Unit D: Marketing Strategy

Why explain how a marketing strategy supports an organization’s corporate strategy?

In this module you’ll learn about the important role that marketing strategy plays in supporting corporate strategy. When a company has a mission and a set of corporate-level objectives, the marketing strategy must support those goals, which is perhaps the most important lesson that the following companies—and many others like them—failed to learn:

10 Lessons I Learned From Burning Through $50,000 on a Hardware Project That Bombed

With Kolos, we did a lot of things right, but it was useless because we ignored the single most important aspect every startup should focus on first: the right product.

VoterTide Postmortem

We didn’t spend enough time talking with customers and were rolling out features that I thought were great, but we didn’t gather enough input from clients. We didn’t realize it until it was too late. It’s easy to get tricked into thinking your thing is cool. You have to pay attention to your customers and adapt to their needs.

My Startup’s Dead! 5 Things I Learned

What I didn’t understand was, you charge not for how much work it is for you. You charge how much the service is worth.

As these companies attest, a lot of things can go wrong in the startup world, and learning the hard way can mean going out of business. Take a look at the following list, which reveals the major reasons startups fail:

Many businesses go under because their products are inferior or don’t match a need, because of poor pricing strategy, poor marketing, or because of other issues related to product, price, promotion, or distribution. In essence, they fail to have a good plan that supports the goals of the company.

It is exceptionally difficult to get marketing strategy right. It is easy to get busy doing the work of the company, rather than planning the work that will ensure the company’s survival and success. Successful companies have a good corporate strategy that is supported by an effective marketing strategy. In this module you’ll begin to understand why that’s so important.

Learning Outcomes

• Evaluate how marketing strategies align with corporate strategies
• Explain the inputs and components of a marketing strategy
• Show how common analytic tools are used to inform the organization’s strategy
• Give examples of corporate strategies
• Explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy

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COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

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

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

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

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

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

Inputs That Inform Marketing Strategy

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

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

Centering on the Target Customer

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

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

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

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

Aligning Corporate and Marketing Strategies

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

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

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

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

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

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

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

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

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

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

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

Product Strategy

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

Pricing Strategy

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

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

Implementation

Even a well-designed marketing program that has been through a thorough evaluation of alternatives will fail if it’s poorly implemented. Implementation involves the tactics used to execute the strategy. It might include such things as determining where to promote the product, getting the product to the consumer, and setting a commission rate for the salespeople.

The implementation process emphasizes the timely completion of tasks. Often marketing organizations have a project- or program-planning function that tracks the tasks that will be completed, the individual or team that will complete the tasks, the budget spent, and the results achieved. If the organization manages each element of the plan carefully, it can intervene if progress is falling behind, rather than waiting until it affects the objectives or strategy.

Today, the process for implementing, measuring, and adjusting marketing tactics is much faster and more quantitative than it has ever been. Take the following comparison: a store decides on a promotional tactic to hang a billboard on the freeway near the exit ramp to the store. The billboard company can provide estimates on the number of cars that will pass the billboard, but how many people will actually look at the billboard? How many will be within the target market? How many will take the exit? How many will continue driving, but remember and come back to the store at a later date? It is almost impossible to answer any of these questions with certainty.

If, on the other hand, the same store launches a promotional campaign on Facebook, it will gain much more visibility into who sees the ad and whether the ad is effective.  It can track who clicks on the ad, who buys after clicking, how often they come back, and what they buy in the future.

Developments like this have improved marketing tactics immensely by making it easier to measure impact and make adjustments that can be used a day, hours, or even minutes later.

Budget

Marketing-mix components must be evaluated as part of an overall marketing strategy. Therefore, the organization must establish a marketing budget based on the marketing effort needed to influence consumers. The marketing budget represents a plan to allocate expenditures to each of the components of the marketing mix. For example, the firm must establish an advertising budget as part of the overall marketing budget and allocate expenditures to various types of advertising media—television, newspapers, and magazines, e.g. A sales promotion budget should also be determined, allocating money for coupons, product samples, and trade promotions. Similarly, budgets are required for personal selling, distribution, and product development.

How much should be spent to promote the sale of a company’s products? The answer hinges on the following: “What are we really trying to accomplish? What are our goals?” Subsequent discussion should focus on finding the best path around any obstacles, toward those identified goals. In other words, product promotion is just one aspect of the larger picture.

