MARKETING STRATEGY IOBM-AD306
ADVANCED DIPLOMA IN BANKING
November 2011 solutions
PART A
Question 1
Market segmentation is fundamentally important to the development of an effective positioning
statement. As a strategist in the marketing department of your organisation, what do you
understand by the term “market segmentation?” Give some of the advantages of segmentation
and explain the relevant factors for effective segmentation?
(15 Marks)
ANSWER
MARKET SEGMENTATION
Market segmentation is based on the recognition that every market consists of potential buyers
with different needs and different behaviours. These different customers with different
behaviours and attitudes can be grouped into segments for different marketing approaches to
be taken by an organisation for each market segment. For this reason there are two approaches
to marketing, which are mass market approach and segmentation approach. The mass or total
market approach is seen where an organisation opts not to distinguish between customers on
the assumption that the needs of the majority can be satisfied with a single marketing mix, i.e.
the same product, same price, same promotional technique(s), and using a single distribution
method. In highly developed countries the mass-market approach is becoming less effective as
people’s wants and needs are growing in variety and sophistication. Because of this, more
opportunities are open to organisations willing to satisfy needs with a differentiated market mix.
Mass-market approach was greatly used or applicable in the past before the advancement of
branding and increased saliency of wants and needs brought about largely by more widespread
education and travel. Thus consumers brought commodities or staple foods such as sugar,
butter and milk in totally unbranded wrappings. Such items were ladled from larger sacks into
thick paper bags. This approach is still partially tenable in some markets, for example, in fresh
vegetable market, most of us are happy to buy unbranded items such as cabbage, peas,
bananas, oranges, pumpkins, tomatoes and beans.
However, we find ourselves buying/specifying for example, English, Spanish and/or Italian
tomatoes. This approach recognises that people have different wants and needs and that some
are willing to pay more or go to greater lengths to satisfy these. Where a sufficient number of
people have affordable wants, if one manufacturer fails to satisfy, then another will.
Segmentation approach is used for some reasons of serving costs as marketers are dealing
with the marketing mix elements that satisfy the total identified market. Marketing is more
effective if groups can be identified and targeted according to the marketing objectives of the
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company. This is done by the process of market segmentation, which groups potential
customers according to their identifiable characteristics in their purchase behaviour.
Market Segmentation is the process of sub-dividing a market into distinct and increasingly
homogeneous subgroups of customers, where any group can be selected as a target to be met
with a distinct marketing mix. Segmentation allows marketers to target people with research to
discover their needs and preferences so that all the elements of the marketing mix can be
directed towards the potential market. Customer segmentation systems are used by marketers,
and this is a vital area in marketing because it allows the marketer to understand customers by
attempting to get as close as possible to them. Customers differ in terms of age, sex, income,
geographical area, occupation, social class, buying attitudes and habits, etc. These can be used
as segmentations basis, and effective segmentation is only done under the following
considerations.
ADVANTAGES OF MARKET SEGMENTATION
Market segmentation has to bring some benefits to consumers apart from company benefits,
these may include:
 It provides product and service benefits more closely meeting their ideal specifications.
 Across the industry, segmentation will provide greater customer choice.
 Customers are able to present their grievances and heard as there may be a good
relationship between an organisation and the customers.
Besides the overall aim of improved profitability, benefits of successful market segmentation to
a company are:
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The company can be able to spot new marketing opportunities because of the better
understanding of consumer needs in each of the segments.
Specialists can be used for each segment.
The total marketing budget can be allocated to take into account the needs of each
segment and its likely return from each segment.
The company can make finer adjustments to the product and service offerings and to the
marketing appeals used for each segment.
The company can try to dominate particular segments thus gaining competitive
advantage.
The product range can more closely reflect customer need differences.
Improved segmentation allows for more highly targeted marketing activity and allows the
team to develop an in-depth knowledge of the needs of a particular group of customers.
EFFECTIVE SEGMENTATION
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1. Measurability: This refers to the degree to which information exists or is cost effectively
obtainable on the particular buyer characteristics of interest.
2. Accessibility: This refers to the degree to which the company can focus effectively on
the chosen segments using marketing methods. While we may be able to select what
seems like the most appropriate target segment very clearly, we may not be able to
identify the individual or households involved, or communicate with them cost effectively.
3. Substantiality: This refers to the degree to which the segments are large enough to be
worth cultivating or considering as a separate market. The target segment must be large
enough to offer profitable returns, over and above the cost of investment in marketing
activities directed specifically at them.
4. Homogeneity: This means that the group should be able to be taken as one, i.e. all the
customers in the segment should be similar in terms of their characteristics to establish a
single buying behaviour/habit.
Apart from other marketing strategies which have been identified, segmentation is also one of
the aspects of marketing strategies which is carried out by the following segmentation bases:
demographic segmentation; geographic segmentation; geo-demographic segmentation;
psychographic segmentation; benefit segmentation; sociological segmentation; and industrial
segmentation.
