Budgets
Evaluation and control
Marketing program
Marketing mix strategies
Stage 3
Implementation
Stage 4
Evaluation
and control
The strategic marketing planning process
Situation analysis
Business definition and scope
Internal
capabilities
Critical success factors
External environment
· Macro environment
· Industry environment
· Corporate objectives
· Strategic position
· Marketing strategies
· Target market segments
· Product/brand positioning
· Product strategies
· Pricing strategies
· Distribution strategies
· Integrated marketing
communication strategies
· People, process management
any physical asset strategies
(for service providers)
Stage 1
Strategic
analysis
Stage 2
Strategy
development
Problems and opportunities
statement
Marketing objectives
Marketing strategies
· Submission and approval
· Implementation (action plan)
85
4Strategy development ­
setting marketing
objectives and developing
marketing strategies
What's needed in response to the new
competition is focus and discipline ­
to define an unmatched value proposition,
build an operating model, and sustain it
through constant transformation and
improvement.
Treacy and Wiersema1
The strategic marketing planning process comprises three main phases of work: the ana-
lytical phase described in Chapter 3, the process of strategy development, and the imple-
mentation of those strategies. This chapter addresses the second phase ­ the process
of developing, or `crafting',2
effective marketing strategies. It is the most critical stage of
the entire strategic marketing planning process involving higher level business and
marketing decision making, setting marketing objectives and the development of mar-
keting strategies.
As was discussed in Chapter 2, these decisions in market-oriented organisations are
made in the first place at the business level of strategy. That is, marketing strategies are
developed as a part of the overall strategies developed at the business level of organisa-
tion. These strategies focus on how the business unit will compete in its chosen industry
­ specifically, how it will achieve and sustain a competitive advantage.
At the business level of strategy, the major focus for marketing concerns product-
market decisions (market segmentation and targeting to decide which product-markets
the SBU should compete in), product-positioning decisions and strategic-alliance deci-
sions (who, when and how to partner). These decisions flow down to the operating level
of marketing involving the development of marketing mix strategies and the development
of strategies for managing customer and reseller relationships. These strategy decision-
making processes are discussed in subsequent chapters of this book. For now, the
emphasis in this chapter is towards the development of higher level strategies and the
impact of these strategic decisions on the development of marketing mix strategies.
A framework for establishing
marketing objectives
Marketing objectives and marketing strategies can be viewed as being parts of a contin-
uum (a continuous whole or a thing whose parts cannot be separated). Objectives are
ends, and strategies are the means for achieving those ends. Under this view objectives
and strategies have both a top-down and bottom-up relationship. Strategies are devel-
oped in order to achieve desirable objectives, and objectives are developed which can
realistically be achieved by available strategies.
Two points need to be made about the objective setting/strategy formation processes.
First, decisions concerning the establishment of objectives are predicated on assumptions
of what is likely to occur in the future. However, because forecasting is notoriously dif-
ficult (as was discussed in Chapter 3) objectives should not be considered to be cast in
stone. Long-term objectives need to be regularly reviewed in light of changing environ-
mental circumstances. Second, objectives cannot be set in isolation of consideration of
strategic issues, an underlying assumption of many of the strategic planning models of
the 1960s and 1970s. Many of these models were based on a `numbers game' notion that
top management, via a process of setting objectives, could summon those below to devel-
op strategies capable of achieving those objectives. Objectives were set in order to moti-
vate and to control performance. As Mintzberg laments: `What are called strategic
planning exercises often reduce to the generation of numbers, not ideas ­ objectives and
budgets but not strategies'.3
86 strategic marketing planning
The iterative process of setting marketing objectives
and developing marketing strategies
The operative word here is iterative. The process of developing marketing objectives is,
essentially, a balancing act between three sets of considerations, which are depicted
graphically in Figure 4.1.
FIGURE 4.1 Three sets of considerations in setting marketing objectives and developing
marketing strategies
chapter 4 strategy development 87
The first consideration in the process of strategy development is to determine corpo-
rate objectives ­ the financial imperatives and other performance-related goals that the
business unit must achieve, over the period of the strategic marketing plan, in order for
it to be judged favourably by its stakeholders. Corporate objectives are essentially top-
down goals for the strategic business unit to achieve. However, corporate objectives may
simply represent the wishes of top management rather than reflecting marketplace real-
ity. They may set corporate objectives as a motivational device, such as a BHAG (Big
Hairy Audacious Goal),4
or alternatively as a mere extrapolation of past performance.
The second set of considerations, the strategic position of the business unit, is the first
of two reality checks to be factored into the decision-making mix. This step consists of
three main processes: analysis of the business unit's current strategic position, develop-
ment of competitive strategies, and determination of appropriate marketing objectives
and strategies that flow on from the competitive strategies. Strategic position analysis
involves consideration of current and future market attractiveness and the competitive
the financial
imperatives
reality check 2 ­ potential
product-market strategies
and competitive marketing
strategy options
Corporate objectives:
Marketing
strategies:
reality check 1 ­ our
competitive situation
Strategic
position:
88 strategic marketing planning
position of the business unit in that market (or markets). Based on this analysis a realis-
tic view of the business unit's future growth potential can be developed. For example, a
business unit with a high proportion of its products competing in a number of declining
markets could hardly be expected to substantially increase its future revenue and profit
base unless it could adopt some sort of a transformational strategy.
Consideration of the strategic position of the business unit provides a first-cut view of
aligning the top-down corporate objectives with the reality of the business unit's strate-
gic position in the market or markets it competes in. However, neither of these first two
steps provides the strategist with a view of marketplace reality. Just how can the busi-
ness unit achieve its revenue objectives? And, where from? More precisely, what prod-
ucts in what markets will potentially generate this revenue? The third set of
considerations, marketing strategies, provides this bottom-up input into the decision-
making mix. It addresses four product-market strategy options ­ the revenue that can be
achieved from:
· market penetration (existing products in existing markets);
· market development (existing products in new markets);
· new product development (new products in existing markets);
· related diversification (new products in new markets).
Each of these three sets of considerations is discussed in detail in the following sec-
tions of this chapter. A summary section providing a practical framework for going about
this complex decision-making task follows these discussions.
Corporate objectives and business unit
objectives
Objectives are the end results to be achieved. In this context the term `corporate objec-
tives' has been used broadly to cover the objectives for an organisation as a whole and
for each business unit as a part of that whole.
Performance objectives consist of the financial requirements for the organisation and
other key result areas, which are critical for the organisation's short-term and long-term
success. These include profitability, return on investment (ROI) return on assets (ROA),
earnings per share (EPS), dividends and cash flow. They are usually determined on the
basis of satisfying the needs of the stakeholders, which includes shareholders and others
who might have a `stake' in the business such as management, employees, customers,
suppliers and creditors. The driving force underpinning financial performance in the
majority of cases is shareholder value. If the organisation performs well financially, share
prices are maintained or increased. If financial performance is below expectations, share
prices drop, limiting the organisation's ability to attract equity financing to underwrite
future operations and growth while also exposing the organisation to the danger of a
takeover. Poor financial performance, particularly cash flow, also limits an organisation's
ability to attain debt financing (borrowing).
However, the use of financial performance objectives alone is a dangerous preoccu-
pation for top management. Shareholder value can be enhanced in the short term by
cost-reduction strategies such as downsizing and the reduction of product quality. In the
long term this might cause customers to become dissatisfied with the organisation's
products or services, which in turn could lead to a loss of market share, reduction of
profitability and eventual decline in share price.5
That is, a focus on short-term share-
holder value can lead to the diminution of customer value with a resultant loss of com-
petitive advantage and a decrease in long-term financial performance. In order to provide
a broader perspective of the organisation's direction a number of non-financial perfor-
mance objectives should be included as either corporate or business objectives: improve-
ment in innovativeness, improvement in operational efficiency, improvement in product
quality, improvement in customer satisfaction, social responsibility and employee wel-
fare. All of these objectives can be translated into specific, achievable and measurable
objectives. For example, the 3M Company sets a corporate performance objective based
on innovation whereby each business unit is expected to achieve 30 per cent of its rev-
enue from products introduced in the past four years.
Business unit financial performance objectives may be set by the use of sophisticated
planning tools such as Du Pont ratio analysis or value-based planning models including
economic value added (EVATM) and discounted cash flow methods or product portfo-
lio models. (Refer to Appendix 1 at the end of this chapter for a brief outline of the Du
Pont and EVATM methods. Product portfolio models are discussed in the next section.)
Alternatively, performance objectives may be developed on a more subjective basis such
as to `double sales in five years'. This was indeed the challenge that Dr Tony O'Reilly
issued to the management of Waterford Crystal when he took over as chairman of what
was a struggling company. In August 1995, in what was to become known as `the chair-
man's challenge', a goal was established to double sales by the end of 1999 while achiev-
ing an operating margin of 15 per cent.
Strategic position
The task here is for the strategist to (1) determine the strategic position of the organisa-
tion in terms of the attractiveness of the market it competes in and its competitive posi-
tion within that market; (2) develop competitive strategies for the time horizon of the
strategic marketing plan; and (3) set marketing objectives that are in line with the strate-
gic direction of the business unit. There are a number of tools that can assist the strate-
gists in these analytical and decision-making tasks, specifically by providing guidelines
that can be drawn on to assist in establishing appropriate objectives and strategies for
the strategic position to be taken.
The point needs to be made, however, at the outset of the discussion of these tools
that they should be regarded as aids for decision making, not as prescriptive mecha-
nisms. Many of these tools were abused by strategy planners in the 1960s and 1970s and,
rightfully so, considerable criticism has been levelled at many of them. However, if some
of these tools are completely disregarded, there is also an equal danger of throwing away
the baby with the bath-water. A balanced viewpoint is to consider these tools not as
immutable prescriptions but as useful aids for strategic decision making. Three main con-
cepts and techniques will be discussed:
· the product life cycle (PLC) concept;
· product portfolio models (BCG and GE/McKinsey);
· the concept of sustainable competitive advantage.
chapter 4 strategy development 89
These concepts and techniques provide a means of (1) analysing the current strategic
position for the business unit and/or its product lines; (2) determining whether there is a
need to change the strategic position; and (3) setting appropriate marketing objectives
and higher level marketing strategies in line with the strategic positioning.
