A marketing strategy is a process that can allow an organisation to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.
A marketing strategy should be centred around the key concept that customer satisfaction is the main goal.
A marketing strategy is most effective when it is an integral component of corporate strategy, defining how the organisation will successfully engage customers, prospects, and competitors in the market arena, corporate strategies, corporate missions, and corporate goals.
As the customer constitutes the source of a company’s revenue, marketing strategy is closely linked with sales.
A key component of marketing strategy is often to keep marketing in line with a company’s overarching mission statement.
1. Meaning of Marketing Strategy 2. Elements of Marketing Strategy 3. Essentials 4. Objectives 5. Factors 6. Types
7. Marketing Strategy Situation 8. Strategies for Services and Rural Marketing. 9. Marketing Strategies in Banks 10. Formulation 11. Analysis.
- Meaning of Marketing Strategy
- Elements of Marketing Strategy
- Essentials of Marketing Strategy
- Objectives of Marketing Strategy
- Factors Affecting the Marketing Strategy
- Types of Marketing Strategy
- Marketing Strategy Situation
- Marketing Strategies for Services and Rural Marketing
- Marketing Strategies in Banks
- Formulation of Marketing Strategy
- Analysis of Marketing Strategy
Marketing Strategy: Meaning, Elements, Essentials, Objectives, Factors, Types, Strategies, Formulation and Analysis
Marketing Strategy – Meaning
A marketing strategy is a process that can allow an organisation to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centred around the key concept that customer satisfaction is the main goal.
A marketing strategy is most effective when it is an integral component of corporate strategy, defining how the organisation will successfully engage customers, prospects, and competitors in the market arena, corporate strategies, corporate missions, and corporate goals. As the customer constitutes the source of a company’s revenue, marketing strategy is closely linked with sales. A key component of marketing strategy is often to keep marketing in line with a company’s overarching mission statement.
Sectorial Tactics and Actions:
A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example- “Use a low-cost product to attract consumers. Once our organisation, via our low-cost product, has established a relationship with consumers, our organisation will sell additional, higher- margin products and services that enhance the consumer’s interaction with the low-cost product or service.”
A strategy consists of a well thought out series of tactics to make a marketing plan more effective. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results.
A marketing strategy often integrates an organisation’s marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy, which might include advertising, channel marketing, internet marketing, promotion and public relations can be orchestrated.
Many companies cascade a strategy throughout an organisation, by creating strategy tactics that then become strategy goals for the next level or group. Each one group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.
Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned.
Peter Drucker says that the aim of any business is to create customers.
Developing a marketing strategy is vital for any business. Without one, the efforts to attract customers are likely to be haphazard and inefficient. The focus of strategy should be to make sure that the products and services meet customer needs better than competitors and develop long-term and profitable relationships with those customers. It may also help to identify whole new markets that one can successfully target.
Central to any successful marketing strategy is an understanding of customers and their needs. The ability to constantly satisfy customers’ needs better than the competitors. In order to achieve this, one needs to create a flexible strategy that can respond to changes in customer perceptions and demand.
For example, the CEO of LG Electronics travels three days a week to meet customers even at remote locations, just to understand the local variations in the Indian market, such that the marketing communication and other approaches to them could be fashioned well.
Once a strategy is created and implemented, it is equally important to monitor its effectiveness and to make any adjustments required to maintain its success.
Marketing Strategy – Key Elements
One of the key elements of a successful marketing strategy is the acknowledgement that your existing and potential customers will fall into particular groups or segments, characterized by their “needs”. Identifying these groups and their needs through market research, and then addressing them more successfully than your competitors, should be the focus of your strategy.
You can then create a marketing strategy that makes the most of your strengths and matches them to the needs of the customers you want to target. For example, if a particular group of customers is looking for quality first and foremost, then any marketing activity aimed at them should draw attention to the high quality service you can provide.
Once this has been completed, decide on the best marketing activity that will ensure your target market know about the products or services you offer, and why they meet their needs.
This could be achieved through various forms of advertising, exhibitions, public relations initiatives, internet activity and by creating an effective “point of sale” strategy if you rely on others to actually sell your products. Limit your activities to those methods you think, will work best, avoiding spreading your budget too thinly.
A key element often overlooked is that of monitoring and evaluating how effective your strategy has been. This control element not only helps you to see how the strategy is performing in practice, it can also help inform your future marketing strategy. A simple device is to ask each new customer how they heard about your business.
Marketing Strategy – Essentials
Business owners with a product or service to sell must have a plan on the methods they will use to achieve that end. In doing so, developing a plan to market that good or service is an essential goal. There are specific steps that must be followed in order to develop a marketing strategy, and although they take time, they must be implemented for the future success of your business.
1. Define the products or services that your company offers, as well as their intentions. Determine how they are beneficial to your customer base. Once you get a full understanding of what you are trying to sell, you can better know how to market it to the outside world.
2. Establish a marketing plan of action for positioning your product or service in the marketplace. Ask yourself where it fits in, and even if there are other similar products available within your market range, make sure yours has its own niche. Establish a marketing plan of action for positioning your product or service in the marketplace.
3. Develop a market study so as to determine the type of customer you are targeting with your product or service. Learn who they are, their age group, gender, and their buying habits. Determine what concerns they are facing and how your product or service will resolve those issues. A market study also provides valuable information on market growth and trends.
4. Study your competition to determine the various options available for your target customers to choose from. Compare and contrast their product or service with yours and evaluate their positive and negative points. Doing so will guide you more effectively as you establish your own advertising strategy.
5. Find out what sets your product or service apart from the competition. Ask yourself what is unique about what you are offering and then put together a sales proposition that you can implement.
6. Decide on a marketing budget and make sure that your plan fits into it. A budget can be based on the type of marketing you are planning, or you can plan the amount of your budget and ensure that your plan fits in to that parameter.
