Marketing Strategy and Planning - Essay Example

22-01-2007 Marketing Strategy & Planning Many organizations apply marketing concepts like focus, good value, quality service and efficient exchange mechanism for satisfying customer need and wants. Organizations based on management information about customers, products, prices, competitors, suppliers and every aspects of the marketing environment are bound to move ahead. 'Marketing' belongs to marketing specialists but 'going to market' is a process owned by everyone in the organization (Piercy, 1997). Due to expansion of new technologies, organizations augmented their geographical reach and could share their information about philosophy, products, and prices to their consumers. Organizations could collect information about markets, customers, prospects and competitors etc., conduct market researches and identify their focus groups. Marketers can customize offerings, services and messages to individual customers due to Internet services. Organizations can significantly improve logistics and cost efficiency while improving accuracy and services quality through the online exchange of information's, orders, transaction, payments etc. So the present information revolution pushed every organization to remain accurate in levels of production, improve their quality, pricing their products properly. Products innovation takes a close look at customers' need and preferences and modify accordingly. Marketing takes a sweet spot in the present organizations." Marketing is too important to leave to the marketing department."(Bill Packard, Hewlett Packard, in Piercy, 1997) Marketing cannot be leave alone to marketing dept. only. Basically, Marketing deals with identifying and meeting human and social needs. Marketing is "meeting need profitably" (Kotler, 2003). Organizations must carefully monitor their customers and competitors, continuously, improve their value offerings, carefully define the target market and value proposition and take a long term view to satisfying customers, stockholders, employees, suppliers and channel partners. The most important marketing definition given by the American Marketing Association (1995) provide us the complete marketing management process i.e. "Marketing (Management) is the process of planning and executing the conception, pricing promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals". Marketing management is the conscious effort to achieve desired exchange outcomes with target markets. The ever changing situation of the market i.e. of buyers, suppliers, customers, employees or technological could change the equilibrium of any organization. Organizations normally adjust to these changes by changing their overall all-round policies and strategies. Any process cannot be successful without proper planning. Market oriented strategic planning provides, the managerial process of developing and maintaining a viable fit between organizations objectives, skills and resources and it changing market opportunities. The aim of strategic planning in to shape the company's business, products, services and messages so they achieve targeted profits and growth. Strategic marketing deals with the bigger picture in a market which links customers, competitors and organizations ability to meet demand. Strategic marketing plan covers the following key areas i.e. Aims and mission, Analysis, Goals, strategies, objectives timescales etc. To define mission, organization should address Peter Drucker's (1973) classical questions: What is our business Who are the customers What is of value to the customer What will our business be What should our business be Successful organizations continuously raise these questions and answer them thoughtfully and thoroughly. Strategic marketing planning could be based on different strategic models such as Boston Consulting Group (BCG) model and General Electric Model (Kerin, Mahajan, Varadrajan, 1990), PESTLE and SWOT analysis, Porters five forces model, Core Competency model, Porters value chain model, McKinsey 7S model etc., (for detailed explanations see Appendix). Ansoff model proposed the product-market expansion proposed new intensive growth opportunities (Johnson & Jones, 1957). Porter (1980) has proposed three generic strategies that form a good starting point for strategic thinking: Overall cost leadership, Differentiation and Focus. A company has a strategy when it performs different activities from rivals or performs similar activities in different ways (Porter, 1996). Implementing and controlling of marketing plan is as important as planning itself. Creative implementation can translate a good marketing strategy into great profits. Twinings Tea, a division associated with British foods found that skillful implementation was vital to the success. Proficient implementation, the Twinings web program is meeting its goals of enhancing employee, supply chain and customer relationship (Hanson, 2002;Prater, 2000). Planning at corporate, division and business levels is an integral part of marketing process. Marketing process consists of analyzing marketing opportunities, researching and selecting target markets, designing marketing strategies, planning marketing programme and organizing, implementing, and controlling and marketing effort. The four steps in the marketing management process are: I) Analyzing market opportunities II) developing marketing strategies III) planning marketing programme includes marketing expenditures, marketing mix i.e. product, price, place and promotion (Perrault & McCarthy, 1996) and market allocation IV) managing the marketing efforts includes feedback and control (Dekimpe & Hanssens, 1999). So in managing marketing process companies can organize the marketing department according to function, geographical area, products, or customer markets. For example Krispy Kreme emphasize local marketing to enhance customer loyalty and Mcdonalds spends about 50% of its advertisement budget regionally (Bumgarner, 2001). In customer need management, organizations basically