LHM-PG_ch02_14-27_Ver1.

qxp 11/20/06 7:22 AM Page 14

C H A P T E R

Strategic

for Planning
Competitive
Advantage

Learning Outcomes
LO 1 Understand the importance of strategic marketing and know a basic outline for a marketing plan
LO 2 Develop an appropriate business mission statement LO3 Describe the criteria for stating good marketing
4 Explain the components of a situation analysis LO 5 Identify sources of competitive
objectives LO
advantage LO 6 Identify strategic alternatives LO 7 Discuss target market strategies 8 Describe
LO
the elements of the marketing mix LO 9 Explain why implementation, evaluation, and control of the marketing plan
10
are necessary LO Identify several techniques that help make strategic planning effective
LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 15

“
A good strategic plan
can help protect and grow
the firm’s resources.
”
LO1 The Nature of Strategic Planning
Strategic planning is the managerial process of creating and maintaining a
fit between the organization’s
objectives and resources and
the evolving market opportu-
nities. The goal of strategic What do youthink?
planning is long-run prof-
      

itability and growth. Thus, Things change so quickly that planning is a waste of time.
Strongly Disagree Strongly Agree
strategic decisions require 1 2 3 4 5 6 7
long-term commitments of                                              
resources. A strategic error
can threaten a firm’s survival. On the other hand, a good strategic plan can
help protect and grow the firm’s resources.
Strategic marketing management addresses two questions: What is the organiza-
tion’s main activity at a particular time? How will it reach its goals? Strategic deci-
sions affect an organization’s long-run course, its allocation of resources, and
ultimately its financial success. In contrast, an operating decision, such as changing
the package design for Post’s cornflakes or altering the sweetness of a Kraft salad
dressing, probably won’t have a big impact on the long-run prof-
itability of the company.
How do companies go about strategic marketing planning? strategic planning
the managerial process
How do employees know how to implement the long-term goals of creating and main-
of the firm? The answer is a marketing plan. taining a fit between the
organization’s objec-
tives and resources and
What Is a Marketing Plan? evolving market
opportunities
Planning is the process of anticipating future events and deter- planning
mining strategies to achieve organizational objectives in the the process of anticipat-
future. Marketing planning involves designing activities relating ing future events and
determining strategies
to marketing objectives and the changing marketing environ- to achieve organiza-
ment. Marketing planning is the basis for all marketing strategies tional objectives in the
and decisions. Issues such as product lines, distribution channels, future
marketing communications, and pricing are all delineated in the marketing planning
marketing plan. The marketing plan is a written document that designing activities
© IMAGE 100/JUPITER IMAGES

acts as a guidebook of marketing activities for the marketing relating to marketing

objectives and the
manager. In this chapter, you will learn the importance of writing changing marketing
a marketing plan and the types of information contained in a environment
marketing plan.

CHAPTER 2 Strategic Planning for Competitive Advantage 15

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 16

marketing plan
a written document
Why Write a Exhibit 2.1
that acts as a guide- Marketing Plan? Elements of a Marketing Plan
book of marketing
activities for the mar- By specifying objectives and Business
keting manager defining the actions required Mission
to attain them, a marketing Statement
plan provides the basis by
which actual and expected performance can be com-
pared. Marketing can be one of the most expensive
and complicated business activities, but it is also one Objectives
of the most important. The written marketing plan
provides clearly stated activities that help employees
and managers understand and work toward common
goals.
Situation
Writing a marketing plan allows you to examine or SWOT
the marketing environment in conjunction with the Analysis
inner workings of the business. Once the marketing
plan is written, it serves as a reference point for the
success of future activities. Finally, the marketing
plan allows the marketing manager to enter the Marketing Strategy
marketplace with an awareness of possibilities and
problems. Target Market
Strategy

Marketing Mix
New products are the result of strategic marketing planning.
Product Distribution

Promotion Price

Implementation
Evaluation
Control

Marketing Plan Elements

Marketing plans can be presented in many differ-
ent ways. Most businesses need a written market-
ing plan because a marketing plan is large and can
be complex. Details about tasks and activity
assignments may be lost if communicated orally.
Regardless of the way a marketing plan is pre-
sented, some elements are common to all market-
© WM. WRIGLEY JR. COMPANY

ing plans. These include defining the business

mission and objectives, performing a situation
analysis, delineating a target market, and estab-
lishing components of the marketing mix. Exhibit
2.1 shows these elements, which are also
described further below. Other elements that may
be included in a plan are budgets, implementation
timetables, required marketing research efforts, or
elements of advanced strategic planning.

