Project 1 Researching Consumer Buying Behavior
Project 1: Researching Consumer Buying Behavior Start Here
For this project, you will need to have a solid understanding of your client’s consumers in order to develop, evaluate, and implement effective marketing strategies.
· Step 1: Complete Your Skills Gap Analysis: N/A
· Step 2: Attend Meeting with ACME
· Step 3: Review Marketing Information on Consumer Buying Behavior
· Step 4: Conduct a Consumer Buying Behavior Study
· Step 5: Complete Your Value Proposition
· Step 6: Complete Your Final Consumer Buying Behavior Report
· Step 7: Submit Your Work
Your work will be evaluated using the competencies listed below.
· 1.1: Organize document or presentation clearly in a manner that promotes understanding and meets the requirements of the assignment.
· 1.3: Provide sufficient, correctly cited support that substantiates the writer’s ideas.
· 1.6: Follow conventions of Standard Written English.
· 2.1: Identify and clearly explain the issue, question, or problem under critical consideration.
· 2.5: Develop well-reasoned ideas, conclusions or decisions, checking them against relevant criteria and benchmarks.
· 6.1: Identify the general (external) environment in which an organization operates and discuss the implications for enterprise success.
· 6.2: Evaluate strategic implications for domestic and international markets of an organization’s industry.
· 6.4: Develop and recommend strategies for an organization’s sustainable competitive advantage.
· 12.2: Analyze marketing information.
Step 2: Attend Meeting with ACME
Monday morning, you meet with Jillian in her office. “We are so glad that you have come back to help us grow at Maryland Creative Solutions,” Jillian says. “As you know, with shifting markets, I have decided to reposition the company to focus more on clients with branding and digital strategy consulting needs. I feel that your long-term knowledge of our company and global mindset are perfect for leading the way on some of our new projects.
“To get you started, we have just signed on with ACME. I would like you to meet with their leadership: Tarek Fahmy, the company’s head of new-product innovation, and ACME’s CEO, Erik Knops, to finalize the details of their request. Again, it is a pleasure to be working with you. I am really looking forward to seeing your creative approaches in our partnerships.”
|Calendar Invite: Startup Meeting with ACME|
|Client Name:Meeting Organizer: Jillian BestAttendees: You, Erik Knops, Tarek FahmyClick to attend the ACME meeting|
After the meeting, proceed to Step 3 to enhance your knowledge about concepts relevant to ACME’s request.
Client Name: ACME
Product Line: Automatic washing machines
Customers: Automatic washing machine buyers in the United States, United Kingdom, and Germany
1. Whirlpool (including Maytag, KitchenAid, Jenn-Air, Amana Indesit, Bauknecht, Ignis; among others). Whirlpool is the leading producer of home appliances worldwide.
2. Electrolux (including Frigidaire, Gibson, Philco, Kelvinator, Zanussi, AEG, White Westinghouse; among many others) Electrolux is the second leading producer of home appliances worldwide.
3. Haier (including GE Appliances, Fischer, Aqua; among others).
“Thank you for meeting with us today,” Tarek says. “Market intelligence has shown that our major competitors—Whirlpool, Electrolux, and Haier—are all developing new efficient automatic washing machines. These new machines have attractive designs, use less electricity and water, are durable, and are available in different colors. In addition, these washing machines are competitively priced for the features that they have.”
Tarek looks to you: “As ACME is debating whether to enter this market, we need you to participate in a new cross-functional product development team that will research the buying habits of automatic washing machine customers in our three main markets: the United States, Germany, and the United Kingdom. We also need to know if there’s an unmet demand for such efficient washing machines in those markets,” he says. Erik Knops, ACME’s CEO, nods his head in agreement.
Tarek continues, “We need to take into consideration the different needs and preferences of automatic washing machine buyers in those markets; as well as the demographics of those buyers such age and gender. The customer requirements for each of those markets are quite different. For example, washing machines in Europe are usually 5 kg capacity front loaders that heat their own water, while Americans prefer larger top loaders that take hot water from the home’s water heater.”
Finally, Tarek remarks, “In addition, we need to know where those customers buy their automatic washing machines from and if there is any seasonal variation in sales.”
Erik nods his head again, smiles, and adds, “Tarek and I want you to research the automatic washing machine buyers’ needs and preferences for those three markets, and provide us with a customer buying behavior report in two weeks. Remember, the report should focus on the customers, and not on the companies!”
You know that to give Erik and Tarek the most in-depth report, you will need to conduct an analysis of the automatic washing machine buyers in those markets. Each market has to be discussed and analyzed separately under its own headings and subheadings (three different discussions and analyses). In addition, you have to create a value proposition for ACME’s proposed product. The value proposition should be clear and specific to ACME’s proposed new product. What value do customers see in the proposed product and what would compel them to buy it?
Step 3: Review Marketing Information on Consumer Buying Behavior
Chapters 2 & 13 (see attachment)
Lancaster, G., & Massingham, L. (2018). Essentials of marketing management (2nd ed.). Routledge
As you read through the course materials, begin to think about how this information will apply to the report you will prepare for Erik and Tarek. To successfully complete the report, you’ll need an understanding of marketing. You will also benefit from a keen understanding of consumer buying behavior, and evaluating business attractiveness
As you conduct your analysis of ACME’s consumer environment, remember that there are two types of market research: primary and secondary research. Both types of research are required in real-life, and each of them has its pros and cons. However, for this Project, only secondary research is required.
Finally, to fully understand ACME’s position, read about offerings—what a company provides its customers, be it a product, a service, or a mix of both. Also consider the differences between a product and a service. You know that a product can be more than just a physical good, it can be a service attached to a physical product, a “pure” service, an idea, a place, an organization, or even a person.
After you have read these materials, proceed to the next step, where you will begin your analysis of the specified consumer markets
Step 4: Conduct a Consumer Buying Behavior Study
I would like you to conduct an analysis of the consumers in our main markets. Your analysis should consider both current and potential product users and should address the following questions:
1. What needs are being met by the product purchase? What are the benefits to the consumers? Make sure that you differentiate between features and benefits; go beyond manifest motives and consider latent motives.
2. Who is involved in the purchase process? Who are the influencers? Who are the buyers? Who are the end users?
3. Where are the products sold, and what are the distribution channels?
4. How often are the products purchased? Is there seasonality to sales?
Deliverable: I need you to produce a six-page preliminary consumer buying behavior report (excluding cover page, reference list, tables, graphs, and exhibits) explaining your findings on consumer needs, wants, and preferences in these markets. Make sure that your report is specific to consumers of ACME’s potential product and not to consumers in general.
Support your work with the course readings and at least two scholarly sources and eight reliable nonscholarly sources, such as Reuters, Bloomberg, Yahoo! Finance, Barrons.com, Morningstar.com, Money, Forbes, Fortune, the Financial Times, the Wall Street Journal, and the Harvard Business Review. All sources need to be cited using APA formatting, both within the text and in the reference list. The report should be organized using headings and subheadings to improve its readability.
Expecting your best efforts on this,
Then proceed to the next step, where you will create a value proposition.
Step 5: Complete Your Value Proposition
Submit a one-page value proposition to Erik.
I wanted to clarify that a customer-focused value proposition explains the reason why a customer purchases a product or uses a service (i.e., the value that a company delivers to its customers).
Deliverable: Based on your research of consumer needs in our main markets, describe your value proposition, or the benefits that ACME and its potential new product would provide to customers. Remember, a value proposition is essentially the promise that is made to the customer. Also provide a half-page recommendation to ACME on whether or not to manufacture that product.
Support your work with the course readings, scholarly sources, and reliable non scholarly sources, such as Reuters, Bloomberg, Yahoo! Finance, Barrons.com, Morningstar.com, Money, Forbes, Fortune, the Financial Times, the Wall Street Journal, and the Harvard Business Review. All sources need to be cited using APA formatting, both within the text and in the reference list. The value proposition should be organized using headings and subheadings to improve its readability.