focus on basic customer needs (Dewar &Shultz, 1998). Rather than being product-or sales-driven, companies should be market and customer driven exhibiting a company wide passion for customers and developing a capability in strategic creativity. An organisation like British Airways (BA), which takes into account the needs of its markets before it plans its processes, is said to be market led or market oriented. It has changed the focus of its marketing from a marketing plan devised in the marketing department to an organisation-wide involvement in creating an offering of superior value for the customer. Studies have shown that being market led is linked to profitability in profit-based organisations and to survival in non-profit organisations (Slater, 1990). The market-led approach has three components: Consumer orientation Competitor orientation Inter-functional co-ordination. The market-led organisation (Source: Jaworsky and Kohli, 1990) The first two involve the organisation-wide generation of market intelligence regarding current and future customer needs, and making this information available to all departments. Customer orientation also involves continuously monitoring customer information in order to be able to create superior value. Inter-functional co-ordination concerns the organisation-wide co-ordination of resources in response to customers. Inter-departmental 'connectedness' has a key role to play in the dissemination of and the responsiveness to market intelligence by the organisation (Jaworski and Kohli, 1990). Marketing implementation is the process that turns market plans into action assignments and ensures that execution accomplishes the plan's stated objectives. To manage the marketing process organizations apply different type of control such as annual-plan control aims to ensure that the company achieves the sales, profits and other goals established in its annual plan, profitability control, efficiency control and strategic control. Annual planning includes Sales analysis, Marketing share analysis, Financial analysis and market based scorecard analysis. Marketing profitability analysis indicates the relative profitability of different channels, products, territories, or other marketing entities. Profitability analysis reveals poor profits for certain products, territories or markets results in to manage complete marketing process efficiently by the management. Time to time companies need to undertake a critical review of overall marketing goals and effectiveness and reassess its strategic approach to the marketplace with marketing effectiveness reviews and marketing audits. Marketing audit, a comprehensive, systematic, independent and periodic examination of the company's marketing environment, objectives, strategies, and activities to identify problem areas and opportunities and recommend a plan of action for improving marketing performance (Kotler, Gregor & Rodgers, 1989). Marketing management process includes marketing information system and marketing research because customer's needs and preferences are changing and to know exactly what the customer needs are, requires strong marketing information system. Marketing research provides way out for the company to innovate new products, modify existing products, customers' psychology as well as current and future market developments and trends. So marketing management process is a holistic process, which takes a complete view of an organization especially with marketing perspective. Organization often need to restructure business and marketing practices in response to major environmental change such as Globalization, deregulation, technology and telecommunications advances and marketing fragmentation. Marketing needs to integrate all customer facing processes so that customers see a single face and hear a single voice when they interact with the organization. Now many organizations beginning to realize that organizations are really market and customer driven rather than they are product or sales driven. To develop market and customers driven company, it requires passion for customers. Sr. management needs to be more focused on customers, take route to build loyal and satisfied customers. Paying close attention to customers, competitors and the marketing environment has helped Tesco ("Tesco.com Turns a profit" Europe media, April 11, 2002) grow into the largest grocery chain in the United Kingdom. Feeding pressure from Asda, Sainsbury's and other competitors, Tesco marketing managers are always reaching for opportunities based on changing consumers' preferences and environmental factors such as new technology. The chain recently held focus groups at dozens of supermarkets to find out which amenities shoppers would like to see improved. With this feedback, the chain can proceed with remodeling plans to meet customers' need to the local level. Demand estimates play a role in Tesco's marketing decisions. The Chain decided to lower the milk prices after market research; the lower prices generate higher demands. A sharp eye for these kinds of environmental developments is helping Tesco maintain its market leadership position. Many organizations fail to see change as opportunity and ignore or resist changes. Their strategies, structures, systems and culture grow increasingly obsolete and dysfunctional as the environment changes. Those organizations, which are ready to change and adopt strategic marketing techniques, moving ahead to others. For example P & G ("The tide is turning at P&G", Business week, April 8,2002) is one of the world's most skilful marketers of consumer-packaged goods. Its brand leads 19 of the 39 categories in which the company competes; its average market share is almost 25%. P & G achieved its success by expanding its total market defending against rivals, and building market share profitably. The company is always studying its competitors, customers and has in-depth knowledge of its markets and its customer's needs. It is an active product innovator, investing almost 3.5% of sales in R&D