Marketing And Customer Value Marketing Essay

This module gives an introduction to Marketing Strategy concepts. It includes understanding major concepts like Strategic planning, Corporate Objectives, Business unit strategy planning, Marketing planning, Marketing planning process and marketing strategy formulation. A thorough understanding of these concepts are important for formulating effective marketing strategies.

Introduction to Marketing Strategy

Introduction

This lesson introduces the role and importance of Marketing Strategy to an organisation. When you have finished this lesson you should be able to:

Explain how customer value can be delivered through the use of effective marketing strategy.

Define strategic planning and its importance for the formulation of marketing strategy

Understand the process of strategic planning

Define marketing strategy planning and its significance to an organisation

Define the contents of marketing plan and formulation of marketing strategy

Illustrate various types of marketing strategies

Marketing and Customer Value

Customer value : customer value is the sum total of benefit that customers will accrue from a service or product in relation to its cost.

As per marketing, customer value proposition (CVP) would be the total amount of benefits which is offered by the seller in return for the payment made for its respective goods or services. It is a clearly defined statement that is formulated so as to convince customers that this one particular product or service will add more value than competitor’s product or service.

(For reference only)

Conceiving and delivering excellent customer value is inevitable for every business organizations in today’s competitive business environment. This holds true for every kind of business organisation. Delivering value requires a deep insight into the art of value creation, by choosing the best value for its customers and delivering that value in an effective and efficient manner.

Creating good value proposition for its customers is also vital for an organisation to differentiate its product from the competitor’s products. A good understanding of customer needs and requirements are important aspects for creating a good value proposition. Marketing management helps execute this function in the most efficient manner and assists organisations to achieve sustainable competitiveness in the market place.

Example of Customer Value Proposition (CVP) :

BMW or Bavarian Motor Works, their value proposition is “the ultimate driving machine”. BMW made luxury cars for people who could afford them. When other companies started making luxury cars as a direct competition to them, BMW felt the need for differentiating its product by adding a value proposition. They added a customer value proposition “No cost maintenance”, this plan provides the owner of the car with a no cost maintenance for the first four years / 50000 miles of use. No other competitor provides with this kind of service.

(Source : wikipedia.org/wiki/Customer_value_proposition#Examples)

In this module you will see, how organisations through effective marketing plans, can deliver unique value propositions to its customer.

Strategic Planning

Strategic Planning: Is a systematic process of envisaging the long term goals of an organisation and identifying the best approach for achieving it.

Formulating effective marketing strategies requires a comprehensive understanding of the strategic planning process. An overall understanding of the corporate policies, objectives, business plans are imperative for this purpose.

A strategic plan defines the organisations strategy and the direction it should take. For determining the right direction that the organisation should take, its present situation and the possible avenues needs to be analysed. A firm needs to carry out extensive investigation into its competencies, identify its competitive advantage, detect its weaknesses, the business that they want to be in.

The uncertainty and risk in business environments makes it necessary for firms to focus on competitive strategic plans. Every firm would like to have a guide-map showing directions that it should take, rather than treading on an unknown and ambiguous path. A strategic plan provides this guide-map by which firm can respond to entirely unexpected developments in their internal and external environments.

Strategic plan helps keep firms well ahead of competition and to realise its mission in the long run. The most significant decisions of the firms are taken under strategic planning.

Formulating a strategic plan is no easy job, it takes considerable forethought, experience and effort to come up with an effective strategic plan. The success and growth of a firm considerably depends on how effective and competitive its strategic plan is.

The strategic planning process would consist of various stages as below:

Defining the business

Defining the mission statement

Setting up Strategic business units

Environmental scanning

Strategy formulation

Defining the business :

Defining the firm’s business is the focal point of strategic planning. It is a crucial factor that enables the firms in selecting appropriate opportunities for leading the firm in the right direction.

Management experts Peter Drucker and Theodore Levitt stressed on the basic questions which every firm needs to find answers to.

What business are we in?

Whom do we intend to serve?

Do we accurately define our business?

Do we know our customers?

What brings us to this particular business?

What would be the nature of this business in future?

What business would we like to be in future?

What are our basic strengths and competencies to pursue the current business or enter into a desired business?

(Source : Marketing management – V.S Ramaswamy, S. Namakumari)

These basic questions need to be answered by firms on a continuous basis in order for success.

Defining your business aptly, lends direction to the planning.

Once the business is defined, the next step would be to define the organisation missions.

The strategic Planning process

Controlling

Organising

Measuring results

Planning

Implementation

Corporate Strategy

Business Unit Strategy

Functional Strategy

Taking corrective action

Implementation

Defining the Mission Statement

A mission statement defines the purpose of the company’s existence.

