Marketing Strategy Of McKesson

Posted by Matthew Harvey on Oct-17-2018

1 Marketing Mix of McKesson

The marketing-mix model is applied to discuss the Marketing Strategy of McKesson.

1.1 Product

This Marketing Strategy element reflects the solution to the customers’ needs. McKesson should develop unique product design, name and features to stand out in the competitive market. Following factors should be considered to develop the product strategy- quality, variety, features, packaging, brand name and augmented services.

1.2 Pricing

This Marketing Strategy element requires an evaluation of the value of products for targeted customers. The pricing strategy of the McKesson will focus on setting the list price, credit terms, payment period and discounts.

  • If McKesson decides to choose the price penetration strategy, it will have to set the lower price than competitors. The company will be able to win market share based on discounted pricing. However, management should be aware of the potential retaliation from competitors in the form of an undesired price war.
  • The choice of skimming strategy will require clear communication of differentiation basis and how such differentiation justifies the extra price.

Today's customers are not interested in knowing the ‘price' but a total cost involved in acquiring, consuming and disposing of the product.

1.3 Place/distribution

This Marketing Strategy element requires McKesson to make some important decisions when developing its distribution plan. It should decide:

  • Whether the company wants to make the product available to targeted customer segments through its channels, or it needs a distribution partner to serve the customers' needs.
  • Whether the distribution will be direct (involving no middlemen), or indirect. If indirect distribution strategy is adopted, the number of middlemen must be selected (wholesalers, retailers etc.)
  • Whether it is interested in: traditional brick and mortar distribution network, online distribution or a combination of both. Certain online retailers like Amazon are available if online distribution strategy is chosen. The company can also develop its online website to sell the product.

Modern customers give high importance to the ‘convenience’ and ‘easy availability’. The selection of ‘right’ distribution channels will require McKesson to:

  • Firstly, consider the product characteristics. Involving various middlemen to distribute perishable products will not be a wise decision if the product is perishable.
  • Analyse the market dynamics, customers' preferences and own resources and capabilities. If customers place high importance to personalised services and prefer shopping from traditional stores rather than online channels and firm also has enough resources to open their outlets, than distribution strategy should be set accordingly.
  • The competitors’ distribution strategies also need to be studied. A comprehensive cost-benefit analysis of each channel and comparison with own resources and capabilities will help McKesson develop an effective distribution plan.

1.4 Promotion

This is one of the most important elements of McKesson Marketing Strategy. McKesson can blend above and below the line promotional strategies to achieve its marketing objectives. The above the line promotion options for McKesson are- television, radio and print advertising. Below the line promotion options are- catalogues, tradeshows and direct mail campaigns.

The promotional plan of McKesson Marketing Strategy requires the company to consider the following factors:

  • Start with clearly defining your unique selling propositions and understand why customers need the product and how it is different from available alternatives.
  • Craft the message content and evaluate how the crafted message will help customers in creating a clear image of the offered product. Consider the AIDA (awareness, interest, desire, action) when developing the message.
  • The promotional strategies like direct selling or high profile advertising will suit if the company wants to push the product. However, the pull strategy will require the development of a prestigious brand image that could attract the customers towards the offered product.
  • Collect the following target market information- who will buy the product? (Age, gender, income and social status), what is price sensitivity level? And what are customers’ desired communication modes? Incorporate this information into the promotional plan.
  • Filter out the promotional options based on the above information and conduct a cost-benefit analysis of selected promotional alternatives.
    • For example, the selection of TV advertising as a promotional strategy will allow the company to target the mass market, increase brand awareness and brand recall. However, it is an expensive promotional strategy and suits if the company has adequate resources available for the promotional efforts.
    • The popularity of social media marketing has raised significantly during the last few years. Use of this promotional strategy will enable McKesson to reach the mass market economically. It will also offer an opportunity to actively interact with customers, develop a personalised relationship and manage e-WOM to get better results. However, the risk of uncontrollable negative e-WOM remains there.
  • Lastly, consider the budget constraints and allocate budget to chosen promotional strategies according to their nature, importance and frequency.

2 Customer Analysis of McKesson

The development of effective marketing mix strategies depends on McKesson’s knowledge of its potential customer base. The strategies will be more effective if the company understands the needs, expectations and attitude of its customers. The detailed analysis leads towards the identification of different customer profiles or segments (as explained in detail in the next section).

