Marketing Strategy (Encyclopedia of Business)
While all marketers do not agree on a common definition of marketing strategy, the term generally refers to a company plan that allocates resources in ways to generate profits by positioning products or services and targeting specific consumer groups. Marketing strategy focuses on long-term company objectives and involves planning marketing programs so that they help a company realize its goals. Companies rely on marketing strategies for established product lines or services as well as for new products and services.
While marketing practices no doubt have existed as long as commerce has, marketing did not become a formal discipline until the 1950s. At this point, businesses began to investigate how to better serve and satisfy their customers and deal with competition. Consequently, marketing became the process of focusing business on the customer in order to continue providing goods or services valued by consumers. Marketing includes a plethora of decisions that affect consumer interest in a company: advertising, pricing, location, product line, promotions, and so forth. The majors concerns of marketing are usually referred to as the "four Ps" or the "marketing mix": product, price, place, and promotion.
Hence, marketing involves establishing a company vision and definition and implementing policies that will enable a company to live up to its vision or maintain its vision. Marketing strategy is the process of planning and implementing company policies towards realizing company goals in accordance with the company vision. Marketing strategies include general ones such as price reduction for market share growth, product differentiation, and market segmentat ion, as well as numerous specific strategies for specific areas of marketing.
Competition is the primary motivation for adopting a marketing strategy. In industries monopolized by one company, marketing need only be minimal to spur on increased consumption. Utilities long enjoyed monopolized markets, allowing them to rely on general mass marketing programs to maintain and increase their sales levels. Utility companies had rather fixed market positions and steady demand, which rendered advanced concern for marketing unnecessary. Now, however, most companies face some form of competition, no matter what the industry, because of deregulation and because of the globalization of many industries. Consequently, marketing strategy has become all the more important for companies to continue being profitable.
ORIGIN OF THE MARKETING STRATEGY CONCEPT
MARKETING AND STRATEGY.
Marketing strategy has its roots in the basic concepts of marketing and strategy. Marketing strategy was probably used the first time that two humans engaged in trade, i.e., an "arm's-length" transaction. Certainly, early civilizations, such as the Babylonians, the Chinese, the Egyptians, the Greeks, the Romans, and the Venetians, had developed marketing strategies for their trading activities. They probably discussed appropriate strategies for given situations, and even taught these strategies to friends, family members, and subordinates. The actual function of marketing, i.e., the distribution function, was performed whenever exchange occurred.
STRATEGY IS A MEANS TO AN END.
Marketing strategy is a conscious approach to accomplishing something. Strategy precedes marketing and marketing strategy. The first time a human planned an approach for achieving a desired end goal or objectivee or she was developing strategy. Strategy can be formulated by individuals, groups, and organizations. The organizations can be families, corporations, nations, or groups of nations. In modem times, strategy can be formulated by complicated and sophisticated programmed software operating on computerized systems, personal computers, or computer networks.
Original, formalized discussions of strategy or strategy theory are associated with politics, war, and the military. The term "strategy" comes from the Greek word stratigiki, meaning generalship. It also can mean approach, scheme, design, and system, and is associated with terms such as intrigue, cunning, craft, and artifice.
Business strategy is usually discussed and developed in the context of competition. It is associated with a struggle for scarce resources. The aim of the "aggressor" organization is to improve its position vis-à-vis "competitors." The competitors, i.e., "defenders," can be other organizations, suppliers, distributors, or customers. The competition is the enemy. Words such as "campaign," "attack," "battle," and "defeat" are frequently used. There is an "I win, you lose"ometimes called a "zero-sum game"entality. This, of course, is also the operating framework for individuals, families, groups, countries, and alliances when formulating political or military strategy. Hence, business and marketing strategy is frequently associated with political and military strategy.
THE DEVELOPMENT OF MARKETING STRATEGY.
Modem discussion of marketing strategy can be traced back to a discussion of marketing management by Leverett S. Lyon (1885-1959) in 1926. Marketing management was perceived as the business function that developed marketing strategy. Lyon argued that marketing management involves ongoing planning of a company's marketing activities in response to the constantly changing internal and external conditions. In the 1950s Peter Drucker (1909-) and others advanced theories of management that emphasized a customer-centered business strategy. They held that this orientation should be long term, not temporary.
Since World War II, marketing strategy has developed from four approaches to strategic thinking in business: budgeting, long-term planning, formula planning, and strategic thinking. During the 1950s, budgetinghe accounting task of distributing funds within a companyegan to take on a strategic component. Budgets strategically assigned company projects specific amounts of funds in order to control spending on an annual basis. In the 1960s, however, budgeting began to focus on long-term planning: allocating funds to achieve financial goals according to a specific schedule, e.g. to achieve results from a project within five to ten years.
