← Back

Chapter 2: Strategic Planning in Marketing

Every problem in the chapter beside the book’s answer, a chapter at a time as you scroll.

Chapter 2: Strategic Planning in Marketing

23 problems · 0 figures

Knowledge Check 2.1.1 §2.1 source ↗

Which of the following defines the reason why the business exists?
  1. a.
    Vision statement
  2. b.
    Mission statement
  3. c.
    Gap analysis
  4. d.
    Goals and objectives

Answer

B. Mission statement
The mission statement sums up in a few sentences what the company does, who it serves, and what differentiates it from its competitors.

Knowledge Check 2.1.2 §2.1 source ↗

Which of the following strategies covers the entire organization when the business includes multiple divisions or operating units?
  1. a.
    Functional strategy
  2. b.
    Strategic business unit strategy
  3. c.
    Corporate-level strategy
  4. d.
    Business-level strategy

Answer

C. Corporate-level strategy
Corporate-level strategy covers the entire business in a complex organization in which there are multiple businesses, divisions, or operating units.

Knowledge Check 2.1.3 §2.1 source ↗

What do you call the plans, actions, objectives, and goals that outline how a business will compete in its chosen markets?
  1. a.
    Mission statement
  2. b.
    Vision statement
  3. c.
    Gap analysis
  4. d.
    Strategy

Answer

D. Strategy
A business’s overall strategy encompasses the plans, actions, objectives, and goals that outline how the business will compete in its chosen markets given its portfolio of products or services.

Knowledge Check 2.1.4 §2.1 source ↗

Which of the following best describes a gap analysis?
  1. a.
    A statement that answers the question, Where do we see the business going?
  2. b.
    An internal analysis of the company to identify inherent deficiencies that may hinder its ability to meet its goals
  3. c.
    A statement that answers the question, Why does the business exist?
  4. d.
    A strategic plan created for a single business or operating unit

Answer

B. An internal analysis of the company to identify inherent deficiencies that may hinder its ability to meet its goals
A gap analysis is an internal analysis of a company or business unit used to identify deficiencies that may hinder its abilities to meet its goals.

Knowledge Check 2.1.5 §2.1 source ↗

In “SMART goals,” what does the “R” stand for?
  1. a.
    Relatable
  2. b.
    Rational
  3. c.
    Required
  4. d.
    Realistic

Answer

D. Realistic
Goals should be realistic and have a reasonable chance of being met.

Knowledge Check 2.2.1 §2.2 source ↗

Marcus is preparing a SWOT analysis for the health club he owns. One of the factors he has identified is the fact that the health club is the only facility in the area that offers water aerobics classes. In terms of a SWOT analysis, how would this factor be characterized?
  1. a.
    Strength
  2. b.
    Weakness
  3. c.
    Opportunity
  4. d.
    Threat

Answer

A. Strength
The fact that the health club is the only facility in the area to offer water aerobics classes would be categorized as a strength in terms of a SWOT analysis.

Knowledge Check 2.2.2 §2.2 source ↗

What key metrics does the BCG matrix use to show the relative attractiveness of different offerings?
  1. a.
    Market share and market growth rate
  2. b.
    Market size and market share
  3. c.
    The ratio of dogs to cash cows in the product portfolio
  4. d.
    The potential for question marks to cross over and become stars

Answer

A. Market share and market growth rate
The BCG matrix captures the market share and market growth of products in a portfolio of offerings.

Knowledge Check 2.2.3 §2.2 source ↗

Hoffman Enterprises has a portfolio of businesses in a wide variety of unrelated industries. One of its strategic business units (SBUs) has high market share in a low-growth industry. How would this SBU be characterized in terms of the BCG matrix?
  1. a.
    Star
  2. b.
    Dog
  3. c.
    Cash cow
  4. d.
    Question mark

Answer

C. Cash cow
A cash cow has high market share in a low-growth industry.

Knowledge Check 2.2.4 §2.2 source ↗

Sanjay is creating a SWOT analysis for the vegan restaurant he owns in a small college town. Until recently, there has been only one competitor in the vegan market, but that restaurant has recently closed temporarily due to health code violations. How would this development be characterized in terms of the SWOT analysis?
  1. a.
    Strength
  2. b.
    Weakness
  3. c.
    Opportunity
  4. d.
    Threat

