Market-oriented strategic planning is the managerial process of developing and maintaining a viable fit between the organisation’s objectives, skills, and resources and its changing market opportunities.
The aim of strategic marketing planning (SMP) is to shape and reshape the company’s businesses and products so that they yield target profits and growth.”
Strategic planning takes place at four levels- Corporate, division business unit and product.
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1. Meaning of Strategic Marketing Planning 2. Characteristics of Strategic Marketing Planning 3. Importance 4. Need 5. Approaches 6. Steps7. Techniques 8. Levels 9. Models 10. Strengths 11. Pitfalls.
Strategic Marketing Planning: Meaning, Characteristics, Importance, Need, Approaches, Techniques and Other Details
Strategic Marketing Planning – Meaning and Objectives
Strategic Marketing Planning – “Without a strategy, the organisation is like a ship without a rudder” – Joel Ross and Michael Kami
In a hyper competitive marketplace, companies can operate successfully by creating and delivering superior value to target customers and also learning how to adapt to a continuously changing market place. So to meet changing conditions in their industries, companies need to be farsighted and visionary, and must develop long-term strategies.
Strategic planning involves developing a strategy to meet competition and ensure long-term survival and growth. The marketing function plays an important role in this process and it provides information and other inputs to help in the preparation of the organisation’s strategic plan.
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The overall objective of strategic planning is twofold:
(i) To guide the company successfully through all changes in the environment.
(ii) To create competitive advantage, so that the company can outperform the competitors in order to have dominance over the market.
Strategic planning consists of developing a company mission (to give it direction), objectives and goals (to give it means and methods for accomplishing its mission), business portfolio (to allow management to utilise all facets of the organisation), and functional plans (plans to carry out daily operations from the different functional disciplines).
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No matter how well the strategic planning process has been designed and implemented, success depends on how well each department performs its customer-value-adding activities and how well the departments work together to serve the customer.
Value chains and value delivery networks have become popular with organizations that are sensitive to the wants and needs of consumers. The marketing department (because of its ability to stress the customer’s view) has become central in the implementation of most strategic plans.
Ultimately, the aim of strategic planning is to serve the company’s business products, services and communications so that they achieve targeted profits and growth.
Strategic Marketing Planning – Characteristics
Strategic planning provides a broad framework according to which all future organisational activities will be conducted. Thus, it is a very essential to do strategic planning for any organisation very prudently.
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Strategic Marketing planning is said to have the following characteristics:
1. Top Management Involvement – Strategic planning or formulation of strategy is directly involved in building up the future of the company. Strategic decisions primarily involve development of long-term objectives and policy formulation of the organisation. Thus, it becomes imperative that these decisions are taken by the top level management of an organisation as it requires a lot of wisdom and insight on the part of decision-makers.
2. Involves Huge Allocation of Resources – Strategic decisions involve commitment of the firm for a long period of time and on major issues related to overall organisation. Thus, it requires deployment of resources in huge volumes in terms of men, material, money, machines and time.
3. Impact on Long-Term Survival and Success of the Firm – Strategic planning, having a long- term commitment in terms of organisational objectives, are usually said to have a strong impact on the success of the firm. A good strategy formulation may bring company to new heights whereas a weak strategy formulation may ruin the company.
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4. Future-Oriented – Strategic planning is done for the purpose of implementation in future. It is shaping of the future today. Strategies are proactive plan of actions developed for future execution. Strategic planning aims at reducing the total uncertainty of the future by devising goals and objectives and methodologies to attain them.
5. Irreversible – Strategic planning due to its complexity, huge investment involvement and long-term commitment is generally said to be irreversible. Such decisions if required to be reversed or changed, requires a huge cost. That is the reason why strategic planning is to be done very carefully after detailed analysis of both internal and external factors.
6. Sensitive to the Environment – Strategic planning in order to be effective requires maintaining a balance between internal strengths and weaknesses of an organisation with the external opportunities and threats stemming from the environment. The main prerequisite of strategic planning is that it should be responsive to the environmental factors and be capable of adapting the changes.
Strategic Marketing Planning – Importance
Imagine starting college and just randomly taking classes because they are interesting, easy, or you have friends enrolled in a particular section. You could be a full-time student each semester, get good grades, and at the end of four years what would you have? Not much of anything except student loan debt.
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Most of you have a checklist of courses you must complete to graduate in your selected field. Selecting your major as a freshman or sophomore and determining when you will take the required courses is a strategic plan you set for yourself.
Without the specific objectives of your degree program and a strategy for balancing your classes with the personal and professional demands on your time, you likely will not succeed in achieving your desired result – a college diploma.
Whether you are marketing yourself or some other product, strategic planning can greatly increase the likelihood of success. Strategic planning is the process of thoughtfully defining a firm’s objectives and developing a method for achieving those objectives. Firms must continually undertake the task of strategic planning.
Shifting conditions, including changing customer needs and competitive threats, ensure that what worked in the past will not always work in the future, thus requiring firms to modify their strategy. Strategic planning helps to ensure that marketers will select and execute the right marketing mix strategies to maximize success. The primary strategic planning tool for directing and coordinating the marketing effort is the marketing plan.
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A marketing plan is part of an organization’s overall strategic plan, which typically captures other strategic areas such as – human resources, operations, equity structure, and a host of other non-marketing items. The marketing plan is an action- oriented document or playbook that guides the analysis, implementation, and control of the firm’s marketing strategy.
Creating a marketing plan requires the input, guidance, and review of employees throughout the various departments of a firm, not just the marketing department, so it is important that every future business professional understand the plan’s components.
The specific format of the marketing plan differs from organization to organization, but most plans include an executive summary, situation analysis, marketing strategy, financials section, and controls section. These five components communicate what the organization desires to accomplish and how it plans to achieve its goals.
Each of the components should be grounded in the firm’s overall mission, which is ideally defined in a clear and succinct mission statement. We’ll discuss the characteristics of an effective mission statement that follows before turning to a more in-depth discussion of each of the marketing plan components.
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The first step in creating a quality marketing plan is to develop an effective mission statement. A mission statement is a concise affirmation of the firm’s long-term purpose. An effective mission statement provides employees with a shared sense of ambition, direction, and opportunity.