MARK ALLOCATION
An explanation of market segmentation
Advantages of market segmentation
Factors for effective segmentation
(5 Marks)
(6 Marks)
(4 Marks)
(TOTAL: 15 Marks)
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Question 2
You are a marketing consultant and have been commissioned to advise Green Finance
Company about a number of their marketing decisions. The company is not currently evaluating
its marketing effort. Explain the appropriate measures, which could be used to evaluate the
effectiveness of their marketing plans and activities.
(15 Marks)
ANSWER
REPORT ON EVALUATING MARKETING PLANS AND ACTIVITIES
TO:
Director, Green Finance Company
FROM:
Jullien Mphande, Marketing Consultant
DATE:
1st May, 2011
SUBJECT:
Methods for evaluating marketing plans and activities
This report provides information on the methods of evaluating marketing plans and activities that
can be applied at Green Finance Company for the success of its marketing decisions. Through
the marketing planning process the company will have set objectives which are specific,
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measurable, achievable, realistic and time-scaled. It is against these measurable objectives that
marketing activity can be evaluated.
Methods to be used in measuring marketing performance include these:
Key performance indicators. Once the objectives are set, key performance indicators should
be decided and the responsibilities for each task allocated appropriately. Such indicators may
include market share, level of sales, level of awareness, customer feedback, number of
complaints, and staff commitment to customers service in the company.
Measurements. It is important that tracking studies are undertaken to identify performance
before particular marketing activities are undertaken to assess their effectiveness and determine
whether they should be repeated.
Variance analysis. This is any variance from the expected performance which should be
investigated and activities adjusted accordingly. It is also known as comparative analysis.
Budgetary control. Marketing activity can also be evaluated against expected expenditure. As
finances will always be very limited, any additional costs can cause problems and so must be
controlled and adjustments made quickly before too much money is lost.
Sales performance. Sales staff can also be given individual targets to reach which are
reviewed on a regular basis.
Methods of evaluation could include customer surveys, pre- and post testing of customer
awareness of the company and its services. It is essential therefore that Green Finance
Company adopt a much marketing activity as their resources allow. Adopting marketing as a
philosophy will encourage this amongst all staff members. Not only should marketing be
planned and activities implemented, but they should be evaluated. Most businesses have
limited resources and these cannot be wasted on ineffective marketing. Planning for future
strategies will ensure differentiation from competitors and allow strategies to manage growth to
be developed, but this is possible if evaluation and control measures are in place.
MARK ALLOCATION
Professional Presentation
(3 Marks)
At least FOUR evaluations methods with good explanation
(12 Marks)
(TOTAL: 15 Marks)
Question 3
Marketing planning is generally straightforward exercise; the marketer’s real problems are those
of effective implementation. Identify the barriers to effective implementation that marketers
typically in different organisations encounter.
(15 Marks)
ANSWER
IMPLEMENTATION PROBLEMS
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Implementation is not separate from but an integral part of the marketing planning process as
illustrated by Wilson, Gilligan and Pearson’s cycle of planning. In reality, it is a far easier job to
establish objectives and strategies following the types of prescriptive approaches offered by
several authors, than to manage the complex behavioural issues of putting decisions into action
thus the implementation dimension of the marketing planner’s role.
Frequently encountered implementation problems are:
(a) Weak support from the chief executive and top management. Without the support,
understanding and involvement of the chief executive it is unlikely that other functional
managers will take the marketing manager’s initiatives very seriously. Marketing
planning has to be seen to be important to those in power if ‘political’ difficulties are to be
minimised.
(b) Lack of a plan for planning. It is naïve to assume that once marketing planning system
has been designed that it will operate smoothly from day one. The evidence indicates
that a period of around three is required in a large company to overcome resistance to
the change that planning inevitably brings. Internal marketing is required which will be
discussed later.
(c) Lack of line management support. Operational managers are often unwilling to
participate fully because of hostility, lack of skills, lack of information, lack of resources
and an inadequate organisational structure without a fully integrated marketing function.
(d) Confusion over planning terms. The initiators of the system are often graduates who
have a tendency to use academic planning terminology which line managers see as a
meaningless jargon. It is unrealistic to expect a process to work if it is not explained
clearly and simply and sold in the language of those whose support is required.
(e) Numbers in lieu of written objectives and strategies. Prior to a planning system often
all that is used is sales forecasts and financial projections. Making explicit the route of
achieving these objectives is a new and difficult skill. It requires managers to express the
logic of their objectives and in this sense is a creative process requiring qualitative rather
than quantitative information.
(f) Too much detail, too far ahead. Over planning is often associated with two much
information and ends with piles of paperwork which confuses and demotivates rather
than promoting positive participation. Marketing auditing can result in far too many
issues demanding management attention. Key issues need to be identified-the wood
needs to be drawn from the trees. However without practice, training and experience it is
difficult to extract truly key strategic issues which are buried in piles of details.
(g) Once a year ritual. This is a common barrier to effective implementation, when the task
is seen as just another job to do which gets in the way of the really pressing day-to-day
activities. Plans which are written and then filed away until next year do not work.
Planning needs to be an integral part of the manager’s job with progress towards
objectives being reviewed and discussed on a regular basis.