Answer

C. Opportunity
Opportunities are openings for something positive to happen if you can capitalize on them.

Knowledge Check 2.2.5 §2.2 source ↗

Which strategy involves the creation of new or improved products to replace existing ones in order to improve a company’s competitive position and sales?
  1. a.
    Market development
  2. b.
    Product diversification
  3. c.
    Horizontal diversification
  4. d.
    Product development

Answer

D. Product development
A company that pursues a product development strategy introduces new (and/or improved) products into the market to replace existing ones in order to improve its competitive position and sales.

Knowledge Check 2.3.1 §2.3 source ↗

In which section of the executive summary of a marketing plan would you describe the current marketplace and industry sectors within which you sell your products or services and the innovations currently taking place within the market?
  1. a.
    Description of products or services being marketed
  2. b.
    Description of customer base and related marketing activities
  3. c.
    Description of company and team
  4. d.
    Description of market factors and trends

Answer

D. Description of market factors and trends
In this paragraph of the executive summary, you would describe the current marketplace and industry sectors in which you sell your products and/or services, the trends affecting and influencing them, and the innovations currently taking place within the market.

Knowledge Check 2.3.2 §2.3 source ↗

In a SWOT analysis, which factors are internal to the organization?
  1. a.
    Strengths and opportunities
  2. b.
    Weaknesses and threats
  3. c.
    Strengths and weaknesses
  4. d.
    Opportunities and threats

Answer

C. Strengths and weaknesses
In a SWOT analysis, strengths and weaknesses are factors that are internal to the organization.

Knowledge Check 2.3.3 §2.3 source ↗

What is a perceptual map, and how is it used?
  1. a.
    A perceptual map indicates the relative strength of competitors in the market segment.
  2. b.
    A perceptual map indicates the relative market share and market growth of a product portfolio.
  3. c.
    A perceptual map illustrates product positioning vis-à-vis the competitors.
  4. d.
    A perceptual map displays the product, pricing, promotion, and distribution strategy of the product or service.

Answer

C. A perceptual map illustrates product positioning vis-à-vis the competitors.
A perceptual map suggests where your product or service stands in relation to the competition.

Knowledge Check 2.3.4 §2.3 source ↗

In which section of the marketing plan would you identify key internal and external influences on the company’s current position?
  1. a.
    Objectives and issues
  2. b.
    SWOT analysis
  3. c.
    Buyer personas
  4. d.
    Current marketing situation

Answer

B. SWOT analysis
A SWOT analysis identifies key internal influences (strengths and weaknesses) and external influences (threats and opportunities).

Knowledge Check 2.3.5 §2.3 source ↗

In which section of the marketing plan would you include a competitive analysis and discussion of the company’s top competitors?
  1. a.
    Positioning
  2. b.
    Target market
  3. c.
    Mission statement
  4. d.
    Current marketing situation

Answer

D. Current marketing situation
Within the current marketing situation of your marketing plan, you should include a competitive analysis and a discussion of how competitors fare in the marketplace.

Knowledge Check 2.4.1 §2.4 source ↗

What are key performance indicators (KPIs)?
  1. a.
    Industry economic forecasts gathered during external analysis
  2. b.
    A collection of all the detailed statistics we can find regarding firm performance
  3. c.
    A competitive analysis that allows a company to understand the strategic direction of competitors
  4. d.
    Specific variables that allow us to monitor the health/performance of the organization

Answer

D. Specific variables that allow us to monitor the health/performance of the organization
KPIs consist of a very focused selection of core variables that allow us to monitor the health/performance of the organization. We need enough indicators to evaluate the various critical aspects of the organization. We need to avoid having so many that the clutter obscures symptoms that should be highlighted.

