Strategic Marketing Planning Principle 2

The business plan should answer the following questions :

• Where should we compete?
• How should we compete?
• How do we reach our strategic objectives?

In strategic planning, managers match organizations resources with its market opportunities over the long run.  Market and economic conditions during the past two decades prompted many companies to consider more formally and more frequently how best to match their opportunities and their resources.  To do so, managers must seize their opportunities and avoid the threats by assessing the environmental forces affecting its business.

Environmental forces influence organization marketing. Some of these forces are external to the firm, while others come from within.  There isn't much that management can do about controlling the external forces, but it generally can control the internal ones. The business unit therefore should ask:

• Which asset, skills, strength and weakness do we have today?
• Which asset, skills, strength and weakness do our competitors have today? Where are they heading?
• Which are the most attractive markets – today and tomorrow?
• Which are the key success factors on those markets – today and tomorrow?

An organization operates with in an external environment that it generally cannot control. There are two levels of external environment:

• External macro-environment (so called because they affect all firms) includes demographics, economic conditions, culture, and laws etc. and  
• External micro- environment (so called because they affect a particular firm) consists of suppliers, marketing intermediaries, and customers.

Successful marketing depends largely on a company's ability to manage its marketing programs within its environment. To do this, firm marketing executives must determine what makes up the firms environment and then monitor it in a systematic, on going fashion.

The sequence of the strategic process may include:

• Research- customer survey, competitor survey, environmental survey and self-survey.
• Analysis –industry analysis, Portfolio analysis
• Objectives – Overall strategic objective (Mission), strategic portfolio objective
• Actions –action for improving operational efficiency, actions for improving market position and strategic investments

These marketing executives must be alert to spot environmental trends that could be opportunities or problems for their organization. And they must be able to respond to these trends with the resources they can control.
 

Strategic marketing planning is the managerial process of developing and maintaining a viable fit between the organization’s objectives, sill, 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.
 

Every industry is unique in terms of the competitive behavior that we observe during any period of time. One of the most difficult problems is defining the industry. No industry has clear boundaries either in terms of the firm’s products or geographic areas. But the simplest way is, restricting analysis of the firm’s external environment to its immediate environment – the industry.

Porter’s Approach to competitive structure analysis

Understanding the forces at work in any market segment are a necessary prerequisite to deducing whether – and if appropriate, how – the firm should use that segment as a strategic business area.

The five forces are:

1. New entrants, potential entrants and the threat of entry

2. Substitute products/ services

3. Buyers and buyer power

4. Suppliers and supplier power

5. Competitors and the nature of inter-firm rivalry.

The greater the intensity of any of these sources of competition, the harder it will be for an organization to earn profits and the greater will be the need for strategic sophistications. A checklist of questions can assist strategist in thinking through the strategic implications of the competitive structures of an industry.

1. What is the threat of entry into the industry and from where does it arises?

2. Where are present and potential substitute products /services located and what it is?

3. Who are the buyers and what is the extent of their power with regard to the organization?

4. Who are our suppliers and what is their power with regard to the organization?

5. Who are present and potential competitors and how intense is (or will be) present and potential competitive rivalry?

Each of these key areas can in turn be analyzed to determine the intensity of competition.

1. Potential Entrants: Threat of entry depends on the extent of barriers of entry, so:
      - 

   Is the potential customers base sufficient to support new operation?
      - 

   How heavy are the capital investments requirements in the industry? Is finance available?
      - 

   Is there a strong brand image to overcome?
      - 

   How costly will be access to distribution channel?
      - 

   What operating cost advantage might existing competitors hold (eg. Experienced staff, patent protection, etc)
      - 

   Is there governmental / legislative protection afforded to existing organizations?
      - 

   How vigorously will existing operators react against new entry attempts?