A firm should begin the process of developing a mission statement by considering the following classic questions posed by Peter Drucker, who is considered the father of modern management –
i. What is our business?
ii. Who is our customer?
iii. What is our value to the customer?
iv. What will our business be?
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v. What should our business be?
These basic questions are often the most challenging and important that a firm will ever have to answer.
From there, the firm should focus on instilling the three primary characteristics of a good mission statement:
i. The mission statement should focus on a limited number of goals:
Companies whose mission statements contain 10 or more goals are typically focusing too much on small, less meaningful objectives, rather than creating a broader statement that provides purpose and direction to the entire organization.
ii. The mission statement should be customer oriented and focused on satisfying basic customer needs and wants:
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Advanced technological products of just a generation ago, such as the VCR or Polaroid camera, are outdated technologies today. Still, consumers’ desire to watch movies in their home and to take and share pictures with friends and family is stronger than ever.
Apple has been one of the most successful companies of the past decade because it has designed innovative new products like the iPod, iPhone, and iPad. Since it is quite possible that consumers 20 years from now will think of these products the same way you think about VCRs and Atari game systems today, Apple’s mission statement should reflect the firm’s customer orientation and focus on meeting customer needs.
iii. Mission statements should capture a shared purpose and provide motivation for the employees of the firm:
They should emphasize the firm’s strengths, as Google’s does – “Google’s mission is to organize the world’s information and make it universally accessible and useful.”
The following mission statements of other leading companies illustrate these three characteristics:
i. Amazon – We seek to be Earth’s most customer-centric company for four primary customer sets – consumers, sellers, enterprises, and content creators.
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ii. Citigroup – Citi works tirelessly to serve individuals, communities, institutions and nations. With 200 years of experience meeting the world’s toughest challenges and seizing its greatest opportunities, we strive to create the best outcomes for our clients and customers with financial solutions that are simple, creative and responsible. An institution connecting over 1,000 cities, 160 countries and millions of people, we are your global bank; we are Citi.
iii. CarMax – To provide our customers great quality cars at great prices with exceptional customer service.
iv. Xerox – Through the world’s leading technology and services in business process and document management, we’re at the heart of enterprises small to large, giving our clients the freedom to focus on what matters most – their real business.
v. Microsoft – Microsoft’s mission is to help people and businesses throughout the world realize their full potential.
vi. Ford – An exciting viable Ford delivering profitable growth for all.
A firm’s mission statement drives many of the other decisions it makes, including how best to market its goods and services to consumers. A sound mission statement provides a basis for developing the marketing plan and, as the firm continues to modify its marketing plan to fit changing times, the mission statement provides a standard to ensure that the business never strays too far from its core goals and values.
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Once the firm has established its mission statement, it can begin to develop the five main components of its marketing plan.
Once you have graduated and begun your career, you will likely come into contact with senior level executives at your firm in casual places, such as – the break room or elevator. When they ask what you are working on, you won’t have 20 minutes to discuss yourself and your projects.
More likely, you will have time for only a short elevator pitch, which is a one- to two-minute opportunity to market yourself and share the main points of the work you are doing.
The executive summary serves as the elevator pitch for the marketing plan. It provides a one- to two-page synopsis of the marketing plan’s main points. In the same way that you should put great effort into making sure that every second of your elevator pitch counts, every line of an executive summary should convey the most valuable information of the marketing plan.
Depending on your organization’s size and objectives, the marketing plan you create may be viewed by dozens or even hundreds of people. Some will take the time to read each line, but most are looking for a way to quickly understand the basic ideas and strategies behind your plan. The executive summary provides this resource. While the executive summary is listed first, firms should complete this part of the marketing plan last.
The situation analysis section is often considered the foundation of a marketing plan because organizations must clearly understand their current situation to make strategic decisions about how to best move forward. A situation analysis is the systematic collection of data to identify the trends, conditions, and competitive forces that have the potential to influence the performance of the firm and the choice of appropriate strategies.
The situation analysis comprises three subsections:
i. Market summary,
ii. SWOT analysis, and
iii. Competition.
The market summary sets the stage for the situation analysis section by focusing on the market to which the firm will sell its products. A market is the group of consumers or organizations that is interested in and able to buy a particular product. The market summary describes the current state of the market.
For example, a market summary for McDonald’s might look at the size of the fast food market in the United States and how rapidly its numbers are growing or declining. A quality market summary should provide a perspective on important marketplace trends. For example, the residential home phone market is a multibillion-dollar-a- year industry.
However, a market summary for this service should also point out that the number of traditional landline customers for AT&T, Verizon, and other carriers shrinks every year as more people decide to use only a cell phone. Understanding where a market is and where it might be going gives organizations a much better view of what resources to invest where, and what a firm can achieve through a specific marketing plan.
The market summary would also consider the growth opportunities internationally and potential sales through international expansion.
BCG Matrix:
One of the most popular analysis tools to describe the current market is The Boston Consulting Group (BCG) matrix. The tool is a two-by-two matrix that graphically describes the strength and attractiveness of a market. The vertical axis measures market growth while the horizontal axis measures relative market share, which is defined as the sales volume of a product divided by the sales volume of the largest competitor.
The BCG matrix combines the two elements of market growth and relative market share to produce four unique product categories—stars, cash cows, question marks, and dogs—each of which requires a different marketing strategy.
a. Star:
Star products combine large market share with a high growth rate. Apple’s iPad falls under this category. Firms with star products generally have to invest heavily in marketing to communicate and deliver value as the industry continues to grow. Marketing efforts around star products focus on maintaining the product’s market position as a leader in a growing industry for as long as possible.
b. Cash Cows:
Cash cows are products that have a large market share in an industry with low growth rates. An example of a cash cow product is the Apple iPod. The market growth rate for MP3 type players has slowed in recent years, but the iPod still retains a large share of the market.
