Marketing Perspectives

The eighth edition of Marketing Strategy: A Decision-Focused Approach focuses on strategic
issues while providing specific tools and frameworks for making marketing decisions.

This edition addresses four key trends that are sweeping the world of marketing theory and
practice and creating opportunities for college and business-school graduates to bring new
tools and ideas to employers or to their own entrepreneurial ventures. These key trends include:

The growing interest among students everywhere in learning what it will take to run their
own companies.

The growing importance of emerging markets such as India, China, Brazil, and Russia on
the global economic stage and the growing realization in companies everywhere that
business today is a global game.

The increasing attention being given in many companies to issues concerning the
measurement of marketing performance and the extent to which marketing activities and
spending contribute to the creation of shareholder value.

The growing ubiquity of social networks—Facebook, LinkedIn, Twitter, and the like—
which provide powerful new communication tools for marketers of all kinds, from
companies with goods to sell to political organizations out to change the world.

Perhaps most important, this book—with its focus on strategic decision-making and its web-
savvy insights and real-world global perspective—provides the marketing tools and frameworks
today’s graduates will need to hit the ground running as they take the next steps in their careers.

To learn more about this text, visit www.mhhe.com/walker8e

Marketing
Strategy

Orville C. Walker, Jr.
John W. Mullins

Eighth Edition

A Decision-Focused Approach

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Marketing Strategy
A Decision-Focused Approach Eighth Edition

Orville C. Walker, Jr.
James D. Watkins Professor of Marketing,
Emeritus

University of Minnesota

John W. Mullins
Associate Professor of Management Practice
in Marketing and Entrepreneurship

London Business School

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MARKETING STRATEGY: A DECISION-FOCUSED APPROACH, EIGHTH EDITION

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY
10020. Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Previous editions © 2011, 2008, and 2006. No part of
this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior
written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or
transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

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ISBN 978-0-07-802894-6
MHID 0-07-802894-9

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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Walker, Orville C.
Marketing strategy : a decision-focused approach/Orville C. Walker, Jr., John W. Mullins.—8th ed.

p. cm.

Includes index.

ISBN 978-0-07-802894-6 —ISBN 0-07-802894-9 1.Marketing—Management. I. Mullins, John W. (John Walker) II. Title.

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The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement
by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites.

www.mhhe.com

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iii

About the Authors
Orville C. Walker, Jr.
Orville C. Walker, Jr., is Professor Emeritus in the University of Minnesota’s Carlson
School of Management, where he served as the James D. Watkins Professor of Marketing
and Director of the PhD Program. He holds a master’s degree in social psychology from
Ohio State University and a PhD in marketing from the University of Wisconsin–Madison.
Orville is the coauthor of three books and has published more than 50 research articles
in scholarly and business journals. He has won several awards for his research, including
the O’Dell award from the Journal of Marketing Research, the Maynard award from the
Journal of Marketing, and a lifetime achievement award from the Sales Management In-
terest Group of the American Marketing Association.
Orville has been a consultant to a number of business firms and not-for-profit organiza-
tions, and he has taught in executive development programs around the world, including
programs in Poland, Switzerland, Scotland, and Hong Kong. Perhaps his biggest business
challenge, however, has been attempting to turn a profit as the owner-manager of a small
vineyard in western Wisconsin.

