After SWOT analysis, the next step is goal formulation, developing specific goals for the planning period. Goals are objectives that are specific with respect to magnitude and time. Most business units pursue a mix of objectives, including profitability, sales growth, market share improvement, risk containment, and innovation. The business unit sets these objectives and then manages by objectives (MBO). For an MBO system to work, the unit’s objectives must be (1) arranged hierarchically, from most to least important; (2) quantitative whenever possible; (3) realistic; and (4) consistent. Other important trade-offs include short-term profit versus long-term growth, deep penetration of existing markets versus development of new markets, profit goals versus nonprofit goals, and high growth versus low risk. Each choice calls for a different marketing strategy.15
Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there. Every business must design a strategy for achieving its goals, consisting of a marketing strategy and a compatible technology strategy and sourcing strategy. Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking: overall cost leadership, differentiation, and focus.16
- • Overall cost leadership. Firms work to achieve the lowest production 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.
- • Differentiation. The business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market.
- • Focus. The business focuses on one or more narrow market segments, gets to know them intimately, and pursues either cost leadership or differentiation within the target segment.
Competing firms directing the same strategy to the same target market constitute a strategic group.17 The firm that carries out the strategy best will make the most profits. 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. Strategy, on the other hand, is “the creation of a unique and valuable 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” Even giant companies—AT&T, Philips, and Starbucks—often cannot achieve leadership, either nationally or globally, without forming alliances with domestic or multinational companies that complement or leverage their capabilities and resources. Marketing alliances may involve products or services (licensing or jointly marketing an offering), promotions (one company carrying a promotion for another), logistics (delivering or distributing another firm’s product), or pricing (offering mutual price discounts). To keep strategic alliances thriving, firms are developing organizational structures to support them, and many have come to view the ability to form and manage partnerships as core skills called partner relationship management (PRM).