LECTURE NOTES/Class Activity

Chapter Opening Photo: Ben & Jerrys Website

CHAPTER OPENING EXAMPLE Where Can an A in Ice Cream Making Lead? Ben Cohen and Jerry Greenfield were grade school classmates on Long Island. In 1978 they headed to Vermont and eventually started Ben & Jerrys Homemade, Inc.a company that produces dozens of flavors of ice cream, ice milk, and yogurt. Some of their flavors: Cherry Garcia, Rainforest Crunch, Peace Pops, and the recent One Sweet Whirled ice cream. Ben & Jerrys website reflects its creative, funky approach to business linked to a genuine concern for social causes. Some examples:

Slide 2-8 Chapter Opening Photo: Ben & Jerrys Social Mission

Slide 2-9 Chapter Opening Photo: Ben & Jerry

It contributes 7.5% of its pretax profits to charities. It pays its employees a livable wage. It purchases supplies from other socially responsible firms. Its PartnerShops help nonprofit organizations provide training and jobs.

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But by the late 1990s Ben and Jerry concluded the companys sales were flattening and it needed additional financial resources to grow. So in 2000, Ben & Jerrys agreed to be acquired by Unilever, a huge multinational. Ben & Jerrys would operate separately from Unilevers current ice cream business to preserve the companys legendary concern for the environment and social responsibility, and both cofounders would continue their involvement with the company. Because of intense competition, firms must continuously revisit both marketing and corporate strategies, as Ben & Jerrys Homemade has had to do. I. ORGANIZATIONS AND THEIR LEVELS OF STRATEGY There are two basic kinds of organizations: A business firm is a privately owned organization that serves its customers in order to earn a profit, which is both: the reward to a business firm for the risk it undertakes in offering a product for sale, and

the money left over after a firms total expenses are subtracted from its total sales. A nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Some examples: museums, orchestras, and private hospitals.

A. Levels in Organizations and How Marketing Links to Them

Figure 2-1 Three levels of strategy

There are three levels in large organizations: 1. The corporate level, where top management directs overall strategy for the entire organization and creates value for its shareholders. 2. The business unit level (also termed strategic business units or SBUs), which is the part of an organization that markets a set of related products to a clearly defined group of customers. 3. The functional level, where groups of specialists actually create value for the organization. The term department refers to these specialized functions. Examples of functional units are finance, human resources, marketing, and research and development. B. Strategy Issues in Organizations Organizations need a reason for existence and a direction. This is where their business, mission, and goals converge. Business and mission apply to the corporate and business unit levels; goals relate to all three levels. 1. The Business. Organizations exist for a purposeto accomplish something for someone. But over time, its purpose gets fuzzy. One guideline in defining the companys business: Try to understand the people served by the organization and the value they receive, which emphasizes the critical customer-driven focus that successful organizations have. In famous article by Harvard professor Theodore Levitt (Marketing Myopia), organizations must not define their business and customer focus too narrowly. Some examples: Railroads are in the transportation business, not the railroad business. Disney is in the entertainment business, not movie or theme park businesses. Medtronic is in the business of alleviating pain, restoring health, and extending life, not the medical device business.

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2. The Mission. By understanding its business, an organization can define its mission, which is a statement of the organizations scope, often identifying its customers, markets, products, technology, and values. Star Trek has probably the best-known mission statement in America: To explore strange new worlds, to seek out new life and new civilizations, to boldly go where no one has gone

before.
Medtronic Mural What is its mission?

Medtronics mission statement: To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life. Organizations must connect not just with their customers but with all their stakeholders, which: Are the people who are affected by what the organization does and how well it performs. Includes employees, owners, board members, suppliers, distributors, unions, local communities, and customers.

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3. Goals. Goals or objectives convert the mission into targeted levels of performance to be achieved, often by a specific time. Goals measure how well the mission is being accomplished. Business firms pursue several different types of goals: Profit. According economic theory, a firm seeks as much profit as possible. Sales (dollars or units). A firm may elect to maintain or increase sales even though profits may not be maximized. Market share, which is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself. Quality. A firm may choose to focus on high quality. Customer satisfaction. Customers are the reason an organization exists. Can monitor their satisfaction through surveys or complaints. Employee welfare. A firm may recognize the critical role employees play in its success. Social responsibility. A firm may seek to balance conflicting goals of consumers, employees, and stockholders to promote overall welfare of all these groups, even at the expense of profits.

Nonprofit organizations also set goals: Private organizations strive to serve customers efficiently. Government agencies try to serve the public good. CONCEPT CHECK

1. What are the three levels in todays large organizations?

Answer: The three levels are the corporate, business unit, and functional. 2. What is the meaning of an organizations mission? Answer: Mission is a statement of the organizations scope, often identifying its customers, markets, products, technology, and values. 3. How does an organizations goals relate to its mission? Answer: Goals or objectives measure how well the organizations mission is being accomplished. II. SETTING STRATEGIC DIRECTIONS Setting strategic directions involves answering two questions: Where are we now? Where do we want to go?

