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1 The Marketing Management Process

The activities of RedEnvelope’s managers as they worked to redefine the company’s marketing plan clearly
demonstrate that marketing involves decisions crucial to the success of every organisation, whether large or
small, profit or nonprofit, manufacturer, retailer, or service firm. The CEO of a start-up such as RedEnvelope
must decide what goods or services to sell, to whom, with what features and benefits, at what price, and so
on. A chief financial officer for a large multinational corporation must market the merits of the company to
the capital markets to obtain the resources needed for continued growth. The executive director of a
nonprofit community agency must pursue the resources necessary for the agency to achieve its mission,
whether those resources come from fees for the services it delivers or from grants and contributions. And all
of those managers must market their ideas for improving their organisations’ prospects and performance to
their colleagues inside the firm as well as to customers, suppliers, strategic partners, and prospective
employees. Thus, most managers engage in tasks involving marketing decisions virtually every day.
This course provides prospective managers and entrepreneurs with the marketing tools, perspectives, and
analytical frameworks they’ll need to play an effective role in the marketing life and overall strategic
development of their organisations, regardless of whether or not they occupy formal marketing jobs. Module
1 addresses a number of broad but important questions all managers must resolve in their own minds: Are
marketing decisions important? Does marketing create value for customers and shareholders? What
constitutes effective marketing practice? Who does what in marketing and how much does it cost? And
finally, what decisions go into the development of a strategic marketing programme for a particular good or
service and how can those decisions be summarised in an action plan?

1.1 Why Are Marketing Decisions Important?
1.2 Marketing Creates Value by Facilitating Exchange Relationships
1.3 What Does Effective Marketing Practice Look Like?
1.4 Who Does What?
1.5 Some Recent Developments Affecting Marketing Management

    Marketing is pervasive. It is a social process involving the activities that facilitate exchanges of
     goods and services among individuals and organisations.
    Customers buy benefits, not products. The benefits a customer receives from a firm’s offering, less
     the costs he or she must bear to receive those benefits, determine the offering’s value to that
    Delivering superior value to one’s customers is the essence of business success. Because delivering
     superior value is a multifunctional endeavor, both marketing and nonmarketing managers must adopt
     a strong focus on the customer and coordinate their efforts to make it happen.
    A focus on satisfying customer needs and wants is not inconsistent with being technologically
    The marketing management process requires an understanding of the 4Cs: the company and its
     mission, strategies, and resources; the macroenvironmental context in which it operates; customers
     and their needs and wants; and competitors. Obtaining an objective, detailed, evidence-based
     understanding of these factors is critical to effective marketing decision making.
    Marketing decisions – such as choices about what goods or services to sell, to whom, and with what
     strategy – are made or approved at the highest levels in most firms, whether large or small.

©2008 Edinburgh Business School                                                                              1
         Therefore, managers who occupy or aspire to strategic positions in their organisations need
         marketing perspectives and analytical skills.

2 Corporate Strategies and Their Marketing Implications

IBM’s experiences in the information technology industry illustrate some important points about the nature
of business strategy and the interrelationships among different levels of strategy in an organisation. They also
demonstrate the importance of timely and accurate insights into customer desires, environmental trends, and
competitors’ actions in formulating successful strategies at every level.
As we discussed in Module 1, marketing managers’ familiarity with customers, competitors, and
environmental trends often means they play a crucial role in influencing strategies formulated at higher
levels in the firm. While the need for new corporate and competitive strategies at IBM became obvious
because of stagnating sales and declining profits in some of the firm’s most venerable businesses, decisions
about the content of those new strategies were influenced by information and analyses supplied by the firm’s
marketing and sales personnel. Marketing executives were key members of the task force appointed by CEO
Gerstner to analyse the firm’s strengths and weaknesses and develop new directions for growth and
profitability. And Gerstner himself was recruited, in part, because of his experience working for customer-
oriented package goods and financial services businesses.
Some firms systematically incorporate such market and competitive analyses into their planning processes.
They also coordinate their activities around the primary goal of satisfying unmet customer needs. Such firms
are market-oriented and follow a business philosophy commonly called the marketing concept. Market-
oriented firms have been shown to be among the more profitable and successful at maintaining strong
competitive positions in their industries over time. As we shall see later in this module, however, companies
do not always embrace a market orientation – nor rely as heavily on inputs from their marketing and sales
personnel – in developing their strategies. Some firm’s strategies are driven more by technology, production,
or cost concerns.
Regardless of their participation or influence in formulating corporate and business-level strategies,
marketing managers’ freedom of action is ultimately constrained by those higher-level strategies. The
objectives, strategies, and action plans for a specific product-market are but one part of a hierarchy of
strategies within the firm. Each level of strategy must be consistent with – and therefore influenced and
constrained by – higher levels within the hierarchy. For example, not only the new services developed by
IBM, but also their advertising appeals, prices, and other aspects of the marketing plans were shaped by the
shift in corporate strategy toward emphasising Web-based services as the primary avenue for future growth.
These interrelationships among the various levels of strategy raise several questions of importance to
marketing manager as well as managers in other functional areas and top executives. While marketing
managers clearly bear the primary responsibility for developing strategic marketing plans for individual
product or service offerings, what role does marketing play in formulating strategies at the corporate and
divisional or business unit level? Why do some organisations pay much more attention to customers and
competitors when formulating their strategies (i.e., why are some firms more market-oriented) than others,
and does it make any difference in their performance? What do strategies consist of, and are they similar or
different at the corporate, business, and functional levels? What specific decisions underlie effective
corporate and business-level strategies, and what are their implications for marketing?

2.1 What Is Marketing’s Role in Formulating and Implementing Strategies?
2.2 Three Levels of Strategy: Similar Components But Different Issues
2.3 The Marketing Implications of Corporate Strategy Decisions

©2008 Edinburgh Business School                                                                               2
    Marketing perspectives lie at the heart of strategic decision making, whether at the corporate,
     business-unit, or product-market levels. All managers who aspire to general management roles need
     marketing concepts and tools in their repertoire.
    Market-oriented firms – those that plan and coordinate company activities around the primary goal
     of satisfying customer needs – tend to outperform other firms on a variety of dimensions, including
     sales growth, return on assets, and new product success.
    A clearly defined corporate mission answers the question ‘What business(es) should we be in?’ It
     provides guidance to a firm’s managers concerning what alternative product categories and market
     segments fit best with the firm’s competencies, resources and objectives. Mission statements are
     most useful, therefore, when they are relatively specific concerning both the customer groups and the
     products or technologies on which the firm will concentrate.
    Unethical behaviour by a firm’s employees can damage the trust between a firm and its suppliers and
     customers, thereby disrupting the development of long-term relationships and reducing sales and
     profits over time.
    The four major paths to corporate growth – market penetration, market development, product
     development, and diversification strategies – imply differences in a firm’s strategic scope, require
     different competencies and marketing actions, and involve different types and amounts of risk.
     Decisions about which path(s) to pursue should consider all of these factors.
    A strong corporate brand can create synergy across a firm’s various product offerings, but only if
     potential customers are aware that the company possesses competencies or values that (1) are likely
     to enhance the value they receive from the firm’s goods and services and (2) differentiate the
     company from its competitors.

3 Business Strategies and Their Marketing Implications

The situation at 3M illustrates that large firms with multiple businesses usually have a hierarchy of strategies
extending from the corporate level down to the individual product-market entry. As we saw in Module
MA02, corporate strategy addresses such issues as the firm’s mission and scope and the directions it will
pursue for future growth. Thus, 3M’s corporate growth strategy focuses primarily on developing new
products and new applications for emerging technologies.
The major strategic question addressed at the business-unit level is, How should we compete in this
business? For instance, 3M’s industrial tape unit attempts to maintain its commanding market share and high
profitability by differentiating itself on the basis of high product quality and good customer service. The drug
delivery unit, on the other hand, seeks high growth via aggressive new product and market development.
Finally, the strategic marketing programme for each product-market entry within a business unit attempts to
allocate marketing resources and activities in a manner appropriate for accomplishing the business unit’s
objectives. Thus, most of the strategic marketing programmes within 3M’s drug delivery unit involve
relatively large expenditures for marketing research and introductory advertising and promotion campaigns
aimed at achieving sales growth.
One key reason for 3M’s continuing success is that all three levels of strategy within the company have
usually been characterised by good internal and external consistency, or strategic fit. The company’s
managers have done a good job of monitoring and adapting their strategies to the market opportunities,
technological advances and competitive threats in the company’s external environment. The firm’s marketing
and sales managers play critical roles both in developing market-oriented strategies for individual products
and in influencing and helping to formulate corporate and business-level strategies that are responsive to
environmental conditions. At the same time, those strategies are usually internally compatible. Each strategy
fits with those at other levels as well as with the unique competitive strengths and competencies of the
relevant business unit and the company as a whole.
Recent empirical evidence shows that when there is a good fit between a business’s competitive strategy and

