Strategic thinking represents a new perspective in the area of marketing. In this section we will examine the importance, characteristics, origin, and future of strategic marketing.

Importance of Strategic Marketing Marketing plays a vital role in the strategic management process of a firm. The experience of companies well versed in strategic planning indicates that failure in marketing can block the way to goals established by the strategic plan. A prime example is provided by Texas Instruments, a pioneer in developing a system of strategic planning called the OST system. Marketing negligence forced Texas Instruments to withdraw from the digital watch business. When the external environment is stable, a company can successfully ride on its technological lead, manufacturing efficiency, and financial acumen. As the environment shifts, however, lack of marketing perspective makes the best-planned strategies treacherous. With the intensification of competition in the watch business and the loss of uniqueness of the digital watch, Texas Instruments began to lose ground. Its experience can be summarized as follows: The lack of marketing skills certainly was a major factor in the . . . demise of its watch business. T.I. did not try to understand the consumer, nor would it listen to the marketplace. They had the engineer’s attitude. Philip Morris’s success with Miller Beer illustrates how marketing’s elevated strategic status can help in outperforming competitors. If Philip Morris had accepted the conventional marketing wisdom of the beer industry by basing its strategy on cost efficiencies of large breweries and competitive pricing, its Miller Beer subsidiary might still be in seventh place or lower. Instead, Miller Beer leapfrogged all competitors but Anheuser-Busch by emphasizing market and customer segmentation supported with large advertising and promotion budgets. A case of true strategic marketing, with the marketing function playing a crucial role in overall corporate strategy, Philip Morris relied on its corporate strengths and exploited its competitors’ weaknesses to gain a leadership position in the brewing industry. Indeed, marketing strategy is the most significant challenge that companies of all types and sizes face. As a study by Coopers & Lybrand and Yankelovich, Skelly, and White notes, “American corporations are beginning to answer a ‘new call to strategic marketing,’ as many of them shift their business planning priorities more toward strategic marketing and the market planning function.’’

Characteristics of Strategic Marketing Strategic marketing holds different perspectives from those of marketing management. Its salient features are described in the paragraphs that follow. Emphasis on Long-Term Implications. Strategic marketing decisions usually have far-reaching implications. In the words of one marketing strategist, strategic marketing is a commitment, not an act. For example, a strategic marketing decision would not be a matter of simply providing an immediate delivery to a favorite customer but of offering 24-hour delivery service to all customers. In 1980 the Goodyear Tire Company made a strategic decision to continue its focus on the tire business. At a time when other members of the industry were deemphasizing tires, Goodyear opted for the opposite route. This decision had wide-ranging implications for the company over the years. Looking back, Goodyear’s strategy worked. In the 1990s, it continues to be a globally dominant force in the tire industry. The long-term orientation of strategic marketing requires greater concern for the environment. Environmental changes are more probable in the long run than in the short run. In other words, in the short run, one may assume that the environment common set of customers belong together. Finally, products/markets in different will remain stable, but this assumption is not at all likely in the long run. Proper monitoring of the environment requires strategic intelligence inputs. Strategic intelligence differs from traditional marketing research in requiring much deeper probing. For example, simply knowing that a competitor has a cost advantage is not enough. Strategically, one ought to find out how much flexibility the competitor has in further reducing price.

Corporate Inputs. Strategic marketing decisions require inputs from three corporate aspects: corporate culture, corporate publics, and corporate resources. Corporate culture refers to the style, whims, fancies, traits, taboos, customs, and rituals of top management that over time have come to be accepted as intrinsic to the corporation. Corporate publics are the various stakeholders with an interest in the organization. Customers, employees, vendors, governments, and society typically constitute an organization’s stakeholders. Corporate resources include the human, financial, physical, and technological assets/experience of the company. Corporate inputs set the degree of freedom a marketing strategist has in deciding which market to enter, which business to divest, which business to invest in, etc. The use of corporate-wide inputs in formulating marketing strategy also helps to maximize overall benefits for the organization.

