STRATEGIC OBJECTIVE
david hornby
An important phase of marketing's strategic planning is composed of two stages. These two may be recalled with two pronouns in the key questions each answers: What? and How? The questions are:
In this article we deal with setting strategic objectives. After that is marketing stratagems and the options from which a marketing planner can choose an appropriate way of achieving the defined objectives.

OBJECTIVES

Objectives must precede the determination of stratagems. Brilliant marketing ideas may occur to a real estate marketing manager at any time however, their serious consideration, needs to be deferred until strategic objectives are established. This is required to guide the search for optimal ways to achieve an ideal position in the right markets.

The distinction between what a firm wants to do (its ends) and how it will do that (its means) may be unclear. Indeed, even scholarly writers on strategy sometimes have confused them, but both are essential and must be distinguished. I will clarify the ideas with hypothetical example.

EXAMPLE

The Z Company is a rather small real estate agency with a strong local residential rent roll. To market a new industrial complex nearby, it has to invest in a specialist personnel and capital, borrowing for the purpose. Now, the marketing manager is determining strategy. The situation is that, despite rising sales and rents of industrial units in the area, the expected cash flow is inadequate to pay off the burdensome debt and interest. The new sales and rents achieved only 50% of the target figures.

After studying the other marketing schemes in equivalent industrial estates, the manager has decided that they offer no solution. Rather, the goal would be to raise sales and rents to $800,000 in commissions, selling and renting at 80% of the target figures. Because of high fixed costs, this would create a satisfactory cash flow. With that established, they direct the marketing manager to find ways of accelerating sales and rents to $800,000 in commissions. Marketing then turns to finding the best way to increase sales and rents to that level.

ENDS AND MEANS

In this example, observe the decisions on both ends and means of reaching those ends. Each end (objective) is paired with a means of obtaining it. It would have been futile to establish an end unless there is a means of reaching it. On the next decision level, that means becomes the end, and the decision maker must seek a means for reaching that end. Therefore, a chain of ends-means decisions proceeds from the initial and general objective toward the actions that will ultimately accomplish the initial aims. Although I have referred to a single means or action, typically, more than one action is needed to reach a given end.

The first objective is initiated at the firm or corporate level. Marketing strategy enters that chain on the third level, at which the prior objectives guide or constrain marketers' decisions. Those prior decisions will be covered later. Remember that marketing is only one of several functional departments in a real estate firm, and therefore a full chart of the ends and means related to corporate objectives would contain other chains of decisions for those functions. Top management has the responsibility of setting all functions' initial goals and of coordinating and approving their implementation down the decision chains.

These chains begin with strategic planning decisions. Later the decisions become focused on more specific questions. One of these is financial determination of the proposed strategy's costs and needed fund allocations. If that proves to be excessive, the planning may be recycled to reconsider objectives so that an affordable compromise on costs may be found. As was shown in Diagram 1, the allocation decisions mark the completion of strategic planning. Beyond that stage, many actions must be decided in detail and later executed, but all of that is beyond the scope of strategic planning.

The concept of ends and means is a simple one. It has been presented with the subject of strategic objectives because it is a distinction fundamental to understanding why objectives are so necessary and why they should be considered integrally with their stratagems.

TIMING - WHEN?

We have been dealing with the questions of what and how, regarding ends and means. There also is a third question that relates to them: when.
When is the desired end to be accomplished? Answers to this are relevant to determining whether some proposed means are feasible, whether they would produce timely solutions, and what they would cost. The question of when also entails a possible conflict between period planning and periodic planning.

The example of Z Real Estate Company concerned only a plan for one year, a periodic plan. If a stratagem being considered would require more than one year, then both the coming year (periodic) and the longer period (program) plans would have to be decided. Corporations in practice are controlled by the current year's budgets, but their annual plans need to accommodate the long-range strategies of the programs to which the firm is committed. When facing both horizons, which objectives should prevail, pressing short-range or strategic long-range ones? This issue needs to be resolved in setting corporate objectives.