Too often, when marketers ask whether their budgets are adequate, the question is driven by how much their competitors are spending. Knowing how much others in the same industry are spending can be useful to a company whose performance lags behind the competition or to a company that suspects its expenditures are higher than they need to be. In general, though, knowing what others spend can lead to a counterproductive “keeping-up-with-the-Joneses” mentality. It also assumes that others know what they are doing.

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

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

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

Return on the Marketing Investment

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

Let’s look at an example of marketing ROI.

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

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

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

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

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

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

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

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

A situation analysis is often referred to by the acronym SWOT, which stands for strengths, weaknesses, opportunities, and threats.

Essentially, a SWOT analysis is an examination of the internal and external factors that impact the organization and its strategies. The internal factors are strengths and weaknesses; the external factors are opportunities and threats. A SWOT analysis gives an organization a clear picture of the “situation” in which it operates and helps it identify which strategies to pursue.

Internal Factors

Strengths and weaknesses include the resources and capabilities within the organization now. Since the company has the most control over internal factors, it can craft strategies and objectives to exploit strengths and address weaknesses. Examples of internal factors include the following:

• Financial resources
• Technical resources and capabilities
• Human resources
• Product lines

All of these are controlled by the organization. Competitive positioning can also be a strength or a weakness. While competitors’ strategies and tactics are external to the company, the company’s position relative to the competitors is something that it can control.

External Factors

External factors include opportunities and threats that are outside of the organization. These are factors that the company may be able influence—or at least anticipate—but not fully control. Examples of external factors include the following:

• Technology innovations and changes
• Competition
• Economic trends
• Government policies and legislation
• Legal judgments
• Social trends

While a company can control how it positions itself relative to the competition, it can’t control competitors’ actions or strategies.

Benefits of a SWOT Analysis

A SWOT analysis benefits organizations in two key ways:

The SWOT Analysis Encourages Realistic Planning

Imagine a growing company that is able to attract new customers more easily than the competition because it has a strong reputation and visible leader. These strengths should be considered and exploited in the strategy. Now imagine that the company also has a poor history of delivering on customer commitments. If this weakness is not addressed, it will not only make it difficult to retain customers but also likely damage the reputation of the company and its leader—which would eliminate key strengths. By conducting a situation analysis, the company is more likely to consider both of these factors in its planning.

The SWOT Analysis Improves Ability to Forecast Future Events

What’s the worst thing that could happen to your business? Most organizations can answer this question because they have assessed the environment in which they operate.  For instance, perhaps they know of pending legislation that might adversely affect them.  Or perhaps they recognize legal risks, or unique challenges from past economic cycles. By considering threats and “worst-case scenarios” during the planning process, organizations can take steps to avoid them, or minimize the impact if they do they occur.

SWOT Analysis Example

A situation analysis can benefit any organization. The example below shows the SWOT analysis for a fictional college.

Even this rudimentary analysis highlights some strategic issues, discussed below, which the college needs to consider.

Internal

The college has a number of strengths. Committed faculty and trusted leaders have collaborated to build academic programs that are showing high completion rates among students. The student advising program is also contributing to that success. Also, the college has excellent relationships with businesses in the community.

Among the weaknesses, the technology infrastructure is outdated. The college also employs a large number of part-time faculty members, but doesn’t provide them with adequate training or support. Nursing, one of the more expensive programs at the college, is not attracting enough students to keep it full. Also, the college has learned from some of its recent graduates that students are not receiving transfer credit at the local university for all of their courses taken at the college. The students wonder if the college faculty and advisers really understand their academic goals or the requirements of the four-year degree programs at the university.

By completing a SWOT analysis, the college can shape its strategies and objectives to align with both the internal resources and capabilities it has, as well as the external factors it faces.

External

The college leadership is feeling pulled by conflicting economic factors. The region has been through an economic downturn, which resulted in cuts to state funding. At the same time, an economic recovery has just begun. During the previous economic recovery, college enrollment dropped when students who were pursuing additional education returned to the workforce. How might the timing of those two funding issues work out? The college is also being affected by a local institution that is aggressively marketing to its students— especially students in the nursing program.

Still, there are opportunities. Students have expressed interest in more online courses and programs. That might also slow the local competitor, though it would also require the college to address its aging technology infrastructure. The college has identified a number of innovative programs that would enable students to earn degrees more quickly and at the same time expand its partnership and collaboration with local businesses.

