Principles of marketing: Chapter 3 - Strategic and Marketing Planning

Principles of marketing: Chapter 3 - Strategic and Marketing Planning presents The Marketing Mix, The Boston Consulting Group Matrix, The BCG Matrix, Product/Market Expansion Grid, Components of the Marketing Plan.

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1 Nguyễn Minh ðức 2009

PRINCIPLES OF MARKETING

Dr NGUYỄN MINH ðỨC

NONG LAM UNIVERSITY HCM CITY

The Marketing Mix

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The tools available to a business to gain the reaction it is seeking from its target market in relation to its marketing objectives

7Ps – Price, Product, Promotion, Place, People, Process, Physical Environment

Traditional 4Ps extended to encompass growth of service industry

Price

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Product

Methods used to improve/differentiate the product and increase sales or target sales more effectively to gain

a competitive advantage e.g.

Extension strategies

Specialised versions

New editions

Improvements – real or otherwise!

Changed packaging

Technology, etc.

Image copyright: www.freeimages.co.uk

Promotion

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Promotion

Strategies

to make the consumer aware of the existence of a product

or service

NOT just advertising

Place

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easier it is made to buy it, the better for the business (and the consumer?)

People

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People

People represent the business

they provide to the customer?

of the product/service concerned

Do staff represent the desired culture

of the business?

Process

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Process

How do people consume services?

What processes do they have to go through to acquire the services?

Where do they find the availability

Blend of the mix depends upon:

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The Boston Consulting Group Matrix (BCG Matrix)

(The Product Market Portfolio)

Whilst there are companies that produce a single product or service, most organizations are multi- product or consider diversification into other products.

Within a multi-divisional company, there may be some products at Introduction, some at the Growth stage, and others in Maturity and Decline stage.

Each of these may be in different markets, and different countries.

The BCG Matrix

This is a complex planning process, and The Product Market Portfolio, developed by the Boston Consulting Group (1972), is a technique developed

to try and handle it.

The Product Market Portfolio is a useful tool for strategic planning, in that it allows the planners to select the optimal strategy for individual units whilst aiming for overall corporate objectives.

As a first step, the technique requires an assessment of each product of an organization in isolation from other products.

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The Boston Consulting Group (BCG) developed

a matrix based on empirical research that assesses a company’s products in terms of

Potential Cash Generation and Cash Expenditure requirements.

Products or Strategic Business Units (SBUs) are categorized in terms of:

A) Market Growth Rate and

B) Relative Market Share

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The BCG Matrix

The characteristics of the product depend where it is located in the matrix.

Divisions located in:

-Quadrant I of the BCG Matrix are called Question Marks or Problem Child

-Quadrant II are called Stars

-Quadrant III are called Cash Cows

-Quadrant IV are called Dogs

The BCG Matrix

Quadrant I: Question Marks (Problem Child)

Divisions in Quadrant I, have a low relative market share position, yet compete in a high growth industry.

Generation, these firms’ cash needs are high and their cash generation is low.

I.e substantial net cash input is required to maintain or increase market share.

These businesses are called Question Marks because the organization must decide whether to strengthen them by:

-pursuing an Intensive Strategy (e.g Market Penetration, Market Development, or Product Development) or

-to sell them.

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The BCG Matrix

Quadrant I: Question Marks (Problem Child)

I.e Do the products justify considerable capital expenditure in the hope of increasing their market share, or

Should they be allowed to die quietly as they are squeezed out

of the expanding market by rival products?

Conclusion:

The planner is faced with 3 choices:

1 Do nothing – but cash continues to be absorbed

2 Invest to gain market share

3 Sell off

The BCG Matrix

A Star product has a high relative market share in a high growth market.

This type of product may be in a later stage of its product life cycle.

It represent the organization’s best long-run opportunities for growth and profitability.

Divisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strength their dominant positions.