The product life cycle concept
The product life cycle concept was developed during the late 1950s6
and came into
prominence during the 1960s. The concept is quite simple as it postulates that products,
like human beings, pass through a number of different phases or stages of their life. In
the case of products, the stages are described as introduction, growth, maturity and
decline. An additional stage described as competitive turbulence or shake-out is also
shown in some PLC models as can be seen in Figure 4.2.
There are three levels or dimensions of product life cycles: the brand level, the prod-
uct category (product subclass) level and the industry (product class) level. The product
category level is the most useful for providing guidelines for the development of mar-
keting objectives and strategies.
FIGURE 4.2 A typical product life cycle pattern
90 strategic marketing planning
SalesProduct
category
sales (in
real dollars)
Time (years)
Introduction
Growth
Competitive
turbulence
Life cycle
extension
Decline or
extension
Maturity
The strategic implications of the PLC have been one of the most popular subjects in
marketing literature. Box 4.1 provides a summary of the typical characteristics of each of
the PLC stages and the marketing strategic implications.
Although there are some variations between the guidelines presented in the various PLC
models, Box 4.1 represents what could be described as a typical model. It can be
observed that these guidelines are fairly general in nature and that they do not provide
for differences in market position (such as different objectives for a leader, a challenger
or a follower) or for markets that do not follow the typical S-shaped curve of the PLC
Introductory Growth Competitive Maturity Decline
turbulence
Characteristic
Sales Low Rapidly Slowing Peak sales Declining
Cyclically
sets in
Prices High Lower than Low Low Falling
introduction
Profits Negative High and Declining Average Declining
(per unit) rising
Customers Innovators Early Early Late Laggards
+ early majority majority majority
adopters
Competition Few Growing Shake-out Declining Further
number begins numbers decline
of imitators
Strategic implications ­ marketing objectives and strategies
Marketing Encourage Market Protect and Protect Halt decline
objective trial share strengthen share or reduce
Establish penetration niches Manage for expenditure and
distribution Attract new earnings milk for profit
users Keep loyal
users
Extend the
PLC
Product Basic Offer Tighten line, Diversity of Phase out
extensions, improve brands and weak items
features, quality models
service Reposition
brand if
necessary
Price Skimming or Maintain Match or beat Defensive Maintain
penetration prices competitors profit margins
Distribution Selective Build Strong dealer Intensive Selective
intensive support and
coverage extensive
Promotion Create Stimulate Maintain Stress brand Phase out
awareness wider trial customer differences Maintenance
Develop Emphasise franchise and weight only
brand loyalty brand benefits
loyalty
chapter 4 strategy development 91
BOX 4.1 TYPICAL CHARACTERISTICS OF THE PLC STAGES
AND THE MARKETING STRATEGIC IMPLICATIONS
92 strategic marketing planning
model. It should also be recognised that the concept has been subjected to a good deal
of criticism which can be summarised as follows:
· There is a difficulty in defining the appropriate market.
· The length of the various stages differs for different products or industries. It is often
not clear what stage the product/brand is at.
· The S-shaped pattern does not always occur. Swan and Rink, for example, contend
that there are as many as ten different PLC curves.7
· The players can affect the growth curve by extending it in a variety of ways such as
repositioning and product innovation.
· Generalised strategic implications are questionable, because of divergent patterns
between industries such as competitive structure (may vary during the stages), and
the various strategies the competitors use such as price competition, advertising and
R&D expenditure.
Porter argues that industry takes many different paths so that the PLC pattern, which
describes one pattern, does not always hold. Moreover, he contends that there is noth-
ing in the concept that provides for a prediction of when the S-shaped pattern holds or
when it does not.8
Therefore, it should be noted that care must be taken when devel-
oping objectives and strategies based on PLC models. The suggested guidelines are a
good starting point for the process of decision making but nothing more than that.
Product portfolio models
During the early 1960s the notion of product portfolio management was introduced as a
means for diversified organisations to make decisions concerning the allocation of cor-
porate resources to their various SBUs. These models provided strategists with tools for
evaluating the strategic positions of each SBU and appropriate strategic prescriptions. In
practice product portfolio models were also used by SBUs to evaluate the strategic posi-
tions of their various product lines and to formulate strategies for those product lines.
A variety of portfolio models were developed during the 1960s and 1970s with the
most publicised being those produced by the Boston Consulting Group, General Electric
in consultation with McKinsey & Company and Arthur D. Little. All of these models fol-
lowed a similar process of evaluating the positions of an organisation's SBUs on a grid
or matrix. These positions were plotted on two main dimensions: business strength (an
assessment of the strength of each SBU relative to its competitors) and market attrac-
tiveness (of the industry the SBU competed in). The first two of these models are sum-
marised in the following section, including a description of the steps to be taken in
constructing each model and a summary of the strategic recommendations.9
Boston Consulting Group growth/share matrix
The underlying concept of the Boston Consulting Group (BCG) model, developed in the
late 1960s, is that strategic business units comprise a corporation's portfolio of investment
opportunities. Each SBU's strategic position is plotted on a four-quadrant grid, which is
shown in Figure 4.3. It is a two-dimensional model based on market growth, which forms
the vertical axis of the matrix, and relative market share, which forms the horizontal axis.
Market growth is essentially a proxy for market attractiveness and the stage the market
has reached in its product life cycle. Relative market share is a proxy for the business
unit's competitive strength and is computed by dividing the SBU's market share (in value
or volume) by that of the largest competitor.
Market growth is subdivided into two categories ­ high and low. Determining the cut-
off point between these two categories is therefore a critical decision. Similarly, relative
market share is divided into high and low categories and, accordingly, a decision also
needs to be made about where this vertical line should be drawn. These two critical deci-
sion points are discussed in Appendix 1 at the end of this chapter.
FIGURE 4.3 The BCG product portfolio model
chapter 4 strategy development 93
Low
Low
High
High
Star
Cash Cow
Relative market share
Marketgrowth
Dogs
There are two types of Dogs:
Cash Dogs and Genuine Dogs
??
(also known as `Problem
Children' or `Wildcats')
Once the vertical (market growth) and horizontal (relative market share) lines are
determined the strategic position of each SBU can then be plotted on the grid. The rela-
tive size of the circle for each SBU can be drawn so as to represent sales volume. A seg-
ment drawn within this circle can be shown to represent profit contribution.
Categorising each business unit
The BCG product portfolio model provides a means of categorising the strategic position
of each business unit into four areas: Stars, Cash Cows, Question Marks and Dogs. Based
on these classifications the model is then used by strategists to consider the strategic
implications, in terms of future earnings and cash flow, of investing the corporation's
resources in each SBU.
· Stars. These are SBUs with high relative market share in high-growth markets. Stars
are essential for the corporation's long-term success but, paradoxically, they are quite
often net users rather than suppliers of cash. High-growth markets are those that are
in the introductory or growth stage of the PLC, and business units in these markets are
required to invest heavily in market and new product development during these phas-
es of market evolution.
· Cash Cows. These are SBUs with high relative market share in low-growth markets.
Cash Cows are former Stars that have drifted into this quadrant as their markets have
matured and growth has slowed (or even become negative). Cash Cows are cash gen-
erators enjoying economies of scale and reduced investment requirements as the
emphasis turns to maintaining rather than establishing market leadership. Profit mar-
gins are relatively high.
· Question Marks. These are SBUs with low relative market share in high-growth mar-
kets. These SBUs are Problem Children as they have been unable to gain a strong posi-
tion in the market they compete in. They are often new to the market. These business
units require large amounts of cash and the objective is to shift them to the left quad-
rant to become a Star. Otherwise, when the market matures they will slip down into
the Dogs category.
· Dogs. These are SBUs with low relative market share in low-growth markets. There
are two categories of Dogs: Cash Dogs and Genuine Dogs. Cash Dogs are profitable
but Genuine Dogs are either unprofitable or very nearly unprofitable
The aim is to have a balanced portfolio of businesses, which is achieved by following
a success sequence in which cash generated by Cash Cows is invested in developing
Question Marks so that they will become Stars. In turn the Stars will one day change into
future Cash Cows as the markets they compete in mature.
It should be noted that the model was originally developed to provide strategists at
the corporate level of organisation with an analytical tool for developing strategies for a
portfolio of business units. However, it is recommended that the model should be also
applied at business unit level in order to review its portfolio of product lines and as an
aid for developing strategies for those product lines. It can also be used at a product line
level to review the strategic position of individual products and brands within the prod-
uct line.
Suggested BCG objectives and strategies10
Stars: `Invest for growth'
· Market share objective:
· Hold/increase; that is, defend leadership or gain if possible. Accept moderate short-
term profits and negative cash flow.
· Strategies:
· Consider geographic expansion, product line expansion and product differentiation.
· Upgrade product introduction effort.
· Adopt an aggressive marketing posture, namely selling, advertising, pricing, sales
promotion and service levels as appropriate.
Question Marks/Problem Children: `Opportunistic development'
· Market share objective:
· Increase or harvest/divest.
· Strategies:
· Invest in selective products.
· Identify and target uncontested and/or emerging market segments.
· Pursue similar strategies as previously stated under `invest for growth'.
Cash Cows: `Manage for earnings'
· Market share objective:
· Hold; that is, maintain market position and manage for earnings.
94 strategic marketing planning
· Strategies:
· Maintain market position in most successful product lines, and prune less success-
ful product lines.
· Differentiate products to maintain share of key segments.
· Limit discretionary marketing expenditure.