Purpose

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

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

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

Market Share

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

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

Smartphone Market Share 2017–2019^[1]

Period	Android	iOS	Others
2017	85.1%	14.7%	0.2%
2018	85.1%	14.9%	0.0%
2019	86.7%	13.3%	0.0%

Market-Growth Potential

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

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

Applying the BCG Matrix

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

Dog

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

Cash Cow

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

Question Mark

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

Star

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

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

The last strategic framework that we will consider is the strategic opportunity matrix (sometimes called the Ansoff matrix, named after its creator, Igor Ansoff). Whereas the SWOT analysis can help organizations identify new market and new product opportunities (it’s the “O” in SWOT), the strategic opportunity matrix focuses on different growth strategies for markets and products. The matrix examines the following:

1. New vs. existing markets
2. New vs. existing products

As the diagram shows, each quadrant represents a different growth strategy:

1. Market penetration: focus on current products and current markets with the goal of increasing market share
2. Market development: use existing products to capture new markets
3. Product development: create new products that can be sold in existing markets
4. Diversification: create completely new opportunities by developing new products that will be introduced in new markets

Each strategy entails a different level of risk. Market penetration has the lowest risk since it emphasizes known markets and existing products. Diversification has the highest risk because it involves the development of new products and taking them to new markets. The company must consider whether it can achieve the desired returns without risking a move into new markets or introducing new products. Often, though, higher risk leads to a higher return.

Which strategy should the company pursue? The answer can be informed by a SWOT analysis, which takes into account the strengths and weakness of a company’s existing products, as well as the opportunities and threats in the competitive market.

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COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

What you’ll learn to do: give some examples of corporate strategies

It can be challenging to get a handle on an abstract concept like “corporate strategy” unless you can see what it means in the context of a real business. The goal of this section is to deepen your understanding of corporate strategies—particularly the ones described by the strategic growth matrix—by doing just that.

Under Armour

Market penetration: focus on current products and current markets in order to increase market share

Market penetration requires strong execution in pricing, promotion, and distribution in order to grow market share.

Under Armour is a good example of a company that has demonstrated successful market penetration. The company sells performance apparel, and in recent years it has surpassed Adidas to become the number-two athletic-wear provider in the U.S. The company has persistently focused on selling athletic footwear, clothing, and accessories, and was able to capture a leadership position in the market with that strategy.

Throughout 2014, Under Armour fueled its growth by focusing largely on promotion, distribution, and consistent product. As a result the company could claim major success—especially relative to major competitors Nike and Adidas—in the fight for its share of the fitness apparel market.

Like Nike, Under Armour’s has been very effective at developing inspiring advertisements that feature well-known male and female athletes. The following video ads are examples:

Poached Jobs

Market development: use existing products to capture new markets

Together, the hospitality industry, restaurants, and hotels account for 14 million jobs across the U.S., but the industry has a crushing 65 percent job-turnover rate. That means that, in a single year, there will be 8 million job openings in the industry. Most restaurant and hotel managers post jobs on Craigslist.com and have a terrible time sorting through hundreds of applicants who lack necessary qualifications or experience.

Poached Jobs is a young company that addresses this problem by providing an industry-based dedicated jobs platform that allows managers to find qualified applicants and manage the hiring process.

The company has chosen a market development strategy that’s based on geography. When Poached enters a new market, it wants to own that market and become the hiring solution for every restaurant and hotel in the region. The company used its initial markets, Seattle and Portland, to refine a market-entry strategy for its product and then took on larger markets such as San Francisco and Chicago. With each subsequent market the company incorporated new approaches that sped the adoption process. In late 2014, Poached entered the enormous New York City market. Most of 2015 was spent focusing on growth and success in that single market in order to build credibility that would enable it to move into other geographic regions.

The market development strategy allows a small company like Poached to stage its growth, perfect its existing product, and capture new markets one at a time.

Nissan Motors

Product development: create new products that can be sold in existing markets

Nissan was the first major automaker to commit to the mass production of an electric vehicle (EV). In 2008, it made good on its promise with the launch of the Nissan Leaf. Industry analysts immediately recognized the significance of this major move. The Economist had this to say:

Within the industry, the adjective most often used to describe Mr. Ghosn’s plan to make the Renault-Nissan alliance the first big manufacturer of zero-emission vehicles is “bold”—in other words, somewhere between very risky and certifiably mad.^[1]

In 2011, industry watchers reported the following:

When announced in 2008, Nissan’s EV [electric vehicle] program was lauded by environmentalists and derided by the auto industry in equal measure. Nearly three years on . . . it has precipitated a seismic shift towards EVs in the auto industry, with all the other automakers now following suit. But will Nissan’s heavy EV investment program deliver the environmental benefits and market share that it hopes for? It is too early to tell, but it is undeniably exciting.^[2]

Eight years after the Nissan Leaf was introduced, it’s fair to say that the company’s gamble paid off. Nissan saw two unmet needs in the market that it sought to address. It recognized that the zero-emissions Leaf would appeal to the environmentally minded consumer concerned about climate change. With oil prices on the rise, Nissan saw that their electric vehicle would also appeal to the cost-conscious consumer who wants to save on fuel expenses.