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The BCG Matrix

A Star may be only cash neutral despite its strong position, as large amounts of cash may need to be spent to defend an organization’s position against competitors, as competitors will be attracted to the market by the high growth rates.

Failure to support a Star sufficiently strongly, may lead to the product losing its leading market share position, slipping eastwards in the matrix, and becoming a Problem Child.

The BCG Matrix

A Star, however, represents the best future prospects for an organization.

As the growth rate for a Star slows, it will drop vertically in the matrix into the Cash Cow quadrant and its cash characteristics will change.

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The BCG Matrix

This type of product has a high relative market share

in a low growth market and should be generating substantial cash inflows.

I.e called Cash Cows because they generate cash in excess of their needs, they are often “milked”.

The period of high growth in the market has ended (I.e the product life cycle is in the maturity or decline stage), and consequently the market is less

attractive to new entrants and existing competitors.

The BCG Matrix

Quadrant III: Cash Cows

Cash Cow products tend to generate cash in excess of what is needed to sustain their market positions.

I.e In the short term, these require capital expenditure in excess of the cash they generate, in order to maintain their market position, but promise high returns in the future.

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The BCG Matrix

Although Dog will show only a modest net cash outflow, or even a modest net cash inflow, they are cash traps which tied up funds and provide a poor return on investment.

However, they may have a useful role, either to complete a product range or to keep competitors out.

=>Each organization will determine the market position for all of its products (I.e its portfolio) and determine a strategy on the future direction of the portfolio.

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product-31 Nguyễn Minh ðức 2009

The BCG Matrix

The strategies for the overall portfolio are concerned with balance Strategies would be to have:

1) Cash Cows of sufficient size, and number that can support other products in the portfolio.

2) Stars of sufficient size, and number which will provide sufficient cash generation when current Cash Cows can no longer do so.

3) Problem Children that have reasonable prospects of becoming future Stars.

4 No Dogs, and if they are any, there would need to be good reasons for retaining them.

Product/Market Expansion Grid

Ansoff’s Product-Market Grwoth Vector

(The Product Market Scope Matrix (Ansoff’s Matrix)

Is a useful aid to delineate the range of strategic marketing options particularly by companies with growth objective.

This deceptively simple framework is based on a matrix comparised of “Markets” on the vertical axis and “Products” on the horizontal axis each cell of the matrix so formed represents

a different strategic alternative for achieving growth.

The matrix and each alternative is shown in Figure on next slide.

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Ansoff’s Product-Market Growth Vector

(The Product Market Scope Matrix/Ansoff’s Matrix)

PRODUCT MARKET Present New

Present 1 Market Penetration 3 Product Development

New 2 Market Development 4 Diversification

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i) The company can try to stimulate customers to increase their current rate of usage Strategies might include:

-Increasing unit of customer purchase.

-Speeding up the rate of product improvement or obsolescence

-Suggesting new uses for the product.

-Offering customers price incentives for increased use.

ii) The company can increase its efforts to attract non-users by using promotional incentives,

advertising, pricing up or down, etc.

iii) The company can increase its efforts to swing competitors’ by brand differentiation, and stepping

up promotion, etc.

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1 Market PenetrationConclusion:

In Market Penetration, the firm seeks to do 4 things:

a) Maintain or to increase its share of current markets with current products, e.g through competitive pricing, advertising, sales promotion.

b) Secure dominance of growth markets.

c) Restructure a mature market by driving out competitors.

d) Increase usage by existing customers (e.g loyalty cards)

2 Market Development

Market Development strategy has the aim of increasing sales by repositioning present products to new markets.

This strategy is also referred to as “Market Creation”.

This strategy is based on expansion by entering new markets but with existing product.

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b) New distribution channels to attract new customers (e.g organic food sold in supermarkets not just specialist shops).

2 Market Development

c) Different package sizes for food and other domestic items so that both those who buy in bulk and those who buy in small quantities are catered for.

d) Differential pricing policies to attract different types of customer and create new market segments.

