How do businesses develop marketing strategies?

University Degree Business and Administrative studies

Marketing strategies will be based on the different circumstances of different businesses. The marketing strategy for a business will follow a planning cycle which is similar to the one used to decide on its overall objectives.

First, the business decides what its long-term aims and objectives are – maximisation of turnover, of profit, of market penetration or market share or some other less ambitious aim.

Then it must decide on the intermediate targets that are the ‘stepping stones’ on the way to achieving ultimate goals. The strategy will depend on the information which the business is able to collect. This includes internal information about its own operations, strengths and weaknesses and externally about its position in the market. It also includes the positions, strengths and weaknesses of its competitors.

There are various different methods of collecting and analysing such information and the business needs to choose that method or those methods to which its organisation and market are best suited.

The business then, in the light of these analyses, develops appropriate marketing strategies and implements them.

Finally the business needs to measure and evaluate outcomes to see how close they have come to achieving targets and then to start the whole process again by setting new aims and objectives.

Before embarking on a particular strategy, a business needs to know ‘where it stands’ in the market. How does a business learn what its current marker position, strengths and weaknesses are in order to form the factual basis for its marketing plans? Several models are suggested – the business needs to choose the most appropriate models for its own market and objectives. Different models will suit different businesses or products at different stages of development.

SWOT or PEST analysis

Used to obtain a general overview of their product or service.

SWOT ANALYSIS

(Strengths, Weaknesses, Opportunities and Threats)

The purpose of SWOT analysis is to conduct a general and quick examination of a business’s current position so that it can identify preferred and likely directions in future.

STRENGTHS – These are things that a business and its staff do which:

They are effective at
They are well known for
Make money
Generate business and reputation
Lead to confidence in the market
Causes customers to come back for repeat business
Cause other businesses to try to learn from them

Eg Good management team, skilled workforce, good market position, good profitability, good reputation, good product or product range.

WEAKNESSES – These are the things that the business:

does badly
is ineffective at
has a poor reputation for

also includes the factors that cause losses, hardships, disputes, grievances and complaints for a business.

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They are effective at
They are well known for
Make money
Generate business and reputation
Lead to confidence in the market
Causes customers to come back for repeat business
Cause other businesses to try to learn from them

Eg Good management team, skilled workforce, good market position, good profitability, good reputation, good product or product range.

WEAKNESSES – These are the things that the business:

does badly
is ineffective at
has a poor reputation for

also includes the factors that cause losses, hardships, disputes, grievances and complaints for a business.

Eg Old machinery, over-staffing, poor employee relations, high staff turnover or product problems, limited market, cash flow problems,

OPPORTUNITIES – These are the directions that the business could profitably take in the future because of its strengths or because of the elimination of its weaknesses. This involves a consideration of the business environment from the widest and most creative standpoints.

THREATS – These arise from the activities of competitors and from failing to take opportunities or to build on successes. Threats also come from complacency, a lack of rigour and from falling profits perhaps due to rising costs.

PEST ANALYSIS

(Political, Economic, Social, Technological)

PEST analysis looks at the external environment.

POLITICAL – this is concerned with how political developments, regionally, nationally and internationally might affect a business’s strategy. It might include a consideration of legislation, such as consumer laws, regulation (eg control of water companies), political pressures and the government’s views of certain activities. In the late 1990’s the following were all political issues facing businesses.

Regional – Will the government increase financial support for business start-ups in Northern Ireland?

National – Will the UK government provide increased subsidies to BMW to support investment in the Rover plant at Longbridge?

International – Given the number of Sino-Western joint ventures in Southern China, would a change in leader in China affect this policy initiative?

ECONOMIC – This might involve the analysis of a variety of economic factors and their effects on business. They might include:

Consumer activity – confidence, spending patterns, willingness to spend

Economic variables – inflation, unemployment, trade, growth

Government policy – fiscal, monetary, exchange rate

Fixed and variable costs of the business

The effect of changes in product and labour markets

SOCIAL – What competitive advantage might a business gain by social changes taking place outside of the business? For example, in the year 2000 the UK had a falling birth rate, an increase in life expectancy and an ageing population. This has led to the development of products, particularly private pensions, private medical schemes, sheltered housing developments and ‘third age’ holidays, aimed at the older age group. Pressure groups can also affect businesses. The anti-smoking lobby, for example, has led to smoke free areas in restaurants, hotels and on aircraft.