annually. Management takes a long-term approach to capitalizing on opportunities and will invest considerable time and money to succeed in its target markets. Just as important, P & G constantly improves the quality of its products and reevaluates core brands to find new ways of boosting share and profitability. In defending market share P & G invests heavily in out promoting new competitive brands. Its hefty ad budget is among the largest in the industry and it has developed creative online programmes to promote new products and boost existing brands. P &G's success is based on the effective orchestration of myriad factors that contribute to market leadership. So by these examples we can easily understand that strategic marketing planning and market management process plays an all important role the organizations to survive and grow in the vulnerable, changing and competitive markets. The ultimate purpose of the marketing concept is to help organizations achieve their objectives. In the case of private firms, the major objective is profit, in the case of non-profit and public organization, it is surviving and attractive enough funds to perform useful work. Private firm should aim to achieve profits as a consequence of creating superior customer value by satisfying customers need better than competitors. Most of successful companies stand out as master marketers. These companies focus on customers and organized enough to respond effectively to changing customer needs. So companies can achieve superior performance through embracing the marketing concept. Some organizations resist to marketing concept. But in spite of resistance, marketing emerges as the integrative function of any organization. Marketing plan and its implementation by the management is an integrative part of any organization. Organization could be differentiated as profit, non-profit and public sector. Each sector or types of organization have different ways to implement marketing plan because each have different motive and missions. These different aims put them into different categories and have different ways to implement marketing plan. Until now we have discussed profit organizations and their marketing plans and strategies. Now on, we will focus on non- profit and public sector marketing plans and strategies and how they differ. In commercial (profit) organizations, products and services are exchanged for money and resources. In non-profit organizations, goods and services are sometimes exchanged for money and some times also to support ideas and beliefs. The profit organization uses the terms customers and consumer inter changeable. However the non-profit sector makes a clear distinction between the groups. In the non-profit sector the resource provider in seen as the customer and the resource user as the consumer. Non-profit organizations believe that their consumers are different because the resource provider's job to specify what products or service the consumers need and how they can obtain it. Using marketing led ideas in the non-profit sector requires a fundamental shift in organizational philosophy. Most people think that marketing is a tool, but for not-for-profit, it is a way of thinking. It goes beyond selling and advertising, it is a mindset that puts the customers first. Marketing is denned as facilitating the exchange process. In the commercial sector, this means products and services are exchanged for money. In the non-profit sector, this means products and services are exchanged for ideas, values and beliefs. To run a non-profit organization effectively, the marketing must be built into the design of the service. This is very much a top management job, although, as in every other area, you need a lot of input from your people, from the market and from research. The focus of planning is often different between for profits and not-for- profits organizations. Non-profits tend to focus more on matters of board development, fundraising and volunteer management. One of the organizations Water Aid (www.wateraid.org.uk) an international charity, based in UK works for poor communities in Africa and Asia improved and managed marketing process through applying concepts like segmentation and analysis to decrease donor attrition. It has conducted two major direct marketing campaigns that results in more than 21,000 new regular donors each year. By developing innovation and analysis of information and by applying specific project "The information Edge" the organization gleaned a better understanding of who is giving, what creative packages work best, and when it is appropriate to ask for larger gift. The charity is applying this knowledge to its ongoing test and control cycle to improve the return on its direct marketing investment. Water Aid collected gift and donor information and applied direct marketing segmentations techniques to develop a clear picture of post donor behavior. Normally in not-for-profit organization volunteer, who is marketing for the organsiation, most of the time have regular face-to-face contracts with beneficiary and with donor whether they are individuals or institutions, volunteers direct contact is less and therefore organization contact through E-mail and through websites using Internet and other forms of contact. Most of the organizations engage in relationship marketing with their beneficiaries and donors alike. Competition among charities for donor income has increased dramatically in recent years. Moreover, charities have to compete against each other for cause relating marketing contracts with commercial enterprises and sponsorship deals and must bid competitively for govt. grant. Competitors' analysis shows that factors such as market commonality; resource similarities, competitive reward structures and environment turbulence have similar influence on not-for-profit organizations. A large number of UK charities have extended their products; sales into areas not traditionally associated with non-profit organization, charity's image and reputation exert a strong influence on donor