Today, the Nissan Leaf is the world’s top-selling, highway-legal, plug-in electric car, reaching global sales of nearly 200,000 vehicles in September 2015.^[3] The company’s product development strategy enabled it to move into a leadership position among EV manufacturers, while successfully fulfilling unmet needs in its existing markets.

Disney

Diversification: create new opportunities by creating new products that will be introduced in new markets

When you hear the word Disney, what comes to mind? Many people think of Disney movies such as Cinderella and Beauty and the Beast or theme parks like Disneyland and Disney World. Disney’s product portfolio also includes Marvel Comics, television network ABC, and cable sports channel ESPN. The company has pursued a diversification strategy, which means purchasing other companies that enable it to bring new products into new markets while remaining true to Disney’s origins.

Today, 54% of Disney’s revenues—but only 32% of its profits—come from movies and parks.^[4] Its most profitable growth comes from new products in new markets.

Strategic Business Unity	Percent of 2014 revenue	Percent of 2014 profits
Studio entertainmentFilms in theater, home and TV	18%	12%
Parks and resortsTheme parks, cruises	36%	20%
Media networksTV stations and advertising	51%	56%
Consumer productsLicensing characters for products	10%	10%
InteractiveGame platforms and games	3%	1%

An industry analyst explains:

This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. Unlike many entertainment companies, Disney does not solely rely on films, TV, or parks; it is well diversified and relies on its wide reach to create one of the most recognized and popular brands in the world.^[5]

Disney’s diversification identifies new products and markets that are close enough to its core business that the company can leverage its internal strengths to create business growth. Following the acquisition of ABC, Barry Diller, the former head of QVC Inc. and the man credited with creating the Fox network, said, “Taking nothing away from the senior management at the other networks, this will be the only one where the senior executive is trained true in the creative process.”^[6]

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COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

What you’ll learn to do: explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy

If you are getting the impression that an organization’s planning around marketing strategy, tactics, and objectives is very complex, you are perceptive. There are a lot of variables for companies to consider, align, and track, and occasionally an important part of the planning process gets overlooked: the customer.  In this last section, we’ll return to the customer and explain why customer relationships are such a crucial part of the marketing strategy and plan.

Let’s pause for a moment and put the customer into our discussion of market growth opportunities. We discussed the market for high-end skin-care products for older Americans. Imagine the woman who might buy a Proctor & Gamble antiwrinkle cream. She is standing in front of a shelf of products and chooses Proctor & Gamble’s cream. Who is she? Why is she there? What is her story? Our customer is hoping to stop the aging process and it is a personal, vulnerable moment. She doesn’t care about the SWOT analysis or the size of the market. She wants to find a product that “understands” what she needs and helps her.

In this section you’ll see how marketers address such issues and keep the customer at the center of the planning process in a very personal way.

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

• Describe how businesses use buyer personas to better understand the target customer
• Define customer relationship management

A situation analysis can reveal whether a company’s relationship with customers is a strength to be exploited or a weakness that needs to be addressed. In many cases it’s a bit of both. For instance, a company might have loyal customers in one demographic but fail to hold the attention of customers in another demographic.

The question, then, is how do companies evaluate the quality of their customer relationships, and what approaches do they use to develop and maintain strong customer relationships? We will explore the answers to these questions in greater depth throughout this course. For now, we’ll touch on an approach that companies use to incorporate their customers in strategic planning and some of the tools they use to connect with them.

Buyer Personas

The basis for a strong relationship is getting to know and understand someone well enough to form a connection. The same is true for company relationships with customers. The trouble is that companies rarely have a chance to personally connect with individual customers—much less with all of their target customers.

Marketers use something called “buyer personas” to get a more accurate picture of the customers they’re trying to connect with and also to help them think of customers as real people. Buyer personas are fictional, generalized representations of a company’s ideal, or typical, customer. They help the marketer understand current and potential customers better. As a marketer, knowing whom you’re trying to reach and attract makes it easier to tailor your content, messages, product development, and services to the specific needs, behaviors, and concerns of different groups. For example, instead of sending the same email message to all potential customers, marketers will create a unique message for different buyer personas that aligns better with their personal interests and values.

