Principles of marketing: Chapter 3 - Strategic and Marketing Planning

TS Nguyễn Minh ðức

PRINCIPLES OF MARKETING
Chapter 3. Strategic and Marketing Planning

Dr. NGUYỄN MINH ðỨC
NONG LAM UNIVERSITY HCM CITY

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The Marketing Mix

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The Marketing Mix
The tools available to a business to gain the
reaction it is seeking from its target market in

relation to its marketing objectives
7Ps – Price, Product, Promotion, Place,
People, Process, Physical Environment
Traditional 4Ps extended to encompass
growth of service industry

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Price

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Price
Pricing Strategy
Importance of:
knowing the market

elasticity
keeping an eye
on rivals

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Product

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Product
Methods used to
improve/differentiate
the product and increase

sales or target sales more
effectively to gain
a competitive advantage
e.g.
Extension strategies
Specialised versions
New editions
Improvements – real or
otherwise!
Changed packaging
Technology, etc.

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Promotion

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Promotion

Strategies
to make the
consumer aware of
the existence of a
product
or service
NOT just
advertising

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Place

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Place
The means by which products and
services get from producer
to consumer and where they can be
accessed by the consumer
The more places to buy the product and the
easier it is made to buy it, the better for the
business (and the consumer?)

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People

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People
People represent the business
The image they present can be important
First contact often human – what is the lasting image
they provide to the customer?
Extent of training and knowledge
of the product/service concerned
Mission statement – how relevant?
Do staff represent the desired culture
of the business?

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Process

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Process
How do people consume services?
What processes do they have to go
through to acquire the services?
Where do they find the availability
of the service?
Contact
Reminders
Registration
Subscription
Form filling
Degree of technology
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The Marketing Mix
Blend of the mix depends upon:
Marketing objectives
Type of product
Target market
Market structure
Rivals’ behaviour
Global issues – culture/religion, etc.
Marketing position

Product portfolio
Product lifecycle
Boston Matrix

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The Boston Consulting Group Matrix (BCG Matrix)
(The Product Market Portfolio)

Introduction
Whilst there are companies that produce a single
product or service, most organizations are multiproduct or consider diversification into other
products.
Within a multi-divisional company, there may be
some products at Introduction, some at the Growth
stage, and others in Maturity and Decline stage.
Each of these may be in different markets, and
different countries.

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The BCG Matrix
This is a complex planning process, and The
Product Market Portfolio, developed by the Boston
Consulting Group (1972), is a technique developed
to try and handle it.
The Product Market Portfolio is a useful tool for
strategic planning, in that it allows the planners to
select the optimal strategy for individual units whilst
aiming for overall corporate objectives.
As a first step, the technique requires an
assessment of each product of an organization in
isolation from other products.

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The Boston Consulting Group (BCG)

Market Share

High
High

STARS

Low

CASH COWS

Market Growth

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Low
QUESTION
MARKS

DOGS

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The BCG Matrix

The Boston Consulting Group (BCG) developed

a matrix based on empirical research that
assesses a company’s products in terms of
Potential Cash Generation and Cash
Expenditure requirements.
Products or Strategic Business Units (SBUs)
are categorized in terms of:
A) Market Growth Rate and
B) Relative Market Share

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The BCG Matrix

The characteristics of the product depend
where it is located in the matrix.
Divisions located in:
-Quadrant I of the BCG Matrix are called
Question Marks or Problem Child

-Quadrant II are called Stars
-Quadrant III are called Cash Cows
-Quadrant IV are called Dogs

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The BCG Matrix
Quadrant I: Question Marks (Problem Child)
Divisions in Quadrant I, have a low relative market share
position, yet compete in a high growth industry.
Generation, these firms’ cash needs are high and their cash
generation is low.
I.e substantial net cash input is required to maintain or increase
market share.
These businesses are called Question Marks because the
organization must decide whether to strengthen them by:
-pursuing an Intensive Strategy (e.g Market Penetration, Market
Development, or Product Development) or
-to sell them.

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The BCG Matrix
Quadrant I: Question Marks (Problem Child)
I.e Do the products justify considerable capital expenditure in
the hope of increasing their market share, or
Should they be allowed to die quietly as they are squeezed out
of the expanding market by rival products?
Conclusion:
The planner is faced with 3 choices:
1. Do nothing – but cash continues to be absorbed
2. Invest to gain market share
3. Sell off

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The BCG Matrix
Quadrant II: Stars
A Star product has a high relative market share in a
high growth market.
This type of product may be in a later stage of its
product life cycle.
It represent the organization’s best long-run
opportunities for growth and profitability.

