Marketing Strategy—An Overview (Comprehensive Notes)

Marketing Strategy—An Overview (Notes)

  • Strategy in business is a plan of action designed to achieve defined objectives (e.g., sales volume, growth rate, profit percentage, market share, ROI).

    • Importance: clearly defined objectives give purpose and direction to all strategic efforts.
    • Strategies are developed at multiple levels: corporate, divisional, business unit, and departmental. The aggregate set forms an integrated plan for the entire enterprise.
    • Corporate strategies are the sum of business unit strategies plus any new business initiatives.

  • Heart of a business plan: the marketing strategy.

    • Firms exist to deliver products/services to markets; success hinges on how well this mission is served.
    • Other functions (finance, production, R&D) must support the marketing mission.
    • Marketing objectives/strategies must account for the firm’s core competencies and resource limits.

  • Elements of Marketing Strategy (four primary elements):
    1) Product/market selection: which markets to serve and with which product lines.
    2) Pricing: price levels for products, price relations within the line, discounts, financing options, and price promotions.
    3) Distribution systems: channels to move products to end users (salesforce, distributors, agents, franchised outlets).
    4) Market communications: advertising, direct marketing, trade shows, point-of-sale, sampling, telemarketing, etc.

  • Additional strategic considerations may include: product service programs (especially for repair/maintenance), technical service, and plant location as strategic components shaping geographic markets.

  • Brand strategy context: choice between family brands vs product-specific names (e.g., Kraft vs Lite beer).

  • The marketing mix and its variability:

    • The mix varies by product/market and over market growth stages.
    • Firms may emphasize different elements (e.g., heavy TV advertising vs direct mail vs specialized salesforces).
    • Even competitors may use different mixes for the same product/market.

  • Foundational concept:

    • The marketing mix concept is credited to Neil H. Borden (Harvard Business School).
    • See: Borden, "Concept of the Marketing Mix" (Case No. 502-004).

Product/Market Selection (Core Decision)

  • The single most important organizational decision is what markets to serve with which products.

    • These decisions commit the firm to specific customer groups, technologies, and competitive environments.

  • Product: the total package of attributes a customer gains when purchasing.

    • Benefits include: product function, warranties (manufacturer/retailer), repair service, technical assistance, brand-name value, ongoing product availability, and buyer-seller relationships.
    • Example nuance: a watch is telling time, jewelry, status symbol, and part of the shopping experience.

  • Perceived value vs. potential value:

    • Perceived value: the customer’s current view of the product.
    • Potential value: what customers can be educated to recognize; realized through market communications.

  • Market definition:

    • A market is a pocket of latent demand (a vein of ore in the ground) that can be mined.
    • New opportunities arise from exogenous factors: technology (electronics, aerospace, medical), population/income growth, societal needs (crime prevention, health care, population control), and shifts in culture/taste.

  • Market segmentation concept:

    • Segment: a set of potential customers who are similar in how they perceive/value the product, buying behavior, and product use.
    • Segments enable targeted strategy development.
    • Segmentation dimensions include:
    • Demography (consumer and industrial): e.g., income, age, sex, ethnicity, education; industrial exposure (enterprise size, for-profit/government/nonprofit, category of industry).
    • Geography: regional/national/international differences in market potential, competition, form preferences, and regulations; includes economic shipping distance.
    • Psychographics: lifestyles and attitudes toward self, work, family, and peer identity; includes corporate culture in industrial contexts (risk tolerance, supplier relationships).
    • Product use and application: how the product is used and fits into processes; e.g., nylon carpet technologies, crop-dusting planes, airline service, etc.
    • Market segmentation is dynamic: as a market grows and matures, segmentation structures evolve; ongoing reevaluation is necessary.

  • Market segmentation is an art, not a science: useful to delineate groups by needs, potential, and behavior; segments may be defined across multiple variables and nested within others (e.g., country markets analyzed with lifestyle variables).

  • After segmentation, firms select the most creatively/profitably served markets and develop strategies for each.

  • Figure B (Segmentation Variables) summarizes the dimensions described above.

  • Examples and applications:

    • PSI (Bangladesh) observed differing buying behavior by gender and urban/rural status; used a four-quadrant framework to tailor messaging for each segment.
    • IBM segments by customer categories (Health & Education, Banking & Finance, Government, Manufacturing, Distribution, Airlines) reflecting differences in usage, service needs, and buying behavior.

