Strategic Sales and Marketing - Hochschule Bochumhochschule-bochum.de/fileadmin/media/fb_w/Schlottmann/Skript... · 1 Strategic Sales and Marketing . Bachelor Degree, Major Seminar

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Strategic Sales and Marketing

Bachelor Degree, Major Seminar

Prof. Dr. Ralf Schlottmann

Winter Semester 2012 /13

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1 Introduction 1.1 Trends in the strategic behavior of industrial firms 1.2 Dimensions of market oriented strategies 1.3 Strategic Planning Process 1.4 SWOT analysis as starting point 2 Definition of Sales and Marketing Targets 2.1 Role of Sales and Marketing in the Planning Process 2.2 Structuring targets 2.3 Sales and Marketing Targets 2.4 Case Study

3 Developing Market Strategies 3.1 Growth Strategies 3.2 Positioning Strategies 3.3 Market Targeting 3.4 Spatial Strategies 3.5 Strategic Combinations and competitive strategies 3.6 Case Study

Table of contents (I)

WS 2012/13 Strategic Sales and Marketing

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4 Sales Partner Strategies 4.1 Sales channel strategy 4.2 Cooperation models with sales partners 4.3 Case Study 5 Analysis tools for strategic planning 5.1 Key Performance Indicators 5.2 Gap Analysis 5.3 Portfolio Analysis 5.3 Case Study

Table of contents (II)


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Reference List Becker, J.: Marketing-Konzeption, 9. Auflage, München 2009 Homburg, Ch.; Schäfer, H.; Schneider, J.: Sales Excellence, 7. Auflage, Wiesbaden 2012 Kotler, P.; Keller, K.L.: Marketing Management, 14th edition, London 2012 Kotler, P. ; Keller, K.L.; Bliemel, F.: Marketing Management, 12. Auflage, München 2007 Meffert, H.; Burman, C.; Kirchgeorg, M.: Marketing, 11. Auflage, Wiesbaden 2012 Winkelmann, P.: Vertriebskonzeption und Vertriebssteuerung, 5. Auflage, München 2012

Table of contents (II) / Reference list


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Internationalisation

• Limits of growth in the home country • Opening up new markets • Customers are pursuing internationalisation strategies too

Changing retail formats

• New sales channels such as E-commerce emerge • Significant changes in the retail structure require sales strategies, in particular

sales channel strategies

1 Introduction 1.1 Trends in the strategic behavior of industrial firms


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Figure 1-1: Trend in retail landscape

Source: based on Handelsmonitor

5 4 3 2 1

Chnage in the future

1 2 3 4 5

Relevance today

Specialised shops

Discounters

Supermarkets

Warehouses

Corner Shops (Tanta-Emma Läden)

Second-Hand

Airport / Railway

Electronic Shopping Factory Outlet

Delivery services Fan Shops

Agricultural Directsales

Convenience Stores Petrol stations

Urban Entertainment Center

Shopping tourism



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Extreme positions in working together with retail channels

• Industry and retail find new forms of cooperation or • Both fight for marketing leadership in the retail channels

Bigger and bigger and faster and faster vs. highly specific

• Firms are forced to give themselves their own profile • Options:

Serving mass markets (bigger and faster) Working on niches (very specific segments)

Diversification vs. Concentration on the core businesses / Streamlining of business units



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1 Introduction

Main functions in sales and marketing

… Sales ... Marketing

Product Manager

Brand Manager

Market Research Manager

Communication Manager

Head of sales (for region, sales channel, product line,….)

Key Account Manager

Sales Representative

Sales Support

Trade Marketing manager

Customer relationship manager

E-Business manager

1.1 Trends in the strategic behavior of industrial firms


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„Which

products shall be offered mainly?“

Product focus

„On which

customers do we want to

focus?“

Customer focus

Dimensions of a market oriented strategies

„How does

the company want to act in the market?“

Building up

and extending competitive advantages

Source: based on Steffenhagen, H., Marketing – Eine Einführung, 6. Aufl., Stuttgart, Berlin, Köln 2008, p. 78

1 Introduction 1.2 Dimensions of market oriented strategies

Figure 1-2: Dimensions of market oriented strategies


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These three dimensions can be divided into two parts:

1. Which shall be the company’s markets (strategic business units)? 2. How do we want to work on these markets (competitive advantages of the

company)?

ad 1) Definition of the company’s markets

First of all a company has to define

Product Portfolio: on which product segments will the company concentrate?

Customer Portfolio: which customer segments shall be targeted?

see figures 1-3

These are then aggregated to Strategic Business Units (SBU) SBUs should be defined on several dimensions, see figures 1-4 and 1-5



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Total

subway

munici- pal services

Customer Segments

Air traffic

Houses

Flats

Power plants

Industrial plants

commercial buildings

fairs/ stadiums

Shops departm. stores

Securing goods

Fire brigade

Video control

Consulting

Reception

Admission control

In-house-offices

Fire alarm

Total

Pro

duct

Seg

men

ts

Figure 1-3: Planning company portfolio, example security market



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Potential demand of the customers

Target group-oriented technology

Potential Needs

Scope for problem-solving

Technologies

Potential customer groups

Source: based on Kotler, P., Keller, K.L., Bliemel, F., Marketing-Management, 12. Aufl., München 2007, p 95

Figure 1-4: Framework to define strategic business units



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Establishing contacts (e.g. Address services)

News

Practical business material

Further education

Specialized education

General education

Entertainment

Potential Needs

Print media

Acoustic media

Audio & visual media

Interactive media of the telecom- munication

Usable technologies

Private household

Household- overlapping groups (e.g. clubs)

Private businesses

Public education system

Public administration

Potential customer segments

Source : based on Kotler, P., Keller, K.L., Bliemel, F., Marketing-Management, 12. Aufl., München 2007, p. 95

Figure 1-5: Defining the business – example publishing market



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ad 2) How do we want to work on these markets / what are the competitive advantages of the business? Issues to be adressed: - How do we want to behave towards competition and other market participants? - How do we want them to perceive us? ⇒ The objective is to create competitive advantages! If a company wants to be more successful than the competitors in selected product and customer segments, it has to perform in one or more ways the competitors cannot or will not match Sources of competitive advantage can result either from internal capabilities which enable it to compete successfully or goodwill in customer’s perspective see figure 1-6



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Competitive Advantages/ Disadvantages can be caused by...