Varying Roles for Different Products/Markets. Traditionally it has been held that all products exert effort to maximize profitability. Strategic marketing starts from the premise that different products have varying roles in the company. For example, some products may be in the growth stage of the product life cycle, some in the maturity stage, others in the introduction stage. Each position in the life cycle requires a different strategy and affords different expectations. Products in the growth stage need extra investment; those in the maturity stage should generate a cash surplus. Although conceptually this concept - different products serving different purposes - has been understood for many years, it has been articulated for real-world application only in recent years. The lead in this regard was provided by the Boston Consulting Group, which developed a portfolio matrix in which products are positioned on a two-dimensional matrix of market share and growth rate, both measured on a continuous scale from high to low. The portfolio matrix essentially has two properties: (a) it ranks diverse businesses according to uniform criteria, and (b) it provides a tool to balance a company’s resources by showing which businesses are likely to be resource providers and which are resource users. The practice of strategic marketing seeks first to examine each product/market before determining its appropriate role. Further, different products/markets are synergistically related to maximize total marketing effort. Finally, each product/ market is paired with a manager who has the proper background and experience to direct it.

Organizational Level. Strategic marketing is conducted primarily at the business unit level in the organization. At General Electric, for example, major appliances are organized into separate business units for which strategy is separately formulated. At Gillette Company, strategy for the Duracell batteries is developed at the batteries business unit level.

Relationship to Finance. Strategic marketing decision making is closely related to the finance function. The importance of maintaining a close relationship between marketing and finance and, for that matter, with other functional areas of a business is nothing new. But in recent years, frameworks have been developed that make it convenient to simultaneously relate marketing to finance in making strategic decisions.

Origin of Strategic Marketing Strategic marketing did not originate systematically. As already noted, the difficult environment of the early 1970s forced managers to develop strategic plans for more centralized control of resources. It happened that these pioneering efforts at strategic planning had a financial focus. Certainly, it was recognized that marketing inputs were required, but they were gathered as needed or were simply assumed. For example, most strategic planning approaches emphasized cash flow and return on investment, which of course must be examined in relation to market share. Perspectives on such marketing matters as market share, however, were either obtained on an ad hoc basis or assumed as constant. Consequently, marketing inputs, such as market share, became the result instead of the cause: a typical conclusion that was drawn was that market share must be increased to meet cash flow targets. The financial bias of strategic planning systems demoted marketing to a necessary but not important role in the long-term perspective of the corporation. In a few years’ time, as strategic planning became more firmly established, corporations began to realize that there was a missing link in the planning process. Without properly relating the strategic planning effort to marketing, the whole process tended to be static. Business exists in a dynamic setting, and by and large, it is only through marketing inputs that perspectives of changing social, economic, political, and technological environments can be brought into the strategic planning process. In brief, while marketing initially got lost in the emphasis on strategic planning, currently the role of marketing is better understood and has emerged in the form of strategic marketing.

Future of Strategic Marketing A variety of factors point to an increasingly important role for strategic marketing in future years. First, the battle for market share is intensifying in many industries as a result of declining growth rates. Faced with insignificant growth, companies have no choice but to grasp for new weapons to increase their share, and strategic marketing can provide extra leverage in share battles. Second, deregulation in many industries is mandating a move to strategic marketing. For example, take the case of the airline, trucking, banking, and telecommunications industries. In the past, with territories protected and prices regulated, the need for strategic marketing was limited. With deregulation, it is an entirely different story. The prospect of Sears, Roebuck and Merrill Lynch as direct competitors would have been laughable as recently as ten years ago. Thus, emphasis on strategic marketing is no longer a matter of choice if these companies are to perform well. Third, many packaged-goods companies are acquiring companies in hitherto nonmarketing-oriented industries and are attempting to gain market share through strategic marketing. For example, apparel makers, with few exceptions, have traditionally depended on production excellence to gain competitive advantage. But when marketing-oriented consumer-products companies purchased apparel companies, the picture changed.

General Mills, through marketing strategy, turned Izod (the alligator shirt) into a highly successful business. Chesebrough-Pond’s has done much the same with Health-Tex, making it the leading marketer of children’s apparel. On acquiring Columbia Pictures in 1982, the Coca-Cola Company successfully tested the proposition that it could sell movies like soft drinks. By using Coke’s marketing prowess and a host of innovative financing packages, Columbia emerged as a dominant force in the motion picture business. It almost doubled its market share between 1982 and 1987 and increased profits by 20 percent annually. Although in the last few years Izod, Health-Tex, and Columbia Pictures have been sold, they fetched these marketing powerhouses huge prices for their efforts in turning them around. Fourth, shifts in the channel structure of many industries have posed new problems. Traditional channels of distribution have become scrambled, and manufacturers find themselves using a mixture of wholesalers, retailers, chains, buying groups, and even captive outlets. In some cases, distributors and manufacturers’ representatives are playing more important roles. In others, buying groups, chains, and cooperatives are becoming more significant. Because these groups bring greatly increased sophistication to the buying process, especially as the computer gives them access to more and better information, buying clout is being concentrated in fewer hands. Fifth, competition from overseas companies operating both in the United States and abroad is intensifying. More and more countries around the world are developing the capacity to compete aggressively in world markets. Businesspeople in both developed and developing countries are aware of world market trends and are confident that they can reach new markets. Eager to improve their economic conditions and their living standards, they are willing to learn, adapt, and innovate. Thirty years ago, most American companies were confident that they could beat foreign competitors with relative ease. After all, they reasoned, we have the best technology, the best management skills, and the famous American “can do’’ attitude. Today competition from Europe, Japan, and elsewhere is seemingly insurmountable. To cope with worldwide competition, renewed emphasis on marketing strategy achieves significance. Sixth, the fragmentation of markets - the result of higher per capita incomes and more sophisticated consumers - is another factor driving the increased importance of strategic marketing.

