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Review the article and prepare a 500 - 600 word response to the following discussion question:What are five best practices in marketing strategy formulation that you take away from this reading?This reading provides a basic framework for thinking through the key decisions in the marketing process. While every business situation is unique, you will learn best-practice approaches that can be adapted across products, organizations, and markets. This reading can be divided into three segments:Marketing strategy formation (Sections 2.1 and 2.2);Aspiration decisions (Section 2.3); andAction decisions (Section 2.4). ._marketing_reading_framework_for_marketing_strategy_formation__1___1_.pdf Unformatted Attachment Preview For the exclusive use of J. Raval, 2020. Marketing READING Framework for Marketing Strategy Formation ROBERT J. DOLAN Harvard Business School 8153 | Revised: December 19, 2019 1 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. Table of Contents 1 Introduction ............................................................................................................................................3 2 Essential Reading ..................................................................................................................................6 2.1 Overview of Marketing Strategy Formation ...................................................................................7 2.2 Analysis Underlying Marketing Strategy Formation .....................................................................9 Customer Analysis........................................................................................................................9 Company Analysis ......................................................................................................................11 Collaborator Analysis .................................................................................................................12 Competitive Analysis ..................................................................................................................12 Context Analysis ......................................................................................................................... 13 2.3 The Aspiration Decision: Segmenting, Targeting, and Positioning ..........................................14 2.4 The Action Plan: The Marketing Mix Decision.............................................................................17 Product Decisions.......................................................................................................................18 Promotion Decisions ..................................................................................................................23 Place Decisions...........................................................................................................................30 Pricing Decisions ........................................................................................................................32 2.5 Conclusion ....................................................................................................................................39 3 Key Terms ............................................................................................................................................40 4 For Further Reading .............................................................................................................................41 5 Endnotes ..............................................................................................................................................41 6 Index .....................................................................................................................................................46 Robert J. Dolan, Baker Foundation Professor of Business Administration, Harvard Business School, developed this Core Reading. Copyright © 2014 Harvard Business School Publishing Corporation. All rights reserved. To order copies or request permission to reproduce materials (including posting on academic websites), call 1-800-545-7685 or go to http://www.hbsp.harvard.edu. 8153| Core Reading: Framework for Marketing Strategy Formation 2 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. 1 INTRODUCTION I n the early 1970s, Peter Drucker, the renowned management scholar, noted that “the purpose of business is to create a customer.” 1 A decade later, Theodore Levitt, a Harvard Business School marketing professor, made an important addition in his book The Marketing Imagination: “The purpose of a business is to create and keep a customer” (emphasis added). 2 Levitt also noted that achieving those goals and, implicitly, the financial goals of the firm, requires “differentiating what you do and how you operate.” 3 In a highly connected world where a social media platform can average more than two billion users a month, 4 it is useful in many product categories to add a third purpose: to make customers active ambassadors for your brand. But how can one achieve the differentiation necessary to do that? Benson Shapiro, in “The Marketing Process,” 5 helps answer that question by showing the relationship among the six key elements of a customer-centered marketing proces (see Shapiro’s flowchart in Exhibit 1). EXHIBIT 1 Relationships Among the Six Parts of the Marketing Process Source: Reprinted from Harvard Business School, “The Marketing Process,” HBS No. 584-146 by Benson P. Shapiro. Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved. Shapiro defined the parts of the process as follows: 8153| Core Reading: Framework for Marketing Strategy Formation 3 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. 