strategic analysis & decision making
?to critically examine the nature of strategic analysis & decision making
?to understand the importance of analysing an org.’s external environment
?appreciate the role of an org.’s resources and capabilities as a basis for formulating strategy
2
Global Business Problems
John Wallace
California State Polytechnic University-Pomona
Fall 2015
Global Business Problems
IBM 480
California State Poly Univ-Pomona
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Global Business Problems
Table of Contents
“Chapter 1: Foundations of Strategic Marketing Management” by Kerin, Roger
A; Peterson, Robert A
1
“Chapter 2: Financial Aspects of Marketing Management” by Kerin, Roger A;
Peterson, Robert A
33
“Chapter 3: Marketing Decision Making and Case Analysis” by Kerin, Roger A;
Peterson, Robert A
53
“Rediscovering Market Niches in a Traditional Industry” by Tse, David; Ho,
Mary
65
“Coca-Cola’s New Vending Machine (A): Pricing to Capture Value, or Not?”
by King, Charles; Narayandas, Das
75
“Nin Jiom: Selling Traditional Chinese Medicine in Modern Hong Kong” by
Bennett Yim; Vincent Mak
85
“Heineken N.V.: Global Branding and Advertising” by Quelch, John A.
XanEdu Extra
An Excel-formatted spreadsheet containing the exhibits for the case above is available at
http://content.xanedu.com/hs/596015p2.xls
93
“Pepsi Blue” by Quelch, John A. 107
Bibliography 117
i
ii
C H A P T E R 1
Foundations of Strategic
Marketing Management
The primary purpose of marketing is to create long-term and mutually
beneficial exchange relationships between an entity and the publics
(individuals and organizations) with which it interacts. Though this fundamental
purpose of marketing is timeless, the manner in which organizations
undertake it continues to evolve. No longer do marketing managers function
solely to direct day-to-day operations; they must make strategic decisions as well. This
elevation of marketing perspectives to a strategic position in organizations has
resulted in expanded responsibilities for marketing managers. Increasingly, they find
themselves involved in charting the direction of the organization and contributing to
decisions that will create and sustain a competitive advantage and affect long-term
organizational performance.
The transition of the marketing manager from being only an implementer to
being a maker of organization strategy has resulted in (1) the creation of the chief
marketing officer (CMO) position in many organizations and (2) the popularity of
strategic marketing management as a course of study and practice. Today, almost onehalf
of Fortune 1000 companies have a CMO. Although responsibilities vary across
companies, a common expectation is that a CMO will assume a leadership role in
defining the mission of the business; analysis of environmental, competitive, and business
situations;developing business objectives and goals;and defining customer value
propositions and the marketing strategies that deliver on these propositions. The skill
set required of CMOs includes an analytical ability to interpret extensive market and
operational information, an intuitive sense of customer and competitor motivations,
and creativity in framing strategic marketing initiatives in light of implementation
considerations and financial targets and results.1 Strategic marketing management
consists of five complex and interrelated processes.
1. Defining the organization’s business, mission, and goals
2. Identifying and framing organizational growth opportunities
3. Formulating product-market strategies
4. Budgeting marketing, financial, and production resources
5. Developing reformulation and recovery strategies
The remainder of this chapter discusses each of these processes and their relationships
to one another.
1
1
2 CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
¦ DEFINING THE ORGANIZATION’S BUSINESS, MISSION, AND GOALS
The practice of strategic marketing management begins with a clearly stated business
definition, mission, and set of goals or objectives. A business definition outlines the
scope of a particular organization’s operations. Its mission is a written statement of
organizational purpose. Goals or objectives specify what an organization intends to
achieve. Each plays an important role in describing the character of an organization
and what it seeks to accomplish.
Business Definition
Determining what business an organization is in is neither obvious nor easy. In many
instances, a single organization may operate several businesses, as is the case with
large Fortune 500 companies. Defining each of these businesses is a necessary first
step in strategic marketing management.
Contemporary strategic marketing perspectives indicate that an organization
should define a business by the type of customers it wishes to serve, the particular
needs of those customer groups it wishes to satisfy, and the means or technology by
which the organization will satisfy these customer needs.2 By defining a business
from a customer or market perspective, an organization is appropriately viewed as a
customer-satisfying endeavor, not a product-producing or service-delivery enterprise.