By the middle part of the 1970s, long-range planning had lost its prominence because of problems with long-range forecasting and resource allocation. Companies found it difficult to predict how much money to assign various units and when to expect results from research projects. Instead, businesses in the 1970s relied on formulas for planning as part of their company strategies. Because of the conglomeration wave of the 1960s, many managers found themselves with diverse companies and they did not know how to allocate resources prudently to the multifarious units. Instead, they turned to consultants to provide advice based on various formulas for planning. The formulas, however, tended to stem from business theory and not from practice. Hence, they largely proved to be ineffectual.
Consequently, strategic thinking grew in the 1980s and 1990s in response to the formulaic, theoretical approach to marketing theory in the 1970s. Strategic thinking focuses on competitive advantage, consumer needs and wants, creativity, and flexibility. Competitive advantage refers to gaining a superior market position and therefore higher profits by offering better products, prices, promotions, convenience, or service than competing companies. In a sense, competitive advantage includes all the other elements of strategic thinkingustomer satisfaction, creativity, and flexibilityn that each of them can provide a company with a competitive advantage.
THE NATURE OF MARKETING STRATEGY
Marketing strategy is the result of decision making by corporate executives, marketing managers, and other decision makers. In general, the formal organizational titles or jobs of decision makers, or the nature or purpose of the organization, are irrelevant to the formulation of marketing strategy. When the decisions concern products or markets, the results.e., the decisionsre all considered marketing strategy.
In a narrow sense, marketing strategy is a specified set of ways developed by marketers to achieve desired market ends. E. Jerome McCarthy and William D. Perreault Jr., authors of Basic Marketing, stated that a marketing strategy defines a target market as well as an appropriate marketing mix and an overview of what a company will exploit a given market. In a marketing planning context, where marketing strategy tends to be developed, McCarthy and Perreault indicated that marketing strategy planning means finding attractive opportunities and planning ways to capitalize on such opportunities.
In a broad sense, marketing strategy is composed of objectives, strategies, and tactics. Objectives are ends sought. Strategies are means to attain ends, and tactics are specific actions.e., implementation acts. A marketing objective of increasing market share is linked to the marketing strategy of altering the product line in order to reach new market segments and to the marketing tactic of introducing a new brand name and various promotions for a targeted portion of the market.
Marketing strategy is developed at different levels of an organization (the hierarchical dimension), across core marketing functions (the horizontal dimension), and for marketing execution and control functions (the implementation dimension). Strategy is usually developed in a hierarchical fashion from top to bottom; for example, there could be several layers of objectives where each objective is a function of a superstructure of superior objectives, and a determinant of subordinate objectives (except for the highest and lowest levels of objectives). Higher-level decisionshe superstructurect as constraints on the one hand, and guides or aids for decision making on the other. The organization levels could include the overall corporate level, strategic business units, product markets, target markets, and marketing units, depending on the complexity of the organization.
MARKETING MIX STRATEGY.
Strategy is also developed across the core functional areas of marketing: product, price, place/distribution, and promotion strategies. Any functional level of marketing, in turn, can have additional levels of marketing strategy decisions where refinement of the strategy might take place. For example, in the advertising component of the promotion function, the organization might develop marketing strategy consisting of advertising objectives, advertising strategies, advertising themes, advertising copy, and media schedules. In addition, because of the growing customer emphasis of marketing, marketers have added new customer-oriented components to the marketing mix: customer sensitivity, customer convenience, and service.
MARKETING STRATEGY TYPES
Contemporary approaches to marketing often fall into two general but not mutually exclusive categories: customer-oriented marketing strategies and competitor-oriented marketing strategies. Since many marketers believe that striving to satisfy customers can benefit both consumers and businesses, they contend that marketing strategy should focus on customers. This strategy assumes that customers tend to make more purchases and remain loyal to specific brands when they are satisfied, rather than dissatisfied, with a company. Hence, customer-oriented marketing strategies try to help establish long-term relationships between customers and businesses.
Competitor-oriented marketing strategy, on the other hand, focuses on outdoing competitors by strategically manipulating the marketing mix: product, price, place, and promotion. Competitor-oriented strategies will lead companies to imitate competitor products, match prices, and offer similar promotions. This kind of marketing strategy parallels military strategy. For example, this approach to marketing strategy leads to price wars among competitors. Successful marketing strategies, however, usually incorporate elements from both of these orientations, because focusing on customer satisfaction alone will not help a company if its competitors already have high levels of customer satisfaction and because trying to outdo a competitor will not help a company if it provides inferior products and customer service.