Market Segmentation Details (Variables and Dynamics)

  • Demographic (Consumer vs Industrial): income, age, sex, ethnicity, education; enterprise size; industry type; corporate structure.
  • Geography: regional market potential, competition, regulations; economic shipping distance; proximity needs for customized services (health, restaurants, etc.);
    • Globalization trends: geographic segmentation may be less dominant as markets become more similar due to communications/transportation advances.
  • Psychographic: lifestyles, attitudes, and identities; examples: seniors vs baby-boomers vs teens; working women vs homemakers; ethnic differences; corporate culture in B2B (risk-takers vs followers).
  • Product use and application: how purchasers use product and its fit within processes; differences across product forms and applications affect specifications and service needs.
  • Market segmentation is time-sensitive: as products evolve, competitors enter, and new channels emerge, segmentation must be revisited to avoid losing competitive position.

Product/Market Selection Criteria (How to Choose Markets and Products)

  • Key factors to consider:
    • Product value: prioritize segments that value the product most highly; focus on applications where the product contributes most.
    • Long-run growth potential: consider market size and profit potential, including follow-on opportunities; technology may enable rapid expansion into new applications.
    • Resource commitments: assess whether resources (marketing, production, R&D) can support high-potential markets and whether ROA justifies investment.
    • Competitive positioning: view the market as a chessboard; evaluate which segments are vacant, weakly defended, or dominated by strong competitors; first-mover advantages matter for recognition, access, and scale; differentiated offerings help later entrants.
    • Company-product/market fit: assess how new opportunities align with current operations (brand value, manufacturing/distribution fit); cannibalization risks vs total profitability; example: US car manufacturers slow to add compact cars due to cannibalization concerns, later changed due to foreign competitors’ entry.

The Art of Pricing (Pricing levers and strategic choices)

  • Five factors shaping price:
    • Supply/demand conditions
    • Production and overhead costs
    • Competition
    • Buyer bargaining power
    • Product value to customers
  • Supply/Demand:
    • Higher supply lowers price; market balance influences pricing; firms may attempt to control supply via monopolies, cartels, trade barriers, stockpiles, and signaling to deter expansion.
    • Historical example: Standard Oil’s supply control vs Edison’s electric light introduction altered demand for oil.
  • Cost factors:
    • Cost sets the price floor in the long run.
    • Strategic cost definitions vary: some costs (e.g., fixed overhead like depreciation, R&D, advertising) may be treated as strategic investments to attain short-run goals.
    • Fixed vs variable costs influence pricing strategy:
    • If fixed costs are high relative to variable costs, aim to maximize volume to spread fixed costs (e.g., hotels/airlines offering off-season discounts to fill capacity).
    • If variable costs dominate, prioritize margins per unit (e.g., packaged foods where materials/per unit are a large share of cost).
    • Low-cost producers gain competitive edge and survival advantage in price wars; scale economies and efficient distribution underpin success.
  • Competition:
    • Competition helps set price ceilings; more competition can push prices down.
    • Early-stage markets may have less price competition; as entry increases, price pressures rise.
    • Legally, firms may respond via differentiation, limiting intrabrand price competition, or pursuing price leadership.
    • Price leadership: often the largest/most efficient firm sets prices; others follow or risk losing market share.
    • Price parallelism: coordination among competitors on price movement is legally permissible if not predatory; formal collusion is illegal in many jurisdictions.
  • Buyer bargaining power:
    • Buyers with significant share of seller sales or multiple suppliers wield power; examples include large buyers auditing costs and extracting margins.
    • High switching costs or dependency on a single supplier strengthens buyer leverage against price reductions.
  • Product value and price differentiation:
    • Price should reflect the product’s value; misaligning price with value can cause “leaving money on the table.”
    • Segment-specific value can justify differentiated pricing (e.g., cosmetic differentiation, tiered product capabilities) but beware of cross-segment leakage (black-market diffusion).
    • Skimming vs. penetration pricing:
    • Skimming: price high initially to maximize unit profits or recoup R&D; may help when early adopters value novelty and when demand is price-inelastic.
    • Penetration: price low to gain rapid market share and learn curve experience; requires solid potential for scale and capacity to meet demand; higher risk due to potential low margins and market reactions.
    • Real-world campaign examples:
    • USA Today entered a crowded market with low prices and promotional freeness (to build readership) before raising prices; illustrates penetration then adjustment.
    • Skimming used for new books, electronics (high initial prices then reductions).
  • Price leadership and differentiation often coexist with push/pull in other channels; firms monitor demand/cost shifts and adjust accordingly.
  • Important caveat: pricing strategies must consider legal constraints and ethical considerations.