7. Determine the various marketing methods that you can implement to best promote your particular product or service. There are many marketing and options available, such as direct mail advertising, Internet marketing, and promotional events. The methods and extent of your marketing plan would obviously be dependent on your budget.
8. Be prepared to modify your marketing strategy on a regular basis. Markets and customer tastes change all the time, so be ready to evaluate your approach and change it to meet those customer climate changes. If you neglect to modify according to the economy, and you choose to remain stagnant in your approach, your product will most likely be left behind the competition.
Marketing Strategy – Top 3 Objectives
Once the situation analysis is complete, marketers focus on defining their marketing strategy. A strategy is the set of actions taken to accomplish organizational objectives. A successful marketing strategy can lead to higher profits, stronger brands, larger market share, and a number of other desired outcomes for stakeholders of the organization.
The marketing strategy component of the marketing plan lists the actions the firm must take to accomplish the marketing objectives it established in its mission statement and strategic planning process. The effectiveness of the marketing strategy depends in part on the clarity of the short- and medium-term objectives the firm has defined.
Quality marketing objectives have three basic characteristics:
Objectives are not of any value if they are not specific. If Google identified an objective to increase ad revenues, how would it formulate a strategy around that? Would it be happy with $1 of revenue growth over the next 10 years? Would it develop its marketing strategy accordingly? Vague marketing objectives lead to a lack of focus and accountability.
Objectives must be measurable so that marketers know if their strategies are working. A common phrase said in marketing offices around the globe is, “If it can’t be measured, it can’t be managed.”
Firms want to see a specific return on their marketing investment. Marketers aren’t often fired for having a bad idea (we all have bad ideas), but they can face negative consequences if they keep making the same mistake over and over again because, due to a lack of measurable metrics, they don’t realize their strategy isn’t working.
Objectives need to be realistic so that marketers do not demotivate their organizations with unattainable goals. Imagine if your professor said that, to get an A in this marketing course, you had to score 100 percent. You might be demotivated to try your best and decide that a B in marketing is good enough. Objectives also should be realistic to show those reading the marketing plan that it is a serious, thoughtful document.
A professional sports organization that sets an objective to increase ticket revenue by 300 percent, even though its team continues to lose to competitors, could lead someone reading the document to doubt the reliability of all the other parts of the marketing plan, too.
Based on these criteria, McDonald’s marketers might set an objective to sell 5 percent more premium coffee or 3 percent more chicken nuggets in existing U.S. stores. Either of these hypothetical objectives would be specific, measurable, and realistic.
Before McDonald’s can establish strategies to meet either objective, it must clearly identify which customers are most likely to buy premium coffee or chicken nuggets and decide how best to position each product in the minds of those customers.
Some Other Objectives of Marketing Strategies:
A marketing strategy is a broad directional statement indicating how the marketing objectives will be achieved. It provides the method for accomplishing the objectives. While marketing objectives are specific, quantifiable, and measurable, marketing strategies are descriptive.
Within your plan, the marketing strategies represent a first overview of various marketing elements and how they will be utilised to achieve the marketing objectives.
The most commonly addressed strategy issues are as follows, though you should consider what is most appropriate for your particular situation:
1. Building the market versus stealing market share.
2. National, regional, or local markets.
6. Target market.
11. Distribution/penetration or coverage.
12. Personal selling/service/operations.
14. Advertising message.
15. Advertising media.
16. Internet media.
18. Public relations.
19. Marketing research and testing (R&T).
In some cases, the marketing strategies section of your plan may be the only place where some of these issues are discussed directly, such as building a market or spending. In such cases, the strategies you develop here will provide guideposts for a variety of tactical decisions later in the plan. For example, you may establish a market building strategy with the introduction of a new product. Such a strategy provides the context for advertising and promotion plans, among others, as you will need to build a high level of awareness and generate trial through a high level of activity for your new product.
You will notice that many of the marketing elements addressed in the marketing strategies are reconsidered from a specific tactical perspective later in the plan. The marketing strategies developed here serve as a reference for the tactical tools that follow. They provide the general strategic direction to accomplish the marketing objectives, but they do not include such specifics as “use television,” for example, which belongs in the tactical media segment of the marketing plan.
Marketing Strategy – 4 Major Factors Affecting Marketing Strategy
The factors affecting the marketing strategy are as follows:
Factor # 1. Diversity in Productivity Levels of Various Marketing Inputs:
The marketers should recognise that not all inputs have equal productivity; some inputs need a minimum level of use before they begin to have measurable effects. An advertising message must often be repeated several times before consumers become aware of it.
The lower cost per consumer contact of radio, magazines and billboards often make it possible with a limited budget to present a much stronger impact on consumers.
Factor # 2. Elasticity of Marketing Inputs:
Different marketing inputs are elastic and they influence the demand of the product. The marketing manager must recognise that effect on the product. For example, a manufacturer determines different prices for different customers or for different areas only on the basis of varying elasticity of demand. More often, the prices for wholesalers retailers and consumers are different in almost all the markets.
Factor # 3. Substitutability:
The selection of marketing inputs is also affected by their degree of substitutability. It is important to know the extent to which one type of input can be substituted for another type in as much as the nature of marketing objectives such as – that of returning a certain level of profit presents a decision-maker from making unlimited use of-all inputs.
A marketing strategist must ask himself. Consideration of such substitutability helps in determining which inputs to include and which to emphasise in the overall marketing strategy.
Factor # 4. Competitors’ Counter-Moves:
This differs with various marketing inputs. Most competitors can easily and quickly match or otherwise adjust to price changes. However, they often find it difficult to follow or to retaliate against product innovations. This explains why many marketer seek to gain differential advantage over their competitors by varying product characteristics as altering promotion than prices.