Products and services are transient, as is often the technology or means used to produce
or deliver them. Basic customer needs and customer groups are more enduring.
For example, the means for delivering prerecorded music has undergone significant
change over the past 30 years. During this period, the dominant prerecorded music
technologies and products evolved from plastic records, to eight-track tapes, to cassettes,
to compact discs. Today, digital downloading of music is growing. By comparison,
the principal consumer buying segment(s) and needs satisfied have varied little.
Much of the recent corporate restructuring and refocusing has resulted from
senior company executives asking the question,“What business are we in?” The experience
of Encyclopaedia Britannica is a case in point.3 The venerable publishing company
is best known for its comprehensive and authoritative 32-volume, leather-bound
book reference series first printed in 1768. In the late 1990s, however, the company
found itself in a precarious competitive environment. CD-ROMs and the Internet had
become the study tools of choice for students, and Microsoft’s Encarta CD-ROM and
IBM’s CD-ROM joint venture with World Book were attracting Britannica’s core
customers. The result? Book sales fell 83 percent between 1990 and 1997. Britannica’s
senior management was confident that the need for dependable and trustworthy information
among curious and intelligent customers remained. However, the technology
for satisfying these needs had changed. This realization prompted Britannica to redefine
its business. According to a company official:“We’re reinventing our business.
We’re not in the book business.We’re in the information business.” By early 2006, the
company had become a premier information site on the Internet. Britannica’s subscription
service (eb.com) markets archival information to schools and public and
business libraries. Its consumer Web site (britannica.com) is a source of information for
about 200,000 subscribers and its search engine provides some 150,000 Web sites
selected by expert Britannica staffers for information quality and accuracy.
Business Mission
An organization’s business mission complements its business definition. As a written
statement, a mission underscores the scope of an organization’s operations apparent
in its business definition and reflects management’s vision of what the organization
2
DEFINING THE ORGANIZATION’S BUSINESS, MISSION, AND GOALS 3
seeks to do. Although there is no overall definition for all mission statements, most
statements describe an organization’s purpose with reference to its customers, products
or services, markets, philosophy, and technology. Some mission statements are
generally stated, such as that for Xerox Corporation:
Our strategic intent is to help people find better ways to do great work—by constantly
leading in document technologies, products and services that improve our customers’work
processes and business results.
Others are more specifically written, like that for Hendison Electronics Corporation.
Hendison Electronics Corporation aspires
to serve the discriminating purchasers of home entertainment products who
approach their purchase in a deliberate manner with heavy consideration of longterm
benefits.We will emphasize home entertainment products with superior performance,
style, reliability, and value that require representative display, professional
selling, trained service, and brand acceptance—retailed through reputable electronic
specialists to those consumers whom the company can most effectively service.
Mission statements also apply to not-for-profit organizations. For instance, the
mission of the American Red Cross is
to improve the quality of human life; to enhance self-reliance and concern for others;
and to help people avoid, prepare for, and cope with emergencies.
A carefully crafted mission statement that succinctly conveys organizational purpose
can provide numerous benefits to an organization, including focus to its marketing
effort. It can (1) crystallize management’s vision of the organization’s long-term
direction and character; (2) provide guidance in identifying, pursuing, and evaluating
market and product opportunities; and (3) inspire and challenge employees to do
those things that are valued by the organization and its customers. It also provides
direction for setting business goals or objectives.
Business Goals
Goals or objectives convert the organization’s mission into tangible actions and
results that are to be achieved, often within a specific time frame. For example, the 3M
Company emphasizes research and development and innovation in its business mission.
This view is made tangible in one of the company’s goals: 30 percent of 3M’s
annual revenues must come from company products that are less than four years old.4
Goals or objectives divide into three major categories: production, financial, and
marketing. Production goals or objectives apply to the use of manufacturing and
service capacity and to product and service quality. Financial goals or objectives focus
on return on investment, return on sales, profit, cash flow, and shareholder wealth.
