CHAPTER 2 Strategic Planning and the Marketing Environment: The Advantage is Undeniable

1. M A R K E T I N G Real People, Real Choices Fourth Edition CHAPTER 2Strategic Planning and the Marketing Environment:The Advantage is Undeniable

2. Three levels of Business Planning • Business planning is the managerial decision process that matches the organization’s resources and capabilities to its market opportunities • Strategic Planning • top level managers • Long term growth • Organization wide perspective • Functional planning • middle level & functional managers • Generally annual • Functional perspective • Operational Planning • lower level and front-line managers • Daily / weekly / monthly • Tactical perspective

3. Strategic Planning Steps 1.Define the organization’s mission • Evaluate internal/external environments a. Situation Analysis / SWOT analysis • Set organizational or SBU objectives • SBU: Strategic Business Unit – self-contained divisions representing different areas of business within the firm • Disney SBUs: Theme parks, movie studios, TV networks and cruise lines • Establish the business portfolio

4. What could the mission statement contain • What business are we in? • Products / services, etc. both present and potential in future • What customers should we serve? • All segments, current and potential in future • How should we best serve our customers? • What will be uniquely yours in your delivery of the product to your customers

5. Good mission statements are: • Visionary • Sufficiently broad • Realistic • Motivational • Short and concise • Easily understood

6. Some mission statements • McDonalds: "McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile." • J. Sainsbury: "Our mission is to be the consumer's first choice for food, delivering products of outstanding quality and great service at a competitive cost through working faster, simpler, and together." • Levi-Strauss: "We will market the most appealing and widely worn casual clothing in the world. We will clothe the world."

7. Sample Mission Statements • MADD: To stop drunk driving, support the victims of this violent crime, and prevent underage drinking. • Under Armour: To find new technology and enhance the performance of every athlete and outdoorsman. Lighter. Faster. Stronger. Better.

8. Evaluate the Environment • Internal Environment • Strengths • Weaknesses • External Environment • Opportunities • Threats

9. Sample SWOT Analysis: Starbucks

10. Strengths • Profitable and cash rich • Revenues climbing at 20% • Stock up 56% since last year • Over $300 million in cash • Almost zero long term debt • Over $4 billion in annual sales • $ 268 million in profits last year

11. Strengths • High brand equity • We willingly pay $1.75 for a cup of coffee which we used to pay 50 cents for • Consumers inelastic to price increase • Brand equity valued at $2 billion • Over 25 million people visit Starbucks each week • Consumers willing to pay a price premium • High brand loyalty (“millions of latte dependent customers”)

12. Strengths • Unique consumption experience • Ambience, music, décor, coffee sounds smells, internet surfing, “a place to hang out over an occasional cup of coffee” • “the third place after home and work” • “a safe, comfortable and secure place. A place you belong to”

13. Strengths • Quality of management • Concerned for welfare of employees • Full medical benefits • High employee loyalty • “Well, I read in Howard’s book…” • Globally experienced top management • From Pepsico, Dell, Walmart, etc.

14. Weaknesses • Overcapitalized • Sacrifices higher growth rates through debt • Inflexible management • No franchising • Slow to respond to local / regional situations • Too much centralized control

15. Opportunities • “Café life” – a culture which has never existed before in the US • Relatively inelastic coffee consumption

16. Threats • Wal-Mart and Kicks Coffee • “trading down” as a result of recession • “Coffee, cigarettes and café culture” seem to go together

17. Strategic Plan for Starbucks • Strength – profitable and cash-rich • Threat – New potentially damaging competition (Wal-mart & Kicks) • Strategy indicated: Use resources to reinforce its positioning and introduce another coffee brand at a lower price point to compete with Walmart and Kicks coffee (and other similar start-ups).

18. Strategic Plan for Starbucks • Objective – Strengthen Starbucks’ existing perceptions, AND • Split the market at the lower end – create competition for Wal-mart. In the process move Starbucks beyond competition

19. Set Objectives • SBU objectives must support the overall objectives of the firm • Customer satisfaction • Profitability • Market standing • ROI • Revenue • Collaborative process

20. Establish the Business Portfolio • For firms with different SBUs, planning also includes allocating resources among the businesses • Each SBU is a separate profit center within the larger corporation • Each SBU is responsible for its own costs, revenues, and profits

21. Portfolio Management • The range of products owned by a large firm is called a business portfolio • Portfolio analysis allows a firm to assess the potential of its products and businesses • BCG Growth-Market Share Matrix