Factor # 5. Synergistic Potential:
Marketing inputs are capable of being, mutually reinforcing or having synergistic potential and marketer should consider this working towards an optimum overall marketing strategy.
Displays and advertisements can be made mutually reinforcing since the display repeats the advertising efforts message at a time when the consumer is in an outlet where the product is one sale. Product inputs and marketing channel inputs can be mutually reinforcing, depending upon the effectiveness with which they are integrated.
The marketing manager must consider all the above factors in mind while formulating the overall marketing strategy. The strategy must also be elastic so as to incorporate all the strategic factors of the competitors as and when required.
It needs careful integration of all dimensions of the marketing efforts. Marketers should determine whether or not the combination of inputs going into the overall marketing strategy is optional.
It is an approach that involves evaluating the possible inputs to the overall marketing strategy in terms of the likely output. Marketer should make selections from the various inputs in such a way the combination is the best, he can device for achieving the desired outputs.
Some Other Factors Affecting Overall Marketing Strategy:
1. Competitor’s Counter Moves:
This differs with various marketing inputs. Most competitors can easily and quickly match or otherwise adjust to price changes. However, they often find it difficult to follow or to retaliate against product innovations. This explains why many marketers seek to gain differential advantage over their competitors by varying product characteristics as altering promotion and their prices.
2. Synergistic Potential:
Marketing inputs are capable of being mutually reinforcing or having synergistic potential and marketer should consider this working towards an overall marketing strategy.
Displays and advertisements can be made mutually reinforcing since the display repeats the advertising efforts message at a time where the consumer is in an outlet where the product is on sale.
Product inputs and marketing channel inputs can be mutually reinforcing, depending upon the effectiveness with which they are integrated.
The selection of marketing inputs is also affected by their degree of substitutability. It is important to know the extent to which one type of input can be substituted for another type as much as the nature of marketing objectives such as that of returning a certain level of profit presents a decision- maker from making ultimate use of all inputs.
A marketing strategist must ask himself how consideration of such substitutability helps in determining which inputs to include and which to emphasize in the overall marketing strategy.
4. Diversity in Productivity Levels of Various Marketing Inputs:
The marketers should recognize that not all inputs have equal productivity; some inputs need a minimum level of use before they begin to have measurable effects. An advertising message must often be repeated several times before consumers become aware of it. The lower cost per consumer contact of radio, magazines and billboards often make it possible with a limited budget to present a much stronger impact on consumers.
5. Elasticity of Marketing Inputs:
Different marketing inputs are elastic and they influence the demand of the product. The marketing manager must recognize that effect on the product. For example a manufacturer determines different prices for different customers or for different areas only on the basis of varying elasticity of demand. More often, the prices for, whole sellers, retailers and consumers are different in almost all the markets.
The marketing manager must consider all the above factors in mind while formulating the overall marketing strategy. The strategy must also be elastic so as to incorporate all the strategic factors of the competitors as and when required.
Marketing Strategy – 5 Important Types
Marketing strategies may differ depending on the unique situation of the individual business. However there are a number of ways of categorising some generic strategies.
A brief description of the most common categorising schemes is presented below:
Type # 1. Strategies Based on Market Dominance:
In this scheme, firms are classified based on their market share or dominance of an industry.
Typically there are three types of market dominance strategies:
Type # 2. Porter Generic Strategies:
Strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage.
(a) Product differentiation
(b) Market segmentation
Type # 3. Innovation Strategies:
This deals with the firm’s rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation.
There are three types:
(b) Close followers
(c) Late followers
Type # 4. Growth Strategies:
In this scheme we ask the question, “How should the firm grow?”
There are a number of different ways of answering that question, but the most common gives four answers:
(a) Horizontal integration
(b) Vertical integration
A more detailed scheme uses the categories:
Type # 5. Marketing Warfare Strategies:
This scheme draws parallels between marketing strategies and military strategies.
Marketing Strategy – Illustrative Marketing Strategy Situations
Illustrative Marketing Strategy Situations:
Various marketing strategy situations occur due to the influence of the marketing situation and the product life cycle, the competitive situation, environmental forces and the organizational situation. The nature scope and interaction of these factors can generate different strategy situations.
Establishing a set of situational categories will facilitate the identification and analysis of strategic situations. Time situational categories can be determined on the basis of an industry’s situation and a firm’s competitive position.
1. Market development
2. Market domination
3. Differential advantage
4. Market selectivity
5. No advantage
The categories are as follow:
Such strategic factors as market attractiveness, PLC and environmental forces are not specifically included in these categories. These strategic factors must be analyzed and their effects evaluated to obtain a complete situational analysis. Two market development situations that are alike in other respects may very substantially due to the effects of additional strategic forces.
1. Market Development:
A market development situation may occur in a new expanding or fragmented industry. The firm in this situation has a strong competitive position.
The market characteristics of a market development situation are typically favourable. The nature and intensity of competition depend on the particular industry. In a less competitive environment, a leading firm can influence the nature and direction of market development.
Segmentation opportunities depend on the characteristics of the market and the extent of differentiation in buyer’s needs. The environmental factors affecting the market development situation are typically very situation specific. The efforts of environmental forces may therefore be favorable or unfavorable, depending on the circumstances.
2. Market Domination:
The leading firm in an established industry and perhaps one or two challengers are in the market domination situation. The industry may be growing mature or declining and it may be regional, national or global in scope. The leading firms may have achieved its dominant position as a consequence of such strategic assets as a strong brand franchise, cost advantages, effective market segmentation and patent protection.
A market domination situation typically occurs in a mature industry rather than an emerging or rapidly growing industry. One of the larger firms is a fragmented industry may eventually achieve domination. Until this occurs, a market development situation exists.