1 2 3 4 5 6 Marketing strategy formation. Set the overall long-term goals and basic approach to the marketplace. This typically involves making choices about specific customer groups to serve, customer wants to address, and the best way to create value for customers. Marketing planning. Depending on the industry, the time horizon for planning can vary. In dynamic situations—for example, in a technology-driven industry—plans need to be reworked regularly. In other, more stable situations, the basics of a plan might extend over two or three years. Programming, allocating, and budgeting. Set near-term objectives and detailed plans (typically once a year), including how resources will be allocated to the necessary activities. Implementation. Execute the programs specified in step 3. Monitoring and auditing. Evaluate results against goals and develop corrective action plans as needed. Analysis and research. Gather necessary data from inside and outside the company to support the four action steps (steps 1 to 4). This data gathering should occur before executing each of the first four steps and should be ongoing, as depicted in Exhibit 1. This reading focuses on the top portion of Shapiro’s diagram, the market strategy formation stage, in which an organization articulates its overall goals— especially which kinds of customers it will seek to create and keep. We will also outline the basic approach for achieving those goals. A good way to think about a marketing strategy is, in Robert Davis’s words, as the “blueprint by which the firm plans to compete.” 6 In this reading we will set down a sound process for developing that blueprint. Note that while a company is making the all-important choice about the customers it hopes to acquire, retain, and develop into brand ambassadors, potentially competing firms are making similar decisions—each attempting to achieve Levitt’s “differentiation” among a specific customer set. For example, as fitness startup Peloton entered the market, it faced a variety of competitors offering different ways to help someone get in shape. Traditional home fitness equipment manufacturers such as NordicTrack continued to offer “new and improved” products like treadmills for home use. Fitness facilities like Planet Fitness offered access to equipment via an array of membership plans. Relative newcomers such as SoulCycle (founded in 2005) offered a new experience, founded on a vision of creating “an alternative to the fitness routines that felt like work.” SoulCycle described its spin classes as “an inspirational, meditative 8153| Core Reading: Framework for Marketing Strategy Formation 4 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. fitness experience that’s designed to benefit the body, mind and soul . . . The experience is tribal. It’s primal. It’s fun.” 7 Peloton identified potential shortcomings of these offerings for some customers. While there is admittedly nothing “tribal or primal” about running on a treadmill in the basement of your home, SoulCycle’s engaging social experience still required getting to the studio—a significant cost to the time-pressured. Peloton thus sought to create what it called “the Peloton Difference,” delivering “a world-class indoor cycling studio experience on your time, and in the comfort of your own home.” To accomplish this, Peloton created a smart bike with a WiFi–enabled monitor to deliver live classes from its Manhattan studios, along with tracking services that measured riders’ speed, effort, miles, and other performance metrics. Initially, the bike was priced at $1,995 plus a $250 fee for delivery and setup by Peloton professionals. Access to live classes and the library of thousands of recorded classes on-demand was via subscription at $39 per month. In August 2018, with annual sales at $700 million and over 1 million members, a $550 million funding round valued the company at $4.15 billion. Peloton’s 96\% annual renewal rate showed its ability to retain customers. And its over 400,000 Facebook followers and the comments they posted showed its ability to create brand ambassadors as well. Later in this reading, we will elaborate on the Peloton story and the lessons it provides. A key point is that winning the sustainable differentiation contest—and doing so in a way that yields revenues, covers costs, and contributes profits—is no simple task. Most new products, in fact, do not find a way to do so and often fail before they even get to market. 8 Organizations must recognize that they do not necessarily need to create a mass-market product loved by everyone. Peloton clearly understood that the bike’s $2,000 price tag would eliminate some as potential customers. Focus is key. For example, electronics maker Vizio carved out a niche for itself in home entertainment (televisions and sound bars) by offering the “latest innovations at a significant savings.” 9 On the other hand, the luxury electronics brand Bang & Olufsen directs its offerings to a price-insensitive group seeking maximum performance. Marketing strategy is about the process of selecting customers, deciding on the competitive point of differentiation to present to them, and developing a plan for reaching those customers. In this reading, we set out a basic framework for thinking through the decisions to optimize an organization’s chance for success. We begin with a description of the classic 5 Cs analysis for developing a marketing strategy (customer, company, collaborators, competition, and context). We then discuss two sets of decisions every organization needs to make: the aspiration decision (what the company hopes to achieve in the market) and the action plan decision (commonly known as the four Ps of the marketing mix—product, promotion, 8153| Core Reading: Framework for Marketing Strategy Formation 5 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. place, and price). As an overview of marketing strategy, this reading does not provide extensive treatment of each area, but it does offer references throughout to appropriate sources of in-depth coverage. 10 2 ESSENTIAL READING There is no one standard way to market a product or service effectively; indeed, organizations often adopt different strategies for their different offerings. 11 The approach must be tailored to the particular circumstances. Black and Decker’s marketing approach to selling power tools to construction companies is quite different from marketing power tools to households for home use. Similarly, different firms within the same industry employ different approaches. Steinway devotes itself to “Making the World’s Finest Pianos” (and nothing else) by strictly limiting the types of pianos it manufactures and the types of outlets through which it sells. Competitor Yamaha, on the other hand, offers everything from grand pianos and uprights to digital pianos and portable keyboards. The L’Oréal Paris line has a policy that its cosmetics can be found at a wide variety of retail partners in the United States, including department stores, grocery stores, drugstores, and mass merchants, while Mary Kay cosmetics can be purchased only from a certified Mary Kay beauty consultant (including online, telephone, and in-person orders). A given organization might also change its marketing approach over time. Samsung Electronics, for example, launched in 1969 with a low-cost strategy, and in 1990, the company’s marketing head referred to Samsung as a “third-tier commodity brand with very little product differentiation.” 