16 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 17

mission statement
Writing the Marketing Plan statement irrelevant to com-
a statement of the
pany functions. firm’s business based on
The creation and implementation of a complete mar- Business mission state- a careful analysis of
keting plan will allow the organization to achieve ments that are stated too nar- benefits sought by pres-
marketing objectives and succeed. However, the mar- rowly suffer from marketing ent and potential cus-
keting plan is only as good as the information it con- tomers and an analysis
myopia—defining a business in of existing and antici-
tains and the effort, creativity, and thought that went terms of goods and services pated environmental
into its creation. Having a good marketing informa- rather than in terms of the ben- conditions
tion system and a wealth of competitive intelligence efits that customers seek. In marketing myopia
is critical to a thorough and accurate situation analy- this context, myopia means nar- defining a business in
sis. The role of managerial intuition is also important row, short-term thinking, for terms of goods and
in the creation and selection of marketing strategies. example, if Wm. Wrigley, Jr. services rather than in
Managers must weigh any information against its terms of the benefits
company defined its mission as that customers seek
accuracy and their own judgment when making a being a gum manufacturer.
marketing decision. strategic business
(The company actually defines unit (SBU)
Note that the overall structure of the marketing itself as a confectioner.) a subgroup of a single
plan should not be viewed as a series of sequential Alternatively, business mis- business or collection
planning steps. Many of the marketing plan elements sions may be stated too broadly. of related businesses
are decided on simultaneously and in conjunction within the larger
“To provide products of supe- organization
with one another. Similarly, the skeletal sample mar- rior quality and value that
keting plan does not begin to cover the intricacies and improve the lives of the world’s
detail of a full marketing plan. Further, every market- consumers” is probably too broad a mission statement
ing plan has a different content, depending on the for any firm except Procter & Gamble. Care must be
organization, its mission, objectives, targets, and mar- taken when stating what business a firm is in. By cor-
keting mix components. rectly stating the business mission in terms of the ben-
There is no single correct format for a marketing efits that customers seek, the foundation for the
plan. Many organizations have their own distinctive marketing plan is set.
format or terminology for creating a marketing plan. The organization may need to define a mission
As such, every marketing plan is unique to the firm for statement and objectives for a strategic business unit
which it was created; although the format and order of (SBU), which is a subgroup of a single business or
presentation should be flexible, the same types of collection of related businesses within the larger
questions and topic areas should be covered in any
marketing plan. Keep in mind that creating a complete
marketing plan is not a simple or quick effort.

LO2 Defining the

Business Mission
The foundation of any marketing plan is the
firm’s mission statement, which answers the
question, “What business are we in?” The way a
firm defines its business mission profoundly
affects the firm’s long-run resource allocation,
profitability, and survival. The mission statement
© CHAD BAKER/PHOTODISC/GETTY IMAGES

is based on a careful analysis of benefits sought

by present and potential customers and an
analysis of existing and anticipated environmen-
tal conditions. The firm’s mission statement
establishes boundaries for all subsequent deci-
sions, objectives, and strategies. As such, a mis-
sion statement should focus on the market or
markets the organization is attempting to serve
rather than on the good or service offered.
Otherwise, a new technology may quickly make
the good or service obsolete and the mission

CHAPTER 2 Strategic Planning for Competitive Advantage 17

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 18

marketing organization. A properly defined Notice how well these objectives do or do not meet the
objective SBU should have a distinct mis- criteria below.
a statement of what is sion and specific target market, Carefully specified objectives serve several func-
to be accomplished
through marketing control over its resources, its tions. First, they communicate marketing manage-
activities own competitors, and plans ment philosophies and provide direction for
SWOT analysis independent of the other SBUs lower-level marketing managers so that marketing
identifying internal in the organization. Thus, a large efforts are integrated and pointed in a consistent
strengths (S) and weak- firm such as Kraft Foods may direction. Objectives also serve as motivators by creat-
nesses (W) and also have marketing plans for each ing something for employees to strive for. When objec-
examining external
opportunities (O) and
of its SBUs, which include break- tives are attainable and challenging, they motivate
threats (T) fast foods, desserts, pet foods, those charged with achieving the objectives.
environmental and beverages. Additionally, the process of writing specific objectives
scanning forces executives to clarify their thinking. Finally, objec-
collection and interpre- tives form a basis for control; the effectiveness of a plan
tation of information can be gauged in light of the stated objectives.