The mission statement should be able to guide the actions of the organization, set its overall objectives, provide a route map, and guide decision-making. The mission provides a framework, on the basis of which the company’s strategies are formulated.

Every organisation develops its unique mission statement which it communicates to its stakeholders, so that they can understand the purpose of firm’s existence. A common mission statement provides a sense of integration within the organisation and emphasises focus on realising the organisational goal.

Mission statements are again guided by the vision of the organisation. Vision is what the organisation wishes to achieve over a period of time say in twenty year’s.

Examples of Mission statements :

“McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.”

“Amazon’s vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.”

Ideally Mission statements should focus on fewer goals and should define firms major areas needing focus. Mission statements usually remain unchanged over a period of time and would generally be changed only when it loses its credibility or significance.

Corporate objectives of the firm are guided by its mission statements.

Once the mission statement has been defined, the organisation can then plan to set up its strategic business units (SBU).

SBU’s are essential for multi-product organisations.

Setting up of strategic Business Units. (SBU)

SBU : Can be defined as an independent organizational unit, small enough to be flexible and large enough to have a control over most of its activities and decisions. A strategic business unit (SBU) can also be called a profit centre or responsibility centre that concentrates on a particular product offering for a particular market segment. SBUs typically have an independent marketing plan, competition analysis, and marketing campaign, though they may be a part of a larger business organisation.

Generally SBU’s would display the following characteristics :

It could be a set of businesses which can operate separately from the rest of the organisation.

It has its own competition.

It has separate manager who is responsible for the overall functioning , decision making, strategic planning, performance and profit management of the firm.

Once the strategic business units are set, the organisation would go in for the environmental scanning to find out the opportunities and threats that existing, as well to uncover the strengths and weaknesses that lie within the organisation.

Environmental scanning

No firm can function in isolation, it operates in an environment known as the business environment. The business environment consists of various factors that influence the business policies and decisions.

The business environment can be divided into

Internal environment and

External environment.

Internal environment are internal to the firm and would consist of the factors such as internal policies of the firm, the management, its employees etc.

An external environment would be external to the firm and would consist of factors such as the competitors of the firm, market, consumers, technology, government policies etc. The external environment further be divided into micro and macro environments.

The overall environment has a significant impact on the strategies of an organisation, many times the changes in the environment determines or leads to changes in its strategic plans. The external and internal environment when scanned thoroughly reveals available opportunities, hidden threats, its own weaknesses and competitiveness/ strengths.

Once the environmental scan is carried out, the firm is in a position to formulate its strategies.

Hierarchy of Strategies

Most of the organisations have a hierarchy of interrelated strategies, with different strategies formulated for different levels of the organisation.

Corporate Strategy

Business Unit Strategy

Functional Strategy

(for reference)

Corporate Strategy: Is concerned with meeting the stakeholder expectations and delivering value to the stakeholders. This is a very important stage as it is largely influenced by investors in the organisation and acts as a guideline for strategic planning throughout the organisation. Corporate strategy is often incorporated in a “mission statement”.

Business Strategy: Is more concerned with the functioning and competitiveness of a business for a particular market. It would usually be concerned with strategic decisions regarding the choice of products, delivering customer value, gaining competence, finding and exploring or generating new opportunities.

Marketing Strategy:

Functional strategy is concerned with how each functional area is organised to deliver the corporate and business-unit level strategic direction. Under functional strategy we would concentrate on marketing strategy.

Marketing strategy includes all decisions and activities related to marketing, it deals with business analysis, formulation, evaluation and selection of market-oriented strategies thereby allowing the organisation to achieve its marketing objectives.

The next topic of discussion is marketing planning necessary for the formulation marketing strategy.

Marketing Strategy Planning

The primary objective of marketing strategy is to best allocate marketing resources and direct activities as to accomplish the firms objectives in a specific market.

Similar to the strategic planning process, the marketing planning process involves several steps as below:

Goal setting.

Scanning the market environment and analysing of market opportunities.

Internal scanning.

Developing marketing program.

Formulating marketing strategies (Marketing strategy will be dealt with in the next topic)

Goal setting : As discussed in our earlier topic, marketing strategy is derived from the business strategy as well as the corporate strategy. Marketing objectives would be set according to the goals that have been set at the higher hierarchies.

For example : If the corporate objective of the firm is to maximise the market share then the marketing objective would also focus on achieving the same objectives.

According to Macdonald (1995) there are several stages that have to be completed in order to arrive at a strategic marketing plan as below:

Marketing Planning Process

Whereas the extent to which each part of the above process needs to be carried out depends on the size and complexity as well as the requirement of the business.