John W. Mullins
John Mullins is Associate Professor of Management Practice in Marketing and Entrepreneur-
ship at London Business School. He earned his MBA at the Stanford Graduate School of Busi-
ness and, considerably later in life, his PhD in marketing from the University of Minnesota.
An award-winning teacher, John brings to his teaching and research 20 years of executive
experience in high-growth firms, including two ventures he founded, one of which he took
public.
Since becoming a business school professor in 1992, John has published more than 40
articles in a variety of outlets, including Harvard Business Review, Sloan Management
Review, the Wall Street Journal, the Journal of Product Innovation Management, and the
Journal of Business Venturing. His research has won national and international awards
from the Marketing Science Institute, the American Marketing Association, and the Rich-
ard D. Irwin Foundation. John is coauthor of Marketing Strategy: A Strategic Decision-
Making Approach, 8th edition.
John’s consulting, executive education, and case-writing regularly take him to destina-
tions in Africa, India, and Latin America. John’s best-selling trade book, The New Busi-
ness Road Test: What Entrepreneurs and Executives Should Do Before Writing a Business
Plan, is the definitive work on the assessment and shaping of market opportunities. John’s
newest trade book, coauthored with noted venture capital investor Randy Komisar and also
a bestseller, Getting to Plan B: Breaking Through to a Better Business Model, has won
widespread critical acclaim. It is reshaping the approach entrepreneurs and other innova-
tors take to starting their new ventures.

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Brief Table of Contents
Preface xi

SECTION ONE
Introduction to Strategy 1

1. Market-Oriented Perspectives Underlie
Successful Corporate, Business, and
Marketing Strategies 3

2. Corporate Strategy Decisions and Their
Marketing Implications 31

3. Business Strategies and Their Marketing
Implications 58

SECTION TWO
Opportunity Analysis 85

4. Understanding Market Opportunities 87

5. Measuring Market Opportunities:
Forecasting and Market Knowledge 114

6. Targeting Attractive Market
Segments 139

7. Differentiation and Brand Positioning 162

SECTION THREE
Formulating Marketing Strategies 187

8. Marketing Strategies for New Market
Entries 189

9. Strategies for Growth Markets 219

10. Strategies for Mature and Declining
Markets 245

11. Marketing Strategies for a Digitally
Networked World 278

SECTION FOUR
Implementation and Control 305

12. Organizing and Planning for Effective
Implementation 307

13. Measuring and Delivering Marketing
Performance 333

Name Index 361

Subject Index 364

iv

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v

Preface xi

SECTION ONE 1
Introduction to Strategy 1

Chapter One 3
Market-Oriented Perspectives Underlie
Successful Corporate, Business,
and Marketing Strategies 3
Strategic Challenges Addressed in Chapter 1 4
Three Levels of Strategy: Similar Components
but Different Issues 6

What Is a Strategy 6
The Components of Strategy 6
The Hierarchy of Strategies 7
Corporate Strategy 8
Business-Level Strategy 8
Marketing Strategy 10

What Is Marketing’s Role in Formulating
and Implementing Strategies? 10

Variations in Marketing’s Strategic Influence 11
Market-Oriented Management 11
Do Customers Always Know What They Want? 12
Does Being Market-Oriented Pay? 14
Factors That Mediate a Firm’s Market Orientation 15
Recent Developments Affecting the Strategic Role
of Marketing 17
The Future Role of Marketing 20

Formulating and Implementing Marketing Strategy—
An Overview of the Process 21

A Decision-Making Focus 21
Analysis Comes First—The Four “Cs” 21
Integrating Marketing Strategy with the Firm’s Other
Strategies and Resources 21
Market Opportunity Analysis 22
Formulating Marketing Strategies for Specific Situations 24
Implementation and Control of the Marketing Strategy 24
The Marketing Plan—A Blueprint for Action 24

Chapter Two 31
Corporate Strategy Decisions and Their
Marketing Implications 31
Strategic Challenges Addressed in Chapter 2 32

Implications for Marketers and Their Marketing Plans 33
Corporate Scope—Defining the Firm’s Mission 34

Market Influences on the Corporate Mission 34
Criteria for Defining the Corporate Mission 35
Social Values and Ethical Principles 35
Why Are Ethics Important? The Marketing Implications
of Ethical Standards 36
Getting Caught Can Be Costly 37

Corporate Objectives 38
Enhancing Shareholder Value: The Ultimate
Objective 40
The Marketing Implications of Corporate
Objectives 41

