Category: Segmentation and Targeting

Purpose

When a company has many different products or even many different lines of business, strategy becomes more complex. The company not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment. The BCG matrix (sometimes called the Growth-Share matrix) was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or products determine their investment priorities.

The BCG matrix considers two different aspects of a business unit or product:

1. What is the current market share?
2. What is the market’s growth potential?

Market Share

Market share is the percentage of a market (defined in terms of units sold or revenue) accounted for by a specific product or entity. For instance, if you run a neighborhood lemonade stand that sells 200 glasses of lemonade each summer, and there are two other competing lemonade stands that sell 50 glasses and 150 glasses, respectively, then you have 50 percent market share. Out of 400 glass sold, you sell 200 glasses, or 50 percent of the total.

Companies track market share data closely. For example, what is the market share for different types of cell phones in the U.S.? The International Data Corporation reports these numbers quarterly. As the following table shows, Android phones have had the dominant market share over the past several years.

Market-Growth Potential

The market-growth potential is more difficult to quantify, but it’s the other important factor in the BCG matrix. Let’s use some of the products in Proctor & Gamble’s portfolio to identify markets with different growth potential. How about bathroom tissue—is that a high-growth market? Probably not. Data show that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992. How about the market for high-end skin-care products? Generally, markets for products that serve Americans born between 1946 and 1964—the baby boomers—are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation.

Market-growth potential generally includes analysis of similar markets, as well as analysis of the underlying drivers for marketing growth. It can be thought of as a “best guess” at what the future value of a market will be.

Applying the BCG Matrix

The BCG Matrix is comprised of four quadrants that show high and low market share and high and low growth potential. Each quadrant has a name and specific characteristics.

Dog

A product or business with low market share in a mature industry is a dog. There is no room for growth, which suggests that no new funds should be invested in it.

Cash Cow

A cash cow is a product or business that has high market share and is in a slow-growing industry. It’s bringing in more money than is being invested in it, but it doesn’t have much growth potential. The profits from a cash cow can be used to fund high-growth investments, but the cash cow itself warrants low investment.

Question Mark

A question mark is a product or business that has low market share currently, but in a growing industry. This case is trickier: the product/business is consuming financing and creating a low rate of return for now, but its direction isn’t clear. A question mark has the potential to become either a star or a dog, so close monitoring is needed to determine its growth potential.

Star

A star has high market share in a fast-growing industry. This kind of product or business is poised to bring strong return on the funds invested. It also has the potential to become a cash cow at the end of the product life cycle, which can fund future investments.

According to the logic of the BCG matrix, as an industry grows, all investments become cows or dogs. The intent of the matrix is to help companies make good portfolio-management decisions, focusing investment in the areas that are likely to provide returns and fund future growth.

What you’ll learn to do: show how common analytic tools are used to inform the organization’s strategy

When a company is developing its strategy, it is faced with a vast array of considerations and choices. It needs to take into account its resources and capabilities, the strength of existing customer relationships, the competitive landscape, the economic and legal environments, important societal trends—the list of inputs goes on and goes on. Then, based on that information, it must devise a plan—a strategy—that contains the best options for addressing the inputs. But which inputs are most important, and which options should be included in the strategy? To answer these questions, businesses have at their disposal a number of strategic planning tools that help to simplify, organize, and focus both the inputs and the possible strategy options. In this section you’ll learn about three: the SWOT analysis, the Boston Consulting Group matrix, and the strategic growth matrix.

The specific things you’ll learn in this section include:

• Conduct a SWOT analysis and describe how it informs the organization’s marketing strategy
• Explain how businesses use the Boston Consulting Group matrix to inform growth strategies
• Explain how businesses use the strategic growth matrix to inform growth strategies

Learning Activities

The learning activities for this section include the following:

• Reading: SWOT Analysis
• Reading: BCG Matrix
• Reading: Strategic Opportunity Matrix
• Self Check: Strategic Planning Tools

No marketing program is planned and implemented perfectly. Marketing managers will tell you that they experience many surprises during the course of their activities. In an effort to ensure that performance goes according to plans, marketing managers establish controls that help them evaluate results and identify needed modifications. Surprises occur, but marketing managers who have established sound control procedures can react to unexpected results quickly and effectively.