A. A Look Around: Where Are We Now? Asking an organization where it is at the present time involves identifying its customers, competencies, and competitors.
Lands End ad What strategic direction?

1. Customers. Strategic directions must be customer-focused and provide genuine value and benefits to present and prospective customers. 2. Competencies.

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Answers the question, What do we do best? Competencies are an organizations special capabilities, including skills, technologies, and resources that distinguish it from other organizations. Exploiting them can lead to success. Competitive advantage is a unique strength relative to competitors, often based on quality, time, cost, or innovation.

3. Competitors. In global competition, the lines among competitive sectors are increasingly blurred, so successful firms continuously assess both who the competitors are and how they are changing in order to respond with their own strategies.
SLN 2-1: Lands End: The Complex-ities of Being an

Lands End started as a catalog retailer. But defining its competitors as other catalog retailers would be a huge oversimplification. Lands End now competes not only with other catalog retailers of clothing but with traditional department stores,

mass merchandisers, specialty shops, and well-known brands of clothing sold in all these kinds of retailers. In addition, all these have websites for Internet sales. B. Growth Strategies: Where Do We Want to Go? Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid in these decisions are the (1) business portfolio analysis and (2) market-product analysis.
Figure 2-2 BCG growth-share matrix

1. The Business Portfolio Analysis. The Boston Consulting Groups (BCG) business portfolio analysis uses quantified performance measures and growth targets to analyze a firms business units (called strategic business units or SBUs by BCG) as though they were a collection of separate investments. This analysis has also been applied at the product line or individual product or brand level. The SBUs are positioned on a growth-share matrix, in which: The vertical axis is the market growth rate, which is the annual rate of growth of the specific market or industry in which a given SBU is competing. The horizontal axis is the relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry.

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BCG has given names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate or require from the firm: Cash cows (lower left). SBUs that have a dominant share of slow-growth market. Generates large amounts of cash to pay company overhead and to invest in other SBUs. Stars (upper left). SBUs with a high share of high-growth market that needs extra cash to finance their future growth. Question marks or problem children (upper right). SBUs with a low share of high-growth markets. Requires a lot of cash to maintain or increase market share. Management must choose which to invest in and phase out the rest. Dogs (lower right). SBUs with a low share of low-growth markets. May generate enough cash to sustain but do not hold promise of becoming winners for the firm. Consider dropping unless relationships with other SBUs, competition, or potential strategic alliances exist that benefit the firm. NOTE: The area of the circles in a growth-share matrix is proportional to the corresponding SBUs annual sales

revenue.
Fujitsu Tablet PC ad What SBU cash strategy?

Management often makes decisions on the role of its SBUs in the future and either injects or removes cash from it. As a result, four alternative strategies are available for each SBU: Build. Invest cash in question marks to increase market share and turn them into stars. Hold. Invest just enough cash in cash cows to maintain market share at their current levels. Harvest. Remove cash from cash cows in the short-term even though they may lose market share and become dogs in the longer run. Divest. Phase out dogs by withholding cash or actually selling them to gain cash for other SBUs.

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2. The Market-Product Analysis.

Duncan Hines ad What SBU cash strategy?

Firms view growth opportunities via markets and products. For any product there is both a current market (existing customers) and a new market (potential customers). For any market there is both a current product (what existing customers now use) and a new product (something customers might use if developed).

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Figure 2-3 Four marketproduct strategies

Firms consider four alternative market-product strategies: Market penetration. Increase sales of present products in existing markets. There is no change in the basic product line or the market served, but increased sales are possible through finding efficiencies. Example: Increase sales of Ben & Jerrys present ice cream products to U.S. consumers by hooking onto Unilevers Breyers and Good Humor ice cream brands or through developing new flavors. Market development. Sell existing products to new markets (such as geographically). Example: Selling existing Ben & Jerrys products to South American consumers, whose incomes are increasing in South American markets, but are not well aware of the Ben & Jerrys brand. Product development. Sell a new product to existing markets. Example: Unilever could try leveraging the Ben & Jerrys brand by selling its own Ben & Jerrys brand of childrens clothing in the U.S. This is risky because consumers may not be able to see a clear connection between the companys expertise in ice cream and childrens clothing. Diversification. Develop new products and sell them in new markets. Example: Sell a brand of childrens clothing in

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South America. This is a potentially high-risk strategy because the company has neither previous production experience nor marketing experience on which to draw. CONCEPT CHECK 1. What are competencies and why are they important? 2. What is business portfolio analysis? 3. What are the four market-product strategies? III. THE STRATEGIC MARKETING PROCESS
Figure 2-4 The strategic marketing process

After the organization assesses where its at and where it wants to go, other questions emerge: How do we allocate our resources to get to where we want to go? How do we convert our plans into actions? How do our results compare with our plans, and do deviations require new plans and actions?

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This approach is used when:

ICA 2-1: Marketing Yourself

Engaging in the strategic marketing process, whereby an organization allocates its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and control. Developing a marketing plan, which is a road map for the marketing activities of an organization for a specified future period of time, such as one year or five years.