PRIOR CONSTRAINTS AND DIRECTIVES

Marketers have only limited latitude in deciding marketing's objectives and stratagems. They are tightly constrained by a number of elements:


POLICIES

Policies are standing decisions that guide and direct the firm's actions on a semi permanent basis. They are changed infrequently and thus govern planning over a number of periods. Through adherence to policies, there will be consistent action toward realizing a firm's mission. Here is an example of a policy's effects on marketing:

EXAMPLE

Matlock Real Estate has expanded on the company’s goodwill. It is has now franchised its operations to a number of existing real estate firms. However, the goodwill has been within the state. One of the directors could foresee the possibility of extending the franchise scheme interstate, on a national basis as there was a perceived market gap at the national level. He urged Matlock to seize these opportunities and spread nationally.

For a marketer, that clearly was a logical objective, but the rest of the board declined the opportunity. The reasons were largely safety and conservatism.

That director had such faith in his vision that he left Matlock to work (with his wife from a small suburban office) on the development of a national franchise system with economies of scale and national exposure. They enjoyed great success and the business is flourishing. However, this does not mean that the Matlock board was wrong in holding to their cardinal policies and is now slowly expanding interstate,

CORPORATE OBJECTIVES

The top executive of a firm should lead and guide its strategic planning through the setting of corporate objectives. The situation analysis served to constrain what may be planned, but corporate objectives have great effect in:


In any departmentalized organization, there are two dimensions of objectives to be decided at the top:


Large multiproduct (eg property management, property maintenance, valuation, sales and leasing) real estate firms will have several planning levels,

The departments are the strategic business units (SBUs) and product/ market units (PMUs), as well as functional areas. Objectives need to be assigned throughout these subunits, but we will consider just the relationship between two levels. Top executives should issue, to the next level of management, two types of directives:


PERFORMANCE GOALS

Performance goals are stated in precise, quantitative terms. The four measures most frequently used for corporate performance are:

• Net profit or income
• Revenue growth
• Cash flow
• Return on assets or equities.

All of these are quantitative, expressed in numbers obtainable from the internal accounting system. They may serve as strategic targets and also as yardsticks for gauging strategies' success. However, only one can be the PRINCIPAL corporate performance target.

SHARE OF THE MARKET

The objectives assigned to marketing should be congruent with its role in the firm. As Anderson has declared, that role is to achieve an optimal marketing position. The suitable statistical objective to judge marketing's performance is share of market. That, of course, is the firm's volume of sales and rents as a proportion of total sales and rents in the particular real estate market. For example, for Matlock above, it could be the share of the market for that particular industrial estate.

A strategist is also concerned with predicted sales and rents over the period being planned. Matlock may hold a 17% market share currently, and management would target whatever it believes to be an attainable share for the planning period.

A bald market share figure gives scant indication of the marketing position that should be sought. Marketers might be able to attain such a goal, yet use a strategy that is detrimental to the future of the business. Mere pursuit of market share has often proved to be an error, setting an end with no concept of the means. The objectives assigned to marketing should include an explicit description of the desired strategic position, which is essential to conceiving ideal ways of reaching it.

Three questions must be answered by top management about its objectives for marketing:


The markets' definition obviously is needed to figure market share, but it also has significance in finding stratagems. It is not always simple to answer. Take Matlock’s foray into industrial lands, the marketing manager will have to analyse specific markets for other estates. Matlock may choose a general spectrum of industrial clients as its target, since it is otherwise nondescript industrial land. “High Tech” or industrial garden estates offer special benefits and facilities (including site goodwill) but at higher prices and rents. Market choice often is the riskiest planning decision, for the best investment over a long period it will be necessary to build a lasting market position.

EXAMPLES

Some strategic implications of defined markets are demonstrated in the marketing of commercial property leading to different long range strategies.

