PORTER’S GENERIC STRATEGIES Michael Porter has pro-
posed three generic strategies that provide a good starting point for
strategic thinking:overall cost leadership,differentiation,and focus. 34
• Overall cost leadership. Firms work to achieve the lowest produc-
tion and distribution costs so they can underprice competitors
and win market share. They need less skill in marketing. The
problem is that other firms will usually compete with still-lower
costs and hurt the firm that rested its whole future on cost.
• Differentiation. The business concentrates on achieving supe-
rior performance in an important customer benefit area valued
by a large part of the market. The firm seeking quality leader-
ship, for example, must make products with the best
components,put them together expertly,inspect them carefully,
and effectively communicate their quality.
• Focus. The business focuses on one or more narrow market seg-
ments, gets to know them intimately, and pursues either cost
leadership or differentiation within the target segment.
The online air travel industry provides a good example of these three strategies: Travelocity is
pursuing a differentiation strategy by offering the most comprehensive range of services to the
traveler; Lowestfare is pursuing a lowest-cost strategy; and Last Minute is pursuing a niche strat-
egy by focusing on travelers who have the flexibility to travel on very short notice. Some
companies use a hybrid approach.
According to Porter, firms directing the same strategy to the same target market constitute a
strategic group. 35 The firm that carries out that strategy best will make the most profits. Circuit
City went out of business because it did not stand out in the consumer electronics industry as low-
est in cost, highest in perceived value, or best in serving some market segment.
Porter draws a distinction between operational effectiveness and strategy.Competitors can quickly
copy the operationally effective company using benchmarking and other tools, thus diminishing the
advantage of operational effectiveness. Porter defines strategy as “the creation of a unique and valu-
able position involving a different set of activities.” A company can claim it has a strategy when it
“performs different activities from rivals or performs similar activities in different ways.”
STRATEGIC ALLIANCES Even giant companies—AT&T, Philips, and Nokia—often cannot
achieve leadership, either nationally or globally, without forming alliances with domestic or multi- national companies that complement or leverage their capabilities and resources. Just doing business in another country may require the firm to license its product, form a joint venture with a local firm, or buy from local suppliers to meet “domestic content” requirements. Many firms have developed global strategic networks, and victory is going to those who build the better global network. The Star Alliance brings together 21 airlines, including Lufthansa, United Airlines, Singapore Airlines, Air New Zealand, and South Africa Airways, in a huge global partnership that allows travelers to make nearly seamless connections to hundreds of destinations. Many strategic alliances take the form of marketing alliances.These fall into four major categories. 1. Product or service alliances—One company licenses another to produce its product, or two
companies jointly market their complementary products or a new product. The credit card industry is a complicated combination of cards jointly marketed by banks such as Bank of America, credit card companies such as Visa, and affinity companies such as Alaska Airlines. 2. Promotional alliances—One company agrees to carry a promotion for another company’s product or service. McDonald’s teamed up with Disney for 10 years to offer products related to current Disney films as part of its meals for children.
3. Logistics alliances—One company offers logistical services for another company’s product. Warner Music Group and Sub Pop Records created the Alternative Distribution Alliance (ADA) in 1993 as a joint venture to distribute and manufacture records owned by independent labels. ADA is the leading “indie” distribution company in the United States for both physical and digital product. 4. Pricing collaborations—One or more companies join in a special pricing collaboration.Hotel and rental car companies often offer mutual price discounts.