In the next step you will finalize your consumer buying behavior report and write an executive summary.
Step 6: Complete Your Final Consumer Buying Behavior Report
Deliverable: Combine the first two deliverables into a single report after making any necessary corrections and edit them to ensure that there is clear flow of ideas from one section to the other. In addition, include a one-page executive summary that highlights the most important findings of the report, as well as your recommendation as a consultant at the end of the report. APA style should be applied to in-text citations and in the reference list.
Your final report to Erik should be eight to nine pages, excluding cover page, executive summary, the reference list, and appendices. Any graphs, tables, and figures should be included as appendices. Your report should have one-inch margins and be double spaced in 12-point Times New Roman font. The report should be organized using headings and subheadings to improve its readability.
Step 7: Submit Your Work
Submit .Take note of the recommended delivery dates and file-naming protocols in the table below:
Recommended Project Delivery
|Step 4||Preliminary consumer buying behavior report||lastname_PrelimBuyingBehavior_date.docx|
|Step 5||Value proposition and recommendation||lastname_ValueProposition _date.docx|
|Step 6||Final consumer buying behavior report||lastname_FinalBuyingBehavior_date.docx|
Resources For Project 1
Why do buyers purchase something? Why do you own anything? Many of us own an iPhone because it allows us to call, text, and use apps. Or we own one because we have been influenced to buy one. Shortly after the iPhone’s introduction, some people undoubtedly purchased the devices because they were considered trendy. Now iPhones are so ubiquitous that no one gives them a second glance. The impact that iPhones have had on our lives has been huge because the product revolutionized the way we interact with the world.
What Composes an Offering?
People buy things to meet needs. In the case of the iPhone, the need is to have better access to communicate, to look keep up with technological trends, or both. Offerings are products and services designed to deliver value to customers—either to fulfill their needs, satisfy their wants, or both. By the end of this text, we will understand how marketing fills those needs through the creation and delivery of offerings.
Product, Price, and Service
Most offerings consist of a product, or a tangible good people can buy, sell, and own. Purchasing a classic iPod, for example, will allow you to store up to 40,000 songs or 200 hours of video. The amount of storage is an example of a feature, or characteristic of the offering. If your playlist consists of 20,000 songs, then this feature delivers a benefit to you—the benefit of ample storage. However, the feature will only benefit you up to a point. For example, you won’t be willing to pay more for the extra storage if you only need half that much. When a feature satisfies a need or want, there is a benefit. Features, then, matter differently to different consumers based on each individual’s needs.
Remember, the value equation is different for every customer.
An offering also consists of a price, or the amount people pay to receive the offering’s benefits. The price paid can consist of a one-time payment, or it can consist of something more than that. Many consumers think of a product’s price as only the amount they paid. However, the true cost of owning an iPod, for example, is the cost of the device itself plus the cost of the music or videos downloaded onto it. The total cost of ownership (TCO), then, is the total amount someone pays to own, use, and eventually dispose of a product.
TCO is usually thought of as a concept that businesses use to compare offerings. However, consumers also use the concept. For example, suppose you are comparing two sweaters, one that can be hand-washed and one that must be dry-cleaned. The hand-washable sweater will cost you less to own in dollars but may cost more to own in terms of your time and hassle. A smart consumer would take that into consideration. A TCO approach accounts for the time and effort related to owning the product—in this case, the time and effort to handwash the sweater.
A service is an action that provides a buyer with an intangible benefit. A haircut is a service. When you purchase a haircut, it’s not something you can hold, give to another person, or resell. Pure services are offerings that don’t have any tangible characteristics associated with them. Skydiving is an example of a pure service. You are left with nothing after the jump but the memory of it. Yes, a plane is required, and it is certainly tangible. But it isn’t the product—the jump is. At times people use the term product to mean an offering that’s either tangible or intangible. Banks, for example, often advertise specific types of loans, or financial products they offer consumers. Yet truly these products are financial services. The term product is frequently used to describe an offering of either type.
The intangibility of a service creates interesting challenges for marketers and buyers when they try to judge the relative merits of one service over another. An old riddle asks, “You enter a barbershop to get a haircut and encounter two barbers—one with a bad haircut and the other with a great haircut. Which do you choose?” The answer is the one with the bad haircut; he cut the hair of the other barber. But in many instances, judging how well a barber will do before the haircut is difficult. Thus, services can suffer from high variability in quality because they are often created as they are received.
Services usually also require the consumer to be physically present or involved. A haircut, a night in a hotel, and a flight all require the consumer to be physically present. Consumption of the service is not separate from the creation of the service. Unlike a physical product, which can be created and purchased off a shelf, a service often (but not always) involves the consumer in its creation.
Another challenge for many services providers is that services are perishable—they can’t be stored. A night at a hotel, for example, can’t be saved and sold later. If it isn’t sold that day, it is lost forever. A barber isn’t really paid for a haircut (to use the riddle) but for time. Services have difficult management and marketing challenges because of their intangibility.
Many tangible products have an intangible service component attached to them, however. When Hewlett-Packard (HP) introduced its first piece of audio testing equipment, a key concern for buyers was the service HP could offer with it. Could a new company such as HP back up the product, should something go wrong with it? As you can probably tell, a service does not have to be consumed to be an important aspect of an offering. HP’s ability to provide good after-sales service in a timely fashion was an important selling characteristic of the audio oscillator, even if buyers never had to use the service.
What services do you get when you purchase a can of soup? You might think that a can of soup is as close to a pure product devoid of services that you can get. But think for a moment about your choices in terms of how to purchase the can of soup. You can buy it at a convenience store, a grocery store, or online. Your choice of how to get it is a function of the product’s intangible service benefits, such as the way you are able to shop for it.
The Product-Dominant Approach to Marketing
From the traditional product-dominant perspective of business, marketers consider products, services, and prices as three separate and distinguishable characteristics. To some extent, they are. HP could, for example, add or strip out features from a piece of testing equipment and not change its service policies or the equipment’s price. The product-dominant marketing perspective has its roots in the Industrial Revolution. During this era, businesspeople focused on the development of products that could be mass produced cheaply. In other words, firms became product-oriented, meaning that they believed the best way to capture market share was to create and manufacture better products at lower prices. Marketing remained oriented that way until after World War II.
The Service-Dominant Approach to Marketing
Who determines which products are better? Customers do, of course. Thus, taking a product-oriented approach can result in marketing professionals focusing too much on the product itself and not enough on the customer or service-related factors that customers want. Most customers will compare tangible products and the prices charged for them in conjunction with the services that come with them. In other words, the complete offering is the basis of comparison. So, although a buyer will compare the price of product A to the price of product B, in the end, the prices are compared in conjunction with the other features and services of the products. The dominance of any one of these dimensions is a function of the buyer’s needs.
The advantage of the service-dominant approach is that it integrates the product, price, and service dimensions of an offering. This integration helps marketers think more like their customers, which can help them add value to their firm’s products.
In addition to the offering itself, marketers should consider what services it takes for the customer to acquire their offerings (e.g., the need to learn about the product from a sales clerk), to enjoy them, and to dispose of them (e.g., someone to move the product out of the house and haul it away), because each of these activities creates costs for their customers—either money or time and hassle.
Critics of the service-dominant approach argue that the product-dominant approach also integrated services (though not price). The argument is that at the core of an offering is the product, such as an iPod or iPhone. The physical product, in this case an iPhone, is the core product. Surrounding it are services and accessories, called the augmented product, which support the core product. Together, these make up the complete product. One limitation of this approach has already been mentioned; price is left out. But for many “pure” products, this conceptualization can be helpful in bundling different augmentations for different markets.