JBL rose to prominence by selling and marketing “JBL office/warehouses”. These were very efficient buildings of a standard and popular design with a mezzanine office overlooking the warehouse area. The buildings were not large thus appealing to a wide client market. The marketing of such properties to industrial clients who required such buildings lead to a market edge and an emphasis of building, marketing and selling all within the same firm.

JBL wholly owned buildings proved to be very competitive against strata industrial units.

Low Rent Warehouses mass produced office/warehouses in light industrial areas. These were cheaply built with concrete blocks and galvanised steel on outlying cheap industrial land. Low rent Warehouses proved to be a strong competitor against both JBL and Z companies. The demand came from small firms without capital reserves who preferred not to own real estate as that capital cost is better spent on the production process, plant and equipment

The surge of interest in strata warehouses in the late 1980s illustrates a specialist demand during that period. Z Company was a pioneer and successful marketer of strata industrial space concentrated on small warehouse/servicing firms who liked the safety of owning one’s own premises plus the benefits of possible capital gains. It did not compete head on with the larger competitors who were selling whole buildings and leasing, but picked a newer and growing segment in the industrial warehouse market.

With this market definition, Z Company could choose an innovative channel as an exclusive advantage, “own your own warehouse at minimal cost and enjoy capital gains”. It was an excellent strategy in a market that has grown to over $1 billion in sales and rents in the particular industrial area and the company still holds around 50% market share of the warehouse business in that light industrial area.

BUSINESS SCOPE

There must be a clear statement of the firm's overall business scope and the scope of each planning unit's business. Each unit should deal with a homogeneous product line and with identified competitors, so that uniquely suitable strategies may be created for it. A business or industry's scope may be defined in these dimensions:


Physical similarity in real estate markets (for example, the light industrial examples above) may not indicate that two firms are in the same business. Low Rent Warehouses, Z Company and JBL are aiming at different sub markets. They are strategically different from each other.

TECHNOLOGY

Certain technological and management capabilities may be essential to a strategy. Marketing strata warehouses requires different expertise than the marketing of full ownership warehouses. The strata firms will also enjoy a property management spin off that helps the sales side of the business.

Firms with strata expertise can take advantage of this expertise whereas firms without such this expertise will have to put together a specialist team. Z Company defined its business sharply to take advantage of its special capabilities. This is known as exploiting the firms’ comparative advantage.

BUSINESS DEFINITION

The business definition should state:


EXPENDITURE - THE MONEY PARAMETER

A third question that should be addressed is the magnitude of funds available for the planning unit to use. Money, is the fuel that implements plans. Top executives should indicate the financial parameters so that planners will stay within realistic bounds. For long-range projects, statements of the payback period over which the investment is expected to be recouped are needed.

Marketing managers should, and normally do, participate with advice on these questions. Marketers are promoters, inherently, and I would expect them to be vocal about marketing's concerns and decision inputs including their share of funds.

OBJECTIVES

A strategic planning system must be goal-driven. Marketing's objectives must be articulated with those set on the next higher level, to be the means by which that level's objective is realized. I have treated that stage of
planning; now I consider the marketer's situation.

MARKETER’S POSITION

Some constraints have been imposed, including policies, deadlines, the planning and payoff periods, the resources that may be utilized, and the performance objectives. More descriptive guidelines on the position they hope marketing will achieve may have been issued. Within that many-sided framework, marketers search their databases and experience hoping for clues on the ideal positions to seek and the creative marketing mix to design.

CONSUMER OR COMPETITOR?

The well informed strategist has information on all the environments I have discussed and are relevant to the planning unit. In their interpretation of the situation, marketers may emphasize one or more environments they believe are the critical ones under existing conditions. They view the situation with a bias, and whether they have the "right" one will affect the objectives they set. The bias or emphasis is most likely to be on either the market (consumer) situation or on the competitive situation.

Most real estate marketing has a bias on the market (consumer) situation. Is this the correct approach? Should real estate marketers be more concerned with what their competitors are doing?

In the tradition of the marketing concept, a business should be guided by consumer considerations. The best general policy is maximizing consumer benefits (within practical limitations). I will speak of this as a consumer orientation.