· Stabilise prices, except where a temporary aggressive stance is necessary to main-
tain market share.
Dogs11
1 Cash Dogs
· Market share objective:
· Hold. Acknowledge low growth ­ do not view as a `marketing problem'.
· Strategies:
· Identify and exploit growth segments.
· Emphasise product quality to avoid `commodity' competition.
· Systematically improve productivity.
· Assign talented managers.
2 Genuine Dogs
· Market share objective:
· Harvest/divest.
· Strategies:
· Prune product line aggressively.
· Maximise cash flow.
· Minimise marketing expenditure.
· Maintain or raise prices at the expense of volume.
Criticisms of the BCG model
· In many circumstances, factors other than relative market share and market growth
influence cash flow.
· The assumption that relative market share is linked to profit, thereby indicating busi-
ness strength, does not hold as there are many other factors that influence business
position including financial resources, marketing expertise and access to distribution
channels.
· The assumption that market growth is an adequate indicator of market attractiveness
is similarly flawed as there are many other factors that influence market attractiveness.
These include the factors identified by Porter in his five-forces model (competitive
rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of
buyers and threat of substitutes) discussed in Chapter 3. Additionally, legal and tech-
nological factors affect market attractiveness.
· Cash flow may be less important than ROI in determining the attractiveness in invest-
ing in one business unit or another.
· The model provides little insight into how one business unit might be compared with
another in terms of investment opportunity. For example, is every Star better than a
Cash Cow?
chapter 4 strategy development 95
The General Electric/McKinsey model
In the early 1970s General Electric (GE) became interested in the portfolio management
approach. However, General Electric management believed that the BCG approach over-
looked a number of important factors that determine market attractiveness and business
strength. Accordingly, they commissioned McKinsey & Company to develop an alterna-
tive model, which is shown in Figure 4.4. This model has become widely known as the
GE/McKinsey market attractiveness / business assessment matrix although it is also alter-
natively referred to as the GE/McKinsey screening grid. Shell and Arthur D. Little devel-
oped a similar model known as the industry maturity/competitive position grid or the
directional policy matrix.
The GE/McKinsey model is, like the BCG model, two-dimensional. However, instead
of using a single factor as the basis for determining market attractiveness and a single fac-
tor for determining business position, the GE/McKinsey model uses a variety of factors.
That is, it is a multifactor portfolio model. Additionally the GE/McKinsey model divides
each dimension into high, medium and low categories, thereby proving nine strategic
positions compared to the four strategic positions in the BCG model.
FIGURE 4.4 The GE/McKinsey market attractiveness / business
assessment matrix
96 strategic marketing planning
LowMedium
Low
High
HighMedium
High overall attractiveness
Medium overall attractiveness
Low overall attractiveness
Business position
Marketattractiveness
The steps to be taken and the factors to be considered in constructing the
GE/McKinsey multifactor portfolio model are outlined in Appendix 1 at the end of this
chapter. It should be appreciated that this is a more complex model than the BCG model
and that it takes a considerable amount of time and effort to construct. It involves judge-
ments about determining factors that make a market attractive and for determining the
strength or otherwise of business in that market. Moreover, it requires strategists to rank
and to weight the importance of each factor, which means that the model constructs are
highly subjective.
The GE/McKinsey model was designed to be used as a tool for corporate level strate-
gists to assign investment priorities in their various business units and to provide a guide
for resource allocation. Like the BCG model it is recommended that marketing strategists
should develop this model at both the corporate level and business unit level to review
the strategic position of the business unit as a whole and the strategic positions of the
product lines within the business unit.
chapter 4 strategy development 97
Protect position
·Invest to grow at
maximum digestible rate.
Èoncentrate effort on
maintaining strength.
Invest to build
Èhallenge for leadership.
·Build selectively on
strengths.
Øeinforce vulnerable
areas.
Build selectively
©pecialise around limited
strengths.
©eek ways to overcome
weaknesses.
·Withdraw if indications of
sustainable growth are
lacking.
BOX 4.2 GENERIC STRATEGIC OPTIONS FOR THE GE/MCKINSEY
MATRIX12
Build selectively
·Invest heavily in most
attractive segments.
·Build up ability to
counter competition.
Ìmphasise profitability by
raising productivity.
Selectivity/ manage for
earnings
·Protect existing program.
Èoncentrate investments
in segments where
profitability is good and
risk is relatively low.
Limited expansion or
harvest
·Look for ways to expand
without high risk;
otherwise, minimise
investment and rationalise
operations.
Protect and refocus
·Manage for current
earnings.
Èoncentrate on attractive
segments.
Ïefend strengths.
Manage for earnings
·Protect position in most
profitable segments.
·Upgrade product line.
·Minimise investment.
Divest
©ell at a time that will
maximise cash value.
Èut fixed costs and avoid
investment meanwhile
The concept of sustainable competitive advantage
The concept of competitive advantage was championed by Porter in the 1980s and
1990s.13
Porter contends that a `company could only outperform its rivals if it could estab-
lish a difference that it could preserve ­ by delivering greater value to its customers or by
creating comparable value at a lower cost, or by doing both'.14
Porter's generic `competitive strategies model' introduced in his 1980 book Competitive
Strategy and elaborated in his 1985 book Competitive Advantage provides a means for
managers to (1) evaluate their firm's competitive position, and (2) develop strategies to
98 strategic marketing planning
improve their current position. This model, shown in Figure 4.5, is based on two dimen-
sions: the type of competitive advantage and competitive scope. Porter argues that an
organisation must choose between a low-cost or differentiation form of competitive
advantage and between a broad (industry-wide) or narrow focus. That is, there are four
generic strategies or routes to competitive advantage that an organisation can pursue.
FIGURE 4.5 Porter's concept of generic competitive strategies
Broad
cost
Broad
Narrow
Focus
cost
Broad
differentiation
Focus
differentiation
Competitive
scope
Types of advantage
Cost leadership
Cost leadership strategies can be employed at a market-wide level (a broad competitive
scope) or by market nichers (a focus or narrow competitive scope). With a cost leader-
ship strategy the objective is market share leadership based on a marketing strategy in
which cost leadership is the main strategic tool. This strategy needs to be addressed at
the business unit level (that is, at an organisation-wide level) and not just at the market-
ing level. In order for it to be successful, the organisation needs to become the low-cost
producer in its industry. This therefore necessitates attention to non-marketing functions,
particularly production, supply and R&D in addition to marketing functions. Porter argues
that cost leadership is appropriate where an organisation has economies of scale and has
been able to reduce costs due to `the experience curve' effect. As he elaborates:
Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit
of cost reductions from experience, tight cost and overhead control, avoidance of marginal
customer accounts, and cost minimisation in areas like R&D, service, sales force, advertis-
ing and so on.15
Porter contends that achieving a low overall cost position often requires a high rela-
tive market share or other advantages such as having favourable access to raw materials
or designing products that are easy to manufacture, spreading costs over a wide product
line and serving all major customer groups. Having a low-cost position yields a firm
above average returns.
These strategies will be discussed in further detail in subsequent chapters, particularly
Chapter 7 which is concerned with pricing strategies.
Differentiation
Differentiation strategies can be employed at a market-wide level (a broad competitive
scope) or by market nichers (a focus or narrow competitive scope). This strategy calls
for differentiating a product or service from the competitor's products or services.
Differentiation refers to a customer's perception of difference (uniqueness) and
chapter 4 strategy development 99
superiority on at least one physical or non-physical product characteristic.16
The key to a
successful differentiation strategy is to identify needs that customers believe to be impor-
tant and to deliver value to those customers. Differentiators seek to command premium
prices; therefore, their customers have to be willing to pay the premium for the perceived
value they will receive. The differentiation may be in the product form, brand image,
product features, breadth of the product line, technology, customer service, pricing or dis-
tribution channels. At the heart of a successful differential strategy is the development of
a customer franchise based on brand loyalty. The differentiator can increase margins and
avoid the need to compete in the low-cost section of the market. This often implies a
lower market share and is a strategy to be pursued when the low-cost leadership posi-
tion is occupied by a strong competitor.
These strategies will be discussed at greater length in later chapters, particularly prod-
uct differentiation (Chapter 6), pricing differentiation (Chapter 7) distribution differentia-
tion including customer service (Chapter 8) and image/perception (Chapters 9 and 10).
Porter argues that winners in a chosen industry single mindedly pursue one of the four
generic strategies. Each strategy requires a different managerial approach and different
skills and assets. He warns that a strategy of being `stuck in the middle' ­ where two or
more generic strategies are pursued at the same time ­ will not achieve a competitive
advantage:
The firm in the middle is almost guaranteed low profitability. It either loses the high-volume
customers who demand low prices or must bid away its profits to get this business away
from low-cost firms. Yet it also loses high-margin business ­ the cream ­ to the firms who
are focused on high-margin targets or have achieved differentiation overall. The firm stuck
in the middle also probably suffers from a blurred corporate culture and a conflicting set of
organisational arrangements and motivation system.17
Figure 4.6 provides a useful matrix for analysing the cost leadership versus differenti-
ation strategy direction pursued for the organisation's products and for analysing com-
petitive strategies.
FIGURE 4.6 Strategy options based on relative costs and differential alternatives
Low
Low
High
2
High differentiation/high
margins
4
Cost leadership
3
Disaster area
High
1
Market niche
Relative costs
Degreeofdifferentiation
The low relative cost / low degree of differentiation position quadrant no. 4 (Figure
4.6) is where the market leaders would be expected to be found. This is generally a strat-
egy that only the market leader or perhaps a strong no. 2 or no. 3 could successfully pur-
sue. The risk for competitors pursuing this strategy is that as the industry matures their
cost leadership advantage could diminish over time. To offset this the organisation must
keep abreast of technological innovation, reinvest in modern equipment, scrap obsolete
assets and avoid product line proliferation. In some extreme cases the ideal position
shown in quadrant no. 2 (Figure 4.6) may be a strategic alternative. If the competitor has
a low relative cost and a high degree of differentiation, then it can achieve high margins
by pricing either at or just above its competitors (who have higher relative costs). This
quadrant may also be occupied by competitors in the low-medium relative cost area who
price higher than the cost leader but substantiate the premium price by their medium to
high level of differentiation. These competitors must have customers that are willing to
pay the additional price to receive the `added value' for the product. The danger of this
strategy is that, as an industry matures, the products tend to be increasingly regarded
by the market to be generics or commodities. The value of paying a premium price for
the added value (differential) diminishes and customers turn to the lower priced
alternatives.