Customers are now becoming more involved in the creation of benefits. Consider a “pure” product like Campbell’s cream of chicken soup. The consumer may prepare that can as a bowl of soup, but it could also be used as an ingredient in a recipe like king ranch chicken. As far as the consumer goes, no benefit is experienced until the soup is eaten; thus, the consumer played a part in the creation of the final product when the soup was an ingredient in the king ranch chicken recipe. Or suppose your school’s cafeteria made king ranch chicken for you to consume. In that case, you both ate a product and consumed a service.
Some people argue that focusing too much on the customer can lead to too little product development or poor product development. These people believe that customers often have difficulty seeing how an innovative new technology can create benefits for them. Researchers and entrepreneurs frequently make many discoveries, and then products are created as a result of those discoveries. 3M’s Post-it notes are an example. The adhesive that made it possible for Post-it notes to stick and restick was created by a 3M scientist who was actually in the process of trying to make something else. Post-it notes came later.
Product Levels and Product Lines
A product’s technology platform is the core technology on which it is built. Take for example, the iPod, which is based on MP3 technology. In many cases, the development of a new offering is to take a technology platform and rebundle its benefits in order to create a different version of an already-existing offering. For example, in addition to the iPod Touch, Apple offers the Shuffle and the Nano. Both are based on the same core technology.
In some instances, a new offering is based on a technology platform originally designed to solve a different problem. For example, a number of products originally were designed to solve the problems facing NASA’s space-traveling astronauts. Later, that technology was used to develop new types of offerings. EQyss’s Micro Tek pet spray, which stops pets from scratching and biting themselves, is an example. The spray contains a trademarked formula developed by NASA to decontaminate astronauts after they return from space.
A technology platform isn’t limited to tangible products. Knowledge can be a type of technology platform in a pure services environment. For example, the bioesthetic treatment model was developed to help people who suffer from TMJ, a jaw disorder that makes chewing painful. A dentist can be trained on the bioesthetic technology platform and then provide services based on it. There are, however, other ways to treat TMJ that involve other platforms or bases of knowledge and procedures (such as surgery).
Few firms survive by selling only one product. Most firms sell several offerings designed to work together to satisfy a broad range of customer needs and desires. A product line is group of related offerings. Product lines are created to make marketing strategies more efficient. Campbell’s condensed soups, for example, are basic soups sold in cans with red labels. But Campbell’s Chunky is a ready-to-eat soup sold in cans that are labeled differently. Most consumers expect there to be differences between Campbell’s red-label chicken soup and Chunky chicken soup, even though they are both made by the same company.
When new but similar products are added to the product line, it is called a line extension.
A product line can be broad, as in the case of Campbell’s condensed soup line, which consists of several dozen different flavors. Or, a product line can be narrow, as in the case of Apple’s iPod line, which consists of only a few different devices. The number of offerings in a single product line—that is, whether the product line is broad or narrow—is called line depth. When new but similar products are added to the product line, it is called a line extension. If Apple introduces a new iPhone to the iPhone family, that would be a line extension. Companies can also offer many different product lines. Line breadth (or width) is a function of how many different, or distinct, product lines a company has. For example, Campbell’s has a Chunky soup line, condensed soup line, kids’ soup line, lower sodium soup line, and a number of nonsoup lines, like Pace Picante sauces, Prego Italian sauces, and crackers. The entire assortment of products that a firm offers is called the product mix.
There are four offering levels:
· the basic offering (e.g., the iPod Shuffle)
· the offering’s technology platform (the MP3 format or storage system used by the Shuffle)
· the product line to which the offering belongs (Apple’s iPod line of MP3 music players)
· the product category to which the offering belongs (MP3 players as opposed to iPhones)
Companies market offerings composed of a combination of tangible and intangible characteristics for certain prices. During the Industrial Revolution, firms focused primarily on products and not so much on customers. The service-dominant perspective to marketing integrates three different dimensions of an offering—not only the product, but also its price and the services associated with it. This perspective helps marketers think more like their customers, which helps firms add value to their offerings. An offering is based on a technology platform, which can be used to create a product line. A product line is a group of similar offerings. A product line can be deep (many offerings of a similar type) and/or broad (offerings that are very different from one another and cover a wide range of customers’ needs). The entire assortment of products that a company offers is called the product mix.
Types of Consumer Offerings
Consumer offerings fall into four general categories:
· convenience offerings
· shopping offerings
· specialty offerings
· unsought offerings
In this section, we will discuss each of these categories. Keep in mind that the categories are not a function of the characteristic of the offerings themselves. Rather, they are a function of how consumers want to purchase them, which can vary from consumer to consumer. What one consumer considers a shopping good might be a convenience good to another consumer.
Convenience offerings are products and services consumers generally don’t want to put much effort into shopping for because they see little difference between competing brands. For many consumers, bread is a convenience offering. A consumer might choose the store in which to buy the bread but be willing to buy whatever brand of bread the store has available. Marketing convenience items is often limited to simply trying to get the product in as many places as possible where a purchase could occur.
Closely related to convenience offerings are impulse offerings, or items purchased without any planning. The classic example is Life Savers, originally manufactured by the Life Savers Candy Company, beginning in 1913. The company encouraged retailers and restaurants to display the candy beside their cash registers and to always give customers a nickel back as part of their change to encourage them to buy one additional item—a roll of Life Savers, of course!
A shopping offering is one for which the consumer will make an effort to compare and select a brand. Consumers believe there are differences between similar shopping offerings and want to find the right one or the best price. Buyers might visit multiple retail locations or spend a considerable amount of time visiting websites and reading reviews about the product, such as the reviews found in Consumer Reports.
Consumers often care about brand names when they’re deciding on shopping goods. If a store is out of a particular brand, then another brand might not do. For example, if you prefer Crest Whitening Expressions toothpaste and the store you’re shopping at is out of it, you might put off buying the toothpaste until your next trip to the store. Or you might go to a different store, or buy a small tube of some other toothpaste until you can get what you want. Note that even something as simple as toothpaste can become a shopping good for someone very interested in dental health—perhaps after they’ve read online product reviews or consulted with her dentist. That’s why companies like Procter & Gamble, the maker of Crest, work hard to influence not only consumers but also people like dentists, who can influence the sale of their products.
Specialty offerings are highly differentiated offerings, and the brands under which they are marketed are very different across companies, too. For example, an Orange County Chopper or Iron Horse motorcycle is likely to be far different than a Kawasaki or Suzuki motorcycle in terms of its available features. Typically, specialty items are available only through limited channels. For example, exotic perfumes available only in exclusive outlets are considered specialty offerings. Specialty offerings are purchased less frequently than convenience offerings. Therefore, the profit margin on them tends to be greater.
Note that while marketers try to distinguish between specialty offerings, shopping offerings, and convenience offerings, it is the consumer who ultimately makes the decision. Therefore, what might be a specialty offering to one consumer may be a convenience offering to another. For example, one consumer may never go to Sport Clips or Ultra-Cuts because hair styling is seen as a specialty offering. A consumer at Sport Clips might consider it a shopping offering, while a consumer for Ultra-Cuts may view it as a convenience offering. The choice is the consumer’s.
Marketing specialty goods requires building brand name recognition in the minds of consumers and educating them about your product’s key differences. This is critical. For fashion goods, the only point of difference may be the logo on the product (for example, an Izod versus a Polo label). Even so, marketers spend a great deal of money and effort to try to get consumers to perceive these products differently than their competitors’.
Unsought offerings are those that buyers do not generally want to have to shop for until they need them. Towing services and funeral services are generally considered unsought offerings. Marketing unsought items is difficult. Some organizations try to presell the offering, such as preneed sales in the funeral industry or towing insurance in the auto industry. Other companies, such as insurance companies, try to create a strong awareness among consumers so that when the need arises for these products, consumers think of their organizations first.
Convenience offerings, shopping offerings, specialty offerings, and unsought offerings are the major types of consumer offerings. Convenience offerings often include life’s necessities (bread, milk, fuel, and so forth), for which there is little difference across brands. Shopping goods vary, and many consumers develop strong preferences for some brands versus others. Specialty goods are even more exclusive. Unsought goods are a challenge for marketers because customers do not want to have to shop for them until they need them.