©2008 Edinburgh Business School                                                                               3
the strategic marketing programmes of its various product or service offerings, the business will achieve
better results in terms of sales growth, market share and profitability than when the two levels of strategy are
inconsistent with one another.Module MAC0302 Therefore, this module focuses on what marketing
decision makers can and should do to help ensure that the strategic marketing plans they develop are
appropriate in light of the available resources and competitive thrust of the business that is their
organisational home.
First, we briefly examine the strategic decisions that must be made at the business level, including how
business units should be designed. We’ll pay particular attention to the question of how a business might
choose to compete. What generic competitive strategies might a business pursue and in what environmental
circumstances is each strategy most appropriate? We’ll also explore whether the same kinds of competitive
strategies are relevant for small, single-business organisations and entrepreneurial start-ups as for large
multi-SBU firms such as 3M and whether technological shifts, such as the growth of e-commerce, are likely
to give birth to new competitive strategies or make some old ones obsolete.
Next, we examine the interrelationships between different business competitive strategies and elements of
the strategic marketing programmes for the various products within the business. How does – or should – a
particular competitive strategy influence or constrain marketing programmes for the business’s product
offerings? And what happens if the market positioning or specific marketing actions that would be most
effective for appealing to a product’s target customers do not fit very well with the competitive strategy of
the larger business unit? For example, as some of the products made by the drug delivery unit at 3M – such
as the inhalers they make for delivering asthma medications – become well-established and mature, they may
require marketing actions (e.g., more competitive pricing) that are not consistent with the aggressive product
development strategy of the business unit. What should 3M and the marketing manager responsible for
inhalers do under such circumstances?

3.1 Strategic Decisions at the Business-Unit Level
3.2 How Do Businesses Compete?
3.3 How Do Competitive Strategies Differ from One another?
3.4 Deciding When a Strategy Is Appropriate: The Fit between Business Strategies and the Environment
3.5 How Different Business Strategies Influence Marketing Decisions
3.6 What If the Best Marketing Programme for a Product Does Not Fit the Business’s Competitive Strategy?

    Research suggests that a business is likely to achieve superior revenue growth, market share and
     profitability when there is a good fit between its competitive strategy and the strategic marketing
     programmes of its various product or service offerings.
    Business-level competitive strategies can be usefully categorised into (1) prospector strategies
     focused on growth via the development of new products and markets, (2) defender strategies
     primarily concerned with defending strong positions in established markets through either low prices
     or offering customers superior value in terms of product quality or service, and (3) analyser
     strategies, which are hybrids of the other two strategies.
    The generic competitive strategies described in the previous point apply equally well to services and
     physical products, single-product start-ups and multidivisional corporations and global and domestic
     operations, and they are unlikely to change dramatically due to the rise of e-commerce.
    Because the various business-level strategies focus on different objectives and seek to gain a
     competitive advantage in different ways, marketing may play a different role under each of the
     strategies and varying marketing actions may be called for.
    The marketing decision-maker’s job is to develop a sound, evidence-based marketing strategy for his
     or her offering and to make a persuasive case for its support. If that strategy does not fit the
     objectives or available resources and competencies of the business unit in which the product is

©2008 Edinburgh Business School                                                                               4
         housed, top management may choose to move the product to a more amenable unit or require
         adjustments to the strategy.

4 Environmental Analysis: Tools to Identify Attractive Markets

As the story of the changing menswear market shows, unfavourable sociocultural or other trends that
negatively influence market demand can have a devastating effect on the performance of firms serving that
market. Similarly, favourable trends exert positive forces that make it easier for firms to perform well.
Retailers and manufacturers of casual clothing suitable for today’s workplace fared well in the late 1990s, but
have stumbled in the new millenium. Entrepreneurs seeking to start new firms, investors in search of
favourable returns and managers in existing firms are therefore well advised to consider the presence and
strength of such trends in deciding where to place their bets.
In this module, we address the second of the 4 Cs – the environmental context in which the business
operates – that were identified in Module MA01 as the analytical foundation of the marketing management
process. We provide a framework to help managers, entrepreneurs and investors comprehensively assess the
environment in which they operate or propose to operate, in order to assess market attractiveness and
enhance their likelihood of achieving success. Thus, this module addresses three important questions for
marketing strategists: Does it really matter whether we swim upstream or downstream? How can we be sure
we’ve identified and understood the key trends? And finally, how does macro trend analysis play out in
assessing markets and in making marketing decisions?

4.1 Swimming Upstream or Downstream: An Important Strategic Choice
4.2 Macro Trend Analysis: A Framework for Assessing Market Attractiveness
4.3 Environmental Analysis Guides Marketing Decision Making

    Macro trends can and often will profoundly influence the success of any business. Serving attractive
     markets, where trends are favourable – swimming with the current – is likely to yield more success
     than serving those where trends are unfavourable – swimming against the current. Thus, context, the
     second of the 4 Cs, matters and is central to the assessment of any opportunity.
    Taken together, the six macro trend categories constitute a useful analytical framework to ensure that
     all bases are covered when scanning environmental conditions.
    Paying regular and systematic attention to the highest priority macro trend categories permits timely
     decision making, perhaps ahead of competitors.
    Gathering hard data on macro trends is not difficult. Trade associations and trade magazines provide
     a good place to start.

5 Industry Analysis and Competitive Advantage

As the examples of the cellular phone manufacturing and service industries show, serving a growing market
hardly guarantees smooth sailing. Equally or more important are industry conditions and the degree to which
specific players in the industry can establish and sustain competitive advantage. Thus, as entrepreneurs and
marketing decision makers ponder an opportunity to enter or attempt to increase their share of a growing
market like that for mobile phones, they also must carefully examine a host of other issues, including the
conditions that are currently prevailing in the industry in which they would compete and the likelihood that
favourable conditions will prevail in the future.

©2008 Edinburgh Business School                                                                              5
In this module, we provide analytical frameworks to enable prospective entrepreneurs and marketing
strategists in established firms to address four critical questions pertinent to such an examination: How can
we assess the attractiveness of an industry? If we aim to compete on the basis of innovation, how can we
determine how quickly our innovation is likely to win market acceptance? What does the overall
attractiveness of the market and industry context imply for chances for future success? Finally, how can we
establish and then sustain competitive advantage over the duration of our product’s life cycle? First,
however, we clarify the difference between two oft-confused terms: market and industry.

5.1 Markets and Industries: What’s the Difference?
5.2 The Market Is Attractive: What About the Industry?
5.3 Industry Analysis Locally: How Intense Is the Immediate Competition?
5.4 Rate of Diffusion of Innovations: Another Factor in Assessing Opportunity Attractiveness
5.5 Sustaining Competitive Advantage over the Product Life Cycle

    Companies are more likely to be successful in generating sales and profits if the opportunities they
     pursue are blessed with the following conditions:
      Driving forces for the industry are favourable.
      The industry’s five forces are, on balance, favourable.
      The capabilities of the firm and/or the management team are sufficient to perform with respect to
          the industry’s critical success factors.
      Local competitive conditions are favourable.
     In other words, choosing an attractive industry, as well as a growing market, is important!
    An innovation is more likely to be successful if it will diffuse at a rate rapid enough to quickly
     establish customer loyalty and advantage over competitors. This module provides a framework for
     assessing this likelihood.
    Regardless of the nature of the playing field, developing and regularly updating winning marketing
     strategies are important, too! In developing strategies to build and sustain competitive advantage,
     marketing decision makers are more likely to win the competitive war by adjusting their strategies as
     the markets and industries in which they compete evolve through the stages of the product life cycle.
     Specific tools and frameworks for managing this task are provided in the balance of this book.

6 Understanding Consumer Buying Behaviour

The ability of the global cruise industry to generate substantial new and profitable growth in a market that
had been stagnant for years illustrates why examining the needs, desires, and purchasing behaviour of
existing and potential customers is a critical step in analysing market opportunities. Consumers buy goods
and services as means to an end, as potential solutions to their unsatisfied needs and wants. And they select
particular brands or deal with a specific supplier (Carnival Cruise Line) because they perceive them to offer
desirable benefits (an interesting itinerary, great food, attentive service, romantic atmosphere, programmes
for the kids, etc.) and superior value.
Consumer decision making is essentially a problem-solving process. Most customers, whether individual
consumers or organisational buyers, go through similar mental processes in deciding which products and
brands to buy. Despite this similarity, different customers often end up buying different things. Some
vacationers take two-week luxury cruises, some take four-day ‘contemporary’ cruises, while many others go
to Club Med or camp outdoors instead. These differences reflect variations in consumers’ personal
characteristics – their needs, benefits sought, attitudes, values, past experiences, and lifestyles – and their
social influences – their social class, reference groups, and family situations.