Where neither of these two strategies is available, the competitor can choose to focus
on a niche or single segment of the market as shown in quadrant no. 1 (Figure 4.6).
Prestige car manufacturers typically pursue this strategy by producing a relatively high-
cost product that is highly differentiated. They appeal to a segment that is prepared to
pay a high price to acquire a differentiated product. The final quadrant, to be avoided
like the plague, is quadrant no. 3 (Figure 4.6): the high relative cost / low degree of dif-
ferentiation strategy.
In 1996 Porter provided an elaboration of his earlier work on strategy.18
First, he argues
that a company can only outperform its competitors if it establishes a difference that it
can preserve. This can be achieved only by delivering greater value to its customers, by
creating comparable value at lower cost or by doing both. He argues that it is a mistake
to confuse operational effectiveness with strategy. Operational effectiveness means per-
forming similar activities better than competitors perform them. Strategic positioning, on
the other hand, means either to perform different activities from that of the competitors
or to perform similar activities differently. While operational effectiveness is necessary it
can only provide a short-term advantage as competitors will soon catch up on the pro-
ductivity front.
Second, Porter argues that competitive strategy is all about being different ­ `deliber-
ately choosing a different set of activities to deliver a unique mix of value'.19
He argues
that strategic positions emerge from three distinct, but frequently overlapping, sources:
· variety-based positioning, which produces a subset of an industry's products or services;
· needs-based positioning, which serves most of the needs of a particular group of
customers;
· access-based positioning, which segments customers who are accessible in different
ways (essentially, a distribution-based strategy).
The above three sources of strategic positioning expand the earlier concept of gener-
ic strategies by providing three possible sources of strategic positioning for each of the
four generic strategies. For example, a low-cost industry-wide competitor can chose a
variety-based, needs-based, access-based positioning strategy or a combination of these
three sources.
100 strategic marketing planning
Other dimensions of competitive advantage
Towards the end of the 1980s it became increasingly apparent that strategies based on
either low-cost leadership or differentiation were by themselves not enough to provide
organisations with a sustainable competitive advantage. Time-to-market or time compres-
sion 20
­ the ability to do things more quickly than the competitors ­ was discovered as a
new source of advantage. Companies increased the speed of getting new products to mar-
ket (new product realisation), manufactured and distributed on a just-in-time basis, pro-
vided quick-response customer service and responded more quickly to market trends and
opportunities than their competitors. The new way of thinking or `new wisdom' as Kanter
expressed it, was that organisations need to focus on internal processes.21
Hamel and
Prahalad argue that core competence ­ the combination of individual technologies and
production skills underlying an organisation's product lines ­ is the essential building
block of strategy.22
The core competence of Sony, they argue, is miniaturisation, which
underpins all of their products, from the Sony Walkman to notebook computers. Stalk,
Evans and Shulman point out that a focus on core competence is not enough. They argue
that the key to success is `capabilities-based competition'. In an increasingly dynamic busi-
ness environment, Stalk and his colleagues maintain that `successful competitors move
quickly in and out of products, markets and sometimes even entire businesses'. They
argue that `capabilities-based competitors identify their key business processes, manage
them centrally, invest in them heavily, looking for a long-term payback'.23
Drawing two views of competitive advantage together
A focus on internal capabilities or core competencies contrasts with the view of competi-
tive advantage proposed by Porter. That is, as Day and Wensley point out, there are two
schools of thought as to what the term `competitive advantage' actually means.24
The first
interpretation is that competitive advantage is analogous to `distinctive competence' ­ the
possession of superior skills and resources. The second interpretation is that competitive
advantage represents the achievement of positional superiority ­ lower relative costs (cost
leadership) or superior customer value (differentiation). Day and Wensley argue that nei-
ther of the two views provides a complete picture of competitive advantage and that
therefore they need to be integrated in order to describe the state of advantage and how
it is gained. Figure 4.7 shows the sequence of how competitive advantage is created and
sustained, and the performance outcomes (of achieving a competitive advantage).
FIGURE 4.7 Day and Wensley's elements of competitive advantage model
chapter 4 strategy development 101
Investment of profits
to sustain advantage
· Satisfaction
· Loyalty
· Market share
· Profitability
· Superior skills
· Superior
resources
· Superior
customer value
· Lower relative
costs
Sources of
advantage
Positional
advantages
Performance
outcomes
Source: G.S. Day & R. Wensley, `Assessing advantage: A framework for diagnosing competitive superiority',
Journal of Marketing, vol. 52, April, 1988, p. 3
Positional advantages and performance outcomes are a consequence of the sources of
advantage an organisation has (relative superior skills and resources). Superior skills and
resources together provide an organisation with the ability to do more or do better (or
both) than its competitors. Superior skills are the distinctive capabilities of personnel aris-
ing from their ability to perform individual functions more effectively than competitors.
Superior resources can be found in the scale of operations, location, sales-force breadth,
distribution coverage, availability of automated assembly lines and brand name power.
Superior skills and resources are the antecedents of positional advantage which are mani-
fested in two forms: superior customer value and lower relative costs. Superior customer
value (differentiation) is achieved when an organisation performs some value-adding
activity that leads to customer perception of superiority. Lower relative costs are achieved
by an organisation performing most of its activities at lower costs than its competitors ­
while offering a parity product. The achievement of a sustainable competitive advantage
is measured in terms of customer satisfaction, customer loyalty, market share and prof-
itability (performance outcomes). Profits are invested in the acquisition or enhancement
of the organisation's sources of advantage (superior skills and resources) in order to
achieve or maintain a long-term sustainable competitive advantage.
How to use these concepts and techniques
As stated at the beginning of this section the PLC, product portfolio and competitive
advantage concepts provide a means of assisting the strategist in analysing the current
strategic position of the business unit and, based on this analysis, decisions concerning
the future business position and concomitant marketing objectives and higher level mar-
keting strategies. It is suggested that all of these tools should be used and drawn upon
for this phase of strategic analysis and decision making. In this way these tools should be
used as a starting point, not as an end point, for making these critical decisions.
It should also be pointed out that the emphasis here is to draw on the tools by syn-
thesising the various strategic insights that they provide along with their strategic advice.
For example a marketing strategist may write the following: `XYZ business unit is the mar-
ket leader in a market that has reached maturity and is anticipated to show very little
growth over the next three years. XYZ is categorised as a Cash Cow (BCG) and as a busi-
ness unit in a market of high overall attractiveness with a strong business position in a
market of medium attractiveness (GE/McKinsey). XYZ's competitive advantage is based
on a market-wide cost leadership strategy (Porter) because of its economy of scale, high
level of brand equity and strong distribution support. Given XYZ's current strategic posi-
tion and the prospect of a stagnant or declining market, it is recommended that invest-
ment should be concentrated in developing and nurturing new products and in
developing new markets. The objective for existing products in existing markets is to
maintain current market share and to manage for earnings by rasing productivity.'
Marketing strategies
The third step of the decision-making process is a bottom-up process of considering mar-
ketplace reality. In what markets and with what products can the business unit achieve
its revenue and profitability objectives? There are two main tools that can assist in this
area of decision making:
102 strategic marketing planning
· the Ansoff product-market matrix,25
and
· marketing competitive strategy options.
The Ansoff product-market matrix,26
shown below in Figure 4.8, can be used to con-
sider the potential of four strategic options for products and for markets.
FIGURE 4.8 The Ansoff product-market matrix
chapter 4 strategy development 103
New
New
Existing
Existing
1
Market penetration
3
Market development
4
Diversification
2
New product development
Products
Markets
The marketing objectives and strategy options for each of these four product-market
strategy options are:
· Market penetration (existing products in existing markets). The main objective is to
increase market share (or in some cases to maintain market share or to halt a decline).
This can be achieved by winning customers from competitors and/or increasing the
product-usage rate of existing customers (a typical objective of customer loyalty pro-
grams). Efforts to increase the rate of product usage among existing customers can also
potentially have the effect of growing the total market. However, the main strategy for
the achievement of market growth is via the next option ­ market development.
· Market development (existing products in new markets). Market development or
market expansion can be achieved by entering new markets/segments and/or con-
verting non-users to become users. A critical aspect of market development is to iden-
tify emerging market segments that have growth potential.
· New product development (new products in existing markets). New products may
be product-line extensions or new-to-world products for existing market segments.
Marketing objectives are to launch successful new products into existing markets.
· Diversification (new products in new market segments). The focus here is towards
related diversification ­ where the market segment is closely related to existing mar-
ket segments; for example, the identification of an emerging subgroup of business
travellers seeking no-frills/cheap air travel. If the diversification involves entering an
unrelated market, this strategic option may fall outside of the scope of the strategic
marketing plan. For example, leveraging a brand such as Waterford into writing instru-
ments (fountain pens and biros) is a completely different product category from
Waterford crystal in a significantly different market. Whether the diversification is relat-
ed or unrelated comes back to the very first stage of the strategic marketing planning
process ­ determination of the business definition and scope.
These four product-market strategic options provide the strategist with a framework
for considering the potential revenue and profit that can be achieved for each year of the
time frame of the strategic marketing plan. This is essentially a first cut view of a number
of higher level marketing strategy options. The model can also be used to provide top-
down direction of the strategic emphasis. For example, top management at 3M empha-
sise the importance of innovation by specifying that 30 per cent of each business unit's
annual revenue must come from new products (defined as products introduced within
the past four years). Consideration of the proportion of revenue that is expected to be
derived from each of the four product-markets is an effective way for marketing strate-
gists to focus on these higher level marketing strategy decisions.