Marketing strategies can be identified by the goals they attempt to accomplish in order to boost company profits. The three basic marketing strategies include price reduction (for market share growth), product differentiation, and market segmentation. The market share strategy calls for reducing production costs in order to reduce consumer prices. Via this strategy, companies strive to manufacture products inexpensively and efficiently and thereby capture a greater share of the market. According to this strategy, companies avoid diverse products lines and marginally successful products and allocate minimal funds to product development and advertising. The competitive advantage this strategy offers is the ability to provide products at a lower price than competing companies. Companies implementing this strategy cut their profit margins and rely on sales volume to generate profits. The price reduction strategy, however, has three drawbacks: finding markets without or with few low-cost retailers, losing flexibility because of limited product line and limited market, competing with other companies using the same strategy.
The product differentiation strategy involves distinguishing a company's products from its competitors' by modifying the image or the physical characteristics of the products. Unlike the market share strategy, product differentiation requires raising product prices to increase profit margins. Companies adopting this strategy hope that consumers will pay higher prices for superior products (or products perceived as superior). As a result of this strategy, companies usually either achieve high profit margins and a low market share (such as luxury car manufacturers) or they achieve slightly higher profit margins and a moderate to large market share (such as popular food brands such as Kraft and Heinz). This strategy depends on the production of quality goods, brand loyalty, consumer preference for quality over cost, and ongoing product innovation. Nevertheless, product differentiation has a couple of disadvantages. First, competing companies often can easily imitate products thereby undercutting product differentiation efforts. Second, companies cannot raise their prices too high without losing customers, even if they provide better products.
Market segmentation refers to the process of breaking the entire market into a series of smaller markets based on common characteristics related to consumer behavior. Once the market is divided into smaller segments, companies can launch marketing programs to cater to the needs and preferences of the individual segments. Moreover, companies can choose to court all the segments of the market through "differentiated marketing," to concentrate on one or two of the smaller segments overlooked by other companies through concentrated marketing (niche marketing), or to focus on very small markets or even individual customers through atomized marketing. Market segmentation also can involve the other two strategies, because marketers can target various segments using a price reduction strategy or a product differentiation strategy. If a segment grows, however, large competitors can begin targeting it as well. Companies that focus on one or two segments also are vulnerable to changes in the segment's size and preferences. Hence, if the segment dwindles or its tastes no longer correspond to a company's offerings, a company's revenues can fall precipitously.
Furthermore, marketers also have developed specific strategies for specific kinds of marketing obstacles, which may serve as part of a general marketing strategy. Moreover, parts of general marketing strategies can be implemented for narrower ends. For example, in Marketing Strategy, Orville C. Walker, Harper W. Boyd Jr., and Jean-Claude Larreche identified marketing strategies for various marketing problems and activities such as new markets, growth markets, mature and declining markets, and international markets. Their marketing strategies included a plethora of specific marketing strategies for a host of situations: pioneer strategy, follower strategy, fortress strategy, flanker strategy, confrontation strategy, market expansion strategy, withdrawal strategy, frontal attack strategy, leapfrog attack strategy, encirclement strategy, guerrilla attack strategy, divestment strategy, global strategy, national strategy, exporting strategy, pricing strategy, channels strategy, and promotion strategy.
In addition, Joseph P. Guiltinan and Gordon W. Paul, authors of Marketing Management, outlined primary demand strategies and selective demand strategies. They also developed product-line marketing strategies, including strategies for substitutes (line extension strategies and flanker strategies) and strategies for complements (leader strategies, bundling strategies, and systems strategies). The primary demand strategies included user strategies (increasing the number of users) and rate of use strategies (increasing the purchase quantities). User strategies were, in turn, divided into willingness strategies (emphasis on willingness to buy) and ability strategies (emphasis on ability to buy). The rate of use strategies were divided into usage strategies (increasing the rate of usageuch as brushing your teeth after each meal) and replacement strategies (increasing the rate of use by replacementuch as replacing your toothbrush every month).
The selective demand strategies included retention strategies (retaining the organization's existing customers) and acquisition strategies (acquiring customers from the competition). Retention strategies were divided into:
- Satisfaction strategies, which include ways to maintain or improve customer satisfaction levels, such as reducing delivery time from three days to 24 hours.
- Meeting competition strategies, which include matching or "bettering" competitive approaches, such as charging the same price or a price stipulated at a percentage lower than the competition.
- Relationship marketing strategies, which include establishing enduring relationships with customers, such as developing a computer-based automatic inventory replenishment system.
On the other hand, acquisition strategies were divided into:
- Head-to-head strategies, which include direct, aggressive competitive tactics, such as using comparative advertising copy.