(h) Separation of operational planning from strategic planning. This represented a
major problem in McDonald research. It is the lack of integration between the short-term
plans of operational managers and the long-term plans of senior management. If the
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activities of the former are not consistent and contributory to the latter then strategic
plans are bound to fail. Strategic plans need to be built up from sound analysis at glassroots level, and all managers need to consider not just continuing in the same direction
but what longer-term changes may be required.
(i) Failure to integrate marketing planning into a total corporate planning system.
This is another problem that need to be observed where instructions can be provided on
the integration of the two..
These are problems in implementation of the plan, and strategists should be able to design
effective internal marketing techniques for all change programmes since most of the plans
depicts change of certain aspects of the organisation which calls for change management.
MARK ALLOCATION
Marks will be given for every right answer or suitable, candidates are expected to at least give
FIVE points.
(3 Marks each)
(TOTAL: 15 Marks)
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Question 4
Your company’s markets are becoming increasingly competitive as more and more financial
service companies are getting entry into the financial sector due to liberalisation of trade, and
encouragement of entrepreneurship by the current Government regime. Explain how you would
develop an effective competitive information system in these circumstances, the nature of the
inputs that the system would require and how the outputs from the system might be used to
improve the strategic marketing process.
(15 Marks)
ANSWER
INFORMATION ABOUT COMPETITORS
A competitive information system is an integral element of a marketing information system. The
importance of this element is heightened when a company is faced with increasingly competitive
market conditions. In this situation, information obtained from the systems is invaluable when
formulating competitive marketing strategy.
When establishing a competitive information system it is important to consider the operational
set-up. It is suggested that the entire process should be specified and sources of data and
methods for collection considered. Procedures should then be formulated for gathering and
reporting the information and responsibility for information gathering assigned. Finally,
procedures for analysing and distributing the information are needed.
The nature of the inputs to the competitive information system would be as follows.
a) Marketing intelligence
This constitutes information gathered on the marketplace on a day to day basis forming
continual monitoring to identify trend, change and unexpected event data.
Sources
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Trade journals, publications and press articles
Exhibitions and industry contacts
Competitor promotional literature and price lists
Competitors annual reports
Industry reports e.g. Mintel, Euromonitor, etc
Trade Associations
Sales representative reports
Reports from marketing channels eg distributors and retailers
b) Marketing research
Where information is needed on an ‘ad-hoc’ basis to make a specific marketing
decision. Information of this type is obtained from two methods.
i.
Secondary (desk)research
Where data gathered for another purpose is applied to the problem at hand.
A number of sources from the above list would be appropriate in this area eg
Industry Reports.
ii.
Primary (field) research
Surveys, customer panels and observation research of this type could
produce information on issues such as:
 Customer care
 Service/product quality
The outputs from the system need to be evaluated, analysed and disseminated to appropriate
departments within the company. Information of this type can be used, for example, to build a
profile on current and potential market competitors, their market positioning and comparative
strengths and weaknesses. Strategically, this information would be invaluable when making
decisions in areas such as segmentation and positioning, product and market development as
well as building competitor response models. Overall, competitive information systems are
invaluable to formulating marketing strategy, particularly in increasing competitive marketplace.
MARK ALLOCATION
Explanation of competitor information and marketing information system
Listing the competitor information and sources
The use of outputs
(3 Marks)
(8 Marks)
(4 Marks)
(TOTAL: 15 Marks)
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Question 5
The financial industry, banking is particular is becoming very competitive and the degree of
competition is increasing. Acting as a Marketing Officer of a retail bank, write a report that
assesses the role of branding at both the product and corporate level to help in the positioning
your financial institution in the market for higher market share and profitability.
(15 Marks)
ANSWER
REPORT ON BRANDING
TO:
The Director
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FROM:
DATE:
SUBJECT:
Precious Mbewe, Marketing Officer
1st May, 2011
THE ROLE OF BRANDING
Brands say something about what is important to customers and provide them with a means of
enjoying the lifestyle they aspire to. This applies to financial services and retail banking as it
does to the likes of Sony, Samsung, Barclays, Manchester United, and BMW. This report
distinguishes between corporate and product brands, featuring the role of branding.
Role of Corporate Branding
With corporate branding, the company is the brand name, for example the Royal Bank of
Scotland brand and the NatWest brand are both corporate brands within the group. The retailing
banking division covers operations under both of those corporate brands. All of the retail
banking products are offered under the umbrella of the corporate brand.
The brand reassure all stakeholders of the bank of its reputation and the fact that they can rely
on the bank for a secure home for their funds, as well as excellent customer service.
The corporate image and identity is part of this brand, and communicates our brand values. Al
staff are involved and responsible for this brand and all it stands for. Internal marketing plays an
important role in ensuring that corporate values are maintained and brand reputation remains
intact.
Role of Product Branding
The product brand id much more the responsibility of marketing and its main focus is the
consumer (or business customer). Having a strong and well respected corporate brand makes it
much easier to us to launch a new product brand, as customers already know the values of the
overall brand and so may be quicker to adopt the new product because of the trust that has
already been developed. For example when introducing Internet banking service it is fast to be
adopted by customers. Since there is much risk associated with the security of managing funds
on the Internet.