As a result, Apple marketers may decide to allocate only enough marketing resources (e.g., television commercials, special pricing discounts) to keep sales strong without increasing costs or negatively affecting profits.
c. Question Marks:
Question marks have small market share in a high-growth industry. Products in this quadrant are typically new to the market and require significant marketing investment in promotion, product management, and distribution. A new iPhone application would be a question mark product.
Marketers for the new app must move quickly and creatively to reach Apple product users before competitors develop comparable apps. Question marks have an uncertain future and marketers must monitor the product’s position in the matrix to determine whether or not they should continue allocating resources to it.
d. Dogs:
Dogs are products that have small market share in industries with low growth rates. Products that fall into this category typically should be discontinued so the firm can reallocate marketing resources to products with more profit potential. An example of a dog product might be compact discs, an industry in which no firm has large market share and the growth rate is declining.
As part of the market summary, The BCG matrix allows a company to determine where its product will fall in the marketplace and serves as a starting point for developing marketing strategies to address that market position.
The evaluation of a firm’s strengths, weaknesses, opportunities, and threats is called a SWOT analysis. A SWOT analysis can be a valuable tool in the development of a marketing plan, but only if it’s executed well. Perhaps the most common mistake a firm makes when conducting a SWOT analysis is failing to separate internal issues from external issues. Consider how a firm like McDonald’s might conduct a SWOT analysis.
Internal Considerations:
The strengths and the weaknesses aspects of the analysis focus on McDonald’s internal characteristics. Strengths are internal capabilities that help the company achieve its objectives.
McDonald’s strengths include its strong brand recognition with consumers of all ages and backgrounds; a system that ties individual store owners’ profits to company profits; and the fact that it’s a profitable company, which gives it the financial strength to consistently develop new products, further promote its brand, and make strategic acquisitions when opportunities present themselves.
Weaknesses are internal limitations that may prevent or disrupt the firm’s ability to meet its stated objectives. One major weakness for a firm like McDonald’s is the challenge of finding and retaining quality employees.
Another weakness is the perception that McDonald’s drives profits by selling unhealthy foods to consumers, especially children. Marketers must be honest with themselves when identifying weaknesses because developing strategies to overcome them begins with recognizing them as problems.
External Considerations:
The opportunities and threats aspects of the SWOT analysis focus on the external environment. Opportunities are external factors that the firm may be able to capitalize on to meet or exceed its stated objectives. Opportunities for McDonald’s in the years ahead include increased international expansion.
McDonald’s currently serves approximately 68 million customers each day in 119 countries. International growth, especially in Europe and Asia, has exceeded earnings growth at domestic McDonald’s restaurants in recent years.
Threats are current and potential external factors that may challenge the firm’s short- and long-term performance. McDonald’s faces a number of potential external threats, including a declining global economy and the domestic consumer trend of eating healthier and consuming less fast food.
External factors can be both opportunities and threats. For example, the sluggish economy following the global recession that began in December 2007 has made it harder for many firms to expand their businesses, secure loans, and hire new employees. Restaurants as an industry have faced additional challenges as consumers attempt to reduce the amount of money they spend on luxuries like going out to eat.
This reality threatens McDonald’s as well. However, the slow economy has also prompted consumers to look for cheaper food alternatives, and, as the world’s leading choice for discounted dining, McDonald’s has an opportunity to take advantage of this trend. Firms must understand and analyse environmental factors—both internal and external—to develop a quality marketing plan.
Many firms struggle to successfully compile the competition section of the market summary. The section should begin by clearly stating the organization’s direct competitors. Continuing with our McDonald’s example, direct competitors would include Burger King and Wendy’s. The section should briefly describe how Burger King and Wendy’s position their products relative to McDonald’s.
It should also indicate where McDonald’s is most vulnerable to Burger King and Wendy’s on important customer metrics such as – taste, value, pricing, convenience, and customer satisfaction.
While most marketing plans examine direct competitors thoroughly, indirect competitors typically receive far less attention or are overlooked entirely. Indirect competitors can take market share away from a firm as macro trends or consumer preferences change.
McDonald’s must worry not only about other burger chains but also about the consumer trend of eating healthier, which has translated into massive expansion for chains like Subway. In 2011, Subway surpassed McDonald’s as the largest restaurant chain in the world, with almost 34,000 stores worldwide compared to less than 33,000 for McDonald’s.
Consumers choosing to eat at home rather than purchase fast food in a slow economy also compete indirectly with McDonald’s. A good study of the competition provides a thoughtful analysis of both the direct and indirect competitors.
Strategic Marketing Planning – Need
In a changed setting described above, it is interesting to know how the companies compete in a global marketplace. Philip Kotler found that one part of the answer is 9 – commitment to creating and retaining satisfied customers. He added a second part to this answer- Successful Company and high-performance businesses know how to adapt to a continuously changing marketplace.
They practice the art of market-oriented strategic planning. According to Philip Kotler, “Market-oriented strategic planning is the managerial process of developing and maintaining a viable fit between the organisation’s objectives, skills, and resources and its changing market opportunities. The aim of strategic planning is to shape and reshape the company’s businesses and products so that they yield target profits and growth.” Strategic planning takes place at four levels- Corporate, division business unit and product.
Strategic marketing planning calls for action in three key areas:
1. The first-calls for managing a company’s businesses as an investment portfolio. Each business has a different profit potential, and the company’s resources should be allocated accordingly.
2. The second key area involves assessing accurately each business by considering the market’s growth rate and the company’s position and fit 111 that market. It is not sufficient to use current sales or profits as a guide. For example – if the Ford Motor Company had used current profits as a guide to investment in the 1970s, it would have continued to pour money into large cars, since that was where it made its money at that time.
But Ford’s analysis showed that the profits on large cars would dry up. Therefore, Ford needed to reallocate its funds to improving its compact cars, even though the company was losing money on compact cars at that time.
3. The third key area of strategic planning is strategy. For each of its businesses, the company must develop a game plan for achieving its long-run objectives. Because there is no one strategy that is optimal for all companies in that business, each company must determine what makes the most sense in the light of its industry position and its objectives, opportunities, skills and resources.