Types of Business-to-Business (B2B) Offerings
Just like there are different types of consumer offerings, there are different types of business-to-business (B2B) offerings as well. But unlike consumer offerings, which are categorized by how consumers shop, B2B offerings are categorized by how they are used. The primary categories of B2B offerings are as follows:
· capital equipment offerings
· raw materials offerings
· original equipment manufacturer (OEM) offerings
· maintenance, repair, and operations (MRO) offerings
· facilitating offerings
Capital Equipment Offerings
A capital equipment offering is any equipment purchased and used for more than one year and depreciated over its useful life. Machinery used in a manufacturing facility, for example, would be considered capital equipment. Professionals who market capital equipment often have to direct their communications to many people within the firms to which they are selling, because the buying decisions related to the products can be rather complex and involve many departments. From a marketing standpoint, deciding who should get what messages and how to influence the sale can be very challenging.
Raw materials offerings are materials firms offer other firms so they can make a product or provide a service. Raw materials offerings are processed only to the point required to economically distribute them. Lumber is generally considered a raw material, as is iron, nickel, copper, and other ores. If iron is turned into sheets of steel, it is called a manufactured material because it has been processed into a finished good but is not a standalone product; it still has to be incorporated into something else to be usable. Both raw and manufactured materials are then used in the manufacture of other offerings.
Raw materials are often thought of as commodities, meaning that there is little difference among them. Consequently, the competition to sell them is based on price and availability. Natuzzi is an Italian company that makes leather furniture. The wood Natuzzi buys to make its sofas is a commodity.
OEM Offerings or Components
An original equipment manufacturer (OEM) is a manufacturer or assembler of a final product. An OEM purchases raw materials, manufactured materials, and component parts and puts them together to make a final product. OEM offerings or components, like an on-off switch, are components, or parts, sold by one manufacturer to another that get built into a final product without further modification. The metal feet of a Natuzzi couch are probably made by a manufacturer other than Natuzzi, making the feet an OEM component. Dell’s hard drives installed in computer kiosks like the self-service kiosks in airports that print your boarding passes are another example of an OEM component.
Maintenance, repair, and operations (MRO) offerings refer to products and services used to keep a company functioning. Janitorial supplies are MRO offerings, as is hardware used to repair any part of a building or equipment. MRO items are often sold by distributors. However, you can buy many of the same products at a retail store. For example, you can buy nuts and bolts at a hardware store. A business buyer of nuts and bolts, however, will also need repair items that you don’t, such as very strong solder used to weld metal. For convenience sake, the buyer would prefer to purchase multiple products from one vendor rather than driving all over town to buy them. So, the distributor sends a salesperson to see the buyer. Most distributors of MRO items sell thousands of products, set up online purchasing websites for their customers, and provide a number of other services to make life easier for them.
Facilitating offerings include products and services that support a company’s operations but are not part of the final product it sells. Marketing research services, banking and transportation services, copiers and computers, and other similar products and services fall into this category. Facilitating offerings might not be central to the buyer’s business, at least not the way component parts and raw materials are. Yet to the person who is making the buying decision, these offerings can be very important. If you are a marketing manager who is selecting a vendor for marketing research or choosing an advertising agency, your choice could be critical to your personal success. For this reason, many companies that supply facilitating offerings try to build strong relationships with their clients.
Business buyers purchase various types of offerings to make their own offerings. Some of the types of products they use are raw materials, manufactured materials, and component parts and assemblies, all of which can become part of an offering. MRO (maintenance, repair, and operations) offerings are those that keep a company’s depreciable assets in working order. Facilitating offerings are products and services a company purchases to support its operations but are not part of the firm’s final product.
Managing the Offering
Managing a company’s offerings presents a number of challenges. Depending on the size of the company and the breadth of the company’s offerings, several positions may be needed.
A brand manager is one such position. A brand manager is the person responsible for all business decisions regarding offerings within one brand. By business decisions, we mean making decisions that affect profit and loss, which include such decisions as which offerings to include in the brand, how to position the brand in the market, pricing options, and so forth.
A brand manager is often charged with running the brand as if it were its own separate business.
A brand manager is much more likely to be found in consumer marketing companies. Typically, B2B companies do not have multiple brands, so the position is not common in the B2B environment. What you often find in a B2B company is a product manager, someone with business responsibility for a particular product or product line. Like the brand manager, the product manager must make many business decisions, such as which offerings to include, advertising selection, and so on. Companies with brand managers include Microsoft, Procter & Gamble, SC Johnson, Kraft, Target, General Mills, and ConAgra Foods. Product managers are found at Xerox, IBM, Konica-Minolta Business Solutions, Rockwell International, and many others.
Most brand managers have an undergraduate degree in marketing, but it helps to have a strong background in either finance or accounting because of the profitability and volume decisions brand managers have to make.
In some companies, a category manager has responsibility for business decisions within a broad grouping of offerings. For example, a category manager at SC Johnson may have all home cleaning products, which would mean that brands such as Pledge, Vanish, Drano, Fantastik, Windex, Scrubbing Bubbles, and Shout would be that person’s responsibility. Each of those brands may be managed by a brand manager who then reports directly to the category manager.
At the retail level, a category manager at each store is responsible for more than just one manufacturer’s products. The home cleaning category manager would have responsibility for offerings from SC Johnson, as well as Procter & Gamble, Colgate-Palmolive, and many other producers.
Another option is to create a market manager, who is responsible for business decisions within a market. In this case, a market can be defined as a geographic market or region, a market segment such as a type of business, or a channel of distribution. For example, SC Johnson could have regional insect control managers. Regional market managers would make sense for insect control because weather has an influence on which bugs are a problem at any given time. For example, a southern regional manager would want more inventory of the repellent Off! in March because it is already warm and the mosquitoes are already breeding and biting in the southern United States.
In B2B markets, a market manager is more likely to have responsibility for a particular market segment, (e.g., hospital health care professionals or doctor’s offices). All customers like these (retail, wholesale, and so forth) in a particular industry compose what’s called a vertical market, and the managers of these markets are called vertical market managers. B2B companies organize in this way for the following reasons:
· Buying needs and processes are likely to be similar within an industry.
· Channels of communication are likely to be the same within an industry but different across industries.
Because magazines, websites, and trade shows are organized to serve specific industries or even specific positions within industries, B2B marketers find vertical market structures for marketing departments to be more efficient than organizing by geography.
Market managers sometimes report to brand managers or are a part of their firms’ sales organizations and report to sales executives. Market managers are less likely to have as much flexibility in terms of pricing and product decisions and have no control over the communication content of marketing campaigns or marketing strategies. These managers are more likely to be tasked with implementing a product or brand manager’s strategy and be responsible for their markets. Some companies have market managers but no brand managers. Instead, marketing vice presidents or other executives are responsible for the brands.
Brand managers decide what products are to be marketed and how. Other important positions include category managers, market managers, and vertical market managers. Category managers are found in consumer markets, usually in retail. Market managers can be found in both consumer markets and B2B markets. However, vertical market managers are found only in B2B markets. Some companies have market managers but no brand managers. Instead, a vice president of marketing or other executive is responsible for the brands.
Licenses and Attributions
Chapter 6: Creating Offerings from Marketing Principles is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the site’s original creator or licensee.
Differences between a Product and a Service
Although a service may be viewed as a product and vice versa, the two are distinguished by several characteristics. Services are characterized by the following attributes (Johansson, 2009):
· intangibility—You cannot easily touch a service. Services are difficult to monitor at borders and hard to assess for customs duty.
· heterogeneity—A service is not exactly the same each time, especially personal services. Services are less standardized than products and quality varies.
· inseparability—Services are produced when they are consumed. Service quality depends on situation and context.
· perishability—You cannot store a service, unless the service is embodied in a product (e.g., a DVD or an ATM).