Gaining a Competitive Advantage 41
Corporate Growth Strategies 42

Expansion by Increasing Penetration of Current
Product-Markets 43
Expansion by Developing New Products for Current
Customers 43
Expansion by Selling Existing Products to New Segments
or Countries 44
Expansion by Diversifying 44
Expansion by Diversifying through Organizational
Relationships or Networks 45

Allocating Corporate Resources 45
Portfolio Models 46
Value-Based Planning 49
Using Customer Equity to Estimate the Value of
Alternative Marketing Actions 51

Sources of Synergy 52
Knowledge-Based Synergies 52
Corporate Identity and the Corporate Brand as a Source
of Synergy 52
Corporate Branding Strategy—When Does a Strong
Corporate Brand Make Sense? 53
Synergy from Shared Resources 54

Chapter Three 58
Business Strategies and Their Marketing
Implications 58
Strategic Challenges Addressed in Chapter 3 60
Strategic Decisions at the Business-Unit Level 61

How Should Strategic Business Units Be Designed? 61
Business-Unit Objectives 62
Allocating Resources within the Business Unit 63

How Do Businesses Compete? 63
Generic Business-Level Competitive Strategies 63
Do the Same Competitive Strategies Work for Single-
Business Firms and Start-ups? 66

Table of Contents

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Do the Same Competitive Strategies Work for Service
Businesses 67
Do the Same Competitive Strategies Work for Global
Competitors? 67
Will the Internet Change Everything? 68

How Do Competitive Strategies Differ from One
Another? 69

Differences in Scope 70
Differences in Goals and Objectives 71
Differences in Resource Deployment 71
Differences in Sources of Synergy 72

Deciding When a Strategy Is Appropriate:
The Fit Between Business Strategies and the
Environment 72

Appropriate Conditions for a Prospector Strategy 74
Appropriate Conditions for an Analyzer Strategy 74
Appropriate Conditions for a Defender Strategy 74

How Different Business Strategies Influence
Marketing Decisions 76

Product Policies 77
Pricing Policies 79
Distribution Policies 79
Promotion Policies 79

What If the Best Marketing Program for a Product
Does Not Fit the Business’s Competitive Strategy? 80

SECTION TWO 85
Opportunity Analysis 85

Chapter Four 87
Understanding Market Opportunities 87
Strategic Challenges Addressed in Chapter 4 89
Markets and Industries: What’s the Difference? 89
Assessing Market and Industry Attractiveness 90
Macro Trend Analysis: A Framework for Assessing
Market Attractiveness, Macro Level 91

The Demographic Environment 91
The Sociocultural Environment 94
The Economic Environment 94
The Regulatory Environment 95
The Technological Environment 97
The Natural Environment 98

Your Market Is Attractive: What about Your
Industry 99

Porter’s Five Competitive Forces 99
A Five Forces Analysis of the Cellular Phone Service
Industry 102

Challenges in Macro-Level Market and Industry
Analysis 103

Information Sources for Macro-Level Analyses 104

Understanding Markets at the Micro Level 104
Understanding Industries at the Micro Level 106
The Team Domains: The Key to the Pursuit of
Attractive Opportunities 107
Mission, Aspirations, and Risk Propensity 107
Ability to Execute on the Industry’s Critical Success
Factors 108
Connectedness: It’s Who You Know, Not What You
Know 108
Putting the Seven Domains to Work 109
Anticipating and Responding to Environmental
Change 110

Impact and Timing of Event 110
Swimming Upstream or Downstream: An Important
Strategic Choice 111

Chapter Five 114
Measuring Market Opportunities:
Forecasting and Market Knowledge 114
Strategic Challenges Addressed in Chapter 5 115
Every Forecast Is Wrong! 116
A Forecaster’s Tool Kit: A Tool for Every
Forecasting Setting 116

Statistical Methods 118
Observation 119
Surveys or Focus Groups 119
Analogy 120
Judgment 121
Experiments and Market Tests 121
Other Mathematical Approaches: Chain Ratios and
Indices 122

