netrashetty
Netra Shetty
Chevron Corporation (NYSE: CVX Euronext: CHTEX) is an American multinational energy corporation. Headquartered in San Ramon, California, and active in more than 180 countries, it is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron is one of the world's six "supermajor" oil companies. For the past five years, Chevron has been continuously ranked as one of America's 5 largest corporations by Fortune 500.[2]
The marketing concept and philosophy is one of the simplest ideas in marketing, and at the same time, it is also one of the most important marketing philosophies. At its very core are the customer and his or her satisfaction. The marketing concept and philosophy states that the organization should strive to satisfy its customers' wants and needs while meeting the organization's goals. In simple terms, "the customer is king".
The implication of the marketing concept is very important for management. It is not something that the marketing department administers, nor is it the sole domain of the marketing department. Rather, it is adopted by the entire organization. From top management to the lowest levels and across all departments of the organization, it is a philosophy or way of doing business. The customers' needs, wants, and satisfaction should always be foremost in every manager and employees' mind. Wal-Mart's motto of "satisfaction guaranteed" is an example of the marketing concept. Whether the Wal-Mart employee is an accountant or a cashier, the customer is always first.
As simple as the philosophy sounds, the concept is not very old in the evolution of marketing thought. However, it is at the end of a succession of business philosophies that cover centuries. To gain a better understanding of the thought leading to the marketing concept, the history and evolution of the marketing concept and philosophy are examined first. Next, the marketing concept and philosophy and some misconceptions about it are discussed.
EVOLUTION OF THE MARKETING
CONCEPT AND PHILOSOPHY
The marketing concept and philosophy evolved as the last of three major philosophies of marketing. These three philosophies are the product, selling, and marketing philosophies. Even though each philosophy has a particular time when it was dominant, a philosophy did not die with the end of its era of dominance. In fact, all three philosophies are being used today.
PRODUCT PHILOSOPHY.
The product philosophy was the dominant marketing philosophy prior to the Industrial Revolution and continued to the 1920s. The product philosophy holds that the organization knows its product better than anyone or any organization. The company knows what will work in designing and producing the product and what will not work. For example, the company may decide to emphasize the low cost or high quality of their products. This confidence in their ability is not a radical concept, but the confidence leads to the consumer being overlooked. Since the organization has the great knowledge and skill in making the product, the organization also assumes it knows what is best for the consumer.
This philosophy of only relying on the organization's skill and desires for the product did not lead to poor sales. In much of the product philosophy era, organizations were able to sell all of the products that they made. The success of the product philosophy era is due mostly to the time and level of technology in which it was dominant. The product era spanned both the pre-Industrial Revolution era and much of the time after the Industrial Revolution.
The period before the Industrial Revolution was the time when most goods were made by hand. The production was very slow and few goods could be produced. However, there was also a demand for those goods, and the slow production could not fill the demand in many cases. The importance for management of this shortage was that very little marketing was needed.
An example illustrates the effects of the shortages. Today, the gunsmith shop in Williamsburg, Virginia, still operates using the product philosophy. The gunsmiths produce single-shot rifles using the technology available during the 1700s. They are only able to produce about four or five rifles every year, and they charge from $15,000 to $20,000 for each rifle. However, the high price does not deter the demand for the guns; their uniqueness commands a waiting list of three to four years. Today's Williamsburg Gunsmith Shop situation was typical for organizations operating before the Industrial Revolution. Most goods were in such short supply that companies could sell all that they made. Consequently, organizations did not need to consult with consumers about designing and producing their products.
When mass production techniques created the Industrial Revolution, the volume of output was greatly increased. Yet the increased production of goods did not immediately eliminate the shortages from the pre-industrial era. The new mass production techniques provided economies of scale allowing for lower costs of production and corresponding lower prices for goods. Lower prices greatly expanded the market for the goods, and the new production techniques were struggling to keep up with the demand. This situation meant that the product philosophy would work just as well in the new industrial environment. Consumers still did not need to be consulted for the organization to sell its products.
One of the many stories about Henry Ford illustrates the classic example of the product philosophy in use after the Industrial Revolution. Henry Ford pioneered mass production techniques in the automobile industry. With the techniques, he offered cars at affordable prices to the general public. Before this time, cars were hand made, and only the very wealthy could afford them. The public enthusiastically purchased all the Model T Fords that the company could produce. The evidence that the product philosophy was alive and well in Ford Motor Company came in Henry Ford's famous reaction to consumer requests for more color options. He was said to have responded that "you can have any color car you want as long as it is black." Realizing that different colors would increase the cost of production and price of the Model T's, Henry Ford, using the product philosophy, decided that lower prices were best for the public.