... strengths / weaknesses from the customer’s point of

view

... strengths / weaknesses concerning capabilities/

preconditions

Source: Steffenhagen, H., Marketing – Eine Einführung, 6. Aufl., Stuttgart, Berlin, Köln 2008, p. 91

We have (not) got internal capabilities / preconditions which enable us to compete successfully

Customers (don‘t) relate certain performance criteria above average to us, which are important to their supplier-preferences

Figure 1-6: Sources of competitive advantage



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Demands to strengths from customer’s point of view

1. Important i.e. they must refer to a criteria which is important for the customers

2. Perceived, i.e. the advantage must be perceived by the customer as such

3. Durable i.e. the advantage can not be caught up by competition easily



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Evaluation of company

Competitor 1

Competitor 2

Importance

Quality of connection / Network

Price / Tarif and offer

Mobile phones

Mobile Internet

CRM / Service

Invoice / Billing

Importance: from 1 = not important to 10 = very important Evaluation: from 1 = very bad to 10 = very good

Figure 1-7: Evaluation of the competitive position of a company, example mobile operator



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Mobile phones

Billing / Invoice

CRM / Service

Quality of connection/network Re

lativ

e Im

port

ance

Relative Performance + - - +

Ideal positioning

Figure 1-8: Example of competitive position of a mobile operator

Mobile Internet

Price / Tarif and offer



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Relevance of factors for company success

Decisive are the strengths / weaknesses as the customers see and value them (external view) but: strengths only results in sustainable success, if they are based on internal abilities / preconditions ⇒ The strengths regarding the abilities / requirements are at least as decisive as the external view due to a lasting success



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Systematic marketing-planning is not very popular and has to manage several resistances at the beginning because… .. the current processes seem to be convenient for some managers because they are responsible for their success and they expect the same for the future ... intuition and decisions “off-the-cuff“ have been obviously successful ... Lack of pressure to change: „Things are doing fine” (enough?) ... systematic procedure takes a lot of time and effort Nevertheless a marketing-plan and a marketing-concept are very common in many firms, especially in bigger ones.

And Marketing decisions are so complex that it is impossible to make them in a well-

founded way without an underlying system!

1 Introduction 1.3 Strategic Planning Process


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Marketing Concept: Conclusive plan which is geared to certain direction parameters (objectives) and which summarizes the fundamental room for maneuver (strategy) and the necessary operative actions (instruments) Systematic strategic planning of the individual SBUs ideally follows a defined planning process see figure 1-9 Structure of lectures is based on this:

Chapter 1.4: SWOT analysis as starting point Chapter 2: Sales and Marketing targets Chapter 3/4: Sales and Marketing Strategies Chapter 5: Tools for selecting strategies



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Levels of the Concept:

1st level

2nd level

3rd level

Fundamental Questions:

Where do want to go to?

How do we get there?

What do we need to employ for this?

Marketing Targets (= Determination about

the “wishful places”)

Marketing Strategies (= Fixing the „Route“)

Marketing Mix (= Selecting the “Vehicles”)

Source: Becker, J.: Marketing-Konzeption, 9. Auflage, München, 2009, p. 4


Figure 1-9: Elements of a Marketing Concept


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External environment (opportunity & threat analysis)

Internal Environment (strengths/ weaknesses analysis)

Feedback + control

Implemen- tation

Program formulation

Strategy formulation

Goal formulation

Business Mission

Source: Kotler, P. / Keller K.L.: Marketing-Management, 14th edition, London 2012, p. 70


Figure 1-10: Strategic Planning Process


Identification and evaluation of Opportunities and Threats of the market environment (external view)

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1 Introduction 1.4 SWOT analysis as a starting point

Determining Strengths and Weaknesses of the company (internal view)

Bringing together internal and external view in a portfolio

Deduction of strategic options


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Source: Porter 1999, p. 50

Threat of potential entrants

Power of buyers

Threat of substitutes

Power of suppliers Rivalry

Figure 1-11: Five Forces Model by Porter



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major strength

Major weakness

minor weakness neutral minor

strength HI LOW MED

Marketing Company reputation Market share Customer satisfaction Product quality Service quality Innovation effectiveness Pricing effectiveness …

Finance Cash flow ROI …

Organization Visionary, leadership dedicated employees …

Manufacturing Economies of scale Ability to produce on time Capacity …

Source: based on Kotler, P. / Keller K.L.: Marketing-Management, 14th edition, London 2012, p. 74

Figure 1-12: Strengths and weaknesses profile

1 Introduction

IMPORTANCE EVALUATION

1.4 SWOT analysis as a starting point


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Strenghts Weaknesses

Opportunities Threats Internal factors

External factors

• Do we have the strengths to use the chances coming up in the market?

• Which opportunities do we miss due to our weaknesses?

• Do we have the strengths to manage the upcoming threats?

• Which risks do we face due to our weaknesses?