The entry barriers in global markets for services are greater than for products, but exit barriers are lower (Johansson, 2009):
· Local regulations vary widely across countries.
· Local service businesses are typically protected.
· Cultural barriers tend to be higher.
· Intangibility makes trade monitoring difficult.
· Free-trade agreements are hard to complete and enforce.
· Without trade agreements, governments have no incentive to make regulations more homogeneous.
Quality can be hard to define when it comes to global services (Johansson, 2009):
· Since services are intangible, service quality is difficult to quantify.
· Different cultures have different habits and preferences, and therefore have different definitions of service quality.
· Culture strongly affects perceived service quality and customer satisfaction.
· What is considered high service quality in one country may not necessarily be perceived as high in another.
Johansson, J. (2009). Global marketing (5th ed.). New York, NY: McGraw-Hill.
Companies address their customers through their value proposition, which is the totality of the benefits offered to satisfy customer needs and wants. The product or service will only be successful if it delivers value and satisfies the target customer. In other words, the value proposition is more than just the core positioning of the product or service; it represents the whole set of benefits that a company promises to deliver. Accordingly, astute product or service positioning will result in a successful customer-focused value proposition (i.e., a clear reason why the target customers should buy the offering) (Kotler & Keller, 2015).
Kotler, P. & Keller, K. L. (2015). Marketing management (15th ed.). Upper Saddle River, NJ: Pearson.
What Is a Value Proposition?
Individual buyers and organizational buyers evaluate products and services to see if they provide desired benefits. For example, when you’re exploring vacation options, you want to know the benefits of each destination and the value you will get by going to each place. Before you (or a firm) can develop a strategy or create a strategic plan, you have to develop a value proposition. A value proposition is a 30-second elevator speech stating the specific benefits a product or service offering provides a buyer. It shows why the product or service is superior to competing offers. The value proposition answers the questions, “Why should I buy from you or why should I hire you?” As such, the value proposition becomes a critical component in shaping strategy.
The following is an example of a value proposition developed by a sales consulting firm: “Our clients grow their business, large or small, typically by a minimum of 30 percent to 50 percent over the previous year. They accomplish this without working 80-hour weeks and sacrificing their personal lives” (Lake, 2016).
Note that although a value proposition will hopefully lead to profits for a firm, when the firm presents its value proposition to its customers, it doesn’t mention its own profits. That’s because the goal is to focus on the external market or what customers want.
Firms typically segment markets and then identify different target markets, or groups of customers, that they want to reach when firms are developing their value propositions. Be aware that companies sometimes develop different value propositions for different target markets just as individuals may develop a different value proposition for different employers. The value proposition tells groups of customers (or potential employers) why they should buy a product or service, vacation to a particular destination, donate to an organization, hire you, etc.
Once the benefits of a product or service are clear, the firm must develop strategies that support the value proposition. The value proposition serves as a guide for this process. In the case of our sales consulting firm, the strategies it develops must help clients improve their sales by 30 percent to 50 percent. Likewise, if a company’s value proposition states that the firm is the largest retailer in the region with the most stores and best product selection, opening stores or increasing the firm’s inventory might be a key part of the company’s strategy. Looking at Amazon’s value proposition, “Low price, wide selection with added convenience anytime, anywhere,” one can easily see how Amazon has been so successful (InfoMarketersZone.com, n.d.).
Individuals and students should also develop their personal value propositions. Tell companies why they should hire you or why a graduate school should accept you. Show the value you bring. A value proposition will help you in different situations. Think about how your internship experience and/or study abroad experience may help a future employer. For example, you could explain to the employer the benefits and value of going abroad. Perhaps your study abroad experience helped you understand customers that buy from Company X and your customer service experience during your internship increased your ability to generate sales, which improved your employer’s profit margin. Thus you may be able to quickly contribute to Company X, something that Company X might value.
A value proposition is a 30-second elevator speech stating the specific value a product or service provides to a target market. Firms may develop different value propositions for different groups of customers. The value proposition shows why the product or service is superior to competing offers and why the customer should buy it or why a firm should hire you.
Components of the Strategic Planning Process
Conducting a Situation Analysis
As part of the strategic planning process, a situation analysis must be conducted before a company can decide on specific actions. A situation analysis involves analyzing both the external (macro and micro factors outside the organization) and the internal (company) environments. The firm’s internal environment—such as its financial resources, technological resources, and the capabilities of its personnel and their performance—has to be examined. It is also critical to examine the external macro and micro environments the firm faces, such as the economy and its competitors. The external environment significantly affects the decisions a firm makes, and thus must be continuously evaluated. For example, during the economic downturn in 2008–2009, businesses found that many competitors drastically cut the prices of their products. Other companies reduced package sizes or the amount of product in packages. Firms also offered customers incentives (free shipping, free gift cards with purchase, rebates, etc.) to purchase their goods and services online, which allowed businesses to cut back on the personnel needed to staff their brick-and-mortar stores. While a business cannot control things such as the economy, changes in demographic trends, or what competitors do, it must decide what actions to take to remain competitive—actions that depend in part on the internal environment.
Conducting a SWOT Analysis
Based on the situation analysis, organizations analyze their strengths, weaknesses, opportunities, and threats, conducting what’s called a SWOT analysis. Strengths and weaknesses are internal factors and are somewhat controllable. For example, an organization’s strengths might include its brand name, efficient distribution network, reputation for great service, and strong financial position. A firm’s weaknesses might include lack of awareness of its products in the marketplace, a lack of human resources talent, and a poor location. Opportunities and threats are factors that are external to the firm and largely uncontrollable. Opportunities might entail the international demand for the type of products the firm makes, few competitors, and favorable social trends such as people living longer. Threats might include a bad economy, high interest rates that increase a firm’s borrowing costs, and an aging population that makes it hard for the business to find workers.
You can conduct a SWOT analysis of yourself to help determine your competitive advantage. Perhaps your strengths include strong leadership abilities and communication skills, whereas your weaknesses include a lack of organization. Opportunities for you might exist in specific careers and industries; however, the economy and other people competing for the same position might be threats.
Moreover, a factor that is a strength for one person (say, strong accounting skills) might be a weakness for another person (poor accounting skills). The same is true for businesses.
The easiest way to determine if a factor is external or internal is to take away the company, organization, or individual and see if the factor still exists. Internal factors such as strengths and weaknesses are specific to a company or individual, whereas external factors such as opportunities and threats affect multiple individuals and organizations in the marketplace. For example, if you are doing a situation analysis on PepsiCo and are looking at the weak economy, take PepsiCo out of the picture and see what factors remain. If the factor—the weak economy—is still there, it is an external factor. Even if PepsiCo hadn’t been around in 2008–2009, the weak economy reduced consumer spending and affected a lot of companies.
Assessing the Internal Environment
When an organization evaluates which factors are its strengths and weaknesses, it is assessing its internal environment. Once companies determine their strengths, they can use those strengths to capitalize on opportunities and develop their competitive advantage. For example, strengths for PepsiCo are what are called “mega” brands, or brands that individually generate over $1 billion in sales (PepsiCo, n.d.). These brands are also designed to contribute to PepsiCo’s environmental and social responsibilities.
PepsiCo’s brand awareness, profitability, and strong presence in global markets are also strengths. Especially in foreign markets, the loyalty of a firm’s employees can be a major strength, which can provide it with a competitive advantage. Loyal and knowledgeable employees are easier to train and tend to develop better relationships with customers. This helps organizations pursue more opportunities.
Although the brand awareness for PepsiCo’s products is strong, smaller companies often struggle with weaknesses such as low brand awareness, low financial reserves, and poor locations. When organizations assess their internal environments, they must look at factors such as performance and costs as well as brand awareness and location. Managers need to examine both the past and current strategies of their firms and determine what strategies succeeded and which ones failed. This helps a company plan its future actions and improves the odds it will be successful. For example, a company might look at packaging that worked very well for a product and use the same type of packaging for new products. Firms may also look at customers’ reactions to changes in products, including packaging, to see what works and doesn’t work. When PepsiCo changed the packaging of major brands in 2008, customers had mixed responses. Tropicana switched from the familiar orange with the straw in it to a new package and customers did not like it. As a result, Tropicana changed back to the familiar orange with a straw after spending $35 million for the new package design.