©2008 Edinburgh Business School                                                                                 6
The more marketers know about the factors affecting their customers’ buying behaviour, the greater their
ability to design attractive product or service offerings, to define and target meaningful market segments, and
to develop marketing programmes to fit the concerns and desires of those segments. This module provides a
framework to help organise an analysis of the mental processes individual consumers go through when
making purchase decisions and the individual and environmental factors affecting those decisions.
Not all purchase decisions are equally important or psychologically involved. The decision to spend several
thousand dollars on a cruise is a bigger deal for most people than the decision to add yogurt to their shopping
cart. The first question we explore, then, is whether consumers’ mental processes are different when they
purchase high-involvement goods or services than when they buy more mundane, low-involvement products.
If so, what are the implications of those decision-making differences for the marketing manager or
entrepreneur charged with developing the strategic marketing plan for a particular product or service?
Regardless of their involvement with a particular purchase decision, different people often choose different
products or brands. This fact raises two important questions that we’ll explore later. How do a person’s
psychological processes and traits – such as perception, memory, attitudes, and lifestyle – affect his or her
buying behaviour? And what impact do social influences – like culture, social class, reference groups, and
the family – have on purchase decisions?

6.1 The Psychological Importance of the Purchase Affects the Decision-Making Process
6.2 Why People Buy Different Things: Part 1 – the Marketing Implications of Psychological and Personal
6.3 Why People Buy Different Things: Part 2 – The Marketing Implications of Social Influences

    Not all purchase decisions are equally important or psychologically involving for the consumer.
     People engage in a more extensive decision-making process, involving a more detailed search for
     information and comparison of alternatives, when buying high-involvement goods and services than
     when purchasing more mundane, low-involvement items.
    Because of the differences in the decision-making process, a given marketing strategy will not be
     equally effective for both high- and low-involvement products. The consumer marketer’s first task,
     then, is to determine whether the majority of potential customers in the target segment are likely to
     be highly involved with the purchase decision or not.
    Because consumers are generally unwilling to spend much time or effort evaluating alternative
     brands in a low-involvement product category before making a purchase, marketers need to focus
     their promotional messages on only a few frequently repeated points and to distribute such products
     extensively to make them convenient for customers to buy.
    Regardless of the consumer’s level of involvement with a product category, consumers often prefer
     different brands because of differences in their psychological or personal characteristics, such as
     their perceptions, memories, attitudes, and lifestyles. Understanding how such characteristics
     influence consumers’ decisions in a product category provides an important foundation for marketing
     decisions concerning the definition of market segments, the selection of target markets, and the
     design of marketing programmes to appeal to those markets.
    Regardless of the consumer’s level of involvement with a product category, consumers often prefer
     different brands because of differences in their social relationships, such as their culture, social class,
     reference groups, and family circumstances. Understanding how such social influences impact
     consumers’ decisions in a product category provides an important foundation for marketing decisions
     concerning the definition of market segments, the selection of target markets, and the design of
     marketing programmes to appeal to those markets.

©2008 Edinburgh Business School                                                                               7
7 Understanding Organisational Markets and Buying Behaviour

The fact that Exel markets its logistics services to organisational customers rather than individual consumers
makes it like the great majority of business firms. Worldwide, organisational markets account for more than
twice the dollar value of purchases as consumer markets. About half of all manufactured goods in most
countries are sold to organisational buyers. In addition, organisations such as Cargill, Nestlé, and BP buy
nearly all minerals, farm and forest products, and other raw materials for further processing. Finally,
organisations buy many services from accounting firms, banks, financial advisers, advertising agencies, law
firms, consultants, railroads, airlines, security firms, and other suppliers.
As we’ll see later, organisational customers are different in some ways from consumers, and those
differences have important implications for designing effective marketing programmes. But at the most basic
level, marketers need to answer the same set of questions about organisational markets as about consumer
markets in order to develop a solid foundation for their marketing plans. Who are the target customers and
what are their needs and wants? How do those customers decide what to buy and what suppliers to buy
from? Do their decision processes vary depending on their past experiences, the nature of the product being
purchased, and other situational factors? If so, what are the marketing implications of those variations? This
module provides a framework to help you address these questions.
We begin our examination of ‘who is the customer?’ by comparing organisational markets to consumer
markets and pointing out differences between the two types of customers, differences that often dictate
varying marketing approaches. One of those differences is simply the number of participants in the purchase
decision. While consumers are influenced by family and friends, they often decide what to buy – and make
the actual purchase – on their own. That is typically not the case in organisational purchasing, especially
when the product or service involved is relatively complex and expensive. For instance, managers from
several levels within Océ are involved in reviewing and renegotiating the service agreement with Exel each
quarter. Therefore, we will discuss the different kinds of participants in organisational purchase decisions, the
roles they play, and the different kinds of marketing messages and activities appropriate for each group.
Next, we examine the process that organisational customers go through in deciding what to buy and from
whom. As with individual consumers, this process varies depending on the past experience the organisation
has in buying the particular product or service and with a given supplier. As illustrated by the association
between Exel and Océ, a primary goal should be to develop long-term relationships – and ideally cooperative
alliances – with customers to ensure repeat purchases and capture full lifetime value. We discuss these issues
and their implications for marketing programmes, as well as the impact the Internet and other information
technologies are having on firms’ strategies for strengthening customer relationships.
Finally, organisational purchasing processes also vary depending on the kinds of goods or services being
purchased. Océ’s purchase of integrated logistics services costing millions of Euros was more complex,
required more information, and focused on different criteria than the company’s more routine purchase of
office supplies or copper wire. Therefore, we conclude this module with an examination of how
organisational purchasing processes differ across various categories of goods and services and the
implications of those differences for designing effective marketing programmes.

7.1 Who Is the Customer?
7.2 How Organisational Members Make Purchase Decisions
7.3 Selling Different Kinds of Goods and Services to Organisations Requires Different Marketing Programs

    While organisational customers are different in some ways from consumers, marketers need to
     answer a similar set of questions to develop a solid foundation for their marketing plans. Who are
     our target customers? What are their needs, wants, and preferences? How do those customers decide

©2008 Edinburgh Business School                                                                                8
      what to buy and what suppliers to buy from?
     Organisations buy things for one of three reasons: (1) to facilitate the production of another product
      or service, (2) for use by the organisation’s employees in carrying out its operations, or (3) for resale
      to other customers.
     Organisations are social constructions. Therefore, ‘organisations’ do not buy things. Rather,
      individual employees – usually more than one from different departments and organisational levels –
      make purchase decisions on the organisation’s behalf. Understanding the personal motivations of
      these individuals, and their influence on different stages of the purchasing process, is essential for
      marketing success.
     The Internet is simultaneously encouraging two opposing trends in organisational purchasing: (1) the
      growing use of short-term spot market contracts via Web-based auctions and (2) the strengthening of
      long-term buyer–supplier relationships via the sharing of sales and inventory data and the
      development of supply chain alliances.
     The mutual interdependence of organisational buyers and their suppliers makes long-term
      cooperative relationships crucial for customer retention and marketing success. For firms that sell a
      significant portion of their output to a few large customers, the stakes are very high. Building trust
      and commitment at multiple levels in both firms – on an individual-to-individual basis – can be a key
      factor in establishing and maintaining long-term customer relationships that are profitable to both

8 Measuring Market Opportunities: Forecasting and Market Research

Entrepreneurs such as Maddy and Laguë and managers in established firms need to develop knowledge
about their market and industry and synthesise that knowledge into tangible plans that their organisations can
act on. These plans can take many forms. For Maddy and Laguë, a business plan was needed to raise the
necessary capital and obtain the operating licenses to start the venture. For new product managers in
established firms, marketing plans must be developed to win support and resources to permit the product’s
launch. In organisations of all kinds, annual budgets are prepared to guide decision making for the coming
year. These decisions determine staffing, investments in productive capacity, levels of operating expense, and
so on. In almost every case, these planning and budgeting activities begin with a sales forecast. Once a sales
figure is agreed to, the various activities and investments needed to support the planned sales level are
In Module 8, we deal with two key issues that enable managers and entrepreneurs to bring life to their
dreams. First, we address the challenges in estimating market potential and forecasting sales, for both new
and existing products or businesses. We provide a menu of evidence-based forecasting methods, each of
which is useful in some situations, but not others, and we discuss their limitations. Then, we address the
informational needs of the forecasting task – as well as the tasks addressed in the first six modules of this
book that enable managers and entrepreneurs to understand their market and competitive contexts – to
provide guidance on to how to gather, collect, and report data relevant to marketing decision making (i.e.,
marketing research). The portion of the module that deals with marketing research has two objectives.
First, we want to enable every reader to be an informed and critical user of marketing research since most
strategic decision makers rely, in part, on such research to guide key corporate-level and business-level
decisions, as was discussed in Module MA02. Second, we want to provide readers with at least a
rudimentary level of competence in designing and carrying out marketing research studies of various kinds,
so that they can, even on minimal budgets, obtain useful market and competitive insights to inform their
decision making. Depending on hunches – instead of carefully thought-out research inquiries – even modest
ones done quickly – can be risky.