Figure 1-13: SWOT analysis



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Figure 2-1: Different roles of marketing and sales

Typical constellations of division of competences between marketing and sales

1: Marketing as service department

of Sales

47%

Leading strategic and operative role

Marketing Services

2: equal weight between Marketing

and Sales

33%

Responsible for prices and sales

Responsible for product management

and advertising

3: Sales as executing

department of Marketing

20%

Account manager

Leading strategic and operative role

Share

Role of Sales

Role of Marketing

Source: based on Homburg / Jensen / Klarmann 2005, p. 6

2 Sales and Marketing Targets 2.1 Role of Sales and Marketing in the Planning Process


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Definition “target”: intended result of one’s own actions Essential to the realization of every marketing-concept is a market-oriented planning of the targets For target structuring there needs to be considered

1. Spectrum of targets

2. Relations between targets

3. Order of targets

see figures 2-2, 2-3, 2-4

2.2 Structuring of targets 2 Sales and Marketing Targets


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Figure 2-2: Spectrum of company targets

Market performance • Product quality • Service quality • Product range

competence

Market position • Revenue • Market Share • New markets

Profitability • Profit • Margin • Return on equity

Financial • Creditworthiness • Liquidity • Capital structure

Power and prestige • Independence • Image • Political influence • Societal influence

Social • Employee satisfaction • Income and social

security • Social integration

Environmental protection • Reduction of emissions • Reduction of use of

natural resources • Recycling quotas



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Figure 2-3: Relations between targets

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p.21

a) Complementary relation

O1

O2

b) Competing relation

O1

O2

c) Indifferent relation

O1

O2

O1

O2

bzw.



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Business Mission

Corporate- Policies & Practices

Corporate Identity

Superior targets of the company

Targets for functional areas (Marketing and Sales)

Intermediate targets (business units)

Sub targets (Marketing-Mix)

Superior targets

Operative targets

Means-end- relationship

Increasing concretion of the targets

Increasing quantity of targets

Figure 2-4: Target Pyramid



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Business Mission → specifies business purpose / gives a frame for maneuver „A corporate mission is a long term vision of what the business is or is striving to become. The basic issue is: What is our business and what should it be?“ „Starting point“ of each company and marketing-planning process, sense giving function for the company and description of the corporate current situation Basic questions:

What are we? Why do we exist? What do we stand for? In what do we believe?

http://www.pg.com/en_UK/company/purpose-and-people.shtml http://www.bmweducation.co.uk/coFacts/view.asp?docID=26



http://www.pg.com/de_DE/unternehmen/prinzipien/index.shtml

http://www.pg.com/en_UK/company/purpose-and-people.shtml





http://www.bmweducation.co.uk/coFacts/view.asp?docID=26

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Corporate Policies / Practices and Corporate Identity refers to commitment vs. societal-, economic and competitive order and also to basic behaviour towards employees, customers, suppliers, capital owners, competitors and public moral concept of the company Examples: http://www.pg.com/en_UK/company/purpose-people/purpose-values-and-principles.shtml http://www.unilever.de/ueberuns/grundsaetze/?WT.LHNAV=Grunds%C3%A4tze → Distinction between corporate policies / practices and corporate identity is quite difficult to

find in the real world. In fact, in many cases the sum of corporate policies / practices makes up the corporate identity.

Superior targets of the company → In today’s markets an avowal of long-term profit is matter of course for the companies



http://www.pg.com/en_UK/company/purpose-people/purpose-values-and-principles.shtml









http://www.unilever.de/ueberuns/grundsaetze/?WT.LHNAV=Grunds%C3%A4tze

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Figure 2-5: Operationalisation of targets

Operationalising targets determining…

reference to timing kind of target

reference to product segment

reference to target group

extent of target

What do I want to achieve? Content of the desirable results see 2.2

With which product, which product lines? Referring to a certain brand or product line the company offers

To whom, In which groups of customers do I want to achieve this?

How much do I want to achieve?

Aspiration level with respect to value or volume

Options:

- fix figures, hence limited extent of target

- min. or max. target

Until when shall the target be reached?

In which period shall the target be reached?



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1. Targets concerning the position within the market (market share/distribution) a. Market Share targets For the right evaluation of the own market position it is necessary to determine the market share in terms of quantity and value

customersrelevant ofnumber Total100 customers ofNumber share field

market in the vendorsall of volumesales total100 volumesales scompany' quantity of in terms sharemarket

market in the vendorsall of turnover total100 turnover scompany' valueof in terms sharemarket

•=

•=

•=

2.3 Sales and Marketing Targets 2 Sales and Marketing Targets


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b. Distribution targets Standard for the product’s market penetration (ubiquity) These data are evaluated regularly by panel interviews Panel: Survey that is done regularly with a stable group of economic units e.g. companies, retailers etc. with the same topic Study objective: Investigating changes in the market or in behavior patterns

products of class the sell whichretailers all of turnover Total100 brand / product a sell whichretailers the of Turnover level ondistributi Weighted

products of class the sell whichretailers of number Total100brand / product a sell whichretailers of Number level ondistributiNumeric

•=

•=



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Figure 2-6: Relation between the development of the distribution and the market share

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p.68

49/81 49/77 56/85 53/84 53/84 57/88 86/98 83/97 83/97 85/97 89/99 88/98 20/44 21/44 19/46 17/49 18/47 17/46 11/46 11/44 11/46 11/50 12/46 13/52 5/24 5/28 5/20 5/19 8/32 8/36

26 29 25 29 28 30 49 46 50 43 45 44 12 12 12 13 13 10 5 5 4 9 6 6 2 2 1 1 2 2

Brand A Brand B Brand C Brand D Brand E

Market Share in %

Brand A Brand B Brand C Brand D Brand E

Periods**

J/F M/A M/J J/A S/O N/D Distr. num./gew. * in %.

* Distribution numeric / weighted ** J/F: January / February ….