Channels of Distribution (How products reach customers)

  • Strong distribution systems typically accompany successful firms: broad market coverage, strong product lines, ongoing product innovation, and a large installed base.
    • Installed base drives replacement sales.
  • Channel options and structure:
    • Direct sales reps (firm-employed): cost-effective for large-volume, high-service needs, customization, and complex products.
    • Sales agents (independent): carry multiple lines; variable cost; useful when in-house sales force is unavailable; often first-stage entrants in new markets.
    • Distributors: buy from many suppliers; serve customers with small orders across many items; often independent chains or large organizations; may be captive to firms (e.g., GE’s GESCO example).
    • Retail outlets: pharmacies, restaurants, gas stations, hardware stores, supermarkets; can be independent chains or franchised; franchisees may be required to source through franchisor.
    • Private labels and price competition among retailers (e.g., Osco, Wal-Mart, A&P) demonstrate how retailers can alter the marketing mix influence.
  • Emergence of electronic channels:
    • Internet/e-commerce expands access, provides information, allows ordering and payment, and can deliver digital products.
    • Pros: market exposure, reduced transaction costs, flexibility in price/product information, and direct consumer access.
    • Cons: access to only a subset of the population (as of mid-1990s, a minority with online access) and security concerns (order legitimacy, data privacy).
  • EDI and VANs (Value-Added Networks):
    • EDI: open standard for B2B data exchange; used by large firms to streamline orders, reduce errors, manage inventory, and shorten procurement cycles.
    • VANs offer enhanced security, data recovery, tracking, and auditing but at a cost.
  • Channel strategy considerations to support distribution:
    • Ensure products are stocked and visible at resale level; resellers promote the product; resale margins remain stable.
    • Selectivity vs. intensity: fewer intermediaries reduce price pressure and can improve promotional cooperation; the nature of the product and buying behavior determine the approach (e.g., toothpaste vs cars).
    • The breadth/quality of the product line and the supplier–reseller interdependency influence channel effectiveness.
    • Supplier salesforce presence is crucial for training, end-customer contact, inventory monitoring, and market intelligence.
    • End-market demand development: advertising and promotion can build line demand; pull strategies vs push strategies.
  • Notable example: Du Pont Stainmaster program shows a successful channel-support approach:
    • Brand advertising at the consumer level and an 800-number to connect consumers to information; strong collaboration with carpet mills and dealers; cooperative advertising funds; in-store materials; dealer training; and promotional support.
  • Change management in channels:
    • Distribution systems are hard to build and costly to change; changes are warranted with market evolution (new tech, education, competition, new go-to-market methods such as the Internet).
    • Goodyear example (early 1990s) shows tensions between traditional channels (independent dealers) and new channels (mass merchandisers, warehouse clubs) and the risk of channel conflict; strategic expansion led to higher earnings despite dealer resistance.

Market Communications (How to Reach and Influence Buyers)

  • Communications channels include: print media, television, direct mail, telemarketing, trade shows, point-of-sale displays, personal salesforces, and third-party influencers (doctors, engineers, sales clerks).

  • The decision-making process (DMP) and decision-making unit (DMU) guide communications planning:

    • DMP stages (for purchases, varying by repeat vs new buys):
      1) Awareness of need
      2) Information search
      3) Identification of options
      4) Source qualification/short listing
      5) Selection
      6) Post-purchase affirmation
    • The DMU is a cluster of participants affecting the purchase (e.g., for a car or vacation: spouse, children; in organizations: purchasing managers, engineers, controllers, financial officers, etc.). Routine rebuys may be handled by the purchasing department alone.

  • Buyers respond to different cues within the DMU; marketers must tailor messaging to each participant’s interests and information needs.

  • Buying influences examples:

    • Population Services International (Bangladesh): husbands and wives differed in concerns and sources; husbands responded to radio/TV, wives to broader concerns about family well-being and health; cues came from husbands, doctors, rural practitioners, pharmacists, spiritual doctors, and social workers.

  • Communications costs:

    • Cost-per-prospect and response rates vary by channel (Citibank Singapore example):
    • Direct mail, in-store inserts, direct sales, bind-ins (newspaper/magazine inserts) with unit costs and response rates; direct sales was most expensive but yielded the highest response rate (50%), while bind-ins had lower costs and lower response (1%).

  • Mass media vs personal selling:

    • Mass media is cost-effective for broad awareness and product information; personal selling is more effective when information is complex or the market size is small for mass media.

