As far as marketing is concerned, the strategy for a product is formulated around one or more marketing mix variables. In examining present strategy, the purpose is to pinpoint those perspectives of the marketing mix that currently dominate strategy. The current strategy of a product may be examined by seeking answers to the following two questions:

1. What markets do we have?

2. How is each market served?

What Markets Do We Have?

Answering this question involves consideration of several aspects of the market:

1. Recognize different market segments in which the product is sold.

2. Build a demographic profile of each segment.

3. Identify important customers in each segment.

4. Identify those customers who, while important, also do business with competitors.

5. Identify reasons each important customer may have for buying the product from us. These reasons may be economic (e.g., lower prices), functional (e.g., product features not available in competing products), and psychological (e.g., “this perfume matches my individual chemistry”).

6. Analyze the strategic perspective of each important customer as it concerns the purchase of our product. This analysis is relevant primarily for business customers. For example, an aluminum company should attempt to study the strategy of a can manufacturer as far as its aluminum can business is concerned. Suppose that the price of aluminum is consistently rising and more and more can manufacturers are replacing all-aluminum cans with cans of a new alloy of plastic and paper. Such strategic perspectives of an important customer should be examined.

7. Consider changes in each customer’s perspectives that may occur in the next few years. These changes may become necessary because of shifts in the customer’s environment (both internal and external), abilities, and resources.

If properly analyzed, information concerning what markets a company has should provide insight into why customers buy the company’s products and how likely it is that they will do business with the company in the future. For example, a paper manufacturer discovered that most of his customers did business with him because, in their opinion, his delivery schedules were more flexible than those of other suppliers. The quality of his paper might have been superior, too, but this was not strategically important to his customers.

How Is Each Market Served? Acareful examination of this information will reveal the current strategy the company utilizes to serve its main markets. For example, analysis of the information may reveal the following facts pertaining to a breakfast cereal: Of the seven different segments in the market, the product is extremely popular in two segments. Customers buy the product mainly for health reasons or because of a desire to consume “natural” foods. This desire is strong enough for customers to pay a premium price for the product. Further, customers are willing to make a trip to another store (other than their regular grocery store) to buy this product. Different promotional devices keep customers conscious of the “natural” ingredients in the product. This analysis may point toward the following strategy for the product: Where strategy in the past has not been systematically formulated, recognition of current strategy will be more difficult. In this case, strategy must be inferred from the perspectives of different marketing decisions.

Past Performance Evaluation of past performance is invaluable in measuring strengths and weaknesses because it provides historical insights into a company’s marketing strategy and its success. Historical examination should not be limited to simply noting the directions that the company adopted and the results it achieved but should also include a search for reasons for these results. Strategically, the following three types of analysis should be undertaken to measure past performance: product performance profile, market performance profile, and financial performance profile. Aproduct may contribute to company performance in six different ways: through profitability, image of product leadership, furnishing a base for further technological growth, support of total product line, utilization of company resources (e.g., utilization of excess plant capacity), and provision of customer benefits (vis-à-vis the price paid). An example of this last type of contribution is a product that is a small but indispensable part of another product or process with low cost relative to the value of the finished product. Tektronics, a manufacturer of oscilloscopes, is an example. An oscilloscope is sold along with a computer. It is used to help install the computer, to test it, and to monitor its performance. The cost of the oscilloscope is small when one considers the essential role it plays in the use of the much more expensive computer. In analyzing how well a company is doing in the segments it serves, a good place to begin is with the marginal profit contribution of each customer or customer group. Other measures used are market share, growth of end user markets, size of customer base, distribution strength, and degree of customer loyalty. Of all these, only distribution strength requires some explanation. Distribution and dealer networks can greatly influence a company’s performance because it takes an enormous effort to cultivate dealers’ loyalty and get repeat business from them. Distribution strength, therefore, can make a significant difference in overall performance. The real value of a strategy must be reflected in financial gains and market achievements. To measure financial performance, four standards may be employed for comparison: (a) the company’s performance, (b) competitor’s performance, (c) management expectations, and (d) performance in terms of resources committed. With these standards, for the purposes of marketing strategy, financial performance can be measured with respect to the following variables:

1. Growth rate (percentage).

2. Profitability (percentage), that is, rate of return on investment.

3. Market share (percentage as compared with that of principal competitors).

4. Cash flow.

It is desirable to analyze financial performance for a number of years to determine the historical trend of performance. To show how financial performance analysis may figure in formulating marketing strategy, consider the following example: A maker of confectioneries that offers more than one hundred brands, flavors and packagings, prunes its lines regularly and routinely of those items having the lowest profit contribution, sales volume, and vitality for future growth. . . . Each individual product has been ranked on these three factors, and an “index of gross profitability” has been prepared for each in conjunction with annual marketing plans. These plans take into account longer-term objectives for the business, trends in consumer wants and expectations, competitive factors in the marketplace and, lastly, a deliberately ordered “prioritization” of the company’s resources. Sales and profit performance are then checked against projected targets at regular intervals through the year, and the indexes of gross profitability are adjusted when necessary. The firm’s chief executive emphasizes that even individual items whose indexes of profitability are ranked at the very bottom are nonetheless profitable and paying their way by any customary standard of return on sales and investment. But the very lowest-ranking items are regularly reviewed; and, on a judgmental basis, some are marked for pruning at the next convenient opportunity. This opportunity is most likely to arrive when stocks of special ingredients and packaging labels for the items have been exhausted. In a recent year, the company dropped 16 items that were judged to be too low on its index of gross profitability. Calculated and selective pruning is regarded within the company as a healthy means of working toward the best possible mix of products at all times. It has the reported advantages of increasing efficiencies in manufacturing as a result of cutting the “down time” between small runs, reducing inventories, and freeing resources for the expansion of the most promising items or the development of new ones without having to expand productive capacity. Another important benefit is that the sales force concentrates on a smaller line containing only the most profitable products with the largest volumes. On the negative side, however, it is acknowledged that pruning, as the company practices it, may result in near-term loss of sales for a line until growth of the rest of the items can compensate.

Appraising Marketing Excellence

Marketing is concerned with the activities required to facilitate the exchange process toward managing demand. The perspectives of these activities are founded on marketing strategy. To develop a strategy, a company needs a philosophical orientation. Four different types of orientation may be considered: manufacturing, sales, technology, and marketing. Manufacturing orientation emphasizes a physical product or a service and assumes that the customer will be pleased with it if it has been well conceived and developed. Sales orientation focuses on promoting the product to make the customer want it. The thrust of technology orientation is on reaching the customer through new and varied products made feasible through technological innovations. Under marketing orientation, first the customer group that the firm wishes to serve is designated. Then the requirements of the target group are carefully examined. These requirements become the basis of product or service conception and development, pricing, promotion, and distribution. Their approach should be unconstrained by functional boundaries. Without neglecting either near- or medium-term profitability, they should concentrate on building a position for tomorrow.Despite the lip service that has been paid to marketing for more than 30 years, it remains one of the most misunderstood functions of a business. According to Canning, only a few corporations, Procter & Gamble, Citibank, Avon, McDonald’s, Emerson Electric, and Merck, for example, really understand and practice true marketing. Inasmuch as marketing orientation is a prerequisite for developing a successful marketing strategy, it behooves a company to thoroughly examine its marketing orientation. The following checklist of 10 questions provides a quick self-test for a company that wants a rough measure of its marketing capabilities.

• Has your company carefully segmented the various segments of the consumer market that it serves?

• Do you routinely measure the profitability of your key products or services in each of these consumer market segments?

• Do you use market research to keep abreast of the needs, preferences, and buying habits of consumers in each segment?

• Have you identified the key buying factors in each segment, and do you know how your company compares with its competitors on these factors?

• Is the impact of environmental trends (demographic, competitive, lifestyle, governmental) on your business carefully gauged?

• Does your company prepare and use an annual marketing plan?

• Is the concept of “marketing investment” understood and practiced in your company?

• Is profit responsibility for a product line pushed below the senior management level?

• Does your organization “talk” marketing?

• Did one of the top five executives in your company come up through marketing? The number of yes answers to these questions determines the marketing orientation of a company. For example, a score of nine or ten yes answers would mean that the company has a strong marketing capability; six to eight would indicate that the firm is on the way; and fewer than six yes answers would stress that the firm is vulnerable to marketing-minded competitors. Essentially, truly marketing- oriented firms are consumer oriented, take an integrated approach to planning, look further ahead, and have highly developed marketing systems. In such firms, marketing dominates the corporate culture. A marketing-oriented culture is beneficial in creating sustainable competitive advantage. It becomes one of the internal strengths an organization possesses that is hard to imitate, is more durable, and is not transparent nor transferable. This analysis reveals the overall marketing effectiveness of the company and highlights the areas that are weak and require management action. Management may take appropriate action management training, reorganization, or installation of measures designed to yield improvements with or without the help of consultants. If weaknesses cannot be addressed, the company must live with them, and the marketing strategist should take note of them in the process of outlining the business’s future direction. A marketing orientation perspective of a firm largely reflects its marketing excellence.