The task of any business is to deliver customer value at a profit. In a hypercompetitive economy with increasingly informed buyers faced with abundant choices,a company can win only by fine tuning the value delivery process and choosing, providing, and communicating superior value.The Value Delivery Process
The traditional view of marketing is that the firm makes something and then sells it,with marketing taking place in the selling process. Companies that subscribe to this view have the best chance of succeeding in economies marked by goods shortages where consumers are not fussy about quality, features,or style—for example,basic staple goods in developing markets.This traditional view will not work, however, in economies with many different types of people,each with individual wants,perceptions,preferences,and buying criteria. The smart competitor must design and deliver offerings for well-defined target markets. This realization inspired a new view of business processes that places marketing at the beginningof planning. Instead of emphasizing making and selling,companies now see themselves as part of a value delivery process.We can divide the value creation and delivery sequence into three phases.2 First, choosing the value represents the “homework” marketing must do before any product exists. Marketers must segment the market,select the appropriate target,and develop the offering’s value positioning.The formula “segmentation, targeting, positioning (STP)”is the essence of strategic marketing.The second phase is providing the value. Marketing must determine specific product features, prices, and distribution. The task in the third phase is communicating the value by utilizing the sales force, Internet, advertising, and any other communication tools to announce and promote the product. The value delivery process begins before there is a product and continues through development and after launch. Each phase has cost implications. The Value Chain
Harvard’s Michael Porter has proposed the value chain as a tool for identifying ways to create more
customer value. 3 According to this model, every firm is a synthesis of activities performed to design, produce,market,deliver,and support its product.The value chain identifies nine strategically relevant
activities—five primary and four support activities—that create value and cost in a specific business.
The primary activities are (1) inbound logistics,or bringing materials into the business;(2) operations, or converting materials into final products; (3) outbound logistics, or shipping out final products; (4) marketing, which includes sales; and (5) service. Specialized departments handle thesupport activities—(1) procurement,(2) technology development,(3) human resource management, and (4) firm infrastructure. (Infrastructure covers the costs of general management, planning, finance,accounting,legal,and government affairs.) The firm’s task is to examine its costs and performance in each value-creating activity and look
for ways to improve it. Managers should estimate competitors’ costs and performances as benchmarks against which to compare their own. And they should go further and study the “best of class”practices of the world’s best companies.We can identify best-practice companies by consulting customers, suppliers, distributors, financial analysts, trade associations, and magazines tsee whom thetrate as doing the best job. Even the best companies can benchmark, against other industries if necessary, to improve their performance. To support its corporate goal to be more innovative, GE has benchmarked against P&G as well as developing its own best practices. 4 The firm’s success depends not only on how well each department performs its work, but also on how well the company coordinates departmental activities to conduct core business processes. 5 These processes include:
• The market-sensing process. All the activities in gathering and acting upon information
about the market
• The new-offering realization process. All the activities in researching, developing, and launching new high-quality offerings quickly and within budget
• The customer acquisition process. All the activities in defining target markets and prospecting for new customers
• The customer relationship management process. All the activities in building deeper understanding, relationships, and offerings to individual customers
• The fulfillment management process. All the activities in receiving and approving orders, shipping the goods on time, and collecting payment Strong companies are reengineering their work flows and building cross-functional teams to be responsible for each process. 6 At Xerox, a Customer Operations Group links sales, shipping, installation,service,and billing so these activities flow smoothly into one another.Winning companies excel at managing core business processes through cross-functional teams.AT&T, LexisNexis, and Pratt &
Whitney have reorganized their employees into cross-functional teams; cross-functional teams exist in nonprofit and government organizations as well. To be successful, a firm also needs to look for competitive advantages beyond its own operations, into the value chains of suppliers, distributors, and customers. Many companies today have

Connecting with Customers
Atlas must consider how to best create value for its chosen target markets and develop strong, profitable,long-term relationships with customers (see Chapter). To do so,it needs to understand consumer markets (see Chapter). Who buys cameras, and why? What features and prices are they looking for, and where do they shop? Atlas also sells cameras to business markets, including large corporations,professional firms,retailers,and government agencies (see Chapter),where purchasing agents or buying committees make the decisions.Atlas needs to gain a full understanding of how organizational buyers buy.It needs a sales force well trained in presenting product benefits.Atlas will not want to market to all possible customers. It must divide the market into major market segments, evaluate each one, and target those it can best serve (see Chapter)

Building Strong Brands
Atlas must understand the strengths and weaknesses of the Zeus brand as customers see it (see Chapter). Is its 35mm film heritage a handicap in the digital camera market? Suppose Atlas decides to focus on the consumer market and develop a positioning strategy (see Chapter). Should it position itself as the “Cadillac” brand,offering superior cameras at a premium price with excel-lent service and strong advertising? Should it build a simple, low-priced camera aimed at more price-conscious consumers? Or something in between? Atlas must also pay close attention to competitors (see Chapter), anticipating their moves and knowing how to react quickly and decisively. It may want to initiate some surprise moves, in which case it needs to anticipate how its competitors will respond.