8.1 Every Forecast Is Wrong!

©2008 Edinburgh Business School                                                                              9
8.2 A Forecaster’s Toolkit: A Tool for Every Forecasting Setting
8.3 Cautions and Caveats in Forecasting
8.4 Why Data? Why Marketing Research?
8.5 Market Knowledge Systems: Charting a Path toward Competitive Advantage
8.6 Marketing Research Resolves Specific Marketing Challenges
8.7 What Users of Marketing Research Should Ask
8.8 Rudimentary Competence: Are We There Yet?

    Every forecast and estimate of market potential is wrong! Evidence-based forecasts and estimates,
     prepared using the tools provided in this module, are far more credible – and generally more accurate
     – than hunches or wild guesses. A menu of evidence-based forecasting approaches is provided in this
    Forecasts have powerful influence on what companies do, through budgets and other planning
     procedures. Thus, forecasting merits significant management attention and commitment.
    Superior market knowledge is not only an important source of competitive advantage, but it also
     results in happier, higher volume, and more loyal customers. Thus, the systematic development of
     market knowledge is a critically important activity in any organisation.
    Much can go wrong in marketing research and often does. Becoming an informed and critical user of
     marketing research is an essential skill for anyone who seeks to contribute to strategic decision
     making. Tools for obtaining this skill are presented in this module.

9 Market Segmentation and Target Marketing

The example of Nike, Inc.’s, origins and early development vividly points out how a few relatively simple
decisions to clearly identify a market segment with unmet or poorly met needs – distance runners – and then
develop innovative goods or services that meet the needs of the targeted segment can provide entrée into a
market niche and serve as a foundation for subsequent expansion that can revolutionise a market or industry.
What Phil Knight, Bill Bowerman, and the management team they assembled understood so well is that
different groups of consumers – different market segments – have different wants and needs, both tangible
and intangible, in athletic footwear and in athletic apparel. In virtually any market, if different segments can
be clearly identified, specific products with specific marketing programmes can be developed to meet both
the physical needs of the consumer (e.g., the lateral stability and the extra cushioning that distance runners
need in their shoes) as well as the emotional needs that consumers attach to their athletic pursuits (e.g., to
feel that they might someday soar through the air and dunk a basketball with the panache of Michael Jordan).
In Module MA09, we draw on the foundation of market knowledge and customer understanding
established in the first eight modules to introduce what are probably the most important and fundamental
tools in the marketer’s toolkit: market segmentation and target marketing. Together with product
positioning, which we address in Module MA10, these tools provide the platform on which most effective
marketing programmes are built. Learning to apply these tools effectively, however, requires addressing
several important questions. Why do market segmentation and target marketing make sense? Why not sell
the same athletic shoes – or bicycles, airline tickets, beverages, or whatever – to everyone? How can
potentially attractive market segments be identified and defined? Finally, how can these segments be
prioritised so that the most attractive ones are pursued? Answering these questions should enable an
entrepreneur, a venture capital investor in Silicon Valley, or a marketing manager in an multinational firm to
decide which market segments should be targeted and which investments should be made.

9.1 Why Do Market Segmentation and Target Marketing Make Sense?

©2008 Edinburgh Business School                                                                              10
9.2 How Are Market Segments Best Defined?
9.3 Choosing Attractive Market Segments: A Five-Step Process
9.4 Different Targeting Strategies Suit Different Opportunities
9.5 Global Market Segmentation and Target Marketing

    Marketers and entrepreneurs who find new and insightful ways to segment mature markets often
     uncover opportunities for uncontested market entry and rapid growth.
    Sharply focused target marketing enables marketers to differentiate from mass-market leaders by
     giving consumers in a narrowly defined market segment what they want.
    Focused market entry strategies conserve resources and facilitate early success.
    The five-step procedure provided in this module identifies segments having the highest potential.
    The market-attractiveness/competitive-position matrix is a useful analytical framework for deciding
     which markets or market segments to enter and from which to withdraw.

10 Positioning

As the campaign launched by the French winemakers illustrates, the success of a product offered to a given
target market depends on how well it is positioned within that market segment – that is, how well it performs
relative to competitive offerings and to the needs of the target audience. The campaign targeted younger
consumers and included advertising, in-store promotions, and a new website. Early results suggested at least
some success in stimulating members of the target group to seek out lower-priced French wines because of
their quality and their ability to enhance the enjoyment of an informal event. Positioning (or repositioning,
in the case of French wines) refers to both the place a product or brand occupies in customers’ minds relative
to their needs and competing products or brands and to the marketer’s decision making intended to create
such a position. Thus, the positioning notion comprises both competitive and customer need considerations.
Positioning is basically concerned with differentiation. Ries and Trout, who popularised the concept of
positioning, view it as a creative undertaking whereby an existing brand in an overcrowded marketplace of
similar brands can be given a distinctive position in the minds of targeted prospects. While their concept was
concerned with an existing brand, it is equally applicable for new products.Module MAC1004 While
typically thought of in relation to the marketing of consumer goods, it has equal value for industrial goods
and for services, which require essentially the same procedure as consumer goods.Module MAC1005
Because services are characterised by their intangibility, perishability, consumer participation in their
delivery, and the simultaneous nature of their production and consumption, they are – when compared with
products – more difficult for consumers to understand, to compare with competing products, to predict in
terms of their performance, and, therefore, more difficult for marketers to position successfully.
In Module MA10, we take the final step in preparing the foundation on which effective marketing
programmes are based. Drawing on decisions made about target markets, as we discussed in Module
MA09, we address the critical question, ‘How should a business position its product offering – whether goods
or services – so customers in the target market perceive the offering as providing the benefits they seek,
thereby giving the product an advantage over current and potential future competitors?’ As we shall see, the
positioning decision is a strategic one, with implications not only for how the firm’s goods or services should
be designed, but also for developing the other elements of the marketing strategy. Pricing decisions,
promotion decisions, and decisions about how the product is to be distributed all follow from, and contribute
to the effectiveness of, the positioning of the product in its competitive space. Thus, the material in this
module provides a foundation for virtually all of the decision making that follows in the balance of this book.

10.1 Differentiation: The Key to Customer Preference and Competitive Advantage

©2008 Edinburgh Business School                                                                             11
10.2 Physical Positioning
10.3 Perceptual Positioning
10.4 Levers Marketers Can Use to Establish Positioning
10.5 Preparing the Foundation for Marketing Strategies: The Positioning Process
10.6 Analytical Tools for Positioning Decision Making

    Clear and distinctive positioning that differentiates a product from others with which it competes is
     usually essential for developing a winning marketing strategy.
    The positioning process outlined in this module helps decision makers choose a position that
     maximises their chance of establishing sustainable competitive advantage.
    Distinctive and intense positioning is best accomplished when based on one or at most two
     attributes. More are likely to be confusing to customers.
    Writing clear and succinct positioning statements or value propositions can play an important role in
     ensuring effective development and execution of a marketing strategy. This module provides
     templates for writing these materials.

