Different Marketing Strategies Used in Vertical Integration

7/29/2019 Different Marketing Strategies Used in Vertical Integration

1/49

Imran S. Malik

Strategic Management

Concepts & Cases

Strategies in Action


2/49

Imran S. Malik

Comprehensive Strategic Management Model

Vision&

MissionStatements

ExternalAudit

InternalAudit

StrategiesIn

Action

Generate,Evaluate,

SelectStrategies

ImplementStrategies:

Mgmt Issues

ImplementStrategies:Marketing,Fin/Acct,R&D, CIS

Measure &Evaluate

Performance


3/49

Imran S. Malik

Planning. Doing things today to make usbetter tomorrow. Because the future

belongs to those who make the harddecisions today.

Eaton Corporation


4/49

Imran S. Malik

If you dont invest for the long term,

there is no short term.

George David


5/49

Imran S. Malik

Innovate or evaporate. Particularly intechnology-driven businesses, nothing

quite recedes like success.

Bill Saporito


6/49

Imran S. Malik

Companies embrace strategic planning.

Quest for higher revenues and profits


7/49Imran S. Malik

Long-Term Objectives:

Results expected from pursuing

certain strategies Tme frame2 to 5 years


8/49Imran S. Malik

Nature of Long-Term Objectives

Quantitative

Measurable

Realistic

Understandable

Challenging

Hierarchical

Obtainable

Congruent among organizational units


9/49Imran S. Malik

Nature of Long-Term Objectives (Contd)

Objectives are associated with a time line and stated in terms:

Growth in assets

Growth in sales

Profitability Market share

Diversification

Integration

EPS

Social responsibility


10/49

Imran S. Malik


Objectives are the basis for:

Designing jobs

Organizing activities

Providing direction

Organizational synergy

Standards for evaluation


11/49

Imran S. Malik


Strategists should avoid:

Managing by extrapolationIf it aint broke, dont fix it.


12/49

Imran S. Malik



Managing by crisis:Reactive vs. proactive


13/49

Imran S. Malik



Managing by subjectives:Mystery approach to decision making

Subordinates are left to figure out whatis happening and why


14/49

Imran S. Malik



Managing by hope:Good times are just around the corner


15/49

Imran S. Malik


Vertical Integration Strategies

Forward integration Backward integration

Horizontal integration


16/49

Imran S. Malik


Defined

Gaining

ownership orincreased controlover distributorsor retailers

Example

General Motors isacquiring 10% of itsdealers.

ForwardIntegration


17/49

Imran S. Malik


Guidelines for Forward Integration

Present distributors are expensive, unreliable, or

incapable of meeting firms needsAvailability of quality distributors is limited

When firm competes in an industry that is expectedto grow markedly

Advantages of stable production are high Present distributor have high profit margins


18/49

Imran S. Malik


Defined

Seeking

ownership orincreased controlof a firmssuppliers

Example

Motel 8 acquired afurnituremanufacturer.

BackwardIntegration


19/49

Imran S. Malik


Guidelines for Backward Integration

When present suppliers are expensive, unreliable, orincapable of meeting needs

Number of suppliers is small and number ofcompetitors large

High growth in industry sector

Firm has both capital and human resources tomanage new business

Advantages of stable prices are important

Present supplies have high profit margins


20/49

Imran S. Malik


Defined

Seeking

ownership orincreased controlover competitors

Example

Hilton recentlyacquired Promus.

HorizontalIntegration


21/49

Imran S. Malik


Guidelines for Horizontal Integration

Firm can gain monopolistic characteristics withoutbeing challenged by federal government

Competes in growing industry

Increased economies of scale provide majorcompetitive advantages

Faltering due to lack of managerial expertise or needfor particular resources


22/49

Imran S. Malik


Intensive Strategies

Market penetration Market development Product development


23/49

Imran S. Malik


Defined

Seeking increasedmarket share forpresent products

or services inpresent marketsthrough greatermarketing efforts

Example

Ameritrade, the on-line broker, tripled itsannual advertisingexpenditures to $200million to convince

people they can maketheir own investmentdecisions.

MarketPenetration


24/49

Imran S. Malik


Guidelines for Market Penetration

Current markets not saturated

Usage rate of present customers can be increasedsignificantly

Market shares of competitors declining while totalindustry sales increasing

Increased economies of scale provide majorcompetitive advantages


25/49

Imran S. Malik


Defined

Introducing

present productsor services intonew geographicarea

Example

Britains leadingsupplier of buses,Henlys PLC, acquiresBlue Bird Corp. North

Americas leadingschool bus maker.

MarketDevelopment


26/49

Imran S. Malik


Guidelines for Market Development

New channels of distribution that are reliable,inexpensive, and good quality

Firm is very successful at what it does

Untapped or unsaturated markets

Capital and human resources necessary to manage

expanded operations Excess production capacity

Basic industry rapidly becoming global


27/49

Imran S. Malik


Defined

Seeking increasedsales by improving

present productsor services ordeveloping newones

Example

Apple developed theG4 chip that runs at

500 megahertz.