behaviour. Charity sector is one of the UK's biggest users of direct marketing. The organizations, which placed high value on the marketing function, are in general more successful. Similarly the skills needed by public sector marketers differ greatly from those in the private sector. Marketers with public sector need to be thick skinned. Rejection, blank gazes and arched eyebrows are all too common in the lonely world of public sector marketing. Very often in public sector, administrators are promoted internally to marketing job or roles. Without professional marketers, marketing is more of an experiment than a science. Public sector organizations, such as central and local govt., defence, health care, education and the judiciary represents significant opportunities for suppliers but buyer are more rule bound, cost conscious and risk averse than their peers in private organizations. Societies and networks are popular in the public sector. Thought leadership works well in the public sector. As with private sector buyers, public sector buyers often rely on third party to help then make selection and purchase decision. Few public sector deals are partnership value based currently despite much discussion about the advantages of such approaches. More common are the classic pricing methods (particular by market or competitor based ones). Normally public sector organizations were established to fulfill government social responsibilities and they are more social cost benefit oriented rather than mere profit oriented. So their mission puts strategic marketing planning at the backhouse of the organization. They are generally not customer focused. So their all activities move around government control and policies. Sometimes government creates them to fulfill their social obligations or they work under monopoly due to govt. protection and regulations. Theses conditions hampers their ability of competitiveness in the market and quality and innovations of products or service but changes in competitive situations due to liberalize rules and regulation and market conditions, public sector organizations have to emphasize on value creation through strategic marketing management processes. They have to build customer focused strategies and design and satisfy customer needs to provide superior levels to product and service performance. Innovation is the key areas in which public sectors have to improve. When innovating in public services, governments has a role to play in stimulating a shared language, established agreed time frames, managing risks and negotiating among conflicting interests. In recent years diffusing innovation in public sector has been authoritative and process based e.g. best value, become councils. In the past General practitioners read health journals and information sent by drug companies in an example of diffusing innovations. Now in UK, a high value is placed on parity of services across the whole country in NHS. The introduction of NHS direct service, which is fast, convenient to access, range of services supported by considerable amount of technology enhances the users. Other allied and supportive services has been added to NHS direct services and interfaced with people results that NHS a public sector, came closer to its users (Monro et al., 2000). So we came to the conclusion that marketing management as a process and strategic marketing as a tool is the most important factors for the organizations whether they are profit oriented or not for profit or public sector. The ever changing and challenging condition of the Global environment, technological innovations, customers needs and preferences and increasing thirst for organizations to succeed at the market place making them vulnerable to change and in result push them to adopt newer strategies to market their products or services. It is the only way out for the organization to succeed. References: 1. Bennett, D.P. ed. (1995), Dictionary of Marketing Terms, 2nd ed. American Marketing Association, Chicago. 2. Bumgarner, S. (2001), Brandweek, March 26. 3. Dekimpe, M.G., & Hanssens, D.M.(1999), " Sustaining spending and persistent response: Anew look at long term profitability", Journal of marketing research(Nov.):397-412. 4. Dewar, R. & Shultz, D. (1998), "The product manager, an idea whose time has gone", Marketing communication, May. 5. Drucker, P. (1973), Management: Tasks, Responsibilities and Practices, Harper & Row, New York. 6. Hanson, M. (2002, 2000) & Prate, D. (2000), "Fresh ideas are nothing without implementation", Marketing; "In-store implementation key", Frozen food age; " The third times the charm", Sales and marketing management. 7. Jaworski, B. J. and Kohli, A. K. (1990) 'Marketing orientation: the construct, research propositions, and management implications', Journal of Marketing, Vol. 54, No. 2, pp. 1-18. 8. Johnson, S.J. & Jones, C., (1957), How to organize for new products, Harvard Business Review (May-June): 49-62. 9. Kerin, R.A., Mahajan, V., Varadrajan, P. R., (1990), contemporary perspective of strategic planning, Allyn & Bacon, Boston. 10. Kotler, P. (2003), A Framework for marketing management, Pearson education Singapore) pte. Ltd. 11. Kotler, P., Gregor, W., & Rodgers, W. (1989), "The marketing audit comes of age", Sloan management review: 49-62. 12. Monro et al. (2000), Evaluation of NHS direct first wave sites, 2nd interim report, Dept. of Health, March. 13. Perrault & McCarthy (1996), Basic marketing: A global managerial approach, 13th ed. Burr Ridge, IL. 14. Piercy, N. (1997) Market-led Strategic Change, Oxford, Butterworth-Heinemann. 15. Porter, M.E., (1996), " what is strategy" Harvard Business Review (Nov.-Dec.): 61-78. 16. Porter, M.E., (1980), Competitive Strategy: Techniques for analyzing industries and competitors, Free press, New York. 17. Slater, J. and Narver, J. (1998) 'Customer-led and market-oriented: let's not confuse the two', Strategic Management Journal, Vol. 19, pp. 1001-6. 18. "Tesco.com Turns a profit" Europe media, April 11, 2002, (www.vandusseldrop.com). 