McKesson can follow three steps to conduct customer analysis:

  • Firstly, McKesson should clearly define who current and potential customers are? At this step, a whole group of customers is identified so that it could be divided into different segments based on their motivations, traits and characteristics. Identification of potential customers can be more challenging than current customers.
  • The customer analysis should offer information about how the needs and expectations of different groups differ from each other and what can be possible reasons.
  • Lastly, McKesson should analyse how it’s offered product/service serves the needs of different groups and which customer groups have more profit and growth potential. This information will help McKesson develop customer profiles and personas.

McKesson can consider following factors when developing the customer profiles:

  • The customer analysis must identify the total market size including current and potential customers that could be divided into small measurable segments.
  • The customer profiles must have some observable differences.
  • The company should also conduct behavioural analysis to identify the psychographic profiles. It involves identifying and weighing the relative importance of factors considered when making a purchase decision or more commonly called buying criteria. Common buying criteria are- prestige, convenience, quality and price.
  • McKesson can then develop the customer personas. Important elements to be included in developing customer personas are:
    • Demographic information (e.g. gender, family, age, location etc.)
    • Preferred communication channels.
    • Possible influencers (publications or celebrities they follow)
    • Challenges they face due to unserved needs and desired solutions.

The customer analysis and development of segmentation strategies run in parallel. McKesson can use the information obtained from the customer analysis to develop the segmentation, targeting and positioning strategies as discussed below:

3 Segmentation of McKesson

The development of McKesson Marketing Strategy requires identifying segmentation basis to understand the specific buying behaviour of customers. The needs, expectations and buying behaviour of customers are heterogeneous and depend on multifaceted factors- like:

  • Age
  • Gender
  • Income
  • Lifestyle
  • Values etc.

By using the segmentation technique, McKesson can narrow down the large, diversified target audience into specific and narrowly defined groups. Market segmentation surveys are common methods of obtaining the customer-specific information that could be used to create groups sharing common characteristics.

After understanding the unique buying behaviour of customers and getting the required information through surveys, McKesson can divide the market into small homogeneous groups. It can be done by exploring the geographic, demographic, behavioural and psychographic characteristics of customers.

The company can use one or more of these segmentation strategies to choose the right market segments and develop an effective Marketing Strategy.

  • The geographic segmentation divides the market according to geographic areas, like- city, country and region.
  • The demographic segmentation will require McKesson to divide market according to demographic characteristics, like- gender, age, income and ethnicity.
  • If McKesson chooses behavioural segmentation, then customers will be divided according to their buying pattern like usage frequency, benefits sought, usage occasions and brand loyalty.
  • Use of psychographic segmentation will result in customers' grouping according to their lifestyles, interests, attitudes, values and traits.

McKesson can combine the different segmentation strategies for more specific targeting as explained in the next section.

4 Targeting and Positioning of McKesson

After dividing the large diversified customer market into smaller groups with homogeneous characteristics, McKesson should wisely choose the target segment/segments whose needs and expectations match the company’s resources and capabilities.

The targeting can be done by evaluating the commercial attractiveness and growth potential of identified segments. McKesson can choose one or more segments depending on the segments’ characteristics and the company's resources, capabilities and growth objectives.

The commercial attractiveness and growth potential of each segment can be evaluated by using the following indicators:

  • Identified segments have the appropriate size
  • Have concrete differences.
  • The estimated profits should exceed the additional marketing costs.
  • Segments are easily accessible.

After segmenting the customer market and choosing the right target market, McKesson now requires to set a clear positioning statement that could create a positive image of the offered product in the customers' mind. McKesson can follow the following steps to develop an effective positioning strategy:

  • Develop the positioning statement for McKesson Marketing Strategy by answering the following questions:
    • What your brand stands for?
    • What are the needs and wants of your target market?
    • How your brand serves those needs?
    • How different is your offering from competitors?
  • Answers to these questions will yield enough information to develop a positioning statement.
  • The comparison of their communication and messaging strategy with competitors will reveal the potential areas that could be addressed with targeted positioning message.
  • Identify the strengths/weaknesses of business by comparing with competitors to find that gaps that offered product can fill.
  • Analyse positioning of competitors and evaluate own position in the market.
  • By using the analytical data collected from a different market, customer and competitor surveys, develop a positioning statement and periodically test its effectiveness by collecting qualitative and quantitative data (like focus groups, polls, interviews etc.).
  • Use the test results to make necessary adjustments in the brand positioning.