LO3 Setting
about forces, events,
and relationships in
the external environ-
ment that may affect
the future of the
Marketing LO4 Conducting a
organization or the
implementation of the Plan Objectives Situation Analysis
marketing plan
Before the details of a mar- Before specific marketing activities can be
keting plan can be devel- defined, marketers must understand the cur-
oped, objectives for the plan must be stated. rent and potential environment that the product
Without objectives, there is no basis for measur- or service will be marketed in. A situation analy-
ing the success of marketing plan activities. sis is sometimes referred to as a SWOT analysis;
A marketing objective is a that is, the firm should iden-
statement of what is to be
Judge for Yourself tify its internal strengths (S)
accomplished through marketing
activities. To be useful, stated and weaknesses (W) and also
objectives should meet several examine external opportuni-
Poorly Stated Objectives
criteria. First, objectives should ties (O) and threats ( T).
be realistic, measurable, and time Our objective is to be a leader in the industry in When examining internal
specific. It is tempting to state terms of new-product development. strengths and weaknesses, the
that the objective is “to be the marketing manager should focus
Our objective is to maximize profits.
best marketer of cat food.” on organizational resources such
However, what is “best” for one Our objective is to better serve customers. as production costs, marketing
firm might mean selling one mil- Our objective is to be the best that we can be. skills, financial resources, com-
lion pounds of cat food per year, pany or brand image, employee
whereas another firm might view Well-Stated Objectives capabilities, and available tech-
“best” as having dominant mar- nology. For example, a potential
Our objective is to spend 12 percent of sales rev-
ket share. It may also be unrealis- weakness for AirTran Airways is
enue between 2007 and 2008 on research and
tic for start-up firms or new the age of its airplane fleet,
development in an effort to introduce at least five
products to command dominant which could project an image of
new products in 2008.
market share, given other com- danger or low quality. A potential
petitors in the marketplace. Our objective is to achieve a 10 percent return on strength is the airline’s low oper-
Finally, by what time should the investment during 2007, with a payback on new ating costs, which translate into
objective be met? A more realistic investments of no longer than four years. lower prices for consumers.
objective would be “To achieve 10 Our objective is to obtain customer satisfaction Another issue to consider in this
percent dollar market share in ratings of at least 90 percent on the 2007 annual section of the marketing plan is
the cat food market within 12 customer satisfaction survey, and to retain at the historical background of the
months of product introduction.” least 85 percent of our 2007 customers as repeat firm—its sales and profit history.
Second, objectives must also be purchasers in 2008. When examining external
consistent with and indicate the opportunities and threats, mar-
priorities of the organization. Our objective is to increase market share from 30 keting managers must analyze
Specifically, objectives flow from percent to 40 percent in 2007 by increasing pro- aspects of the marketing envi-
the business mission statement motional expenditures by 14 percent. ronment. This process is called
to the rest of the marketing plan.  environmental scanning—the

18 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 19

collection and interpretation of information about to patronize a firm and not competitive
forces, events, and relationships in the external envi- advantage
the competition. There are the set of unique fea-
ronment that may affect the future of the organization
three types of competitive tures of a company and
or the implementation of the marketing plan. its products that are
Environmental scanning helps identify market oppor- advantages: cost, product/ perceived by the target
tunities and threats and provides guidelines for the service differentiation, and market as significant
and superior to the
design of marketing strategy. For example, Jackson- niche strategies. competition
Hewitt, a tax preparation service, benefits from com-
plex changes in the tax codes that motivate citizens to cost competitive
advantage
have their tax returns prepared by a professional. Cost Competitive being the low-cost com-
Alternatively, tax-simplification or flat-tax plans petitor in an industry
would allow people to easily prepare their own returns Advantage while maintaining satis-
and would have a dramatic impact on the company’s factory profit margins
Cost leadership can result from
revenues. The six most often studied macroenviron- obtaining inexpensive raw
mental forces are social, demographic, economic, materials, creating an efficient scale of plant operations,
technological, political and legal, and competitive. designing products for ease of manufacture, controlling
These forces are examined in detail in Chapter 3. overhead costs, and avoiding marginal customers.
Having a cost competitive advantage means being the
low-cost competitor in an industry while maintaining
LO5 Competitive Advantage satisfactory profit margins. A cost competitive advan-
tage enables a firm to deliver superior customer value.
Performing a SWOT analysis allows firms to iden- Wal-Mart is the world’s leading low-cost general mer-
tify their competitive advantage. A competitive chandise store. It offers good value to customers
because it focuses on providing a large selection of mer-
advantage is a set of unique features of a company
chandise at low prices, and good customer service. Wal-
and its products that are perceived by the target Mart is able to keep its prices down because it has strong
market as significant and superior to the competi- buying power in its relationships with suppliers, which
tion. It is the factor or factors that cause customers helps keep costs low.

© JEFF ROBERSON/ASSOCIATED PRESS

Environmental scanning revealed that

sales at upscale chocolate retail outlets,
like Godiva and Starbucks, grew over
20 percent in 2 years. That information
prompted Mars to launch Ethel's Chocolate
Lounges, named for the founding
matriarch of the American confectioner.