Individuals are also wise to look at the strategies they have tried in the past to see which ones failed and which ones succeeded. Have you ever done poorly on an exam? Was it the instructor’s fault, the strategy you used to study, or did you decide not to study? See which strategies work best for you and perhaps try the same type of strategies for future exams. If a strategy did not work, see what went wrong and change it. Doing so is similar to what organizations do when they analyze their internal environments.
Assessing the External Environment
Analyzing the external environment involves tracking conditions in the macro and micro marketplace that, although largely uncontrollable, affect the way an organization does business. The macro environment includes economic factors, demographic trends, cultural and social trends, political and legal regulations, technological changes, and the price and availability of natural resources. The micro environment includes competition, suppliers, marketing intermediaries (retailers, wholesalers), the public, the company, and customers.
When firms globalize, analyzing the environment becomes more complex because they must examine the external environment in each country in which they do business. Regulations, competitors, technological development, and the economy may be different in each country and will affect how firms do business.
Although the external environment affects all organizations, companies must focus on factors that are relevant for their operations. For example, government regulations on food packaging will affect PepsiCo but not Goodyear. Similarly, students getting a business degree don’t need to focus on job opportunities for registered nurses.
The Competitive Environment
All organizations must consider their competition, whether it is direct or indirect competition vying for the consumer’s dollar. Both nonprofit and for-profit organizations compete for customers’ resources. Coke and Pepsi are direct competitors in the soft drink industry, Hilton and Sheraton are competitors in the hospitality industry, and organizations such as United Way and the American Cancer Society compete for resources in the nonprofit sector. However, hotels must also consider other options that people have when selecting a place to stay, such as hostels, dorms, bed and breakfasts, or rental homes.
A group of competitors that provide similar products or services form an industry. Michael Porter, a professor at Harvard University and a leading authority on competitive strategy, developed an approach for analyzing industries. Called the five forces model (Porter, 1980, pp. 3–33), the framework helps organizations understand their current competitors as well as organizations that could become competitors in the future. As such, firms can find the best way to defend their position in the industry.
When a firm conducts a competitive analysis, it tends to focus on direct competitors and tries to determine a firm’s strengths and weaknesses, its image, and its resources. Doing so helps the firm figure out how much money a competitor may be able to spend on things such as research, new product development, promotion, and new locations. Competitive analysis involves looking at any information (annual reports, financial statements, news stories, observation details obtained on visits, etc.) available on competitors. Another means of collecting competitive information is using mystery shoppers, or people who act like customers. Mystery shoppers might visit competitors to learn about their customer service and their products. Imagine going to a competitor’s restaurant and studying the menu and the prices and watching customers to see what items are popular and then changing your menu to better compete. Competitors battle for the customer’s dollar, and they must know what other firms are doing. Individuals and teams also compete for jobs, titles, and prizes and must figure out the competitors’ weaknesses and plans in order to take advantage of their strengths and have a better chance of winning.
According to Porter, in addition to their direct competitors (competitive rivals), organizations must consider the strength and impact the following could have (Porter, 1980, pp. 3–33):
· substitute products
· potential entrants (new competitors) in the marketplace
· the bargaining power of suppliers
· the bargaining power of buyers
When any of these factors change, companies may have to respond by changing their strategies. For example, because buyers are consuming fewer soft drinks these days, companies such as Coke and Pepsi have had to develop new, substitute offerings such as vitamin water and sports drinks. However, other companies such as Dannon or Nestlé may also be potential entrants in the flavored water market.
When you select a hamburger fast-food chain, you also had the option of substitutes such as getting food at the grocery or going to a pizza place. When computers entered the market, they were a substitute for typewriters. Most students may not have ever used a typewriter, but some consumers still use typewriters for forms and letters.
Suppliers, the companies that supply ingredients as well as packaging materials to other companies, must also be considered. If a company cannot get the supplies it needs, it’s in trouble. Also, sometimes suppliers see how lucrative their customers’ markets are and decide to enter them. Buyers, who are the focus of marketing and strategic plans, must also be considered because they have bargaining power and must be satisfied. If a buyer is large enough, and doesn’t purchase a product or service, it can affect a selling company’s performance. Walmart, for instance, is a buyer with a great deal of bargaining power. Firms that do business with Walmart must be prepared to make concessions to them if they want their products on the company’s store shelves.
Lastly, the world is becoming “smaller” and more of a global marketplace. Companies everywhere are finding that no matter what they make, numerous firms around the world are producing the same “widget” or a similar offering (substitute) and are eager to compete. Employees are in the same position. The Internet has made it easier than ever for customers to find products and services and for workers to find the best jobs, even if they are abroad. Companies are also acquiring foreign firms. These factors all have an effect on the strategic decisions companies make.
The Political and Legal Environment
All organizations must comply with government regulations and understand the political and legal environments in which they do business. Different government agencies enforce the regulations that have been established to protect both consumers and businesses. For example, the Sherman Act (1890) prohibits US firms from restraining trade by creating monopolies and cartels. The regulations related to the act are enforced by the Federal Trade Commission (FTC), which also regulates deceptive advertising. The US Food and Drug Administration (FDA) regulates the labeling of consumable products, such as food and medicine. One organization that has been extremely busy is the Consumer Product Safety Commission, the group that sets safety standards for consumer products.
When organizations conduct business in multiple markets, they must understand that regulations vary across countries and across states. Many states and countries have different laws that affect strategy. For example, suppose you are opening a new factory because you cannot keep up with the demand for your products. If you are considering opening the factory in France (perhaps because the demand in Europe for your product is strong), you need to know that it is illegal for employees in that country to work more than 35 hours per week.
The Economic Environment
The economy has a major impact on spending by both consumers and businesses, which, in turn, affects the goals and strategies of organizations. Economic factors include variables such as inflation, unemployment, interest rates, and whether the economy is in a growth period or a recession. Inflation occurs when the cost of living continues to rise, eroding the purchasing power of money. When this happens, you and other consumers and businesses need more money to purchase goods and services. Interest rates often rise when inflation rises. Recessions can also occur when inflation rises because higher prices sometimes cause low or negative growth in the economy.
During a recessionary period, it is possible for both high-end and low-end products to sell well. Consumers who can afford luxury goods may continue to buy them, while consumers with lower incomes tend to become more value-conscious. Other goods and services, such as products sold in traditional department stores, may suffer. In the face of a severe economic downturn, even the sales of luxury goods can suffer. The economic downturn that began in 2008 affected consumers and businesses at all levels worldwide. Consumers reduced their spending, holiday sales dropped, financial institutions went bankrupt, the mortgage industry collapsed, and the “Big Three” US auto manufacturers (Chrysler, Ford, and General Motors) asked for emergency loans.
The Demographic and Social and Cultural Environments
The demographic and social and cultural environments—including social trends, such as people’s attitudes toward fitness and nutrition; demographic characteristics, such as people’s age, income, marital status, education, and occupation; and culture, which relates to people’s beliefs and values—are constantly changing in the global marketplace. Fitness, nutrition, and health trends affect the product offerings of many firms. For example, PepsiCo produces vitamin water and sports drinks. More women are working, which has led to a rise in the demand for services such as house cleaning and daycare. US baby boomers are reaching retirement age, sending their children to college, and trying to care for their elderly parents all at the same time. Firms are responding to the time constraints their buyers face by creating products that are more convenient, such as frozen meals and nutritious snacks.
The composition of the population is also constantly changing. Hispanics are the fastest-growing minority in the United States. Consumers in this group and other diverse groups prefer different types of products and brands. In many cities, stores cater specifically to Hispanic customers.