Brands help to differentiate one from the competition, and brands have become a major focus of
financial services companies in recent years, and brands are now recognised as having a
balance sheet value in terms of being an asset to the company.
In general, branding has a number of objectives or purposes including aiding product
differentiation, conveying a lot of information very quickly and concisely. This helps customers
to identify the goods or services, reinforcing customer preferences and retention. It maximizes
the impact of advertising for product identification and recognition, and aids recognition and
identification, creating brand loyalty. By extension, this may be transferred to new products
introduced to the brand range extension. Branding is a push factor, creating readier acceptance
by distributors and retailers, and supports market segmentation, since different brands of similar
products may be developed to meet specific categories of users.
MARK ALLOCATION
Presentation
Explanation of the role of corporate branding
Explanation of the role of product branding
(3 Marks)
(6 Marks)
(6 Marks)
(TOTAL: 15 Marks)
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PART B
Question 6
FineTransact Bank Limited is seeking to develop a strategy which will enable the bank to
expand rapidly, growing turnover by 50% in five years. Prepare a statement to the board of
directors that indicates the new product development process and the most appropriate method
of examining new and existing service products of the bank in order to identify those most likely
to enable the business to reach the growth goals specified.
(20 marks)
ANSWER
NEW SERVICE PRODUCTS FOR GROWTH
PRESENTATION TO:
PREPARED BY:
DATE:
SUBJECT:
The Board of Directors
Jack Dande, Marketing Manager
1st May, 2011
The New service product development process and examining
new and existing FTB service products for greater potential.
The five year time period enable FTB to consider the development of new service products,
support for service products in growth markets, and divestment and repositioning of products
that are in the decline stage of their product life cycle (PLC). As this is a strategic decision for
most of the industry players, the paper has outlined issues pertaining to new service
development process, the method for assessing the performance of new and existing service
products the BCG Matrix method has been suggested.
NEW SERVICE/PRODUCT DEVELOPMENT PROCESS
The Bank is unlikely to achieve its goal unless it puts in place a process of new product
development. The new products must carefully be researched, developed, and if possible tested
in the market place prior to launch. Therefore the process to be adopted by FTB will involve the
following stages in the process.
New Product Development will need a systematic approach to the process. Phillip Kotler proposed the
following approach to new product development and it enables us to outline some of the key
marketing issues, which are involved at each stage of developing a new product. The stages are
Idea generation, idea screening, concept development and testing, market strategy development,
business analysis, product development, test marketing (market testing), and commercialization .
IDEA GENERATION
Good ideas are the lifeblood of new product development. We need a lot of new ideas before we are
likely to find the best idea, which constitute a market winner. The sources of ideas can be both internal,
and external to the organization. There is a need for two key aspects in increasing the number of ideas
for new product namely:
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An effective scanning process for new product ideas, which systematically collects ideas for
possible new products from the widest range of sources possible.
The use of techniques of creativity to encourage idea generation.
SCANNING THE ELEMENT OF IDEA GENERATION
Scanning for new ideas should encompass both internal company sources and external sources as
pointed out. The most obvious and primary sources of new product ideas in the organisation are those
departments primarily charged with this responsibility. These departments may include:
(a) Technical departments, e.g. Research and Development, and Design departments.
(b) The Marketing department, and
(c) In some organisations, New Product Development Department takes this task.
Other sources outside these departments may also provide potentially richest and frequently untapped
sources of new product ideas. These sources include:
 Employees.
 Customers.
 Resellers (Intermediaries).
 Suppliers/Vendors.
 Competitors.
 Miscellaneous sources of ideas include consultants, advertising agencies, market research
companies, universities and colleges, research agencies, governments, and printed sources.
SCREENING AND EVALUATION OF IDEAS
New product ideas are evaluated to determine which ideas warrant further study.
BUSINESS ANALYSIS
A new product idea that warrant further study and survives is expanded into a concrete business
proposal. Here FTB will engage in further detailed evaluation of each idea with more comprehensive
marketing research and testing of the concept, a detailed competitor analysis and a full analysis of the
resource requirements that will be required to launch successfully and achieve sales targets. The market
analysis should determine the degree of market attractiveness particularly the level of competitiveness,
growth rates and longer term potential.
CONCEPT DEVELOPMENT
Management will need to identify product features, estimate market demand, competition and product’s
profitability, establish a program to develop the product, and assign responsibility for further study of the
product’s feasibility. These three tasks are together referred to as concept testing. This is the pretesting
of the product idea as contrasted to later pretesting of the product itself and its market.
PRODUCT DEVELOPMENT
The idea on paper is converted into a physical product where pilot models or small quantities are
produced (manufactured) to designated specifications. Laboratory tests and other evaluations, technically
are made to determine the production or delivery feasibility of the article, and product development is only
done if these conditions satisfied including ensuring that there is adequate demand, compatibility with
existing marketing ability, and compatibility with existing production ability.