Shaping the Market Offerings
At the heart of the marketing program is the product—the firm’s tangible offering to the market,which includes the product quality, design, features, and packaging (see Chapter). To gain a competitive advantage, Atlas may provide leasing, delivery, repair, and training as part of its product offering (see Chapter). A critical marketing decision relates to price (see Chapter). Atlas must decide on wholesale and retail prices, discounts, allowances, and credit terms. Its price should match well with the offer’s perceived value; otherwise, buyers will turn to competitors’ products.

Delivering Value
Atlas must also determine how to properly deliver to the target market the value embodied in its products and services.Channel activities include those the company undertakes to make the product accessible and available to target customers (see Chapter). Atlas must identify, recruit, and link various marketing facilitators to supply its products and services efficiently to the target market. It must understand the various types of retailers, wholesalers, and physical-distribution firms and how they make their decisions (see Chapter).

Communicating Value
Atlas must also adequately communicate to the target market the value embodied by its products and services.It will need an integrated marketing communication program that maximizes the individual and collective contribution of all communication activities (see Chapter). Atlas needs to set up mass communication programs consisting of advertising,sales promotion,events,and public relations (see Chapter). It also needs to plan more personal communications, in the form of direct and interactive marketing,as well as hire,train,and motivate salespeople (see Chapter).

Creating Successful Long-Term Growth
Based on its product positioning, Atlas must initiate new-product development, testing, and launching as part of its long-term view (see Chapter). The strategy should take into account changing global opportunities and challenges (see Chapter).

McCarthy classified various marketing activities into marketing-mix tools of four broad kinds, which he called the four Ps of marketing: product, price, place, and promotion. 55 The marketing variables under each P are shown in  Figure 1.4.Given the breadth, complexity, and richness of marketing, however—as exemplified by holistic marketing—clearly these four Ps are not the whole story anymore. If we update them to reflect the holistic marketing concept, we arrive at a more representative set that encompasses modern mar-keting realities: people, processes, programs, and performance, as in  Figure 1.5.People reflects, in part, internal marketing and the fact that employees are critical to marketing success. Marketing will only be as good as the people inside the organization.It also reflects the fact that marketers must view consumers as people to understand their lives more broadly,and not just as they shop for and consume products and services.Processes reflects all the creativity, discipline, and structure brought to marketing management. Marketers must avoid ad hoc planning and decision making and ensure that state-of-the-art marketing ideas and concepts play an appropriate role in all they do.Only by instituting the right set of processes to guide activities and programs can a firm engage in mutually beneficial long-term relationships. Another important set of processes guides the firm in imaginatively generating insights and breakthrough products, services,and marketing activities Programs reflects all the firm’s consumer-directed activities. It encompasses the old four Ps as well as a range of other marketing activities that might not fit as neatly into the old view of marketing. Regardless of whether they are online or offline, traditional or nontraditional, these activities must be integrated such that their whole is greater than the sum of their parts and they accomplish multiple objectives for the firm.

Marketing Management Tasks
With the holistic marketing philosophy as a backdrop, we can identify a specific set of tasks that make up successful marketing management and marketing leadership.We’ll use the following situation to illustrate these tasks in the context of the plan of the book. (The “Marketing Memo: Marketers’ Frequently Asked Questions” is a good checklist for the questions marketing managersask, all of which we examine in this book.) Zeus Inc. (name disguised) operates in several industries, including chemicals, cameras,and film. The company is organized into SBUs. Corporate management is considering what to do with its Atlas camera division, which produces a range of 35mm and digital cameras.Although Zeus has a sizable share and is producing revenue, the 35mm market is rapidly declining. In the much faster-growing digital camera segment, Zeus faces strong competition and has been slow to gain sales.Zeus’s corporate management wants Atlas’s marketing group to produce a strong turnaround plan for the division.