In the United States, for example, the number of segments in the automobile market increased by one-third, from 18 to 24, during the period from 1988 to 1995 (i.e., two subcompact, two compact, two intermediate, four full size, two luxury, three truck, two van, and one station wagon in 1978 to two minicompact, two subcompact, two compact, two midsized, two intermediate, two luxury, six truck, five van, and one station wagon in 1985). Many of these segments remain unserved until a company introduces a product offering that is tailored to that niche. The competitive realities of fragmented markets require strategic-marketing capability to identify untapped market segments and to develop and introduce products to meet their requirements. Seventh, in the wake of easy availability of base technologies and shortening product life cycles, getting to market quickly is a prerequisite for success in the marketplace. Early entrants not only can command premium prices, but they also achieve volume break points in purchasing, manufacturing, and marketing earlier than followers and, thus, gain market share. For example, in the European market, the first company to market car radios can typically charge 20 percent more for the product than a competitor who enters the market a year later. In planning an early entry into the marketplace, strategic marketing achieves significance. Eighth, the days are gone when companies could win market share by achieving cost and quality advantages in existing, well-defined markets. As we enter the next century, companies will need to conceive and create new and largely uncontested competitive market space. Corporate imagination and expeditionary policies are the keys that unlock new markets.

Corporate imagination involves going beyond served markets; that is, thinking about needs and functionalities instead of conventional customer-product grids; overturning traditional price/performance assumptions; and leading customers rather than following them. Creating new markets is a risky business; however, through expeditionary policies, companies can minimize the risk not by being fast followers but by the process of low-cost, fast-paced market incursions designed to reach the target market. To successfully develop corporate imagination and expeditionary policies, companies need strategic marketing. Consider this lesson in auto industry economics. Today it takes about 20 worker-hours to assemble a Ford Taurus with a retail price of, say, $18,000. Since labor costs about $42 an hour, the direct-assembly expense is $840, about 5% of the sticker price. By comparison, the cost of marketing and distributing the car can reach 30%. The costs include advertising, promotions (such as cash rebates and lease incentives), and dealer rent and mortgage payments plus inventory financing. Controlling marketing costs begins even before the vehicle leaves the drawing board or computer screen. By ensuring that a design meets the needs and desires of its customers - size, features, performance, and so on - a manufacturer can sell a new automobile for a higher price and avoid expensive rebates and other promotional gimmicks. Finally, demographic shifts in American society have created a new customer environment that makes strategic marketing an imperative. In years past, the typical American family consisted of a working dad, a homemaker mom, and two kids. But the 1990 census revealed that only 26 percent of the 93.3 million households then surveyed fit that description. Of those families reporting children under the age of 18, 63 percent of the mothers worked full- or part-time outside the home, up from 51 percent in 1985 and 42 percent in 1980. Smaller households now predominate: more than 55 percent of all households comprise only one or two persons. Even more startling, and frequently overlooked, is the fact that 9.7 million households are now headed by singles.

This fastest-growing segment of all - up some 60 percent over the previous decade - expanded mainly because of an increase in the number of men living alone. Further, about 1 in 8 Americans is 65 years or older today. This group is expected to grow rapidly such that by 2030, 1 in 5 Americans will be elderly. And senior citizens are around for a lot longer as life expectancy has risen. These statistics have strategic significance. The mass market has splintered, and companies can’t sell their products the way they used to. The largest number of households may fall into the two-wage-earner grouping, but that group includes everyone from manicurists to Wall Street brokers, a group whose lifestyles and incomes are too diverse to qualify as a mass market. We may see every market breaking into smaller and smaller units, with unique products being aimed at defined segments.