The next step is to consider how these higher objectives and strategies might be
achieved. That is, which markets or market segments should be chosen ­ taking into
account the ability of the business unit not only to appeal to the needs of the customers
in those markets, but also to compete effectively against other players in those markets.
So just how should the business unit compete in the markets it has chosen to target?
Should it take its competitors on head-to-head or would it be better to take a less aggres-
sive approach and try to avoid a marketing warfare type of situation? To help in this deci-
sion making a number of competitive options are discussed in the next section.
Competitive marketing strategy options
In this section competitive strategy options are discussed for a market leader, a market
challenger/follower and for a competitor pursuing a market niche strategy.27
Market leader
There are five competitive strategy options for a market leader to consider:
· Market expansion is where the market leader attempts to expand demand for the
product category. Apart from stimulating primary demand for the product category a
market leader could attempt to broaden the market by expanding into related prod-
uct or categories or related market segments.
· Market share protection is where the market leader attempts to protect its share of the
market with strategies such as outspending its competitors in advertising, using con-
sumer and trade sales promotions to maintain customer loyalty, extending the prod-
uct line to cover all market segments, lowering prices and increasing distribution.
· Pre-emptive strike is an offensive strategy which anticipates or discourages competitive
entry; for example, tying up the distribution channels by providing attractive trade
incentives or by launching a fighting brand designed to offset any competitive product.
· Counterattack is attacking a competitor either by taking an individual competitor head
on or by mounting a flanking strategy such as by moving into to an emerging market
segment that the competitor has not entered.
· Reactive strategy is an alternative strategy where the market leader might wait until it
is attacked and then react to the competitive challenge by launching a new product
to offset the attacker, matching or bettering the price offer, or using advertising or sales
promotion.
Market challenger/follower
A market challenger is basically a strong no. 2 or no. 3 in the mainstream market in which
it is perceived as an alternative to the leader. Generally these organisations are innova-
tive and aggressive and quite often seek market leadership. Their marketing objective
would therefore be to increase their market share. Market followers are smaller and are
104 strategic marketing planning
chapter 4 strategy development 105
usually around the midpoint of the market structure. Quite often they compete with
value-for-money alternative products (based on being adequate in quality but at a lower
price). They may not compete in all of the mainstream markets but would cover the
largest segments. In most cases their marketing objective would be to maintain or
increase market share. Market challengers and market followers can choose between
three proactive strategies of head-to-head competition, flanking strategies and encircle-
ment and one reactive strategy of following the leader.
· Head-to-head competition is a dangerous strategy to pursue and the market challenger
should be confident that it has a competitive advantage based on product superiority
and/or cost. This competitive advantage must not only be real but also be capable of
being perceived by the customer to exist and to be significant.
· Because head-to-head competition is so risky, the alternative strategy of flanking is
often considered to be a preferred option. This strategy involves determining a need
that the market leader (or leaders) has overlooked and in response to offer a product
that satisfies those needs. That is, a flanking strategy seeks to compete in an uncon-
tested area.
· A third alternative for a proactive strike is encirclement. This involves an aggressive
move against the market leader on several fronts. This may involve introducing a prod-
uct range that surrounds the market leader or switching the customer's attention to
benefits or attributes that the leader currently does not offer.
· The final strategic alternative for the market challenger/follower is the reactive strate-
gy of follow the leader. This minimises the risk of retaliation and is essentially a `me-
too' approach.
Marketing nicher strategies
A marketing nicher specialises in a segment of the market and has a large share of this
segment (with a low share of the overall market). Its main marketing objective would be
to hold market share for its market niche. Market-niche strategies are those that are
intended to avoid competition as the market pursued is either too small or too specialised
for the market leaders to be interested. These market segments may be based on cus-
tomer type, a price segment or a geographic area.
However, while the focus on competitive strategies has a lot to do with a battle for
market share leadership, there is a danger of using market share alone as an indicator of
an organisation's competitive position. As Porter argues, a goal of becoming the market
leader (or to be one of the leaders) can be harmful because market leadership is not a
cause but an effect of competitive advantage: `The strategic mandate to business units
should be to achieve competitive advantage. A goal of leadership per se also embroils
managers in endless debates over how an industry should be defined to calculate shares,
obscuring once more the search for competitive advantage that is the heart of strategy'.28
How to do it ­ a practical framework
The three stages of considerations of the decision-making process for establishing mar-
keting objectives and higher level marketing strategies are complex, encompassing a wide
variety of deliberations. So just how should the strategist, or a team of strategists, go about
this difficult task?
106 strategic marketing planning
The objective of this section is to provide the reader with a practical framework for
tackling this task.
(Note: A worksheet to assist in the organisation of this information is included in
Appendix 2 at the end of this chapter. This worksheet provides relevant information to
be included in the `Marketing objectives and higher level marketing strategies' section of
the strategic marketing plan.)
There are six steps involved in the process.
Step 1
State the financial goals that the business unit is expected to achieve for each year of the
planning period. In most cases these goals will be set in terms of profit objectives, which
are stated in a variety of ways such as return on sales, return on equity, return on net
assets, return on gross assets and earnings per share.
Irrespective of the method that is used it is necessary, for strategic marketing planning
purposes, to translate these financial goals into annual revenue (sales) objectives ­ with
accompanying gross margin objectives. Plot this information onto a graph as shown in
Figure 4.9 (represented as line A).
Step 2
Consider the business unit's current competitive position. Where is it heading under the
current strategy?
Commencing with last year's revenue (and margin) figures project the revenue for
each of the following years addressed by the strategic marketing plan. To do this draw
on the market forecast work that was previously completed in the situation analysis (in
the market review section of the industry environment analysis). Also, draw on the com-
petitive review (in the industry review part of the situation analysis) in order to develop
a view of where the business unit is heading in relation to its competitors. (Refer to
Chapter 3 for discussions of these topics.) Drawing on these two pieces of information
a reasonable view of financial performance expectations ­ based on the continuation of
current strategies ­ can be formed. Plot this information onto a graph as shown in Figure
4.9 (represented as line B).
FIGURE 4.9 Strategic gap analysis
A Sales objective (or maximum sales potential)
(Step 1)
B Projected sales
(Step 2)
Sales
Time
In Figure 4.9, a gap is shown between projected sales (B) and the sales objective (A).
Figure 4.10 shows the strategic options that are available to close the gap.29
Step 3
Compare the revenue forecasts determined in Step 2 (based on the continuation of cur-
rent strategies) to the revenue imperatives determined for the business unit as per Step
1. Is there a gap between what the business unit is required to achieve and what it can
be expected to achieve in line with its current competitive strategy?
This comparison is based on a model referred to as strategic gap analysis developed
originally by Ansoff. It is an extremely powerful illustrative tool that portrays the magni-
tude of the marketing challenge of achieving the revenue objectives. It also provides a
means for crystallising thinking regarding the setting of marketing objectives and prod-
uct-market strategy decision, which will be discussed in Step 5.
Strategic gap analysis, shown in Figures 4.9, is an important tool for linking the cor-
porate/business financial objectives to marketing performance realities. In this way it is
a tool that links the objective setting process to the strategy development process, there-
by addressing the criticism, discussed earlier in this chapter, about objectives being set
with little or no regard as to how they are to be achieved.
Step 4
Consider whether a shift in the business unit's strategic positioning is desirable or nec-
essary. To do this draw on the tools discussed earlier in this chapter such as the product
life cycle concept, product portfolio models (BCG and GE/McKinsey) and models of
competitive advantage. These tools provide a means of analysis and for decision making
that draws on this analysis. An additional input is the work previously undertaken in the
process of developing the situation analysis and the problems and opportunity statement.
The tools also provide suggestions concerning the broad marketing objectives and
higher level marketing strategies that are appropriate for the recommended strategic posi-
tion for the business unit. These decisions now need to be factored into a judgement
about how the strategic gap might be closed. These judgements also need to include
consideration of just where the revenue can be expected to come from in terms of new
and existing products and markets. This is discussed in the next step.
Step 5
In this step the market realities from a bottom-up perspective are examined. This
involves close scrutiny of the potential revenue that could be achieved from four prod-
uct-market options (as per the Ansoff product-market matrix discussed earlier in this
chapter). That is, an estimate needs to be provided of the potential annual revenue from:
· existing products in existing markets (taking into account market growth and market
share expectations for the business or strategic planning unit);
· existing products in new markets (the revenue that can be expected from market
development including new market segments and/or new geographic markets);
chapter 4 strategy development 107
· new products in existing markets (the revenue that can be expected from new prod-
uct introductions into existing markets);
· new products in new markets (the revenue that can be expected from related
diversification).
As can be seen in Figure 4.10 these strategic options are a means for closing what can
be described as a revenue or sales gap (that is, strategies for achieving sales growth).
However, it should be noted that strategic gap analysis is also used as a tool for analysing
strategic options for closing a profitability gap. This involves three main categories of
strategy options: strategies for improving productivity, strategies for reducing the invest-
ment base and strategies for growing sales.
FIGURE 4.10 Alternatives for closing the strategic gap
108 strategic marketing planning
Closing the gap
Increase
sales
Related
diversification
Market
development
Market
penetration
New product
development
Enter
new segments
Win competitor
,
s
customers
Win largest share
of new buyers and
repeat purchasers
Enter new
geographic
markets
Develop new
products for new
related market
segments
Convert
non-users
Grow the market
Increase
usage rate
Extend the product
line
Upward stretch
Downward stretch
Redeployment
of capital resources
Cost reduction
Experience
Reduce
investment base
Improve
productivity
New mission
Innovation
Divestment
Unrelated diversification
Source: Based on the work of D.T. Brownlie & C.K. Bart, Products and Strategies, MCB University Press, Bradford,
Yorks., vol. 11, no. 1, 1985, p. 14
· Improved productivity can be achieved by cost reduction and/or efficiencies achieved
from the experience curve effect. This can include non-marketing activity such as pro-
duction and/or improved marketing productivity such as better distribution cost effi-
ciencies or more effective advertising.