- Differentiated strategies, which include making an organization's offering different from the competition, such as being the only firm to have a wireless feature on a notebook computer.
- Niche marketing strategies, which include concentrating on narrow marketsuch as a direct-marketing mail catalog of premium priced female clothing targeted at large females in the upper-middle and upper classes.
These marketing strategies are not mutually exclusive. They can be used in combination. They also are not exhaustive. In general, additional dimensions and levels can be generated. In other words, other levels and types of strategies at any level can be developed. The actual wording of the final and most refined level of strategy will probably be unique in each situation for each organization for each decision maker. Marketing strategy development is a creative act, requiring an application of science and art.
The decision maker should eventually arrive at a specific stratagem or set of strategies designed to achieve the stated objective. The entire articulated set of decisions (selected strategies) is called the marketing strategy. If the marketing strategy is part of a marketing plan, some or all of the strategy decisions could be formally stated. In some cases, only the lowest level of strategy is indicated. The formal articulation of marketing strategy is a function of the decision maker's preferences, the organization's policy, user needs, and resources available.
The basic principles or theories of marketing appropriate to the successful development of marketing strategy are universal. They can be applied by anyone at any time in any kind of organization to any type of marketing problem in any part of the world. They are relevant to international marketing strategy as well as domestic marketing policy. They are useful in both profit-oriented organizations and nonprofit institutions, and are appropriate for both services and products.
MARKETING STRATEGY PROCESS
Marketing strategy is produced by the following basic decision process: (1) defining the marketing problem (or opportunity); (2) gathering the facts relevant to the problem (this includes defining the appropriate sources of useful facts or information); (3) analyzing the facts (perhaps with the aid of decision models and computer software); (4) determining the alternatives or choices to solve the problem; and (5) selecting an alternative.e., making the decision.
Marketing strategy is determined by internal and external uncontrollable environmental forces. The internal environment (the environment within the organization) includes previous and higher-level strategies as well as resources (such as products, processes, patents, trademarks, trademark personnel, and capital). An example of an internal environmental influence on marketing strategy is when a previous strategic decision (such as the choice of a product market for a strategic business unit of an organization) affects current marketing decisions (such as market segmentation and target market selection). Likewise, an organization's financial strength (such as current cash flow) influences its formulation of marketing strategies (such as target market selection, positioning choices, and marketing mix decisions).
The external environment has domestic and global dimensions. The domestic dimension contains home country environments (such as a country's cultural environment). The global dimension consists of international forces (such as global demand and competition) affecting home country environments. The external environment includes the immediate task environment as well as legal and political environments, economic environments, infrastructures, cultural and social environments, and technological environments. An example of an external environmental influence on marketing strategy is when advertising strategy development is affected by such variables as customer media habits and governmental regulations.
TOOLS AND TECHNOLOGY.
Marketing strategy can be developed with the aid of such tools as marketing concepts, marketing models, and computers. A marketer uses these tools to facilitate decision making. The computer-based method of marketing strategy generation, for example, is usually a quantitative approach starting with marketing theory and ending with the processing of data through a specialized computer program that analyzes variables and relationships.
The computer-based method begins with a segment of marketing theory. Marketing theory can be broken down into concepts and subconcepts. A concept is a set of related ideas or variables. For example, the product life cycle is a major concept in marketing. It describes market response (in terms of sales or revenues) to a product over the product's commercial life. It depicts four life stages of the product, namely: introduction (or commercialization), growth, maturity, and decline. Each stage of the product life cycle corresponds to the degree of competition it faces and the maturation of the market. Marketing strategy changes over the life of the product. In general, there is an appropriate set of marketing strategies or alternatives for each phase of the product life cycle. Market response, stages of the product life cycle, and other ideas constituting the concept are all variables that can assume different values and represent different relationships across the variable set. A marketing model articulates and quantifies the variables and variable relationships of a marketing concept. The marketing model also has inputs, processes, and outputs, which allow marketers to determine the effects of their strategies and decisions on both consumers and competitors.
Prepackaged marketing and spreadsheet software can facilitate the production of marketing models. A marketer needs only to change the values of the variables based on the facts that have been gathered in the situation analysis in order to use the output to arrive at a decision. When necessary, the decision maker can add or delete variables and change the functional relationships of the marketing model. Of course, it is also quite easy to assume different situational facts and consider the net impacts on the marketing strategy, or the results of implementing the marketing strategy. Thus, it is relatively easy, using computer software, to develop a marketing strategy and to perform sensitivity (degree of impact of changes) and contingency analyses (alternative scenarios).
SEE ALSO: Strategy Formulation
updated by Karl Heil]
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