Typically, a buyer persona will have a name and a story, as in Figure 1, above. The story will include information about how the persona spends her time and details about her interests, her concerns or fears, and her goals. Often, the write-up will explain what the persona wants from the company and its products to help marketers to use the information consistently. Each of these details helps the marketer focus on developing relationships with real people, and that results in a more personalized marketing plan.^[1]

The strongest buyer personas are based on market research—both the information that is broadly available and information the company gathers through surveys, interviews, and observations of customer behavior.

Harley Davidson Customer Relationships

Once a company understands its buyer personas, how can it match those to real people who will buy its products or services? Today, companies use significant amounts of data and complex technology systems to create the right match in what it offers to individuals and groups of buyers.

The American Marketing Association defines customer relationship management in the following way:

A discipline in marketing combining database and computer technology with customer service and marketing communications. Customer relationship management seeks to create more meaningful one-on-one communications with the customer by applying customer data (demographic, industry, buying history, etc.) to every communications vehicle. At the simplest level, this would include personalizing e-mail or other communications with customer names. At a more complex level, customer relationship management enables a company to produce a consistent, personalized marketing communication whether the customer sees an ad, visits a Web site, or calls customer service.^[2]

Customer relationship management brings data and technology together with the marketing mix to increase the personal connection with the customer. Let’s look at an example. Harley Davidson has a famously strong brand. This video provides a glimpse into the relationship that customers have with the brand and shows how a new technology is assisting the company in expanding its connection with customers.

What are some elements of the Harley Davidson buyer persona?

How is technology being used for customer relationship management?

Key Terms

Buyer persona. Fictional, generalized representations of an ideal customer that help a marketer understand current and potential customers better.

Customer relationships management.  A discipline in marketing combining database and computer technology with customer service and marketing communications. Customer relationship management seeks to create more meaningful one-on-one communications with the customer by applying customer data (demographic, industry, buying history, etc.) to every communications vehicle.

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COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

• Customer-Relationship Strategies. Provided by: Lumen Learning. License: CC BY: Attribution
• Outcome: Customer Relationships. Provided by: Lumen Learning. License: CC BY: Attribution
• Video Introduction. Provided by: Lumen Learning. License: CC BY: Attribution

• Sample User Persona Drake Motors Ltd. Authored by: Daniel Eizans.  License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives
• I Like Facebook. Authored by: Charis Tsevis. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

• Harley Davidsonu2014Community, Brand, IBM. Authored by: Chris Sparshott.License: All Rights Reserved. License Terms: Standard YouTube license

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

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

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

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

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

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

What is Strategy?

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

Strategy answers the following four questions:

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

Definitions

A strategy is a directed course of action to achieve an intended set of goals.^[3]  A tactic is the means by which a strategy is carried out. ^[4]

Background

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

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

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

Differentiating Strategy and Tactics

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

Strategy Identifies Where We Will Compete

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

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

Strategy Describes the Unique Value for Customers

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

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

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

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

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

Strategy Determines How the Company Will Sustain Unique Value^[5]

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

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

Strategy and Tactics in Practice

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

Strategy and Long-Term Planning: Southwest Airlines

Strategy

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

Tactics

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

According to CEO Gary Kelly, Southwest does “Six percent or seven percent of our boardings by Business Select, [and] probably more than double that by Early Bird.” The combined direct revenues from the programs were nearly $295 million in 2013.^[6]

Strategy and Focus: Walgreens

Strategy

In the book Good to Great, author Jim Collins identifies Walgreens as a company that demonstrates focus in its strategy. After inventing the malted milkshake at the soda counter in its pharmacies, the CEO made a strategic decision to divest all food operations over a five-year period and focus on being the most convenient drugstore. Today there are more than 8,200 Walgreens stores across all fifty states.^[7]

Tactics

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

Strategy and Aligned Activities: Zappos

Strategy

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

1. One day, 30 percent of all retail transactions in the U.S. will be online
2. People will buy from the company with the best service and the best selection
3. Zappos.com will be that online store^[8]

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

Tactics

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

A Mission Statement Explains Why an Organization Exists

The mission statement guides the corporate strategy, which, in turn, guides the marketing strategy and planning. All marketing activities should relate to and support the company’s mission.

In the marketing planning process diagram at the right, the planning begins with the mission statement. The mission statement doesn’t change. The strategy and tactics might shift—and, indeed, after an implementation and evaluation process, they often do—but the company’s mission remains fixed. For instance, if a company discovered that its product design were creating new opportunities in an adjacent market, that might spur development of a new corporate-level strategy to expand into the new market, but it wouldn’t change the fundamental mission of the company.