Scanning the Market environment for finding opportunities and threats :

The major reason market scan is done is to find the opportunities and threats that exists in the environment. The scanning done in strategic planning and marketing planning are almost similar. The major difference being that the marketing scanning involves scanning the environment of a specific business unit and for that specific business purpose only. Whereas environmental scanning under strategic planning would entail the overall environment of the organisation.

The business unit would analyse the environment and gather marketing information. It would also assess opportunities existing in the environment, study consumer behaviour and product in question. A vital aspect in environmental scanning is understanding the competition and all factors defining and shaping the competition. Other than the competition itself, there are other important factors too that shape the competition. Porter in his article (1979) has suggested five major forces that shape and decide the nature and intensity of competition.

Existing competition

Threat of new entrants

Threat of substitute products

Bargaining power of customers

Bargaining power of suppliers

The intensity of competition depends on the size of the entrants, bigger the new entrants, the more intense would be the competition.

A threat of substitute products with an improvement in its performance or price differentiation can change the industry’s competitive scenario.

Collusion of customer groups, especially for specialised products like industrial products, can gain considerable bargaining power as to exert pressure on the organisation regarding quality, price and output of the products.

The same would hold true for suppliers where the sources of supply are limited and product supplied are specialised in nature.

Internal Scanning

Internal scanning is done to analyse the firm’s competencies as well as its weaknesses. The firm needs to find where its competitive advantages lies, whether it’s the product design, service or distribution. This evaluation is required in order to ascertain how equipped a firm is to face the market competition.

Developing marketing objective

The next step is formulation of marketing objective. The broad outline of marketing objectives would be derived from the corporate objectives of the related business. Corporate strategy would have already defined the direction for each business.

Once the marketing planning is done, the next step would be developing the contents of a marketing plan.

Contents of Marketing Plan

A marketing plan is a brief summary of objectives and recommendations in relation to the marketing plan. A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of no or little use. The contents of a marketing plan is as follows:

Executive Summary : It consists of a brief summary of major objectives and recommendations. It gives the management an overall view of the major purpose of the plan. The table of content would follow the executive summary.

Situational Analysis : It portrays the significant data on sales, costs, profits, markets, competitors etc. This data is further used for doing the SWOT analysis (Strength, Weaknesses, opportunities and threats).

Opportunities / Issue Analysis – SWOT Analysis : The management needs to evaluate the opportunities in SWOT analysis and any factors affecting achievement of objectives.

Objectives : This stage outlines the financial and marketing objectives like sales volume, market share, profitability etc.

Marketing Strategy : Here the target segments are defined for whom the market offering is focused on. The products positioning is planned with the help of input received from related functional areas such as purchase, finance, sales departments.

Action Program : (The operational marketing plan itself, for the period under review) the marketing program is specified which would be used to achieve the set objectives.

Financial Forecast : It would generally be the overall budgeting- on the revenue side the sales forecast and average price would be depicted, on the expense side it would show the estimated expenses. The difference between revenue and expenses would be the estimated profit.

Controls : This final stage of the marketing plan would outline controls for monitoring the implementation of the plan. There would be a periodic review of the results and corrective measures would be recommended as required.

Formulating marketing strategy :

The marketing strategy would be a proper outline of the game plan of the organisation. The main elements involved in formulating the marketing strategy are :

Selecting the target market

Formulating the marketing mix

The essence of marketing strategy of a firm is felt from its target market and marketing mix. The target market would be to whom the firm intends to cater and the marketing mix would determine how the products will be offered to the target market.

(Target market will be discussed extensively in the later modules.)

Marketing Mix : The marketing mix is also known as the 4 p’s of marketing, product, place, price and promotion. Marketing mix can be defined as the effective combination of the 4 p’s of marketing to formulate a unique selling proposition for the product. Every firm would have a different combination of the marketing mix as per its individual requirements.

The 4 p’s of marketing would be

Product mix

Place mix

Price mix

Promotion mix

there are 3 additional p’s of marketing applicable to services.

Physical evidence

People

process

(For referene only)

Example : Marketing mix of McCain Foods :

Product mix : McCain Foods is the world’s leading manufacturer of frozen potato products. Although McCain is perhaps best known for producing Oven Chips, its product lines are much wider. In the UK they include various other potato products such as McCain Wedges and McCain Home Roasts, as well as McCain Sweet Potato and McCain Micro Pizza. In other countries McCain sells a variety of foods including frozen vegetables, ready meals and desserts.

Price mix : McCain uses a range of pricing strategies associated with adding value for money. For example, ‘extra-fill’ packs can give the customer up to 30% extra free. This rewards regular buyers of a particular product. McCain may also offer its products at a special promotional price using price-marked packs to encourage people to try the product.