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Figure 2-7: Example for an Asymmetrical Market and Sales Volume Profile

Source Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p. 69

% Share of the total market

% Market share

Market Structure Sales Structure of Company Y

5 10 15 20 25 30

Ø market share (17 %)

Explanations: Relation market A to G is 1:6 Relation market share A to G is 12:1

10 20 30 40 50 60 70

Market share below average

Regional / sectoral submarkets A B C D E F G

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2. Price Position targets attempt to fix a specific price positioning Most of the product-markets can be linked up with one of these price classes: - high-priced class (Premium-brand) - consumer price class (classical branded article) - low-priced class (no frills products) see figure 2-8



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Figure 2-8: Market Levels and Price Classes of Beverage Industry incl. Market Shares (volume)

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p. 72

Market Levels

Market Shares

Price classes (in €)

Upper market

Medium market

Lower market

15,75 and more

13,75 – 15,74

Up to 13,74

20 %

55 %

25 %



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Every company that wants to pursue a clear marketing strategy has to focus on one market level it wants to occupy ⇒ Fundamental standard for the orientation of the firm’s marketing strategy ⇒ Central Orientation for the whole use of the marketing mix as well 3. Brand Positioning (Image and brand awareness) Image: related to how customers see either a product or a company, i.e. product image and company image Particularly in saturated markets a strong brand position and image is a key success factor, especially to reach a price premium Brand awareness: is fundamental for a strong image ⇒ brand awareness influences the allocation of certain features to a brand



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Correlation between awareness and image: The following chain of impacts is supposed to be true: Brand awareness ⇒ Brand sympathy ⇒ Brand usage Four typical situations for the status of a brand are possible: see figure 2-9 see figure 2-10



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Figure 2-9: Four Typical Situations for the Status of a Brand

Source: based on Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p. 78

Situation A: Balanced gradation

awareness

sympathy

usage

awareness

sympathy

usage

Situation B: Low sympathy backlog

awareness

sympathy

usage

Situation C: Low user-rate relating to the sympathy potential

awareness

sympathy

usage

Situation D: Low rate of sympathizers and users relating to the awareness potential



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Figure 2-10: Differentiated brand status of selected brands


Brands E D C B A

Values in % 100

90

80 70 60 50 40 30 20 10 0

Being aware

Sympathizers User

Brands

A B C D E

Being aware

93 87 66 43 41

Sympathizer

42 32 28 16 15

User

36 22 17 10 8

A,B = classical brands like 4711, Tosca C,D,E = modern (“life-style”) brands like Janine D., My Melody, Inspiré



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4. Purchasing range and -intensity purchasing range: To how many % of the relevant target group do you really get in touch? ⇒ number of buyers per segment purchasing intensity: Quantity per purchase? Example (food-submarket): see figure 2-11



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Figure 2-11: Purchasing Range and Intensity for Two Competing Brands in a Grocer’s shop


Brands

A B

Purchasing Range (in % of all panel-households)

Purchasing intensity (quantity/week)

83 46

250 g 625 g



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5. Customer Satisfaction Customer satisfaction is an important key target as … ... Usually only satisfied customers become regular customers ... Caring for regular customers is more effective than acquiring new customers Representative surveys prove this: Results of the „Technical Assistance Research Program“ (TARP):

Satisfied customers talk about their experiences to 3 people, unsatisfied to 9-10 (in average)

96% of the unsatisfied customers don’t complain to the company what means that there are 26 unsatisfied customers per complaint

Customers who complain about the product/service are more willing to stay loyal

Up to 70% of the customers who complained purchase the company’s product again if the complaint was solved



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Figure 2-12: Consumer in a market for two brands over different phases


Brand B

100 %

40 % Know brand

30 % have tried brand

70 % have not tried

brand

60 % don‘t

know brand

80 % are satisfied

20 % are not satisfied

Brand A

100 %

40 % have not

tried brand

20 % don‘t know brand

20 % are satisfied

80 % know brand

60 % have tried brand

80 % are not

satisfied

Total market

Awareness First Buyer

Satisfaction Total market

Awareness First Buyer

Satisfaction



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Customer Satisfaction Survey of the „Deutsche Marketing-Vereinigung e.V.“: Regular surveys (since 1992 in Germany) about customer satisfaction: see figure 2-13 http://www.servicebarometer.de/presse.html Derived actions from these kind of results about customer satisfaction: - CRM Systems / customer retention programs - extensive customer complaint systems Aggregation of these marketing objectives in a marketing mission statement: The discussed target figures are fundamental targets of marketing and sales They are not the result of a single marketing instrument but of the whole marketing mix see figure 2-14



http://www.servicebarometer.de/presse.html

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Figure 2-13: Relation Between Total Satisfaction and Reselection (Example Retail Banking)

Source: Kundenmonitor Deutschland 2001 (www.servicebarometer.de/kundenmonitor2001)

100 %

80 %

60%

40 %

20 %

0 %

1997

23%

77% 92%

22%

55%

6%

17%

6% 2% 100 %

80 %

60%

40 %

20 %

0 %

2001

78%

42%

12%

37%

16%

21%

72%

18%

4%

Probably / definitely yes

possibly

probably/ definitely not

Disappointed customers

(8%) (unsatisfied and little

satisfied)

Satisfied customers

(37%) (satisfied)

Convinced customers

( 55%) (highly

satisfied)

Question:

Would you select your bank again?

Disappointed customers

(7%) (unsatisfied and little

satisfied)

Satisfied customers

(39%) (satisfied)

Convinced customers

( 54%) (highly

satisfied)



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3 Marketing strategies There are plenty of ways of taking marketing measures to reach the targets. But: Which are the right ones? ⇒ Necessity to find a steering mechanism that helps choosing the right measures and

instruments and to ensure that these (operative) instruments are used towards target achievement

Def. strategy (in general): It’s an aid to channel business decisions respectively the use of resources in the company (like guide rails on motorway) Differentiation of strategy and tactics (instruments): see figure 3-1 Def. marketing strategy: Decision about the company’s planned market presence and positioning One way to structure the various kinds of strategic options: see figure 3-2

3 Marketing-Strategies


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Strategy = basic predisposition

Characteristics: - determines the structure - real choice - mid-/long-term planning - lag effects - hard to correct