5 Company Competitive Advantage in the Marketing Strategy of McKesson

The survival in the increasingly competitive market requires McKesson to set the clear differentiation basis that could provide an edge against rivals. McKesson Marketing Strategy should focus on identifying unique selling propositions (USPs). Some examples of USPs are the highest quality, lowest cost or uniqueness of idea. Identifying USPs is not sufficient as the effectiveness of the Marketing Strategy of McKesson will directly depend on management's ability to communicate the identified unique selling propositions.

The McKesson can apply Porter's generic strategies model to explore how competitive advantage can be created. The pictorial presentation of the Porter Model is given below:

The company can set a competitive advantage based on cost or differentiation.

5.1 Cost based competitive advantage

  • The cost leadership strategy will suit if McKesson has developed capabilities to reduce the cost below the industry average and achieve the economies of scale. Moreover, it will require McKesson to develop close collaboration between different functional areas.
  • Developing most effective distribution channels, access to latest technological tools to assist production processes, using lean production methods and strong bargaining position when negotiating with suppliers are some indicators of setting competitive advantage based on cost leadership.

5.2 Differentiation based competitive advantage

The differentiation strategy focuses on developing brand loyalty by offering premium products. The company can find different ways to develop differentiation leadership, such as- by focusing on the reliability, durability, benefits and distinctive features of products, by developing strong brand recognition and by increasing expenditure on marketing efforts like celebrity endorsements and sponsorships etc. McKesson can set achieve competitive advantage by adopting product, service, quality, image, people or innovation differentiation.

5.3 Competitive advantage model

Following the model shows how McKesson can develop an effective Marketing Strategy by evaluating its resources and capabilities, identifying distinctive competencies and leveraging those competencies by adopting either cost or differentiation orientation:

6. BCG Matrix in the Marketing Strategy of McKesson

McKesson should continuously evaluate its product line by assessing their growth potential and share in the market. The products can be classified into the following categories:

  • The products with high growth and high market share are classified as stars. McKesson should increase the investment after identifying the stars in its product lines.
  • Products with high market growth but low share are classified as question marks. McKesson should analyse why market share is low despite the high growth rate.
  • Products with low growth but high market share are cash cows that need to be milked for continuous good performance in the market with low growth and limited opportunities.
  • Lastly, products with low growth and low market share are dogs’ McKesson should divest as it is difficult to make profits and get an adequate return by investing in dogs.

The high number of stars and cash cows will indicate good performance, whereas, a high number of question marks and dogs will be a cause of concern for McKesson. The product classification is necessary for evaluating the success of the Marketing Strategy of McKesson.

Brand Equity of McKesson

Brand equity reflects the overall value of the brand. The customers' experiences and perceptions determine the brand value. Positive perceptions reflect the high brand value and positive brand equity, while negative perceptions reflect the low brand value and negative brand equity. McKesson should continuously evaluate its brand equity to ensure the long-term survival in an increasingly complex and competitive customer market. It can be done by evaluating the following brand equity components:

7.1 Brand equity components

7.1.1 Brand awareness

Brand awareness provides the basis for brand equity development process. High brand awareness shows that the customers know that the McKesson brand exists and can recall the important brand-related information. The company can measure brand awareness by conducting brand recall surveys. The high brand awareness acts as an anchor to other associations. It increases brand visibility that can help McKesson gain consideration in the competitive market.

7.1.2 Brand association

Brand association reflects the customers’ associations with McKesson based on their memories, previous experiences, interaction with McKesson’s employees, price points, advertisements, WOM, celebrity associations and publicity in different media channels. It is important for McKesson to carefully plan each interaction with internal and external environmental actors (such as government, employees, shareholders and media), as customers develop brand association not only due to direct interaction with the brand, but also the indirect interaction with different environmental factors.

7.1.3 Perceived quality

McKesson should carefully evaluate the customers’ perceptions of product quality as these perceptions influence their pricing decisions.

7.1.4 Brand loyalty

Brand loyalty is among the most important element of McKesson’s brand equity. It can be attitudinal (customers’ feelings towards the brand) and/or behavioural brand loyalty (repeat purchase). Higher brand loyalty can decrease the marketing expenditure, increase McKesson's ability to introduce new products successfully, erect the barriers to new players and strengthen the company's bargaining power against other channel members.

McKesson can increase brand loyalty by rewarding the customers' repeat purchase behaviour. Although the loyalty programs are expensive, it will benefit McKesson be reducing the costs of acquiring new customers.

7.1.5 Proprietary brand assets

Lastly, McKesson should evaluate its proprietary assets (like channel relationships, trademarks and patents). These intangible assets prevent the competitive advantage erosion and develop brand loyalty.