Knowledge Check 2.4.2 §2.4 source ↗

How frequently should we monitor KPIs?
  1. a.
    Continuously
  2. b.
    Monthly when the financial statements are produced
  3. c.
    Annually when the yearly financial statements are produced
  4. d.
    When things just don’t “feel” quite right

Answer

A. Continuously
We should always monitor KPIs on a continuous basis. Some information is only available periodically when financials are produced and production statistics are rolled up. The use of real-time dashboards can make it possible to monitor KPIs in real time. The faster we can get the data, the faster we can make adjustments (when required).

Knowledge Check 2.4.3 §2.4 source ↗

You’ve emailed a customer satisfaction survey to 20,000 customers and received 1,825 responses. Of those 1,825 responses, the ratings came back as:

• 500 very satisfied

• 300 satisfied

• 1,025 neutral or dissatisfied or very dissatisfied

What is the customer satisfaction score?

  1. a.
    44 percent
  2. b.
    27 percent
  3. c.
    9 percent
  4. d.
    11 percent

Answer

A. 44 percent
To calculate the CSAT score, take the total number of satisfied customers and divide that by the total number of responses. Then multiply that number by 100 to obtain the percentage. In this scenario, you add 500 and 300 to get 800. Then divide that by 1,825 to get .438. Multiple that by 100 for 44%.

Knowledge Check 2.4.4 §2.4 source ↗

The observation is made that a single data point in isolation is not very useful. What can we do with a KPI data point to make it useful?
  1. a.
    Compare the KPI data point with a related goal/objective (forecast).
  2. b.
    Compare the KPI data point with our historical performance.
  3. c.
    Compare the KPI data point with industry averages.
  4. d.
    These are all useful things to do with a KPI data point.

Answer

D. These are all useful things to do with a KPI data point.
A single data point in isolation tells us very little. However, we can compare the data point to other data points (for example, historical results, forecasts, operating tolerances, or industry averages) to judge our effectiveness.

Knowledge Check 2.4.5 §2.4 source ↗

Why is it important to track customer satisfaction?
  1. a.
    We don’t need to; we already have their money.
  2. b.
    Customer referrals can be a powerful promotional tool.
  3. c.
    Customer acquisition can be expensive; repeat purchases can be much more profitable.
  4. d.
    Statements b and c are both correct.

Answer

D. Statements b and c are both correct.
We discussed the concept of lifetime customer value (LCV) in the text. Customer acquisition can be very expensive, especially with a missionary sell (e.g., convincing a customer that they have a need for an unknown product or service). Repeat purchases may not require any additional promotional expense. Happy customers also serve as brand ambassadors that spread the word about a company’s products/services. Negative reviews from brand ambassadors can be extremely damaging—we want to uncover any problems right away.

Marketing Dashboard 2.4 §2.4 source ↗

Table 2.1 in the book ↗
Person Annual Profit Per Customer Average Number of Years Retained Customer Acquisition Cost
Millennial parents $10,000 12 $750
Millennial singles $18,000 12 $750
Working moms $22,000 8 $1,200
Gen Z emerging professionals $34,000 2 $1,600

Customers are not all the same. Some customers spend more money than others, while others are customers for long periods. As marketers, we want to know how much value to expect from customer groups to determine their value to the organization and how much we should be spending to attract and retain customers. Customer lifetime value (CLV) provides an estimate of how much a single customer is worth to a company over their customer life span. Unlike other marketing metrics, customer lifetime value is a forward-looking metric. Therefore, it is an estimate, not a guarantee.

Customer lifetime value is closely related to customer acquisition cost, which is the amount an organization invests in attracting a new customer. We want our customer lifetime value to exceed the customer acquisition cost to ensure that we are not spending more money to attract a customer than they are worth. However, we also know that customers have additional costs, such as our cost of goods sold or cost to serve. These costs must be calculated along with customer lifetime value to determine whether our customers are profitable. We also know that retaining current customers is important so that we are not continually investing in customer acquisition. To invest in existing customers, companies may introduce loyalty programs, increase customer experience, design positive user experiences, and/or connect with customers on social media.

A simple formula for customer lifetime value is:

Customer Lifetime Value=(Annual Profit per Customer×Average Number of Years Retained) -Customer Acquisition Cost   

The annual profit per customer considers the cost of goods sold and customer acquisition cost.