Marketing plays a critical role in the company’s strategic planning process. In the words of a strategic planning manager of General Electric, “The marketing manager is the most significant functional contributor to the strategic planning process, with leadership roles in defining the business mission – analysis of the environmental, competitive, and business situations; developing objectives, goals and strategies; and defining product, market, distribution, and quality plans to implement the business’ strategies. This involvement extends to the development of programmes and operating plans that are fully linked with the strategic plan.”
Thus, the chief marketing executive’s strategic planning responsibility includes:
1. Participating in corporate strategy formulation, and
2. Developing business unit marketing strategies in accordance with corporate priorities.
Since these two areas are closely interrelated, it is important to examine marketing’s role and functions in both areas to gain more insight into marketing’s responsibilities and contributions.
Peter Drucker describes this role, “Marketing is so basic that it cannot be considered a separate function (i.e., a separate skill or work) within the business, on a par with others such as – manufacturing or personnel. Marketing requires separate work, and distinct group activities. But it is, first, a central dimension of the entire business. It is whole business seen from the point of view of its final result, that is, from the customer’s point of view.”
Some more needs for Strategic Planning are as follows:
Many companies operate without formal plans.
However, formal planning can provide many benefits:
i. It encourages management to think ahead systematically.
ii. It forces managers to clarify objectives and policies.
iii. It leads to better coordination of company efforts.
iv. It provides clearer performance standards for control.
v. It is useful for a fast-changing environment since sound planning helps the company anticipates and respond quickly to environmental changes and sudden developments.
There are three different types of plans that companies might use:
i. Annual plans (deal with the company’s current businesses and determine how to keep them going).
ii. Long-range plans (also deal with company’s current businesses and determine how to keep them prosperous).
iii. Strategic plans involve adapting the firm to take advantage of opportunities in its constantly changing environment.
Strategic Marketing Planning – Practical Approach to Develop Strategic Marketing Plan
A Practical Approach to Developing a Strategic Marketing Plan:
Making spur of the moment strategic decisions reduces the likelihood that these decisions are the best marketing is an exciting process and one that lends itself to creativity, enthusiasm and innovation. Preparation of a marketing plan requires information that is available within the organization (e.g. sales data) and information that is external to the organization (e.g. demographic trends).
Development of a marketing plan can be approached in a variety of ways and, of course, is impacted by the size of the organization, the number of products and services offered and the number and size of the target market segments.
A better approach is to perform an annual comprehensive review of markets and opportunities, then make long-term strategic decisions without the distractions of day-to-day marketing and sales activities. Daily decisions then fit into the company’s overall strategic marketing goals.
It’s important for a strategic marketing planning process to look at the company from the customer’s point of view by asking questions that have a long time horizon, such as:
(i) What needs or problems cause customers to consider buying from our company?
(ii) What improvements in the customer’s personal or business life can we enable or improve?
(iii) Which customer market segments are attracted to our company or products?
(iv) Which customer motivations or values lead people to decide to purchase our products?
(v) What changes or trends in our customer base are affecting their general interest or attraction to products like ours?
Other Aspects:
Under this approach, a business will not have any formal system of strategic planning, and will exploit the opportunities as and when they arise. The firm will not operate within the rigid structure of an overall corporate strategy. The opportunities are judged by their individual merits and not evaluated by preplanned strategy.
This approach is more appropriate in the following situations:
(a) Turbulent environment – where change is impossible to predict and the organization is in some respect vulnerable to change.
(b) Size of the firm – Small firms need to establish a market niche.
(c) Type of industry – Especially the industries in which the consumer tastes and habits change very frequently.
(d) Exploitation of synergies.
Advantages:
(a) It is flexible and adaptable.
(b) It encourages a more creative attitude among lower level managers.
(c) The environmental opportunities can be availed as and when they arise.
(d) Rigid planning framework is eliminated.
Disadvantages:
(a) It fails to provide a coordinating framework for the organization, as a whole.
(b) It cannot guarantee that all opportunities are identified and appraised.
(c) It emphasizes the profit motive to the exclusion of other considerations.
The management of some companies exploit their business by squeezing as much as possible from the operations of the firm and its profits. This is generally done through improper practices like by not transferring profits to reserves for expansion and modernization; declaration of liberal dividend; paying very high salaries than prevailed in the industry; insufficient provision of depreciation; improper methods of accounting; insufficient provisioning for estimated risks; losses and damages etc. Such financial practices will enrich the stakeholders at the expense of the company. The above situation is termed as ‘milking policy’. Such policy is adopted through management rather than mismanagement.
It examines the current state of the entity in respect of resources of tangible and intangible assets and finance, products, brands and markets, operating systems such as production and distribution; internal organization; current results; return to stakeholders.
Miles and Snow’s Organization Typology:
Raymond Miles and Charles Snow have developed a typology of organizations that describes the relationship between an organization’s culture, strategy and mission. A firm’s culture shapes the internal strategies, policies and plans which guide the organization in its relationship to its environment.
Miles and Snow classify organizations as follows:
Defenders choose a position in the environment and attempt to maintain (or defend) that position. Defenders strive towards a stable form of organization in a stable market niche. Defenders focus on stability and maintaining their markets.
They defend their markets aggressively; compete through maintaining their internal efficiencies and produce reliable, high-quality products at low prices. Defenders are efficiency oriented, achieving high employee productivity and low direct costs through high capital intensity.
These organizations are with fairly broad product lines, and they focus on product innovation and market opportunities. These are likely to adopt an offensive strategy by identifying weaknesses of the leader and attacking it.
Prospectors are organizations in a constant state of change and constantly seek new product and market opportunities, striving to pioneer in product-market development while avoiding becoming locking into any single product, market, technology or facility. These firms seek to innovate, take risks and aggressively seek new opportunities for growth. High product R&D expenses and marketing expenses deter the competitors from entering into the industry.
These firms try to balance efficiency and innovation by maintaining core in established markets and look for expansion into new areas. Analyzers fall between the defenders and prospectors in their orientation toward efficiency, stability and product-market changes.
These firms do not have consistent strategy, but they are interested in Guerrilla warfare and consistently perform poorly. Reactors don’t have clear strategies and respond to whatever is happening in their environment.