The technology available in the world is changing the way people communicate and the way firms do business. Everyone is affected by technological changes. Self-scanners and video displays at stores, ATMs, the Internet, and mobile phones are a few examples of how technology is affecting businesses and consumers. Many consumers get information, read the news, use text messaging, and shop online. As a result, marketers have begun allocating more of their promotion budgets to online ads and mobile marketing and not just to traditional print media such as newspapers and magazines. Applications for telephones and electronic devices are changing the way people obtain information and shop, allowing customers to comparison shop without having to visit multiple stores. Many young people may rely more on electronic books, magazines, and newspapers and depend on mobile devices for most of their information needs. Organizations must adapt to new technologies in order to succeed.
Natural resources are scarce commodities, and consumers are becoming increasingly aware of this. Today, many firms are doing more to engage in “sustainable” practices that help protect the environment and conserve natural resources. Green marketing involves marketing environmentally safe products and services in a way that is good for the environment. Water shortages often occur in the summer months, so many restaurants now only serve patrons water upon request. Hotels voluntarily conserve water by not washing guests’ sheets and towels every day unless the guests request it. Reusing packages (refillable containers) and reducing the amount of packaging, paper, energy, and water in the production of goods and services are becoming key considerations for many organizations, whether they sell their products to other businesses or to final users (consumers). Construction companies are using more energy-efficient materials and often have to comply with green building solutions. Green marketing not only helps the environment but also saves the company, and ultimately the consumer, money. Sustainability, ethics (doing the right things), and social responsibility (helping society, communities, and other people) influence an organization’s planning process and the strategies it implements.
Although environmental conditions change and must be monitored continuously, the situation analysis is a critical input to an organization’s or an individual’s strategic plan.
The Mission Statement
The firm’s mission statement states the purpose of the organization and why it exists. Both profit and nonprofit organizations have mission statements, which they often publicize.
PepsiCo’s mission statement is as follows: “Our mission is to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity” (PepsiCo, Mission and Vision, n.d.).
The United Way’s mission statement reads, “United Way improves lives by mobilizing the caring power of communities around the world to advance the common good” (United Way, n.d.).
Sometimes SBUs develop separate mission statements. For example, PepsiCo Americas Beverages, PepsiCo Americas Foods, and PepsiCo International might each develop a different mission statement.
A firm must analyze factors in the external and internal environments it faces throughout the strategic planning process. These factors are inputs to the planning process. As they change, the company must be prepared to adjust its plans. Different factors are relevant for different companies. Once a company has analyzed its internal and external environments, managers can begin to decide which strategies are best, given the firm’s mission statement.
Developing Organizational Objectives and Formulating Strategies
Objectives are what organizations want to accomplish—the end results they want to achieve—in a given time frame. In addition to being accomplished within a certain time frame, objectives should be realistic (achievable) and be measurable, if possible. “To increase sales by 2 percent by the end of the year” is an example of an objective an organization might develop. You have probably set objectives for yourself that you want to achieve in a given time frame. For example, your objectives might be to maintain a certain grade-point average and get work experience or an internship before you graduate.
Objectives help guide and motivate a company’s employees and give its managers reference points for evaluating the firm’s marketing actions. Although many organizations publish their mission statements, most for-profit companies do not publish their objectives. Accomplishments at each level of the organization have helped PepsiCo meet its corporate objectives. PepsiCo’s business units (divisions) have increased the number of their facilities to grow their brands and enter new markets. PepsiCo’s beverage and snack units have gained market share by developing healthier products and products that are more convenient to use.
A firm’s marketing objectives should be consistent with the company’s objectives at other levels, such as the corporate level and business level. An example of a marketing objective for PepsiCo might be “to increase by 4 percent the market share of Gatorade by the end of the year.”
Strategies are the means to the ends, the game plan, or what a firm is going to do to achieve its objectives. Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily. Tactics include specific actions, such as coupons, television commercials, banner ads, etc., taken to execute the strategy. PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including “mega brands,” which include individual brands that generate over $1 billion in sales each. The tactics may consist of specific actions (commercials during the Super Bowl; coupons; buy one, get one free, etc.) to advertise each brand.
Firms often use multiple strategies to accomplish their objectives and capitalize on marketing opportunities. For example, in addition to pursuing a low-cost strategy (selling products inexpensively), Walmart has simultaneously pursued a strategy of opening new stores rapidly around the world. Many companies develop marketing strategies as part of their general, overall business plans. Other companies prepare separate marketing plans.
A marketing plan is a strategic plan at the functional level that provides a firm’s marketing group with direction. It is a road map that improves the firm’s understanding of its competitive situation. The marketing plan also helps the firm allocate resources and divvy the tasks that employees need to do for the company to meet its objectives.
Market penetration strategies focus on increasing a firm’s sales of its existing products to its existing customers. Companies often offer consumers special promotions or low prices to increase their products’ use and encourage consumers to buy products. When Frito-Lay distributes money-saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is using a penetration strategy. The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using soup as an ingredient for cooking quick meals.
Product development strategies involve creating new products for existing customers. A new product can be a new innovation, an improved product, or a product with enhanced value, such as one with a new feature. Cell phones that allow consumers to charge purchases with the phone or take pictures are examples of a product with enhanced value. A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, however, that what works for one company might not work for another. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkin’ Donuts announced it was adding items to its lunch menu.
Market development strategies focus on entering new markets with existing products. For example, during a recent economic downturn, manufacturers of high-end coffee makers began targeting customers who go to coffee shops. The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.
New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Many companies, including PepsiCo and Hyundai, have entered—and been successful in—emerging markets such as Russia, China, and India. Decisions to enter foreign markets are based on a company’s resources as well as the complexity of factors such as the political environmental, economic conditions, competition, customer knowledge, and probability of success in the desired market. There are different ways, or strategies, by which firms can enter international markets. The strategies vary in the amount of risk, control, and investment firms face. Firms can simply export, or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Many small firms export their products to foreign markets.
Firms can also license, or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or firms in foreign markets. Licensing is a popular strategy, but firms must figure out how to protect their interests if the licensee decides to open its own business and void the license agreement. The French luggage and handbag maker Louis Vuitton faced this problem when it entered China. Competitors started illegally putting the Louis Vuitton logo on different products, which cut into Louis Vuitton’s profits.
Franchising is a longer-term (and thus riskier) form of licensing that is popular with service firms, such as restaurants like McDonald’s and Subway, hotels like Holiday Inn Express, and cleaning companies like Stanley Steemer. Franchisees pay a fee and must adhere to certain standards; however, they benefit from the advertising and brand recognition the franchising company provides.
Contract manufacturing allows companies to hire manufacturers to produce their products in another country. The manufacturers are provided specifications for the products, which are then manufactured and sold on behalf of the company that contracted the manufacturing. Contract manufacturing may provide tax incentives and may be more profitable than manufacturing the products in the home country. Examples of products in which contract manufacturing is often used include cell phones, computers, and printers.
Joint ventures combine the expertise and investments of two companies and help companies enter foreign markets. The firms in each country share the risks as well as the investments. Some countries such as China often require companies to form a joint venture with a domestic firm in order to enter the market. After entering the market in a partnership with a domestic firm and becoming established in the market, some firms may decide to separate from their partner and become their own business. Fuji Xerox Co. Ltd. is an example of a joint venture between the Japanese Fuji Photo Film Co. and the American document management company Xerox. Another example of a joint venture is Sony Ericsson. The venture combined the Japanese company Sony’s electronic expertise with the Swedish company Ericsson’s telecommunication expertise. With investment by both companies, joint ventures are riskier than exporting, licensing, franchising, and contract manufacturing but also provide more control to each partner.