The alternative usually is a competitive orientation. With this approach, the marketer is observing what rival firms or brands are doing, anticipating their moves, and setting objectives for ways to surpass them. Around the middle of the 1970s, a reaction against the consumer orientation became manifest, and more recently the competitive orientation has been expressed as a marketing warfare view. There are good arguments for putting a priority on coping with competitors' programs and relative strengths or weaknesses, although it is hardly analogous to real war.

EXAMPLE OF THE COMPETITIVE ORIENTATION

Here is an analysis that may help you get a grip on the controversy between
these two orientations. The speaker is the chief marketing officer of Harris Real Estate, that had been very effective in marketing high tech industrial land.

At Harris, I don't believe in going after market share for market share's sake or that heavy promotions and tremendous public relations campaigns are the keys to success. I believe the key . . . is recognizing major disruptions in the marketplace and organizing to take advantages of those disruptions as they occur.

When these . . . take place, the rules of the game are dramatically changed and everyone is starting from ground zero. . . . Therefore companies such as Harris which is 150 times smaller than a typical large multinational firm has a chance, if it recognizes the opportunities.........

Strategic planning is Harris' major tool for survival against the large multinationals and other large competitors, as well as the vehicle for identifying the opportunities created by major disruptions. [They] typically occur in the form of technical advances, laws, regulations, or disasters.

Harris Real Estate is currently doing well with that strategic emphasis, having scored a 26% profit increase in the most recent quarter. The statement indicates a competitive orientation. Obviously it was a good choice for the situation of a small firm trying to compete with large real estate firms. Much, however, may be said for the other emphasis, consumer orientation. Consider this business situation:

In the real estate industry, several of the large companies during the 1980s determined that they should divest themselves of their low profit operations such as property management (which had been their mainstay), and direct their resources instead to the newer special areas with greater income potentials (such as specialist financing including “sale and leaseback”).

One of them is Ratlock Real Estate that is very committed to strategic planning. Ratlock around 1980 established an objective of total conversion to specialties and quasi real estate activities. It was implemented in a 6 year period and so effectively, that it’s profits, per share, grew by around 60%.

Ratlock's corporate objective depended substantially on its marketing, in turn, being directed by new services and market objectives toward a practicable and sustainable position. Its objectives differed from those above for Harris Real Estate. Ratlock’s planning differed from that of Harris as well, requiring a long period for development, as is the tendency with consumer oriented objectives. Competitive stratagems, instead, tend to face strong pressures that demand short term perspectives.

Which of these emphases should the marketer use? There is no easy answer and one is not inherently superior to the other. Sometimes the need for gaining a sustainable long range position dictates that consumer factors have priority. And sometimes a well entrenched firm is more concerned with fending off competitors, taking a short range orientation. Normally a firm should combine these orientations and attempt a balanced outlook.

EVALUATING THE SITUATION

To accomplish their roles in the firm and determine the objectives that prescribe their tasks, marketers must make a thorough study of the current and prospective situation. That analysis, requires a process with the following steps:


When that evaluation has been made, planners should be prepared to set marketing objectives, whose performance is likely to win the desired market positions. Given these specific marketing objectives, planners turn to seeking stratagems that should achieve such results.

MARKET TARGETING

Market targeting consists of the decision processes conducted to find the markets to serve, which are the two first steps above. It is often a complex task because of difficulties in developing accurate profiles of customers. The problem is worse in some rapidly changing industries where markets are dynamic and firms are expanding quickly.

Examples of these decisions occurred in the industrial/warehouse industry, where JBL recognized strong potential in the specialist office/warehouse land uses, which it targeted for very profitable marketing. More recently its competitor, Z Company, spotted another attractive segment in strata title warehouses and chose an objective of gaining a strong position there. This was achieved by purchasing a strata management company with corporate clients, which Z Company has since strengthened and focused on industrial strata.