11 Product Decisions

As the story of Egg illustrates, decisions about product attributes – whether for goods or services – can make
a huge difference in attracting customers. In this module, we examine the first of the four Ps – the many
kinds of product decisions that marketers must make to provide the value that customers want. As we shall
see, such decisions include those about attributes to include in the product (such as Egg’s decision to offer
account access via interactive TV), how to package the product (the level of access that Egg offers its
customers), as well as decisions about branding, services related to the product, warranties, and so on. These
decisions grow out of the need to differentiate one’s products from those of competitors, as we discussed in
Module 10, the positioning module. As we observed in Module MA10, going to market with an
undifferentiated product can be hazardous.
Thus, Module 11 addresses several critical questions that marketers face in differentiating their offerings
from those of their competitors. How should our product offering, whether a good or a service, be designed
to give it a chance to win sustainable competitive advantage? What product decisions must we make to
deliver the benefits and value promised in our positioning statement or value proposition? How can products
and product lines best be managed to satisfy the needs of different market segments, rather than simply
taking market share from the firm’s other products? Finally, given the importance of new products in the
long-term success of most firms, how can new product development be managed, from a process
perspective, to ensure a timely flow of new products that enjoy favourable reception by customers?
Answering these questions thoughtfully, using evidence-based and up-to-date market knowledge as a
foundation, gives the firm its best chance to offer goods and services that consumers want – as opposed to
products its engineers can develop (‘It’s the latest technology!’), its merchants are excited about (‘I have a
hunch purple will be hot this year!’), or its CEO loves.
In the first portion of the module, we address the content of product decision making: decisions about
product quality and features, related services, packaging, brand names, and so on. These decisions are
applicable to existing and new products alike. We then broaden our focus to decisions about product lines,
groups of related products such as Unilever’s various brands of laundry detergents or Gillette’s line of razors
and razor blades. Then, to complete the module, we address the process of new product development. An
abundance of recent evidence indicates that how the new product development process is managed – whether
for new-to-the-world products born in high-tech research labs or simple product modifications or line
extensions – can have important implications for time to market and, ultimately, for product success or

©2008 Edinburgh Business School                                                                             12
11.1 Product Design Decisions for Competitive Advantage
11.2 Managing Product Lines for Customer Appeal and Profit Performance
11.3 New Product Development Process Decisions

    Decisions about product design – including product features, brand names, related services, and
     warranties, for both goods and services – are among the most critical in differentiating one’s product
     from others to achieve competitive advantage. Factors to consider in making product decisions are
     provided in this module.
    While speed to market is important in today’s fast-paced business climate, bringing the right
     products to market and keeping them current are far more important than seeking first-mover
     advantage for a product that customers don’t want.
    Decisions about the depth and breadth of product lines must be carefully considered in market
     segmentation terms. Product lines that are too long or too short can place the company at a
     competitive disadvantage.
    How the new product development process is managed, from a process perspective, is as important
     as what product decisions are made. The stage-gate system helps companies strike a balance between
     entrepreneurial creativity and business discipline in their new product efforts.
    Though new products constitute the lifeblood of long-term success for most firms, most new
     products fail! Thus, product decisions, in both content and process terms, are critical to the
     successful implementation of business strategies.

12 Pricing Decisions

Pricing is an area where managers ‘feel the most pressure to perform and the least certain that they are doing
a good job. The pressure is intensified because, for the most part, managers believe that they don’t have
much control over price. It is dictated by [the firm’s costs and by forces in] the market.’Module MAC1202
And those forces have increased in recent years. The maturing of many basic industries, the slower growth,
the improved productivity, the growing power of retailers and their private labels, the increased
aggressiveness of low-cost competitors such as Ryanair, and the growing ability of customers to compare
suppliers’ prices on the Internet have made many markets more price competitive.
The perception that price decisions are dictated by factors beyond the marketer’s control, however, is a
dangerous one. As we shall see later many firms base their pricing decisions largely on what is necessary to
recover their costs or match competitors. For instance, a company may try to determine the costs of making a
product or delivering a service and then add a standard markup to achieve a target return on investment. Such
an approach can be justified given that firms cannot price their products or services below cost, at least not
for long.
The danger is that prices set solely on the basis of cost or competitive considerations may not reflect
customer value: the customer’s perception of what the product or service is really worth. The price may be
higher than the customer is willing to pay, resulting in a loss of potential sales and market share. This may be
a problem that Ryanair will face – even with its relatively low fares – as it pursues its aggressive growth
objectives. Alternatively, the price may be much lower than customers think the product is worth, resulting in
low margins and the sacrifice of potential profits. While pricing a product below its perceived value may
delight customers and stimulate short-term demand, it may also depress the earnings the firm needs to
compensate its employees, fund capital investments, and pay for the product development and other
marketing activities necessary for long-term growth. Even small mistakes in this direction can have major
implications for the firm. For example, for a company with 8 per cent profit margins, a 1 per cent

©2008 Edinburgh Business School                                                                              13
improvement in price realisation would boost the firm’s margin dollars by 12.5 per cent.Module MAC1202
The critical question addressed in this module is, How can a marketer determine a price that captures a fair
share of the value customers receive from a product or service without violating the constraints imposed by
its strategic objectives, cost structure, and competitive environment? To answer that question, the first part of
this module describes a price-setting process that begins by considering of a variety of strategic, market
demand, cost, and competitive factors. It then discusses methods that different firms use to set a price level,
with emphasis on methods geared to reflecting the product’s value as perceived by customers in the target
Determining an appropriate price level for a product or service is complicated, and most firms do not charge
the same list price to every customer all the time. Instead, they develop a price structure that establishes
guidelines for adapting the price to variations in costs and demand across different markets. Consequently,
the last half of this module examines some price adjustments marketers often make to accommodate
differences across (1) geographic territories, (2) national boundaries, (3) levels of the distribution channel,
(4) types of distribution channels, especially the Internet, (5) items within the product line, and (6) customer

12.1 A Process for Making Pricing Decisions
12.2 Methods Managers Use to Determine an Appropriate Price Level
12.3 Deciding on a Price Structure: Adapting Prices to Market Variations

    Pricing decisions involve an inherent conflict between (1) the need to win customers by allowing
     them to retain a portion of the value inherent in a product or service and (2) the need to maintain
     profit margins sufficient to compensate employees, fund growth, and satisfy the firm’s various
    The price of a good or service must be high enough to cover per unit costs – at least in the long term
     – but cannot exceed its value as perceived by the customer. Therefore, the region between unit cost
     and perceived value represents the range of feasible prices.
    The decision about what price to select from within the range of feasible prices should be based on a
     careful analysis of competitors’ costs and prices, the product’s strategic objectives, and consistency
     with other components of the marketing plan.
    Perhaps the key concept in setting a price is the notion of perceived value. An essential purpose of
     the price set by a marketing manager should be to enable the firm to capture a fair share of the value
     of the product as perceived in the mind of the customer.
    The final step in deciding what price to charge for a product or service involves the development of a
     price structure that adapts the price to variations in cost and demand across geographic territories,
     national boundaries, customer segments, and items within the product line.

13 Distribution Channel Decisions

The importance of good distribution decisions in designing a marketing plan is simple: Customers won’t buy
your good or service unless it is readily available when and where they want to buy it. An effective
distribution channel makes the right quantities of the right product available in the right place at the right
time to satisfy the target customer. An efficient distribution channel also reduces the costs of marketing and
acquiring the product.
As Hallmark’s experience in recent years makes apparent, however, the manager really faces two separate
but closely related sets of decisions concerning distribution channels. First come channel design decisions
concerned with developing a channel structure that links the firm’s marketing strategy with the needs of its

©2008 Edinburgh Business School                                                                               14
target market. These decisions focus on questions such as how many levels of middlemen should be included
in the distibution system and what types of institutions, and how many of each, should be included at each
level. Thus, Hallmark’s decisions to distribute its cards through discounters and to sell them directly to
consumers through a company website and over mobile phones changed the basic structure or design of its
distribution system.
Once a product’s distribution channel has been designed, a second set of decisions concerns how that channel
should be managed. Channel management decisions involve the development of policies and procedures to
gain and maintain the cooperation of – and often to form mutually beneficial long-term relationships with –
the various institutions within the channel. Such decisions focus on selecting and recruiting individual
channel members, motivating them to perform specific marketing functions on behalf of the supplier’s
product or service, coordinating their efforts, assessing their performance, and resolving conflicts that arise.
Much of Hallmark’s recent marketing activity has been aimed at encouraging its traditional retailers to
continue to stock and promote the company’s products despite conflicts emanating from increased direct
competition from discounters and the firm’s own website.
This module examines both the channel design and channel management decisions a marketer faces. We
begin by discussing the economic rationale for having multiple institutions involved in distributing a given
product or service. Why are channels involving networks of many independent firms often more efficient and
effective than distributing things directly from the producer to the consumer?
Next, we discuss the various marketing objectives a distribution channel might be designed to accomplish.
We then examine some alternative channel designs for both consumer and organisational goods and services,
including the various types of institutions and the numbers of those institutions that might be included in a
distribution channel given different objectives and strategic circumstances.
Finally, we examine the major issues involved in managing an existing channel, starting with various legal
mechanisms, such as vertical integration and franchising, that some firms employ to control channel
activities. However, because most channel systems consist of networks of legally independent firms, we
devote most of our attention to examining the incentives that can be used to motivate those firms to act in
concert with the manufacturer’s marketing programme. We conclude with a discussion of channel conflicts
and the strategies firms employ to resolve them.