Marketing goals or objectives emphasize market share, marketing productivity, sales
volume, profit, customer satisfaction, customer value creation, and customer lifetime
value. When production, financial, and marketing goals or objectives are combined,
they represent a composite picture of organizational purpose within a specific time
frame;accordingly, they must complement one another.
Goal or objective setting should be problem-centered and future-oriented.
Because goals or objectives represent statements of what the organization wishes to
achieve in a specific time frame, they implicitly arise from an understanding of the
current situation. Therefore, managers need an appraisal of operations or a situation
analysis to determine reasons for the gap between what was or is expected and what
has happened or will happen. If performance has met expectations, the question
arises as to future directions. If performance has not met expectations, managers must
diagnose the reasons for this difference and enact a remedial program. Chapter 3 provides
an expanded discussion on performing a situation analysis.
3
4 CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
¦ IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES
Once the character and direction of the organization have been outlined in its
business definition, mission, and goals or objectives, the practice of strategic marketing
management enters an entrepreneurial phase. Using business definition, mission,
and goals as a guide, the search for and evaluation of organizational growth opportunities
can begin.
Converting Environmental Opportunities
into Organizational Opportunities
Three questions help marketing managers decide whether certain environmental
opportunities represent viable organizational growth opportunities:
• What might we do?
• What do we do best?
• What must we do?
Each of these questions assists in identifying and framing organizational growth
opportunities. They also highlight major concepts in strategic marketing management.
The what might we do question introduces the concept of environmental
opportunity. Unmet or changing consumer needs, unsatisfied buyer groups, and new
means or technology for delivering value to prospective buyers represent sources of
environmental opportunities for organizations. In this regard, environmental opportunities
are boundless. However, the mere presence of an environmental opportunity
does not mean that an organizational growth opportunity exists. Two additional questions
must be asked.
The what do we do best question introduces the concept of organizational capability,
or distinctive competency. Distinctive competency describes an organization’s
unique strengths or qualities, including skills, technologies, or resources that distinguish
it from other organizations.5 In order for any of an organization’s strengths or
qualities to be considered truly distinctive and a source of competitive advantage, two
criteria must be satisfied. First, the strength must be imperfectly imitable by competitors.
That is, competitors cannot replicate a skill (such as the direct-marketing competency
of Dell Inc.) easily or without a sizable investment of time, effort, and money.
Second, the strength should make a significant contribution to the benefits perceived
by customers and, by doing so, provide superior value to them. For example, the ability
to engage in technological innovation that is wanted and provides value to customers
is a distinctive competency. Consider the Safety Razor Division of the Gillette Company.
6 Its distinctive competencies lie in three areas: (1) shaving technology and development,
(2) high-volume manufacturing of precision metal and plastic products, and
(3) marketing of mass-distributed consumer package goods. These competencies were
responsible for the Gillete Fusion and Venus razor, which have sustained Gillette’s dominance
of the men’s and women’s wet-shaving market.
Finally, the what must we do question introduces the concept of success requirements
in an industry or market. Success requirements (also called “key success factors”)
are basic tasks that an organization must perform in a market or industry to
compete successfully. These requirements are subtle in nature and often overlooked.
For example, distribution and inventory control are critical success factors in the cosmetics
industry. Firms competing in the personal computer industry recognize that
the requirements for success include low-cost production capabilities, access to distribution
channels, and continuous innovation.
The linkage among environmental opportunity, distinctive competency, and
success requirements will determine whether an organizational opportunity exists.
4
IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES 5
A clearly defined statement of success requirements serves as a device for matching
an environmental opportunity with an organization’s dis
tinctive competencies. If
what must be done is inconsistent with what can be done to capitalize on an environmental
opportunity, an organizational growth opportunity will fail to materialize.