SELLING PHILOSOPHY.
The selling era has the shortest period of dominance of the three philosophies. It began to be dominant around 1930 and stayed in widespread use until about 1950. The selling philosophy holds that an organization can sell any product it produces with the use of marketing techniques, such as advertising and personal selling. Organizations could create marketing departments that would be concerned with selling the goods, and the rest of the organization could be left to concentrate on producing the goods.
The reason for the emergence of the selling philosophy was the ever-rising number of goods available after the Industrial Revolution. Organizations became progressively more efficient in production, which increased the volume of goods. With the increased supply, competition also entered production. These two events eventually led to the end of product shortages and the creation of surpluses. It was because of the surpluses that organizations turned to the use of advertising and personal selling to reduce their inventories and sell their goods. The selling philosophy also enabled part of the organization to keep focusing on the product, via the product philosophy. In addition, the selling philosophy held that a sales or marketing department could sell whatever the company produced.
CORPORATE PORTFOLIO ANALYSIS
One way to think of corporate-level strategy is to compare it to an individual managing a portfolio of investments. Just as the individual investor must evaluate each individual investment in the portfolio to determine whether or not the investment is currently performing to expectations and what the future prospects are for the investment, managers must make similar decisions about the current and future performances of various businesses constituting the firm's portfolio. The Boston Consulting Group (BCG) matrix is a relatively simple technique for assessing the performance of various segments of the business.
The BCG matrix classifies business-unit performance on the basis of the unit's relative market share and the rate of market growth as shown in Figure 1.
Figure 1
BCG Model of Portfolio Analysis
Products and their respective strategies fall into one of four quadrants. The typical starting point for a new business is as a question mark. If the product is new, it has no market share, but the predicted growth rate is good. What typically happens in an organization is that management is faced with a number of these types of products but with too few resources to develop all of them. Thus, the strategic decision-maker must determine which of the products to attempt to develop into commercially viable products and which ones to drop from consideration. Question marks are cash users in the organization. Early in their life, they contribute no revenues and require expenditures for market research, test marketing, and advertising to build consumer awareness.
If the correct decision is made and the product selected achieves a high market share, it becomes a BCG matrix star. Stars have high market share in high-growth markets. Stars generate large cash flows for the business, but also require large infusions of money to sustain their growth. Stars are often the targets of large expenditures for advertising and research and development to improve the product and to enable it to establish a dominant position in the industry.
Cash cows are business units that have high market share in a low-growth market. These are often products in the maturity stage of the product life cycle. They are usually well-established products with wide consumer acceptance, so sales revenues are usually high. The strategy for such products is to invest little money into maintaining the product and divert the large profits generated into products with more long-term earnings potential, i.e., question marks and stars.
Dogs are businesses with low market share in low-growth markets. These are often cash cows that have lost their market share or question marks the company has elected not to develop. The recommended strategy for these businesses is to dispose of them for whatever revenue they will generate and reinvest the money in more attractive businesses (question marks or stars).
Despite its simplicity, the BCG matrix suffers from limited variables on which to base resource allocation decisions among the business making up the corporate portfolio. Notice that the only two variables composing the matrix are relative market share and the rate of market growth. Now consider how many other factors contribute to business success or failure. Management talent, employee commitment, industry forces such as buyer and supplier power and the introduction of strategically-equivalent substitute products or services, changes in consumer preferences, and a host of others determine ultimate business viability. The BCG matrix is best used, then, as a beginning point, but certainly not as the final determination for resource allocation decisions as it was originally intended. Consider, for instance, Apple Computer. With a market share for its Macintosh-based computers below ten percent in a market notoriously saturated with a number of low-cost competitors and growth rates well-below that of other technology pursuits such as biotechnology and medical device products, the BCG matrix would suggest Apple divest its computer business and focus instead on the rapidly growing iPod business (its music download business). Clearly, though, there are both technological and market synergies between Apple's Macintosh computers and its fast-growing iPod business. Divesting the computer business would likely be tantamount to destroying the iPod business.