CHAPTER 2 Strategic Planning for Competitive Advantage 19

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 20

experience curves Costs can be reduced in a • New methods of service delivery: Medical expenses have
curves that show costs variety of ways. been substantially lowered by the use of outpatient surgery and
declining at a pre- walk-in clinics. Airlines are lowering reservation and ticketing costs
dictable rate as experi- • Experience curves: Experience
ence with a product by encouraging passengers to use the Internet to book flights and
curves tell us that costs decline at a pre-
increases by providing self-check-in kiosks at the airport.
dictable rate as experience with a prod-
product/service uct increases. The experience curve
differentiation
competitive effect encompasses a broad range of Product/Service
advantage manufacturing, marketing, and administra- Differentiation
the provision of some- tive costs. Experience curves reflect
thing that is unique and learning by doing, technological advances, Competitive Advantage
valuable to buyers and economies of scale. Firms use histori-
beyond simply offering Because cost competitive advantages are subject to con-
a lower price than the cal experience curves as a basis for pre- tinual erosion, product/service differentiation tends to
competition’s dicting and setting prices. Experience provide a longer lasting competitive advantage. The
niche competitive curves allow management to forecast durability of this strategy tends to make it more attrac-
advantage costs and set prices based on anticipated tive to many top managers. A product/service differenti-
the advantage achieved costs as opposed to current costs. The ation competitive advantage exists when a firm provides
when a firm seeks to experience curve was conceived by the
target and effectively something unique that is valuable to buyers beyond sim-
serve a small segment
Boston Consulting Group in 1966. ply offering a low price. Examples include brand names
of the market
• Efficient labor: Labor costs can be (Lexus), a strong dealer network (Caterpillar Tractor for
an important component of total costs in construction work), product reliability (Maytag appli-
low-skill, labor-intensive industries such as product assembly and ances), image (Neiman Marcus in retailing), or service
apparel manufacturing. Many U.S. apparel manufacturers have gone (FedEx). A great example of a company that has a strong
offshore to achieve cheaper manu- product/service competitive advantage is Nike. Nike’s
facturing costs. Many American advantage is built around one
companies are also outsourcing simple idea – product innova-
activities such as data entry and The experience curve was tion. The company even lets
other labor intensive jobs. consumers design their own
conceived by the Boston athletic shoes at its NikeID
• No-frills goods and ser- Consulting Group in 1966. stores and Web site.1
vices: Marketers can lower costs
by removing frills and options from
a product or service. Southwest Airlines, for example, offers low Customize your look
fares but no seat assignments or meals. Low prices give
Southwest a higher load factor and greater economies of scale, At NikeID.com, you can pick your own
which, in turn, mean even lower prices.
• Government subsidies: Governments may provide grants Mesh
and interest-free loans to target industries. Such government Laces
assistance enabled Japanese semiconductor manufacturers to
become global leaders. Lining
• Product design: Cutting-edge design technology can help off-
set high labor costs. BMW is a world leader in designing cars for
ease of manufacture and assembly. Reverse engineering—the
process of disassembling a product piece by piece to learn its
P

components and obtain clues as to the manufacturing process— Style

(A
TO

can also mean savings. Reverse engineering a low-cost competi-

O
SF

tor’s product can save research and design costs.

W
Y) E
ER RN
LL ./P

• Reengineering: Reengineering entails fundamental rethinking

G NC

Swoosh Shox
C ,I

and redesign of business processes to achieve dramatic improve-

A
PI IKE
TO N

ments in critical measures of performance. It often involves reor-

©

ganizing from functional departments such as sales, engineering,

and production to cross-disciplinary teams.
• Production innovations: Production innovations such as Niche Competitive Advantage
new technology and simplified production techniques help lower
the average cost of production. Technologies such as computer- A niche competitive advantage seeks to target and
aided design and computer-aided manufacturing (CAD/CAM) and effectively serve a single segment of the market (see
increasingly sophisticated robots help companies like Boeing, Ford, Chapter 7). For small companies with limited resources
and General Electric reduce their manufacturing costs. that potentially face giant competitors, niching may be

20 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 21

the only viable option. A market segment that has good strategy and plans. Imitation sustainable
growth potential but is not crucial to the success of requires a competitor to iden- competitive
advantage
major competitors is a good candidate for developing a tify the leader’s competitive an advantage that can-
niche strategy. Many companies using a niche strategy advantage, determine how it is not be copied by the
serve only a limited geographic market. Other compa- achieved, and then learn how competition
nies focus their product lines on specific types of prod- to duplicate it. market penetration
ucts, like the Orvis Company, which manufactures and a marketing strategy
sells everything you would need for fly fishing. that tries to increase

LO6 Strategic
market share among
existing customers

Building Sustainable Directions

Competitive Advantage
The end result of the SWOT analysis and identifi-
The key to having a competitive advantage is the abil- cation of a competitive advantage is to evaluate
ity to sustain that advantage. A sustainable competi- the strategic direction of the firm. Selecting a
tive advantage is one that cannot be copied by the
competition. Examples of companies with a sustain-
strategic alternative is the next step in marketing
able competitive advantage include Rolex (high- planning.
quality watches), Nordstrom department stores
(service), and Cirque du Soleil (entertainment). Strategic Alternatives
Without a competitive advantage, target customers
don’t perceive any reason to patronize an organiza- To discover a marketing opportunity, management
tion instead of its competitors. must know how to identify the alternatives. One
The notion of competitive advantage means that a method for developing alternatives is Ansoff’s strate-
successful firm will stake out a position unique in some gic opportunity matrix (see Exhibit 2.2), which
manner from its rivals. Imitation by competitors indi- matches products with markets. Firms can explore
cates a lack of competitive advantage and almost these four options:
ensures mediocre performance. Moreover, competitors
rarely stand still, so it is not surprising that imitation • Market penetration: A firm using the market penetration
causes managers to feel trapped in a seemingly endless alternative would try to increase market share among existing cus-
game of catch-up. They are regularly surprised by the tomers. If Kraft Foods started a major campaign for Maxwell House
new accomplishments of their rivals. coffee, with aggressive advertising and cents-off coupons to existing
Companies need to build their own competitive customers, it would be following a penetration
advantages rather than copy
a competitor. The sources
of tomorrow’s competitive
advantages are the skills
and assets of the organi-
zation. Assets include
{
No Competition
}
© PALM SPRINGS PAVILION THEATER/PPNEWSFOTO (AP TOPIC GALLERY)