7.2 Brand equity development

In light of Keller brand equity model (shared above), the McKesson can take the following steps to develop the brand equity:

  • Develop the brand identity by building brand salience/awareness.
  • Identify and communicate the meaning of McKesson brand. How it serves the customers’ tangible needs (performance) and emotional/psychological needs (imagery).
  • Evaluate the customers’ feelings and judgments of McKesson brand to assess their response.
  • Lastly, focus on building- behavioural loyalty, sense of community, attitudinal attachment and active engagement to develop brand resonance that sits on pyramid top.

7.3 Brand equity measurement

McKesson can measure its brand equity by evaluating the:

  • Difference between the price charged by McKesson due to its brand name and price charged by similar unbranded products.
  • Amount of extra sales volume generated compared to other branded and non-branded competitors.
  • The company’s share price.
  • Brand’s potential to make future earnings.
  • Return to shareholders.

The company can also combine the above methods and formulate a multiplier to accurately assess the esteem and strength of the brand that reflects the brand equity.

8. Competitors Analysis in the Marketing Strategy of McKesson

The detailed competitor analysis is highly important for the development of McKesson Marketing Strategy. The competitive analysis is done to understand the relative positioning and market share of the company's direct and indirect competitors. McKesson should first identify the competitors, evaluate their strategies and compare the strengths and weaknesses of their products with their product offerings. There are five steps McKesson can follow to understand the strategic positioning of its key competitors:

  • Firstly, clearly define the target market.
  • Identify the director competitors and create a list of it.
  • Analyse the competitors’ product offerings, their market share, key strengths and weaknesses.
  • Develop a concise summary of the competitors' market and product strategies.
  • Conduct a comparative analysis against its products and/or services.
  • Continuously update the competitive analysis to make informed and strategically wise decisions.

The company can use different strategies to get the information about competitors, such as- doing Google research, going to trade shows, browsing public documents, asking customers, playing secret shopper technique and tapping the vendors

A detailed competitor analysis can be categorised into the following parts:

  • Identify market growth, share and financial objectives. Some examples are maximising short-term profitability or investing in R&D for long-term growth.
  • Evaluate the competitors’ strategies by collecting information from shareholder reports, white papers, press releases, promotional campaigns, hiring practices, acquisitions and mergers. This information will reveal the direction in which the competitors are moving.
  • Use the above information to analyse competitors’ strengths, weaknesses and core capabilities.

9. Market Analysis of McKesson

McKesson Marketing Strategy development requires a comprehensive market analysis. It can be done by quantitatively and qualitatively assessing the customer market. The information obtained from the market surveys will help McKesson management in identifying the emerging opportunities, exposing the potential threats and understanding how they relate to the company’s major strengths and weaknesses.

McKesson can follow the following steps to conduct the market analysis:

9.1 Market size analysis for developing Marketing Strategy of McKesson

McKesson should evaluate the market potential and volume to determine the size. The market potential includes potential customers and considers upper demand limit. The market volume includes certain indicators like realised sales and total turnover. McKesson can take information from different sources to accurately determine the market size, such as- financial data of industry’s major players, government data, customer surveys, published industry reports and trade association data.

9.2 Market trends analysis for developing Marketing Strategy of McKesson

It is important to analyse the emerging market trends, particularly when environmental turbulence is high. McKesson can use different trend analysis techniques for this purpose, such as- marketing mix modelling, risk analysis, choice modelling and customer analysis. McKesson should also monitor the political, legal, regulatory, social and economic changes as these environmental forces play an important role in shaping the market trends.

9.3 Market growth analysis for developing Marketing Strategy of McKesson

McKesson can extrapolate the historical data to determine the market growth rate. This information can help a company in determining the current lifecycle stage of the industry.

9.4 Market profitability analysis for developing Marketing Strategy of McKesson

McKesson can use Porter's five force framework to determine market profitability. The high buyer power will negatively affect market profitability, showing McKesson’s customers have different options. Low supplier power positively influences profitability and indicates McKesson has a strong position during the negotiation process with suppliers. High entry barriers show that there will be lesser new entrants in the market. High substitute product threat and high competitive rivalry will also decrease the market profitability and attractiveness for McKesson.

9.5 Cost structure analysis for developing Marketing Strategy of McKesson

McKesson can use Porter’s value chain model (as given below) to determine the industry’s cost structure.

It will help McKesson in isolating the costs and identifying critical success factors. McKesson can also use the information obtained from cost structure analysis to develop cost advantage.

10. References

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