Marketing control involves a number of decisions—one is simply deciding which function to monitor. Some organizations monitor their entire marketing program, while others choose to monitor only a part of it, such as their sales force or their advertising program. A second set of decisions concerns the establishment of performance standards—for example, market share, profitability, or sales. A third set of decisions concerns how to collect information for making comparisons between actual performance and standards. Finally, to the extent that discrepancies exist between actual and planned performance, adjustments in the marketing program or the strategic plan must be made.

Once a plan is put into action, a marketing manager must still gather information on the effectiveness of the plan’s implementation. Information on sales, profits, consumer reactions, and competitor reactions must be collected and analyzed so that a marketing manager can identify new problems and opportunities.

Return on the Marketing Investment

Increasingly, the single most important evaluation measure is the return on the marketing investment (or marketing ROI). Earlier in this module we learned that strategies define how an organization can best use its resources to achieve the mission. Measuring return on the marketing investment helps marketers understand whether their use of resources is yielding the most effective results.

Let’s look at an example of marketing ROI:

A retail store launches a campaign to increase online sales. The firm tracks the cost of setting up the online campaign, promotion costs, costs of the images and designs for the promotion, and staff time used to implement the campaign. These are the investments. Let’s say the total marketing spending on the campaign is $10,000.

Next, the store tracks a range of metrics, including how many people view online promotions (page views), how many people click on promotions (click-throughs), and ultimately the number of resulting sales. Thanks to the campaign, the company sees an additional $100,000 in sales.

The marketing ROI can be calculated by taking the revenue generated ($100,000) and dividing it by the cost of the marketing budget invested ($10,000). In this case, the marketing ROI for the retail store’s online campaign is 10.

Marketing ROI does not only focus on sales generated. Marketers may talk about spending per new customer acquired, increases in the lifetime value of the customer, increases in market share, or other metrics that are important to the strategy.

Why has marketing ROI become an important metric? Many marketing leaders have realized that they are better able to secure appropriate marketing budgets when they can point to tangible results. Managers who found themselves constantly responding to the question “What do we get from our marketing budget?” have learned that marketing ROI can provide a definitive answer.

In addition to the marketing ROI, there are many new technology-based marketing programs and tools that give marketers an enhanced ability to capture data and evaluate results in quantitative terms.

The video below provides an excellent example of the evaluation of a marketing campaign:

• What were the goals of the campaign?
• How did the target customer influence the campaign and the goals?
• Was it successful?
• What metrics were used to determine the success of the campaign?

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered in this and the previous sections. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

With a clear understanding of the corporate objectives, marketers must decide which strategies and tactics will best align with and support them.

This is rarely a simple decision. Markets are constantly changing, and buyer behavior is very complex. The marketer must evaluate all aspects of the marketing mix and determine which combination of product, price, promotion, and distribution will be most effective.

Decisions about the marketing-mix variables are interrelated. Each of the marketing-mix variables must be coordinated with the other elements of the marketing program. Consider, for a moment, a situation in which a firm has two product alternatives (deluxe and economy), two price alternatives ($6 and $3), two promotion alternatives (advertising and coupons), and two distribution alternatives (department stores and specialty stores). Taken together, the firm has a total of sixteen possible marketing-mix combinations. Naturally, some of them will be incompatible, such as the “deluxe” product and low price combination. Nevertheless, the organization must consider many of the possible alternative marketing programs. The problem is magnified by the existence of competitors. The organization must find the right combination of product, price, promotion, and distribution so that it can gain a differential advantage over its competitors. (All of the marketing mix elements will be discussed in more detail in other modules of the course.)

Recall that Southwest Airlines created a company strategy to expand its target market to include business travelers. One of its objectives was to grow revenue and market share to achieve specific targets by expanding into the business traveler market.

Which marketing strategies are needed to support such a corporate strategy? To answer that, Southwest had to investigate the four Ps:

• Do we need new products that appeal to business travelers? (Product)
• Are business travelers willing to pay a higher price point? (Price)
• How will we communicate our offerings to business travelers? (Promotion)
• How do business travelers book their travel? Are new distribution points needed? (Place)

As you can see, these questions about the four Ps are nicely aligned with Southwest’s corporate strategy and objectives, but they’re also connected to questions about the target customer: Who is the business traveler and how does he or she define value? The optimal marketing strategy will need to include a deep understanding of the target customer and specify how it offers unique value to that customer. Southwest did that in the ways described below:

Product Strategy

Created a series of programs that offer time savings and convenience for business travelers, who value those benefits above price.