Give the customer lifetime value calculation a try for yourself. What is the customer lifetime value for each of the four segments in the example shown in Table 2.1?

Answer

Millennial parents: $119,250

Millennial singles: $215,250

Working moms: $174,800

Gen Z emerging professionals: $66,400

Marketing Dashboard 2.4 (b) §2.4 source ↗

Table 2.1 in the book ↗
Person Annual Profit Per Customer Average Number of Years Retained Customer Acquisition Cost
Millennial parents $10,000 12 $750
Millennial singles $18,000 12 $750
Working moms $22,000 8 $1,200
Gen Z emerging professionals $34,000 2 $1,600

Customers are not all the same. Some customers spend more money than others, while others are customers for long periods. As marketers, we want to know how much value to expect from customer groups to determine their value to the organization and how much we should be spending to attract and retain customers. Customer lifetime value (CLV) provides an estimate of how much a single customer is worth to a company over their customer life span. Unlike other marketing metrics, customer lifetime value is a forward-looking metric. Therefore, it is an estimate, not a guarantee.

Customer lifetime value is closely related to customer acquisition cost, which is the amount an organization invests in attracting a new customer. We want our customer lifetime value to exceed the customer acquisition cost to ensure that we are not spending more money to attract a customer than they are worth. However, we also know that customers have additional costs, such as our cost of goods sold or cost to serve. These costs must be calculated along with customer lifetime value to determine whether our customers are profitable. We also know that retaining current customers is important so that we are not continually investing in customer acquisition. To invest in existing customers, companies may introduce loyalty programs, increase customer experience, design positive user experiences, and/or connect with customers on social media.

A simple formula for customer lifetime value is:

Customer Lifetime Value=(Annual Profit per Customer×Average Number of Years Retained) -Customer Acquisition Cost   

The annual profit per customer considers the cost of goods sold and customer acquisition cost.

Which segment would you choose if you were tasked with starting a new campaign that maximized CLV?

Answer

Millennial singles have the highest CLV.

Marketing Dashboard 2.4 (c) §2.4 source ↗

Table 2.1 in the book ↗
Person Annual Profit Per Customer Average Number of Years Retained Customer Acquisition Cost
Millennial parents $10,000 12 $750
Millennial singles $18,000 12 $750
Working moms $22,000 8 $1,200
Gen Z emerging professionals $34,000 2 $1,600

Customers are not all the same. Some customers spend more money than others, while others are customers for long periods. As marketers, we want to know how much value to expect from customer groups to determine their value to the organization and how much we should be spending to attract and retain customers. Customer lifetime value (CLV) provides an estimate of how much a single customer is worth to a company over their customer life span. Unlike other marketing metrics, customer lifetime value is a forward-looking metric. Therefore, it is an estimate, not a guarantee.

Customer lifetime value is closely related to customer acquisition cost, which is the amount an organization invests in attracting a new customer. We want our customer lifetime value to exceed the customer acquisition cost to ensure that we are not spending more money to attract a customer than they are worth. However, we also know that customers have additional costs, such as our cost of goods sold or cost to serve. These costs must be calculated along with customer lifetime value to determine whether our customers are profitable. We also know that retaining current customers is important so that we are not continually investing in customer acquisition. To invest in existing customers, companies may introduce loyalty programs, increase customer experience, design positive user experiences, and/or connect with customers on social media.

A simple formula for customer lifetime value is:

Customer Lifetime Value=(Annual Profit per Customer×Average Number of Years Retained) -Customer Acquisition Cost   

The annual profit per customer considers the cost of goods sold and customer acquisition cost.

Let’s suppose the customer experience team could increase the average number of years that the Gen Z segment retains from two to eight. Which segment would then have the highest CLV?

Answer

Gen Z would have the highest CLV at $270,400.

Loading chapter 3…

Problems and answers are adapted from Principles of Marketing by Maria Gomez Albrecht, Mark Green and Linda Hoffman, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-marketing/pages/1-unit-introduction. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.