Marketing Strategy

5/24/2018 Marketing Strategy

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Strategic andMarketing Planning


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Benefitsof

Planning

Consistency

Commitment

Responsibility

Communication

Benefits of Planning

Direction


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#1:

Top Down

#2:

Bottom Up

#3:

Goals Down,Plans Up

Approaches to Planning


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The Strategy Hierarchy

SBUStrategy

Marketing StrategyMarketingobjectives

Product marketsstrategies

CorporateLevel

Functional Levelof SBU

StrategicBusinessUnit Level

Corporate StrategyMission and visionObjectivesBusiness portfolio strategyResource development

Corporate values

SBU StrategyBusiness definitionObjectivesProduct market portfolioCompetitive strategyResource allocation and management

SBUStrategy

Finance andadministration

Strategy

Productionand operation

strategy

R&D StrategyTechnology

Productdevelopment

Humanresources

Strategy

Strategic Planning

Investment Management

Growth & Company Position

Strategy


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Corporate, Business and Marketing

Strategy Model

Corporate Strategy

Building corecompetencies

Business portfolioCapital investments andresource allocationCorporate cultureCorporate structure

Product/market portfolioResource allocationProduct-marketsBusiness cultureStrategic cost

management

MarketsProducts and servicesProfit-yielding strategiesBrand management

Profit improvement

Business Strategy

Distinctive competenciesDeveloping competitive

position

Competitive advantage

Marketing Strategy

Developing marketposition

Customer satisfaction

Focus

Customer valuecreation,

maintenance anddefence

Focus

Economicvalue added

Focus

Economicvalue added

ShareholderValue

BusinessValue

CustomerValue


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Measuringresults

Diagnosingresults

Takingcorrective

action

Implementation

Corporateplanning

Divisionplanning

Business

planning

Productplanning

Organising

Implementing

Control

Strategic-Planning, Implementation, and

Control Process

Planning


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Objectives Address Two Questions:

Wheredo we want to be?

Whendo we expect to get there?

Corporate Plan Objectives


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Planning Terms

Vision:the long term, I have a dream

Mission: purpose of organisation

Objective:a shorter term goal leading to the

achievement of the Mission

Strategy:a description of the method of

achieving the objective

Tactic:the short term application of the

strategy


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Porters five forces

model

SUBSTITUTES

INDUSTRY

COMPETITORS

Rivalry among

Existing Firms

BUYERS

POTENTIAL

ENTRANTS

Threat of entryBargainingpower ofsuppliers

Bargaining power ofbuyersThreat of Substitute

Products or Services

SUPPLIERS


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Porters five-forces model (2)

Bargaining powerof suppliers

Threat of

new entrants

Competitiverivalry

Threat of

substitutes

Bargaining powerof buyers

Where there are numerous or equally

balanced competitors,there is slow industry growth, lack of

differentiation, low buyer switching costs,

high fixed costs, overcapacity, perishable

products (and services) and high exit barriers.


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Bargaining power

of suppliers

Threat ofnew entrants

Competitive

rivalry

Threat of

substitutes

Bargaining power

of buyers

When there are only a few large buyers in the market, the

buying volume is large, there is low differentiation

between competitive products, the value of the industry

product is low, the sellers quality is relatively

unimportant to the buyer, there are low switching costs forthe buyer or high switching costs for the seller, the buyer

is a low profit earner, the buyer has access to full market

information or the buying company could forward

integrate and become a competitor.


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Threat of

new entrants

Competitiverivalry

Threat of

substitutes


When the barriers to industry entry are

low, there are:

no cost advantages for existing

competitors

a lack of product differentiation

low capital costs for market entryrelatively easy access to

distribution channels.


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Competitiverivalry

Threat ofsubstitutes


When there are only a few large

suppliers, the suppliers product is

highly differentiated or unique, thesupplier sells the same product to

other industries or a supplier could

forward-integrate and enter the

market as a competitor.


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Competitiverivalry

Threat of

substitutes


When substitute products are close in

performance and price to the industrys

product, there are low switching costs and

switching is a commonplace occurrence.