Place mix : As a business-to-business (B2B) organisation, McCain does not sell directly to its consumers. Instead it places its products with wholesalers and retailers, such as major supermarket chains. McCain may then be able to influence how its products reach the consumer at the point-of-sale. For example, it may secure key positions for its products in stores. By paying for end-of-shelf positions for its products, customers are more likely to see and buy them.

Promotion mix :

Promotion falls into two main categories:

– Above-the-line promotion

– Below-the-line promotion.

Above-the-line promotion is paid-for and includes traditional advertising routes such as television, radio and the press. These are good for carrying marketing messages to a larger audience. However, it is less easy to measure the impact of these channels, for example, whether a TV advert has increased sales.

Below-the-line promotion can take many forms and is usually more under the control of the business. Typical examples include events or direct mail. McCain uses a combination of below-the-line activities including:

Door-to-door leaflet drops or books of vouchers which give customers discounts over a period of time. These help to attract consumers and establish brand loyalty so the consumer buys the product again.

Email newsletter for consumers. This creates a relationship with consumers, which is unusual for a B2B organisation. It not only allows McCain to communicate directly with and listen to consumers, it also enables the business to collect information, for example, about their lifestyles and product choices. This is used for feedback, research and promotions.

(case study source : http://businesscasestudies.co.uk/mccain-foods/the-marketing-mix-in-the-food-industry/promotion.html)

Every business due the difference in its nature and situation uses different marketing strategy styles, which ever best suits them. There are four broad strategy types which are used by firms as follows :

Types of Marketing Strategies

Market Leader Strategy :

Market leader strategy also known as offensive or confrontation strategy, is a strategy of aggression and confrontation. Generally employed by those firm who are currently not the leaders in the market but aspires to be the market leader. The firm tries to expand his market share by using all the marketing mix elements, the target of attack would be the market leader. The firm tries to expand its market and increase its consumer base by offering competitive prices, superior service, improving quality of products, enhancing features of its existing products, finding new uses of existing products or by entering newer market segments.

Market Challenger Marketing Strategy

This strategy would focus on gap analysis. The gap analysis can be done by comparing the performance of competitors existing products in the market with the actual expectation of the consumers regarding the product. The firm can then strive to bridge the gap by providing products as per customers expectation leading higher customer satisfaction levels. In this strategy, competitors weaknesses are taken as opportunities for the firm.

Niche Market – Marketing Strategy

Niche markets are small differentiated markets where no other firms have thought of entering into. Generally these markets are too small to attract large number of competitions. Niche may serve some specific customer or some specific area.

Examples of Niche markets :

For example companies focused on adventure sports, tracking etc. which are targeted towards the younsters.

Another goods example would be travel companies concentrating on a specific segment such as pilgrims.

Market Follower Marketing Strategy

The market follower depends on its competitors to identify markets and carry out research on consumer preferences. Once the markets have been identified and research carried out, the firm will cash on the same to increase its market share. As a follower, the firm needs to be keen on its competitor’s weaknesses and try improve on them. This marketing strategy saves the firm on cost arising from having to carry out research because it only have to work on its competitors weaknesses to better its products.

Session Summary

Formulation of an effective marketing strategy enables firms to deliver unique value proposition to its customers.

A good understanding of the strategic planning is eminent for formulating an effective marketing strategy.

Strategic planning is focussed on developing effective organisational strategies at the corporate level. The major focus is maximizing the stakeholder’s value. These strategies are basically influenced the shareholders of the organisation.

The process of strategic planning contains various steps such as defining the business of the organisation, setting up SBU, environmental scanning, internal scanning and developing corporate strategies.

The strategic planning hierarchy consists of corporate strategy, Business unit strategy and functional strategy.

Marketing strategy planning consists of the following steps :

Goal setting

Scanning the market environment and analysing of market opportunities

Internal scanning

Developing marketing program

Formulating marketing strategies (Marketing strategy will be dealt with in the next topic)

The contents of marketing plan – The marketing plan contents consist of a brief summary and recommendations of the plan. The steps involved are as follows:

Executive Summary :

Situational Analysis

Opportunities / Issue Analysis – SWOT Analysis

Objectives

Marketing Strategy

. Action Program

Financial Forecast

Controls

The marketing strategy consists of two key elements

Selecting target market – Target market would be the market that you would want to cater to. Selecting the target market is a very important part of developing a marketing strategy.

Assembling the marketing mix – The marketing mix would consist of the 4 p’s of marketing namely product, price, place and promotion.

Types of marketing strategy :

There are basically four major types of marketing strategies as follows :

Market Leader Strategy

Market Challenger Strategy

Niche market strategy

Market follower Marketing strategy