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Developing Successful Organizational and Marketing Strategies

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LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO 2-1 Describe three kinds of organizations and the three levels of strategy in them.

LO 2-2 Describe core values, mission, organizational culture, business, and goals.

LO 2-3 Explain why managers use marketing dashboards and marketing metrics.

LO 2-4 Discuss how an organization assesses where it is now and where it seeks to be.

LO 2-5 Explain the three steps of the planning phase of the strategic marketing process.

LO 2-6 Describe the four components of the implementation phase of the strategic marketing process.

LO 2-7 Discuss how managers identify and act on deviations from plans.

Making the World a Better Place, One Scoop at a Time!

Ben & Jerry’s started in 1978 when longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to open an ice cream parlor in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 correspondence course in ice cream making, Ben and Jerry were off and scooping. Their first flavor? Vanilla—because it’s a universal best seller. Other flavors such as Chunky Monkey, Cherry Garcia, Peanut Butter Cup, and many others soon followed.

The ice cream flavors weren’t the only extraordinary thing about the company though. Ben and Jerry embraced a concept they called “linked prosperity,” which encouraged the success of all constituents including employees, suppliers, customers, and neighbors. They set out to achieve linked prosperity with a three-part mission statement:

The mission statement guided the entrepreneurs’ decisions related to many aspects of the business including purchasing practices, ingredient sourcing, manufacturing, and involvement in the community.

Ben and Jerry’s mission-driven approach led them to successfully implement many highly creative organizational and marketing strategies. Some examples include:

Product Mission: To make, distribute and sell the finest quality all-natural ice cream.

Economic Mission: To operate the company for sustainable financial growth.

Social Mission: To operate the company in ways that make the world a better place.

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Fairtrade. Ben & Jerry’s believes that farmers who grow ingredients for their ice cream products (such as cocoa, coffee, and vanilla) should receive a fair price for their harvest. In return Fairtrade farmers agree to use sustainable farming practices, implement fair working standards, and invest in local communities.

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B-Corp Certification. Ben & Jerry’s was one of the first companies involved in the Benefit Corporation movement, which has developed a rigorous set of principles and standards on which to evaluate companies in terms of social and environmental performance, accountability, and transparency. The certification, provided by the nonprofit organization B-Lab, indicates that Ben & Jerry’s is using the power of business to solve social and environmental problems.

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As you can see, Ben & Jerry’s has a strong link between its mission and its strategies. CEO Jostein Solheim explains that their purpose at Ben & Jerry’s is “to be part of a global movement that makes changing the world seem fun and achievable.”

Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is expected to reach $74 billion by 2018. While customers love Ben & Jerry’s rich premium ice cream, many buy its products to support its social mission. As a testament to its success, Ben & Jerry’s has over 7.5 million fans on Facebook—the most of any premium ice cream marketer!

Chapter 2 describes how organizations set goals to provide an overall direction to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented and then evaluated so deviations can be exploited or corrected based on the marketing environment.

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PartnerShop Program. PartnerShops are Ben & Jerry scoop shops that are independently owned and operated by community-based nonprofit organizations. The shops employ youth and young adults who may face barriers to employment to help them build better lives.

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LO 2-1

Describe three kinds of organizations and the three levels of strategy in them.

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TODAY’S ORGANIZATIONS In studying today’s organizations, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels of structure found in many large organizations.

Kinds of Organizations

An organization is a legal entity that consists of people who share a common mission. This motivates them to develop offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants. Today’s organizations are of three types: (1) for-profit organizations, (2) nonprofit organizations, and (3) government agencies.

A for-profit organization, often called a business firm, is a privately owned organization such as Target, Nike, or Cree that serves its customers to earn a profit so that it can survive. Profit is the money left after a for-profit organization subtracts its total expenses from its total revenues and is the reward for the risk it undertakes in marketing its

offerings.

Cree® LED Bulb Ad kerin.tv/13e/v2-1

In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Organizations like SIRUM and Teach For America, described in the Making Responsible Decis ions box, seek to solve the practical needs of society and are often structured as nonprofit organizations. For simplicity in the rest of the book, the terms firm, company, and organization are used interchangeably to cover both for-profit and nonprofit organizations.

Last, a government agency is a federal, state, county, or city unit that provides a specific service to its constituents. For example, the Census Bureau, a unit of the U.S. Department of Commerce, is a federal government agency that provides population and economic data.

Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry. As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance. Much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.

Cree is an example of a for-profit organization. Its Cree LED light bulb replaces traditional incandescent bulbs, consumes 85 percent less energy, and lasts 25,000 hours. © H.S. Photos/Alamy

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VIDEO 2-1

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Making Responsible Decisions

Social Entrepreneurs Are Creating New Types of Organizations to Pursue Social Goals

Each year a growing number of “social entrepreneurs” start new ventures that address important social needs and issues. These new enterprises are often organized as nonprofit organizations that combine traditional approaches for generating revenue with the pursuit of social goals. The issues they have focused on range from health care delivery, to increasing access to education, to improving agricultural efficiency. Some experts predict that these types of social ventures represent the new way of doing business.

One indication of the influence of these new types of organizations is Forbes magazine’s annual list of 30 Under 30 Social Entrepreneurs. Each year 30 of the most innovative new social ventures are featured in the article. For example, Kiah Willams left the Clinton Foundation to start SIRUM (Supporting Initiatives to Redistribute Unused Medicine). The organization works with health care systems to distribute unused prescription drugs (that would otherwise be destroyed) to patients who can’t afford to pay for the drugs. “We’re like the Match.com for unused drugs,” explains Williams.

Teach For America is another example of a creative nonprofit organization. Launched by college senior Wendy Kopp, Teach For America is the national corps of outstanding recent college graduates who commit to teach for two years in urban and rural public schools and become lifelong leaders in expanding educational opportunity. Each year more than 10,000 corps members teach 750,000 students.

These examples illustrate how organizations are changing to create value for a broad range of constituents by addressing the needs and challenges of society.

What Is Strategy?

An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists. For our purpose, strategy is an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals. All organizations set a

Social Responsibilit

y

Source: Forbes

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strategic direction. And marketing helps to both set this direction and move the organization there.

The Structure of Today’s Organizations

Large organizations are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as shown in Figure 2–1.

Corporate Level

The corporate level is where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing the organization’s overall strategy.

The president or chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills ranging from overseeing the organization’s daily operations to spearheading strategy planning efforts that may determine its very survival.

Figure 2–1 The board of directors oversees the three levels of strategy in organizations: corporate, strategic business unit, and functional.

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LO 2-2

Describe core values, mission, organizational culture, business, and goals.

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In recent years, many large firms have changed the title of the head of marketing from vice president of marketing to chief marketing officer (CMO). These CMOs have an increasingly important role in top management because of their ability to think strategically. Most bring multi-industry backgrounds, cross-functional management expertise, analytical skills, and intuitive marketing insights to their job. These CMOs are increasingly called upon to be their organizations’ “visionaries for the future” by staying in touch with consumers’ needs and wants.

Strategic Business Unit Level

Some multimarket, multiproduct firms, such as Prada and Johnson & Johnson, manage a portfolio or group of businesses. Each group is a strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined target market. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge.

Functional Level

Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (see Figure 2–1). At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level.

A key role of the marketing department is to look outward by listening to customers, developing offerings, implementing marketing program actions, and then evaluating whether those actions are achieving the organization’s goals. When developing marketing programs for new or improved offerings, an organization’s senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.

learning review

2-1. What is the difference between a for-profit and a nonprofit organization? 2-2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS To be successful, today’s organizations must be forward-looking. They must anticipate future events and then respond quickly and effectively to those events. In addition, they must thrive in today’s uncertain, chaotic, rapidly changing environment. A visionary organization must specify its foundation (why does it exist?), set a direction (what will it do?), and formulate strategies (how will it do it?), as shown in Figure 2–2.

Prada manages a portfolio or group of businesses—including perfume, leather goods, and luggage—each of which may be viewed as a strategic business unit (SBU). © Imaginechina via AP Images

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Organizational Foundation: Why Does It Exist?

An organization’s foundation is its philosophical reason for being—why it exists. Successful visionary organizations use this foundation to guide and inspire their employees through three elements: core values, mission, and organizational culture.

Core Values

Figure 2–2 Today’s visionary organizations use key elements to (1) establish a foundation and (2) set a direction using (3) strategies that enable them to develop and market their products successfully.

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An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time. A firm’s founders or senior management develop these core values, which are consistent with their essential beliefs and character. They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and guide the organization’s conduct. To be effective, an organization’s core values must be communicated to and supported by its top management and employees; if not, they are just hollow words.