2. Substitute products/ services will be more prevalent:
   

      - Customers perceive over offer higher value for money
      - 

   Substitute products often higher profits

3. Buyer power is likely to be high if:
   

      - There is a concentration of buyers
      - 

   There are alternative sources of supply
      - 

   Buyers have access to useful information and shop around
      - 

   There is a threat of backward integration if the buyers does not obtain satisfactory supplies and prices. 

4. Suppliers power is likely to be high if:
   There is a concentration of suppliers

   The cost of switching from one supplier to another are high

   Suppliers are likely to integrate forward if they do not obtain the price profit they seek

   The organization has little countervailing power

5. Intensity of rivalry will be greater if:
      - Competitors are of equal size and are seeking dominance

      - The market is mature and subject to 'shake out' activities
      - 

   High fixed costs provoke price wars to maintain capacity
      - 

   Product homogeneity necessitates activities to maintain share
      - 

   New influxes of capacity have created excess capacity
      - 

   High 'exit' barriers (legal constraints; high cost non-transferable plant and equipment, emotional commitment) exists.

The intent of planning is to seize the opportunities and to avoid the threats associated with changing markets.  Formal strategic planning was recognized as an effective management tool to do this.  The management process as applied to marketing, consists of basically:

1. Planning a marketing program

2. Implementing it, and

3. Evaluating its performance

The implementation stage entails forming and staffing the marketing organization and directing the actual operation of the organization according to the plan.

The evaluation stage consists of analyzing past performance in relation to organizational goal. 

This third stage indicates the interrelated, continuing nature of the management process.

Planning is a predetermined goal.  It is deciding now what to do later, including how and when we are going to do it.  Without a plan, we cannot get things done effectively and efficiently, because we don't know what needs to be done or how to do it.  

A business can be defined in terms of three dimensions; customer groups, customer needs, and technology. Fro example, a small company that defines its business as designing incandescent lighting systems for televisions studios, its customer group is television studios; the customer need is lighting; and the technology is incandescent lighting.

The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding. Senior management knows that its portfolio of business usually includes a numbers of “Yesterday’s has – been as well as tomorrow’s breadwinners.” But it cannot rely just on impressions; it needs analytical tools for classifying its business by profit potential.

1. It is a single business or collection of related business that can be planned separately from the rest of the company.

2. It has its own set of competitions

3. It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profits.

Two of the best-known business pert folio evaluation models are the Boston Consulting Groups model and the General Electric Model.

Managers before going in detail analysis of environmental factors, they must assess the industry structure. According to Michael Porter , the forces that affect the industry are as follows.

The business unit strategic planning process consists of the eight steps as shown below:

The business strategic - planning process

   1.4.1 Business Mission

The organization's mission states what customers it serves, what need it satisfies, and what types of products it offers.  A mission statement indicates in general terms the boundaries for an organization's activities. A mission statement should be neither too broad nor vague nor too narrow and specific. Traditionally, companies stated their mission in production-oriented terms.  Today, firms following the marketing concept express their mission in customer-oriented terms.

i.e.       production - oriented mission statement

• We operate a long distance telephone company. 

• We make blue jeans.                                                                           

i.e.      Marketing oriented mission statement

• We provide multiple forms of reliable, efficient, and inexpensive telecommunication services.

• We offer comfort, fashion, and durability in wearing apparel.

Each business unit needs to define its specific mission with in the broader company mission.

e.g.      We provide various types of safe and cost effective energy.

            We offer comfort, fashion, and durability in wearing apparel.

 

   1.4.2 External Environmental Analysis (Opportunity and Threat Analysis)

Once the business unit has formulated its mission statement, the business manager knows the parts of the environment it needs to monitor to achieve goals.

In general a business unit has to monitor key external macro environment forces (demographic, economic, technological, political, legal, social & cultural) and significant microenvironment factors (customers, competitors, distribution channel, suppliers) that affect its ability to earn profits.  The business unit should set up a marketing intelligence system to track trends and important developments.  For each trend or development, management needs to identify the associated opportunities and threats.  Such Analysis is called STEEP analysis. STEEP analysis entails the following steps

The Five Stages of Environmental Analysis

STEEP Analysis

The STEEP factors represents that part of the macro-environment ever which managers have little influence, let alone control. Yet these factors have a profound effect on organizations and marketing.