Rate of Diffusion of Innovations: Another Perspective
on Forecasting 123

The Adoption Process and Rate of Adoption 123
Adopter Categories 124
Implications of Diffusion of Innovation Theory for
Forecasting Sales of New Products and
New Firms 124

Cautions and Caveats in Forecasting 126
Psychological Biases in Forecasting 126
Common Sources of Error in Forecasting 126
Keys to Good Forecasting 127

Why Data? Why Marketing Research 128
Customer Relationship Management: Charting a Path
Toward Competitive Advantage 129

Internal Records Systems 130
Marketing Databases Make CRM Possible 130
Why CRM Efforts Fail 134
Client Contact Systems 134
Competitive Intelligence Systems 136

vi Table of Contents

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Marketing Research: A Foundation for Marketing
Decision Making 135
What Users of Marketing Research Should Ask 136

Chapter Six 139
Targeting Attractive Market Segments 139
Strategic Challenges Addressed in Chapter 6 140
Do Market Segmentation and Target Marketing Make
Sense in Today’s Global Economy 141

Most Markets Are Heterogeneous 142
Today’s Market Realities Often Make Segmentation
Imperative 142

How Are Market Segments Best Defined? 143
Who They Are: Segmenting Demographically 144
Where They Are: Segmenting Geographically 146
Geodemographic Segmentation 146
How They Behave: Behavioral Segmentation 147
Innovative Segmentation: A Key to Marketing
Breakthroughs 150

Choosing Attractive Market Segments: A Five-Step
Process 151

Step 1: Select Market Attractiveness and Competitive
Position Factors 152
Step 2: Weight Each Factor 154
Step 3: Rate Segments on Each Factor, Plot Results on
Matrices 154
Step 4: Project Future Position for Each Segment 155
Step 5: Choose Segments to Target, Allocate
Resources 156

Different Targeting Strategies Suit Different
Opportunities 156

Niche-Market Strategy 157
Mass-Market Strategy 157
Growth-Market Strategy 158

Global Market Segmentation 159

Chapter Seven 162
Differentiation and Brand
Positioning 162
Strategic Challenges Addressed in Chapter 7 163
Differentiation: One Key to Customer Preference and
Competitive Advantage 164

Differentiation among Competing Brands 164
Physical Positioning 165

Limitations of Physical Positioning 165
Perceptual Positioning 166
Levers Marketers Can Use to Establish Brand
Positioning 167
Preparing the Foundation for Marketing Strategies:
The Brand Positioning Process 168

Step 1: Identify a Relevant Set of Competitive
Products 168
Step 2: Identify Determinant Attributes 170
Step 3: Collect Data about Customers’ Perceptions for
Brands in the Competitive Set 171
Step 4: Analyze the Current Positions of Brands in the
Competitive Set 171
Step 5: Determine Customers’ Most Preferred
Combination of Attributes 176
Step 6: Consider Fit of Possible Positions with Customer
Needs and Segment Attractiveness 177
Step 7: Write Positioning Statement or Value
Proposition to Guide Development of Marketing
Strategy 178

The Outcome of Effective Positioning: Building
Brand Equity 181

Managing Brand Equity 181
Positioning Decisions in Global Markets 183
Some Caveats in Positioning
Decision Making 183

SECTION THREE 187
Formulating Marketing Strategies 187

Chapter Eight 189
Marketing Strategies for New Market
Entries 189
Strategic Challenges Addressed in Chapter 8 190
Sustaining Competitive Advantage over the Product
Life Cycle 191

Market and Competitive Implications of Product Life-
Cycle Stages 192
Strategic Implications of the Product Life Cycle 196
Limitations of the Product Life-Cycle Framework 197

New Market Entries—How New Is New? 197
Objectives of New Product and Market
Development 199
Market Entry Strategies: Is It Better to Be a Pioneer or
a Follower? 201

