be perceived by the

customer.
 The advantage should be difficult for
competitors to copy.