Low Rent Warehouses have seen the success of Z Company and has recently started to offer their warehouses under strata title as well. However, not being the pioneer it has been unable to achieve a position like Z Company. Meanwhile, LRW observed another new target market in strata office accommodation in industrial areas. They have formed an entry strategy in offering an innovative and flexible financing scheme to their prospective clients.

SUCCESS CAN LEAD TO OVERLOOKING OTHER PROFITABLE MARKETS

When a market has enjoyed steady growth for a period of time, less profitable market segments may have been overlooked by the firms catering to that overall market. This was true of the “conversion to strata” industry for old flat buildings. This segment of the market had enjoyed a 20% annual growth in the late 1970s and early 1980s. It attracted mainly new companies as the established real estate companies were more interested in holding onto the patronage of steady, current customers than in attracting another client segment; buyers of strata units in established and older suburbs.

EXAMPLE

The traditional market became saturated in the late 1980s, which led to a price war among most renting and sale lines of real estate. Certainly, with competition so fierce, no one would expect a new firm to enter the business.

But that is just what Strata Conversions did. SC owned only one old building in a inner city suburb that it converted to strata and sold cheaply to new unit buyers. It did so well in its first year that it bought three old warehouses and converted these into strata apartments. The Chairman of SC stated: "In tough times you have to go after one segment of the market." Concentration on a single segment allowed pursuit of the optimal opportunity. In this case, the segment SC went after was not being adequately served and proved to be extremely profitable even in "tough times”. The established real estate industry had become prosperous, and SC is even more so.

MATCHING PRODUCTS TO MARKET OPPORTUNITIES

The ultimate test of the usefulness of attempts to isolate markets is whether they help shape and refine the marketing strategy to make the offering compatible with the market. It is sometimes difficult to match products to market opportunities. One reason for this is that real estate markets and external environments change and with that change the needs and wants of real estate buyers.

Prestige Real Estate in the Eastern suburbs of Sydney monitored the environment in the late 1980s and early 1990s and decided to stick with its premium-quality, premium-priced strata units in the prestige Eastern suburbs. It estimated that the demand for “upmarket” prestige units with expensive common property facilities would dramatically increase in the future.

SETTING THE OBJECTIVES

During the selection of the target market, the potential for a profitable and growing demand have been forecasted. That was the second step in our list of five. The third and fourth were interpreting buyers' wants and evaluating the competition. Now I consider these together with the marketing objective.

Bear in mind that some differential advantage over competitors, one that is meaningful to buyers, is essential to gaining a strong market position. Such an advantage is of immense value, but it must be sought diligently after obtaining descriptions of buyers' needs and motivations. That is a top objective early in strategic planning.

This process may be found in the example of Strata Conversion’s stratagem to gain leadership in the residential strata market. Whether our scenario resembles the actual decision making at SC is immaterial, for it is appropriate:

EXAMPLE

SC had built small commercial premises and shopping centres that it then onsold through a real estate agent. It could not gain leadership, as in this competitive sector of the real estate market. If it could define and satisfy some overlooked need of the industry, it could win a strong hold there, too. But what problem was vexing people in renting or buying flats in the inner city areas.

This investigation met its objectives in observing that potential buyers could not find the type of units they wanted in the inner locations. This applied particularly to professional people with no or a small family who wished to enjoy the benefits of inner city living but who did not wish to rent. Research showed a certain stigma against renters in these areas and the prospective client based liked the idea of potential capital gains.

The objective therefore, was to find a way to satisfy the needs of the perceived market.

SC assembled a number of experts in converting (physical environment), obtaining council permission (legal and social environments), converting to strata title (legal environment) and marketing them (strategic marketing planning environment). They met their objective by converting an old block of flats into better appointed and roomy strata units. With this approach, the marketers would able to set and meet their sales objectives in strata u its in the inner city area.

Where the situation and objectives call for innovation, the risk and investment in its creation justify a thorough situation analysis and idea generation, in order to specify and to develop the stratagem. New real estate products in a consumer oriented approach are particular cases of this.