They will not attempt to strategies and plans to meet the changing environment and to meet new opportunities. They maintain an existing strategy and structure when environmental changes require a major reorientation by the organization.
The term ‘sustainability’ refers to a development process that improves economy, society and ecology, to meet the needs and wants of the current generation, while maintaining or increasing the resources and productive capacities that are passed along to future generations.
Sustainable growth is the term used to describe a view on growth which advocates that growth be limited to a relatively slow rate so that growth does not jeopardize the carrying capacity of the immediate physical environment. Organizations must recognize changes in the environment that will limit the organization’s growth. Specifically, population, resources, pollution and technology are important environment parameters.
For e.g. the slower population growth in a country will lead to fewer people to consume products and a smaller workforce and limited growth opportunities for some organizations in such countries. Another environmental constraint on growth is resources availability. Technology is another factor in the environment that may limit the growth of some firms. The control of pollution is another constraint limiting growth prospects of some firms.
Sustainable Competitive Advantage:
A business strategy is powerful if it is capable of producing sustainable competitive advantage. Normally, a firm can sustain a competitive advantage for only a certain period due to rival firms imitating and undermining that advantage.
A firm must strive to achieve sustained competitive advantage by:
(a) Continually adapting the changes in external trends and events and internal capabilities, competencies and resources; and
(b) Effectively formulating, implementing and evaluating strategies that capitalize on those factors.
The organization has to develop its resources so that they reflect the uniqueness of the organization and they continue to remain within the organization. For a business unit’s competitive advantage to be sustainable, its resources must be valuable, scarce and difficult to imitate or substitute.
The advantage that results from generating core competencies can be sustained due to the lack of substitution and imitation capacities by the organization’s competitors. The generic building blocks of competitive advantage help the firm in charging premium price thereby it can improve sustainable competitive advantage.
Normally, imbalance between various dimensions of competitive advantage such as efficiency, quality, innovation and customer responsiveness are to be considered to be the basic causes for failure of a business firm. The new organizational structure, appropriate leadership style, proper control systems in response to the changed environment will help in maintaining competitive advantage.
In relation to strategic planning, the concept of situation audit is to break the business into its component parts and functions and then to evaluate them separately in relation to each other, in relation to the whole, and in relation to the environment that affects them. The concept tries to break the business into its component parts and functions, and then evaluates those parts and functions in relation to the environment that affects them.
The basic purposes of situation audit are:
(a) To identify and analyze the key trends and forces that has a political impact on strategy formulation.
(b) To emphasize on the systematic assessment of environment impacts.
(c) To analyze divergent views about relevant environmental changes.
(d) All such information collected provide a base for the strategic planning process – from evaluating missions to strategy formulation or implementation.
(e) A critical assessment of key market forces and its impact.
The situation audit refers to the analysis and appraisal of basic planning premises and covers some of the following issues:
(a) Expectations of major inside and outside interests in relation to customers, competitors, business community, managerial staff.
(b) Data base with respect to past performance, current conditions.
(c) Evaluation of the key forces of the market environment.
With these data, strategists will be in a position to define the basic mission of the organization, purpose, strategies and the various policies.
Strategic Marketing Planning – Process
Strategic marketing planning process consists of following steps:
1. Conduct a situation analysis
2. Determine marketing objectives
3. Select target markets and measure the market demand
4. Design a strategic marketing mix
5. Prepare an annual marketing plan.
Process # 1. Situation Analysis:
It is review of company’s marketing programme. By analysis where the programme has been and where it is now, management can determine where the programme should go in the future. A situation analysis normally includes an analysis of the external environmental forces and the non-marketing resources that surrounds the organization’s marketing programme.
A situation analysis also includes a detailed review of the company’s present marketing mix – its product and pricing situation, its distribution system and its promotional programme.
Process # 2. Determine the Marketing Objectives:
The next step in the marketing planning process is to determine the marketing objectives. As with organizational objectives, the marketing goals should be realistic, specific, measurable and mutually consistent. And they should be clearly stated in writing.
The goals at the marketing level are closely related to the company wide goals and strategies. In fact a company strategy often translates into a marketing goal.
Process # 3. Selection of Target Markets:
Selections of target markets is obviously the key step in marketing planning. Management should analyse existing markets in detail and identify potential markets. At this point, management also should decide to what extent and in what manner, it want to segment its markets. As part of this step in the planning process, management also should forecast its sales in its various markets.
Process # 4. Designing a Strategic Marketing Mix:
Management next must design a strategic marketing mix that enables the company to satisfy the wants of its target markets and to achieve its marketing goals. The design and later the operation of the marketing mix components, constitute the bulk of a company’s marketing effort.
Process # 5. Preparing Annual Marketing Plan:
Periodically, the ongoing strategic marketing planning process in an organization culminates with the preparation of a series of short term marketing plans. These plans usually cover a period of a year. In some industries, it is necessary to prepare these plans for even shorter time periods because of the nature of the product or market. A separate annual plan should be prepared for each product line, major product, brand or market.
An annual marketing plan is the master guide covering a year’s marketing activity for the given business unit or product. The plan then becomes, the how-to do it document that guides executives in each phase of their marketing operations.
The plan includes:
(i) A statement of objectives
(ii) The identification of target markets
(iii) The strategies and tactics pertaining to the marketing mix and
(iv) Information regarding the budgetary support for the marketing activity.
Strategic Marketing Planning – Techniques
SWOT Analysis is a simple framework generating strategic alternatives from a situation analysis. A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as Strengths (S) or Weaknesses (W), and those external to the firm can be classified as Opportunities (O) or Threats (T), such an analysis of the strategic environment is referred to as a SWOT Analysis.
SWOT Analysis is applicable to either the corporate level or the business unit level and frequently appears in Marketing Plans. SWOT (sometimes referred to as TOWS) stands for strengths, weaknesses, opportunities, and threats. The SWOT framework was described in the late 1960’s by Edmund P. Learned, (Ronald Christiansen, Kenneth Andrews, and William).
The SWOT Analysis is useful when a very limited amount of time is available to address a complex strategic situation. It provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.
By understanding these four aspects (Strengths, Weaknesses, Opportunities, and Threats) of its situations, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats.