Too often, organizations ignore this linkage and pursue seemingly lucrative environmental
opportunities that are doomed from the start. Exxon Mobil Corporation
learned this lesson painfully after investing $500 million in the office products market
over a 10-year period only to see the venture fail. After the company abandoned this
venture, a former Exxon Mobil executive summed up what had been learned:“Don’t
get involved where you don’t have the skills. It’s hard enough to make money at what
you’re good at.”7 By clearly establishing the linkages necessary for success before taking
any action, an organization can minimize its risk of failure. An executive for L’eggs
hosiery illustrates this point when specifying his new-venture criteria:
[P]roducts that can be sold through food and drugstore outlets, are purchased by
women, . . . can be easily and distinctly packaged, and comprise at least a $500 million
retail market not already dominated by one or two major producers.8
When one considers L’eggs’ past successes, it is apparent that whatever environmental
opportunities are pursued will be consistent with what L’eggs does best, as
illustrated by past achievements in markets whose success requirements are similar.
An expanded discussion of these points is found in Chapter 4.
SWOT Analysis
SWOT analysis is a formal framework for identifying and framing organizational
growth opportunities. SWOT is an acronym for an organization’s Strengths and
Weaknesses and external Opportunities and Threats. It is an easy-to-use framework
for focusing attention on the fact that an organizational growth opportunity results
from a good fit between an organization’s internal capabilities (apparent in its
strengths and weaknesses) and its external environment reflected in the presence of
environmental opportunities and threats. Many organizations also perform a SWOT
analysis as part of their goal- or objective-setting process.
Exhibit 1.1 on page 6 displays a SWOT analysis framework depicting representative
entries for internal strengths and weaknesses and external opportunities and
threats. A strength is something that an organization is good at doing or some characteristic
that gives the organization an important capability. Something an organization
lacks or does poorly relative to other organizations is a weakness. Opportunities represent
external developments or conditions in the environment that have favorable
implications for the organization. Threats, on the other hand, pose dangers to the welfare
of the organization.
A properly conducted SWOT analysis goes beyond the simple preparation of lists.
Attention needs to be placed on evaluating strengths,weaknesses, opportunities, and
threats and drawing conclusions about how each might affect the organization. The
following questions might be asked once strengths, weaknesses, opportunities, and
threats have been identified:
1. Which internal strengths represent distinctive competencies? Do these
strengths compare favorably with what are believed to be market or industry
success requirements? Looking at Exhibit 1.1, for example, does “proven innovation
skill”strength represent a distinctive competency and a market success
requirement?
2. Which internal weaknesses disqualify the organization from pursuing certain
opportunities? Look again at Exhibit 1.1, and note that the organization acknowledges
that it has a “weak distribution network and a subpar saleforce.”How might
5
6 CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
E X H I B I T 1 . 1
Sample SWOT Analysis Framework and Representative Examples
Selected Representative Selected Representative
Internal External
Factors Strengths Weaknesses Factors Opportunities Threats
Experienced Lack of Upturn in the Adverse shifts
Management management management Economic business cycle; in foreign
talent depth evidence of exchange
growing per- rates
sonal disposable
income
Well thought Weak distribu- Complacency Entry of
Marketing of by buyers; tion network; Competition among domestic lower-cost
effective subpar sales competitors foreign
advertising force competitors
program
Available man- Higher overall Unfulfilled Growing
Manufacturing ufacturing production costs Consumer customer preference for
capacity relative to key trends needs on high private-label
competitors and low end products
of product
category suggesting
a product
line
expansion
possibility
Proven inno- Poor track Patent protec- Newer
R&D vation skills record in Technology tion of com- substitute
bringing inno- plementary technologies
vations to the technology imminent
marketplace ending
Little debt Weak cash Falling trade Increased U.S.
Finance relative to flow position Legal/ barriers in regulation of
industry regulatory attractive product-testing
average foreign markets procedures
and labeling
Unique, high- Too narrow a New distribu- Low-entry
Offerings quality product line Industry/ tion channels barriers for
products market evolving that new
structure reach a broader competitors
customer
population
this organizational weakness affect the opportunity described as “new distribution
channels evolving that reach a broader customer population”?
3. Does a pattern emerge from the listing of strengths,weaknesses, opportunities,
and threats? Inspection of Exhibit 1.1 reveals that low-entry barriers into the
market/industry may contribute to the entry of lower-cost foreign competitors.
This does not bode well for domestic competitors labeled as “complacent”and
the organization’s acknowledged high production costs.