3. Differential Advantage:
This situation may exist in various types of industries, although it is probably most common in mature industries. A firm in a differential advantage situation has some unique capability that enables it to operate at an advantage against competing firms.
Differential advantage may exist because of geographical location, patent location, product specialization, special skills, low costs or other strength. It is more likely to exist when buyer’s needs are differentiated. Although a low cost producer in a commodity market has a differential advantage.
4. Market Selectivity:
The market selectivity situation normally applies to smaller firms in markets where buyers have differential needs, offering firms an opportunity to concentrate on one or more market segments. For the market selectivity situation to occur, the product type product market must be segmentable.
Avoiding head on competition with market leaders is necessary because of the small firm’s size, capabilities, resources and market position. The market selectivity situation may occur in industries at various stages of development. Market segmentation strategies are appropriate for firms in market selectivity situations.
5. No Advantage:
The no advantage situation is not uncommon, particularly among the small firms in industries that are dominated by a few large firms and have other firms with special advantages or strong market segment positions. Overcoming the lack of advantage is the key strategic issue, since remaining is a no advantage situation will typically prove unprofitable and may lead to failure of the enterprise. One option is to sell the business.
The implications of the five illustrative strategic situations should be recognized. A strategic situation is fixed. A firm’s strategic situation will change over time due both to management’s actions and to uncontrollable influences. A strategic situation such as differential advantage may breakout into two or more specific situations, depending on the influence of market, competitive and environmental factors.
Marketing Strategy – 2 Important Strategies: Strategies for Service Marketing and Rural Marketing
Strategy # 1. Strategies for Services Marketing:
With the rapid growth of the service industry, players have accepted the importance of services marketing. Services have products associated with them as products too have services attached to them. Restaurants sell food to eat, a product, while service is the main part of the business. Service product is intangible and usually gets destroyed if not used. An empty airline seat can never be used again and a customer enjoys the service but cannot take it away with him. A passenger cannot carry the plane seat with him.
The way a service is provided to customers can give the service provider sustainable competitive advantage. Most star hotels have documented and standardised methods of serving tea and coffee, liquor and food. Even then the scientific approach is carefully blended with the art of providing service. The quality of service separates different service providers.
Service industry is the one that analyses the customer’s value to it. A big spender in a five-star hotel gets a lot of freebies like a fruit basket in his room and free entry to the hotel gym while a poor spender gets only the normal facilities. However, there cannot be any difference in the courtesy offered to the two as the hotel realises that today’s small spender can become tomorrow’s big spender.
The service industry has not only to offer services to the customers but also ensure that its employees are trained in providing the same. Bad service and rude behaviour will certainly put off the customer who will never again come back to the service provider. With advanced technological innovations like e-booking, smart-card room entry (instead of regular keys), and automatic temperature control, hotels have to ensure that soft areas like personalised pleasant service are the norm rather than an exception.
The service industry has to ensure high quality of -service, high brand equity and easy access to business areas. Service gives firms competitive advantage and there can never be any compromise on the same. The industry must train its employees for better service productivity, to ensure that customers leave lot of their chores to the employees spend time on business and pleasure. Hotels arrange for unpacking of suitcases, laundry and business meetings and conferences.
India is a country where the majority of the population (almost 70 per cent) lives in villages. There are 6,27,000 villages in the country. However, the villagers are poorer than the city folk; the village contributes less than 50 per cent of the total country’s income. However, the situation is gradually changing for the better.
In the first half of the twentieth century, people were using neem or babul twigs for cleaning their teeth. Today, they are using toothpowder or toothpaste. Instead of groundnuts children ask for chocolates. Face creams and lotions have replaced besan (chickpea flour) as a face cleanser.
Appreciating the size of the rural market, major companies, including Hindustan Lever and P&G have made special strategies for targeting rural markets.
The business environment in rural India is given below:
The population has been steadily increasing in the villages, making per capita land holdings ever so small, reducing income in the same proportion. This has resulted in migration from villages to towns either on a temporary basis during the lean agricultural months or on a more permanent basis as people come to cities looking for employment.
There are women in the fields, and in panchayats, but child marriage is still prevalent in certain parts of the country like Rajasthan. In some states villagers have taken to arms and crime due to lack of employment. Education levels differ from state to state, with Kerala boasting of the highest percentage of educated persons.
Villagers celebrate festivals with a lot of gusto, especially the harvest time, religious festivals, marriages and childbirths.
The Green Revolution was the result of government’s research in agriculture. Milk cooperatives came about thanks to the pioneering efforts of Amul. The government has been providing subsidies on farm inputs, tax holidays for farmers, fixing a minimum price for purchase of farm produce and concessions to the agro-packaging and processing industry.
Government has enacted laws against child marriage and dowry. However, it would need the concerted effort of the village folk themselves for the evils to be eradicated.
A lot of effort has gone into setting up rural banks and farm insurance schemes. Rural electrification and laying of roads have been given priority in the government’s planning process. Cottage industries and handicrafts have been given the desired impetus by the government.
Today most villages of the country have radio and TV. Next, telephones and the Internet would become ubiquitous in the villages soon. Tractors, harvesters, seeders, pesticides, fertilisers, quality seeds, and scientific guidance on farming by the agriculture research institutes are enabling the farmers to get better yield from their farms.
The WTO has clearly defined the methods of agriculture exports from India and the government is finding it hard to counter the subsidies given by the affluent nations that make their produce more competitive. Our leadership is busy in countering it through diplomacy in the WTO.
Some countries have patented some Indian products, like Basmati rice, and turmeric as their own much to the country’s regret.
ix. Rural Products:
Most products required in cities are also needed in the rural markets, as given below:
a. FMCG products like cosmetics, food items like cooking oil, kerosene, and medicines.
b. Consumer durables like refrigerators, stoves and motorcycles.
c. Farm products like tractors, harvesters, seeders, seeds, fertilisers, pesticides, diesel, water supply and electricity for household and agricultural purposes.
d. Services like health clinics, eateries, and inns.