Google’s Mission Statement

Google’s mission is to organize the world’s information and make it universally accessible and useful.^[9]

The mission statement is clear and direct, and it gives the company enormous opportunity to make an impact.

How does Google’s mission statement drive the company’s strategies? Let’s look at it from several different angles.

Google’s Target Market

Google’s target market is the world. For most companies that would seem overly ambitious, right? In effect, the company has chosen not to target and not to segment. Why does such a decision make sense for Google? The company’s mission demands a comprehensive, global focus, and therefore so does its targeting.

Google’s Strategy

Google has defined a set of strategies that support its mission, one of which is the product strategy. There are two core components of Google’s product strategy: its search engine and the advertising platform that is fed by the search engine. Both of these products are not only designed to serve the world but they become more and more powerful as they gain users. If Google were to narrow its focus to a segment of Internet users, it would hamper the company’s ability to achieve its mission—and, at the same time, make Google less successful and profitable.

Google’s Tactics

Google uses a range of tactics to execute its strategy. One tactic is to create promotional videos, such as the one below, that convey the power of Google’s mission and align the mission with the specific benefits of the Google search engine.

Through the course of the ad, Google suggests that its search engine connects us to

• Hope more than fear
• Science more than fiction
• Things we love
• Greatness
• Hope
• Memories
• Inspiration

In what ways does this promotional tactic align with the company mission and support the product strategy?

From this example you can begin to see that

• The mission statement functions as an important guide for all aspects of company strategy.
• When the strategy and tactics support the mission statement, they are more effective because they reinforce one another.

The Need for Objectives

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

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

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

Creating Effective Objectives

In general, effective objectives meet the following criteria:

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

Below are some examples of good objectives:

• Implement a new customer loyalty plan in 20XX
• Increase market share for the product by 2 percent during 20XX
• Execute marketing campaigns that result in 2,000 qualified leads for a new product by June 1

Using Objectives to Align Company Activities

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

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

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

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COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

Student Instructions: Complete the following information about the organization and products and/or services you will focus on as you develop a complete marketing plan throughout the course. You may need to do research to get answers to the questions below. Be sure the organization and offering you select will 1) remain interesting to you for the duration of the course, and 2) have sufficient information available for you to conduct research and make informed recommendations in your marketing plan.

Company Profile

• Company Name:
• Industry:
• Major products and/or services (names, types):
• Products and/or services your marketing plan will focus on:
• Target customers:
• Distribution channel(s):
• Headquarters (city, state, country):
• Year founded:
• Number of employees:
• Annual revenue (estimated)
• Key competitors:
• Link to Web site:
• Link to Yahoo! Finance information page (for public companies):

Market Segmentation and Targeting

• What problem does your product or service solve?
• Describe the total market for your solution: Who are potential customers?
• What are the key segments within this market?
• Identify and briefly describe 1–3 segments that this company serves.
• Which segment does this marketing plan focus on, and why? Why do you believe this segment will offer growth and profit opportunities?

Situation and Company Analysis

Economic Environment

Discuss factors that affect your consumers’ purchasing power and spending patterns. What is the economic environment that you are operating in? Is it a growth, recovery or recession? Will it be easy to find staff? What is the current interest rate i.e. is it increasing or decreasing? What is consumer confidence like?

Technical Environment

The technological environment changes rapidly. You need to make sure that you are aware of trends in your industry and other industries could affect your business. New technologies create new markets and can influence you consumers and competitors.  Industry environment What are the trends in your industry? Are there new entrants in the market? Has a substitute product been introduced? Are there changes in industry practices or new benchmarks to use?

Competitive Environment

How many competitors do you have? Who are the key competitors? What are the key selling points or competitive advantages of each one. What is your advantage over competitors? Is the market large enough to support you and competitors?

Political Environment

Consider the political environment for the areas that your business will trade and operate in. Is there a stable political system? Are there any licenses and regulations that you should be aware of? Do you need to win support to be able to operate?

SWOT Analysis

Instruction: Complete the table below with descriptive responses and explanation as you answer the questions below.

Strengths

• Does the organization have a strong brand presence?
• What resources are available for marketing activities?
• Does the the company have unique products or services that satisfy the needs of their target market?
• What makes the company’s products or services unique?
• What value is brought to customers?

Weaknesses

• Does the organization have a weak brand presence?
• Are resources insufficient for marketing activities?
• Does the company lack distinctive products or services?
• Do current products or services fail to satisfy the needs of customers?
• Do current products or services fail to bring value to customers?