· Reduction of the investment base can be achieved by the redeployment of capital
resources and/or developing a new mission, innovation, divestment or diversification
(new products for new markets). This is, essentially, a business unit level of strategy
and therefore beyond the scope of strategic marketing planning considerations.
· Sales growth is the main area of interest for strategic marketing planning involving the
four product-market strategy options discussed above.
Step 6
Has the strategic (revenue) gap been closed? If it has then the top-down corporate/busi-
ness objectives (Step 1) have been found to be realistic and achievable. If the gap has
not been closed then it is back to the drawing board. Either the corporate/business objec-
tives need to be downgraded to match the market/business position reality or more ambi-
tious strategies need to be developed.
How to write the marketing objectives
and strategies section
(Note: Refer to Chapter 13, which contains information about writing a strategic market-
ing plan. A `Strategic Marketing Planning Template' is also available on the web to assist
in this task. The information set out below relates to the `Marketing objectives and high-
er level marketing strategies' section in this template. Please also note that Appendix 2 at
the end of this chapter is a worksheet that can be used as a means for collecting the rel-
evant information to set out the marketing objectives and product-market strategies.)
The end product of the above decision-making process should be a clear and concise
statement of the planning unit's marketing objectives and higher level marketing strate-
gies. To achieve this the following format for writing this section of the strategic market-
ing plan is recommended.
Marketing objectives
State the marketing objectives in terms of market share, revenue and profitability (or
operating margin) for each year of the strategic marketing plan. These objectives, as
described in Step 6 above, are the result of the trade-off decision making, taking into
account the three sets of considerations discussed in this chapter. That is, they are the
end result of the mix of considerations involving corporate/business objectives, strategic
position and marketing strategies.
Higher level marketing strategies
Briefly describe the recommended higher level marketing strategies, in terms of the
product-market strategies that the planning unit will pursue, in order to achieve the above
objectives. State the revenue objectives for each year of the strategic marketing plan to
be derived from each of the four product-market categories. Next briefly describe the
nature of the competitive conduct that is recommended, such as to adopt a flanking strat-
egy approach, encirclement or a head-to-head strategy.
Justification
Marketing objectives are decisions that are derived from a combination of top-down and
bottom-up considerations. The process of setting marketing objectives is essentially a bal-
ancing act between consideration of what the business, or planning, unit is required to
achieve (corporate/business unit objectives) and what is possible for it to achieve (strate-
gic position and higher level marketing strategies). These critically important strategic rec-
ommendations therefore need to be annunciated and supported by well-constructed
chapter 4 strategy development 109
argumentation. Analytical tools such as the product life cycle, product portfolio and com-
petitive advantage models provide a good starting point for strategists to draw on in order
to support this strategic thinking.
The justification (or rationale) should include a brief description of the current strate-
gic position of the business unit (or planning unit) and a rationale for any changes to that
position that are being recommended. It should also include a brief description of the
strategic position of the planning unit's product line (and products or brands comprising
the product line) and a rationale for changes to be made. This rationale should be based
on changes that are likely to occur in the market evolution including changes that are
likely to occur to existing and emerging (new) market segments. The product-market
matrix provides an excellent framework for structuring this part of the rationale.
Supporting evidence for these recommendations should include reference to the mar-
ket review section contained in the situation analysis. Similarly, the competitive review
section in the situation analysis should provide a basis for developing competitive strate-
gies such as whether to defend market share leadership or to challenge a market leader
with head-to-head marketing strategies.
Problems and opportunities
Strategies need to be developed that address the problems and opportunities that were
identified in the situation analysis and the problems and opportunity statement (as dis-
cussed in Chapter 3). By referring back to this work the marketing strategists can now
address the most important opportunities and threats confronting the strategic planning
unit. For example, a strategic planning unit might have relatively poor distribution cov-
erage despite the fact that achievement of saturation distribution was identified as a crit-
ical success factor. A sub-objective to increase the number of distribution outlets during
the time horizon of the strategic marketing plan should then be set.
This chapter has discussed a framework that can be used for the task of setting market-
ing objectives and the development of higher level marketing strategies. This is the piv-
otal decision-making process where all of the detailed analytical work (carried out in the
situation analysis) forms a foundation for competing successfully in the future.
This decision-making process involves a combination of top-down and bottom-up
thinking consisting of three sets of interrelated considerations: corporate objectives, strate-
gic position and marketing strategies. Marketing strategists need to take all three sets of
these considerations into account when determining marketing objectives and strategies
in order to arrive at objectives that are realistic, achievable and measurable.
One of the most common mistakes found in many strategic marketing plans is the
absence of support argumentation for these strategic decisions. Marketing objectives
should not be `plucked out of the air' and it is essential that a rationale is included in this
section of the strategic marketing plan. Draw on the analytical work conducted in the sit-
uation analysis and the various tools discussed in this chapter (and elaborated in
Appendix 1 to this chapter) to not only assist in the strategy decision-making processes,
but also provide support argumentation for those decisions.
110 strategic marketing planning
Summary
1 M. Treacy & F. Wiersema, The Discipline of Market Leaders, HarperCollins Publishers, London,
1995, p. 13.
2 The term `crafting' draws on a proposition put forward by Mintzberg of emergent strategies dis-
cussed in Chapter 2. Refer to H. Mintzberg, The Rise and Fall of Strategic Planning, Prentice-Hall
International, Hemel Hempstead, Herts, 1994, in particular pp. 23­7; and `Crafting strategy',
Harvard Business Review, July­August, 1987.
3 H. Mintzberg, The Rise and Fall of Strategic Planning, Prentice-Hall International, Hemel
Hempstead, Herts, 1994, p. 85.
4 J. Collins, `Turning goals into results: The power of catalytic mechanism', Harvard Business
Review, July­August, 1999, pp.71­82.
5 Day and Fahey provide an excellent example of this type of strategic problem in describing
strategies pursued by Schlitz Brewing in the USA. Refer to G.S. Day & L. Fahey, `Putting strategy
into shareholder analysis', Harvard Business Review, March­April, 1990, pp. 156­62.
6 Joel Dean is attributed as being the pioneer of the product life cycle concept. Refer to J. Dean,
Managerial Economics, Prentice-Hall, Englewood Cliffs, NJ, 1951.
7 J.E. Swan & D.R. Rink, `Fitting market strategy to varying product life cycles', Business Horizons,
January­February, 1982, pp. 72, 76.
8 For a good summary of the PLC and its problems see M.E. Porter, Competitive Strategy:
Techniques for Analyzing Industries and Competitors, The Free Press, New York, 1980, pp. 156,
162.
9 For the reader requiring more detailed information concerning product portfolio models the fol-
lowing sources are recommended: A.C. Hax & N.S. Majluf, `The use of the growth-share matrix in
strategic planning', INTERFACES, 13, February, 1983, pp. 46, 60; A.C. Hax & N.S. Majluf, `The use
of the industry attractiveness-business strength matrix in strategic planning', INTERFACES, 13,
April, 1983, pp. 54, 71; M.H.B. McDonald, `Some methodological comments on the directional
policy matrix', Journal of Marketing Management, vol. 6, no. 1, 1990, pp. 59, 68; D.F. Abell &
J.S. Hammond, Strategic Market Planning: Problems and Analytical Approaches, Prentice-Hall,
Englewood Cliffs, NJ, 1979, Chapter 4, pp. 173­227.
10 Based on M. Christopher, S. Majaro & M. McDonald, Strategy Search: A Guide to Marketing for
Chief Executives and Directors, Gower, Aldershot, UK, 1987.
11 Note: BCG introduced the concept of `cash dogs' in the 1980s in response to criticisms that not all
dogs were disasters ­ as had previously been suggested.
12 Based on G.S. Day, Analysis for Strategic Market Decisions, West Publishing Company, New York,
1986, p. 204.
13 Refer M.E. Porter, `How competitive forces shape industry', Harvard Business Review, vol. 57,
March­April, 1979, pp. 137­45; M.E. Porter, Competitive Strategy: Techniques for Analyzing
Industries and Competitors, The Free Press, New York, 1980; M.E. Porter, Competitive Advantage:
Creating and Sustaining a Competitive Advantage, The Free Press, New York, 1985; and M.E.
Porter, `What is strategy?', Harvard Business Review, November­December, 1996, pp. 61­78.
14 M.E. Porter, `What is strategy?', Harvard Business Review, November­December, 1996, pp. 61­78.
15 M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free
Press, New York, 1980, p. 35.
16 Dickson and Ginter provide an excellent discussion of the use of the terms `market segmentation'
and `product differentiation' and the implications of these concepts for marketing strategy. Refer
to P.R. Dickson & J.L. Ginter, `Market segmentation, product differentiation, and marketing strate-
gy', Journal of Marketing, vol. 51, April, 1987, pp. 1­10.
17 M.E. Porter, Competitive Strategy, pp. 41, 42. This is one of the most controversial notions of
Porter's. The following are examples of articles criticising this aspect of Porter's work: A. Karnani,
`Generic competitive strategies ­ an analytical approach', Strategic Management Journal, vol. 7,
1984; A.I. Murray, `A contingency view of Porter's generic strategies', Academy of Management
Review, vol. 13, 1988; C.W. Hill, `Differentiation versus low cost or differentiation and low cost: A
contingency framework', Academy of Management Review, vol. 13, 1988; J. Hendry, `The problem
with Porter's generic strategies', European Management Journal, vol. 8, 1990; M. Cronshaw,
E. Davis & J. Kay, `On being stuck in the middle, or good food costs less at Sainsbury's', Centre
chapter 4 strategy development 111
Endnotes
of Business Strategy, London School of Business, 1990; and D. Faulkner & C. Bowman, `Generic
strategies and congruent organisational structures', European Management Journal, vol. 10, no. 4,
1992.