patents, copyrights, loca- It’s hard to find a direct competitor for Montréal’s Cirque du Soleil.
tions, and equipment That’s because
and technology that are
superior to those of the 32 talent scouts maintain a database containing 20,000 names of
competition. Skills are potential additions to the company’s 2,700-member cast.
functions such as cus- Each stage show has a life of 10–12 years.
tomer service and pro-
motion that the firm The company runs 5 world tours and maintains
performs better than its 5 permanent shows, each with a return approaching $500 million.
competitors. Marketing More than 300 seamstresses, engineers, and makeup
managers should contin- artists sew, design, and build custom materials for
ually focus the firm’s exotic shows with names like Mystère, La
skills and assets on sus- Nouba, O, Dralion, Varekai, and Zumanity.
taining and creating
competitive advantages. All that plus an Emmy-award-winning series on
Remember, a sus- Bravo make Cirque du Soleil a tough act to follow. (In
tainable competitive marketing terms, that means sustainable competitive
advantage is a function advantage has been achieved.)2
of the speed with which
competitors can imitate
a leading company’s

CHAPTER 2 Strategic Planning for Competitive Advantage 21

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 22

market strategy. Customer databases, discussed Selecting a Strategic Alternative

development in Chapters 8 and 19, would help man-
a marketing strategy agers implement this strategy. Selecting which alternative to pursue depends on the
that entails attracting overall company philosophy and culture. The choice
new customers to exist- • Market development: Market
ing products also depends on the tool used to make the decision.
development means attracting new cus- Companies generally have one of two philosophies
product tomers to existing products. Ideally, new
development about when they expect profits. Even though market
a marketing strategy
uses for old products stimulate additional share and profitability are compatible long-term
that entails the creation sales among existing customers while goals, companies either pursue profits right away or
of new products for also bringing in new buyers. For example, first seek to increase market share and then pursue
current customers the growing emphasis on continuing edu- profits.
diversification cation and executive development by col- Companies sometimes make the mistake of focus-
a strategy of increasing leges and universities is a market ing on building market share, assuming that profits
sales by introducing
development strategy. will follow. For example, Detroit automakers have
new products into new
markets • Product development: A product consistently sacrificed short-term profits to achieve
portfolio matrix development strategy entails the creation market share by offering high-dollar incentives to
a tool for allocating of new products for present markets. Several increase sales of new cars. The average cash incentive
resources among prod-
makers of men’s suits have introduced new offered by Detroit’s Big Three is $2,500. (Ford has gone
ucts or strategic busi- as high as $5,000!) That strategy, however, has resulted
ness units on the basis suits designed to be worn in hot weather,
of relative market share some of which contain the same fibers in tremendous losses year after year.5
and market growth rate NASA developed for spacesuits to prevent
astronauts from getting overheated.3
Managers following the product development strategy can rely Portfolio Matrix
on their extensive knowledge of the target audience. They usually Recall that large organizations engaged in strategic
have a good feel for what customers like and dislike about current planning may create strategic business units. Each
products and what existing needs are not being met. In addition, SBU has its own rate of return on investment, growth
managers can rely on established distribution channels. potential, and associated risk. Management must find
• Diversification: Diversification is a strategy of increasing a balance among the SBUs that yields the overall orga-
sales by introducing new products into new mar- nization’s desired growth and profits with an accept-
kets. Cirque du Soleil has begun to diversify able level of risk. Some SBUs generate large amounts
its creative entertainment empire into of cash, and others need cash to foster growth. The
apparel, accessories, fragrance, challenge is to balance the organization’s “portfolio” of
gifts, and cosmetics. The com- SBUs for the best long-term performance.
pany is even considering open- To determine the future cash contributions and
ing its own stores.4 A cash requirements expected for each SBU, managers
diversification strategy can be can use the Boston Consulting Group’s portfolio
risky when a firm is entering matrix. The portfolio matrix classifies each SBU by its
unfamiliar markets, but diversifi- present or forecast growth and market share. The
cation can be very profitable when underlying assumption is that market share and prof-
a firm is entering markets with little itability are strongly linked. The measure of market
or no competition. share used in the portfolio approach is relative mar-
ket share, the ratio between the company’s share and
the share of the largest competitor. For example, if a
firm has a 50 percent share and its competitor has 5
percent, the ratio is 10 to 1.
Exhibit 2.3 shows a portfolio matrix for a computer
Cool dude in a cool suit. manufacturer. The size of the circle in each cell of the
matrix represents dollar sales of the SBU relative to dol-
Product development. lar sales of the company’s other SBUs. The following cat-
egories are used in the matrix:
© STOCKBYTE/GETTY IMAGES