Pricing in rural markets is a tricky issue because companies spend more on transporting the products as compared to transporting to the cities, but the paying power in rural areas is much less. Companies therefore adopt low-cost packaging while keeping the product unchanged in most cases. Companies that have worked out the rural customers’ MTBP (Mean Time Between Purchase) find that they stretch the purchase time much longer. This would be true for most FMCG products, but food items would be needed as per household requirements.
Let us now look at product distribution in rural markets. Products are kept for sale at the grocers’ shops, diesel/kerosene dealers, and tractor repair shops. Companies also sell through mobile vans that cover villages mostly on the days of their weekly markets. These vans carry advertising materials and audio-visual equipment for showing films, besides the company’s advertisements and products for sale. Samples like shampoo sachets for test marketing are also distributed through these vans.
Product promotion in rural markets is done through these vans and though radio, which has wide reach, covering almost the entire country. Additionally, television reach has increased of late and with better electricity availability, it has become an attractive option, especially because of its universal appeal. Pamphlets, loudspeaker announcements during weekly markets on roaming rickshaws, banners on elephants and camels are also used in many areas.
Income levels in rural India are high for rich land owning farmers, low for farmers with small lands and very low for farm hands and migratory farmers.
Village industries, cottage and small scale, handlooms, milk farming and sheep rearing need governmental support or setting up of cooperatives. The Amul example must be replicated in other parts of the country. The village bania, the proverbial loan shark, is fast disappearing, yet rural banking needs much more thrust.
A number of banks have started branches in villages but are affected by non-availability of collaterals for giving loans to farmers. Farm insurance would go a long way in settling this problem. Bad crops further derail interest payments, leading to bad debts that retard the progress for which the banks were originally setup.
Marketing Strategy – Marketing Strategies in Banks
The word marketing is not always understood in the right perspective. While at sometimes not much distinction is made between sales and marketing, at some others the distinction between marketing of products and that of services is not too clear. This applies as much to the banking sector which is one of the major services attracting a marketing attention.
Marketing is not related only to the production and delivery of products and services. It is very closely related to the customer needs and expectations. In fact, marketing is a total function which involves planning and development of products and services, their pricing, packaging, promotion, distribution and delivery. In the present day context, marketing does not mean simply producing some products or a service and asking the sales outlets and sales force to sell them to intending buyers or users.
We have to tailor our products in tune with the market and customer needs and keep them changing in accordance with the changes that take place in the environment and market conditions and customer needs and perceptions. At the same time sufficient in house awareness about the customer needs and the products and services has to be created to make people understand and deliver these services with their voluntary involvement.
When we talk of marketing, we generally refer to the 4 Ps, i.e., the product, promotion, price and place which constitute the marketing mix. When it comes to service marketing, which includes banking, we have few additional Ps like the, ‘people and ‘procures’ aspects as well. All the 6 Ps of marketing mix are relevant and of significance to the banking services and applicable at the branch, administrative and the corporate levels.
While each of these Ps has their own degree of importance, varying of course with the environmental, situational and other considerations, there is need for an ideal blend/mix so that it is possible to practice the concept of marketing in banking services as ideally as possible.
Marketing is generally believed to be an activity external to the organisation meaning thereby that marketing is something which is only related with areas like development, and delivery of products and services, business development, customer relations, liaison and such external activities. It is true indeed that marketing is meant to satisfy the financial services needs of our customers and ultimately contribute towards increasing business. But there has to be a medium to achieve these objectives.
And the medium are the people at the branch counters, the officers on the desks behind these counters, Managers in the cabins and outside. Regional and Zonal Managers and so also their supporting staff in the administrative offices, the corporate level executives, staff and the top management.
In fact each and every staff member at whatever level and in whatever job-compartment, be it-direct business development, internal house-keeping, security guards at work, customer interacting tellers, cashiers and officers, administrative or advisory jobs or other support and developmental work is a banker first and anything else later and thus contributes positively towards bank marketing.
And if people arc the most important medium of achieving the marketing objectives, marketing becomes an important internal activity. Internal marketing is as important as the external marketing. In fact there can be no external marketing in absence of successful and well groomed internal marketing. Bankers at all levels will need to be effective marketers- both internal and external with of course, varying degrees of roles.
At corporate level, apart from environmental scanning, we may have to give more emphasis on internal marketing in terms of creating staff awareness, involvement, receptivity and participation in the implementation process, while at the branch level; the emphasis would shift more towards external marketing. At the same time, the Branch Manager does have his role of internal marketing like corporate level marketers and executives having to perform their share of external marketing.
Experiences show that for banking organisations particularly bigger banks with a huge network of branches and sizeable staff, internal marketing is very crucial for success of external marketing. “Marketing Within”, therefore becomes very relevant for today’s bankers and bank marketers. It is important to relate the constituents of marketing mix to delivery of banking services in June with the customer requirements.
At the same time, it is equally important to ensure that banks with huge staff and geographical network are able to communicate about the new products and services, the promotional efforts, the servicing outlets and the pricing policies/charges to their customers. Whatever effort is made at the corporate level to scan the environment and innovate/design/launch a new product or a service will go waste unless it is understood clearly and implemented efficiently by the branches and staff.
For this purpose the marketers and executives at the corporate level must have a thorough conviction about the new ideas generated which must be in tune with customer requirements and their views must be acceptable within the organisation at all levels-above, below and lateral. It is in this context that Internal marketing’ or ‘marketing within’ becomes very important.
When we say ‘marketing within’ it is not just a top-down exercise in the organisation. It means marketing of ideas and concepts from/to the top management, to all the corporate level functionaries, to all the tiers of management and the branches all over. In fact internal marketing assumes a much greater importance than the external marketing because success in the external marketing is very thoroughly dependent upon internal marketing.
