Essentials of Health Care Marketing 2nd Ed. Eric Berkowitz Chapter 2 Marketing Strategy

Chapter 2 Learning Objectives Understand the scope of strategic marketing planning Identify broad organizational market strategy alternatives Describe the value of alternative portfolio models Appreciate the factors that affect the level of competitive intensity within an industry Understand the essential components of marketing strategy formulation

Introduction Strategic planning – a process that describes the direction an organization will pursue within its chosen environment and guides the allocation of resources and efforts

Learning Objective 1 Four steps of Strategic planning process Define Mission External assessment of threats and opportunities Internal assessment of strengths and weaknesses Establish set of priorities based on organizational objectives Then, determine which strategies to pursue

Learning Objective 1 Defining Organization mission (step 1) Organization’s fundamental purpose for existing. Who the organization is, its values, and the customers it wishes to serve. Blueprint for management in developing business strategies Must recognize what the business is and what the customer wants Avoid marketing myopia

Learning Objective 1 Organization Mission components Basic product or service, primary market, & technology in delivering product or service Organizational goals Growth, profitability, stability, nor survival Organizational philosophy Organizational Self-concept Public Image

Learning Objective 1 Situational Assessment (step 2) AKA – SWOT analysis Strengths, Weaknesses, Opportunities, Threats Economic, competitive, regulatory, social, and technological changes in marketplace Questions: What are the changes and trends? How will these changes affect the organization? What opportunities to these changes present? Further describe SW – internal OT – external; micro-and macro-environments

Learning Objective 1 Situational Assessment (step 2) Barriers to entry – conditions that a company must overcome in order to pursue a business opportunity. Barriers to exit – costs of leaving a particular business line Examples of barriers to entry? Students discuss… Give examples of product-based, market-based and cost-based differential advantages

Learning Objective 1 Situational Assessment (step 2) Differential advantage Product, market, cost Based on core competencies Criteria: Importance, Perceived, Uniqueness, Sustainable Examples of barriers to entry? Students discuss… Give examples of product-based, market-based and cost-based differential advantages

Learning Objective 2 Organizational strategy Broad strategies are formulated Can be either growth market or consolidation strategies Growth market – organization attempts to gain more sales from an existing business line or penetrating new markets Consolidation – pairing either services or markets

Learning Objective 2 Organizational strategy Growth Market Strategies Market Penetration Increasing sales of present products/services in present markets Market Development Increase sales in new markets Product Development Introduce new products/services to present markets Diversification Introduce new products into new markets Students give examples of market penetration, market development, product development, diversification

Learning Objective 2 Organizational strategy Product Development Strategy Vertical Integration Backward integration – becomes own supplier Forward integration – offer new services closer to the customer Students give examples of backward and forward integration

Learning Objective 2 Organizational strategy Diversification strategy Strategic alliances Formal arrangements with other companies to operate in a particular market Joint Ventures New corporate entities created by strategic alliances Students give examples of strategic alliances, joint venture businesses

Learning Objective 2 Organizational strategy Consolidation Strategies Divestment Selling off a business or product line Pruning Reducing the number of product or service offerings Retrenchment Withdrawing from certain markets Harvesting Gradually withdrawing support from a product until market demand is reduced or eliminated Students give examples of divestment, pruning, retrenchment, harvesting

Learning Objective 3 Alternative models Boston Consulting Group Matrix Stars, Cash Cows, Problem Children, Dogs Based on Market growth rate and market share Can be used to focus on broad considerations Students give examples of Stars, cash cows, problem children, dogs. See p. 53, Figure 2-6

Learning Objective 3 Alternative models GE Matrix Market attractiveness – overall market size, annual market growth rate, historical profit margin, competitive intensity, technological requirements, inflationary vulnerability, energy requirements, environmental impact, social/political/legal issues Business Strength – market share, share growth, product quality, brand reputation, distribution network, promotional effectiveness, production capacity, production efficiency, unit costs, supply costs, R&D performance, management talent. Refer students to page 55, table 2-3

Learning Objective 4 Competitive Market Must analyze: Existing competition Potential competition Factors affecting competitive intensity Threat of new entrants Bargaining power of suppliers Bargaining power or customers Threat of substitute products or services Refer students to page 57, figure 2-7

Learning Objective 4 Competitive Market Existing competition When product is relatively standardized and the competitors are relatively numerous and similar in size. When cost of switching providers is relatively low. In industries characterized by overcapacity and among firms still in the market because of a high fixed-asset position. Have students give examples of existing competition scenarios

Learning Objective 4 Competitive Market New entrants Threat of substitution Bargaining power of suppliers Bargaining power of customers Have students give examples. Refer to pp 57-60

Learning Objective 5 Marketing Plan After establishing marketing objectives, then formulate MARKET STRATEGIES Have students give examples. Refer to pp 60-63

Learning Objective 5 Market Strategy Formulation Determine Target market Specify Market strategy Develop tactical plans for marketing mix

Learning Objective 5 Determine Target market Multi-segment marketing Whom the organization is trying to attract Assess organization’s strengths, competitive intensity for target market, the cost of capturing market share, the potential financial gain in attracting the targeted group. Mass Marketing(undifferentiated) or Segmenting Multi-segment marketing Market concentration strategy Have students describe mass marketing and different segmenting strategies

Learning Objective 5 Specify Market strategy market leader market challenger market follower market niche Have students describe market leader, challenger, follower, niche

Learning Objective 5 Tactical Action Plans Identifies actions to be taken regarding each aspect of the marketing mix Advertising strategy, pricing strategy, distribution issues, nature of product. Finally, evaluate plan – discussed further in Chapter 14 Refer students to Ex. 2-4 Marketing Plan outline, pp. 64-65

Summary Marketing plans - along with finance, production, and human resource plans - form the core elements of an organization’s strategic plan An organization’s strategic plan is guided by the mission that defines its purpose for existing. The mission must recognize who the customer is and what the customer wants to buy. In developing strategic plans, a SWOT analysis provides a review of internal and external factors that can affect strategic outcomes.

Summary (continued) In developing strategic plans, an organization must be able to recognize the barriers to entry and exit for any new service venture. Invisible value is the value a producer builds into its product or service; visible value is the value that a customer sees. Typically an organization can only charge for visible value. An organization can develop a differential advantage that is either product-based, market-based, or price-based.

Summary (continued) There are four broad growth strategies that any organization can pursue: market development; market penetration; product development; diversification. The BCG matrix and GE matrix are conceptualizations that can aid an organization in the review of its service portfolio. Both models encompass market and competitive considerations.

Summary (continued) In any industry, the level of competitive intensity is affected by the threat of new entrants, the bargaining power of both suppliers and customers, and the threat of substitute products and services. In developing a marketing plan, organizations can pursue a mass marketing or a market concentration strategy.