Decision making process: - complex, badly structured surrounding for decision making - today's fundamental decisions are made

for tomorrow - comprehensive thought necessary

(looking at the complete company) - macro-view, more qualitative

Tactics = current dispositions

Characteristics: - determines the actual process - routine decisions (habitual behavior) - Short term planning - immediate effects - correction possible without considerable

problems

Decision making process: - clear, easily structured decision - today’s decisions are made to solve

today’s problems - thinking is focused on particular

functions within the company - micro-view, more quantitative

Fundamental orientation: Being effective: „Doing the right things“

Fundamental orientation: Being efficient: „Doing the things right“



Figure 3-1: Differences between Strategy and Tactics


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Growth Strategies:

Positioning Strategies

Market Targeting:

Spatial Strategies:

Four strategy levels Types of strategic decision Basic strategic options

Kind of product/ market-combinations way of influencing the market Way and level of distinguished market targeting Decision about the market- / sales area

current or new products in current or new markets quality- or price-oriented competition mass-marketing or market segmentation national or international sales strategy



Figure 3-2: Marketing Strategies


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Growth Strategies Which products shall be offered to what kind of customer segments?

see figure 3-4 Every company has to take a decision about the occupation of these fields

3 Marketing-Strategies 3.1 Growth Strategies


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Product segments

Market segments

Current markets New markets

Current products

New products

Market-development strategy

Product-development strategy Strategy of diversification

Market-penetration strategy

Figure 3-3: Ansoff’s Product-Market Expansion Grid

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, p. 148



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Market-penetration strategy Goal: Increasing sales respectively market share with current products in current markets and by that improving the proceeds and profit Basis for this are two effects caused by a rising market share:

falling costs per unit (learning curve!) Growing influence on pricing (according to the price stability and –level) in the

market



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Market-development strategy Goal: Develop new markets for current products by breaking up market limits Strategy that is mainly based on a penetration strategy Options to implement the market-development strategy: see figure 3-4 Typical for both market-penetration and market-development strategy:

Both contribute mainly to realize a higher production volume Possibility to realize cost savings (Economies of Scale)



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Figure 3-4: Implementation of a Market-Development Strategy

1. Opening up additional markets (geographical-expansion strategy) – Filling gaps in the sales market – Straightening of a incoherent sales market

2. Entering adjacent markets (= new uses for the current product) – Extension of the product usage (example Lindt: beneath the classical suitability as present

increasing meaning of the suitability to consume the pralines by oneself) – Creating new uses (e.g.: extension of the use of Penaten care products for kids towards the

care of sensitive skin of adults) – Creating new application areas (e.g. by special services and/or guarantees for existing

products and by that opening up new e.g. demanding target-groups)

3. Opening up new sub markets (= new consumers who differ from the current ones regarding certain characteristics)

– Creating products for specific customers e.g. by suitable differentiation of the products (example: Lady Protector made by Wilkinson for wet shaving for women)

– Bringing customer-specific distribution channels into play (Example: “neighborhood-shops” for not yet served smaller customers and cash & carry markets for not yet served key accounts)

– Advertisements in consumer-specific media (possibly connected with a specific kind of address by means of “psychological” product differentiation)

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München, 2009, p. 152 f.



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Product-development strategy Goal: Developing new products of potential interest to its current markets/ customers (1) Systematic innovation policy fundamental strategic decision: Which degree of innovation does the company aim at?

Genuine innovations: → Products, that originally didn't exist at all e.g. new technologies Adapted products: → new products that are built upon existing products or services Me-too products: → imitated products, that differ more in terms of packaging and not in substantial

characteristics



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(2) Product-range-policy Fundamental strategic decisions: • width of the program • depth of the program see figure 3-5 Every company has to decide on a certain width and depth of its product range 1 Specialist strategy (narrow and deep) vs. 2 Generalist strategy (wide and flat) New development concerning the program-policy: → Bundling of products to sell a whole system.

Level of intensity of these systems: • Combined products • System covers one part of the program • System covers the whole program • Hard-, software and service system



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Figure 3-5: Differentiation Generalist vs. Specialist

A1

A2

A3 new

B1

B2

B3

C1

C2

D

B4

A = filled chocolate

B = chocolate

C = chocolate bars

D = other sweets

Generalist

Specialist

Width of the program ( = number of different types)

Dep

th o

f the

pro

gram

( = n

umbe

r of d

iffer

ent s

orts

)




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Diversification Strategy Goal: Enlargement of the company’s strategic room to – from the company’s point of

view – new products and new customers / markets by breaking out of the traditional branches into neighboring or far away fields.

Diversification: Result of product-development on the one hand and market-development see figure 3-6



64

new market new applications

Figure 3-6: Stages on the way to diversification

Product-development

Mar

ket-d

evel

opm

ent

no changes improved technology

adaptation no changes

more intensive treatment

new technology

improved product

replacement

enlargement of the product range

new market- segmentation

new marketing

technology

market

diversification




65

Kind of diversification strategies concerning the level of risk-spread: 1. Horizontal diversification New products which are connected with current product lines and furthermore have synergies with these lines, e.g. by… ... employing the same (raw) materials or similar technologies ... using existing distribution channels ... supplying similar submarkets 2. Vertical diversification Enlargement of the company’s value chain through...

forward integration: acquiring wholesalers or retailers to control the distribution channels

backward integration: acquiring suppliers to control the raw material sources Goals: - independence from other market participants - hope of increasing profits 3. Diversification growth Seeking new businesses that do not have any relationship to current products, markets, technologies etc.



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What about success / failures of the strategies in practice? Horizontal diversification: Most common (> 50% of all diversification strategies) Reasons for failures: Assumption, that the potential customers of the new products are similar to the current customers, what sometimes proves to be wrong ⇒ calculated synergies don’t materialize Vertical diversification: Clearly lower importance Diversification growth: cycles of growing and falling importance

Examples of typical Conglomerates http://www.ge.com/de/ourbusiness/index.html http://www.siemens.de/ueberuns/portfolio/Seiten/home.aspx



http://www.ge.com/de/ourbusiness/index.html

http://www.siemens.de/ueberuns/portfolio/Seiten/home.aspx

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Implementation of diversification strategies • Organic growth: Own research & development, own sales chains etc.