13.1 Why Do Multi-firm Marketing Channels Exist?
13.2 Designing Distribution Channels: What Are the Objectives to Be Accomplished?
13.3 Designing Distribution Channels: What Kinds of Institutions Might Be Included?
13.4 Channel Design Alternatives
13.5 Which Alternative Is Best? It Depends on the Firm’s Objectives and Resources
13.6 Channel Design for Global Markets
13.7 Channel Design for Services
13.8 Channel Management Decisions

    The importance of good distribution decisions in designing a marketing plan is simple: Customers
     won't buy your good or service unless it is conveniently available when and where they want to buy
    Distribution channel decisions have a major economic impact because distribution costs, many or
     which do not even appear in the firm’s income statement, often exceed the costs of producing a good
     or service.
    Channel design involves decisions about the appropriate types and numbers of middlemen to include
     in the distribution channel in order to link the marketing strategy for the good or service to the needs
     of the target customers.
    Distribution channels can be designed to accomplish a number of objectives, including maximising

©2008 Edinburgh Business School                                                                              15
      the product’s availability, satisfying customer service requirements, encouraging promotional effort,
      obtaining timely market information, minimising distribution costs, and maintaining flexibility.
      However, each design alternative is better for achieving some objectives than others, and there are
      trade-offs across objectives; increasing availability and customer service, for example, tends to
      increase distribution costs. Therefore, good channel design decisions require compromise and careful
     A manufacturer or service provider can attempt to gain the support and direct the efforts of its
      channel partners through vertical integration, by legal contracts (e.g., franchise agreements), by
      providing economic incentives, and/or by developing mutually beneficial relationships based on trust
      and the expectation of future benefits. Given the large investments required for vertical integration
      and the difficulty of writing enforceable contracts when market conditions are changing rapidly, the
      development of effective incentives and long-term relationships with channel members is
      increasingly vital to the market success of most firms.

14 Integrated Promotion Decisions

Assessing markets, analysing industries, and uncovering customers’ unsatisfied wants and needs often leads
to the development of new goods or services with huge potential – at least in the eyes of the marketing
managers or entrepreneurs who introduce them. So far, we’ve seen how these activities, together with
decisions about final product configuration, pricing, and distribution – three of the four Ps – bring companies
to the brink of marketing success. With these important building blocks in place, a critical marketing task
remains – to let a waiting world know of the new product and invite it to purchase. The entrepreneur with the
new product is not alone; countless marketing managers face similar decisions every day, not only for new
products of which customers are unaware, but also for established products trying to win in today’s highly
competitive markets.
In Module 14, we address the considerable challenges entailed in the last of the four Ps – promotion – and
we provide tools and analytical frameworks for addressing several age-old marketing questions. To whom
should marketing messages be directed, inside the company and outside, to consumers and other
stakeholders? How can the marketing manager most effectively and efficiently inform the target market
about the product? How can the manager persuade them to try or buy? What message should be delivered?
How much should the firm spend to deliver it? In what media, or with what promotional tools? Finally, how
might the manager assess whether the promotional strategy has been both effective and efficient? These are
not easy questions to answer.
We begin by introducing the promotion mix, the collection of promotional elements from which marketers
can choose. We then explore the communication process and the barriers that make it difficult to get
promotional messages across to their intended audiences. Finally, we provide tools for marketing managers
or entrepreneurs to use in answering the questions just raised, in order to prepare evidence-based marketing
plans that stand a good chance of meeting their marketing objectives.

14.1 The Promotion Mix: A Communication Toolkit
14.2 Developing an Integrated Marketing Communications Plan
14.3 The Nitty-Gritty of Promotional Decision Making

    Marketing managers in most companies face fundamental strategic decisions about whether to
     emphasise advertising or personal selling in their promotion mix. Identifying the strategic
     circumstances (see Module MAE1403) provides direction for these decisions.
    Getting marketing communications messages – of any kind, in any medium – noticed and

©2008 Edinburgh Business School                                                                             16
         understood is no easy task. Many ads and other communication attempts simply don’t meet their
         objectives. Following the guidelines in this module will mitigate this risk.
        A clear understanding of one’s target market is essential for planning and implementing an effective
         promotional programme. Without such an understanding, money is likely to be wasted.
        Many marketing communications efforts are not easy to evaluate. Setting clear and measurable
         objectives up front facilitates doing so.
        New media, including the Internet, email, and mobile telephones, are predicted to revolutionise ad
         spending, because their results – like those for direct marketing programmes – can often be directly
        In companies of all sizes, technology will play an increasingly meaningful role in managing sales
         and customer service efficiency and effectiveness. Caution must be exercised, however, to avoid
         sacrificing effectiveness for efficiency.

15 Marketing Strategies for New Market Entries

Canon’s success illustrates several important points about new product and market development. First, both
sales growth and cost cutting can help improve profits. But while it is often easier to cut costs in the short
term, revenue growth – particularly growth generated by the development of innovative new products – can
have a bigger impact on a firm’s profitability and shareholder value over the long haul. This point is
confirmed by a study of 847 large corporations conducted by Mercer Management Consulting. The authors
found that the compound annual growth rate in the market value of companies that achieved higher-than-
average profit growth but lower revenue growth than their industry’s average – companies that increased
profits mostly by cutting costs, in other words – was 11.6 per cent from 1989 to 1992. By contrast,
companies that achieved higher-than-average profits as the result of higher-than-average revenue growth saw
their market value jump at an annual rate double that – 23.5 per cent.
Canon’s history also illustrates that new product introductions can involve products that differ in their degree
of newness from the perspective of the company and its customers. Some of the products developed by the
firm, such as its first office copier, presented a new technical challenge to the company but did not seem very
innovative to potential customers who viewed the copiers merely as simpler and cheaper versions of Xerox’s
machines. But some of the firm’s new product introductions – such as its digital radiology system – are truly
innovations that are new to potential customers and the company alike.
This module examines marketing strategies and programmes appropriate for offerings that are new to the
target customers. Our primary focus is on programmes used by the pioneer firm – or first entrant – into a
particular product-market. Being the pioneer gains a firm a number of potential competitive advantages, but
it also involves some major risks. Some pioneers capitalise on their early advantage and maintain a leading
market share of the product category, earning substantial revenues and profits, well into the later stages of the
product’s life cycle.
Other pioneers are less successful. While Canon has pioneered some new product categories, for instance, it
has not always ended up as the share leader in those categories as they grew and matured. In some cases this
was a consequence of Canon’s strategy of withdrawing from markets where it could not sustain superior
technical expertise, as in the case of liquid crystal displays. But in other cases, followers have overtaken the
pioneer by offering better products, superior customer service, or lower prices. This leads to an interesting
strategic question: Is it usually better for a firm to bear the high costs and risks of being the pioneer in hopes
of maintaining a profitable position as the market grows or to be a follower that watches for possible design
or marketing mistakes by the pioneer before joining the fray with its own entry? We examine this question in
the next section.
Not all pioneers are intent on remaining the overall share leader as the market grows. Some adopt a niche
market strategy geared to making substantial profits from specialised market segments where they will face
fewer large competitors. Others – like Canon – try to stay one jump ahead of the competition by introducing
a constant stream of new products and withdrawing from older markets as they become more competitive.

©2008 Edinburgh Business School                                                                                17
Which strategy is best? It depends on the firm’s resources and competencies, the strength of likely future
competitors, and characteristics of the product and its target market. Therefore, we will examine some
alternative strategies that might be adopted by a pioneer and the situations where each makes most sense.

15.1 How New Is New?
15.2 Objectives of New Product and Market Development
15.3 Market Entry Strategies: Is It Better to Be a Pioneer or a Follower?
15.4 Strategic Marketing Programs for Pioneers

    Being the pioneer in a new product or service category gains the firm a number of potential
     advantages. But not all pioneers are able to sustain a leading position in the market as it grows. A
     pioneering firm stands the best chance for long-term share leadership and profitability when the
     market can be insulated from the rapid entry of competitors by patent protection or other means and
     when the firm has the necessary resources and competencies to capitalise on its first-mover
    Evidence suggests that pioneers who successfully capitalise on their first-mover advantage and
     sustain a leading competitive position (a) introduce a quality product and pay careful attention to
     quality control, (b) have the capacity to enter on a large scale or the resources to expand rapidly as
     the market grows, (c) back the introduction with substantial promotion to build awareness and trial,
     and (d) rapidly expand the product line to satisfy multiple customer segments.
    Followers can trump the pioneer in a new product category if they can enter with more capacity
     backed by substantially larger marketing expenditures, or by leapfrogging the first mover with
     superior technology, product quality, or customer service.
    Not all pioneers attempt to penetrate the mass market and remain the share leader as that market
     grows. Some adopt a strategy geared to making profits from specialised niche markets where they
     will face fewer direct competitors. Still others try to stay one jump ahead of competitors by
     introducing a stream of new products and withdrawing from older markets as they become more
     competitive. The appropriate strategy to adopt depends on the firm’s resources and competencies, the
     strength of likely competitors, and the characteristics of the product and its target market.