Technique # 1. Internal Analysis:
The internal analysis is a comprehensive evaluation of the internal environment’s potential strengths and weaknesses.
i. Strengths:
A firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage.
Example of such strengths include:
a. Your specialist marketing expertise
b. A new, innovative product or service
c. Location of your business
d. Quality processes and procedures.
e. Patents
f. Strong brand names
g. Goodwill among customers etc.
ii. Weaknesses:
The absence of certain strengths may be viewed as a weakness for example.
Weakness could be:
a. Lack of marketing expertise
b. ii. Undifferentiated products or services
c. Damaged reputation
d. Lack of patent protection
e. Weak brand name
f. Poor reputation among customers.
Technique # 2. External Analysis:
External Analysis refers to analysis of various opportunities and threats prevailing in the external environment i.e., outside the company.
i. Opportunities:
The external environmental analysis may reveal certain new opportunities for profit and growth.
Some examples of such opportunities include:
a. A developing market such as the internet.
b. ii. Mergers, joint ventures or strategic alliances.
c. Moving into new market segments that offer improved profits.
d. A new international market.
e. A market vacated by an ineffective competitors.
f. Arrival of new technologies
g. Loosening of regulations etc.
ii. Threats:
Changes in the external environmental also may present threats to the firm.
For example, a threat could be:
a. A new competitor in your home market.
b. Price wars with competitors.
c. A competitor with new, innovative product or service.
d. Competitors have superior access to channels of distribution.
e. Shifts in consumer tastes.
f. Emergency of substitute products.
g. New regulations.
h. Increased trade barriers etc.
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm’s strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. Once the analysis has been complete, a SWOT profile can be generated and used as the basis of goal setting, strategy formulation and implementation.
The completed SWOT profile are sometimes arranged as follows:
When formulating strategy, the interaction of the quadrants in the SWOT profile- To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed.
i. S – O Strategies pursue opportunities that are a good fit to the company’s strengths.
ii. W – O Strategies overcome weaknesses to pursue opportunities.
iii. S – T Strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
iv. W – T Strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.
Rules for Successful SWOT Analysis:
i. Be realistic about the strengths and weaknesses of your organization when conducting SWOT analysis.
ii. SWOT analysis should distinction between where your organization is today and where it could be in the future.
iii. SWOT should always be specific. Avoid grey areas.
iv. Always apply SWOT in relation to your competition i.e., better than or worse than your competition.
v. Keep your SWOT short and simple. Avoid complexity.
vi. SWOT is subjective.
While useful for reducing a large quantity of situational factors into a more manageable profile, the SWOT frame work has a tendency to oversimplify the situation by classifying the firm’s environmental factors into categories in which they may not always fit the classification of some factors as strengths or weaknesses, or as opportunities or threats is some that arbitrary.
For example, a particular company culture can be either a strength or a weakness. A technological change can be a either a threat or an opportunity. Perhaps what is more important that the superficial classification of these factors is the firm’s awareness of them and its development of a strategic plan to use them to its advantage.
Strategic Marketing Planning – 3 Main Levels
A business plan should always have a strategic face. Strategy gives a specific focus to the plan. It throws light on how the plan gets into action. This is the reason why an organization dwells on strategic planning. Without strategic planning, the organization cannot cope with the vagaries of the market situation, insulate it from competitive thrust and attain targeted sales and profits. It aims to equilibrate corporate objectives and resources in perfect synchronization.
Kotler (1988) defined strategic planning as the managerial process of developing and maintaining a viable fit between the objectives and resources of an organization. The aim of strategic planning is to shape and reshape the businesses and products of a company so that they combine to produce satisfactory profits and growth.
Strategic marketing planning finds development at three levels.
These are as follows:
1. Corporate level.
2. Business level.
3. Product/Functional level.
1. Corporate Level Strategic Plans:
These strategic plans are the ones that are chalked out at the helm of the organizational ladder where the top brass of management is entitled to decide about –
i. Corporate mission,
ii. Strategic business units (SBUs),
iii. Allocating resources to SBUs, and
iv. Filling up strategic planning gaps for existing and new businesses.
These issues are discussed briefly as follows:
i. A mission is a stated sense of purpose for an organization.
It answers the following questions:
a. Who are the organization’s stakeholders?
b. Why and how does the organization serve them?
c. Where does the organization intend to reach by serving its stake holders?
Through mission statements, a workforce can understand the shared sense of purpose, scope, values, direction, opportunity, and achievements of the business. Both sales managers and salespeople operate within the framework of corporate mission statements. Moreover, these statements are the bases of corporate guidelines that are observed by sales management.
ii. Most organizations are multi-business centres, manufacturing more than one product or service. Each of these businesses deals with at least one product or service and serves a definite customer group. So each business unit has a specific product/service-market combination with a definite strategic purpose. Each unit is called SBU.
Each SBU has its own objectives, strategies, profit motives, budgetary allocation because each unit is an independent business centre having its own target markets, customer groups, competitors, modalities of serving customer needs, and capacity to contribute profits to the organization.
So, the principle underlying the business-level planning is that all related products or services are grouped under one SBU. For example, the BPL group with more than one hundred products in its portfolio constituted six SBUs. These are entertainment electronics and appliances, components, telecom, power, soft energy, and financial services.
iii. The third activity of allocating resources to various SBUs is based on the business potentials and market demands. Resources add strength to the unit to become equal to or to surpass the competitors. Resources are needed to make further development (Build), maintain current position (Hold), reap short-term benefits regardless of long-term effects (Harvest), as well as, sell or liquidate the business because of no attractiveness (Divest).
Sales managers under the ‘Build’ strategy advise their subordinates to increase their efforts to increase sales volume and distribution network. The objective here is to increase market share of SBU and consolidate the business on financial fundamentals. ‘Hold’ makes sense when sales managers want to maintain their sales volume by securing the present sales force and distribution network.
The objective is to concentrate on the present target market(s). Maintenance of a steady cash flow is the smart way to stay uncluttered in the ‘Hold’ strategy. ‘Harvest’ involves the efforts of the sales managers to target profitable accounts and reduce selling costs. So, limiting ties with customers where business prospect is dim and shift attention to profit-making customers under the ‘Harvest’ approach is the strategy used by managers.