Divisions with a high relative market share and a
high industry growth rate should receive substantial
investment to maintain or strength their dominant
positions.

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The BCG Matrix
Quadrant II: Stars
A Star may be only cash neutral despite its strong
position, as large amounts of cash may need to be
spent to defend an organization’s position against
competitors, as competitors will be attracted to the
market by the high growth rates.
Failure to support a Star sufficiently strongly, may
lead to the product losing its leading market share
position, slipping eastwards in the matrix, and
becoming a Problem Child.

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The BCG Matrix
Quadrant II: Stars
A Star, however, represents the best future
prospects for an organization.
As the growth rate for a Star slows, it will drop
vertically in the matrix into the Cash Cow quadrant
and its cash characteristics will change.
Conclusion: Stars
In the short term, these require capital expenditure in
excess of the cash they generate, in order to
maintain their market position, but promise high
returns in the future.

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The BCG Matrix
Quadrant III: Cash Cows
This type of product has a high relative market share
in a low growth market and should be generating
substantial cash inflows.
I.e called Cash Cows because they generate cash in
excess of their needs, they are often “milked”.
The period of high growth in the market has ended
(I.e the product life cycle is in the maturity or decline
stage), and consequently the market is less
attractive to new entrants and existing competitors.

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The BCG Matrix

Quadrant III: Cash Cows
Cash Cow products tend to generate cash in
excess of what is needed to sustain their
market positions.
I.e In the short term, these require capital
expenditure in excess of the cash they
generate, in order to maintain their market
position, but promise high returns in the
future.

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The BCG Matrix
Quadrant IV:Dogs
The Dog product has a low relative market share in a
low growth market.
Such a product tends to have a negative cash flow,
which is likely to continue.
It is unlikely that a dog can wrest market share from
competitors.
In the view of the Boston Consulting Group (BCG), a
Dog product is essentially worthless and should be
liquidated.

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The BCG Matrix
Quadrant IV:Dogs
Although Dog will show only a modest net cash
outflow, or even a modest net cash inflow, they are
cash traps which tied up funds and provide a poor
return on investment.
However, they may have a useful role, either to
complete a product range or to keep competitors
out.
=>Each organization will determine the productmarket position for all of its products (I.e its
portfolio) and determine a strategy on the future
direction of the portfolio.

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The BCG Matrix
Strategic Management of the Market Portfolio:
The strategies for the overall portfolio are concerned with

balance. Strategies would be to have:
1) Cash Cows of sufficient size, and number that can support
other products in the portfolio.
2) Stars of sufficient size, and number which will provide
sufficient cash generation when current Cash Cows can no
longer do so.
3) Problem Children that have reasonable prospects of
becoming future Stars.
4. No Dogs, and if they are any, there would need to be good
reasons for retaining them.

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Product/Market Expansion Grid
Ansoff’s Product-Market Grwoth Vector
(The Product Market Scope Matrix (Ansoff’s Matrix)
Is a useful aid to delineate the range of strategic marketing
options particularly by companies with growth objective.
This deceptively simple framework is based on a matrix
comparised of “Markets” on the vertical axis and “Products” on
the horizontal axis each cell of the matrix so formed represents
a different strategic alternative for achieving growth.
The matrix and each alternative is shown in Figure on next
slide.

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Ansoff’s Product-Market Growth Vector
(The Product Market Scope Matrix/Ansoff’s Matrix)

PRODUCT
MARKET

Present

New

Present

1. Market Penetration

New

2. Market Development 4. Diversification

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3. Product Development

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Product/Market Expansion Grid
1. Market Penetration
This is a strategy by which a company seeks to increase the
sales of its present products in its existing markets.
I.e This strategy is based on expanding sales from existing
products in existing markets.
A Market Penetration strategy can only be achieved by
increasing the market share at the expense of competitors.
Clearly, such a strategy will required aggressive marketing
backed by, for example: heavy price discount, promotional
activity and so on.

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Product/Market Expansion Grid
1. Market Penetration
Kotler suggests that Market Penetration involves aggressive
marketing effort, and proposes 3 main ways a company can
penetrate a market:
i) The company can try to stimulate customers to increase
their current rate of usage. Strategies might include:
-Increasing unit of customer purchase.
-Speeding up the rate of product improvement or obsolescence
-Suggesting new uses for the product.
-Offering customers price incentives for increased use.

