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Strategic Management

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After reading this lecture, you will be able to know about the functions of management and how firm
formulate strategies in order to perform these functions.

can be described as the process of defining, anticipating, creating, and fulfilling customers'
needs and wants for products and services.
There are seven basic functions of marketing:
(1) Customer analysis,
(2) Selling products/services,
(3) Product and service planning,
(4) Pricing,
(5) Distribution,
(6) Marketing research, and
(7) Opportunity analysis.
Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses.

Customer Analysis

Customer analysis
—the examination and evaluation of consumer needs, desires, and wants—involves
administering customer surveys, analyzing consumer information, evaluating market positioning strategies,
developing customer profiles, and determining optimal market segmentation strategies. The information
generated by customer analysis can be essential in developing an effective mission statement. Customer
profiles can reveal the demographic characteristics of an organization's customers. Buyers, sellers,
distributors, salespeople, managers, wholesalers, retailers, suppliers, and creditors can all participate in
gathering information to identify customers' needs and wants successfully. Successful organizations
continually monitor present and potential customers' buying patterns.

Selling Products/Services

Successful strategy implementation generally rests upon the ability of an organization to sell some product
or service. Selling includes many marketing activities such as advertising, sales promotion, publicity, personal
selling, sales force management, customer relations, and dealer relations. These activities are especially
critical when a firm pursues a market penetration strategy.

The effectiveness of various selling tools for
consumer and industrial products varies. Personal selling is most important for industrial goods companies,
and advertising is most important for consumer goods companies. Determining organizational strengths
and weaknesses in the selling function of marketing is an important part of performing an internal strategicmanagement
With regard to advertising products and services on the Internet, a new trend is to base advertising rates
exclusively on sale rates. This new accountability contrasts sharply with traditional broadcast and print
advertising that bases rates on the number of persons expected to see a given advertisement. The new costper-
sale online advertising rates are possible because any Web site can monitor which user clicks on which
advertisement and then can record whether that consumer actually buys the product. If there are no sales,
then the advertisement is free.
The most popular type of Internet advertisement is the banner. However, many people just ignore online
banner advertisements.

Product and Service Planning

Product and service planning
includes activities such as test marketing; product and brand positioning; devising
warranties; packaging; determining product options, product features, product style, and product quality;
deleting old products; and providing for customer service. Product and service planning is particularly
important when a company is pursuing product development or diversification.
One of the most effective product and service planning techniques is test marketing. Test markets allow an
organization to test alternative marketing plans and to forecast future sales of new products. In conducting
a test market project, an organization must decide how many cities to include, which cities to include, how

long to run the test, what information to collect during the test, and what action to take after the test has
been completed. Test marketing is used more frequently by consumer goods companies than by industrial
goods companies. Test marketing can allow an organization to avoid substantial losses by revealing weak
products and ineffective marketing approaches before large-scale production begins.


Five major stakeholders affect pricing decisions:
. Consumers,
. Governments,
. Suppliers,
. Distributors,
. Competitors.
Sometimes an organization will pursue a forward integration strategy primarily to gain better control over
prices charged to consumers. Governments can impose constraints on price fixing, price discrimination,
minimum prices, unit pricing, price advertising, and price controls.
Competing organizations must be careful not to coordinate discounts, credit terms, or condition of sale; not
to discuss prices, markups, and costs at trade association meetings; and not to arrange to issue new price
lists on the same date,

to rotate low bids on contracts, or to uniformly restrict production to maintain high
prices. Strategists should view price from both a short-run and a long-run perspective, because competitors
can copy price changes with relative ease. Often a dominant firm will aggressively match all price cuts by
With regard to pricing, as the value of the dollar increases, which it has been doing steadily, U.S.
multinational companies have a choice. They can raise prices in the local currency of a foreign country or
risk losing sales and market share. Alternatively, multinational firms can keep prices steady and face reduced
profit when their export revenue is reported in the United States in dollars.


includes warehousing, distribution channels, distribution coverage, retail site locations, sales
territories, inventory levels and location, transportation carriers, wholesaling, and retailing. Most producers
today do not sell their goods directly to consumers. Various marketing entities act as intermediaries; they
bear a variety of names such as wholesalers, retailers, brokers, facilitators, agents, middlemen, vendors, or
simply distributors.
Distribution becomes especially important when a firm is striving to implement a market development or
forward integration strategy. Some of the most complex and challenging decisions facing a firm concern
product distribution. Intermediaries flourish in our economy because many producers lack the financial
resources and expertise to carry out direct marketing. Manufacturers who could afford to sell directly to the
public often can gain greater returns by expanding and improving their manufacturing operations. Even
General Motors would find it very difficult to buy out its more than eighteen thousand independent dealers.
Successful organizations identify and evaluate alternative ways to reach their ultimate market. Possible
approaches vary from direct selling to using just one or many wholesalers and retailers. Strengths and
weaknesses of each channel alternative should be determined according to economic, control, and adaptive
criteria. Organizations should consider the costs and benefits of various wholesaling and retailing options.
They must consider the need to motivate and control channel members and the need to adapt to changes in
the future. Once a marketing channel is chosen, an organization usually must adhere to it for an extended
period of time.

Marketing Research

Marketing research
is the systematic gathering, recording, and analyzing of data about problems relating to the
marketing of goods and services. Marketing research can uncover critical strengths and weaknesses, and
marketing researchers employ numerous scales, instruments, procedures, concepts, and techniques to gather
information. Marketing research activities support all of the major business functions of an organization.
Organizations that possess excellent marketing research skills have a definite strength in pursuing generic


Opportunity Analysis

The eighth function of marketing is opportunity analysis, which involves assessing the costs, benefits, and risks
associated with marketing decisions. Three steps are required to perform a cost/benefit analysis:
. Compute the total costs associated with a decision,
. Estimate the total benefits from the decision, and
. Compare the total costs with the total benefits.
As expected benefits exceed total costs, an opportunity becomes more attractive. Sometimes the variables
included in a cost/benefit analysis cannot be quantified or even measured, but usually reasonable estimates
can be made to allow the

analysis to be performed. One key factor to be considered is risk. Cost/benefit
analyses should also be performed when a company is evaluating alternative ways to be socially responsible.

Marketing Audit Checklist of Questions

Similarly as provided earlier for management, the following questions about marketing are pertinent:
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm's market share been increasing?
4. Are present channels of distribution reliable and cost-effective?
5. Does the firm have an effective sales organization?
6. Does the firm conduct market research?
7. Are product quality and customer service good?
8. Are the firm's products and services priced appropriately?
9. Does the firm have an effective promotion, advertising, and publicity strategy?
10. Are marketing planning and budgeting effective?
11. Do the firm's marketing managers have adequate experience and training?

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