Marketing Strategy – Formulation of Marketing Strategy
Formulation of marketing strategy consists of two main steps:
(i) Selecting the target market
(ii) Assembling the marketing mix
The essence of the marketing strategy of any firm can be grasped from the firm’s target market and marketing mix. The target market shows to whom the firm intends to sell the products; the marketing mix shows how the firm intends to sell.
Together, they constitute the marketing strategy platform of the firm. Other elements of marketing strategy, as we shall see subsequently, are matters of detail.
To say that target market selection is a part of marketing strategy development is an understatement. It does not fully bring out the import of the close and inseparable linkage between the two. When the selection of the target market is over, an important part of the marketing strategy of the firm is already determined, defined and expressed.
The progress of market segmentation and market gridling throws up not one but several market segments with varying degrees of potential, profitability and risks. The firm may not be interested in all these segments.
There may be segments assuring immediate profits; there may be segments demanding heavy investments by way of market development; some other segments may show very great potential but may display tough barriers to entry. As such, the question which segment/segments the firm should select as its target market, assumes crucial importance.
The firm may analyse the risks, analyse the profitability and size up the competition in the different segments. Still, it may not be possible for it to readily pick up the target segments.
Quantitative techniques may take the firm thus far, but not to the concluding point. Judgement alone can take the firm to the concluding point or final decision on the target market. This decision is essentially a decision in the realm of strategy. It is not just a number game.
The target market and the marketing mix together constitute the marketing strategy platform of the firm. Assembling the marketing mix simply means assembling the Four Ps of marketing in the right combination.
Involved in this process are the choice of the appropriate marketing activities and the allocation of the appropriate marketing effort to each one of them. Product strategy is a part of this process.
Matching the products with market needs and consumer aspirations is the purpose of product strategy. Distribution strategy is another part of this exercise. Taking the product where the consumer wants it and delivering the product to him in a manner that is most convenient to him is the essence of the distribution strategy. When other elements link pricing, advertising and promotion are superimposed appropriately on this framework, the marketing mix gets assembled.
Marketing Strategy – Analysis
Though there is a school of thought that believes that strategy formulation is intuitive and experience based, analysis and structured thinking do play an important role in it. Strategic marketing provides frameworks and techniques for formulating effective strategies.
The typical analysis covers four entities, viz., environment, consumers, competition and the company. Additionally the market and marketing mix analysis are also carried out. All these are monitored on a continuing basis and the strategy gets crafted out. Amar Bhide (1994) goes to the extent of saying that traditional planning is obsolete because ‘by the time an opportunity is investigated fully, it may not exist’.
Hence companies that adopt strategic marketing should be smart enough to move out of weak areas and grab new opportunities identified through continuous monitoring systems. For example, Federal Express, in 1987, moved its focus from transporting documents, where competition was heavy and margins less, to logistics and just-in-time inventory services. Today, logistics is a big business for courier service companies.
The current environmental scenario has made traditional planning obsolete. Even before the ink dries on the plan document, the rules of the game get altered, e.g., change in duties, new competition, change in consumer preferences, fluctuating exchange rates, new technology and so on.
Failure to understand and monitor environmental forces costs a business crores of rupees every year. Hence an analysis of the environment is essential, though many forces cannot be forecast at a reasonable cost. An analysis of the environment begins with the identification of potential factors and evolves into a study of combinations of these factors which together form a scenario of greater importance to the firm.
Additionally, a group of experts determine the nature, direction, rate of change and magnitude of each force. Then, interactions among different variables are studied and a forecast of their impact, timing and potential consequences made. This is used to develop and implement the strategic response of the company.
A company may form a task force to deal with issues that are likely to have a big impact on the organization and are also likely to strike immediately. For example, the formation of a new government which has a pro-prohibition policy in a state from which a liquor company gets the major portion of its revenue, will be an important issue for the company.
For issues that are distant but are likely to have a major effect, a company should have experts observing the developments. One such issue can be influx of a new technology with the potential of wiping out the company.
Prioritizing issues, and building an overall future scenario in which a company is going to compete can help the company remain proactive. The idea behind building a futuristic scenario is not only to help the company to adapt to changes, but also to analyze the capabilities needed to shape the future. In the first case the company adapts to the environment while in the latter the company alters the environment to suit its needs.
Though environmental changes are so rapid that a manager would feel that he is at the mercy of environmental forces, it is the manager of a different kind who unleashes new forces by radically altering the rules, thereby creating the future.
Scenario building should not be left to some analysts in the planning department. According to Hamel and Prahalad (1994) the CEO should spend time with her senior managers and develop a shared perspective on the future as opposed to a personal view. The shared perspective should help the company identify the core competencies, new products alliances, etc., required to compete for the future.
Of course, companies can also misread the future and get into great difficulties. Back in 1964 the US telecom giant, AT&T, launched the world’s first ever ‘picture-phone’ amid a lot of press predictions that this forerunner of today’s videophone) would transform work, life and society. The company poured millions into the project. It predicted that by 1985, it would be king of a $5 billion empire. It never happened. Instead, AT&T broke up.
The reverse is also possible. When Xerox first invented the photocopier, experts evaluating its potential told the company that the maximum number of machines that could be sold across the world each year was 1000. Luckily for Xerox, it ignored the experts. These two examples are from the book Megamistakes by Steven Schnaars (1989).
Companies usually carry out market analysis once in three or four years and compare the results with that of the previous study to understand the structural changes in the market, and then plan their strategies for the next three to four years. The results may indicate emergence of new channels of distribution, shrinking of the target market, changing tastes of consumers and so on.