→ Especially realized in case of horizontal diversification Reason: Similarity of products (e.g. production process)

• Know-how-buying: License agreements • Buying products: Selling merchandises • Joint-ventures: cooperation agreements • Acquisitions: Participation / mergers → Typical for conglomerate diversification



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Figure 3-7: Example of a Horizontal Diversification: Nestlé Basics of Nestlé’s corporate policy: • Goal: Strengthening and developing the existing business • Besides: Double strategy: organic growth and acquisitions to strengthen the

current market position and to open up new markets „We consider acquisitions especially if it’s possible to… …round the current market position or product lines …enter new interesting food businesses …improve the geographic balance of our global business.“

Important acquisitions of Nestlé: Carnation, USA (food) Herta, Germany (meat and sausages) Rowntree, GB (sweets) Buitoni, Italy (pasta) Perrier, France (mineral water) Alpo Petfood, USA (animal food) Finitalgel, Italy (ice cream) ... ⇒Systematic policy of acquisitions which is more common in cases of conglomerate diversification


Source: based on Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, p.173


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3.2 Positioning Strategies Two mechanisms of influencing the market, set up on the market layers: 1. Price competition: Price as low as possible as the main instrument for steering the market Typical for markets of “basic-needs-products” ⇒ Overall cost leadership (concept for discounter) 2. Quality competition: Stress on other instruments than price Typical for markets where products offer an additional use beneath the basic one so that the price competition is outweighted by the quality competition The aim is to achieve a brand preference in the customers’ mind ⇒ Preference strategy (High-price strategy, brand concept) see figure 3-8

3 Marketing-Strategies 3.2 Positioning Strategies


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Figure 3-8: Impact of the Positioning Strategies on the ROI

Return on investment

Preference strategy (profit oriented/ qualitative growth)

Neither-nor-strategy

Overall cost leadership (turnover oriented/ quantitative growth)


Source: Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, p.358


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This fact is reinforced by the development of the polarization of the markets, i.e. by the change in the market layers structure see figure 3-9 see figure 3-10 Preference strategy Goal: Building up qualitative preferences, which justify high prices from the customers Point of view. Brands as objects, the preferences are focused on “Branding is a major issue in product strategy. As Russell Hanlin, the CEO of Sunkist Growers, observed: “An orange is an orange … is an orange. Unless … that orange happens to be Sunkist, a name 80% of customers know and trust.” Well-known brands command a price premium



72

Figure 3-9: Fundamental Changes in the Market Structure

Upper market

Medium market

Lower market

Lost-of-the- middle-

phenomenon

Starting point: Classical structure

(„Onion“)

= Lower market is the

biggest

Result: New market structure

(„Bell“)

= Middle market is the biggest

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, p.359



73

Figure 3-10: Polarisation of markets

Source: GfK 20 000er Haushaltspanel Consumer Scan, in: Horizont 10/2009, p. 4

Market share development in % (Base: 100 Product groups; average price ≥ price market leader)



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Rising importance of the upper market layer: see figure 3-11 Background: In several markets a high-tech standard and a fast adjustment of technologies and functions on a high level can be observed. ⇒ Building up preferences for brands enables the firms to mark off their own products

from others by using each non-price marketing-instruments Precondition for the development of preferences: → Attitudes ⇒ Not only dependent on objective product characteristics but especially on the

customers’ subjective perception



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Figure 3-11: Increasing polarisation, example beer market

Source: GfK-Consumer Scan 2005

18 18 19 22 24 25 30

39 33 31 24 21 22 23

43 49 50 54 55 53 47

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006

Premium-beers* (> 10,00 €)

Consumption beers (7,00 to 9,99 €)

Price entry beers (< 6,99 €)

Purchasing volume in % (20 bottles 0,5 l returnable box)

Ø - price in € 9,32 9,55 9,53 9,57 9,23 9,01

* brands: Beck‘s, Bitburger, Hasseröder, König, Krombacher, Jever, Radeberger, Veltins, Warsteiner, Wernesgrüner

9,56



76

Figure 3-12: Share of Premium Brands in the Chocolate Market

Source: GfK-Consumer Scan 2005

Strong Brands Are Able to Achieve a Price Premium



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Question: How do brands work? Identification function: make it possible to generate some more transparency in the great variety of products and articles and to emphasize the differences Retention function: make the products recognizable to support the brand loyality ⇒ Orientation within a complex range of goods:

consumers assume that they purchase a reliable product with a constant quality by buying a branded article

Broad distribution or uniform price loose their importance price argument loses its importance

Retailers as trouble-maker:

brands are mostly marketed aggressively i.e. by means of the price retailers undermine the brand image because the brands get involved in an

aggressive discount price competition



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Way out: Creating “Must-Have Brands” (brand personalities), which are essential for the retailers with typical characteristics

Distribution level > 60% Awareness > 70% market share > 30%

Impact of brands on preferences: see figure 3-13 Types of brands

1) Individual name: Single-brand concept

2) Family name: product-line / range-brand-concept

3) Corporate name



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Figure 3-13: Example of a quality evaluation of two brands

Source: Freter, H., Marketing, München 2004, S. 60, siehe auch http://www.marktforschung-mit-neuromarketing.de

51% 44%5%

0%

20%

40%

60%

80%

Pepsi Coke no preference

23%

65%

12%

0%

20%

40%

60%

80%

Pepsi Coke indifferent

Blind test Test with offering of brand Preference


Preference


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1) Individual name Each product of a company has its own brand name The company’s name remains in the background and is regularly not familiar to the customers Goal: Creating a clear and unmistakable brand personality 2) Family name a brand is selected for a certain product group / line a specific philosophy encircles all products