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Business Portfolio Analysis


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Outline

Introduction

BCG (Boston Consulting Group) Matrix

GE(General Electric)/McKinsey Multi-Factor Matrix


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Introduction

The creation of SBUs enables the settingof SBUs mission and objectives and theallocation of resources across SBUs in theorganization

Senior management need to have aframework to evaluate SBUs and to assignlimited resources among them; henceportfolio analysis

Many models but only 2 are covered here:BCG, & GE models


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BCG (Boston Consulting

Group) Matrix Provides a framework for senior

management in allocating resourcesacross business units in a diversifiedfirm by

Balancing cash flows amongbusiness units, and

Balancing stages in the productlife-cycle (PLC)


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The BCG Matrix

(Log Scale)


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BCG Matrix (contd)

The horizontal axis is the Relative Market Shareshown in a log scale

Vertical line is usually set as 1.0 Relative MarketShare

An SBU to the left of this line means it is the marketleader in the industry or segment in which it operates

Conversely, an SBU to the right of this line (1.0 RMS)means it is not the leader

The vertical axis is the industry growth rate .

The horizontal rate is usually set at 10% marketgrowth


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High Low

High

Low

Market

Growth

Rate

Relative Market Share

The BCG Matrix


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The Strategic Implications of

the BCG

Cash cows

Investments sufficient to maintaincompetitive position. Cashsurpluses used in developing andnurturing stars and selectedquestion mark firms.

Stars

Aggressive investments to supportcontinued growth and consolidate

competitive position of firms.


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The Strategic Implications of

the BCG

Question marks

Selective investments; divestiturefor weak firms or those withuncertain prospects and lack ofstrategic fit.

Dogs

Divestiture, harvesting, orliquidation and industry exit. Co then considers acquisitions, divestments

and new ventures to get a balancedportfolio


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Question Marks(Problem Children)

Investmentheavy initial capacityexpenditures and high R&D costs

Earningsnegative to low Cash-flownegative (net cash user)

Strategy Implications

If possible to dominate segment,

go after share. If not, redefine thebusiness or withdraw


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Stars

Investmentcontinue to invest for

capacity expansion

EarningsLow to high earnings

Cash-flowNegative (net cash user)


Continue to increase market

shareeven at the expense ofshort-term earnings


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Cows

InvestmentCapacity maintenance

EarningsHigh

Cash-flowPositive (net cash contributor)


Maintain market share and cost

leadership until further investment

becomes marginal


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Dogs

Investment

Gradually reduce capacity EarningsHigh to low

Cash-flow

Positive (net cash contributor) ifdeliberately reducing capacity


Plan an orderly withdrawal tomaximize cash flow


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Example of a CG Matrix for aEngineering company in IndiaHigh Low

High

Low

Product

Sales

Growth

Rate


Lighting

SwitchgearTransformer

Fan

Pumps

Motor


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BCG Matrix

(Three Paths to Success)

Continuously generate cash cows and usethe cash throw-up by the cash cowsto invest

in the question marks that are not self-sustaining

Stars need a lot of reinvestments and as themarket matures, stars will degenerate intocash cows and the process will be repeated.

As for dogs, segment the markets and nursethe dogs to health or manage for cash


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Three Paths to Success

(contd)High Low

High

Low

Market

Growth

Rate



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BCG Matrix

(Three Paths to Failure)

Over invest in cash cows and under invest

in question marks

Trade further opportunities for presentcash flow

Under invest in the stars

Allow competitors to gain share in a

high growth market

Over milked the cash cows


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Three Paths to Failure

(contd)

High Low

High

Low

Market

Growth

Rate



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Limitations on Portfolio

Planning

Flaws in portfolio planning:

The BCG model is simplistic if used blindly;

considers only two competitive environmentfactorsrelative market share and industry

growth rate.

High relative market share is no guarantee of a

cost savings or competitive advantage (butnormally does a good job of predicting cash flow)

Low relative market share is not always an

indicator of competitive failure or lack of

profitability (but normally does a good job ofredictin cash flow .


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Limitations on Portfolio

Planning

Flaws in portfolio planning:

Multifactor models (e.g., the McKinsey matrix or

the GE Grid) are better though imperfect.