Market analysis is also carried out to find out new product opportunities and also to develop a new product strategy vis-a-vis identification of a market segment and the positioning of the product. Effective market analysis begins with an understanding of broad market characteristics, such as size, type, location of buyers and prospective buyers for the company’s products and services, purchasing power, needs, preferences, etc.
A more specific analysis of the market segments, structural market change, industry structure, etc., is carried out subsequently.
A broad identification of technology trends and an analysis of cost dynamics in the industry are also part of the market analysis exercise. A market analysis helps companies plan their strategies effectively.
3. Customer Analysis:
Traditional marketing looks for segments of consumers who have common preferences, are available at specific geographic areas, and can be reached through common media. This runs contrary to the basic tenets of marketing which is concerned with the identification and satisfaction of consumers’ needs. The traditional approach is very much marketer-oriented rather than market- oriented. It is concerned with the needs and conveniences of the marketer who can choose a market segment that can be exploited easily.
Gronroos (1994) in his seminal article on relationship marketing says, ‘…marketing specialists organized in a marketing department may get alienated from the customers. Customers become numbers for the specialists and their actions are typically based on the surface information from MR reports and market share statistics. They (marketers) act without ever having interacted with a real customer.’
The idea behind customer analysis is not to uncover the weaknesses or desires of consumers and exploit them using clever marketing ploys. The current thinking is that the marketer and the consumer should sit together to identify the ways in which they can benefit each other. In other words, there is a shift in approach from ‘tell us what color you want’ to let’s figure out together whether and how color matters to your larger goal’.
It is important to conduct an in-depth and intimate study of each customer. Ideally, a marketer should spend some time with customers and understand their needs fully. Consider the example of a multinational company that wants to introduce dishwashers in India. The company can send its female executives to live with selected Indian families, for a month or so, to observe their cooking and eating habits.
As Indian cooking involves a lot of frying, the scorched frying pans would be a real challenge for any dish washer maker. The multinational company would have to design a washer that has longer soak and wash cycles for such dishes.
According to basic economics, markets emerge as monopolies and move towards oligopoly and eventually to pure competition. The behavior of firms under different market conditions are well documented in economic theory? But in real life, there are many aberrations to these basic laws.
Industrial economists look at business or an industry as specialized business, volume business, fragmented business and stalemated business. The factors used for arriving at the above classification are the potential size of the competitive advantage and the number of approaches to achieve the competitive advantage in a particular business. A business where the approaches to achieving an advantage are many and where the potential size of the advantage is large is called a specialized business.
Most consumer products, like soaps, detergents and toothpaste, fall under the category of specialized business. In such a business a few large players dominate the market. These large players also exist side by side with a number of nichers. The large players account for about 80 per cent of the market share and the balance is shared by a number of nichers.
Basic chemical products that are consumed in large quantities, e.g., caustic soda and industrial raw materials, come under the classification of volume business. In such a business, the larger the market share of a company, the greater is its profitability. Thus, size gives the greatest competitive advantage as cost is a critical factor among competitors.
A business such as knitwear that has many small players with the largest among them having less than 10 per cent market share comes in the category of fragmented businesses. In such businesses size does not offer any great advantage. Of course, by innovative approaches defragmentation can be attempted.
Marketing literature is also replete with a number of theories about the market structure of a mature market. The consensus is that most markets end up with one market leader, a couple of market challengers, a few more market followers and a number of market nichers. For example, in the toothpaste market in India, Colgate is the leader, Promise and Close-Up are the challengers, Cibaca and Forehans are the followers, and Vicco and Neem form a part of the numerous niche players.
Buzzell (1981) has summarized the market structures as hypothesized by different studies. The first one is a study popularly known as PIMS (Profit Impact of Market Strategy) Study, conducted by Strategic Planning Institute, Cambridge, Massachusetts. This study is based on actual observations of several industries. The second one is hypothesized by Philip Kotler and the third one is by the well-known Boston Consultancy Group (BCG).
Porter (1980) proposed a five-force model to analyze competition in a business or industry. The five forces are – (i) intensity of rivalry among current competitors, (ii) threat of potential new entrants, (iii) threat of substitutes, (iv) bargaining power of suppliers, and (v) bargaining power of buyers.
Diversity among competitors, slow industry growth, high fixed investment costs, low perceived product differentiation and high exit barriers tend to depress industry profitability, thereby increasing rivalry among competitors.
New entrants represent a threat to existing firms in an industry. Threat of entry is moderated by industry barriers to entry and possible retaliation from existing firms. Barriers to entry arise from six major sources: economies of scale, product differentiation, capital requirements, buyer switching costs, access to distribution channels, and absolute cost advantage.
The impact of suppliers on the profitability of the industry depends on their bargaining power over industry participants. Supplier bargaining power is the highest when – (i) the buyer group is more fragmented than the supplier group, (ii) there are no substitutes for the product offered by the supplier group to the buyer group, (iii) the buyer group is not a major customer of the supplier group, (iv) the product offered by the supplier group is an important input into the product offered by the buyer group, (v) the supplier group’s products are differentiated so that the buyer group cannot play one supplier group against another, and (vi) the supplier group can integrate forward into the buyer group.
Buyers’ influence depends on factors such as – (i) number of buyers and the volume purchased by them from the industry, (ii) product differentiation offered by the industry to buyers, (iii) profitability potential of buyers, (iv) threat of backward integration into the industry from buyers, (v) importance of the industry’s product to buyers, and (vi) influence of buyers on the ultimate consumers.
Industries producing substitute products can cut into the profit of a business. Substitute products are those that – (i) are similar to the product offered in an industry, (ii) offer better price/performance to their buyers, and (iii) offer higher profit margins to their manufacturers.
