Market Oriented Strategic Planning Saturday, August 31, 2019

Strategic planning consists of 3 actions broadly –

Managing a companies’ portfolios

Assessing each business’ strength by considering the market’s growth rate and the company’s position fit in that market.

Formulating a game plan for each of it’s businesses to achieve long-term objectives.

Strategic Planning is done in 4 levels –

Corporate Strategic Plan – It decides what resources to allocate to which business and what businesses to diversify into

Division Plan – It decides how much funds to allocate to the SBUs.

SBU Plan – It decides the business functioning.

Product Plan – It describes the product policy, pricing structure, etc.

Corporate and Division Strategic Planning

This basically subsumes 4 activities –

Defining corporate mission

Establishing SBU

Assigning resources to each SBU

Planning new businesses, downsizing older ones

Defining the Corporate Mission –

A good mission statement provides employees with a shared sense of purpose, direction and opportunity.

A good mission statement has 3 characteristics –

They focus on a limited number of goals

They stress on major policies and values the company wants to honor

They define the major competitive scope within which the company will operate. Some of such scopes are : industry scope, products scope, geographical scope, etc

Establishing SBUs –

Companies should define business units in terms of needs, not products.

A business can de defined in terms of three dimensions –

Customer groups, Customer needs and Technology.

Characteristics of an SBU are –

It is independent in terms of the policies it needs

It has its own set of competitors

Assigning Resources to each SBU –

The BCG Approach (Growth-share matrix) –

Plots the Market growth rate (%, Y-axis, 0 – 20%) against Relative market share (fraction, X-axis, 10 – 0.1). The area of the circle denotes the volume of the business. Based upon the position in the chart, the businesses are classified as –

After plotting the matrix, the company can judge the health of it’s portfolio and can take one of the following 4 actions to determine the budget to assign to each SBU–

Build – to increase market share, at the expense of short-term earnings, if necessary. Done on dogs

Hold – to preserve market share. Done on cash cows

Harvest – to increase short term flow, regardless of long-term effect. This generally diminishes the value of the SBU. Done so that the costs are reduced at a faster rate than the fall in sales. Done on losing cash cows, dogs and question marks

Divest – to liquidate the business. Done on question marks and dogs

The General Electric Model –

Plots the Market Attractiveness (Y-axis, 1 – 5) against the Business Strength (X-axis, 5 –1). For each business the two dimensions are calculated after setting the values for the parameters under each of the two, and then using their weightages. The area of the circle is the size of the market, shaded part being the business’s share.

The 9 cells are divided into 3 zones –

3 cells on top left – strong SBUs in which the company should invest and grow

3 diagonal cells – medium in overall effectiveness

3 cells in bottom left – weak SBUs. Divest or harvest these.

Planning new Businesses, Downsizing old ones

The company can try one the following 3 strategies to increase it’s business –

Intensive growth – a review of whether any opportunities exist for improving the existing business performance. This can be achieved in 4 ways (Ansoff’s Model) –

Integrative growth – By backward Integration, Forward Integration, or Horizontal integration.

Diversification growth – Exploiting opportunities in new businesses.

Business Strategic planning

The unit strategic planning  for a business consists of the following steps-

Business Mission –

Each business unit needs to come up with a mission within the broader company mission.

SWOT analysis

This is further carried out into parts

Opportunity and threat analysis (External Environment analysis)

In general companies need to identify the major macroeconomic forces (demographic, economic, technological, socio-cultural, etc.) and the major microeconomic forces (customers, competitors, suppliers, distributors, etc) that have an effect on its profitability. Further, they need to trace trends in these factors then identify which can be their opportunities and weaknesses.

A marketing opportunity is an area of buyer need in which a company can perform profitably.

A threat is a challenge posed by an unfavorable trend which, in absence of marketing action would lead to fall in profitability. A company needs to chalk out a strategy for dealing with these threats.

After the opportunity and threat analysis is done, a business’s overall attractiveness can be identified.

Strengths and Weaknesses analysis(Internal Environment Analysis)

A company’s internal strengths and weaknesses in various departments need to be identified periodically.

Goal Formulation

Goals are developed to facilitate the management in planning, implementation and control of achieving the targets.

Most businesses pursue a variety of objectives, which should ideally meet the following criteria

the objectives must be placed hierarchically, in decreasing order of priorities

they should be stated quantitatively

the goals should be realistic

the goals should be consistent with each other

Strategic formulation

Strategy is the roadmap for achieving the envisaged goals. Porter defined strategy as “creation of a unique and valuable position involving different set of activities”

Strategy can be formulated into 3 generic types –

Overall cost leadership – here a business aims at delivering it’s products at the lowest prices in the market and win a large market share. Such businesses require to be good at engineering, purchasing, manufacturing and distribution. A disadvantage of this strategy is that some other company will eventually emerge with still lower costs.