Opportunities

• What is the unique opportunity that the company is trying to take advantage of?
• Does the target market have any unfulfilled needs that the company can satisfy?
• Are there emerging target markets with needs that the company can satisfy?
• Are there ways the company and its competitors can benefit by working together?
• Are there opportunities for collaborating with customers to build brand presence?
• Describe and analyze if market demand is increasing?
• Are there changes in the government regulations that will affect the company?
• Describe any emerging global issues that will affect the company?

Threats

• What are the tactics that competitors use to pursue customers?
• What are the strengths of the company’s biggest and or emerging competitors?
• In what ways are the competitors’ products or services superior to the company’s offerings?
• How are competitors likely to respond to any changes in the way the company markets?
• Is the company behind in adopting new technologies for marketing?
• Describe any ways in which international competitors are taking away market share?
• What do customers dislike about the company?
• Describe and analyze if market demand is decreasing?

Mission, Objectives, and Goals

State the mission or business purpose: what the organization wants to achieve, in market-oriented terms. (Example: Disney’s mission could be, “We create happiness by providing the finest in entertainment for people of all ages.)

List 1–3 objectives that move the organization a step closer to achieving the mission. (Example: A Disney objective could be, “To be the most popular theme park for international visitors.”)

Convert objectives into specific marketing goals that are easy to measure and evaluate. (Example: Our goal is to increase market share of international theme park visitors by 10% in the next two years.”)

Sample Grading Rubric

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

Since Southwest Airlines is a familiar example by now, let’s do a more complete review of its strategy to help with your assignments in this course.

In this module we have focused on the following aspects of marketing planning:

• Evaluate marketing strategies for alignment with the organization’s corporate strategies
• Show how common analytic tools are used to inform the organization’s strategy
• Explain inputs and components of a marketing strategy
• Give examples of corporate strategies
• Explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy

The summary below shows one analysis of the planning process for Southwest Airlines:

Corporate Strategy

Southwest Airlines’ strategy is driven by its mission.

The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.footnote]https://www.southwest.com/html/about-southwest/[/footnote]

Note: Southwest Airlines’ mission is not limited to a focus on leisure travel or even air travel. Rather, the company is driven by a mission to provide the best customer service across all sectors.

A Fortune magazine article describes Southwest’s unique profile in the airline industry:

Starting with just four planes flying to three Texas cities on June 18, 1971, [co-founder Herb] Kelleher built a maverick operation that prided itself on charting a different route from other airlines. It wooed passengers with ultra-friendly onboard service, squeezed more flights a day from every plane, and made money not by raising fares but by lowering them—and hence filling seats with folks who could never before afford to fly. Along the way Southwest evolved from an upstart to a colossus that last year carried 134 million passengers in the U.S., more than any other airline and some 20% of the total. In an industry in which every other major company has gone through bankruptcy, Southwest has never gotten close to Chapter 11 and has made money for 42 straight years. ^[1]

Despite this success, Southwest airlines found its revenue per customer to be low, so it launched a strategy to attract higher-revenue business customers.

Objective: raise the portion of business customers on Southwest from 35% to 40% during the five-year period from 2014 to 2019.

Note: In a competitive industry such as the airlines industry, it is remarkably difficult to gain 1% of market share. Often organizations track .1% and .01% changes.

Analysis Tools

In order to achieve the company objective Southwest needs to bring its strengths to new customers in a way that addresses both its own weaknesses and those of competitors (which create opportunities).

SWOT Analysis

Southwest’s SWOT analysis, below, identifies a number of opportunities and challenges:

Strengths

• Exceptional customer loyalty among price-conscious leisure travelers.
• Strong customer service culture throughout organization.
• Dominance among regional airports and short trip segments.

Weaknesses

• Lower revenue per passenger than competitors.
• Limited offerings on lucrative “long-haul” flight routes.
• Low awareness among business travelers who exhibit strong loyalties to airlines with frequent traveler programs.
• Product offering emphasizes convenience at the expense of fringe benefits.

Opportunities

• Low customer satisfaction ratings of airlines that serve business travelers. ^[2]
• Increasing monitoring of corporate travel costs by boards and shareholders as an example of excessive perks.
• Increasing costs (threat) have less impact per customer if Southwest can attract new segments of customers that competitors are already serving.

Threats

• Competitor dominance of business hubs such as Atlanta, Minneapolis, and Chicago.
• Increasing fuel costs and labor costs impacting the industry.
• Risk of price wars as existing providers drop price to hold on to lucrative business travelers.