TECHNOLOGICAL – Businesses operate in a world of rapid technological change. Organisations need to review the impact of new technologies upon their activities. Products can become obsolete quickly and production methods can become out of date. Communication may be inefficient as IT develops. New markets may open. For example, some music companies have considered sales via the internet. The strategy towards R &D is vital in industries where technological change is rapid.

DIFFERENT MARKETING STRATEGIES

THE ANSOFF MATRIX

Each business wanting to expand will have a choice of marketing strategies. These were arranged in a matrix by business writer Igor Ansoff. The matrix plots how safe or risky various marketing objectives are and can be used by a business to judge the likelihood of success.

THE ANSOFF MATRIX

MARKET PENETRATION – This is trying to penetrate a market which already exists. This means competing with those businesses already in the market. The strategy carries the least risk of failure and probably the lowest level of reward. Marketing expenditure does not have to be high so this is a strategy that can suit small businesses seeking new market opportunities.

NEW PRODUCT DEVELOPMENT – This is developing new products to add to existing markets. For example a new kind of chocolate bar being introduced to the sweet market carries a fairly high risk but also the possibility of high rewards. Marketing expenditure will need to be high to establish the new product. However, it will benefit from carrying an existing brand or reputation. A recent success story involved the Nestlé Kit Kat chocolate bar. A new ‘chunky’ version was a runaway success and was quickly followed by other versions such as the dark chocolate Kit Kat.

ENTERING NEW MARKETS – This is using an existing product to enter a new market, perhaps finding or suggesting a new use for a product, or repositioning a product ie changing its image or characteristics so that it appeals to a wider market segment. Oxo has recently re-positioned its product to take advantage of an emerging market. This can often be an expensive strategy.

DIVERSIFICATION – This is the introduction of completely new products into new markets. It can be expensive and dangerous. The risk of entering untried markets can be minimised through good market research but cannot be eliminated altogether. The Virgin group has followed a policy of diversification for a number of years, always seeking to invest profits from existing products in new markets. This has taken the business from records to radio stations, trains to mobile phones, aeroplanes to internet access.

THE BOSTON MATRIX

If a business was looking to make a decision about a marketing strategy it would need to know the current strengths and weaknesses of all its products. The Boston matrix was developed by management consultants in Boston, USA. It is used to plot the percentage of the market enjoyed by each product in a business’s portfolio against the type of market that it is in. It allows businesses to see:

Which products are achieving their potential
Which products may need to be helped with extra advertising or marketing expenditure
Which may need to be dropped altogether

THE BOSTON MATRIX

STARS – These products have a high market share in a fast-growing market. They may have been the first of their kind – an innovation in a ‘blue sky’ market – in which case they could have been launched with little in the way of marketing expenditure. However, they will need high marketing and advertising expenditure to keep them competitive as new entrants, attracted by their success come into the market. One example is the Psion series palmtop computers, the first really viable palmtops.

PROBLEM CHILDREN – sometimes also known as question marks. These products have a small market share of a fast-growing market. These could be the competitors that are trying to gain a foothold in a blue sky market dominated by its initial entrant. For example, a star may be created by a new application of technology. The market will then attract competitors who will remain as problem children unless they establish themselves in the market. The market itself is a growing one, and therefore a market to be in, but the business must get the product right.

CASH COWS – Every established business longs to keep or develop at least one cash cow. These products have a large market share or market leadership of a mature or slow-growing market. Cash cows represent established product lines which need little in the way of marketing expenditure and which produce cash which can be used to support other products. Nestlé’s Kit Kat has held its market leadership for 63 years and provided the cash for the launch of many new product lines and innovations.

DOGS – These could be problem children who have not made the grade or potential stars in a market that has failed to materialise. They are products with a small share of a slow-growing market and probably cost more in marketing and support to maintain their position than they actually return to the business.

PERCEPTUAL MAPPING

A perceptual map of products shows where each is positioned in the market and indicates whether there are gaps in a business portfolio which might be filled.

BASS LEISURE RETAIL GROUP

The leisure side of the business is served by Holiday Inn Express and the more up market Holiday Inn, while there was a gap in the business side of the portfolio. Bass bought Inter Continental Hotels and Resorts to fill this gap.