Developing Marketing Strategies and Plans

The first task facing Atlas is to identify its potential long-run opportunities, given its market experience and core competencies (see Chapter 2). Atlas can design its cameras with better features. It can make a line of video cameras, or it can use its core competency in optics to design a line of binoculars and telescopes. Whichever direction it chooses, it must develop concrete marketing plans that specify the marketing strategy and tactics going forward.
Capturing Marketing Insights
Atlas needs a reliable marketing information system to closely monitor its marketing environment so it can continually assess market potential and forecast demand. Its microenvironment consists of all the players who affect its ability to produce and sell cameras—suppliers, marketing intermediaries,customers,and competitors.Its macroenvironment includes demographic,economic,physical,technological,political-legal,and social-cultural forces that affect sales and profits (see Chapter 3). Atlas also needs a dependable marketing research system. To transform strategy into programs,marketing managers must make basic decisions about their expenditures, activities, and budget

Marketing Channels
To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers,magazines,radio, television, mail, telephone, billboards, posters, fliers, CD s, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores and Web sites and other media. Marketers are increasingly adding dialogue channels such as e-mail,blogs,and toll-free numbers to familiar monologue channels such as ads.
The marketer uses distribution channels to display, sell, or deliver the physical product or service(s) to the buyer or user.These channels may be direct via the Internet,mail,or mobile phone or telephone, or indirect with distributors, wholesalers, retailers, and agents as intermediaries. To carry out transactions with potential buyers, the marketer also uses service channels that in- clude warehouses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication,distribution,and service channels for their offerings.
Supply Chain
The supply chain is a longer channel stretching from raw materials to components to finished products carried to final buyers.The supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans, selling their harvest to wholesalers or perhaps a Fair Trade cooperative.If sold through the cooperative,the coffee is washed,dried,and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developing world where it can sell it directly or via retail channels.Eachcompany captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value.
Competition
Competition includes all the actual and potential rival offerings and substitutes a buyer might consider.An automobile manufacturer can buy steel from U.S.Steel in the United States,from a foreign firm in Japan or Korea,or from a minimill such as Nucor at a cost savings,or it can buy aluminum for certain parts from Alcoa to reduce the car’s weight, or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel.Clearly,U.S.Steel would be thinking too narrowly about its competition if it thought only of other integrated steel companies. In the long run, U.S. Steel is more likely to be hurt by substitute products than by other steel companies.
Marketing Environment
The marketing environment consists of the task environment and the broad environment.The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company,suppliers,distributors,dealers,and target customers.In the supplier group are material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers.
The broad environment consists of six components: demographic environment,economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Here are two good examples.

The Rolling Stones have done a masterful job of marketing their rebellious form of rock and roll to audiences of all ages.

EXPERIENCES By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World’s Magic Kingdom allows customers to visit a fairy kingdom, a pirate ship, or a haunted house. There is also a market for customized experiences, such as a week at a baseball camp with retired baseball greats,a four-day rock and roll fantasy camp,or a climb up Mount Everest.

PERSONS Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals all get help from celebrity marketers.Some people have done a masterful job of marketing themselves—David Beckham, Oprah Winfrey, and the Rolling Stones. Management consultant Tom Peters, a master at self-branding, has advised each person to become a “brand.”

PLACES Cities,states,regions,and whole nations compete to attract tourists,residents,factories,and company headquarters.Place marketers include economic development specialists,real estate agents, commercial banks, local business associations, and advertising and public relations agencies. The Las Vegas Convention & Visitors Authority succeeded with its provocative ad campaign,“What Happens Here, Stays Here,” portraying Las Vegas as “an adult playground.” In the recession of 2008, however, convention attendance declined. Concerned about its potentially out-of-step racy reputation, the Authority took out a full-page BusinessWeek ad to defend its ability to host serious business meetings.Unfortunately, the 2009 summer box office blockbuster The Hangover, set in a debauched Las Vegas,likely did not help the city position itself as a choice business and tourist destination.

PROPERTIES Properties are intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing.Real estate agents work for property owners or sellers,or they buy and sell residential or commercial real estate. Investment companies and banks market securities to both institutional and individual investors.

ORGANIZATIONS Organizations work to build a strong, favorable, and unique image in the minds of their target publics. In the United Kingdom, Tesco’s “Every Little Helps” marketing program reflects the food marketer’s attention to detail in everything it does,within the store and in the community and environment. The campaign has vaulted Tesco to the top of the UK supermarket chain industry. Universities, museums, performing arts organizations, corporations,and nonprofits all use marketing to boost their public images and compete for audiences and funds.

INFORMATION The production, packaging, and distribution of information are major industries. Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. The former CEO of Siemens Medical