For example, travel companies have developed a market for cheap long-stay winter breaks in warmer countries for retired couples.

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b) Create different quality versions of the product.

c) Develop additional models and sizes.

b) There is growth potential in the market.

c) The changing needs of its customers demand new products Continuous product innovation is often the only way to prevent product obsolescence.

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3 Product Development

d) It needs to react to technological developments.

e) The company is particularly strong in R & D.

f) The company has a strong organization structure based on product divisions.

g) For offensive or defensive motives, for example responding to competitive innovations in the market.

3 Product Development Drawbacks of Product Development:

For example:

-the process of creating a broad product line

is expensive and potentially unprofitable,

and

-it carries considerable investment risk.

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3 Product DevelopmentDrawbacks of Product Development:

There are reasons why new product development is becoming increasingly difficult to achieve:

a) In some industries there is a shortage of new product ideas.

b) Even when a product is successful it might still suffer a short life cycle with rivals quick to ‘copycat’

in the market but with their own innovations and improvements.

c) There is a high change of product failure.

This strategy is probably the highest risk of all the 4 strategic options.

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to the existing market.

Strategic and Marketing Planning

Marketing planning is the process of:

-Assessing opportunities and resources

-Determining objectives

-Defining strategies, and

-Establishing guidelines for implementation and control of the marketing program.

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Marketing Plan –(ASSIGNMENT)

The outcome of marketing planning is the development of a Marketing Plan.

A Marketing Plan is a written document that outlines and explains all the activities necessary to

implement marketing strategies.

It describes:

-the firm’s current position or situation

-establishes marketing objectives for the product or product group, and

-specifies how the organization will attempt to achieve these objectives.

Components of the Marketing Plan

I) Executive SummaryII) Environmental Analysis

A The marketing environment

B Target markets

C Current marketing objectives and performance

III) SWOT Analysis

A Strengths and Weaknesses

B Opportunities and Threats

IV) Marketing Objectives

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C Monitoring procedures (audits)

-A statement about the costs of implementing the plan.

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The Executive Summary is one of the most important parts of the marketing plan

because it is often furnished to people outside the organization.

II) Environmental Analysis (A The Marketing Environment)

Supplies information about the company’s current situation with respect to:

-the marketing environment

-the target market, and

-the firm’s current objectives and performance

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II) Environmental Analysis(A The Marketing Environment)

The first section of the environmental analysis is an assessment of all the external environmental factors:-Political, legal and regulatory

-Economic

-Social cultural

-Technological, and

-Competitive that can affect marketing activities.

II) Environmental Analysis(A The Marketing Environment)

In addition, this section should include information

about such Internal Environmental matters as:

-the firm’s current culture -the availability and deployment of human resources -the age and capacity of equipment or technology, and -the availability of financial resources.

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II) Environmental Analysis(B Target Markets)

In the second section of the Environmental Analysis, the organization should examine the current status

of its targets markets.

This section assesses:

-the current needs of each target market -anticipated changes in these needs, and -how well the organization’s products are meeting these needs.

II) Environmental Analysis (C Current Marketing Objectives and Performance)

The final aspect of environmental analysis is a critical evaluation

of the firm’s current marketing objectives and performance.

All organizations should periodically examine their marketing objectives to ensure these objectives remain consistent with the changing marketing environment.

This analysis yields important input for later stages of the marketing plan.

The organization should also evaluate its current performance with respect to changes in the environment and the target markets.

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II) Environmental Analysis

The information needed for environmental analysis

is obtained from both the internal and external environments, usually through the firm’s marketing information system.

However, if required information is not available, it may have to be collected through marketing

III) SWOT Analysis

The SWOT analysis assesses an organization’s Strengths, Weaknesses, Opportunities, and Threats (SWOT)

These factors are derived from the environmental analysis in the preceding portion of the marketing plan.

The analysis of Strengths and Weaknesses focuses

on Internal Factors that give an organization certain advantages and disadvantages in meeting the needs

of its target markets.

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