Exhibit 2.2
• Stars: A star is fast-growing market leader. For example,
Ansoff’s Strategic Opportunity Matrix computer manufacturers have identified
subnotebook, handheld models, and
Market Penetration Market Development Product Development Diversification
tablets as stars. Star SBUs have large
Starbucks sells more Starbucks opens stores in Starbucks develops ready- Starbucks launches Hear profits but need lots of cash to finance
coffee to customers with Brazil and Chile. to-drink coffee beverages Music and buys Ethos
growth. The best tactic is to protect
reloadable Starbucks cards Double Shot and bottled Water.
and Duetto Visa cards. Frappuccino. existing market share by reinvesting
earnings in product improvement, bet-

22 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 23

{ BCG—A History

1963, Boston Consulting Group (BCG)

} ter distribution, more
promotion, and produc-
tion efficiency.
a dog. The options for dogs are to
harvest or divest.
After classifying the com-
star
in the portfolio matrix, a
business unit that is a
fast-growing market
Management must cap- leader
is born. pany’s SBUs in the matrix,
ture new users as they cash cow
managers must next allocate
1968, BCG introduced the growth share enter the market. in the portfolio matrix, a
future resources for each. The
matrix, or portfolio matrix. business unit that usu-
• Cash cows: A cash four basic strategies are to ally generates more cash
2006, BCG counted nearly 3,000
cow is an SBU that gen- • Build: An organization with an SBU
than it needs to main-
consultants in 61 offices in 37 countries tain its market share
erates more cash than it that it believes has star-potential
and generated annual revenue of $1.5
needs to maintain its mar- problem child
(probably a problem child at present) (question mark)
billion (the company’s first month of ket share. The product may decide to give up short-term prof- in the portfolio matrix, a
billings totaled $500).6 has a dominant share in a its and use its financial resources to business unit that
                         low-growth market. build. Procter & Gamble built Pringles shows rapid growth but
Personal computers and from a money loser to a profit maker. poor profit margins
laptops are categorized as cash cows in Exhibit 2.3. The strategy for dog
a cash cow is to maintain market dominance by being the price • Hold: If an SBU is a successful In the portfolio matrix, a
leader and making technological improvements. Managers should not cash cow, a key goal would be to business unit that has
preserve market share so that the low growth potential
extend the basic line unless they can dramatically increase demand. and a small market share
Instead, they should allocate excess cash to the product categories organization can take advantage of
the positive cash flow. marketing strategy
where growth prospects are the greatest. the activities of select-
• Harvest: This strategy is appro- ing and describing one
• Problem children: A problem child, also called a or more target markets
priate for all SBUs except stars. The
question mark, shows rapid growth but poor profit margins. and developing and
goal is to increase the short-term maintaining a marketing
It has a low market share in a high-growth industry. Problem
cash return without much concern mix that will produce
children need lots of cash support to keep from becoming dogs.
for the long-run impact. It is espe- mutually satisfying
The strategies are to invest heavily to improve market share, exchanges with target
cially worthwhile when more cash is
acquire competitors to get the necessary market share, or drop the markets
needed from a cash cow with unfa-
SBU. Sometimes a firm can reposition a problem child into a star.
vorable longrun prospects. For
• Dogs: A dog has low growth potential and a instance, Lever Brothers has harvested Lifebuoy soap for
small market share. Most dogs eventu- years with little promotional backing.
ally leave the marketplace. For com-
The strategy for a • Divest: Getting rid of SBUs with
puter manufacturers, the low shares of low-growth markets, like
mainframe computer has become cash cow is to maintain market
problem children and dogs, is often a
dominance. strategically appropriate decision. In a five-
Exhibit 2.3 year period, GE exited four flagging businesses
and entered seven new ones that were more promising.7
Portfolio Matrix for a Large Computer Manufacturer

LO7 Describing
Subnotebooks, Integrated phone/palm
handheld computers, device (problem child or
Market growth rate (in constant dollars)

and tablet PCs (stars) question mark)

the Target Market
High
Marketing strategy involves the activities of
selecting and describing one or more target
markets and developing and maintaining a
10 marketing mix that will produce mutually
Laptop and personal Mainframe computer satisfying exchanges with target markets.
computers (cash cows) (dog)

Target Market Strategy

Low
A market segment is a group of individuals or
organizations that share one or more characteris-
tics. They therefore may have relatively similar
product needs. For example, parents of newborn
babies need formula, diapers, and special foods.
10x High 1x Low 0.1x
The target market strategy identifies the market
Market share dominance (share relative to largest competitor) segment or segments on which to focus. This

