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Strategic Management and Corporate Finance · Business Policy and Formulation of Functional Strategy

Marketing and Production Strategy in Strategic Management

Updated 11 October 2026 · Fact-checked

Marketing strategy decides which customers a firm targets and how it wins them through product, price, place and promotion. Production strategy decides how the firm makes the product: capacity, location, process, quality and inventory. In exams, define the strategy, list its components, and apply each to the case facts.

Understand Marketing and Production Strategy

A functional strategy turns the corporate and business strategy into action in one function. Marketing and production are two of the most important functions. If they pull in different directions, the business strategy fails.

Marketing strategy answers three questions: who are our customers, what do we offer them, and how do we reach and persuade them. It starts with segmentation (dividing the market into groups with similar needs), then targeting (choosing the segments to serve), then positioning (the place the product holds in the customer's mind). Segments are commonly built on geography, demographics, psychographics (lifestyle and attitudes) and behaviour (usage, loyalty, benefits sought).

The marketing mix is the set of controllable tools used to serve the target segment. The classic 4Ps are Product (features, quality, brand, packaging, range), Price (list price, discounts, credit terms, pricing method), Place (distribution channels, coverage, logistics) and Promotion (advertising, sales promotion, personal selling, public relations). For services, three more Ps are often added: People, Process and Physical evidence.

Production (operations) strategy sets out how the firm converts inputs into outputs to support its business strategy. Its main decision areas are capacity (how much to produce and when to expand), location (where to site plants and warehouses), process and technology (job, batch, mass or continuous production; automation), quality (standards and control systems), inventory (how much stock of raw material and finished goods to hold) and workforce and layout.

The link to business strategy matters. A cost leader needs large capacity, standardised processes and tight cost control. A differentiator needs flexible processes and high quality. A firm serving a niche may need small, flexible plants. Good answers show this fit rather than only listing components.

Key rules to remember

Marketing mix (4Ps)
Product + Price + Place + Promotion
Extended mix for services adds People, Process and Physical evidence (7Ps).
Segmentation-targeting-positioning
Segment → Target → Position
Follow this order when a question asks for a segmentation-based strategy.
Bases of segmentation
Geographic, Demographic, Psychographic, Behavioural
Give one example of each from the case.
Production strategy decision areas
Capacity, Location, Process/Technology, Quality, Inventory, Workforce/Layout
Use these as headings when the question asks for components.

How to solve Marketing and Production Strategy questions

Use this method for any question on marketing or production strategy, whether it asks for meaning, components or a case application.

  1. 1Define the strategy in one line and link it to the business strategy it supports.
  2. 2Identify whether the question is on marketing, production, or both.
  3. 3For marketing, state the segment and target market from the facts, then go through the 4Ps (or 7Ps for services).
  4. 4For production, go through capacity, location, process, quality and inventory, using only the ones relevant to the facts.
  5. 5Apply each point to the company in the case with its product, market and numbers. Do not leave points generic.
  6. 6Show the fit with business strategy, for example cost leadership needing scale and low cost.
  7. 7Close with a short conclusion or recommendation that answers the exact question asked.

Quickest way: Heading-and-apply method

When to use it: Use when time is short and the question asks for components or a brief case analysis.

  1. Write the one-line definition.
  2. Write the component headings (4Ps or the production decision areas) as a list.
  3. Add one case-specific sentence under each heading.
  4. Add one line on fit with business strategy, then stop.

Common mistakes in Marketing and Production Strategy

  • Listing the 4Ps with only textbook definitions.

    Students memorise the list and skip the case facts.

    Fix: Add one sentence per P that uses the company, product and customer in the question.

  • Confusing segmentation with targeting.

    Both deal with customer groups.

    Fix: Segmentation divides the market; targeting chooses which segments to serve; positioning fixes the image.

  • Treating production strategy as only 'how to make goods cheaply'.

    Cost is the most visible operations goal.

    Fix: Cover capacity, location, process, quality and inventory, and link them to cost, quality, speed or flexibility as the strategy needs.

  • Using the 4Ps for a service firm without extension.

    The 4Ps are taught first and remembered best.

    Fix: For banks, hospitals or consultancies, mention People, Process and Physical evidence.

  • Ignoring the link to corporate or business strategy.

    Functional strategies are studied as separate topics.

    Fix: End each answer by saying how the function supports the chosen strategy, such as cost leadership or differentiation.

Worked examples

Example 1

A company launches a low-priced packaged tea in rural Uttar Pradesh through local kirana shops, using small ₹5 sachets and wall paintings for advertising. Explain its marketing strategy using the marketing mix.

Show the solution
  1. Segment and target: the company targets price-sensitive rural households (geographic and demographic segmentation).
  2. Product: the tea is packaged in small sachets that suit low spending power and basic needs.
  3. Price: the ₹5 sachet is a low entry price matched to daily cash availability.
  4. Place: kirana shops give wide rural reach where large retail chains are absent.
  5. Promotion: wall paintings and local advertising reach the target group at low cost and in local language.
  6. Fit: all four Ps support a low-price, wide-reach positioning aimed at one clear segment.

Answer: The company follows a segmentation-based strategy aimed at price-sensitive rural households. Small sachets (product), ₹5 price, kirana distribution (place) and local advertising (promotion) are consistent with each other and with a low-cost positioning.

Example 2

A mid-sized auto-component manufacturer in Pune plans to supply a large car maker and compete on cost. Which production strategy decisions should it focus on, and how?

Show the solution
  1. Link to strategy: competing on cost needs low unit cost with reliable supply to a large customer.
  2. Capacity: build enough capacity to meet the buyer's volumes and gain economies of scale, expanding in stages to avoid idle plant.
  3. Location: site the plant near the car maker's assembly units and suppliers of steel to cut transport and inventory cost.
  4. Process: choose standardised, repetitive production with some automation to lower unit cost.
  5. Quality: set strict quality standards and control, because defects cause rejection and lost orders.
  6. Inventory: hold lean stock and use scheduled deliveries so working capital is not blocked.

Answer: The manufacturer should focus on right-sized scalable capacity, a location close to the customer and inputs, standardised and partly automated processes, strong quality control and lean inventory. Together these lower cost while keeping supply reliable.

Exam tips

  • Write headings for each component so the examiner can find marks easily.
  • Use case facts in every point; generic lists score lower in case-based answers.
  • State the fit with business strategy in the last line of every answer.
  • Remember the 7Ps when the case is a service business.
  • If asked for a brief note, define the term and give four or five components with one line each.

Practice questions from Business Policy and Formulation of Functional Strategy

Marketing and Production Strategy: frequently asked questions

What is marketing strategy in strategic management?

It is the functional plan that decides which customers the firm serves and how it wins them. It uses segmentation, targeting, positioning and the marketing mix to support the business strategy.

What are the components of production strategy?

The main components are capacity, location, process and technology, quality, inventory and workforce or layout. Use the ones that fit the case facts and link them to the business strategy.

Are the 4Ps enough for every business?

They suit most products. For services, add People, Process and Physical evidence so the answer covers how the service is delivered.

How do capacity and location decisions affect strategy?

Capacity decides how much the firm can supply and at what unit cost. Location affects transport cost, access to inputs and customers, and speed of delivery. Both must match the chosen business strategy.