16 Marketing Strategies for Growth Markets

While Nike was clearly not the pioneer of the athletic shoe industry, the firm’s technical innovations, stylish
designs, and savvy market segmentation strategy spurred a sustained period of market growth. Both
conventional wisdom and the various portfolio models suggest there are advantages to be gained from a
strategy of investing heavily to build and sustain a commanding share of a growing market, a strategy similar
to Nike’s. But a market is neither inherently attractive nor unattractive simply because it promises rapid
future growth. And not all competitors have the resources and capabilities necessary to dominate an entire
market, as Vans, Puma, New Balance, and others – with their limited marketing budgets – seem well aware.
Consequently, managers must consider how customer desires and the competitive situation are likely to
evolve as a market grows, and determine whether their firms can exploit market growth to establish a
sustainable advantage. Therefore, the next section of this module examines both the opportunities and
competitive risks often found in growing product-markets.
The primary objective of the early share leader, usually the market pioneer, in a growth market is share
maintenance. From a marketing perspective the firm must accomplish two important tasks: (1) retain repeat
or replacement business from its existing customers and (2) continue to capture the major portion of sales to
the growing number of new customers entering the market for the first time. The leader might use any of

©2008 Edinburgh Business School                                                                              18
several marketing strategies to accomplish these objectives. It might try to build on its early scale and
experience advantages to achieve low-cost production and reduce its prices. Alternatively, the leader might
focus on rapid product improvements, expand its product line to appeal to newly emerging segments, or
increase its marketing and sales efforts, all of which Nike employed in building global leadership in the
athletic footwear market. The second section of this module explores marketing strategies – both defensive
and offensive – that leaders might use to maintain a dominant market share in the face of continuing growth
and increasing competition.
A challenger’s strategic objective in a growth market is usually to build its share by expanding its sales faster
than the overall market growth rate. Firms do this by stealing existing customers away from the leader or
other competitors, capturing a larger share of new customers than the market leader, or both. Once again,
challengers might use a number of strategies to accomplish these objectives. These include developing a
superior product technology; differentiating through rapid product innovations, line extensions, or customer
service; offering lower prices; or focusing on market niches where the leader is not well established, as Van’s
has done in the skateboarding segment. The fourth section details these and other share-growth strategies
that market challengers use under different conditions.
The success of a firm’s strategy during the growth stage is a critical determinant of its ability to reap profits,
or even survive, as a product-market moves toward maturity. Unfortunately, the growth stage is often short;
and increasingly rapid technological change and market fragmentation are causing it to become even shorter
in many industries.Module MAC1602 This shortening of the growth stage concerns many firms –
particularly late entrants or those who fail to acquire a substantial market share – because as growth slows
during the transition to maturity, there is often a shakeout of marginal competitors. Thus, when choosing
marketing strategies for competing in a growing product-market, managers should keep one eye on building
a competitive advantage that the business can sustain as growth slows and the market matures.

16.1 Opportunities and Risks in Growth Markets
16.2 Growth-Market Strategies for Market Leaders
16.3 Share-Growth Strategies for Followers

    If the market leader wants to maintain its number-one share position as the product category moves
     through rapid growth, it must focus on two important objectives: (1) retaining its current customers
     and (2) stimulating selective demand among later adopters.
    Marketing strategies a leader might adopt to defend its relative share as the product category grows
     include position defense, flanker, confrontation, market expansion, and contraction. The best one to
     choose depends on the homogeneity of the market and the firm’s resources and competencies
     relative to potential competitors.
    For a challenger to increase its market share relative to the established leader, it must differentiate its
     offering by delivering superior product benefits, better service, or a lower price. Challenging the
     leader solely on the basis of price, however, is a good way to start a price war and can be a highway
     to disaster unless the challenger has a sustainable cost advantage.
    Smaller challengers often try to avoid direct confrontations with the share leader by pursuing flanker,
     encirclement, or guerrilla attack strategies that focus on market segments where the leader is not well

17 Marketing Strategies for Mature and Declining Markets

Many managers, particularly those in marketing, seem obsessed with growth. Their objectives tend to
emphasise annual increases in sales volume, market share, or both. But the biggest challenge for many

©2008 Edinburgh Business School                                                                                19
managers in developed nations in future years will be making money in markets that grow slowly, if at all.
The majority of product-markets in those nations are in the mature or decline stages of their life cycles. And
as accelerating rates of technological and social change continue to shorten such life cycles, today’s
innovations will move from growth to maturity – and ultimately to decline – ever faster.
A period of competitive turbulence almost always accompanies the transition from market growth to
maturity in an industry. This period often begins after approximately half the potential customers have
adopted the product and the rate of sales growth starts to decline. As the growth rate slows, many
competitors tend to overestimate future sales volume and consequently end up developing too much
production capacity. Competition becomes more intense as firms battle to increase sales volume to cover
their high fixed costs and maintain profitability. As a result, such transition periods are commonly
accompanied by a shakeout during which weaker businesses fail, withdraw from the industry, or are
acquired by other firms, as has happened to some of Johnson Controls’ competitors in the United States,
European and Asian automotive seat and battery industries. In the next section of this module we examine
some strategic traps that can threaten a firm’s survival during an industry shakeout.
Challenges in Mature Markets
Businesses that survive the shakeout face new challenges as market growth stagnates. As a market matures,
total volume stabilises; replacement purchases rather than first-time buyers account for the vast majority of
that volume. A primary marketing objective of all competitors in mature markets, therefore, is simply to hold
their existing customers – to sustain a meaningful competitive advantage that will help ensure the continued
satisfaction and loyalty of those customers. Thus, a product’s financial success during the mature life cycle
stage depends heavily on the firm’s ability to achieve and sustain a lower delivered cost or some perceived
product quality or customer-service superiority.
Some firms tend to passively defend mature products while using the bulk of the revenues produced by those
items to develop and aggressively market new products with more growth potential. This can be
shortsighted, however. All segments of a market and all brands in an industry do not necessarily reach
maturity at the same time. Aging brands such as Addidas, Johnson’s baby shampoo, and Arm & Hammer
baking soda experienced sales revivals in recent years because of creative marketing strategies. Thus, a share
leader in a mature industry might build on a cost or product differentiation advantage and pursue a marketing
strategy aimed at increasing volume by promoting new uses for an old product or by encouraging current
customers to buy and use the product more often. Therefore, in this module we examine basic business
strategies necessary for survival in mature markets and marketing strategies a firm might use to extend a
brand’s sales and profits, including the strategies that have been so successful for Johnson Controls.
Challenges in Declining Markets
Eventually, technological advances; changing customer demographics, tastes, or lifestyles; and development
of substitutes result in declining demand for most product forms and brands. As a product starts to decline,
managers face the critical question of whether to divest or liquidate the business. Unfortunately, firms
sometimes support dying products too long at the expense of current profitability and the aggressive pursuit
of future breadwinners.
An appropriate marketing strategy, however, can produce substantial sales and profits even in a declining
market. If few exit barriers exist, an industry leader might attempt to increase market share via aggressive
pricing or promotion policies aimed at driving out weaker competitors. Or it might try to consolidate the
industry, as Johnson Controls has done in its automotive components businesses, by acquiring weaker brands
and reducing overhead by eliminating both excess capacity and duplicate marketing programmes.
Alternatively, a firm might decide to harvest a mature product by maximising cash flow and profit over the
product’s remaining life. The last section of this module examines specific marketing strategies for gaining
the greatest possible returns from products approaching the end of their life cycle.

17.1 Shakeout: The Transition from Market Growth to Maturity
17.2 Strategic Choices in Mature Markets
17.3 Marketing Strategies for Mature Markets

©2008 Edinburgh Business School                                                                            20
17.4 Strategies for Declining Markets

    Strategic choices in mature, or even declining, markets are by no means always bleak. Many of the
     world’s most profitable companies operate largely in such markets.
    A critical marketing objective for all competitors in a mature market is to maintain the loyalty of
     existing customers. To accomplish that goal, firms must pursue improvements in the perceived value
     those customers receive from their offerings – either by differentiating themselves on the basis of
     superior quality or service, by lowering costs and prices, or both.
    An important secondary objective for some firms, particularly share leaders, in mature markets is to
     stimulate further volume growth by taking actions to convert nonusers into users, to increase use
     frequency among current users, or to expand into untapped or underdeveloped markets.
    Declining markets can still offer attractive opportunities for sales revenues and profits. Their
     attractiveness – and the appropriate marketing strategy to follow – depends on, among other things,
     the pace and certainty of market decline, the presence of exit barriers, the firm’s competitive
     strengths, and the likely intensity of future competition.