Traditional marketing theory discusses the competition in an industry in terms of the product’s life-cycle. When a new product enters the market, it starts as a monopoly. As it moves to the growth stage more competitors enter the fray. When the industry matures, competition intensifies and the nichers appear in large numbers. In the decline phase of the product, again, competitive pressure reduces as many companies start withdrawing from the market.
Companies in an industry can be grouped into various strategic groups based on certain criteria. For example, in the fertilizer industry gas-based plants and naptha-based plants form two strategic groups. In the toothpaste market those making chemical-based products and those selling medicated/herbal pastes form separate strategic groups. Grouping may be done by using factors such as product differentiation, extent of vertical integration, leader/follower classification, investment, size of plant, geographic scope, etc.
More than one factor can also be used to arrive at the grouping. Two-dimensional maps are commonly used to identify strategic groups. Different strategic groups will experience different amounts of competitive pressure as well as profitability.
The value chain is another tool popularized by Porter (1985) that can be used for competitor analysis. A value chain is a set of interrelated activities that are performed by a firm to create, support and deliver its product.
This concept suggests that the activities performed by a firm can be divided into two major groups – one consisting of five generic types of primary activities, and the other consisting of four generic types of support activities. A firm will be profitable as long as the value it creates is more than the cost of performing value activities such as production, distribution and after-sales service.
Primary activities comprise inbound logistics, operations, outbound logistics, marketing and sales, and service. These are performed in the physical creation, distribution and marketing, and after-sales service of the product. The support activities provide the infrastructure, human resource management, technology development and procurement, which allow the primary activities to take place.
A value chain provides a basis for assessing the competitive advantage of firms. Competitive advantage arises from a firm’s choice of markets, its distinctive competencies, and its pattern of resource deployment. In each market, a firm chooses to compete with other firms given the opportunities available. It competes with rivals in terms of the value that the product offers and the relative cost of delivering the product to customers.
5. Company Analysis:
An analysis of the environment, competition and customers can provide a company with information about opportunities that exist in the market-place. However, whether a company is well equipped to exploit the same is a different matter. This necessitates a self-analysis by the company. An analysis of the following factors are necessary for company analysis.
Core competence implies unique capabilities, collective skills and the knowledge that have driven a business in the past and, if channeled properly, will fuel its growth in the future. Often, it is not easy for the management to articulate what the firm’s core competencies are, although it, and many employees in the organization, work with this knowledge every day.
According to Hamel and Prahalad (1990) a company’s core competence is often a blend of technologies and of ‘hard’ and ‘soft’ skills. Core competence should meet three tests or requirements – (i) provide access to a variety of markets, (ii) make a significant contribution to customer benefits in an end product, and (iii) be difficult for a competitor to imitate.
Sony’s skill in miniaturization and Honda’s skill in engine- making are typical examples of core competencies which are exploited to gain competitive advantage. Honda’s skill in engine- making has been successfully exploited in a number of markets such as two-wheelers, four-wheelers, generators, out-board engine motors, power sprays and lawn movers. In all these products, the core product, engine, is used.
In literature on strategy, apart from core competence, there is a lot of emphasis on core capabilities and key resources.
While core competence is concerned with production and operations, core capabilities may be found in any part of the value chain. Capabilities in manufacturing could be efficiency in volume manufacturing, capacity for continual improvements in the production process, flexibility and speed of manufacturing, etc.
Marketing and sales capabilities include brand management, responsiveness to market trends, effectiveness in executing sales, efficiency and speed of distribution, and quality and effectiveness of customer service. Core capabilities can be found in the area of general management, management information system (MIS), product design and R&D.
Core competencies and capabilities are usually built around key resources. These resources can be tangible and intangible. Examples of physical resources are plant size, distribution facilities, trained manpower, etc. Brand name, reputation and tacit collective know-how are intangible resources.
Tacit collective know-how refers to knowledge prevailing in an organization which meets the following criteria – (i) it cannot be codified and written down, but (ii) which is known or understood by the organization, (iii) it has accumulated over time, and (iv) it is embedded in the organization as a whole and not held by one or two individuals. In a sense core competence is more of an intangible resource.
Core competencies are the muscles of an organization. They make it possible to accomplish much of the work that is carried out every day. But as any marathon runner knows, she needs more than just muscles to win a race. Similarly, companies also need strategic intent to achieve their goals.
Of course, ambitious strategic intent should be backed by an active management process that focuses the organization’s attention on the essence of winning; motivates people by communicating the value of the target; leaves room for individual and team contributions; sustains enthusiasm by providing new operational definitions as circumstances change; and uses intent consistently to guide resource allocations.
6. Marketing Mix Analysis:
The study of marketing is somewhat complicated as compared to pure sciences since the forces and variables are not well defined. The marketing manager has to deal with a lot of forces on which he has very limited control. He has to understand his customers, competitors and the outside environment. Unlike a production manager, who operates within a protected environment surrounded by a compound wall, the marketing manager has to work in the market-place.
What a marketer can really control are four variables available to him- product, price, place (distribution) and promotion. These variables combined are known as marketing mix and also as the four ‘Ps’ of marketing. Thus, marketing mix is a mixture of controllable marketing variables that a firm uses to pursue the sought level of sales in the target market.
It can be useful to compare the marketing mix elements offered by competitors to get an idea about the relative strengths and weaknesses of their offerings. This may be subsequently used in strategy formation.
Strategy formulation starts with the analysis of two strategic dimensions, viz., environment and organization. While environmental analysis identifies opportunities, threats and trends, organizational analysis throws up the strengths and weaknesses of the organization. An analysis of the competitors and customers reveals specific gaps in the market that can be exploited by a firm.
Ohmae (1982) uses a strategic three Cs (customers, company and competitors) model to illustrate the concept of strategy. Basically, a company and its competitors offer value to customers. Customers will prefer a company that offers better value to them. The differentiating factor between the competitors is the cost per unit value offered.