1. Social and Cultural Factors

The task facing marketing executives is becoming more complex because our culture patterns- life styles, social values, beliefs-are changing much more quickly than they used to. People start seeking value, quality, and safety in the products they buy. They have started concerning about education, retraining of workers, about air and water pollution, solid waste disposal (distraction of rain forests and other natural resources. These concerns have raised the level of environmental consciousness.  The statistical study of human population and it's distribution is demography. It is of special interest to marketing executives because people constitute markets. Therefore the marketing executives directs there marketing activities based on the demographical changes, i.e. Culture, age group, sex, etc.

The social factors of the nation, including their changes through time, have great impact on the marketing strategies of firms. The long-term social changes are the major interest of this course.

Today, there is a great change in social outlook for the marketable products and business firms have also possibilities to utilize these opportunities. The study of these social trends such as:

• The rate of population growt
• The rate of employment

• Number of women in employment

• Self-employment growth

• Trends in consumption

• Deferent patterns of moral authority, as religions decline, grow or are substituted by new and often divergent moral norms.

• Impact of one media over the other

• Lifestyle of multi cultural population etc.

2. Technological Factors

Technology has a tremendous impact on the life style, consumption pattern, and the economic well-being. Technology is a mixed blessing in other ways also. A new technology may improve the live in one area while creating environmental and social problems in other areas.

Technology has a profound impact on organizations and consumers. What we eat, how the sleep, how we work and get to work, how and how often we communicate with each other, and what we do in our leisure time are constantly changing as a result of new technology.

There are a number of examples of technological changes:

• Electronic mail facilities at the office & home

• Modems and advanced telephone transmission lines

• Compact disk players

• Fax machines

• Remote control for the video and television

In summary, Technological breakthroughs can affect markets in three ways:

1. Start entirely new industries, as computers, robots have done

2. Radically alter, or virtually destroy, existing industries.

Stimulate markets and industries not related to the new technology

3. Economic Factors

People alone do not make a market. They must have money to spend and be willing to spend it. Consequently, the economic environment is a significant force that affects the marketing activities of just about any organization. A marketing program is affected especially by such economic factors as the current and anticipated stage of the business cycle, as well as inflation and interest rate.

Firms are very sensitive for the following major and other economic factors:

• Energy price

• Interest rates

• Exchange rates

• Taxation

• Inflation/deflation

• The exchange rates

• Economic growth of the nation 

There is also a range of economic factors at an industry level such as the availability of land, capital and labor in different economies and regions.

4. Environmental Factors

Environmental factors are increasingly at the forefront in consumer choices and in the regulators, which governments apply to what organizations, make or deliver, and how they do so.

The marketing implications go beyond opportunities for providing environmentally friendly goods and services.

They include the sensitivity, which organizations need to adopt towards environmental opinion in governments, political movements, the media and the public in general. Forecasting the availability and cost of source of energy and raw materials will also be highly dependant up on environmental criteria.

5. Political and Legal Factors

Every company's conduct is influenced more and more by the political and legal process in the society. The political and legal forces on marketing can be the following:-

Monetary and fiscal policies- Government spending, tax legislation etc.

Social legislation and regulation-Anti pollution law.

Government relationship with industries- Tariffs and import quotas etc.

The impact of political factors can be wide-ranging and subtle. It can range from the effects of a change in government to the policies persuade by individual government department or agencies. Such changes can have important consequences both for individual business and for whole sectors of the economy. The changing patterns of political activity can also be important.

Managers should also take account of political factors at federal and regional level. It is also important to note the STEEP factors present both opportunities and threats to organizations.