PRODUCT TESTING
A working prototype of the product, which can be tried by customers, is constructed. This stage is also
very useful for making preliminary explorations of whether the product could be produced in sufficient
quantities at the right place where it had to be launched. The form the product test takes will depend on
the type of the product. If the product is used in the home, a sample of respondents should be given the
product to use at home, e.g. Internet Banking. It is chosen from amongst competitors, then the product
test needs to rate response against competing products.
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TEST MARKETING
Market tests, in-use tests and other commercial experiments in limited geographic areas are conduct to
ascertain the feasibility of a full-scale marketing program. The purpose of test-marketing is to obtain
information about how consumers react to the product in selected representative areas of the total
market. This avoids blind commitment to the costs of the full scale launch. The firm will use the sales
outlets it plans to use in the full market launch and the same advertising and promotion plans it will use
in the full market. As a result of test findings, design and production variables may have to be adjusted at
this stage. Management must now make a final decision regarding whether to market the product
commercially. Test Marketing will therefore, provide a marketer and the bank’s management with full
information about the suitable marketing strategies in terms of use of the marketing mix for a particular
new service product.
COMMERCIALIZATION
This is full-scale product and marketing programs which are planned and the service product is launched.
METHODS FOR EXAMINING NEW AND EXISTING SERVICE/PRODUCTS
It is recommended that the bank assesses its current product portfolio by the BCG Matrix model
which can be utilised to assist in this process. This is illustrated in the figure below.
BCG Matrix
High
Star
Question Mark
?
Market Growth rate
Cash Cow
Low
High
Dog
Market Share
Low
The matrix will enable us to identify FTB’s products’ market positions relative to competitors with
the largest market share in the market we are operating in. It will also help us to evaluate
whether the service products are in growing or mature markets. Finally, it will enable us to
identify the balance of our overall portfolio of products and assess which products should be
supported for growth (stars or possibly question marks), or divested to free up resources (dogs
or possibly question marks). The matrix should also indicate whether the organisation’s
successful mature products (cash cows) are sufficient to generate the cash revenue needed to
support those products that can help us achieve our goal of 50% increase in turnover.
The findings of this analysis will therefore require more detailed marketing research to identify
those service products that offer the most chance of growth. The bank may also consider the
possibility of repositioning some of its products into new growth markets.
MARK ALLOCATION
Introductory part and presentation
(1 Mark)
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Stages in the new product development process
(1 Marks each stage total: 9 marks)
Explanation of BCG Model or alternative like Ansoff (6 Marks)
Drawing a clear diagram of the matrix in question (4 Marks)
(TOTAL: 20 Marks)
Question 7
Kraft Commercial Bank is thinking of going international having experienced stiff competition in
the home market, Malawi. Write a report to your Managing Director advising him or her about
the risks associated with international trade which need to be strategically considered since the
decision for international marketing has been set and approved by the board.
(20 Marks)
ANSWER
RISK ASSOCIATED WITH INTERNATIONAL TRADE
REPORT
TO:
The Managing Director
FROM:
J. Gan, Marketing Director
DATE:
1st May, 2011
SUBJECT:
RISKS ASSOCIATED WITH INTERNATIONAL TRADE
As Kraft Commercial Bank has decided to operate internationally, the business is advised to
take note of the risks which have been expressed in this report. This will help management to
come up with strategies appropriate for the success of its international operations.
In addition to normal business and financial risk, companies face extra risks connected with
trading and investing overseas. These risks can be separated into political risk and foreign
exchange risk.
POLITICAL RISK
Political risk (also known as country risk) includes the problems of managing subsidiaries
geographically separated and based in areas with different cultures and traditions, and political
or economic measures taken by the host government affecting the activities of the subsidiary.
Whilst a host country will wish to encourage the growth of industry and commerce within its
borders, and offer incentives to attract overseas investment (such as grants), it may also be
suspicious of outside investment and the possibility of exploitation of itself and its population.
The host government may restrict the foreign companies’ activities to prevent exploitation or for
other political and financial reasons. Such restrictions may range from import quotas and tariffs
limiting the amount of goods the firm can either physically or financially viable import, to
appropriation of the company’s assets with or without paying compensation.
Other measures include restrictions on the purchasing of companies, especially in sensitive
areas such as defence and the utilities – such restrictions could be an outright ban, an
insistence on joint ventures or a required minimum level of local shareholders. In order to
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prevent the “dumping” of goods banned elsewhere (e.g. for safety reasons) a host government
may legislate as to the minimum levels of quality and safety required for all goods produced or
imported by foreign companies. Host governments, particularly in developing and
underdeveloped countries, may be concerned about maintaining foreign currency reserves and
preventing a devaluation of their national currency. In order to do this they may impose
exchange controls. This is generally done by restricting the supply of foreign currencies – thus
limiting the levels of imports and preventing the repatriation of profits by Multinational
Companies (MNCs) by restricting payments abroad to certain transactions. This latter method
often causes MNCs to have funds tied up unproductively in overseas countries.
FOREIGN EXCHANGE OR CURRENCY RISK
Exchange rate risk applies in any situation where companies are involved in international
marketing. It arises from the potential for exchange rates to move adversely and, thereby, to
affect the value of transactions or assets denominated in a foreign currency. There are three
main types of exchange rate risk to which those dealing overseas (importers, exporters, those
with overseas subsidiaries or patents, and those investing in overseas markets) may be
exposed.