22. BCG Matrix • Method focuses on the potential of a firm’s existing successful products to generate cash that the firm can then use to invest in new products • New products are chosen for their potential to become future cash generators • Two dimensions: • Market growth rate • Relative market share

23. BCG Matrix Stars ??? Problem children High Market Growth Rate Dogs Cash Cows Low High Low Relative Market Share

24. BCG Matrix: Stars • SBUs with dominant market share in high-growth markets • requires funding to keep up with production and promotion demands • strategies seek to maximize market share in the face of increasing competition

25. BCG Matrix: Cash Cows • SBUs with dominant market share in a low-growth potential market • product is well established and market share can be maintained with minimal funding • firms milk cows of profits to fund growth of other products in portfolio • too many cows can become a liability due to the lack of growth potential

26. BCG Matrix: Question Marks • SBUs with low market shares in fast-growth markets • sometimes called problem children • the firm has failed to compete effectively • The dilemma? Investing more money into the SBU may • improve market share in a high potential market OR • result in negative cash flow and failure

27. BCG Matrix: Dogs • SBUs with small market share in a slow-growth market • specialized products in limited markets unlikely to grow • firms may sell dogs to smaller firms or eliminate product from market

28. BCG Matrix • Can you categorize Disney’s SBUs into the BCG matrix? • Cash Cows: Disney Pictures (animated & family films) • Dogs: none • Stars: Touchstone Studios (films for adult moviegoers) • Problem Children: Disney Stores (retail)

29. Product-Market Growth Matrix illustrates different growth strategies Two dimensions opportunities for growth in existing or new markets allocating resources into existing products or new products Four strategies result Developing Growth Strategies

30. Product Market Growth Strategies Market Development Diversification New Market Product Development Market Penetration Existing Existing New Product

31. Product Market Growth Strategies • Market Penetration (existing product for existing market) • Customization • Increase market share • E.g. The Shuffle for the mobile music market • Market Development (existing product for a new market) • Difficult strategy • You don’t know the new market as well as your existing market • E.g. Big Macs sold in India

32. Product Market Growth Strategies • Product Development (new product for existing market) • Preferred strategy since you know the consumer well • E.g. Nike selling athletic sportswear to its core market segment of athletes • Diversification (new product for new market) • E.g. McDonalds acquiring Boston Market, Aroma Café, Chipotle Mexican Grills, etc.

33. Steps in the Marketing Planning Process 1. Perform a situation analysis 2. Set marketing objectives 3. Develop marketing strategies • Select a target market • Develop marketing mix strategies 4. Implement marketing strategies 5. Monitor and control strategies

34. The Internal Business Environment • Corporate Resources and Competencies • Corporate Culture • Risk-Taking Cultures • Profit-Centered versus People-Centered Cultures

35. The Economic Environment • The Business Cycle • All economies go through cycles of prosperity, recession, and recovery • The cycle directly affects marketers because of its effect on consumer behavior • The Power of Expectations • Consumer confidence represents consumer beliefs about what the future holds • Like business cycles, it affects whether consumers buy or cut back on spending

36. The Competitive Environment • Analyzing the Competition • Strengths and weaknesses analysis • Competitive intelligence (CI) • Competition in the Microenvironment • Competition in the Macroenvironment

37. Competition: The Microenvironment • In the microenvironment, competition means the alternatives from which the target may choose • Level 1: competition for discretionary income (for income left after a consumer pays for necessities) • Level 2: product competition in which different products attempt to satisfy the same needs e.g. to slake thirst you may drink water, soda, juice, etc. • Level 3: brand competition in which competitors offering similar products compete for consumer choice e.g. different brands of soda available.

38. Competition: The Macroenvironment • Overall structure of industry • monopoly - when one seller controls market e.g. AT&T before its break up into baby Bells, Microsoft. • oligopoly - relatively small number of sellers, each with a substantial share of market (e.g. Aircraft manufacture) • monopolistic competition - many sellers compete for buyers; each offers a slightly different product and has a small share of market (most industrial sectors) • perfect competition - many small sellers each offering the same product (e.g. foreign exchange, stocks, etc.)

39. The Technological Environment • Technology is an investment a firm must make to succeed • Patents protect inventions • Obsolescence rates

40. The Legal Environment • Regulatory Agencies • Food and Drug Administration • Federal Trade Commission • Federal Communications Commission • Interstate Commerce Commission • Consumer Product Safety Commission • Environmental Protection Agency

41. The Sociocultural Environment • Characteristics of society • Characteristics of people in that society • Cultural values and beliefs • The trend to stay healthy has benefited organic foods, health clubs, athletic apparel and shoes, etc. and hurt the fast food industry