Importantly, goals other than cash flow may be

more critical (such as ROI). If so, use the BCG

with caution

Fail to look at dependencies among SBUs wrttransferring competencies, economies of

scope,etc.


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GE(General Electric)/McKinsey

Multi-Factor Matrix Originally developed by GEs planners

drawing on McKinseys approaches

Market attractiveness is based on as

many relevant factors as are appropriate

in a given context

Business-position assessment also made

on a many factors

SBU needs to be rated on each factor


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GE Multifactor Portfolio Matrix

Business Strength

High

High

Medium

Medium

Low

Low

Invest/Grow

Selectivity

/earnings

Harvest

/Divest

Protect

Position

Invest to

Build

Build

selectively

Build

selectively

Selectively

manage for

earnings

Limited

expansion

or harvest

Protect &

refocus

Divest

Manage for

earnings

u ac or or o o a r x


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u ac or or o o a r x(Contd)

Invest/Grow

Selectivity

/earnings

Harvest

/Divest

Business Strength

High

High

Medium

Medium

Low

Low


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Some Limitations of the

GE Model Subjective measurements across SBUs

Process also highly subjective

From the selection and weighting of

factors to the subsequent developmentof both a firms position and the marketattractiveness

Businesses may have been evaluated withrespect to different criteria

Sensitive to how a product market isdefined


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Ansoffs Growth Vector Matrix

Market penetration

Marketdevelopment

Diversification

Product / Servicedevelopment

Presen

t

New

Present New

MARKET

PRODUCTS / SERVICES


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Using the Ansoff Matrix in the

Objective-setting Process

Market penetration (1)

Marketdevelopment (3) Diversification (4)

Product / Servicedevelopment (2)

Establishe

d

New

Established New

MARKET

PRODUCTS / SERVICES

High Risk


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Sales

1050

Time (years)

The Strategic-Planning Gap

Desiredsales

Integrative growth

Intensive growth

Currentportfolio

Strategic-

planninggap

Diversification growth


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Integrative Growth

Backward Integration

Forward Integration

Horizontal Integration


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Diversification Growth

Concentric diversification

A process that occurs when new products related to

current products are introduced into new markets.

Conglomerate diversification

A process that occurs when new products unrelated

to current technology, products or markets areintroduced into new markets.


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Corp as a Portfolio of

Competencies

Identify current competencies

Compare competencies to

opportunities and threats Develop an agenda for corporate

development

Advantage is that this method

recognizes need to add value by

looking at inter-dependencies


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From Agenda to Action

Based on the analysis of the

portfolio and what do you have to

do the next step is how to you get

there

Internal New Ventures

Acquisitions

Joint Ventures


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Internal New Venturing

Internal new venturing is attractive when:

Entering as a science-based company. Entering an emerging industry with no

established competitors.

Good if company has key competencies

that can be leveraged


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Pitfalls of new venturing (very high failure

rate):

Scale of entryLow-scale entry reduces

probability of long-term success (lowshare drives high costs and low revenue)

CommercializationFailure to develop a

product that meets basic customer

needs. Poor ImplementationUsing shotgun

approach, not setting clear strategic

objectives, abandoning projects too

soon.


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Guidelines for successful newventuring:

Adopt a structural approach withclear strategic objectives settingR&D direction.

Foster close links between R&Dand marketing.

Use project teams to reducedevelopment time.


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Guidelines for successful newventuring:

Use a selection process to pickventure projects with the highestprobability of success.

Monitor progress of ventures ingaining initial market share goals.

Large-scale entry is important forventure success.


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Acquisition is an attractive strategy when:

Competencies important in a new

business area are lacking in the enteringfirm.

Speed of entry is considered important.

Acquisition is perceived as a less risky

form of entry.

Barriers to entry can be overcome

by acquisition of a firm in the

industry targeted for entry.

Acquisitions as an Entry

Strategy


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Strategy Pitfalls of acquisitions:

Failing to follow through on

postacquisition integration of the

acquired firm.

Overestimating the economic

benefits of the acquisition.