18 M.E. Porter, `What is strategy?', Harvard Business Review, November­December, 1996, pp. 61­78.
19 Porter, 1996, p. 64.
20 R.M. Kanter, `How to compete', Harvard Business Review, July­August, 1990, pp. 7­8.
21 R.M. Kanter, `How to compete', Harvard Business Review, July­August, 1990, pp. 7­8.
22 Refer to G. Hamel & C.K. Prahalad, `Strategic intent', Harvard Business Review, May­June, 1989,
p. 64. See also two other publications by these authors: C.K. Prahalad & G. Hamel, `The core
competence of the corporation', Harvard Business Review, May­June, 1990, pp. 79­91; and
G. Hamel & C.K. Prahalad, Competing for the Future, Harvard Business School Press, Cambridge,
Mass., 1994.
23 G. Stalk, P. Evans & L.E. Shulman, `Competing on capabilities: The new rules of corporate strate-
gy', Harvard Business Review, March­April, 1992, pp. 57­69.
24 G.S. Day & R. Wensley, `Assessing advantage: A framework for diagnosing competitive superiori-
ty', Journal of Marketing, vol. 52, April, 1988, pp. 1­20.
25 H.I. Ansoff, Corporate Strategy, McGraw-Hill, New York, 1965, Table 6.1, p. 109.
26 The concept of categorising products and markets into new and existing dimensions was pio-
neered by Drucker but incorporated later into a matrix format by Ansoff. Refer to P.F. Drucker,
The Practice of Management, Harper & Row, New York, 1954; and H.I. Ansoff, Corporate
Strategy, McGraw-Hill, New York, 1965.
27 These strategies are an elaboration of a concept of marketing warfare introduced originally in the
1980s. Refer to P. Kotler & R. Singh, `Marketing warfare in the 1980s', Journal of Business Strategy,
Winter, 1981, vol. 1, no. 3, pp. 30­41. There are also several very good advanced marketing strat-
egy textbooks that provide extensive discussion of marketing strategy options. Refer, for example,
to O.C. Walker, H.W. Boyd & J-C. Larréché, Marketing Strategy: Planning and Implementation,
Irwin, Chicago, 1996.
28 M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, The Free
Press, New York, 1985, pp. 25­6.
29 A modification based on a concept developed by D.T. Brownlie & C.K. Bart, Products and
Strategies, MCB University Press, Bradford, Yorks., vol. 11, no. 1, 1985, p. 14.
112 strategic marketing planning
Appendix 1 to Chapter 4:
Financial performance objectives and
product portfolio models
In this appendix a brief summary is provided of some of the most popular techniques
used by financial managers and strategy planners for the task of determining financial
performance objectives.
The appendix also contains useful information about how marketing strategists can
construct a BCG and a GE/McKinsey product portfolio model.
Financial performance objectives
Financial managers draw on a range of techniques ranging from ratio analyses to more
complex value-based planning models for determining future earnings. In this section
the Du Pont ratio analysis model and three value-based planning models are briefly
summarised.
Du Pont ratio analysis
The Du Pont model is one of the most popular techniques used for the assessment of
current and past financial performance. Financial managers use this model, originally
developed by Du Pont, to forecast their organisation's future value by determining the
growth rate of earnings in terms of return on assets (ROA). The model decomposes ROA
into a series of constituent ratios that show how changes in a planned activity, such as
an expense item of profit margin, will potentially impact on the organisation's ROA. There
is also another version for arriving at return on equity (ROE).1
FIGURE 4.11 Du Pont ratio analysis
chapter 4 strategy development 113
Profit margin
Net income/Total sales
Operating expenses
ratio
Gross profit
ratio
Asset turnover
Sales/Total assets
Fixed asset
management
Current asset
management
Inventory
turnover
Debtors
turnover
Selling FinancialAdministration
ROA
Net income/Total assets
Value-based planning
Value-based planning techniques are designed to forecast the economic value to an
organisation that a specific strategy or operating program will yield. There are several
methods used including shareholder value analysis (SVA), market value added (MVA) and
economic value added (EVATM).
Shareholder value analysis is a discounted cash flow approach. The most well-known
approach to SVA is that proposed by Rappaport.2
In this model, shareholder value is
derived by taking into account cash flow that would be generated by a proposed strate-
gy, the cost incurred as cost of capital and the market value of the debt assigned to the
organisation. Shareholder value is estimated by consideration of seven value drivers: sales
growth rate, operating profit margin, income tax rate, fixed capital needs, working capi-
tal needs, the cost of capital and the planning period.
Market value added (MVA) is a method of evaluating the extent to which an organi-
sation performs its basic mission of creating wealth for its shareholders. MVA, as proposed
by the New York consulting company Stern Stewart, is the difference between total mar-
ket value (the value of an organisation's stock and debt) and invested capital (the capi-
tal an organisation has collected over its life from equity and debt offerings, bank loans
and retained earnings).3
A closely related concept to MVA is economic value added
(EVATM) which sets out to measure the wealth created by an organisation each year. EVATM
estimates the amount of return a specific strategy or operating program will generate for
an organisation that is in excess of its cost of capital. EVATM is calculated by deducting
from net dollar income (derived from operations) the cost of capital required to produce
that income.
EVATM = Net operating profit after taxes ­ (capital in place x cost of capital)4
Product portfolio models
The following are guidelines to assist marketing strategists in constructing the BCG and
GE/McKinsey product portfolio models.
BCG model
The model is based on the underlying assumption of the learning or experience curve.
That is, the unit cost of production declines as the firm gains more cumulative experi-
ence in production, distribution and marketing.
Relative market share
This is the ratio of the firm's unit sales (or actual market share) to that of its largest com-
petitor. To compute, divide your market share by the largest competitor's market share.
For example:
Your Largest Ratio
share competitor
Example 1 10 20 0.5
Example 2 10 10 1.0
Example 3 30 20 1.5
114 strategic marketing planning
A ratio less than 1.0 means that you are not the market leader; a ratio of precisely 1.0
means that you are tied for the lead; and a ratio greater than 1.0 means that you are
the market leader.
The relevance of relative market share is based on the experience curve concept: the
greater the market share, the greater the cost efficiency. Profit impact of market strategy
(PIMS) studies show (generally) a strong relationship between market share and ROI,
although there are several other factors that impact on ROI.
A log scale is normally used for the (vertical) relative market share axis. Relative mar-
ket share is usually divided at the 1.0 (vertical) line so that `high' signifies market leader-
ship. However, this is not a fixed rule and the line could be drawn at a lesser value so
that strong no. 2s and no. 3s in a good market position can be placed on the `high' side.
Market growth rate
This is a rough proxy for the PLC stages separating growth from maturity. The placement
of the horizontal line is an arbitrary decision (although most examples illustrate it at 10
per cent). As a guide the line should be placed to show:
Growth ­ sustained growth above GDP
Maturity ­ approximately equal to GDP
As a further consideration the cash flow situation for a product placed in each of the
four quadrants (assuming that the product holds its market share) should equate to the
following:
FIGURE 4.12 Cash flow guidelines for the BCG matrix
chapter 4 strategy development 115
In balance
Cash generators
Cash users
In balance
Market
growth
The GE/McKinsey market attractiveness / business assessment matrix expands the two-
dimensional approach of the BCG model. It uses a multifactor assessment of `industry
attractiveness' and `business strengths' as the two main factors and expands the `high' and
`low' dimensions into `high', `medium' and `low', thereby creating nine strategic positions.
Constructing a GE screening grid
Constructing a GE screening grid consists of two main steps: developing criteria for the
assessment of market attractiveness and business strength, and the assessment of indi-
vidual products against those criteria.
Constructing the matrix and developing the criteria for the assessment of
market attractiveness and business strength
1 Determine the factors that would make any market attractive. There are a number of
factors that determine the degree of market attractiveness. These would be drawn from
the external environment factors contained in the situation analysis and, for example,
might include:
(a) market factors;
(b) competition;
(c) financial and economic factors;
(d) technological factors;
(e) sociopolitical factors (in the SBUs) environment.
Note: There are a number of subfactors which need to be considered to expand
each of these areas. For example, market factors would include the size of the mar-
ket, growth rate, diversity of the market, sensitivity to price and several other factors.
Box 4.3 provides a check list of subfactors to consider for each of these main areas.
This check list was developed by William Rothschild, a specialist in strategic planning
at General Electric. The check list groups the factors for both market attractiveness and
business strength into five categories: market, competitive, financial and economic,
technological and sociopolitical.
Alternatively, market attractiveness can be determined by drawing on Porter's five-
forces model ­ that is, the intensity of competition, buyer power, threat of new
entrants, supplier power and the threat of substitutes.
2 Weight the relative importance of each of these factors, by assigning values to add up
to 100. The following example, for a hypothetical manufacturing company in the busi-
ness-to-business area, shows the external factors that top management considered to
be significant and the relative weighting they assigned each factor:
Market attractiveness
weighting
Market factors 15
Competition 15
Financial and economic factors 30
Technological factors 25
Sociopolitical factors 15
Total 100
3 The next stage is to determine the criteria for assessing the current business strength
for any product. The starting point for this assessment is to identify the business
strengths that are necessary for any product to be successful. That is, what are the crit-
ical success factors for a product to succeed in its market?