A more stringent approach, but still one with weaknesses, is a competitive assessment. A competitive assessment is a technique for ranking an organization relative to its peers in the industry. The advantage of a competitive assessment over the BCG matrix for corporate-level strategy is that the competitive assessment includes critical success factors, or factors that are crucial for an organizational to prevail when all organizational members are competing for the same customers. A six-step process that allows corporate strategist to define appropriate variables, rather than being locked into the market share and market growth variables of the BCG matrix, is used to develop a table that shows a businesses ranking relative to the critical success factors that managers identify as the key factors influencing failure or success. These steps include:
Identifying key success factors. This step allows managers to select the most appropriate variables for its situation. There is no limit to the number of variables managers may select; the idea, however, is to use those that are key in determining competitive strength.
Weighing the importance of key success factors. Weighting can be on a scale of 1 to 5, 1 to 7, or 1 to 10, or whatever scale managers believe is appropriate. The main thing is to maintain consistency across organizations. This step brings an element of realism to the analysis by recognizing that not all critical success factors are equally important. Depending on industry conditions, successful advertising campaigns may, for example, be weighted more heavily than after-sale product support.
Identifying main industry rivals. This step helps managers focus on one of the most common external threats; competitors who want the organization's market share.
Managers rating their organization against competitors.
Multiplying the weighted importance by the key success factor rating.
Adding the values. The sum of the values for a manager's organization versus competitors gives a rough idea if the manager's firm is ahead or behind the competition on weighted key success factors that are critical for market success.
A competitive strength assessment is superior to a BCG matrix because it adds more variables to the mix. In addition, these variables are weighted in importance in contrast to the BCG matrix's equal weighting of market share and market growth. Regardless of these advantages, competitive strength assessments are still limited by the type of data they provide. When the values are summed in step six, each organization has a number assigned to it. This number is compared against other firms to determine which is competitively the strongest. One weakness is that these data are ordinal: they can be ranked, but the differences among them are not meaningful. A firm with a score of four is not twice as good as one with a score of two, but it is better. The degree of "betterness," however, is not known.
CORPORATE GRAND STRATEGIES
As the previous discussion implies, corporate-level strategists have a tremendous amount of both latitude and responsibility. The myriad decisions required of these managers can be overwhelming considering the potential consequences of incorrect decisions. One way to deal with this complexity is through categorization; one categorization scheme is to classify corporate-level strategy decisions into three different types, or grand strategies. These grand strategies involve efforts to expand business operations (growth strategies), decrease the scope of business operations (retrenchment strategies), or maintain the status quo (stability strategies).
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The marketing concept and philosophy is one of the simplest ideas in marketing, and at the same time, it is also one of the most important marketing philosophies. At its very core are the customer and his or her satisfaction. The marketing concept and philosophy states that the organization should strive to satisfy its customers' wants and needs while meeting the organization's goals. In simple terms, "the customer is king".
The implication of the marketing concept is very important for management. It is not something that the marketing department administers, nor is it the sole domain of the marketing department. Rather, it is adopted by the entire organization. From top management to the lowest levels and across all departments of the organization, it is a philosophy or way of doing business. The customers' needs, wants, and satisfaction should always be foremost in every manager and employees' mind. Wal-Mart's motto of "satisfaction guaranteed" is an example of the marketing concept. Whether the Wal-Mart employee is an accountant or a cashier, the customer is always first.
As simple as the philosophy sounds, the concept is not very old in the evolution of marketing thought. However, it is at the end of a succession of business philosophies that cover centuries. To gain a better understanding of the thought leading to the marketing concept, the history and evolution of the marketing concept and philosophy are examined first. Next, the marketing concept and philosophy and some misconceptions about it are discussed.
EVOLUTION OF THE MARKETING
CONCEPT AND PHILOSOPHY
The marketing concept and philosophy evolved as the last of three major philosophies of marketing. These three philosophies are the product, selling, and marketing philosophies. Even though each philosophy has a particular time when it was dominant, a philosophy did not die with the end of its era of dominance. In fact, all three philosophies are being used today.
PRODUCT PHILOSOPHY.
The product philosophy was the dominant marketing philosophy prior to the Industrial Revolution and continued to the 1920s. The product philosophy holds that the organization knows its product better than anyone or any organization. The company knows what will work in designing and producing the product and what will not work. For example, the company may decide to emphasize the low cost or high quality of their products. This confidence in their ability is not a radical concept, but the confidence leads to the consumer being overlooked. Since the organization has the great knowledge and skill in making the product, the organization also assumes it knows what is best for the consumer.