Fourthly, when an SBU finds no hope, both in short- or long-term business accruals, the company decide to sell it off or terminate the operation. Sales managers in the ‘Divest’ strategy suggest stopping all the selling activities except making desperate bids to clear off inventories. The ‘Divest Strategy’ also recommends expansion of present business in new geographical areas, if possible or establishment of new businesses to fill the strategic planning gap.
iv. In selling parlance, sales managers call for greater market expansion, penetration or development (intensive growth) or suggest ways to strengthen the supply chain by forward integration (e.g., pursuing exclusive distribution network to firm up customer service), backward integration (e.g., acquiring one or more businesses of the suppliers) or horizontal integration (e.g., acquiring one or more competitors).
The company, as an alternative move can also choose the diversification strategy that entails where and how it should venture out to explore other business opportunities not akin to the existing businesses. Sales managers need to bother more about intensive growth because they are to operate under varied product-market situations. Each situation evolves an opportunity for improving the performance of the organization.
2. Business Level Strategic Plans:
An organization consists of a number of SBUs. Each SBU develops its own missions, objectives, and strategies to achieve. Each SBU explores its marketing opportunities separately and analyses its external threats as well. It lays down its own strategic plans which must not contradict the overall corporate plan.
The components of the SBU’s strategic plan, in general, are:
i. Defining the business mission.
ii. Analysing the external environment for identifying opportunities and threats.
iii. Analysing the internal environment for introspecting strengths and weaknesses.
iv. Developing business objectives and goals.
v. Developing business strategies.
vi. Preparing programmes or action plans.
vii. Implementing action plans.
viii. Monitoring feedbacks and take corrective actions.
These are discussed briefly in the following paragraphs.
Each business unit within the organization has its own mission to develop. The mission statements for the business covers up the market segment and the target market for a company that they will serve. For example, mission for a pharmaceutical business that manufactures paediatric medicines is to spread goodwill amongst parents by taking care of their children’s health.
How better an organization can fulfil its mission depends on how better it can manage its resources and control its impediments in its way to success. This means the ability of the organization to capitalize on strengths by keeping weaknesses at bay and exploit business opportunities by thwarting threats convincingly. SWOT (strength, weakness, opportunity, and threat) analysis is an important strategic planning tool that helps the organization to do a critical review and compare its strengths and weaknesses with opportunities and threats.
SWOT analysis can be separately undertaken by the sales managers to review and identify the strategic advantages that they can use as promotional weapons. At the same time, the analysis will signal cautions on disadvantaged areas of the organization that the sales managers should take care of in the strategic planning process.
After the business mission is defined and the SWOT analysis is over, the sales manager decides on the objectives of the business dealing with specific product(s) or product line. Multiple objectives are set to cover up the major points of destination. Kotler (1988) viewed that most business units should pursue a mix of objectives including profitability, sales growth, market share improvement, risk containment, innovativeness, reputation, and so on.
Strategies lay down the activities and distribute resources with a long-term plan of how to compete with the designated products and markets zeroing in on business objectives and goals. A business strategy, in the same lines, suggests the plan of action which should be pursued by a business unit to accomplish objectives in a cost-effective manner.
In this regard, Porter’s strategic thinking is worthy of discussion because, according to him all strategic routes are condensed into three generic strategies. According to Porter, these generics provide food for strategic thoughts for managers to steer businesses towards accomplishment of objectives.
3. Product/Functional Level Strategic Plan:
A strategic plan provides the framework for preparing marketing strategies for a specific product or service. These product/functional level strategies should be consistent with the business strategies.
Marketing Mix Decision:
Marketing mix development is the central part of a marketing programme. A marketing programme should be designed in a manner that always surpasses that of competitors, which is termed as the competitive advantage. The development of marketing mix takes place basically in its four components, namely product, price, place, and promotion. Information on market potential, market size, growth, level of competitor’s activity, level of tastes and preferences of the customers, economic behaviour of customers, key buying influencers, cost factors for market entry, etc., are other factors to be studied before taking entry decisions.
Marketing mix decision is geared towards developing the marketing mix elements product, price, place, and promotion in a way that meets the needs and preferences of specific target market. Kumar and Meenakshi (2006) advocated that competitive advantage can be built in the marketing programme by the following –
i. Being better – Superior quality or service.
ii. Being faster – Anticipate and respond to customer needs faster than the competitors.
iii. Being closer – Establishing close long-term relationships with the customers.
The objective is to create a clear competitive advantage over rivals. A higher fit amongst the dimensions of the marketing programme, as compared to other competitors, can bring competitive advantage to the organization.
Levels of Strategic Management:
Before we could discuss the various levels of strategy, we need to understand two terms:
1. Enterprise Strategy:
Enterprise Strategy seeks to answer the question “what do we stand for?” Enterprise strategy is the organization’s plan for establishing the desired relationship with other social institutions and stock holder group by maintaining the overall character of the organization.
2. Strategic Business Unit (SBU):
“A strategic business unit (SBU) is an operative division of a firm which serves a distinct product/market segment or a well-defined set of customers or a geographic area. The SBU is given authority to make its own strategic decisions within corporate guidelines as long as it meets corporate objectives.”
In a multi-business enterprise having several SBUs there would be three levels of strategy, viz:
i. Corporate strategy,
ii. SBU strategy and
iii. Functional strategy.
i. Corporate Strategy:
Corporate strategy is the long term strategy encompassing the entire organization. Corporate strategy addresses fundamental questions such as –
a. What is the purpose of the enterprise?
b. What business it wants to be in?
c. How to expand? etc.
Corporate strategy is formulated by the top-level corporate management. Corporate level strategic planning is the planning of activities, which define the overall character, and mission of the organization, the product/service segments it will enter and leave, and allocation of resources and management of synergy among its SBUs.
ii. SBU Strategy:
SBU level strategy, sometimes called business strategy or competitive strategy is concerned with decisions pertaining to the product mix, market segments and measuring competitive advantages for the SBU.