Pioneer Strategy 201
Not All Pioneers Capitalize on Their Potential
Advantages 203
Follower Strategy 204
Determinants of Success for Pioneers and
Followers 205

Strategic Marketing Programs for Pioneers 207
Mass-Market Penetration 207
Niche Penetration 207
Skimming and Early Withdrawal 209

Table of Contents vii

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Marketing Program Components for a Mass-Market
Penetration Strategy 209
Marketing Program Components for a Niche Penetration
Strategy 215
Marketing Program Components for a Skimming
Strategy 215

Chapter Nine 219
Strategies for Growth Markets 219
Strategic Challenges Addressed in
Chapter 9 220
Opportunities and Risks in Growth
Markets 222

Gaining Share Is Easier 222
Share Gains Are Worth More 223
Price Competition Is Likely to Be Less Intense 224
Early Entry Is Necessary to Maintain Technical
Expertise 224

Growth-Market Strategies for Market Leaders 225
Marketing Objectives for Share Leaders 226
Marketing Actions and Strategies to Achieve Share-
Maintenance Objectives 226
Fortress, or Position Defense, Strategy 228
Flanker Strategy 231
Confrontation Strategy 232
Market Expansion Strategy 233
Contraction, or Strategic Withdrawal, Strategy 233

Share-Growth Strategies for Followers 233
Marketing Objectives for Followers 233
Marketing Actions and Strategies to Achieve Share
Growth 234
Deciding Whom to Attack 236
Frontal Attack Strategy 238
Leapfrog Strategy 239
Flanking and Encirclement Strategies 240
Guerrilla Attack 241
Supporting Evidence 242

Chapter Ten 245
Strategies for Mature and Declining
Markets 245
Strategic Challenges Addressed in Chapter 10 246

Challenges in Mature Markets 246
Challenges in Declining Markets 247

Shakeout: The Transition from Market Growth to
Maturity 247

Characteristics of the Transition Period 247
Strategic Traps during the Transition 248

Strategic Choices in Mature Markets 249

Strategies for Maintaining Competitive
Advantage 250
Methods of Differentiation 251
Methods of Maintaining a Low-Cost Position 256
Customers’ Satisfaction and Loyalty Are Crucial for
Maximizing Their Lifetime Value 258

Marketing Strategies for Mature Markets 260
Strategies for Maintaining Current Market
Share 260
Strategies for Extending Volume Growth 262

Strategies for Declining Markets 268
Relative Attractiveness of Declining Markets 268
Divestment or Liquidation 271
Marketing Strategies for Remaining
Competitors 271

Chapter Eleven 278
Marketing Strategies for a Digitally
Networked World 278
Strategic Challenges Addressed in
Chapter 11 279
Does Every Company Need a Digital or Social
Media Strategy? 280
Threats or Opportunities? The Inherent Advantages
and Disadvantages of the Digitally Networked World
for Marketers 282

The Ability to Optimize 282
The Syndication of Information 283
Increasing Returns to Scale of Network Products 284
The Ability to Efficiently Personalize and Customize
Market Offerings 285
Disintermediation and Restructuring of Distribution
Channels 286
Global Reach, 24/7 Access, and Instantaneous
Delivery 287
Are These Digital World Fundamentals
Opportunities or Threats? 287
First-Mover Advantage: Fact or Fiction? 289

Developing a Strategy for a Digitally Networked
World: A Decision Framework 290

Marketing Applications for a Digitally Networked
World 290
Developing Digital World Marketing Strategies:
The Critical Questions 296

Managing Digitally Networked Strategies: The Talent
Gap 300
Developing Strategies to Serve Digital and Social
Networking Markets 301

Serving the Digitally Networked Markets of
Tomorrow 301

viii Table of Contents

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SECTION FOUR 305
Implementation and Control 305

Chapter Twelve 307
Organizing and Planning for Effective
Implementation 307
Strategic Challenges Addressed in Chapter 12 308
Designing Appropriate Administrative Relationships
for the Implementation of Different Competitive
Strategies 310