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3) Corporate name the company’s products are sold under a uniform brand the brand’s message: The company and its competence as well as sympathy and the trust into this firm Especially suitable if… ... the product range is to large and heterogeneous ... the target groups are similar ... the product segments are heavily dependent on the fashion (e.g. Boss) In practice many companies use combinations



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Changing brand strategies over time starting point is usually an individual or corporate brand two strategic directions which both lead to a family-name-concept: (1) Brand evolution Basic idea: It’s getting harder to build up new brands in saturated markets (high investments, short marketing periods)

using strong individual brands with a strong image for new activities strong individual brands are transformed into family brands to enter new markets

faster and more efficiently see figure 3-14 Principle: New products are arranged in groups around a well-tried core brand like satellites



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Figure 3-14: Brand evolution example Nivea

Nivea Creme

Nivea– body

cleaning

Nivea– personal hygiene

Nivea For Men

Nivea Baby (Baby- care)

Nivea- hair care

Source: http://www.nivea.de/Unser-Unternehmen/beiersdorf/Die-NIVEA-Geschichte

Nivea– Deo

Nivea Visage (facial

cleaning)

Nivea– Make-Up

Nivea Sun (sun

protection)

Nivea Soft

(moisturising creme)



http://www.nivea.de/Unser-Unternehmen/beiersdorf/Die-NIVEA-Geschichte







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(2) Restructuring a brand leading a corporate brand back towards a group of family brands need to restructure can become necessary if a firm diversifies strongly over time and departs too far from the core business see figure 3-15 Goal

strengthening credibility and competence establishing craps for specific business units which ease product innovations and

their market penetration



85

Figure 3-15: Restructuring a Corporate Brand to a Group of Family Brands (here: Melitta)

Splitting Melitta’s activities into strategic business- and market units

Kaffee-Genuss

Melitta

Coffee Filter paper

Coffee maker Coffee filter

brand

Frische und Geschmack

(Melitta)/ Toppits

Foils to keep food fresh, to freeze and to

roast and bake it

brand

Praktische Sauberkeit

Swirl

Vacuum cleaner bags,

Garbage bags, Odour filters

brand

Bessere Wohnumwelt

Aclimat

Air cleaners, Air moisteners

brand

Tee- Genuss

Cilia

Tea filters, Tea filter systems

brand

Source: www.melitta.de

Tafelwasser-Bedarf

Aqamore

Water machines & accessoires

brand



86

3 constitutional characteristics of a branded article (characteristics which are crucial for the brand’s success)

Quality management consistent quality management as the heart of the preference strategy Image and a Unique Selling Proposition (USP) benefits, which are conveyed in its positioning to its target customers ideal situation: unique selling proposition ⇒ special importance of advertising and promotion activities Ubiquity highest possible distribution grade of a brand in the market as critical success factor



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Overall Cost Leadership “The business works hard to achieve the lowest production and distribution costs so that it can price lower than its competitors and win a large market share. Firms pursuing this strategy must be good at engineering, purchasing, manufacturing and physical distribution. They need less skill in marketing.” ⇒ low prices as main marketing instrument Strategy: firms target price-oriented buyers German Consumers are rather price- than brand-oriented see figure 3-16 Example: Discounters in the food retailing industry see figures 3-17, 3-18



88

Figure 3-16: Branded articles vs. Price sensitivity

Source: UGW – POS-Marketing Report 2003/2004

Product group Favourite brand

Brand on offer Favourite product

No answer

Body care

Sweets

Non alcoholic beverages

Alcoholic beverages

Washing powder

Joghurt

Cheese

Deep-frozen food

Detergents

Salty snacks

Average

32 % 37 % 18 % 13 %

32 % 42 % 23 % 3 %

32 % 36 % 18 % 14 %

30 % 10 % 28 % 32 %

26 % 46 % 22 % 6 %

25 % 45 % 25 % 5 %

21 % 33 % 29 % 17 %

20 % 33 % 37 % 10 %

17 % 38 % 26 % 19 %

28 % 37,6 % 24,2 % 10,2 %

5 % 45 % 34 % 16 %



89

Figure 3-17: Market shares in food retailing (1)

Source: Information Resources GmbH 2009

6,3 7,9 9,3 10,9 11,6 12,3 13 13,7 14,2 14,4 14,1 14,3 14,2 13,82 3 3 3 3 4 4 4 4 4 4 4 4 4

76,8 72,2 69,3 63,3 61,1 58,6 56,2 53,5 50,7 48,1 45,5 42,9 40,7 38,6

0

10

20

30

40

50

60

70

80

90

1993 1995 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Food retailing without Aldi

Aldi

Drugstores incl. Schlecker

85.5 82.9 79.7

77.5 74.5 72.9

Number of POS in 1.000

76.1 71.0

68.8 66.5

63.7 61.4

59.1 56.7



90

Figure 3-18: Market Shares in Food Retailing (2)

5,2 6,3 7,0 8,4 9 9,7 10,4 10,6 10,8 10,9 11,3 12 12,5 12,813,3 14,7 16,4 16,9 17,1 19,6 22,0 24,6 25,7 26,1 25,8 27,4 27,0 28,8

102,5 102,1 99,5 100,5 99,8 99,8 101,1 99,5 100,2 99,6 99,5 100,8 104,7110,0

0

15

30

45

60

75

90

105

120

135

150

1993 1995 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Food retailing without Aldi

Aldi

Drugstores incl. Schlecker

Revenue Billion Euros

Source: Information Resources GmbH 2009



91

Figure 3-19: Advanced Model of the Basic Positioning of Business Units and Brands Advantage in Performance

Advantage in price

Basic use plus value added

Basic use

Upper-right field

Lower-left field

„Bermuda-triangle“ (= dangerous position “between the chairs”)