18 Organising and Planning for Effective Implementation

Hewlett-Packard’s fall from grace in the face of the dramatic Internet-driven shifts in its market environment
and its subsequent attempts to remake itself into a major provider of e-commerce hardware and services
illustrate that a business’s success is determined by two aspects of strategic fit. First, its competitive and
marketing strategies must fit the needs and desires of its target customers and the competitive realities of the
marketplace. The emergence of the Internet increased companies’ needs for closely integrated computer,
network hardware, and software systems. Hewlett-Packard’s balkanised approach of selling stand-alone
products produced by many semiautonomous and entrepreneurial business units had once been extremely
successful, but it was incapable of providing the integration customers were looking for in the Internet age.
Consequently, the firm is scrambling to adjust its competitive strategy and product offerings to better fit the
new realities of the marketplace.
But even if a firm’s competitive strategy is appropriate for the circumstances it faces, it must be capable of
implementing that strategy effectively. This is where the second aspect of strategic fit enters the picture. A
business’s organisational structure, internal policies, procedures, and resources must fit its chosen strategy or
else implementation will fall short. Hewlett-Packard’s highly decentralised structure and its policies of
granting substantial control over financial resources to individual business units, for example, made it nearly
impossible for the firm to implement a strategy of differentiating itself by providing tightly integrated and
customised packages of Internet products and services to its customers. The company had to make major
organisational changes to implement its new strategic direction. And it may have to make further changes to
stimulate innovation or reduce costs in order to fend off Dell’s aggressive compaign to capture market share.
Therefore, in the next section we examine several questions related to the issue of organisational fit – the fit
between a business’s competitive and marketing strategies and the organisational structures, policies,
processes, and plans necessary to effectively implement those strategies.
      For companies with multiple business units or product lines, what is the appropriate administrative
         relationship between corporate headquarters and the individual SBUs? How much autonomy should
         business unit managers be given to make their own strategic decisions, how much control should
         they have over the SBU’s resources and programmes, and how should they be evaluated and
      Within a given business unit, whether it’s part of a larger corporation or a one-product
          entrepreneurial start-up, what organisational structures and coordination mechanisms are most
          appropriate for implementing different competitive strategies? Answering this question involves

©2008 Edinburgh Business School                                                                               21
         decisions about variables such as the desired level of technical competence of the various functional
         departments within the business, the manner in which resources are allocated across those functions,
         and the mechanisms used to coordinate and resolve conflicts among the departments.
      How should organisational structures and policies be adjusted, if at all, as an organisation moves into
         international markets?
However, even if a business has crafted brilliant competitive and marketing strategies, and it has the
necessary organisational arrangements and wherewithal to implement them, implementation is unlikely to be
very effective unless all of the business’s people are following the same plan. This fact underlines the
importance of developing formal, written marketing plans to document all the decisions made in formulating
the intended strategy for a given good or service so it can be clearly communicated to everyone responsible
for its implementation and to firmly establish who is responsible for doing what and when. And as we’ll see
in the next module, formal plans also establish the timetables and objectives that are the benchmarks for
management’s evaluation and control of the firm’s marketing strategies. Thus, good planning is important.
Given the importance of formal plans as tools to aid implementation and control, we will return in the last
part of this module to the planning framework we introduced briefly in Module MA01. We will examine
the content of effective marketing plans in more detail and review the many strategic decisions involved in
formulating that content. The purpose of these planning decisions is to lay a well-conceived foundation that
permits effective implementation of the marketing strategy. While good planning is important, effective
implementation is crucial.

18.1 Designing Appropriate Administrative Relationships for the Implementation of Different Competitive
18.2 Designing Appropriate Organisational Structures and Processes for Implementing Different Strategies
18.3 Marketing Plans: The Foundation for Implementing Marketing Actions

    While much of this book has covered the various analytical tools and frameworks necessary to
     develop effective marketing strategies, such strategies are worthless without good implementation.
     Therefore, marketing managers, and general managers concerned about marketplace issues, must
     attend to organisational design issues. A business’s structure, policies, procedures, and resources
     must fit its chosen strategy or else implementation will fall short.
    For firms with multiple businesses or product lines, different administrative relationships between
     the business unit and corporate headquarters are appropriate for different competitive strategies.
     Prospector businesses perform better with high levels of autonomy, fewer shared resources, and
     more top-line focused reward systems than defender businesses.
    Within a given business – whether it’s part of a larger organisation or a one-product entrepreneurial
     start-up – different functional competencies, levels of specialisation, amounts of employee
     participation in decision making, and mechanisms for the resolution of internal conflicts are needed
     to effectively implement varying competitive strategies.
    Several organisational designs incorporate differences in both structural variables (formalisation,
     centralisation, and specialisation) and mechanisms for resolving interfunctional conflicts. These
     include functional, product management, market management, and various types of matrix
     organisational designs.
    Writing a formal marketing action plan is a key step toward ensuring the effective execution of a
     strategic marketing programme because it spells out what actions need to be taken, when, and by
     whom. Written plans also provide the benchmarks by which the marketing strategy can be evaluated
     and controlled, as discussed in the next module.

©2008 Edinburgh Business School                                                                            22
19 Measuring and Delivering Marketing Performance

In Module MA18, we said that planning is important, and that effective implementation is crucial. The Wal-
Mart example demonstrates how effective planning and implementation can play out in the performance of a
company. Together, these two activities constitute the heart of most business endeavors. In the end, however,
it is neither planning nor implementation that really counts. Results are what counts. Results are what
managers and entrepreneurs are paid to deliver. Results are what attract investment capital to permit a
company – whether a large public company such as Wal-Mart or an emerging dot-com start-up – to grow.
Just watch what happens to a public company’s stock price when the results are not what Wall Street expects.
The share price plummets and, sometimes, heads roll. Weak sales and profit performance at Gap Inc. from
late 1999 through 2002 cut Gap’s stock price by half and led to a series of middle and upper management
changes at the once high-flying retailer. The focus on results is not restricted to for-profit organisations
either. Module MAE1901 shows how some non-profit organisations are adapting measurement
methodologies to their own environments.
In Module MA19, we address several critical questions that provide the link between a company’s efforts to
plan and implement marketing strategies and the actual results that those strategies produce. How can we
design strategic control systems to make sure the strategies we are pursuing remain in sync with the
changing market and competitive environment in which we operate? How can we design systems of
marketing metrics to ensure that the marketing results we plan for are the results we deliver? In other
words, if the ship gets off course during the journey, either strategically or in terms of execution of the
marketing strategy, how can we make sure that we know quickly of the deviation so that mid-course
corrections can be made in a timely manner? In today’s rapidly changing markets, even the best-laid plans
are likely to require changes as their implementation unfolds.
We begin by developing a five-step process for evaluating and controlling marketing performance on a
continuous basis. We then apply the process to the issue of strategic control: How can we monitor and
evaluate our overall marketing strategy to ensure that it remains viable in the face of changing market and
competitive realities? Next, we apply the process to tracking the performance of a particular product-market
entry and to the marketing actions taken to implement its marketing plan, or marketing performance
measurement. Are we meeting sales targets, in the aggregate and for various products and market segments?
Is each element of the marketing mix doing its job: Which items in the product line are selling best, are the
ads producing enough sales leads, is the salesforce generating enough new accounts, and so on? Finally, we
show how marketing audits can be used periodically to link the control process – for both strategic control
and for measuring current marketing performance – with marketing planning.

19.1 Designing Control Systems Step by Step
19.2 Design Decisions for Strategic Control Systems
19.3 Design Decisions for Marketing Performance Measurement
19.4 A Tool for Periodic Assessment of Marketing Performance: The Marketing Audit

    Most managers and entrepreneurs are evaluated primarily on the results they deliver. Effective
     design of control systems, whether for strategic control or for marketing performance measurement,
     helps ensure the delivery of planned results. A step-by-step process for doing so is provided in this
    Control systems that deliver the right information – in a timely manner and in media, formats, and
     levels of aggregation that users need and can easily use – can be important elements for establishing
     competitive advantage. Four key questions that designers of such systems should address are
     discussed in this module.
    From time to time, it is useful to step back from day-to-day results and take a longer view of

©2008 Edinburgh Business School                                                                           23
         marketing performance for a company or an SBU. A marketing audit, as outlined in this module, is a
         useful tool for conducting such an assessment.

©2008 Edinburgh Business School                                                                          24

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Description: Are marketing decisions important? Does marketing create value for customers and shareholders? What constitutes effective marketing practice? Who does what in marketing and how -based understanding of these factors is critical to effective marketing decision making.  Marketing decisions – such as choices about what goods or services over time.