CHAPTER 2 Strategic Planning for Competitive Advantage 23

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 24

market
opportunity
analysis (MOA)
the description and
estimation of the size
process begins with a market
opportunity analysis (MOA)—
the description and estimation
of the size and sales potential of
“ The best promotion and
the lowest price cannot
market segments that are of
and sales potential of
market segments that interest to the firm and the
save a poor product.
are of interest to the
firm and the assess-
ment of key competi-
tors in these market
segments
assessment of key competitors
in these market segments. After
the firm describes the market
segments, it may target one or
”
strategies to gain advantages over competitors and
best serve the needs and wants of a particular target
more of them. There are three market segment. By manipulating elements of the
marketing mix marketing mix, marketing managers can fine-tune the
a unique blend of prod- general strategies for selecting
uct, place, promotion, target markets. customer offering and achieve competitive success.
and pricing strategies Target market(s) can be
designed to produce
mutually satisfying selected by appealing to the Product Strategies
exchanges with a target entire market with one mar-
market keting mix, concentrating on Typically, the marketing mix starts with the product
four Ps one segment, or appealing to “P.” The heart of the marketing mix, the starting point,
product, place, promo- multiple market segments is the product offering and product strategy. It is hard
tion, and price, which using multiple marketing to design a place strategy, decide on a promotion cam-
together make up the paign, or set a price without knowing the product to
marketing mix
mixes. The characteristics,
advantages, and disadvantages be marketed.
of each strategic option are
examined in Chapter 7. Target markets could be
smokers who are concerned about white teeth (the
target of Topol toothpaste), or college students need-
ing inexpensive about-town transportation (Yamaha
Razz scooter).
Any market segment that is targeted must be fully
described. Demographics, psychographics, and buyer
behavior should be assessed. Buyer behavior is cov-
ered in Chapters 5 and 6. If segments are differenti-
ated by ethnicity, multicultural aspects of the
marketing mix should be examined. If the target mar-
ket is international, it is especially important to
describe differences in culture, economic and techno-
logical development, and political structure that may
affect the marketing plan. Global marketing is cov-
ered in more detail in Chapter 4.

The Marketing Mix

LO8 The term marketing mix refers to a
unique blend of product, place (distribution),
promotion, and pricing strategies (often referred
to as the four Ps) designed to produce mutually
satisfying exchanges with a target market. The
marketing manager can control each compo- Target Market for
nent of the marketing mix, but the strategies for Beacon Street Girls:
all four components must be blended to achieve 9- to 13-year-old girls
optimal results. Any marketing mix is only as (market worth $40 billion)
good as its weakest component. The best pro- Product—books and accessories
motion and the lowest price cannot save a poor Place—independent booksellers
product. Similarly, excellent products with poor Promotion—public relations
placing, pricing, or promotion will likely fail. Price—$2.99–$54
Variations in marketing mixes do not occur by
chance. Astute marketing managers devise marketing

24 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 25

The product includes not only the physical unit but 24-hour grocery store within implementation
also its package, warranty, after-sale service, brand name, walking distance or fly to the process that turns a
marketing plan into
company image, value, and many other factors. A Godiva Australia to pick your own? A action assignments and
chocolate has many product elements: the chocolate part of this place “P” is physical ensures that these
itself, a fancy gold wrapper, a customer satisfaction guar- distribution, which involves all assignments are exe-
antee, and the prestige of the Godiva brand name. We the business activities con- cuted in a way that
accomplishes the plan’s
buy things not only for what they do (benefits) but also cerned with storing and trans-
objectives
for what they mean to us (status, quality, or reputation). porting raw materials or
Products can be tangible goods such as computers, finished products. The goal is
ideas like those offered by a consultant, or services to make sure products arrive in usable condition at
such as medical care. Products designated places when
should also offer customer needed. Place strategies are
value. Product decisions are Price is an important covered in Chapters 12 and 13.
covered in Chapters 9 and 10,
and services marketing is competitive weapon.
detailed in Chapter 11. Promotion
Strategies
Place (Distribution) Strategies Promotion includes advertising, public relations, sales
Place, or distribution, strategies are concerned with promotion, and personal selling. Promotion’s role in
making products available when and where customers the marketing mix is to bring about mutually satisfying
want them. Would you rather buy a kiwi fruit at the exchanges with target markets by informing, educating,
persuading, and reminding them of the benefits of an
organization or a product. A good promotion strategy
can dramatically increase sales. Good promotion strate-
gies do not guarantee success, however. Despite mas-
sive promotional campaigns, much-anticipated movies
often have disappointing box-office returns. Each ele-
ment of the promotion “P” is coordinated and managed
with the others to create a promotional blend or mix.
These integrated marketing communications activities
are described in Chapters 14, 15, and 16. Technology-
driven aspects of promotional marketing are covered in
Chapter 19.

