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Principles of Marketing Unit 2: Marketing Environment and Strategy (SWOT, Ansoff)

Before choosing tactics, a firm needs a plan: a clear mission, an honest read of its environment, and a strategy for where to grow. This unit covers the tools marketers use to make those choices.

Covers: Mission and strategic planning, SWOT analysis, The BCG growth-share matrix, Ansoff product-market expansion grid, The microenvironment, The macroenvironment (PESTEL forces), Competitive strategies

Study guide

Strategic planning is the process of keeping a fit between an organization's goals and capabilities and its changing marketing opportunities. It starts with a mission statement, which says what the organization exists to do. A good mission is market-oriented, defining the business by the customer needs it serves rather than by its products: 'we help people organize and share information' lasts longer than 'we make search software.' From the mission come specific, measurable objectives, such as raising market share from 12% to 15% in two years. Marketing then designs strategies to meet those objectives, and the plan is reviewed as conditions change.

A SWOT analysis evaluates strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal: things the firm controls, such as a strong brand, a skilled sales force, outdated equipment or high debt. Opportunities and threats are external: favorable or unfavorable trends in the environment, such as a growing age group, a new law, a rival's entry or rising material costs. The goal is to match strengths to attractive opportunities while fixing weaknesses and guarding against threats. A frequent test error is labeling an external trend, like a recession, as a weakness; it is a threat, because the firm does not control it.

Firms with several businesses use portfolio tools. The BCG growth-share matrix places each strategic business unit (SBU) by market growth rate and relative market share. Stars have high share in a fast-growing market and need investment to keep growing. Cash cows have high share in a slow-growing market and generate cash. Question marks have low share in a fast-growing market and need cash to decide whether to build or drop them. Dogs have low share in slow markets and may be harvested or divested. Relative market share is the unit's share divided by the largest rival's share, so a value above 1.0 means the unit leads.

For growth, the Ansoff product-market expansion grid offers four options. Market penetration sells more current products to current markets, for example through lower prices or more advertising. Market development takes current products to new markets, such as new regions or new customer groups. Product development offers new products to current markets. Diversification launches new products in new markets and carries the most risk because the firm knows neither the product nor the customers. Michael Porter's generic strategies describe how to compete: overall cost leadership, differentiation, or focus on a narrow segment with either cost or differentiation.

The marketing environment includes everything outside marketing that affects its ability to build customer relationships. The microenvironment includes actors close to the firm: the company's other departments, suppliers, marketing intermediaries, competitors, publics and customers. The macroenvironment includes larger societal forces, often summarized as PESTEL: political, economic, social or cultural, technological, environmental (natural) and legal. Demographic trends, such as aging populations or growing diversity, are a major social force. Firms cannot control macro forces, but they can monitor them through environmental scanning and respond proactively, for example by lobbying, forming partnerships or adapting products early.

Key ideas

• A market-oriented mission defines the business by the customer needs it satisfies.
• In SWOT, strengths and weaknesses are internal, while opportunities and threats are external.
• The BCG matrix sorts business units into stars, cash cows, question marks and dogs by growth and relative share.
• Ansoff's grid ranks growth options from least risky (market penetration) to most risky (diversification).
• The microenvironment is the set of actors close to the firm; the macroenvironment is the broad societal forces.
• PESTEL forces cannot be controlled, but firms can scan for them and respond proactively.
• Porter's generic strategies are cost leadership, differentiation and focus.

Formulas and rules

Common mistakes

• Calling an outside trend such as a recession or a new competitor a weakness instead of a threat.
• Mixing up market development (new market, same product) with product development (new product, same market).
• Confusing stars and cash cows: both have high share, but only stars are in fast-growing markets.
• Placing competitors or suppliers in the macroenvironment instead of the microenvironment.
• Using raw market share instead of relative market share when placing a unit on the BCG matrix.

Before the test, make sure you can

• Explain what makes a mission statement market-oriented.
• Sort items into the correct SWOT category, separating internal from external factors.
• Calculate relative market share and place a business unit in the BCG matrix.
• Identify which Ansoff growth strategy a company is using and rank them by risk.
• Distinguish microenvironment actors from macroenvironment forces.
• Classify a trend under the correct PESTEL force.
• Identify cost leadership, differentiation and focus strategies from examples.

Words to know

Strategic planning

The process of developing and maintaining a fit between the organization's goals and capabilities and its changing marketing opportunities.

Mission statement

A statement of the organization's purpose: what it wants to accomplish in the larger environment.

SWOT analysis

An overall evaluation of a firm's internal strengths and weaknesses and its external opportunities and threats.

Strategic business unit (SBU)

A unit of the company with its own mission and objectives that can be planned independently from other businesses.

BCG growth-share matrix

A portfolio tool that classifies SBUs by market growth rate and relative market share.

Star

A high-growth, high-share business that often needs heavy investment to finance its growth.

Cash cow

A low-growth, high-share business that produces much of the cash the company uses elsewhere.

Question mark

A low-share business in a high-growth market that needs much cash just to hold its share.

Dog

A low-growth, low-share business that may generate enough cash to maintain itself but is not a strong source of cash.

Market penetration

Growth by increasing sales of current products to current market segments without changing the product.

Market development

Growth by identifying and developing new market segments for current products.

Product development

Growth by offering modified or new products to current market segments.

Diversification

Growth by starting or buying businesses outside the company's current products and markets.

Microenvironment

Actors close to the company that affect its ability to serve customers: the company, suppliers, intermediaries, competitors, publics and customers.

Macroenvironment

The larger societal forces that affect the microenvironment: demographic, economic, natural, technological, political and cultural forces.

Environmental scanning

Collecting and analyzing information about forces in the marketing environment.

Differentiation strategy

Competing by creating a product or brand that customers see as unique and worth a premium.

Cost leadership

Competing by achieving the lowest production and distribution costs in the industry so the firm can price lower than rivals.

Sample practice questions

30 more questions like these, from level 1 to 5, are in the practice set.