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Product/Market Expansion Grid
1. Market Penetration
ii) The company can increase its efforts to attract
non-users by using promotional incentives,
advertising, pricing up or down, etc.
iii) The company can increase its efforts to swing
competitors’ by brand differentiation, and stepping
up promotion, etc.

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Product/Market Expansion Grid
1. Market Penetration
Conclusion:
In Market Penetration, the firm seeks to do 4 things:
a) Maintain or to increase its share of current markets
with current products, e.g through competitive
pricing, advertising, sales promotion.
b) Secure dominance of growth markets.
c) Restructure a mature market by driving out
competitors.
d) Increase usage by existing customers (e.g loyalty
cards)

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Product/Market Expansion Grid

2. Market Development

Market Development strategy has the aim of
increasing sales by repositioning present
products to new markets.
This strategy is also referred to as “Market
Creation”.
This strategy is based on expansion by
entering new markets but with existing
product.

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Product/Market Expansion Grid
2. Market Development
There are many possible approaches. Here are some
examples:
a) New geographical areas and export markets through
regional, national or international expansion. (e.g a
radio station building a new transmitter to reach a

new audience).
b) New distribution channels to attract new customers
(e.g organic food sold in supermarkets not just
specialist shops).

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Product/Market Expansion Grid
2. Market Development
c) Different package sizes for food and other domestic
items so that both those who buy in bulk and those
who buy in small quantities are catered for.
d) Differential pricing policies to attract different types of
customer and create new market segments.
For example, travel companies have developed a
market for cheap long-stay winter breaks in warmer
countries for retired couples.

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Product/Market Expansion Grid
3. Product Development
This strategy has the aim of a company increasing
sales by developing products for its existing market.
This entails developing and launching new products
for sale in existing markets.
This may require the development of new
competences, such as products with additional
features, different packaging, different quality levels.

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Product/Market Expansion Grid
3. Product Development
At the other extreme, this strategy may be based on
entirely new product for the market.
In short, new product development is a generic term
that encompasses:
-the development of innovative new products and
-the modification and improvement of existing
products.

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Product/Market Expansion Grid
3. Product Development
Therefore, Product Development strategy of the
company could:
a) Develop new product features through attempting to
adapt, modify, magnify, minify, substitute, rearrange,
reverse or combine existing features.
b) Create different quality versions of the product.
c) Develop additional models and sizes.

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Product/Market Expansion Grid
3. Product Development
A company might show a preference for Product
Development strategy for the following reasons:

a) It holds a high relative share of the market, has a
strong brand presence and enjoys distinctive
competitive advantages in the market.
b) There is growth potential in the market.
c) The changing needs of its customers demand new
products. Continuous product innovation is often
the only way to prevent product obsolescence.

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Product/Market Expansion Grid
3. Product Development
d) It needs to react to technological developments.
e) The company is particularly strong in R & D.
f) The company has a strong organization structure
based on product divisions.
g) For offensive or defensive motives, for example
responding to competitive innovations in the market.

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Product/Market Expansion Grid

3. Product Development
Drawbacks of Product Development:
For example:
-the process of creating a broad product line
is expensive and potentially unprofitable,
and
-it carries considerable investment risk.

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Product/Market Expansion Grid

3. Product Development
Drawbacks of Product Development:
There are reasons why new product development is
becoming increasingly difficult to achieve:
a) In some industries there is a shortage of new
product ideas.
b) Even when a product is successful it might still
suffer a short life cycle with rivals quick to ‘copycat’
in the market but with their own innovations and
improvements.
c) There is a high change of product failure.

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Product/Market Expansion Grid
4. Diversification
Is a strategy that entails the deployment of a company’s
resources into new products and new markets.
I.e Diversification occurs when a company decides to make
new products for new markets
The company thus becomes involved in activities that differ
from those in which it is currently involved.
Diversification strategy means the company selectively
changes the product lines, customer targets and perhaps its
manufacturing and distribution arrangements.
This strategy is probably the highest risk of all the 4 strategic
options.

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Product/Market Expansion Grid
Conclusion:
It is advisable to pursue with the least risky, i.e
Market Penetration first.
If the potential of this strategy is insufficient to close
the gap, it is necessary to try Market Development,
I.e extending the product to new customers or
Product Development, I.e selling different products
to the existing market.

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Strategic and Marketing Planning
Introduction

Strategic Planning involves developing an overall company
strategy for long-run survival and growth.
A major concern in the strategic planning process is Marketing
Planning.
Marketing planning is the process of:
-Assessing opportunities and resources
-Determining objectives
-Defining strategies, and
-Establishing guidelines for implementation and control of the
marketing program.

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