  • Push vs pull strategies:

    • Pull: create end-market demand to pull product through channels; relies on consumer advertising and brand pull.
    • Push: incentives to resellers to promote the product (high dealer margins, cooperative advertising, sales contests) to push through distribution.
    • Real-world programs typically mix push and pull elements; balance depends on product, market, and cost-effectiveness (see Figure E for Stainmaster example: pull elements include brand advertising and consumer 800-number; push elements include technical support, dealer training, in-store materials, and selective franchising).

  • Push-pull illustration (Figure E): shows how pull at the consumer level (brand advertising, consumer contact) works with push at the intermediary level (mills, distributors, retailers) to drive demand through the channel.

  • A model for strategic planning (overview of the process):

    • Figure F presents a model for marketing strategy formulation, integrating with overall corporate strategy.
    • It can be used to screen opportunities and develop strategies for new ventures or reformulate existing ones.

A Model for Marketing Strategy Formulation (Figure F)

  • Core components and flow:
    • External Environment: considers macro factors that shape opportunity and risk (Economic, Technical, Demographic, Regulatory, Political).
    • Corporate Goals: overall firm objectives for growth and shareholder value; may also reflect employment, safety, and national interests.
    • Business Unit Goals and Strategies: bottom-up planning from SBUs defines what is feasible for the enterprise as a whole; sets constraints.
    • Market Analysis and Market Segmentation: identify size, growth, customer technology, and competitor positions; understand buyer behavior and needs.
    • Product/Market Opportunities: generate opportunities from market analysis and exogenous factors; internal ideation from R&D/marketing/manufacturing.
    • Economic and Risk Analysis: quantify potential revenues/profits; assess risk with break-even and contingency analyses; check impact on existing products, channels, and customers.
    • Ethics Analysis: identify ethical issues (e.g., bribery, false advertising, bait-and-switch, product safety, environmental concerns) and firm’s stance in domestic and international markets.
    • Product/Market Strategies: prioritize opportunities and develop strategies for each segment with feasibility and strategic fit in mind.
    • Potential Gains: revenue and profit levels, market share, and follow-on opportunities.
    • Risk Assessment: break-even analysis and contingency planning to address uncertainties.
    • Impact: assess implications for existing products, customers, and distribution systems.
  • Process characteristics:
    • The model integrates corporate goals with market opportunities, ensuring alignment across marketing, manufacturing, and R&D functions.
    • It emphasizes iterative evaluation and risk management, including ethics and external environment considerations.
    • It supports prioritization under resource constraints to pursue opportunities with the highest long-term value.

Key Concepts and Examples (Synthesis)

  • Market means: a pocket of latent demand; opportunities arise from technology, income growth, societal needs, and cultural shifts.
  • Segmentation: a tool to tailor value propositions; variables span demographic, geographic, psychographic, and product-use dimensions; segmentation must evolve with market changes.
  • Product value vs price: price should reflect customer-perceived value; misalignment can erode profits; differentiation can justify higher prices but must be guarded against leakage/bandwidth issues.
  • Pricing tools:
    • Skimming vs penetration pricing:
    • Skimming aims to maximize unit profits early or recoup development costs; may limit early volume but establishes premium positioning.
    • Penetration focuses on rapid market share growth and scale economies; carries higher risk if investment and capacity are insufficient or if demand is slower to materialize.
  • Channel design and change management:
    • Selective vs intensive distribution impacts reseller pricing pressure and market coverage.
    • Strong supplier–reseller interdependency and field salesforce support help maintain pricing and promote the product.
    • Channel changes can meet evolving markets but may disrupt existing relationships; examples include Goodyear’s distribution expansion and Michelin’s response.
  • Market communications planning:
    • Align DMP and DMU insights with chosen channels and messaging.
    • Balance pull (consumer advertising) and push (reseller incentives) to optimize cost-effectiveness.
  • Ethical considerations:
    • Ethical issues span bribery, misleading advertising, bait-and-switch, and product safety/environmental concerns; firms must identify and manage these issues in domestic and international markets.