 

   1.4.3 Internal Environment Analysis (Strengths/ Weakness Analysis)

Internal forces that are controllable also shape an organization's marketing system by management. These internal influences include a firm's production, financial, and personal activities.

If a   company considers developing its existing product, it must determine whether existing production facilities and expertise can be used. If a new product requires a new plant or machinery, financial capability enters the picture.

Other non-marketing forces are the company's location, its research and development (R&D) strength, and the overall image the firm projects to the public. Plant location often determines the geographic limits of a company's market; particularly if transportation costs are high or its products are perishable.

Each business needs to evaluate its internal strength and weakness periodically.

Management or an outside consultant reviews the business marketing, financial, manufacturing, and organizational competencies and rates each factor as a major strength, minor strength, neutral factor, minor weakness, or major weakness.

Today, strategy designers have been aided by a number of matrixes showing the relationship of critical variables.

The SWOT matrix has a wider scope, and it has different emphases form those of the Business portfolio matrix.

It has been common to suggest that companies identify their strengths and weakness, as well as the opportunities and threats in the external environment.

Four Alternative Strategies

The strategies are based on the analysis of the external environment (threats and opportunities) and the internal environment (weakness and strengths).

1. The WT strategy aims to minimize both weakness and threats.  It may require that the company.  For example, forms a joint venture, retrench, or even liquidate.

2. The WO strategy attempts to minimize the weaknesses and maximize the opportunities.  Thus, a firm with certain weakness in some areas may either develop those areas with in the enterprise or acquire the needed competencies (such as technology or persons with needed skills) from the outside, making it possible to take advantage of opportunities in the external environment.

3. The ST strategy is based on the organization's strengths to deal with threats in the environment.  The aim is to maximize the former while minimizing the latter.  Thus, a company may use its technological, financial, managerial, or marketing strength to cope with the threats of a new product introduced by its competitors. 

4. The most desirable situation occurs when a company can use its strength to take advantage of opportunities.  (The SO strategy).  Indeed, it is the aim of enterprises to move from other position in the matrix to this one. If they have weakness, they will strive to overcome them, making them strengths.  If they face threats, they will cope with them so that they can focus on opportunities.

         The SWOT Matrix for Strategic Formulation

Internal factors External factors	Internal strengths (s)  e.g. strengths in management, operations finance, marketing R&D, engineering	Internal weakness (W) e.g. Weakness in the area shown in the box of strengths
External opportunities (0) current & future economic conditions, political and social changes, new products, services and technology consider risks also	So strategy maxi-maxi potentially the most successful strategy, utilizing the organizations strengths to take advantages of opportunities	WO strategy mini-maxi e.g. developmental strategy to overcome weaknesses in order to take advantage of opportunities
External Threats (T) e.g. lack of energy competition, and areas similar to those shown in the opportunities box above	ST strategy Maxi-mini e.g. use of strengths to cope with threats or to avoid threats	WT strategy Mini-mini e.g. retrenchment, liquidation, or joint venture.

Clearly the business does not have to correct all its weakness, nor should it gloat about all its strengths.  The big question is whether the business should limit itself to those opportunities where it possesses the required strength or should consider better opportunities where it might have to acquire or develop certain strength.

 

The rest of the note you can download by clicking on the link below. 

 

1.6 Summary

The management process consists of planning, implementation, and evaluation. Planning is deciding in advance what objective to pursue during the future time period, including when and how we are going to do it. Planning provides direction to an organization. Strategic planning is intended to match an organizations resources with its market opportunities over the long run. Strategic marketing planning an eight steps process: Define museum statement parsers internal and external environment; set objective set strategies; formulate programs; implement the program and feedback and control.

Management can rely on one or more of the following models for assistance with strategic planning. Boston consulting Group matrix. General electric business screen, porters genetic strategic model product market growth matrix. A planning models help management see how best to allocate its resources and to select effective marketing strategies.