A. Strategic Marketing Process: The Planning Phase The planning phase consists of three steps:
Figure 2-5 SWOT of Ben & Jerrys

Situation analysis. Market-product focus and goal setting. The marketing program.

1. Step1: Situation (SWOT) Analysis. A situation analysis involves taking stock of where the firm or product has been recently, where it is now, and where it is headed in light of the organizations plans and the external factors and trends affecting it. A short-hand summary of the situation analysis is a SWOT analysis, an acronym describing an organizations appraisal

Slide 2-36 Ben & Jerrys SWOT: new social resp. programs?

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Ben & Jerrys SWOT: new ice cream flavors?

Slide 2-38 Ben & Jerrys SWOT: new ice cream flavors?

of its internal strengths and weaknesses and its external opportunities and threats. A SWOT analysis helps a firm to identify the strategyrelated factors to help the firm grow and succeed by building on vital strengths, correcting glaring weaknesses, exploiting significant opportunities, and avoiding disaster-laden threats. A SWOT analysis is based on an exhaustive study of the four areas in Step 1 of the planning phase and forms the foundation on which the firm builds its marketing program: Identifying trends in the firms industry. Analyzing the firms competitors. Assessing the firm itself. Researching the firms present/prospective customers.

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2. Step 2: Market-Product Focus and Goal Setting. Determining which products will be directed toward which customers is essential to develop an effective marketing program. This decision often based on market segmentation, which involves considering prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action.

Medtronics Champion What point of difference?

Goal setting involves setting measurable marketing objectives to be achieved. For an entire marketing program, the objective is often a series of actions to be implemented over several years. Example: Medtronics Champion heart pacemaker targeted at the affordable and reliable segment: Set marketing and product goals. Design and market such a pacemaker in three years for the Asian market. Select target markets. The Champion pacemaker will be targeted at cardiologists and medical clinics in India, China, and other Asian countries performing heart surgery. Find points of difference. Points of difference are those characteristics of a product that make it superior to competitive substitutes. For the Champion pacemaker, the key points of difference are high quality, long life, reliability, ease of use, and low cost. Position the product. The pacemaker will be positioned in cardiologists and patients minds as a medical device that is high quality and reliable with a long, nine-year life. The name Champion was selected after testing acceptable

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names in India, China, Pakistan, Singapore, and Malaysia.

Figure 2-6 Marketing mix elements

3. Step 3: Marketing Program. This aspect of the planning phase involves developing the marketing programs marketing mix and the budget. Example: Medtronics Champion heart pacemaker:

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ICA 2-2: Marketing Plan Worksheet

Product strategy. Offer a Champion brand pacemaker with features needed by Asian patients. Price strategy. Manufacture the Champion to control costs to price it below $1,000 (US). Promotion strategy. Demonstrate the Champion at cardiologist conventions. Place (distribution) strategy. Search out and train reputable medical distributors across Asia to call on cardiologists and medical clinics. Budget. After developing a sales forecast, a budget is developed that must be approved by top management.

CONCEPT CHECK 1. What is the difference between strength and an opportunity in a SWOT analysis? 2. What is market segmentation? 3. What are points of difference and why are they important? B. Strategic Marketing Process: The Implementation Phase

1. Obtaining Resources. The responsible marketing manager must obtain the people and money necessary to succeed.

Figure 2-7 Marketing department

2. Designing the Marketing Organization. A marketing program needs a marketing organization to implement it. The responsibilities of all individuals within the marketing organization need to be specified. 3. Developing Schedules. Effective implementation requires deadlinesscheduling important milestones and meeting them. 4. Executing the Marketing Program. Effective execution requires attention to detail for both marketing strategies and marketing tactics.

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A marketing strategy is the means by which a goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. Example: Kodaks launch of a new product targeted at Gen Yers (18-28 yrs). Marketing tactics are detailed day-to-day operational decisions essential to the overall success of marketing strategies. Example: Kodak decided to form a crossfunctional team to develop a digital camera that plays MP3 music files.

C. Strategic Marketing Process: The Control Phase The control phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it. It has two key elements:
Figure 2-8 Kodak: evaluation and control

1. Compare the results of the marketing program with the goals in the written plans to identify deviations. Can reveal a planning gap, which is the difference between the projection of the path to reach a new goal and the projection of the path of the results of a plan already in place. The ultimate purpose of the firms marketing program is to fill in this planning gap.

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Kodak Exploiting a positive deviation?

2. Act on these deviations by: Exploiting a positive deviation. Example: Since consumers like to take their film to Kodak mini-labs at retailers and get a CD for a second set of prints, Kodak strengthened its strategic partnerships with retailers like Wal-Mart, Kinkos, etc. by installing its PictureMaker.

Slide 2-52 Kodak Correcting a negative deviation?

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Correcting a negative deviation. Example: Digital camera owners want to get exact photo from cameras linked to PCs and the Internet. Software was improved to allow this with the EasyShare cameras. CONCEPT CHECK

1. What is the control phase of the strategic marketing process? 2. How do the objectives set for a marketing program in the planning phase relate to the control phase of the strategic marketing process?