I outline a seven-stage strategic program of development in Diagram 3. You will notice that the objective of market targeting has preceded the first of the seven stages.

This table contains ten objectives. Each decision and its basis are given. Some of the guiding objectives, such as those for profit and investment, are not listed, nor are the subobjectives that flow from these major ones. The table should give a sense of the decision system that may be followed in a product's development. I might visualize how the marketing managers in SC would have proceeded with their new real estate product, in cooperation with the builders, strata and legal expert.

Let us consider a different strategic problem, one in which the competitive orientation played a clearer role.

EXAMPLE - COMPETITIVE ORIENTATION

New Homes Company had been a large firm in the “speculative homes” market in the outer suburbs. Consumer habits had shifted away from new homes further out to older homes (art deco and federation) in the middle suburbs. Location was important and also the desirability of owning a “historical” home. At the same time the competition for “spec” homes in the outer suburbs became keener with a number of competitors undercutting NHC by using land provided by the government in joint ventures arrangements and special low interest loans to first home buyers.

NHC unquestionably faced a competitive objective of finding a means of strong entry into a new market. Research revealed the market target; new home buyers in the middle suburbs. However, NHC were builders and marketers of new homes, how could they use this comparative advantage to enter the middle suburban market? The product already had been determined also, by learning what qualities consumers liked in middle suburban houses NHC decided to embody these qualities in a new houses. Enter the “reproduction home”! The qualities were classic design (mainly federation) but with modern facilities inside. The end result was a home that appeared to be no different from other federation cottages that had been modernised in the middle suburbs.

In other words NHC objective was to find a segment of the home market that the established builders/marketers had not yet found even preempted. This was found, the middle suburban home buyer. These consumers had the greatest appreciation of classical design and modern facilities. This led to an objective for advertising; to find the right copy platform on which to address that target market.

The NHC example differs also in that it has a narrow scope, that of guiding advertising creativity. Strategic problems in marketing do not always have a broad objective that concerns a complete marketing program. Often they have more narrow aims to achieve strategy in pricing, distributor relations, or some other more specific situation.

THE STRATAGEMS

The second half of the ends-means process remains to be discussed the stratagems. One can become so absorbed in the optional stratagems for marketers that the reason for their existence and the guidance for them is forgotten. Objectives are that reason and that guidance, as you should understand and remember.

We have not presented an exact procedure or an equation in which specified variables would be given certain weight and a precise objective would emerge. There has been criticism of "cookie cutter" formulas, and rightly so, because the variables, analysis, and judgment of the appropriate objectives (and stratagems) differ for each situation and firm.

CONCLUSION

A logical decision sequence and a variety of cases to illustrate good or not so good decisions have been offered in this module. It is with such systems and with experience that marketers become skillful in setting objectives. Let us close by repeating the main elements in that sequence:

  1. Performance objectives are given to marketing, to seek a strategic plan that will reach them (some constraints may limit the search).

  1. Markets are searched to identify unmet demands and unserved segments, and also to forecast the potentials. Competition is studied to find threats and relative weakness and strength. If a "strategic window" is open-for an opportunity not exploited one may discover a stratagem (like Strata Conversions) that gains a differential advantage to win and hold that market. When the window is closed, other firms' entry (particularly the established and large companies who lack flexibility) may be slow and costly, unless they find a new differential.

  1. To capitalize on a strategic window, the objective for a good differential may be narrowly aimed at some function of marketing (for example, the right advertising claim). On the contrary, it may have to be a broad aim outside of marketing or of one's business. For example, the use of new technology to find a differential for capturing the new market.

Be realistic and do not visualize marketing objectives being taken up formally
"by the numbers" of the above sequence. Humans simply do not act that way. Complex business objectives more or less evolve as a planner's thoughts and observations dwell on some element in the process or as new data are received. There are also messages between involved persons, mostly casual. An orderly final determination of objectives along an efficient path is what is advocated.