Differentiation – here a business aims at achieving superior performance in an important customer area valued by a large chunk of the market. It could strive to be the service leader, the quality leader, the style leader or technology leader.

Focus – Here a firm concentrates on one or more narrow market segments. It first identifies such a segment and then pursues either cost leadership or differentiation in them.

Strategic Alliances

Companies are discovering that to achieve leadership they need to form strategic alliances with domestic or multinational companies that complement or leverage their capabilities and resources.

The strategic alliances could be in the form of marketing alliances in the following ways –

Product or service alliance – one company licenses the other to produce its product, or two companies jointly market their complementary product or a new product.

Promotional alliance – one company agrees to carry the promotion for another company’s product or service

Logistics alliance – one company offers logistic services to another company’s product.

Pricing collaboration – one more companies join in a special pricing collaboration.

Program formulation

After developing the principal strategies, companies must work out detailed supporting programs for them. After formulating the marketing programs, the costs and benefit scenario is calculated. Activity Based Costing should be applied to each program to determine whether the benefits form it outdo the costs.

Implementation

For the implementation of strategy, McKinsey has come up with a 7-S framework. The implementation part of this framework consists of

Style: employees should share a common way of thinking and behaving

Skills: these should be in consonance with the strategy

Staff: includes hiring able people, training them and then assigning them to the right jobs

Shared values: employees should share the same guiding values.

Feedback and Control

A firm needs to constantly track and monitor new developments in the internal and external environment. For when the marketplace changes, the company will have to rethink the implementations, programs, strategies, or even objectives.

A company’s strategic fir with the environment will definitely erode, because the market environment changes faster than the 7-S s.

Drucker says it is important to “do the right thing” than “doing things right”.

The Marketing Process

The value delivery sequence –

The traditional physical process sequence assumes the company knows what to make and that the market will buy enough units to produce profits for the company. But such a sequence could only exist where the supplier calls the shots.

 In the value delivery sequence there are 3 parts

“Choose the value” – the marketing staff does segmentation, targeting and positioning of the market.

“Provide the value” – after the STP process has chose the value, the product’s specifications and services should be detailed, the price decided and then the product should be manufactured and distributed.

“Communicate the value” – the customers are communicated about the value of the product through the sales force, promotion and advertisement.

The marketing process consists of analyzing markets, researching and selecting markets, designing marketing strategies, planning marketing programs and organizing, implementing and controlling the marketing effort.

Analyzing market opportunities – A company should identify long term opportunities given its core competences and market experience. This needs reliable market research and information systems. Both the Macro environment, consisting of demographic, socio-cultural, economic, technological, etc forces; and the Microenvironment, consisting of suppliers, marketing intermediaries, customers and competitors should be considered.

A way to do it is to divide the market into many segments and evaluate the segments to find which segment serves the company best.

Developing marketing strategies – After deciding upon the product the company shall have to decide upon the product positioning, then initiate the product development, testing and launching. Also the strategy for the different life stages of the product: introduction, growth, maturity and decline have to be decided.

Planning marketing programs – It consists of deciding upon the following

Marketing expenditure – allotting the budget to meeting the marketing objectives, and amongst the products, channels, promotion media and sales areas, and in the marketing mix.

Marketing mix-

Product –

Price – the company has to decide upon the wholesale, retail pricing, discounts to be offered, allowances, etc.

Place – identify, recruit marketing facilitators to supply the products and service to the target market.

Promotion –

Managing the marketing effort –

This final step includes organizing the marketing resources and then implementing and controlling the marketing plan.

Three types of controls may be deployed –

Annual plan control – ensures whether the company is meeting the projections of current sales and profits.

Profitability control – manages the task of measuring the actual profitability of products, customer groups, trade channels and order sizes; and that of different marketing activities.

Strategic control – evaluates whether the company’s strategy is appropriate to the market conditions.

Contents of a marketing plan

Executive summary and table of contents – presents a brief overview of the proposal

Current marketing situation – presents relevant data on sales, costs, profits, market, competitors, distribution, and macro environment.

Opportunity and issue analysis - SWOT

Objectives – defines the plan’s financial and marketing goals in terms of sales volume, market share and profit

Marketing strategy – presents broad approach to be used to meet the objectives

Action programs – presents the marketing programs to be used to meet business objectives.

Projected profit and loss statement – forecasts the plans expected financial outcomes

Control – indicates how the plan will be monitored

The Value Delivery Sequence

Factors Influencing Company Marketing Strategy

Quote : Marketing Management by Philip Kotler 10th Edition

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Implementing Total Quality Management Thursday, August 29, 2019

TQM is an organization wide approach to continuously improving the organizations processes, products and services.

There is an intimate connection between the quality delivered by a company and the corresponding customer satisfaction and company profitability. This is because higher levels of quality support higher prices while delivering high satisfaction at lower costs.

Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

A company that satisfies most of its customers’ needs most of the time is called a quality time.

Conformance quality is satisfied if all the units deliver the expected quality.

Performance quality, however, is different in that it is based upon the grade.

Eg. A Mercedes and Hyundai may both deliver Conformance Quality, but Mercedes can be said to deliver higher Performance quality.

The main responsibilities of a Marketing Manager are –

They must participate in formulating strategies and policies designed to give company total quality.

They must deliver marketing quality aside production quality.

In implementing TQM, a marketer’s job could subsume the following –

Identifying customer’s needs

Communicate these requirements to the product designers

Ensure that customer’s orders are filled on time and correctly

Ensure customer is trained enough to use the product well

Ensure after sales service and satisfaction

Get improvement suggestions from the customers, convey them to respective depts..

Quote : Marketing Management by Philip Kotler 10th Edition

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Relationship marketing

The task of creating strong customer loyalty is called Relationship Marketing.

The steps in customer development process is

Suspects -> Prospects -> First-time customers -> repeat customers -> Clients -> members -> Advocates -> Partners.

There might be defections from any of these levels, in which case, relationship marketing works on customer win-back strategies.

There are 5 different types of levels of investment in customer relationship marketing –

Basic marketing: the sales person simply sells the product

Reactive marketing: the salesperson sells the product and encourages the customer to call if he or she has questions comments or complaints.

Accountable marketing: the salesperson phones the customer a short time after the sales to check whether the product is meeting the expectation.

Proactive marketing: the company salesperson contacts the customer from time to time with suggestion about the improved product uses or helpful new products.

Partnership marketing: the company works continuously with the customer to discover ways to perform better.

There are also certain marketing tools which can be used for added customer satisfaction –

Adding financial benefits - through frequency marketing programs and club marketing programs. Club membership programs to bond the customer closer to the company can be open to everyone who purchases the product or service, such as frequent flier or frequent diner club, or it can be limited to the affinity group.

Adding social benefits – developing more social bonds with the customer; help make brand communities; etc.

Adding structural ties – Supplying customers with special equipment or computer linkages to help them manage their payrolls, inventory, etc. better.

Customer profitability the ultimate test

Ultimately, marketing is the art of attracting and retaining profitable customers. The well known 20-80 rule says that the top 20% of the customers may generate as much as 80% of the company’s profits. The largest customers who are yielding the most profit. The largest customers demand considerable service and receive the deepest discounts. The smallest customers pay full price and receive minimal service, but the costs of transacting with small customers reduce their profitability. The mid size customers receive good service and pay nearly full price and are often the most profitable.

A company should not pursue and satisfy all customers.

A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing that customer.

Quote : Marketing Management by Philip Kotler 10th Edition

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Attracting and Retaining customers Wednesday, August 28, 2019

Customer Acquisition – This process is accomplished in 3 steps viz.,

Lead generation – to generate leads, the company develops ads and places them in media that will reach new prospects; its sales person participate in trade shows where they might find new leads and so on. All these produces a list of suspects.

Lead qualification – the next task is to qualify which of the suspects are really good prospects, and this is done by interviewing them, checking for there financials, and so on. The prospects may be graded as hot warm and cool. The sales people first contact the hot prospects and work on account conversion, which involves making presentations, answering objections and negotiating final terms.

Computing cost of lost customers –

Too many companies suffer from high customer churn namely they gain new customer only to lose many of them. Today companies must pay closer attention to their customer defection rate (the rate at which they lose customer).

The steps involved here are

A company must define and measure retention rate

The company must distinguish the causes of customer attrition and identify those that can be managed better. Not much can be done for customer who leave the region or go out of business but much can be done about the customer who leaves because of poor service shoddy products or high prices.

The company needs to examine the percentages of customer who defect for these reasons.

Third, the company needs to estimate how much profit it loses when it loses customer. In case of an individual customer the lost profit is equal to the customers lifetime value that is the present value of the profit stream that the company would have realized if the customer had not defected prematurely.

Fourth the company needs to figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit the company should spend the amount to reduce the defection rate.

The key to customer retention is customer satisfaction. A highly satisfied customer:

·         Stays loyal longer

·         Buys more as the company introduces new products or upgrades existing products

·         Talk favorably about the company and its products

·         Pays less attention to competing brand s and advertising and is less sensitive to price.

·         Offers product or service ideas to the company

Importance of retaining customers – The following statistics are helpful to this end

Acquiring new customers costs 5 times more than retaining old ones

A 5% reduction in customer defection can increase profits by 25% to 85%

Customer profit rates tend to increase over the lifetime of the customer.

The two ways of retaining a customer would be –

To erect high switching costs customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or loss of loyal customer discounts.

Deliver high customer satisfaction

Quote : Marketing Management by Philip Kotler 10th Edition

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