(i)
Transaction exposure: This occurs when trade is denominated in foreign
currency terms and there is a time delay between contracting to make the
transactions and its monetary settlement. The risk is that movements in the
exchange rate, during the intervening period, will increase the amount paid for
the goods/services purchased or decrease the value received for
goods/services supplied.
(ii)
Translation exposure: This arises where balance sheet assets and liabilities
are denominated in different currencies. The risk is that adverse changes in
exchange rates will affect their value on conversion into the base currency. Any
gains or losses in the book values of monetary assets and liabilities during the
process of consolidation are recorded in the profit and loss account. Since only
book values are affected and these do not represent actual cash flows, there is
a tendency to disregard the importance of translation exposure. This is,
though, a false assumption since losses occurring through translation will be
reflected in the value of the firm, affecting the share price and hence,
shareholders’ wealth and perceptions among investors of the firm’s financial
health.
(iii)
Economic exposure: This refers to changes in the present value of a
company’s future operating cash flows, discounted at the appropriate discount
rate, as a result of exchange rate movements. To some extent, this is the same
as transaction exposure, and the latter can be seen as a sub-set of economic
exposure (which is its long term counterpart). However, economic exposure
has more wide ranging effects. For example, it applies to the repatriation of
funds from a wholly owned foreign subsidiary where the local currency falls in
value in relation to the domestic currency of the holding company. It can also
affect the international competitiveness of a firm – for example, a UK company
purchasing commodities from Germany and reselling them in China would be
affected by either a depreciation (loss of purchasing power) of Sterling against
the Deutschmark and/or an appreciation of Yuan.
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It can also affect companies who are not involved in international trade at all.
Changes in exchange rates can impact on the relative competitiveness of
companies trading in the domestic market vis-à-vis overseas companies when
imports become cheaper. Thus, reduced operating cash flows may be a
consequence of a strengthening domestic currency.
The management of exchange rate risk will involve heading against adverse movements in
order to contain the extent of any exposure. At the operating level, the focus of attention is
primarily on managing the exposure caused by transaction and economic risk, both
essentially being underpinned by cash flows. Kraft Commercial Bank should therefore pay
attention to such risks as it is going international.
MARK ALLOCATION
Professional Presentation
Explanation of Political risks
Explanation of Financial risks
(4 Marks)
(8 Marks)
(8 Marks)
(TOTAL: 20 Marks)
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Question 8
A number of corporations including financial institutions have taken a lead in corporate social
responsibility in their strategic marketing operations.
(a) Explain the connection between ethical behaviour and reputation.
(10 Marks)
(b) Suggest reasons why it is of critical importance for financial institutions to be socially
responsible.
(10 Marks)
(Total: 20 Marks)
ANSWER
CORPORATE SOCIAL RESPONSIBILITY
All companies are affected by the issues of ethics. Indeed managers are forced to operate their
businesses ethically with consideration of social responsibility. Important ethical aspects are
present in most kinds of decision-making. In businesses, every party seeks to profit from the
exchange of products, services and money, but the problem is in determining what is a fair and
equitable division of profit in particular business activity or relationship. For example, companies
have a responsibility to make profits so that they can reward their shareholders and pay their
employees’ salaries, but they have also a responsibility toward customers in that they charge
only a fair price for their product. Therefore, companies and managers have the obligations and
responsibilities toward the people and society that are affected by their actions. This practice
has been noticed and practiced by several financial institutions in Malawi.
Different stakeholders are in fact affected by the way companies operate, therefore it is
important for the companies and managers to have rules and guidelines to use in deciding
whether a specific business decision is ethical or unethical. A company needs to behave in a
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socially responsible manner. Therefore, it can be concluded that ethics can play a role in
shaping the practice of business and the life of people, society and the nation.
(a) ETHICAL BEHAVIOUR AND REPUTATION
The major impact of unethical behaviour is the potential for loss of reputation. Reputation is an
important asset. A company may invest and spent large amounts of resources into rebuilding
their reputations after engaging in unethical behaviour as what happened at Shell and Nike.
Stakeholders have valuable reputations that they must protect because their ability to earn a
living and obtain resources in the long-run depends on a way they behave on a continuing
basis. If a manager misuses resources and other parties regards that behaviour at odds with
acceptable standards the manager’s reputation will suffer.
Behaving unethically in the short-run can have serious long-run consequences. A manager who
has poor reputation will have difficulty finding employment with other companies. Shareholders
who see managers behaving unethically may refuse to invest in their companies, and this will
decrease the share price; undermine the company’s reputations; and put the manager’s job at
risks.
All stakeholders have reputations to lose. Suppliers who provide inferior inputs find that
organisations learn over time not to deal with them and eventually they go out of business.