This philosophy of only relying on the organization's skill and desires for the product did not lead to poor sales. In much of the product philosophy era, organizations were able to sell all of the products that they made. The success of the product philosophy era is due mostly to the time and level of technology in which it was dominant. The product era spanned both the pre-Industrial Revolution era and much of the time after the Industrial Revolution.
The period before the Industrial Revolution was the time when most goods were made by hand. The production was very slow and few goods could be produced. However, there was also a demand for those goods, and the slow production could not fill the demand in many cases. The importance for management of this shortage was that very little marketing was needed.
An example illustrates the effects of the shortages. Today, the gunsmith shop in Williamsburg, Virginia, still operates using the product philosophy. The gunsmiths produce single-shot rifles using the technology available during the 1700s. They are only able to produce about four or five rifles every year, and they charge from $15,000 to $20,000 for each rifle. However, the high price does not deter the demand for the guns; their uniqueness commands a waiting list of three to four years. Today's Williamsburg Gunsmith Shop situation was typical for organizations operating before the Industrial Revolution. Most goods were in such short supply that companies could sell all that they made. Consequently, organizations did not need to consult with consumers about designing and producing their products.
When mass production techniques created the Industrial Revolution, the volume of output was greatly increased. Yet the increased production of goods did not immediately eliminate the shortages from the pre-industrial era. The new mass production techniques provided economies of scale allowing for lower costs of production and corresponding lower prices for goods. Lower prices greatly expanded the market for the goods, and the new production techniques were struggling to keep up with the demand. This situation meant that the product philosophy would work just as well in the new industrial environment. Consumers still did not need to be consulted for the organization to sell its products.
One of the many stories about Henry Ford illustrates the classic example of the product philosophy in use after the Industrial Revolution. Henry Ford pioneered mass production techniques in the automobile industry. With the techniques, he offered cars at affordable prices to the general public. Before this time, cars were hand made, and only the very wealthy could afford them. The public enthusiastically purchased all the Model T Fords that the company could produce. The evidence that the product philosophy was alive and well in Ford Motor Company came in Henry Ford's famous reaction to consumer requests for more color options. He was said to have responded that "you can have any color car you want as long as it is black." Realizing that different colors would increase the cost of production and price of the Model T's, Henry Ford, using the product philosophy, decided that lower prices were best for the public.
SELLING PHILOSOPHY.
The selling era has the shortest period of dominance of the three philosophies. It began to be dominant around 1930 and stayed in widespread use until about 1950. The selling philosophy holds that an organization can sell any product it produces with the use of marketing techniques, such as advertising and personal selling. Organizations could create marketing departments that would be concerned with selling the goods, and the rest of the organization could be left to concentrate on producing the goods.
The reason for the emergence of the selling philosophy was the ever-rising number of goods available after the Industrial Revolution. Organizations became progressively more efficient in production, which increased the volume of goods. With the increased supply, competition also entered production. These two events eventually led to the end of product shortages and the creation of surpluses. It was because of the surpluses that organizations turned to the use of advertising and personal selling to reduce their inventories and sell their goods. The selling philosophy also enabled part of the organization to keep focusing on the product, via the product philosophy. In addition, the selling philosophy held that a sales or marketing department could sell whatever the company produced.
CORPORATE PORTFOLIO ANALYSIS
One way to think of corporate-level strategy is to compare it to an individual managing a portfolio of investments. Just as the individual investor must evaluate each individual investment in the portfolio to determine whether or not the investment is currently performing to expectations and what the future prospects are for the investment, managers must make similar decisions about the current and future performances of various businesses constituting the firm's portfolio. The Boston Consulting Group (BCG) matrix is a relatively simple technique for assessing the performance of various segments of the business.
The BCG matrix classifies business-unit performance on the basis of the unit's relative market share and the rate of market growth as shown in Figure 1.
Figure 1
BCG Model of Portfolio Analysis
Products and their respective strategies fall into one of four quadrants. The typical starting point for a new business is as a question mark. If the product is new, it has no market share, but the predicted growth rate is good. What typically happens in an organization is that management is faced with a number of these types of products but with too few resources to develop all of them. Thus, the strategic decision-maker must determine which of the products to attempt to develop into commercially viable products and which ones to drop from consideration. Question marks are cash users in the organization. Early in their life, they contribute no revenues and require expenditures for market research, test marketing, and advertising to build consumer awareness.