6
FORMULATING PRODUCT-MARKET STRATEGIES 7
¦ FORMULATING PRODUCT-MARKET STRATEGIES
In practice, organizational opportunities frequently emerge from an organization’s
existing markets or from newly identified markets. Opportunities also arise for existing,
improved, or new products and services. Matching products and markets to form
product-market strategies is the subject of the next set of decision processes.
Product-market strategies consist of plans for matching an organization’s existing
or potential offerings with the needs of markets, informing markets that the offerings
exist, having offerings available at the right time and place to facilitate exchange, and
assigning prices to offerings. In short, a product-market strategy involves selecting
specific markets and profitably reaching them through an integrated program called a
marketing mix.
Exhibit 1.2 classifies product-market strategies according to the match between
offerings and markets.9 The operational implications and requirements of each strategy
are briefly described in the following subsections.
Market-Penetration Strategy
A market-penetration strategy dictates that an organization seeks to gain greater
dominance in a market in which it already has an offering. This strategy involves
attempts to increase present buyers’ usage or consumption rates of the offering, to
attract buyers of competing offerings, or to stimulate product trial among potential
customers. The mix of marketing activities might include lower prices for the offerings,
expanded distribution to provide wider coverage of an existing market, and
heavier promotional efforts extolling the “unique” advantages of an organization’s
offering over competing offerings. For example, following the acquisition of Gatorade
from Quaker Oats, PepsiCo has announced that it expects to increase Gatorade’s
already dominant share of the sports drink market through broader distribution, new
flavors, and more aggressive advertising.10
Several organizations have attempted to gain dominance by promoting more frequent
and varied usage of their offering. For example, the Florida Orange Growers
Association advocates drinking orange juice throughout the day rather than for breakfast
only. Airlines stimulate usage through a variety of reduced-fare programs and various
family-travel packages designed to reach the primary traveler’s spouse and
children.
Marketing managers should consider a number of factors before adopting a penetration
strategy. First, they must examine market growth. A penetration strategy is usually
more effective in a growth market. Attempts to increase market share when volume
is stable often result in aggressive retaliatory actions by competitors. Second, they must
consider competitive reaction. Procter & Gamble implemented a penetration strategy
E X H I B I T 1 . 2
Product-Market Strategies
Markets
Existing New
Market Market
penetration development
Offerings
New offering
development Diversification
Existing
New
7
8 CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
for its Folgers coffee in selected East Coast cities, only to run head-on into an equally
aggressive reaction from Kraft Foods’ Maxwell House Division. According to one
observer of the competitive situation:
When Folger’s mailed millions of coupons offering consumers 45 cents off on a onepound
can of coffee, Maxwell House countered with newspaper coupons of its own.
When Folger’s gave retailers 15 percent discounts from the list price . . . , Maxwell
House met them head-on. [Maxwell House] let Folger’s lead off with a TV blitz. . . .
Then [Maxwell House] saturated the airwaves.11
The result of this struggle was no change in market share for either firm. Third,
marketing managers must consider the capacity of the market to increase usage or
consumption rates and the availability of new buyers. Both are particularly relevant
when viewed from the perspective of the conversion costs involved in capturing buyers
from competitors, stimulating usage, and attracting new users.
Market-Development Strategy
A market-development strategy dictates that an organization introduce its existing
offerings to markets other than those it is currently serving. Examples include introducing
existing products to different geographical areas (including international
expansion) or different buying publics. For example, Harley-Davidson engaged in a
market-development strategy when it entered Japan, Germany, Italy, and France.
Lowe’s, the home improvement chain, employed this strategy when it focused attention
on attracting women shoppers to its stores.
The mix of marketing activities used must often be varied to reach different markets
with differing buying patterns and requirements. Reaching new markets often
requires modification of the basic offering, different distribution outlets, or a change
in sales effort and advertising.
Like the market-penetration strategy, market development involves a careful consideration
of competitor strengths and weaknesses and competitor retaliation potential.
Moreover, because the firm seeks new buyers, it must understand their number,
motivation, and buying patterns in order to develop marketing activities successfully.
Finally, the firm must consider its strengths, in terms of adaptability to new markets, in
order to evaluate the potential success of the venture.