In general, if a manager or a company is known for being unethical, other stakeholders are likely
to view that individual or organisation with suspicion and hostility, and the reputation of each will
be poor. On the other hand, if a manager or company is known to be ethical, (practically in
business), each will develop good reputation. In summary, in a diverse complex society,
stakeholders and people in general need to recognise they are all part of the large society
group. The way in which they make decisions and act not only affects them personally but also
affects the lives of many other people.
(b) THE REASONS FOR BEING SOCIALLY RESPONSIBLE
There are a number of advantages when companies and their managers behave in a socially
responsible manner, the financial sector inclusive.
First, demonstrating its corporate social responsibility helps the company to build a good
reputation. Reputation is the trust and goodwill and confidence others have in a company that
leads them to want to do business with it. The reward for good company reputation is increased
trade and improved ability to obtain resources from stakeholders.
Reputation thus can enhance profitability and build shareholders’ worth. Behaving socially
responsible is therefore the right thing to do because companies that do so benefit from
increasing business and rising profits.
Another major reason for companies to act socially responsibly toward employees, customers
and the society is that in a capitalist system, companies as well as the government have to bear
the cost of protecting their stakeholders and providing health care and income, paying taxes and
so on. So if all companies in a society act socially responsibly, the quality of life as whole
increases. If all companies and organisations adopted a caring approach and agreed that their
responsibility was to promote the interests of their employees, a climate of caring would pervade
the wider society.
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Experts point to Japan, Sweden, Germany, the Netherlands, and Switzerland as countries
where organisations are highly socially responsible and where, as a result, crime, poverty and
unemployment rates are relatively low, literacy rate are relatively high and socio-cultural values
promote harmony between different types of people. Business activity affects all aspects of
people’s lives, so the way businesses behave toward stakeholders affects how stakeholders will
behave toward business. Therefore, it is advisable too that all managers in Malawian
manufacturing or service companies like banks and other financial institutions should pay
attention to this strategic decision for good reputation in the society.
MARK ALLOCATION
Good discussion of the connection between ethical behaviour and reputation
(10 Marks)
Giving at least two points showing reasons for being socially responsible
(10 Marks)
(TOTAL: 20 Marks)
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Question 9
(a) What is the relationship between resources and corporate capability in strategic process.
(8 Marks)
(b) Explain the tangible and intangible resources of a firm.
(12 Marks)
(Total: 20 Marks)
ANSWER
RESOURCES AND CAPABILITIES
Two major sources of superior profitability: industry attractiveness and competitive advantage
have been identified. Of these, competitive advantage is the more important Internationalisation
and deregulation have increased competitive pressure within most sectors including the
financial industry, as a result industry factors account for only a small proportion of interfirm
profit differentials. The resource-based view emphasises the uniqueness of each company and
suggests that the key to profitability is not through doing the same as other firms, but rather
through exploiting differences. A resource-based approach to strategy formulation is based on a
thorough and profound understanding of the resources and capabilities of a firm. Such
understanding provides a basis for selecting a strategy that exploits key resource and capability
strengths of an organisation or an individual.
Resources are the productive assets owned by the firm while capabilities are what the firm can
do. Individual resources do not confer competitive advantage, they must work together to create
organisational capability. It is capability that is the essence of superior performance. The
relationship among resources, capabilities and competitive advantage are illustrated by the
figure below. To take a wider view of a firm’s resources, it is helpful to identify three principal
types of resource: tangible, intangible, and human resources.
COMPANY RESOURCES
(A) TANGIBLE RESOURCES
Tangible Resources are the easiest to identify and evaluate: financial resources, physical
assets are identified and valued in the firm’s financial statements. The primary goal of resource
analysis is not to value a company’s assets but to understand their potential for creating
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competitive advantage. Once we have fuller information on a company’s tangible resources we
explore how we can create additional value from them, and this requires you to address two key
questions: What opportunities exist for economising on their use? It may be possible to use
fewer resources to support the same level of business, or to use the existing resources to
support a larger volume of business. Improved inventory control may allow economies in
inventories of parts and fuel. Better control of cash and receivables permits a business to
operate with lower levels of cash and liquid financial resources. What are the possibilities for
employing existing assets for more profitability? Could Air Malawi generate better returns on
some of its planes by redeploying them into cargo carrying? Might it reduce costs in its African
network by reassigning routes to small franchised airlines.
(B) INTANGIBLE RESOURCES
For most companies intangible resources are more valuable than tangible resources, yet in
company’s financial statements, intangible resources remain largely invisible, particularly in the
US. The exclusion or undervaluation of intangible resources is a major reason for the large and
growing divergence between companies’ balance sheet valuations. Among these undervalued
or unvalued intangible resources are brand names.
(a) Brand names. Brand names and other trademarks are a form of Reputational Asset:
their value is in the confidence they instill in customers. Different approaches can be
used to estimate brand value. One method takes the price premium attributable to
brand, multiplies it by the brand’s annual sales volume, then calculates the present value
of this revenue stream. The brand valuation can be based upon the operating profits for
each company (after taxation and a capital charge), estimating the proportion
attributable to the brand, then capitalizing these returns. The value f a company’s brands
can be increased by extending the range of products over which a company markets its
brands. Samsung and General Electric derive considerable economies from applying a
single brand to a wide range of products. As a result companies that succeed in building
strong consumer brands have a powerful incentive to diversify, e.g. Nike’s diversification
from athletic shoes into apparel and sports equipment.