Direct investment (owning a company or facility overseas) is another way to enter a foreign market, providing the most control but also having the most risk. For example, In Bev, the Dutch maker of Beck’s beer, was able to capture market share in the United States by purchasing St. Louis-based Anheuser-Busch. A direct investment strategy involves the most risk and investment but offers the most control. Other companies such as advertising agencies may want to invest and develop their own businesses directly in international markets rather than trying to do so via other companies.
Diversification strategies involve entering new markets with new products or doing something outside a firm’s current businesses. Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies. Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy. Warner Music Group’s purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed.
The strategic planning process includes a company’s mission (purpose), objectives (end results desired), and strategies (means). Sometimes the different SBUs of a firm have different mission statements. A firm’s objectives should be realistic (achievable) and measurable. The different product market strategies firms pursue include market penetration, product development, market development, and diversification.
Where Strategic Planning Occurs Within Firms
Strategic planning is a long-term process that helps an organization allocate its resources to take advantage of different opportunities. In addition to marketing plans, strategic planning may occur at different levels within an organization. For example, in large organizations, top executives will develop strategic plans for the corporation as a whole. These are corporate-level plans. In addition, many large firms have different divisions, or businesses, called strategic business units. A strategic business unit (SBU) is a business or product line within an organization that has its own competitors, customers, and profit center for accounting purposes. A firm’s SBUs may also have their own mission statements (purpose) and will generally develop strategic plans for themselves. These are called business-level plans. The different departments, or functions (accounting, finance, marketing) within a company or SBU might also develop strategic plans. For example, a company may develop a marketing plan or a financial plan, which are functional-level plans.
The number of levels can vary, depending on the size and structure of an organization. Not every organization will have every level or have every type of plan.
The strategies and actions implemented at the functional (department) level must be consistent with an organization’s objectives and help an organization achieve those objectives at both the business and corporate levels, and vice versa. The SBUs at the business level must also be consistent with an organization’s corporate-level objects and help an organization achieve those corporate objectives. For example, if a company wants to increase its profits at the corporate level and owns multiple business units, each unit might develop strategic plans to increase its own profits and thereby the firm’s profits as a whole. At the functional level, a firm’s marketing department might develop strategic plans to increase sales and the market share of the firm’s most profitable products, which will increase profits at the business level and help the corporation’s profitability. Both business level and functional plans should help the firm increase its profits, so that the company’s corporate-level strategic objectives can be met.
At the functional (marketing) level, for example, to increase PepsiCo’s profits, employees responsible for different products or product categories such as beverages or foods might focus on developing healthier products and making their packaging more environmentally friendly so the company captures more market share. For example, the new Aquafina bottle uses less plastic and has a smaller label, which helps the environment by reducing the amount of waste.
Organizations can use multiple methods and strategies at different levels in the corporation to accomplish their goals just as you may use different strategies to accomplish your goals. However, the basic components of the strategic planning process are the same at each of the different levels.
Strategic planning can occur at different levels (corporate, business, and functional) in an organization. The number of levels may vary. However, if a company has multiple planning levels, the plans must be consistent, and all must help achieve the overall goals of the corporation.
Strategic Portfolio Planning Approaches
When a firm has multiple strategic business units as PepsiCo does, it must decide what the objectives and strategies for each business are and how to allocate resources among them. A group of businesses can be considered a portfolio, just as a collection of artwork or investments compose a portfolio. In order to evaluate each business, companies sometimes use what’s called a portfolio planning approach. A portfolio planning approach involves analyzing a firm’s entire collection of businesses relative to one another. Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach.
The Boston Consulting Matrix
The Boston Consulting Group (BCG) matrix helps companies evaluate each of its strategic business units based on two factors: the SBU’s market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and the SBU’s relative market share (i.e., how the unit’s share of the market compares to the market share of its competitors). Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investment decisions. However, the BCG matrix is subjective, and managers should also use their judgment and other planning approaches before making decisions. Using the BCG matrix, managers can categorize their SBUs (products) into one of four categories:
· stars—Everyone wants to be a star. A star is a product with high growth and a high market share. To maintain the growth of its star products, a company may have to invest money to improve them and how they are distributed as well as promote them. The iPod, when it was first released, was an example of a star product.
· cash cows—A cash cow is a product with low growth and a high market share. Cash cows have a large share of a shrinking market. Although they generate a lot of cash, they do not have a long-term future. For example, DVD players were a cash cow for Sony. Eventually, DVDs are likely to be replaced by digital downloads, just like MP3s replaced CDs. Companies with cash cows need to manage them so that they continue to generate revenue to fund star products.
· question marks or problem children—Did you ever hear an adult say they didn’t know what to do with a child? The same question or problem arises when a product has a low share of a high-growth market. Managers classify these products as question marks or problem children. They must decide whether to invest in them and hope they become stars, or gradually eliminate them or sell them. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage. However, some manufacturers have a very low share of this market. These manufacturers now have to decide what they should do with these products.
· dogs—In business, it is not good to be considered a dog. A dog is a product with low growth and low market share. Dogs do not make much money and do not have a promising future. Companies often get rid of dogs. However, some companies are hesitant to classify any of their products as dogs. As a result, they keep producing products and services they shouldn’t or invest in dogs in hopes they’ll succeed..
The BCG matrix helps managers make resource allocation decisions once different products are classified. Depending on the product, a firm might decide on a number of different strategies for it. One strategy is to build market share for a business or product, especially a product that might become a star. Many companies invest in question marks because market share is available for them to capture. The success sequence is often used as a means to help question marks become stars. With the success sequence, money is taken from cash cows (if available) and invested into question marks in hopes of them becoming stars.
Holding market share means the company wants to keep the product’s share at the same level. When a firm pursues this strategy, it only invests what it has to in order to maintain the product’s market share. When a company decides to harvest a product, the firm lowers its investment in it. The goal is to try to generate short-term profits from the product regardless of the long-term impact on its survival. If a company decides to divest a product, the firm drops or sells it. That’s what Procter & Gamble did in 2008 when it sold its Folgers coffee brand to Smuckers. Proctor & Gamble also sold Jif peanut butter brand to Smuckers. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio.
As competitors enter the market, technology advances, and consumer preferences change, the position of a company’s products in the BCG matrix is also likely to change. The company has to continually evaluate the situation and adjust its investments and product promotion strategies accordingly. The firm must also keep in mind that the BCG matrix is just one planning approach and that other variables can affect the success of products.
The General Electric Approach
Another portfolio planning approach that helps a business determine whether to invest in opportunities is the General Electric (GE) approach. The GE approach examines a business’s strengths and the attractiveness of the industry in which it competes. As we have indicated, a business’s strengths are factors internal to the company, including strong human resources capabilities (talented personnel), strong technical capabilities, and the fact that the firm holds a large share of the market. The attractiveness of an industry can include aspects such as whether there is a great deal of growth in the industry, whether the profits earned by the firms competing within it are high or low, and whether it is difficult to enter the market. For example, the automobile industry is not attractive in times of economic downturn such as the recession in 2009, so many automobile manufacturers don’t want to invest more in production. They want to cut or stop spending as much as possible to improve their profitability. Hotels and airlines face similar situations.
Companies evaluate their strengths and the attractiveness of industries as high, medium, and low. The firms then determine their investment strategies based on how well the two correlate with one another. The investment options outlined in the GE approach can be compared to a traffic light. For example, if a company feels that it does not have the business strengths to compete in an industry and that the industry is not attractive, this will result in a low rating, which is comparable to a red light. In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automotive manufacturers.
Although many people may think a yellow light means “speed up,” it actually means caution. Companies with a medium rating on industry attractiveness and business strengths should be cautious when investing and attempt to hold the market share they have. If a company rates itself high on business strengths and the industry is very attractive (also rated high), this is comparable to a green light. In this case, the firm should invest in the business and build market share. During bad economic times, many industries are not attractive. However, when the economy improves, businesses must reevaluate opportunities.
A group of businesses is called a portfolio. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them. Portfolio planning approaches help firms analyze the businesses relative to each other. The BCG and GE approaches are two or the most common portfolio planning methods.
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