19. "The tide is turning at P&G", Business week, April 8,2002. 20. http://www.managementhelp.org/plan_dec/gen-plan/gen-plan.htm Accessed on 20th Jan. 2007. 21. http://www.londonmet.ac.uk/depts/bssm/research/cermark/publications Accessed on 21st Jan. 2007. 22. http://www.wateraid.org.uk Accessed on 21st Jan. 2007. Appendix PESTLE Analysis (PEST analysis) The PESTLE acronym. Political Economic Social Technological Legal Environmental PESTLE Analysis is a simple technique, which can be used in a fairly sophisticated way, particularly when it is combined with Risk Analysis, SWOT Analysis, an Urgency/Importancy Grid and expert knowledge about the organisation and its external factors. PESTLE Analysis is normally used to help organisations identify and understand the external environment in which they operate and how it will operate in the future. SWOTs - Keys to Business Strategies Having built up a picture of the company's past aims and achievements, the all-important SWOT (strengths, weaknesses, opportunities and threats) analysis can commence. Strengths & Weaknesses Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas. These include: Sales - marketing - distribution - promotion - support; Management - systems - expertise - resources; Operations - efficiency - capacity - processes; Products - services - quality - pricing - features - range - competitiveness; Finances - resources - performance; R&D - effort - direction - resources; Costs - productivity - purchasing; Systems - organization - structures. If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project. The objective is to build up a picture of the outstanding good and bad points, achievements and failures and other critical features within the company. Threats & Opportunities The external threats and opportunities confronting a company can exist or develop in the following areas: The company's own industry where structural changes may be occurring (Size and segmentation; growth patterns and maturity; established patterns and relationships, emergence/contraction of niches; international dimensions; relative attractiveness of segments) The marketplace which may be altering due to economic or social factors (Customers; distribution channels; economic factors, social/demographic issues; political & environmental factors) Competition which may be creating new threats or opportunities (Identities, performances, market shares, likely plans, aggressiveness, strengths & weaknesses) New technologies, which may be, causing fundamental changes in products, processes, etc. (Substitute products, alternative solutions, shifting channels, cost savings etc.) Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves. Use the SWOTs to help identify possible strategies as follows: Build on strengths Resolve weaknesses Exploit opportunities Avoid threats The resulting strategies can then be filtered and moulded to form the basis of a realistic strategic plan. Strategy - Analysing competitive industry structure Defining an industry. An industry is a group of firms that market products, which are close substitutes for each other (e.g. the car industry, the travel industry). Some industries are more profitable than others. Why The answer lies in understanding the dynamics of competitive structure in an industry. The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below: Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining power of buyers - The bargaining power of suppliers - The degree of rivalry between existing competitors Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include Economies of scale - Capital / investment requirements - Customer switching costs - Access to industry distribution channels - The likelihood of retaliation from existing industry players. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when: There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The industry is not a key customer group to the suppliers Bargaining Power of Buyers Buyers are the people / organisations who create demand in an industry The bargaining power of buyers is greater when There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers Intensity of Rivalry The intensity of rivalry between competitors in an industry will depend on: - The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader - The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price-cutting - Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry - Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier - Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry. Core competency model: A Core Competency is a deep proficiency that enables a company to deliver unique value to customers. It embodies an organization's collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. Such a Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the benefits a company's products offer customers. To develop Core Competencies a company must: Isolate its key abilities and hone them into organization-wide strengths; Compare itself with other companies with the same skills, to ensure that it is developing unique capabilities; Develop an understanding of what capabilities its customers truly value, and invest accordingly to develop and sustain valued strengths; Create an organizational road map that sets goals for competence building; Pursue alliances, acquisitions and licensing arrangements that will further build the organization's strengths in core areas; Encourage communication and involvement in core capability development across the organization; Preserve core strengths even as management expands and redefines the business; Outsource or divest non-core capabilities to free up resources that can be used to deepen core capabilities. Common Uses Core Competencies capture the collective learning in an organization. They can be used to: Design competitive positions and strategies that capitalize on corporate strengths; Unify the company across business units and functional units, and improve the transfer of knowledge and skills among them; Help employees understand management's priorities; Integrate the use of technology in carrying out business processes; Decide where to allocate resources; Make outsourcing, divestment and partnering decisions; Widen the domain in which the company innovates, and spawn new products and services; Invent new markets and quickly enter emerging markets; Enhance image and build customer loyalty. Value Chain framework of Michael Porter The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage. The activities of the Value Chain Primary activities (line functions) Inbound Logistics. Includes receiving, storing, inventory control, transportation planning. Operations. Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product. Outbound Logistics. The activities required to get the finished product at the customers: warehousing, order fulfillment, transportation, distribution management. Marketing and Sales. The activities associated with getting buyers to purchase the product, including: channel selection, advertising, promotion, selling, pricing, retail management, etc. Service. The activities that maintain and enhance the product's value, including: customer support, repair services, installation, training, spare parts management, upgrading, etc. Support activities (Staff functions, overhead) Procurement. Procurement of raw materials, servicing, spare parts, buildings, machines, etc. Technology Development. Includes technology development to support the value chain activities. Such as: Research and Development, Process automation, design, redesign. Human Resource Management. The activities associated with recruiting, development (education), retention and compensation of employees and managers. Firm Infrastructure. Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc. Creating a cost advantage based on the value chain A firm may create a cost advantage: by reducing the cost of individual value chain activities, or by reconfiguring the value chain. Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. Recently there have been many companies that achieved a cost advantage by the clever use of Information Technology. Once the value chain has been defined, assigning costs to the value chain activities can perform a cost analysis. Porter identified 10 cost drivers related to value chain activities: 1. Economies of scale. 2. Learning. 3. Capacity utilization. 4. Linkages among activities. 5. Interrelationships among business units. 6. Degree of vertical integration. 7. Timing of market entry. 8. Firm's policy of cost or differentiation. 9. Geographic location. 10. Institutional factors (regulation, union activity, taxes, etc.). A firm develops a cost advantage by controlling these drivers better than its competitors do. "Reconfiguring" the value chain also can pursue a cost advantage. "Reconfiguration" means structural changes such as: a new production process, new distribution channels, or a different sales approach. Normally, the Value Chain of a company is connected to other Value Chains and is part of a larger Value Chain. Developing a competitive advantage also depends on how efficiently you can analyze and manage the entire Value Chain. This idea is called: Supply Chain Management. Some people argue that network is actually a better word to describe the physical form of Value Chains: Value Networks. Book: Michael E. Porter - Competitive Advantage The General Electric Business Screen GE Business Screen Matrix The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cashflow if often a more reliable indicator of position as opposed to market growth/share. The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitutes competitive position for the original market share original's market share. So in come Strastrstraegic Business Units (SBU's). A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies. Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria: For market attractiveness: Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact. . . . and for competitive position: Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction. At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps: One - Identify your products, brands, experiences, solutions, or SBU's. Two - Answer the question, What makes this market so attractive Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness. Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include: There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it. The 7S McKinsey model Most of us grew up learning about 'the 4Ps' of the marketing mix: product, price, place, and promotion. And this model still works when the focus is on product marketing. However most developed economies have moved on, with an ever-increasing focus on service businesses, and therefore service marketing. To better represent the challenges of service marketing, McKinsey developed a new framework for analyzing and improving organizational effectiveness, the 7S model: The 3Ss across the top of the model are described as 'Hard Ss': - Strategy: The direction and scope of the company over the long term. - Structure: The basic organization of the company, its departments, reporting lines, areas of expertise, and responsibility (and how they inter-relate). - Systems: Formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call centre systems, online systems, etc). The 4Ss across the bottom of the model are less tangible, more cultural in nature, and were termed 'Soft Ss' by McKinsey: - Skills: The capabilities and competencies that exist within the company. What it does best. - Shared values: The values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior. - Staff: The company's people resources and how they are developed, trained, and motivated. - Style: The leadership approach of top management and the company's overall operating approach. In combination they provide another effective framework for analyzing the organization and its activities. In a marketing-led company they can be used to explore the extent to which the company is working coherently towards a distinctive and motivating place in the mind of consumer. Read More