Pricing Strategy

Created add-on services that provide business travelers with time savings and convenience at a total price that is higher than what leisure travelers pay for no-frills services, but is at or slightly below competitors’ prices for business fares.

In each case, the marketing strategy supports the corporate strategy, focuses on providing unique value to the target customer, and incorporates the elements of the marketing mix that can be leveraged to deliver that value.

Inputs That Inform Marketing Strategy

To a great extent, developing the marketing strategy follows the same sequence of activities used to define the corporate strategy. The chief difference is that the marketing strategy is directly affected by the corporate strategy, as well as by the other functions within the organization. As a result, the marketing strategy must always involve monitoring and reacting to changes in the corporate strategy and objectives.

In order to be effective, a marketing strategy must capitalize on the resources at its disposal within the company, but also take advantage of the market forces that are outside the company. One way to assess these different factors, or inputs, is by conducting a situation analysis (also called a SWOT analysis). A SWOT analysis includes a review of the company’s internal strengths and weaknesses and any external opportunities and threats that it faces. We will discuss the SWOT analysis and other strategic planning frameworks in more detail later in this module.

Centering on the Target Customer

The marketing strategy defines how the marketing mix can best be used to achieve the corporate strategy and objectives. The centerpiece of the marketing strategy is the target customer. While the corporate strategy may have elements that focus on internal operations or seek to influence external forces, each component of the marketing strategy is focused on the target customer.

Recall the following steps of determining who your target customer is:

1. Identify the business need you will address, which will be driven by the corporate strategies and objectives;
2. Segment your total market, breaking down the market and identifying the subgroup you will target;
3. Profile your target customer, so that you understand how to provide unique value;
4. Research and validate your market opportunity.

Focusing the marketing strategy on the target customer seems like a no-brainer, but often organizations get wrapped up in their own strategies, initiatives, and products and forget to focus on the target customer. When this happens the customer loses faith in the product or the company and turns to alternative solutions.

Aligning Corporate and Marketing Strategies

As we discussed before, objectives can create alignment between the corporate and marketing strategies. If the corporate objectives are clearly defined and communicated, then they become a calibration tool for every step of the marketing planning process.

How would good corporate-level objectives inform the marketing strategy and objectives? Consider the following examples:

1. Imagine completing a market segmentation process. You find a target market that will find unique value in your offering. The decision to pursue that target market will depend on whether that segment is large enough to support the corporate objectives for market growth.
2. How many new products should the company launch this year? The answer should be informed by the corporate objectives for growth and profitability.
3. The marketing function has identified a customer relationship management campaign that would create greater customer loyalty. Does the cost of the campaign and its expected returns align with the company objectives?

As you can see, company objectives provide important guidance to the marketing planning process. Likewise, marketing objectives ensure that the goals of the marketing strategy are defined, communicated, and measured.

What you’ll learn to do: explain the inputs and components of a marketing strategy

The company strategy and objectives provide direction for the whole company, but they don’t specify how the company will get the most benefit from marketing resources and capabilities. That is the role of the marketing strategy. The marketing strategy defines how the company shapes its product, promotion, pricing, and distribution to provide unique value to its customers and to support the broader company goals.

Throughout this course we will delve more deeply into the strategies, tools, and processes that a marketer uses, but this module emphasizes the planning process itself. How does the marketing function create an effective plan and execute it successfully? That planning process is the focus of this module.

The specific things you’ll learn in this section include:

• Identify the inputs to the marketing strategy
• Describe how a marketing strategy optimizes the marketing mix
• Discuss the role of budget, implementation, and evaluation in the marketing strategy

Learning Activities

The learning activities for this section include the following:

• Reading: Creating the Marketing Strategy
• Reading: Optimizing the Marketing Mix
• Reading: Implementation and Budget
• Reading: Evaluating Marketing Results
• Self Check: Marketing Strategy Mechanics

The Need for Objectives

As we discussed before, a business strategy must take into account the changing environment and identify a plan that will use the company’s resources most effectively to achieve its mission and goals. Businesses define and and communicate their goals using objectives.