Mission

By understanding its core values, an organization can take steps to define its mission , a statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statement should be clear, concise, meaningful, inspirational, and long-term.

Southwest Airlines kerin.tv/13e/v2-2

Inspiration and focus appear in the mission statement of for-profit organizations, as well as nonprofit organizations and government agencies. For example:

Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future.

Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile. This is what Ben & Jerry’s social mission statement shows in the chapter opener. Stakeholders, particularly customers, employees, and now society, are asking organizations to be exceptional citizens by providing long-term value while solving society’s problems.

Organizational Culture

An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them. These activities send clear messages to employees and other stakeholders about organizational culture —the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

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VIDEO 2-2

Southwest Airlines: “To be dedicated to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”13

American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.”14

Federal Trade Commission: “To prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.”

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Organizational Direction: What Will It Do?

Providing a warm, friendly experience is part of Southwest Airlines’ organizational strategy. Source: © Southwest

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As shown in Figure 2–2, the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals.

Business

A business describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell

similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions “What do we do?” or “What business are we in?”

Professor Theodore Levitt saw that 20th-century American railroads defined their business too narrowly, proclaiming, “We are in the railroad business!” This myopic focus caused them to lose sight of who their customers were and what they needed. So railroads failed to develop strategies to compete with airlines, barges, pipelines, and trucks. As a result, many railroads merged or went bankrupt. Railroads should have realized they were in “the transportation business.”

With today’s increased global competition, many organizations are rethinking their business model, the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. American newspapers are looking for a new business model as former subscribers now get their news online. Bookstore retailer Barnes & Noble, too, is rethinking its business model as e-book readers like Amazon’s Kindle and Apple’s iPad have gained widespread popularity.

UPS Ad kerin.tv/13e/v2-3

United Parcel Service (UPS), the company known for its brown delivery trucks, is redefining its business. The company recently launched a new campaign with the tagline “United Problem Solvers,” which replaced its previous “We Love Logistics” campaign. Some of the language from the campaign explains the new perspective: “Bring us your problems. Your challenges. Your daydreams. Your scribbles. Your just about anything. Because we’re not just in the shipping business. We’re in the problem solving business.” Taking a lesson from Theodore Levitt, UPS now sees itself as a service that can solve important and complicated problems for its customers, rather than a package delivery business.

Goals

Goals or objectives (terms used interchangeably in this book) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals:

In the first half of the 20th century, what “business” did railroad executives believe they were in? The text reveals their disastrous error. © Digital Vision

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Why is UPS changing the definition of its business? See the text for the answer. Source: UPS

VIDEO 2-3

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Profit. Most firms seek to maximize profits—to get as high a financial return on their investments (ROI) as possible.

Sales (dollars or units). If profits are acceptable, a firm may elect to maintain or increase its sales even though profits may not be maximized. Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.

Quality. A firm may seek to offer a level of quality that meets or exceeds the cost and performance expectations of its customers. Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints.

Employee welfare. A firm may recognize the critical importance of its employees by stating its goal of providing them with good employment opportunities and working conditions. Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits.

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LO 2-3

Explain why managers use marketing dashboards and marketing metrics.

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Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good.

Organizational Strategies: How Will It Do It?

As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and the organizational direction sets the “what.” To convert these into actual results, the organizational strategies are concerned with the “how.” These organizational strategies vary in at least two ways, depending on (1) a strategy’s level in the organization and (2) the offerings an organization provides to its customers.

Variation by Level

Moving down the levels in an organization involves creating increasingly specific, detailed strategies and plans. So, at the corporate level, top managers may struggle with writing a meaningful mission statement; while at the functional level, the issue is who makes tomorrow’s sales call.

Variation by Product

Organizational strategies also vary by the organization’s products. The strategy will be far different when marketing a very tangible physical good (Ben & Jerry’s ice cream), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross).

Most organizations develop a marketing plan as a part of their strategic marketing planning efforts. A marketing plan is a road map for the marketing actions of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later) usually results in a marketing plan that directs the marketing actions of an organization. Appendix A at the end of this chapter provides guidelines for writing a marketing plan.

learning review

2-3. What is the meaning of an organization’s mission? 2-4. What is the difference between an organization’s business and its goals?

Tracking Strategic Performance with Marketing Analytics

Although marketing managers can set strategic direction for their organizations, how do they know if they are making progress in getting there? As several industry experts have observed, “You can’t manage what you don’t measure.” One answer to this problem is the growing field of data analytics, or big data, which enables data-driven decisions by collecting data and presenting them in a visual format such as a marketing dashboard.