Business-Unit Autonomy 311
Shared Programs and Facilities 311
Evaluation and Reward Systems 312

Designing Appropriate Organizational Structures and
Processes for Implementing Different Strategies 313

Functional Competencies and Resource Allocation 313
Additional Considerations for Service
Organizations 315
Organizational Structures 316
Recent Trends in Organizational Design 320
Organizational Adjustments as Firms Grow and Markets
Change 321
Organizational Designs for Selling in Global
Markets 322

Marketing Plans: The Foundation for Implementing
Marketing Actions 323

The Situation Analysis 327
Key Issues 328
Objectives 329
Marketing Strategy 329
Action Plans 329
Projected Profit-and-Loss Statement 330
Contingency Plans 330

Chapter Thirteen 333
Measuring and Delivering Marketing
Performance 333
Strategic Challenges Addressed in Chapter 13 334
Designing Marketing Metrics Step by Step 335

Setting Standards of Performance 336
Specifying and Obtaining Feedback Data 341
Evaluating Feedback Data 342
Taking Corrective Action 343

Design Decisions for Strategic Monitoring
Systems 343

Identifying Key Variables 344
Tracking and Monitoring 344
Strategy Reassessment 345

Design Decisions for Marketing Metrics 345
Who Needs What Information? 345
SEO and SEM Analysis 349
When and How Often Is the Information Needed? 350
In What Media and in What Format(s) or Levels of
Aggregation Should the Information Be Provided? 351
Does Your System of Marketing Metrics
Measure Up? 352
What Contingencies Should Be Planned For? 353
Global Marketing Monitoring 355

A Tool for Periodic Assessment of Marketing
Performance: The Marketing Audit 355

Types of Audits 355
Measuring and Delivering Marketing
Performance 357

Name Index 361

Subject Index 364

Table of Contents ix

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xi

WHY THIS COURSE?
The best of the leading business schools and other executive education programs offer
capstone or other elective courses in marketing whose strategic perspective challenges
students to “pull it all together” and integrate what they have learned in earlier courses—
including those in marketing and other disciplines—in making strategic marketing deci-
sions. Whether called Marketing Strategy, Strategic Market Planning, Strategic Brand
Management, or something else, such courses typically ask students to apply what they
learn to decision making in case studies that bring alive real marketing situations. Many
also ask students to complete a term-long project of some kind, such as the development
of a marketing plan for a new or existing product or a new venture. We have written this
text to serve exactly these kinds of case-based and project-based capstone and advanced
elective courses.

WHY THIS BOOK?
Why did your instructor choose this book? Chances are that it was for one or more of the
following reasons:

• Among your instructor’s objectives is to give you the necessary tools and frameworks
to enable you to be an effective contributor to marketing decision-making, whether as
an entrepreneur or in an established firm. This book’s focus on decision making sets it
apart from other texts that place greater emphasis on description of marketing phenom-
ena than on the strategic and tactical marketing decisions that marketing managers and
entrepreneurs must make each and every day.

• Your instructor prefers a tightly written text whose strategic perspectives serve as a
concise foundation around which a broader set of materials, such as case studies or
supplementary readings that fit the specific theme of the course, are assembled. This text
assumes student familiarity with—and thus does not repeat—the basics of buyer behav-
ior, the 4 Ps, and other marketing fundamentals typically covered in earlier courses.

• Your instructor wants to use the most current and web-savvy book available. We inte-
grate the latest new-economy developments into each chapter, and we devote an entire
chapter—Chapter 11—to the development of marketing strategies for the new econ-
omy. In addition, we supplement the book with an interactive website to help you learn
and to help your instructor choose the best case and other materials and in-class activi-
ties. Our goal—and probably that of your instructor, as well—is to make both the latest
web-based tools as well as time-tested marketing principles relevant to those of you
who will work in either old- or new-economy companies.