Strategic Opportunities Matrix

With its objective to raise its share of business customers, Southwest decided to enter a new market. Is this a market development or a diversification strategy? Is the business traveler buying a different product, or benefiting from different promotion and pricing? In this case, Southwest made the choice to pursue a market development strategy that emphasized pricing, promotion, and distribution rather than making significant changes in its product (by refitting planes to add first-class seats or creating new flights for business travelers, e.g.).

Southwest’s company mission likely played a guiding role in arriving at this decision. The airline’s focus on providing great customer service means that it’s less interested in bringing a new product to market than in taking “amazing customer service” to a new market—i.e., the business traveler.

4 Growth Strategies: The Strategic Opportunities Matrix

The following is a list of the four growth strategies in the Strategic Opportunities Matrix:

• Market Penetration Strategy: New market and current product
• Product Development Strategy: New market and new product
• Market Development Strategy: Current market and current product
• Diversification Strategy: Current market and new product

Components of the Marketing Strategy

In order to appeal to corporate customers, Southwest must focus all elements of the marketing mix on a new target customer that is less cost-conscious and less patient with the inconveniences of travel.

Marketing Mix

Southwest did not implement a separate strategy for each of the four Ps. Instead, it brought the elements of the marketing mix together into major initiatives that touch all aspects of the marketing mix. We are going to explore two of those marketing strategies here.

The Business Select Offering

Southwest’s Business Select provides an additional layer of service that emphasizes the convenience and comfort that business travelers require, at a higher price. A traveler from Los Angeles to Norfolk, Virginia, can select a budget fare of $351 or a Business Select fare of $583. For the higher price the customer gets early boarding, access to faster check-in and security clearance, a free alcoholic beverage, and extra frequent-flyer points. The price is $232 higher for travelers who are willing to pay for these conveniences. For a lower price, travelers can buy only EarlyBird check-in, which moves them to the front of the boarding line but does not include the additional features.

The marketing mix includes a new price point, and a series of new services that are packaged in one new offering. It is worth noting that competitor airlines provide these benefits to their frequent flyers through free first-class upgrades for unfilled seats in first class. On those airlines, first-class passengers also get a higher class of customer service. Southwest has found a way to introduce a higher price and provide a comparable set of benefits to business travelers, while leveraging the customer service it provides to all travelers.

SWABiz

For leisure travelers, Southwest only sells tickets through its own distribution channel—its phone line and Web site. Many other airlines also sell through distributors such as Expedia, Hotwire, and CheapTrips, which all require additional discounting to cover their mark-up on the ticket price. Instead, Southwest has kept its fares lower and drawn customers to its own Web site to make purchases.

In the SWOT analysis, we see that Southwest does not have good awareness among business customers. How can it draw business customers to its Web site or get to the places where business travelers will book? SWABiz was the solution. SWABiz provides a free travel-booking and management tool for companies that do the majority of their travel on Southwest. It provides companies that often book travel for their employees (or direct employees to a single place to book) with a tool to manage flights, hotels, and car rentals. SWABiz also enables participating companies to monitor spending and enforce corporate travel policies.

Southwest also expanded its distribution network for corporate travelers. The company sells flights through Concur, a travel-booking and management system used by many corporate travel organizations that want to book across many airlines.

SWABiz is a new distribution strategy that creates an opportunity to promote its business offering to corporate travel offices and managers.

Through these marketing strategies Southwest is building a network of business customers who have a relationship with the airline. Southwest’s frequent-flyer program creates an opportunity to track customers’ purchases and preferences and to bring this understanding into future strategies and plans.

Evaluation

Are these strategies successful? Southwest Airlines is actively monitoring its progress in attracting business travelers and adjusting its strategy accordingly. As with most aggressive strategies that span multiple years, the results are mixed, and there is room for new approaches.

Southwest’s chief operating officer, Robert Jordan, sees the potential: “The combination of these factors has led to “double-digit growth” year-after-year in managed corporate bookings.” He adds, “[O]ur [Southwest’s] corporate business is growing faster than our base business.”^[3]

CEO Gary Kelly acknowledges that there is still work to do, noting that it is not yet adding enough business travelers to its fare mix. From the first half of 2012 to the same period in 2015, Southwest’s average passenger fare increased just 6%, to $158, even though it was adding longer flights to lure business customers.” ^[4]

Southwest has begun a strategy of adding more long-haul flights to its schedule, entering new airports, and competing head-to-head with its competitors in America’s busiest airports. The work of defining, implementing, measuring, and adjusting strategies is never done.

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