The responsibility for SBU strategy is with the top executives of SBU who are normally 2nd tier executives in the corporate hierarchy. In single SBU organization, senior executives have both corporate and SBU level responsibility.
iii. Functional Strategy:
Functional level strategies are strategies for different functional areas like production, finance, personnel, marketing etc. Functional level strategy is the responsibility of functional area head.
Strategic Marketing Planning – Top 3 Models of SMP
Over the past few decades, a number of frameworks or tools – known as models have been designed to assist the strategic planning exercise. Most of these models can be used with both strategic company planning and strategic marketing planning.
A few other models are being discussed below:
1. Life-Cycle Portfolio Matrix:
The Arthur D Little model which is illustrated below uses two dimensions – the firm’s competitive position and the stages of industry maturity.
a. Dominant – This is a comparatively rare position and in many cases is attributable either to a monopoly or a strong and protected technological leadership.
b. Strong – By virtue of this position, the firm has a considerable degree of freedom over its choice of strategies and is often able to act without its market position being unduly threatened by the competition.
c. Favourable – This position, which generally comes about when the industry is fragmented and no one competitor stands out clearly, results in the giving market leaders a reasonable degree of freedom.
d. Tenable – Although the firms within this category are able to perform satisfactorily and can justify staying in the industry, they are generally vulnerable in the face of increased competition from stronger and more proactive companies in the market.
e. Weak – the performance of firms in this category is generally unsatisfactory although opportunities for improvement do exist.
2. The General Electric Model:
The General Electric Model (developed by GE with the assistance of the consulting firm McKinsey & Company) is similar to the BCG growth-share matrix. This also uses two factors in a matrix/grid situation.
The criteria used to rate market attractiveness and business position are assigned in different ways because some criteria are more important than others. Then each SBU is rated with respect to all criteria. Finally overall ratings for both factors are calculated for each SBU. Based on these ratings, each SBU is labelled as high, medium or low with respect to (a) market attractiveness, and (b) business position.
Every organisation has to make decisions about how to use its limited resources most effectively. That’s where these planning models can help in determining which SBU should be stimulated for growth, which ones maintained in their present market position and which one eliminated.
3. Porter’s Generic Strategic Model:
Michel Porter, a Harvard business professor proposed the following generic strategic models based on product market scope and competitive advantages.
Three generic strategies proposed by Michel Porter are:
a. Overall cost leadership – A company or an SBU, typically large, seeks to satisfy a broad market by producing a standard product at a low cost and then under-pricing competitors. The battle among Deccan Airways with other Airlines, and Maruti Udyog with other automobile companies revolves around cost leadership at the present time.
b. Differentiation – An organisation creates a distinctive, perhaps even a unique, product through its unsurpassed quality, innovative design, or some other feature and as a result, can charge a higher than average price. This strategy may be used to pursue either a broad or narrow target market.
c. Focus – A firm or an SBU concentrates on part of a market and tries to satisfy it with either a very low-priced or highly distinctive product. The target market ordinarily is set apart by some factor such as geography or specialized needs. For example, a small company in the auto parts business might target owners of cars that are no longer produced.
A low-cost leader’s basis for competitive advantage is lower overall cost than competitors. Successful low-cost leaders are exceptionally good at finding ways to drive cost out of their business. Outperforming rivals in controlling the factors that drive costs is a very demanding managerial exercise.
In markets where rivals compete mainly on price, low cost relative to competitor is the only competitive advantage that matters. A low-cost leader is in the strongest position to win the business of the price sensitive buyers and still earn a profit.
A successful differentiation strategy will provide customers with perceived and actual value that is difficult for competitors to copy. The essence of a differentiation strategy is to be unique in ways that are valuable to the customers and that can be sustained.
Focused (or Market Niche) strategy is based on competitive advantages either on- (a) lower cost than competitors in serving the market niche or (b) an ability to offer niche members something they perceive better suited to their own unique taste and preferences. Even though a focuser may be small, it may still have substantial competitive strength because of the attractiveness of the product offering and its strong expertise and capabilities in meeting the needs and expectations of niche members.
Best-cost provider strategies aim at giving customers more value for their money. The most successful best-cost producers have competencies and capabilities to simultaneously manage unit costs down and product caliber up. The most powerful competitive strategy of all is relentlessly striving to become a lower-and-lower cost provider of a higher-and-higher caliber product. The closer a firm can get to the ultimate of being the industry’s absolute lowest-cost provider and, simultaneously, the provider of the industry’s overall best product, the less vulnerable it becomes to rivals’ actions.
Strategic Marketing Planning – Strengths
Some benefits of strategic marketing planning are as follows:
(a) The increase in size of companies will increase its risk.
(b) It improves the quality of management’s decision making by encouraging creativity and initiative by tapping the ideas of the management team.
(c) The economic environment of business is fast changing.
(d) The reduction in entry barriers has intensified the competitive spirit.
(e) The long-run survival and growth of a business firm requires a well-planned decision making, evaluation and control systems.
(f) The long-term, medium-term and short-term objectives, plans and controls can be made consistent with one another.
Strategic Marketing Planning – Common Pitfalls
The common pitfalls in strategic marketing planning are as follows:
(a) Non-availability of correct and accurate data.
(b) Doing strategic planning only to satisfy accreditation or regulatory requirements.
(c) Failing to communicate the plan to the people who execute the plan.
(d) Top management making intuitive decisions that conflict with formal plan.
(e) Failing to use plans as a standard for measuring performance.
(f) Delegating tasks to a few persons rather than involving all managers.
(g) Failing to involve key employees in all phases of planning.
(h) Failing to create an environment conducive of change.
(i) Lack of flexibility and creativity.
(j) Strategic planning is a costly exercise, as well as, time consuming.
(k) Strategic planning usually restricted to hard business concerns, leaving without proper attention for soft issues like customer, quality, labour productivity, social concerns etc.
(l) Strategy planning sometimes becomes a routine exercise, without having proper attention to strategic issues.
(m) The planning process is isolated from the external groups that critically affect the company like labour unions, consumer advocates, social service organizations etc.