Market development in the international arena has grown in importance and usually
takes one of four forms: (1) exporting, (2) licensing, (3) joint venture, or (4) direct
investment.12 Each option has advantages and disadvantages. Exporting involves marketing
the same offering in another country either directly (through sales offices) or
through intermediaries in a foreign country. Because this approach typically requires
minimal capital investment and is easy to initiate, it is a popular option for developing
foreign markets. Procter & Gamble, for instance, exports its deodorants, soaps, fragrances,
shampoos, and other health and beauty products to Eastern Europe and
Russia. Licensing is a contractual arrangement whereby one firm (licensee) is given the
rights to patents, trademarks, know-how, and other intangible assets by its owner
(licensor) in return for a royalty (usually 5 percent of gross sales) or a fee. For example,
Cadbury Schweppes PLC, a London-based multinational firm, licensed Hershey Foods
to sell its candies in the United States for a fee of $300 million. Licensing provides a
low-risk, quick, and capital-free entry into a foreign market. However, the licensor usually
has no control over production and marketing by the licensee. A joint venture,
often called a strategic alliance, involves investment by both a foreign firm and a local
company to create a new entity in the host country. The two companies share ownership,
control, and profits of the entity. Joint ventures are popular because one company
may not have the necessary financial, technical, or managerial resources to enter a market
alone. This approach also often ensures against trade barriers being imposed on the
foreign firm by the government of the host company. Japanese companies frequently
8
FORMULATING PRODUCT-MARKET STRATEGIES 9
engage in joint ventures with American and European firms to gain access to foreign
markets. A problem frequently arising from joint ventures is that the partners do not
always agree on how the new entity should be run. Direct investment in a manufacturing
and/or assembly facility in a foreign market is the most risky option and requires
the greatest commitment. However, it brings the firm closer to its customers and may
be the most profitable approach for developing foreign markets. For these reasons,
direct investment must be evaluated closely in terms of benefits and costs. Direct
investment often follows one of the three other approaches to foreign-market entry.
For example, Mars, Inc. originally exported its M&Ms, Snickers, and Mars bars to Russia
but now operates a $200 million candy factory outside Moscow.
Product-Development Strategy
A product-development strategy dictates that the organization create new offerings for
existing markets. The approach taken may be to develop totally new offerings (product
innovation) to enhance the value to customers of existing offerings (product augmentation),
or to broaden the existing line of offerings by adding different sizes, forms, flavors,
and so forth (product line extension). Apple Computer’s iPod is an example of
product innovation. Product augmentation can be achieved in numerous ways. One is
to bundle complementary items or services with an existing offering. For example,
embedded software, application aids, and training programs for buyers enhance the
value of personal computers. Another way is to improve the functional performance of
the offering. Digital camera manufacturers have done this by improving photo quality.
Many types of product-line extensions are possible. Personal-care companies market
deodorants in powder, spray, and gel forms; Gatorade is sold in more than 20 flavors;
and Frito-Lay offers its Lay’s potato chips in a number of package sizes.
Companies successful at developing and commercializing new offerings lead
their industries in sales growth and profitability. The likelihood of success is increased
if the development effort results in offerings that satisfy a clearly understood buyer
need. In the toy industry, for instance, these needs translate into products with three
qualities: (1) lasting play value, (2) the ability to be shared with other children, and
(3) the ability to stimulate a child’s imagination.13 Successful commercialization
occurs when the offering can be communicated and delivered to a well-defined buyer
group at a price it is willing and able to pay.
Important considerations in planning a product-development strategy concern
the market size and volume necessary for the effort to be profitable, the magnitude
and timing of competitive response, the impact of the new product on existing offerings,
and the capacity (in terms of human and financial investment and technology) of
the organization to deliver the offerings to the market(s). More important, successful
new offerings must have a significant “point of difference” reflected in superior product
or service characteristics that deliver unique and wanted benefits to consumers.
Two examples from General Mills illustrate this view.14 The company introduced Fringos,
a sweetened cereal flake about the size of a corn chip. Consumers were supposed
to snack on them, but they didn’t. The point of difference was not significant enough
to get consumers to swit