Car Dashboards and Marketing Dashboards

A marketing dashboard is the visual display of the essential information related to achieving a marketing objective. Often, active hyperlinks provide further detail. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new TV

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advertising campaign is on a product’s sales.

The idea of a marketing dashboard really comes from the display of information found on a car’s dashboard. On a car’s dashboard, we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table and makes a decision whether to take action or to analyze the problem further.

Dashboards, Metrics, and Plans

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The marketing dashboard of Sonatica, a hypothetical hardware and software firm, appears in Figure 2–3. It shows graphic displays of key performance indicators linked to its product lines. Each display in a marketing dashboard shows a marketing m etric , which is a measure of the quantitative value or trend of a marketing action or result. Choosing which marketing metrics to display is critical for a busy manager, who can be overwhelmed with irrelevant data.

Today’s marketers use data visualization, which presents information about an organization’s marketing metrics graphically so marketers can quickly (1) spot deviations from plans during the evaluation phase and (2) take corrective actions. This book uses data visualization in many figures to highlight in color key points described in the text. The Sonatica marketing dashboard in Figure 2–3 uses data visualization tools like a pie chart, a line or bar chart, and a map to show how parts of its business are performing as of December 2015:

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Figure 2–3 An effective marketing dashboard, like this one from Sonatica, a hypothetical hardware and software firm, helps managers assess a business situation at a glance. Dundas Data Visualization, Inc.

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Website Traffic Sources. The color-coded perimeter of the pie chart shows the three main sources of website traffic (referral sites at 47 percent, search engines at 37 percent, and direct traffic at 16 percent). These three colors link to those of the circles in the column of website traffic sources. Of the 47 percent of traffic coming from referral sites, the horizontal bullet graphs to the right show that Sonatica’s Facebook visits comprise 15 percent of total website traffic, up from a month ago (as shown by the vertical line).

Sales Performance by SBU. The spark lines (the wavy lines in the far left column) show the 13-month trends of Sonatica’s strategic business units (SBUs). For example, the trends in electronics and peripherals are generally up, causing their sales to exceed their YTD (year to date) targets. Conversely, both software and hardware sales failed to meet YTD targets, a problem quickly noted by a marketing manager seeing the red “warning” circles in their rows at the far right. This suggests that immediate corrective actions are needed for the software and hardware SBUs. Website Visits by State. The U.S. map shows that the darker the state, the greater the number of website visits for the current month. For example, Texas has close to 20,000 visits per month, while Illinois has none.

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Applying Marketing Metrics

How Well Is Ben & Jerry’s Doing?

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As the marketing manager for Ben & Jerry’s, you need to assess how it is doing within the United States in the super-premium ice cream market in which it competes. For this, you choose two marketing metrics: dollar sales and dollar market share.

Your Challenge

Scanner data from checkout counters in supermarkets and other retailers show the total industry sales of super-premium ice cream were $1.25 billion in 2015. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit in 2015. A “unit” in super-premium ice cream is one pint.

Your Findings

Dollar sales and dollar market share can be calculated for 2015 using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows:

Dollar sales ($) = Average price × Quantity sold = $5.00 × 50 million units = $250 million

Dollar market share (%) =

=

= 0.20 or 20%

Ben & Jerry’s sales ($)

Total industry sales ($)

$250 million $1.25 billion

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LO 2-4

Discuss how an organization assesses where it is now and where it seeks to be.

Your dashboard displays show that from 2014 to 2015 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent.

Your Action

The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. This will lead to marketing actions.

The Ben & Jerry’s dashboard in the Applying Marketing Metrics box shows how the two widely used marketing metrics of dollar sales and dollar market share can help the company assess its growth performance from 2014 to 2015. The Applying Marketing Metrics boxes in later chapters highlight other key marketing metrics and how they can lead to marketing actions.

SETTING STRATEGIC DIRECTIONS To set a strategic direction, an organization needs to answer two difficult questions: (1) Where are we now? and (2) Where do we want to go?

A Look Around: Where Are We Now?

Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors.

Competencies

Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies,

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and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to success. Competencies should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.