Pricing Strategies
Price is what a buyer must give up to obtain a product.
It is often the most flexible of the four marketing mix
elements—the quickest element to change. Marketers
© 2004-2005 B*TWEEN PRODUCTIONS, INC. ALL RIGHTS RESERVED.

can raise or lower prices more frequently and easily

than they can change other marketing mix variables.
Price is an important competitive weapon and is very
important to the organization because price multi-
plied by the number of units sold equals total revenue
for the firm. Pricing decisions are covered in Chapters
17 and 18.

LO9 Following Up
on the Marketing Plan
Implementation
Implementation is the process that turns a
marketing plan into action assignments and
ensures that these assignments are executed in
a way that accomplishes the plan’s objectives.

CHAPTER 2 Strategic Planning for Competitive Advantage 25

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 26

evaluation Implementation activities Although the main purpose of the marketing audit
gauging the extent to is to develop a full profile of the organization’s mar-
which the marketing
may involve detailed job
keting effort and to provide a basis for developing and
objectives have been assignments, activity descrip-
achieved during the revising the marketing plan, it is also an excellent way
tions, timelines, budgets, to improve communication and raise the level of mar-
specified time period
and lots of communication. keting consciousness within the organization. It is a
control
provides the mecha- Although implementation is useful vehicle for selling the philosophy and tech-
nisms for evaluating essentially “doing what you niques of strategic marketing to other members of the
marketing results in organization.
light of the plan’s objec- said you were going to do,”
tives and for correcting many organizations repeat-
actions that do not help
the organization reach
those objectives within
edly experience failures in
strategy implementation. LO10 Effective Strategic Planning
budget guidelines
Brilliant marketing plans are Effective strategic planning requires continual
marketing audit doomed to fail if they are
a thorough, systematic,
attention, creativity, and management commit-
periodic evaluation of not properly implemented. ment. Strategic planning should not be an
the objectives, strate- These detailed communica- annual exercise, in which managers go through
gies, structure, and per-
formance of the tions may or may not be part the motions and forget about strategic planning
marketing organization of the written marketing until the next year. It should be an ongoing
plan. If they are not part of process because the environment is continually
the plan, they should be specified elsewhere as changing and the firm’s resources and capabili-
soon as the plan has been communicated. ties are continually evolving.
Sound strategic planning is based on creativity.
Managers should challenge assumptions about the
Evaluation and Control firm and the environment and establish new strate-
gies. And above all, the most critical element in suc-
After a marketing plan is implemented, it should be cessful strategic planning is top management’s
evaluated. Evaluation entails gauging the extent to support and participation.
which marketing objectives have been achieved dur-
ing the specified time period. Four common reasons
for failing to achieve a marketing objective are unre-
alistic marketing objectives, inappropriate marketing
4 Characteristics
of a Marketing Audit:
strategies in the plan, poor implementation, and
changes in the environment after the objective was
specified and the strategy was implemented. Comprehensive: covers all major marketing issues facing an
Once a plan is chosen and implemented, its effec- organization and not just trouble spots.
tiveness must be monitored. Control provides the
Systematic: takes place in an orderly sequence and covers the
mechanisms for evaluating marketing results in light
organization’s marketing environment, internal marketing system,
of the plan’s objectives and for correcting actions that
and specific marketing activities. The diagnosis is followed by an
do not help the organization reach those objectives
action plan with both short-run and long-run proposals for improv-
within budget guidelines. Firms need to establish for-
ing overall marketing effectiveness.
mal and informal control programs to make the entire
operation more efficient. Independent: normally conducted by an inside or outside party
Perhaps the broadest control device available to who is independent enough to have top management’s confidence
marketing managers is the marketing audit—a thor- and to be objective.
ough, systematic, periodic evaluation of the objectives,
strategies, structure, and performance of the market- Periodic: for maximum benefit, should be carried out on a regular
ing organization. A marketing audit helps manage- schedule instead of only in a crisis.
ment allocate marketing resources efficiently. 

Elements of the
marketing mix,
quadrants in the
BCG matrix. >
4 Average cash rebate
offered by a Detroit
automaker >
$2,500
Debut of the BCG
portfolio matrix >

27
languages
1966
< Number of

$500 million < Approximate return on

6
spoken by
< Macroenvironmental investment for a permanent Cirque du Soleil’s
forces affecting marketing Cirque du Soleil show 2,700-member cast

26 PART 1 The World of Marketing

LHM-PG_ch02_14-27_Ver1.qxp 11/20/06 7:22 AM Page 27

ANATOMY OF AN AD

Ads are
types of
promotion
Moisturizer
is the
product

Market
development =
sell anti-aging
cream to
men (not
just women)

Competitive
advantage?

Men =
target
market
No remuneration, financial or otherwise,
was received for placement of this ad.
© L’OREAL. ALL RIGHTS RESERVED.

Chain drug, food, and

mass market
retailers = place