One way of doing this is to use the same factors that were used to determine mar-
ket attractiveness. However, a preferable alternative is to use the critical success fac-
tors that were identified in the problems and opportunity stage of the marketing
planning process. This was discussed in Chapter 3 and a list of potential CSFs was
identified: financial capabilities, production/manufacturing capabilities, supply, human
resources, management, R&D (technological leadership), competitive position, mar-
keting, uniqueness of product/service, product/service quality superiority, product
range, strength of brand name, superior customer service, distribution availability,
price, image/reputation, sales-force superiority or advertising effectiveness. In most
cases around five to eight CSFs would be identified to be the most significant.
116 strategic marketing planning
4 After identifying the CSFs, the next stage is to weight their relative importance in a sim-
ilar fashion to the process described for Step 2 to weight the external factors. Turning
to our hypothetical manufacturing company, top management identified and assigned
relative weightings of the following CSFs:
CSF Business strength
weighting
Manufacturing 20
R&D 20
Financial resources 10
Management 10
Distribution 10
Product Quality 10
Sales Force 10
Image 10
Total 100
5 It is important that agreement is reached regarding the above assessment criteria
before proceeding to the next stage. Otherwise, an endless round of arguments will
ensue and the criteria will become a moving target.
The next stage is to construct the screening grid. The usual way of doing this is to
divide the matrix into equal (one-third) shares for both market attractiveness (the ver-
tical lines) and business strength (the horizontal lines). Once this has been developed
the next stage of the process is to assess the position of each product.
Judging individual products against assessment criteria
6 To judge the market attractiveness of each product it is suggested that a scoring sys-
tem ranging from 1.0 for high attractiveness to 0.5 for medium attractiveness to 0.0 for
no attractiveness be used.
Some organisations predetermine the potential score to be assigned. For example,
for market factors it may be predetermined that size and growth will be the key deter-
minants. Moreover, if a market has a turnover of $10m or less it is `low', $11­25m
`medium' and $25m+ is `high'. Growth may range, for example 3 per cent or lower
may be `low', 4­6 per cent `medium' and 7+ per cent `high'. The use of such a scor-
ing system can add an objective element to the process of evaluation.
Using the example of the hypothetical manufacturing company, Product A's mar-
ket attractiveness was judged:
Score for
Product A
Market factors 0.5
Competition 0.1
Financial and economic factors 1.0
Technological factors 0.7
Sociopolitical factors 0.4
7 The next step is to combine the market attractiveness weighting determinants with
the assessed score for the particular product. This can be computed as follows for
Product A:
chapter 4 strategy development 117
Factor Weighting Score* Rating
Markets 15 0.5 7.5
Competition 15 0.1 1.5
Financial and economic 30 1.0 30.0
Technological 25 0.7 17.5
Sociopolitical 15 0.4 6.0
Total 100 62.5
*Scored: high = 1.0, medium = 0.5, low = 0
In this example, Product A has been assessed to be of medium market attractiveness.
8 The next step is to judge the business position for the product to determine the prod-
uct's business strength vis--vis that of its competitors. Market research may be used
to assist in the assessment of the marketing-related factors such as product quality, dis-
tribution (availability and customer service) and image.
CSF Score for
Product A
Manufacturing 0.2
R&D 0.5
Financial resources 0.6
Management 0.7
Distribution 0.3
Product quality 0.5
Sales force 0.8
Image 0.4
9 The next stage is to compute the rating for the product:
Business Position Factor Weighting Score* Rating
Manufacturing 20 0.2 4.0
R&D 20 0.5 10.0
Financial resources 10 0.6 6.0
Management 10 0.7 7.0
Distribution 10 0.3 3.0
Product quality 10 0.5 5.0
Sales force 10 0.8 8.0
Image 10 0.4 4.0
Total 100 47.0
*Scored: high = 1.0, medium = 0.5, low = 0
Product A's business strength of 47.0 places it in the medium business strength box.
Thus product A has been found to be in a market of medium attractiveness and it has
a medium business strength.
Note: When developing the grid it is suggested that a circle is used to show each
product's position. The size of the circle should represent the relative size of the cur-
rent market that the product competes in. It is also useful to draw a segment within
the circle to represent the product's current market share.
118 strategic marketing planning
10 Finally the generic strategic option for the product can be considered. Box 4.2 (pre-
sented earlier in this chapter) provides a summary of generic strategic options that
have been recommended by Day.5
Reference to this table shows that the product evaluated in the above example
should pursue a strategy of selectivity/management for earnings.
The above steps should have been followed for determining the current position for
each product. In order to determine the trend the entire procedure outlined in Steps 1­10
should now be repeated projecting the information criteria three to five years into the
future (i.e. for the planning horizon of the marketing strategic plan). This will enable the
future position to be plotted on the grid. This is usually achieved by drawing an arrow
pointing to the projected position.
Identifying the relevant factors
Different industries will have different emphasis on what factors are important. As a
guideline the nature of the product and customer behaviour should determine the empha-
sis. For example, for highly differentiated products for which customers seek technical
innovation or other special benefits, relative technological position may be the key to a
strong business position. Patent protection may be the key to market attractiveness.
For commodity products, low manufacturing costs and entry barriers may be the prime
contributors to business position and market attractiveness.
chapter 4 strategy development 119
Factors contributing to market
attractiveness
Market factors
©ize (dollars, units or both)
©ize of key segments
·Growth rate per year:
«otal
©egments
Ïiversity of market
©ensitivity to price, service features and
external factors
Èyclicality
©easonality
·Bargaining power of upstream
suppliers
·Bargaining power of downstream
suppliers
Factors contributing to business
position status / position of your
business
Market factors
·Your share (in equivalent terms)
·Your share of key segments
·Your annual growth rate:
«otal
©egments
Ïiversity of your participation
·Your influence on the market
·Lags or leads in your sales
·Bargaining power of your suppliers
·Bargaining power of your
customers
BOX 4.3 A CHECK LIST OF FACTORS TO CONSIDER FOR
DETERMINING MARKET ATTRACTIVENESS AND
BUSINESS STRENGTHS6
1 For further information concerning the Du Pont model based on ROE refer to Z. Bodie, A. Kane
& A.J. Marcus, Investments, Irwin/McGraw-Hill, Boston, Mass., 1996, pp. 570­3.
2 A. Rappaport, Creating Shareholder Value: The New Standard for Business Performance, The Free
Press, New York, 1986.
3 Refer to S. Tully, `America's best wealth creators', Fortune, 28 November, 1994, pp. 143­62.
4 For further information concerning EVATM refer to J. Brown, `Value+: Looking at EVATM',
Australian CPA, April, 1999, pp. 44­6.
5 Refer to G.S. Day, Analysis for Strategic Market Decisions, West Publishing Company, New York,
1986, p. 204.
6 Based on a table presented by D.F. Abell & J.S. Hammond, Strategic Marketing Planning:
Problems and Analytical Approaches, Prentice-Hall, Englewood Cliffs, NJ, 1979, p. 214.
120 strategic marketing planning
Competition
«ypes of competitors
Ïegree of concentration
Èhanges in type and mix
Ìntries and exits
Èhanges in share
©ubstitution by new technology
Ïegrees and types of integration
Financial and economic factors
Èontribution margins
·Leveraging factors, such as economies of
scale and experience
·Barriers to entry or exit (both
financial and non-financial)
Èapacity utilisation
Technological factors
·Maturity and volatility
Èomplexity
Ïifferentiation
·Patents and copyrights
·Manufacturing process technology
required
Sociopolitical factors in your environment
©ocial attitudes and trends
·Laws and government agency
regulations
·Influence with pressure groups and
government representatives
·Human factors, such as unionisation and
community acceptance
Competition
·Where you fit, how you compare in
terms of products, marketing capability,
service, production strength, financial
strength and management
©egments you have entered or left
·Your relative share change
·Your vulnerability to new technology
·Your own level of integration
Financial and economic factors
·Your margins
·Your scale and experience
·Barriers to your entry or exit (both finan-
cial and non-financial)
·Your capacity utilisation
Technological factors
·Your ability to cope with change
Ïepths of your skills
«ypes of your technological skills
·Your patent protection
·Your manufacturing technology
Sociopolitical factors in your environment
·Your company's responsiveness and
flexibility
·Your company's ability to cope
·Your company's aggressiveness
·Your company's relationship with the
broader community, external bodies,
employees and unions
Appendix endnotes
Appendix 2 to Chapter 4:
Worksheet for developing marketing
objectives and higher level marketing
strategies
Strategic gap analysis At end of planning periods
Year 1 Year 2 Year 3
Corporate revenue objectives _______ _______ _______
Projected revenue from current strategies _______ _______ _______
Revenue gap _______ _______ _______
Competitive position Marketing objectives
PLC [___________________] ____________________________
BCG [___________________] ____________________________
GE/McKinsey [___________________] ____________________________
Porter CA strategy [___________________] ____________________________
Summary of current competitive position
Describe our current competitive position.
What should our competitive position be in 3 years time?
What are the strategic implications ­ in terms of our existing and potential new products and
markets? That is, how will we grow the business?
chapter 4 strategy development 121
Estimated revenue from existing products in existing markets (market penetration)
Market size (value): Current size: $________________
Market projections Year 1 Year 2 Year 3
_________ _________ _________
Current market share ________
Projected market share Year 1 Year 2 Year 3
(via new strategies)
_________ _________ _________
Estimated value of existing
products in existing markets
(market projection x
market share) Year 1 Year 2 Year 3
_________ _________ _________
Estimated potential revenue from existing products in new markets (market
development)*
Year 1 Year 2 Year 3
_________ _________ _________
* Identify the specific market development opportunities and the time frame when these
initiatives could come on stream.
Estimated potential revenue from new products in existing markets (new product
development)*
Year 1 Year 2 Year 3
_________ _________ _________
* Identify the specific NPD opportunities and the time frame when these initiatives could come
on stream.
122 strategic marketing planning
Estimated potential revenue from new products in new market segments (related
diversification)*
Year 1 Year 2 Year 3
_________ _________ _________
* Identify the related diversification opportunities and the time frame when these initiatives
could come on stream.
chapter 4 strategy development 123