Customers

Ben & Jerry’s customers are ice cream and frozen yogurt eaters who have different preferences (form, flavor, health, and convenience). Medtronic’s pacemaker customers include cardiologists and heart surgeons who serve patients that need this type of device. Lands’ End communicates a remarkable commitment to its customers and its product quality with these unconditional words:

Guaranteed. Period.

The Lands’ End website points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers, it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have a satisfying experience.

Competitors

In today’s global marketplace, the distinctions among competitors are increasingly blurred. Lands’ End started as a catalog retailer. But today, Lands’ End competes with not only other clothing catalog retailers but also traditional department stores, mass merchandisers, and specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing in any of these stores directly competes with Lands’ End offerings, all of these retailers have websites to sell their offerings over the Internet. This means there’s a lot of competition out there.

Growth Strategies: Where Do We Want to Go?

Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis.

Business Portfolio Analysis

Successful organizations have a portfolio or range of offerings (products and services) that possess different growth rates and market shares within the industry in which they operate. The Boston Consulting Group (BCG), an internationally known management consulting firm, has developed business portfolio analysis . It is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ SBUs as though they were a collection of separate investments. The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash to fund the organization’s growth opportunities.

Marketing Matters

Filling the Shoes of Apple CEO Tim Cook: Where Will Apple’s Projected Future Growth for Its Major SBUs Come From?

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Lands’ End’s unconditional guarantee for its products highlights its focus on customers. © Rick Armstrong

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Technology

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Every CEO of a for-profit organization faces one problem in common: trying to find ways to increase future sales and profits to keep it growing!

Put yourself in Tim Cook’s shoes. One of his jobs is to search for new growth opportunities. Using your knowledge about Apple products, do a quick analysis of four SBUs shown below to determine where Apple should allocate its time and resources. Rate these growth opportunities from highest to lowest in terms of percentage growth in unit sales from 2015 to 2018:

We’ll walk you through possible answers. You then can evaluate your performance over the next two pages and decide whether you’re really ready for Mr. Cook’s job!

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iPod

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iPhone

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iPad/iPad mini

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All product photos: Source: Apple Inc.

As described in the Marketing Matters box, let’s assume you are filling the shoes of Apple CEO Tim Cook. Based on your knowledge of Apple

Apple Watch

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products, you are currently conducting a quick analysis of four major Apple SBUs through 2018. Try to rank them from highest to lowest in terms of percentage growth in expected unit sales. We will introduce you to business portfolio analysis as we look at the possible future of the four Apple SBUs.

The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is the relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of 10× (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1× (at the right end of the scale) means it has only 10 percent of the share of its largest competitor.

The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization:

Figure 2–4 Boston Consulting Group (BCG) business portfolio analysis for four of Apple’s consumer- related SBUs. The red arrow indicates typical movement of a product through the matrix. All product photos: Source: Apple Inc.

1. Question marks are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest.

2. Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.

3. Cash cows are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.

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4. Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they may no longer be or may not become real winners for the organization. Dropping SBUs that are dogs may be required if they consume more cash than they generate, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.32

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An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on the market growth rate, its main objective is to try to change its relative dollar or unit market share. To do this, management decides what strategic role each SBU should have in the future and either injects cash into or removes cash from it.

According to Interbrand, a leading brand management consulting firm, Apple has been consistently cited as one of the top global brands over the past decade in its annual Best Global Brands survey. What has made Apple so iconic is not only its revolutionary products but also its commitment to infusing the “human touch” with its technology such that its customers connect with the brand on both a cognitive and an emotional level. The late Steve Jobs was instrumental in creating Apple’s organizational culture and core values that will continue to guide its future.

Using the BCG business portfolio analysis framework, Figure 2–4 shows that the Apple picture might look this way from 2015 to 2018 for four of its SBUs:

What can Apple expect in future growth of sales revenues from its iPhone products… Source: Apple Inc.

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So, how did you—as Tim Cook—rank the growth opportunity for each of the four SBUs? The Apple Watch represents the highest unit growth rate at more than 100 percent. The iphone SBU is likely to continue growing at almost 10 percent, while the iPad SBU is experiencing a declining growth rate. Despite the difference in growth rates, the iPhone and iPad product lines together accounted for 72 percent of Apple’s revenues in 2014. These revenues are used to pursue growth opportunities such as the Apple Watch, a next generation phone, and a huge 13- inch iPad. Finally, no growth and the discontinuation of the iPod classic may signal the beginning of the end for Apple’s iPod.

The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.

Diversification Analysis