Underestimating the expenseof an acquisition.

Failing to properly screen

candidates

before ac uisition.


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Strategy

Guidelines for successful

acquisitions: Properly identify acquisition

targets and conduct a thorough

preacquisition screening of the

target firm. Use a bidding strategy with proper

timing to avoid overpaying for an

acquisition.


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Strategy

Guidelines for successful

acquisitions: Follow through on post acquisition

integration synergy-producing

activities of the acquired firm.

Dispose of unwanted residualacquisition assets.


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Joint Ventures as an

Entry Strategy

Attractions Sharing new project costs and

risks.

Increasing the probability of

success

in establishing the new business.


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Joint Ventures as an

Entry Strategy

Drawbacks

Requires a sharing of control withpartner firms.

Requires that partner firms share

profits.

Risks giving away critical

knowledge.

Risks creating a potential

competitor.


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Restructuring

Why restructure?

Pull-back from overdiversification. Attacks by competitors on core

businesses.

Diminished strategic advantages of

vertical integration and diversification.


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Restructuring

Exit strategies

Divestmentspinoffs of profitable SBUsto investors; management buy outs(MBOs).

Harvesthalting investment, maximizingcash flow.

LiquidationCease operations, write offassets.


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Turnaround Strategy

The causes of corporate decline

Poor managementincompetence,

neglect

Overexpansionempire-building

CEOs

Inadequate financial controlsnoprofit responsibility

High costslow labor productivity


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Turnaround Strategy

The causes of corporate decline

New competitionpowerfulemerging competitors

Unforeseen demand shiftsmajor

market changes

Organizational inertiaslow to

respond to new competitive

conditions

Th M i St f


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The Main Steps of

Turnaround

Changing the leadership

Replace entrenched management with

new managers. Redefining strategic focus

Evaluate and reconstitute theorganizations strategy.

Asset sales and closures Divest unwanted assets for investment

resources.

Th M i St f


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The Main Steps of

Turnaround

Improving profitability

Reduce costs, tighten finance and

performance controls. Acquisitions

Make acquisitions of skills andcompetencies to strengthen corebusinesses.


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Successful Planning

Successful marketing

planning requires:

Commitment Time

Understanding


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The McKinsey 7-S Framework

Skills

Sharedvalues

Staff

Style

Strategy

Structure

Systems

P fit i t ti


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Profit improvement options

Profit Improvement

Sales Growth Productivity Improvement

Market

Penetration

Existing

Assets

Market

Development

Product

Development

Change

Asset base

Improve

product

sales

mix

( margin)

Increase

Price

Increase

usage

Take

competitors

customers

Improve

asset

utilisation

(experience

and

efficiency

New

Segments

Convert

non-users

Existing

Markets

New

Markets

Cost

Reduction

Investment

innovation

diversification

Divestment

redeployment of

capital resources

Growth focus Cash and margin focus

Capital utilisation focus

Extended Marketing Mix


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Extended Marketing Mix

1.PRODUCT &

SERVICE

VarietyQualityDesignFeaturesBrand name

PackagingSizesAdd-onsWarrantiesReturns

7. PROMOTION

AdvertisingSales PromotionPersonal selling

Direct marketingPublic relations

6. PLACEMENTfor customer service

ChannelsCoverageLocationsInventory

Logistics management

2. PRICE

List priceDiscountsAllowancesSettlement andcredit terms

3. PEOPLE

People interacting with peopleis how many service situationsmight be described.Relationships are important inmarketing

4. PROCESS

In the case of high-contactservices, customers areinvolved in the process.Technology is also importantin conversion operations andservice delivery

5. PHYSICAL EVIDENCE

Services are mostly intangible.Thus the meaning of other toolsand techniques used in

measures of satisfaction areim ortant

TARGET CUSTOMERS

INTENDEDPOSITIONING

Th M k ti E i t


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The Marketing Environment

TargetConsumers

Product

Place Price

Promotion

Competitors

MarketingChannels

PublicsSuppliers

Demographic-Economic

Environment

Technological-Natural

Environment

Political-Legal

Social-Cultural

Documents

Marketing Strategy