Objectives specify measurable outcomes that will be achieved within a particular time frame. Objectives help individuals across the team to understand the goals and to determine whether the strategy is effective and the tactics are being well executed. Objectives are used to align expectations and plans, to coordinate efforts, to measure progress, and to hold teams accountable for achieving results.

Companies often have long-term strategies but create objectives based on a quarterly or annual plan. Clear, measurable objectives enable the company to track progress and adjust tactics (and, sometimes, strategies) to improve the chance of success.

Creating Effective Objectives

In general, effective objectives meet the following criteria:

• They are specific. They identify what must be accomplished in language that is clear and easy for the whole company to understand.
• They are measurable. They help managers ascertain whether the objectives have been achieved in very concrete terms.
• They have a time frame. The objectives specify when they are to be met so that others can count on the results being available at a certain time.

Below are some examples of good objectives:

• Implement a new customer loyalty plan in 2016
• Increase market share for the product by 2 percent during 2015
• Execute marketing campaigns that result in 2,000 qualified leads for a new product by June 1

Using Objectives to Align Company Activities

Companies do not have a single strategy. At any time they are executing a range of different strategies. A company might simultaneously execute on strategies to enter a new market, grow market share in an existing market, and improve organizational efficiency. Moreover, strategy at the corporate level will guide the development of strategies for each function, including marketing. Remember, a business strategy must identify a plan that will use the company’s resources most effectively to achieve its mission and goals. Likewise, the marketing strategy must identify a plan that will use the marketing function’s resources and expertise most effectively to achieve its mission and goals.

We will discuss the process for developing and executing the marketing strategy further, but first let’s focus on the alignment of the marketing strategy. How can the marketing function make sure that its strategy and tactics support the corporate-level objectives? How does it know if it is on track to achieve results? During the marketing planning process, the organization creates its own marketing objectives that support the company objectives. These marketing objectives must also specify measurable outcomes that will be achieved within a particular time frame.

Let’s take a look at some examples of typical corporate and marketing objectives. At the corporate level, objectives include profitability, cost savings, growth, market-share improvement, risk containment, reputation, and so on. All of these corporate objectives can imply specific marketing objectives. Below are two common corporate-level objectives and the marketing objectives that would support them effectively.

Annual Objectives

As you can see, if the marketing organization achieves its objective to introduce new products to market, then it will support the company objective to grow market share. If the marketing organization does not introduce new products, then the other objectives will need to be adjusted or the company is unlikely to show the market share growth that is part of its strategy.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered in this and the previous sections. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

Definitions

A strategy is a directed course of action to achieve an intended set of goals.^[1]  A tactic is the means by which a strategy is carried out. ^[2]

Background

Long before the word strategy had meaning in business, it was used in the context of war. In that context it came to mean the battle plan devised by one side in order to gain an advantage or victory over an opponent. The term tactics referred to the specific short-term actions taken by soldiers on the battlefield to support the strategy.

Military strategy and business strategy have many things in common. Both include uncertainty, making it more challenging to achieve desired results. Often there are many variables or factors that will interact in unpredictable ways. Finally, there is a combative or competitive aspect that drives both kinds of strategies: the participants keenly watch the events unfold and adjust their strategies and tactics along the way in order to win. Whether it’s a battle or an economic downturn, the complexity and unpredictability of events underscores the need for a broad strategy that factors in as many contingencies as possible.

A business strategy must take into account the changing environment and identify a plan that will use the company’s resources most effectively to achieve its mission and goals.

Differentiating Strategy and Tactics

Let’s look at some specific characteristics of business strategy and consider how strategy differs from tactics.

Strategy Identifies Where We Will Compete

The strategy determines which markets we will pursue, where we will sell our goods and services. It focuses efforts on a specific target market.

Tactics indicate specific actions that we will take in those markets.

Strategy Describes the Unique Value for Customers

When developing a strategy, the aim is to identify unique benefits in the products or services that customers value and that differ from what competitors offer. A strategy should define and clarify the unique value.

Tactics include the tasks of creating, delivering, and expanding the value.

Strategy Explains How the Company’s Assets Will Create Unique Value

How do the company’s activities interact and reinforce one another?  For an organization to define a strategy that creates a unique and valuable position, it must bring together and align the various capabilities and resources of the business.