If the correct decision is made and the product selected achieves a high market share, it becomes a BCG matrix star. Stars have high market share in high-growth markets. Stars generate large cash flows for the business, but also require large infusions of money to sustain their growth. Stars are often the targets of large expenditures for advertising and research and development to improve the product and to enable it to establish a dominant position in the industry.
Cash cows are business units that have high market share in a low-growth market. These are often products in the maturity stage of the product life cycle. They are usually well-established products with wide consumer acceptance, so sales revenues are usually high. The strategy for such products is to invest little money into maintaining the product and divert the large profits generated into products with more long-term earnings potential, i.e., question marks and stars.
Dogs are businesses with low market share in low-growth markets. These are often cash cows that have lost their market share or question marks the company has elected not to develop. The recommended strategy for these businesses is to dispose of them for whatever revenue they will generate and reinvest the money in more attractive businesses (question marks or stars).
Despite its simplicity, the BCG matrix suffers from limited variables on which to base resource allocation decisions among the business making up the corporate portfolio. Notice that the only two variables composing the matrix are relative market share and the rate of market growth. Now consider how many other factors contribute to business success or failure. Management talent, employee commitment, industry forces such as buyer and supplier power and the introduction of strategically-equivalent substitute products or services, changes in consumer preferences, and a host of others determine ultimate business viability. The BCG matrix is best used, then, as a beginning point, but certainly not as the final determination for resource allocation decisions as it was originally intended. Consider, for instance, Apple Computer. With a market share for its Macintosh-based computers below ten percent in a market notoriously saturated with a number of low-cost competitors and growth rates well-below that of other technology pursuits such as biotechnology and medical device products, the BCG matrix would suggest Apple divest its computer business and focus instead on the rapidly growing iPod business (its music download business). Clearly, though, there are both technological and market synergies between Apple's Macintosh computers and its fast-growing iPod business. Divesting the computer business would likely be tantamount to destroying the iPod business.
A more stringent approach, but still one with weaknesses, is a competitive assessment. A competitive assessment is a technique for ranking an organization relative to its peers in the industry. The advantage of a competitive assessment over the BCG matrix for corporate-level strategy is that the competitive assessment includes critical success factors, or factors that are crucial for an organizational to prevail when all organizational members are competing for the same customers. A six-step process that allows corporate strategist to define appropriate variables, rather than being locked into the market share and market growth variables of the BCG matrix, is used to develop a table that shows a businesses ranking relative to the critical success factors that managers identify as the key factors influencing failure or success. These steps include:
Identifying key success factors. This step allows managers to select the most appropriate variables for its situation. There is no limit to the number of variables managers may select; the idea, however, is to use those that are key in determining competitive strength.
Weighing the importance of key success factors. Weighting can be on a scale of 1 to 5, 1 to 7, or 1 to 10, or whatever scale managers believe is appropriate. The main thing is to maintain consistency across organizations. This step brings an element of realism to the analysis by recognizing that not all critical success factors are equally important. Depending on industry conditions, successful advertising campaigns may, for example, be weighted more heavily than after-sale product support.
Identifying main industry rivals. This step helps managers focus on one of the most common external threats; competitors who want the organization's market share.
Managers rating their organization against competitors.
Multiplying the weighted importance by the key success factor rating.
Adding the values. The sum of the values for a manager's organization versus competitors gives a rough idea if the manager's firm is ahead or behind the competition on weighted key success factors that are critical for market success.
A competitive strength assessment is superior to a BCG matrix because it adds more variables to the mix. In addition, these variables are weighted in importance in contrast to the BCG matrix's equal weighting of market share and market growth. Regardless of these advantages, competitive strength assessments are still limited by the type of data they provide. When the values are summed in step six, each organization has a number assigned to it. This number is compared against other firms to determine which is competitively the strongest. One weakness is that these data are ordinal: they can be ranked, but the differences among them are not meaningful. A firm with a score of four is not twice as good as one with a score of two, but it is better. The degree of "betterness," however, is not known.
CORPORATE GRAND STRATEGIES
As the previous discussion implies, corporate-level strategists have a tremendous amount of both latitude and responsibility. The myriad decisions required of these managers can be overwhelming considering the potential consequences of incorrect decisions. One way to deal with this complexity is through categorization; one categorization scheme is to classify corporate-level strategy decisions into three different types, or grand strategies. These grand strategies involve efforts to expand business operations (growth strategies), decrease the scope of business operations (retrenchment strategies), or maintain the status quo (stability strategies).
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