ProductDevelopment


28/49

Imran S. Malik


Guidelines for Product Development

Products in maturity stage of life cycle

Competes in industry characterized by rapidtechnological developments

Major competitors offer better-quality products atcomparable prices

Compete in high-growth industry Strong research and development capabilities


29/49

Imran S. Malik


Diversification Strategies

Concentric diversification Conglomerate diversification Horizontal diversification


30/49

Imran S. Malik


Defined

Adding new, butrelated, productsor services

Example

National WestministerBank PLC in Britainbought the leading

British insurancecompany, Legal &General Group PLC.

ConcentricDiversification


31/49

Imran S. Malik


Guidelines for Concentric Diversification

Competes in no- or slow-growth industry

Adding new & related products increases sales ofcurrent products

New & related products offered at competitive prices

Current products are in decline stage of the product

life cycle Strong management team


32/49

Imran S. Malik


Defined

Adding new,unrelated products

or services

Example

H&R Block, the top taxpreparation agency,said it will buy

discount stockbrokerage OldeFinancial for $850million in cash.

ConglomerateDiversification


33/49

Imran S. Malik


Guidelines for Conglomerate Diversification

Declining annual sales and profits

Capital and managerial talent to competesuccessfully in a new industry

Financial synergy between the acquired andacquiring firms

Exiting markets for present products are saturated


34/49

Imran S. Malik


Defined

Adding new,

unrelated productsor services for

present customers

Example

The New York Yankeesbaseball team aremerging with the New

Jersey Nets basketballteam.

HorizontalDiversification


35/49

Imran S. Malik


Guidelines for Horizontal Diversification

Revenues from current products/services wouldincrease significantly by adding the new unrelated

products Highly competitive and/or no-growth industry w/low

margins and returns

Present distribution channels can be used to market

new products to current customers New products have counter cyclical sales patterns

compared to existing products


36/49

Imran S. Malik


Defensive Strategies

Joint venture Retrenchment Divestiture Liquidation


37/49

Imran S. Malik


Defined

Two or moresponsoring firmsforming a separate

organization forcooperative

purposes

Example

Lucent Technologiesand Philips ElectronicNV formed PhilipsConsumer

Communications tomake and selltelephones.

Joint Venture


38/49

Imran S. Malik


Guidelines for Joint Venture

Combination of privately held and publicly held canbe synergistically combined

Domestic forms joint venture with foreign firm, canobtain local management to reduce certain risks

Distinctive competencies of two or more firms arecomplementary

Overwhelming resources and risks where project ispotentially very profitable (e.g., Alaska pipeline)

Two or more smaller firms have trouble competingwith larger firm

A need exists to introduce a new technology quickly


39/49

Imran S. Malik


Defined

Regroupingthrough cost and

asset reduction toreverse declining

sales and profit

Example

Singer, the sewing

machine company,declared bankruptcy.

Retrenchment


40/49

Imran S. Malik


Guidelines for Retrenchment

Firm has failed to meet its objectives and goalsconsistently over time but has distinctive competencies

Firm is one of the weaker competitors

Inefficiency, low profitability, poor employee morale,and pressure from stockholders to improveperformance.

When an organizations strategic managers have failed

Very quick growth to large organization where a majorinternal reorganization is needed.

i i i


41/49

Imran S. Malik


Defined

Selling a division

or part of an

organization

Example

Harcourt General, thelarge US publisher, is

selling its NeimanMarcus division.

Divestiture

i i i


42/49

Imran S. Malik


Guidelines for Divestiture

When firm has pursued retrenchment but failed toattain needed improvements

When a division needs more resources than the firmcan provide

When a division is responsible for the firms overallpoor performance

When a division is a misfit with the organization

When a large amount of cash is needed and cannotbe obtained from other sources.

S i i i


43/49

Imran S. Malik


Defined

Selling all of a

companys assets,in parts, for their

tangible worth

Example

Ribol sold all its assets

and ceased business.

Liquidation

S i i A i


44/49

Imran S. Malik


Guidelines for Liquidation

When both retrenchment and divestiture have beenpursued unsuccessfully

If the only alternative is bankruptcy, liquidation is anorderly alternative

When stockholders can minimize their losses byselling the firms assets


45/49

Imran S. Malik

Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies


46/49

Imran S. Malik

Key Terms & Concepts

Acquisition Backward integration

Bankruptcy

Combination strategy

Concentricdiversification

Conglomeratediversification

Cooperativearrangements

Cost leadership

Differentiation Diversification strategies

Divestiture

Focus

Forward integration Franchising

Generic strategies

Horizontal

diversification Horizontal integration

Integration strategies


47/49

Imran S. Malik

Key Terms & Concepts (Contd)

Intensive strategies

Joint venture

Leveraged buyout

Liquidation Merchant banking

Market development

Market penetration

Merger

Outsourcing

Product development

Retrenchment Takeover

Vertical integration


48/49

Imran S. Malik

Key Terms & Concepts (Contd)

Product and serviceplanning

Production/operationsfunctions

Profitability ratios Research and

development

Selling Social responsibility

Staffing

Synergy

Test marketing


49/49

Documents

Different Marketing Strategies Used in Vertical Integration