Tactics are planned to reinforce this unique value. Effective tactics, or specific actions, must support the strategy in order for the customer to have a consistent experience with the product or service that aligns with the unique value that the company is seeking to deliver.

Strategy Determines How the Company Will Sustain Unique Value^[3]

Over time, competitors will try to eliminate the company’s advantage or copy the areas where it is successful. How will the company continue to provide unique value and protect or expand the areas in which it has an advantage?

As the company refines its strategy retain or expand its advantage, the tactics must also be adjusted to execute the strategy effectively.

Strategy and Tactics in Practice

In each case, strategy defines the high-level plan. Tactics include the steps taken to execute that plan. The following examples show how strategies and tactics are employed by real businesses.

Strategy and Long-Term Planning: Southwest Airlines

Strategy

In its early days, Southwest Airlines’ strategy focused on being the low-cost airline of choice for leisure travelers. Prior to 2008 the company recognized that without expanding its target market, it could not sustain growth. The company expanded its target market to include business travelers, without compromising the low cost and inviting brand that appealed to leisure travelers.

Tactics

Two programs provided tactics to support this shift. The company began to offer a Business Select service, which includes perks such as early boarding, priority check-in, and a free alcoholic beverage for those purchasing a premium fare. Early Bird Check-in provides automatic check-in, which allows the customer to board early.

According to CEO Gary Kelly, Southwest does “Six percent or seven percent of our boardings by Business Select, [and] probably more than double that by Early Bird.” The combined direct revenues from the programs were nearly $295 million in 2013.^[4]

Strategy and Focus: Walgreens

Strategy

In the book Good to Great, author Jim Collins identifies Walgreens as a company that demonstrates focus in its strategy. After inventing the malted milkshake at the soda counter in its pharmacies, the CEO made a strategic decision to divest all food operations over a five-year period and focus on being the most convenient drugstore. Today there are more than 8,200 Walgreens stores across all fifty states.^[5]

Tactics

After dragging its feet for six months, the management team began a process of closing soda fountains in the stores and selling the Corky’s restaurant chain and other food holdings.

Strategy and Aligned Activities: Zappos

Strategy

Zappos’ strategy centers on providing the best customer service in the world. The company was initially founded with three assumptions behind its vision.

1. One day, 30 percent of all retail transactions in the U.S. will be online
2. People will buy from the company with the best service and the best selection
3. Zappos.com will be that online store^[6]

The emphasis on a strategy of exceptional service for every customer drives strategic decisions such as choosing to join forces with Amazon.

Tactics

The strategy is also a point of alignment for every tactic in the organization including the process for interviewing and selecting new employees, decisions about warehousing, and decisions about which products are offered in the company’s online store.

Strategy answers the following four questions:

1. Where do we compete?
2. What unique value do we bring to customers?
3. How will we use our capabilities to provide unique value?
4. How will we sustain our unique value and position?

What you’ll learn to do: evaluate how marketing strategies align with corporate strategies

Most of this course will focus on elements of the marketing strategy and the different tactics organizations use to execute the strategy. How do you know if you have the right marketing strategy?

Every organization has a mission. The mission describes the company’s reason for existing. In order to achieve the mission, the company creates broad strategies that define how it can best use its resources to achieve the mission. At the company level, executives create specific, measurable goals to determine whether the company is making progress in executing the strategy. These time-based goals are called objectives.

The marketing function also defines a strategy that supports the corporate-level objectives. Marketing must clearly understand the target customer and identify the right mix of product, promotion, pricing, and distribution strategies that will provide unique value to the customer. Marketing also creates measurable objectives that show whether it is executing the strategy well and hitting the targets that support the corporate-level objectives. Then marketing performs specific tasks (using tactics) to execute the strategy and achieve the objectives.

The specific things you’ll learn in this section include:

• Define strategy, tactics, and objectives
• Describe how to align mission, strategy, and objectives
• Explain the role of marketing strategy in corporate strategy

Learning Activities

The learning activities for this section include the following:

• Video: What Is Strategy?
• Reading: Strategy and Tactics
• Reading: The Mission Statement
• Reading: Strategy and Objectives
• Self Check: Evaluate Alignment of Marketing Strategies