(b) Technology. Like reputation, technology is an intangible asset whose value is nor
evident from most companies’ balance sheets.
(c) Intellectual property. Intellectual property which includes patents, copyrights,
trademarks, and trade secrets comprise technological and artistic resources where
ownership is defined in law. Companies are now attentive to the value of their intellectual
property. Intellectual property is the most valuable resource that some companies own
like IBM.
Therefore all managers including those involved in marketing decisions should be conversant
with the importance of resources for competitive advantage in the business environment so that
they can be able to develop competitive marketing strategies for their organisations.
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Question 10
You have been appointed as a Strategic Marketing Consultant to a small financial services
operator after completing your Advanced Diploma in Banking programme. The business is
looking to gain support from the central bank, but it has been asked to submit a marketing plan.
In your role you are asked to:
(a) Explain the components of a marketing plan which the company will need to write,
discussing the synergistic planning process.
(12 Marks)
(b) Explain the role of the marketing plan in relation to the company’s business objectives.
(8 Marks)
(Total: 20 Marks)
ANSWER
THE MARKETING PLAN AND THE SYNERGISTIC PLANNING PROCESS
REPORT
To:
The Senior Management
From:
Strategic Marketing Consultant
Subject:
THE MARKETING PLAN COMPONENTS
The Marketing plan is the framework that outlines all the marketing activities and initiatives for
an organisation. The following are the components of the marketing plan:
Executive summary
The executive summary gives a brief overview of the whole plan. This details how the need
arose to develop a plan, what the aims and targets are. It gives an overview of where the
company is at now in terms of markets, products and customers. It also briefly outlines any
proposed actions including the timescales and funding required to fulfill these plans.
Situation Analysis
The situation analysis analyses the position of the company at present moment in time. There
various parts in this analysis are:
 Macro environment analysis. This investigates the wider market in which the company
operates. It can be analysed by looking at political, economical, social, technological,
environmental (Green) and legal factors.
 Micro environmental analysis. The Micro environment analysis investigates the markets
within which the business operates. It can be analysed by looking at porters five market
forces.
- Customers- who are they, what are their perceptions and attitudes, how many
are there.
- Suppliers- their capabilities and capacity.
- Competitors- who are they, how successful are they?
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-

Threat of new entrants- who may provide products which replace the business
products.
Threat of substitutes- who may provide products which replace the businesses’
products.
These factors can be analysed via a SWOT analysis which identifies opportunities and
threats to business.
Internal appraisal
This looks at the businesses own capabilities and can be assessed by looking at 5M’s:
Men—the capabilities of the work force
Money—the financial situation of the company
Machinery—the fixed assets
Materials—the supply and production processes
Markets—the market share, growth, trends
These can also be analysed using the SWOT technique to identify strengths and weaknesses.
Marketing Strategy
This will outline the marketing actions needed to be taken to achieve future aims. It sets out:
• the marketing objectives—smart
• the target markets—who to sell to
• the product position—where the product is now
• the marketing mix to achieve objectives—this will focus on aspects of price, product, place,
promotional strategies to achieve objectives
• marketing research—in order to carry out strategies
Numerical forecasts
These include turnover, market share, growth, trends, costs and break even analysis which are
required to assess the situation and project forecast for the future.
Control
This ensures how the company gets to where it wants and includes:
- Performance measures.
- Roles and responsibilities.
- Implementation milestone.
- Contingency plans.
THE SYNERGISTIC PLANNING PROCESS
There are four components to this planning process:
1. Determination of desired outcomes. This is the setting of objectives of where the
business wants to be.
2. Analysis of the current situation. This is the macro- and micro-environmental analysis
plus the internal appraisal.
3. Deciding on possible routes to the outcome. This is about the marketing strategies
for how to achieve the objectives.
4. Deciding on the route and how to get there. This is the selection of the best strategy
and the control mechanisms to ensure the objectives are achieved.
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The marketing plan and its relationship to the overall business plans is illustrated by the figure
below where the corporate business plan and mission statement outlines the direction that the
whole organisation wants to take for the future. From this corporate objectives are developed.
VISION
MISSION STATEMENT
Corporate Objectives
Corporate Strategy
Finance
Operations
Marketing Objectives
Marketing Plan
Product
Strategy
Price
Strategy
Place
Strategy
Product
Strategy
Each business function will develop objectives which will contribute to overall attainment of
corporate objectives. These objectives need to be integrated across all the functions to ensure
success of the company. Therefore the marketing functions has to determine sets of objectives
to achieve corporate success. This allows the marketing plan to be developed to achieve the
marketing objectives, and from the marketing plan individual strategies can then be drawn up for
the components of the marketing mix, i.e. product, price, place, and promotion. If it is services
marketing, an extended marketing mix need to be included.
MARK ALLOCATION
Explaining the components of a marketing plan
Explaining the role of the marketing plan.
(12 Marks)
(8 Marks)
(Total: 20 Marks)
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