12 Shortly thereafter, Samsung focused on developing manufacturing expertise to compete on the basis of the highest-quality products. By 2013, it was rated number eight in Interbrand’s “Best Global Brands of 2013” tabulation—the highest-rated non-US company on the list. That same polling had rival Sony at number 46, showing the extent of Samsung’s transformation from a low-cost player with a reputation lagging far behind Sony to a top-quality producer. 13 By 2018, Samsung had advanced to the number six spot in Interbrand’s ranking. Customer differences—in what they value in a product or service, how they want to buy, and how they trade off price versus benefits—mean that some customers more naturally fit the capabilities and aspirations of a given company. As companies seek to find and keep different kinds of customers, it logically follows that the market will be populated with products of varied specifications, promoted and distributed in a variety of ways, and priced at different levels. For more detail, see Core Reading: Segmentation and Targeting (HBP No. 8219). 8153| Core Reading: Framework for Marketing Strategy Formation 6 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. While there is more than one way to go to market, we can articulate the best process for developing a marketing strategy for a particular circumstance. Such a framework is shown in Exhibit 2. EXHIBIT 2 Schematic of Marketing Strategy Formation Process • Acquisition • Retention • Brand Ambassador 2.1 Overview of Marketing Strategy Formation In Exhibit 2, we see three interrelated elements in the marketing strategy formation process: analysis, decisions, and outcomes. The middle of the diagram depicts the two different sets of decisions an organization needs to make: the aspiration decision and the action plan decision. The aspiration decision (which we can think about in terms of what value the product will represent to what kind of customer) specifies what the firm hopes to achieve in the market. This involves three steps: (1) segmenting the market to identify possible groups to serve, (2) selecting or targeting a specific group or groups to address, and (3) determining the desired positioning in the mind of the selected customers (that is, what should the potential customer be thinking about the product offering, relative to other options?). The steps in working out the aspiration decision are popularly known as STP (segmenting, targeting, and positioning). Once the aspiration decision has been made, the firm can begin to work out its action plan, the four Ps of the marketing mix. (We use the term mix because the elements all need to work together to form a cohesive plan.) Three elements of the plan create value for the customers: the product offered, the communication 8153| Core Reading: Framework for Marketing Strategy Formation 7 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. to the customer about the product (promotion), and the mechanisms to distribute the product to the customer (place). The final element of the mix is the price charged for the product. This is primarily the firm’s way to capture some of the value it has created, generating revenue to fund operations and provide for profit. The value created for the customer through the first three Ps is the upper bound on the price the company can charge and still attract a customer. Obviously, organizations aspire to create value, such that this upper bound on the price which can be charged is greater than the unit cost of producing the value. As shown on the left side of Exhibit 2, an organization needs to analyze the market in order to make good aspiration and action plan decisions. Usually this requires an analysis of the five Cs (customer, company, collaborators, competition, and context). To indicate its primacy for marketing decision making, Exhibit 2 places the first C—customer—in the center of the circle under analysis. A company’s choice of actions in the middle of Exhibit 2 then has to be funded and implemented. For example, if part of the chosen marketing mix is promotion via a company-owned sales force, the company must develop and field such a sales force. The decisions in the middle column thus determine how successful the company will be at acquiring a customer, whether that customer is retained over time and at what rate of purchase, and whether the customer will have a positive influence on other members of the target market, e.g., by word-ofmouth and posted reviews. The decisions made also determine the costs of the product or service and the supporting marketing costs. As Exhibit 2 illustrates, the actions of the firm create outcomes—not only short-term financial results but also a franchise, the platform for future marketing efforts, including brand reputation and customer loyalty. This is not a linear process. Rather, there is a back and forth between analysis and decisions. The need to choose between action alternatives determines the specific analysis the firm should undertake. For example, if a manufacturer decides to distribute its goods through retail channels, rather than just selling on its own website, it will need to drill down further in its analysis to decide between, say, Target and Walmart as channel partners, or to identify smaller, local firms. We will keep the interactive process between analysis and decisions in mind while, in the sections that follow, we describe the other concepts shown in Exhibit 2. Thus, we begin with analysis and a brief discussion of the five Cs. 8153| Core Reading: Framework for Marketing Strategy Formation 8 This document is authorized for use only by Jalay Raval in BADM 733 Summer 2020 taught by VONDA MOORE, University of the Cumberlands from May 2020 to Aug 2020. For the exclusive use of J. Raval, 2020. 2.2 Analysis Underlying Marketing Strategy Formation When developing a marketing strategy, a company should undertake a five Cs analysis, starting with the primary C of (1) customer behavior (see Exhibit 2), supported by analysis of the (2) company (e.g., what special skills, competencies, and assets does the organization bring to the task of c ... Purchase answer to see full attachment