Notation of Key References and Footnotes (context for further study)

  • 1: Concept of the marketing mix credited to Neil H. Borden.
  • 2: PSI Bangladesh case illustrating segmentation-based messaging strategies.
  • 3: Market segmentation framework for consumer and industrial contexts; segmentation leads to strategic options.
  • 4,5: Historical references to market dynamics and competition; discussion of price behaviors and standards (e.g., Standard Oil; price leadership phenomena).
  • 6: Footnote illustrating scale economies and the role of learning curves in cost reductions with volume.
  • 7: Learning curves concept referenced in cost reduction with increased production; not a fixed formula in the text.
  • 8: Case references to Crown Cork & Seal and Goodyear distribution strategy changes.
  • 9: Black-market phenomena as a risk in price differentiation strategies.
  • 10: Learning curves and scale economics concept definitions.
  • 11: EDI and VANs as alternative data exchange and security environments for distribution.
  • 12–15: Du Pont Stainmaster program as a model of marketer-channel collaboration and pull/push dynamics; Citibank Singapore cost/response example.
  • 16: Break-even analysis reference (Corey, A Note on Marketing Break-even Analysis, Harvard Business School Publishing).

Summary of Core Formulas and Concepts to Remember

  • Break-even quantity (illustrative formula): QBE=FP−VCQ_{BE} = \frac{F}{P - VC}
    • F: fixed costs (R&D, manufacturing setup, marketing investments)
    • P: price per unit
    • VC: variable cost per unit
    • Used to assess how many units must be sold to cover initial investments and ongoing costs.
  • Learning curves and scale economies: costs per unit typically decrease with cumulative production; larger volumes enable lower unit costs and greater efficiency. (Mentioned as a forecasting tool in cost reductions with volume.)
  • Pricing framework (summary):
    • Price is shaped by:
    • Supply/demand conditions
    • Costs (fixed vs variable)
    • Competition and price leadership
    • Buyer bargaining power
    • Product value to customers
    • Strategies include skimming, penetration, and price differentiation across segments, with attention to avoiding cross-market leakage and legal considerations.

Connections to Foundational Principles and Real-World Relevance

  • Marketing strategy integrates with broader corporate strategy; marketing decisions must align with core competencies and resource constraints, linking to strategic management and operations.
  • Segmentation provides a disciplined way to allocate scarce resources to high-potential markets, reflecting principles of market-driven strategy and customer-centric thinking.
  • Pricing, channels, and communications illustrate the interdependence of price, distribution, and promotion in shaping competitive advantage and market outcomes.
  • The model for planning (Figure F) emphasizes a structured, evidence-based approach to evaluating opportunities, managing risk, and ensuring ethical considerations in strategic decisions.
  • Ethical analysis in strategy formulation recognizes that markets operate across diverse cultural and regulatory landscapes; responsible strategy requires proactive consideration of bribery, false advertising, and safety/environmental issues.

Practical Implications for Exam Preparation

  • Understand the four core elements of the marketing mix and how they interrelate.
  • Be able to explain product/market selection decisions and why segmentation matters, including the major segmentation dimensions and a concrete example (consumer vs industrial, geographic, psychographic, product use).
  • Articulate the market segmentation process as an ongoing, dynamic activity rather than a one-off task.
  • Describe pricing dynamics and distinguish between skimming and penetration strategies, including the risks and conditions under which each is appropriate.
  • Compare and contrast push vs pull strategies and recognize that successful programs typically integrate both elements.
  • Explain the roles and differences of channels of distribution, including the rise of e-commerce and EDI/VANs, and discuss how channel strategy affects pricing and market coverage.
  • Understand the decision-making process (DMP) and the decision-making unit (DMU) as frameworks for tailoring market communications.
  • Be able to describe the components and purpose of the strategic planning model (external environment, corporate goals, SBU strengths/weaknesses, market analysis, product/market opportunities, economic/risk analysis, ethics, and final product/market strategies).
  • Recognize the importance of break-even analysis and contingency planning in evaluating new opportunities.
  • Remember key historical examples (Du Pont Stainmaster, Goodyear distribution changes, IBM segmentation, PSI Bangladesh) as illustrations of theory in practice.

Quick Reference (Key Terms)

  • Marketing mix
  • Product/market selection
  • Market segmentation: Demographic, Geographic, Psychographic, Product use/application
  • Skimming vs penetration pricing
  • Price leadership
  • Intrabrand vs interbrand competition
  • Push vs pull strategies
  • Channels of distribution: direct sales, agents, distributors, retailers, franchising
  • EDI and VANs
  • DMU (Decision-Making Unit)
  • DMP (Decision-Making Process)
  • Break-even analysis
  • Learning curves
  • Ethics in marketing strategy
  • External environment factors: Economic, Technical, Demographic, Regulatory, Political
  • Corporate goals and SBUs (Strategic Business Units)