Branded article/ Premium brand (Manufacturer brand)

Branded article, possibly second-brand (Manufacturer brand)

„Premium brand“ of the retailers

Possibly manufacturer’s third brand

Private branded merchandise

No-names / Generics

Discounter brand

Source: Becker, J.: Marketing Konzeption, 7. Auflage, München, 2002, S.227



92

Brand strategies for the overall-cost-leadership: (1)Private branded merchandise Retailers as the owners of the brands, who are responsible for the quality Goals

retailers (especially national ones) try to take the initiative and to arrange the market by themselves so that these companies are not only the manufacturers’ distributors.

attracting price buyers reaching a certain independence of the manufacturer brands Increase of the customer’s loyalty

see figure 3-20 Compared to manufacturer brands, ubiquity is partially missing, but they possess features which are similar to those of manufacturers brands ⇒ placed between preference-strategy and overall-cost-leadership, cheaper alternative to

branded articles Usually retailers don’t have own production facilities at their disposal but shift their production to other industrial undertakings.



93

Figure 3-20: Relevance of private branded merchandise objectives

Source: GfK

2,5

2,96

4,18

4,28

4,38

4,55

1 2 3 4 5

Covering gaps in product range

Improvement of negotiation position vs.

Manufacturer

Support Company image

Margin improvement

Customer retention

Profiling

Very low… low… average… high… very high…

… relevance n = 43



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(2)Discounter Brand

Lowest prices in the market Typical characteristics:

concentration on pure price competition, lowest distribution costs all other kind of marketing instruments like shop-design, presentation of the goods

etc. are minimized to protect the extremely favorable cost-situation Concentrating on a limited product range with a high turnover rate Small profit margin but due to the large sales volume sufficient yields

⇒ Caused by the high quantities discounters are able to win manufacturers which can

produce a minimum quality for the cheapest possible price Brand policies of the discounters:

Own brands Me-too respectively fantasy-brands of the discounters’ suppliers Goods without any brand name Branded articles



95

Differences in prices between the dealer brands (rough indication): • private branded merchandise compared to branded articles: ./. 20 – 30% • Discounter brands compared to branded articles: ./. 40 – 50% • Generics compared to branded articles: ./. 30 – 40% (3)Generics Especially convenience goods that means goods with a high rate of merchandise turnover and Low marketing, inventory and handling costs Typical characteristics: a. in the beginning

• no name • uniform and simple white packaging which was covered just by the product name (e.g.

Die Weißen von Rewe)



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b. Over time: • Usage of other colours for the packaging (e.g. yellow) because the white one did not

distinguish the product range from other competitors • After that first pretty pictures on the white packaging • In parts the strict no-name-character was broken from the beginning by using a brand

name (e.g. A&P of Tengelmann) ⇒ No clear position between private branded merchandise on the one hand and generics on

the other Geographical extension of retailer branding: see figures 3-21, 3-22



97

Figure 3-21: Market shares of retail brands in Europe

Source: Metro-Handelslexikon 2010/11, p. 061

Market Shares of Retailer brands in European Food Retailing Revenue Share in %



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Figure 3-22: The Lead of UK Retailers in the Development of House Brands

Source: Clarke, R., Davies, S., Dobson, P., Waterson, M.: Buyer Power and Competition in European Food Retailing, Edward Elgar Publishing 2002

Shares of retail brands of English retailers

Sainsbury (55%)

Tesco (46%)

Asda (32%)

Marks & Spencers (100%)

Argyll (38%)

• “Sainsbury’s own brand ranges stand for great quality at fair prices; a powerful proposition that drives product innovation and quality.”

• They began with the basic own brand (‘Sainsbury’s’) and then proceeded to trade up; today: ‘Organics’ with over 700 lines, ‘Be Good to Yourself’, ‘Taste the Difference’ with 850 lines, ‘Just Cook’, ‘Basics’ with 400 lines, ‘Blue Parrot Café’ with 55 lines and ‘freefrom’

• Each of Sainsbury’s own brand products fall into one of three price layers

• The product range becomes more lucrative and profitable

• Many retail companies will introduce 800-1000 new product lines each year



99

Conclusion Up to now

Preference strategy seen as a typical strategy for manufacturers Overall-cost-leadership seen as a typical strategy of retailers (at least in the

consumer goods industry) but Polarization of the market leads to an increase of the market volume in the upper and lower market segment

a. Price-strategic working firms strive for the upper-right field, among other reasons due to price wars

b. preference-strategic operating firms strive for the lower-left field

⇒ Combined strategy, not a pure strategy concept anymore



100

ad a. Retailers striving for the preference strategy Attempt to place private merchandise brands which resemble branded articles

Trading-up: Dealer brands are improved concerning their product-, packaging- and brand quality up to classical advertising so that they become premium brands of the retailers. ad b. Manufacturers striving for the overall-cost-leadership Attempt of the manufacturers to offer products – with the help of third-brands etc.- which are

similar to dealer brands (regarding the price) to profit from the attractive market volume in this market area

Alternatives

Especially designed brands for price-buyer with an own price-performance-ratio Trading-down: originally branded goods were devalued regarding the product’s

performance and by that they became also cheaper.



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Goals Covering an interesting market volume Protecting the preference brands against the aggressive pricing by the retailers

Precondition for a combined strategy: Multi-brand concept with … … a specific image for each brand … specific price-performance ratios in their special market segments … different marketing and sales channels see figure 3-23, 3-24



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Figure 3-23: VW Multi-Brand Concept

Source: Backhaus, K., Schneider, H., Strategisches Marketing, Stuttgart 2007, p. 33, http://www.volkswagenag.com/vwag/vwcorp/content/de/brands_and_products.html

Brands of VW (private vehicles)*

* additionally: commercial vehicle brands VW and Scania



http://www.volkswagenag.com/vwag/vwcorp/content/de/brands_and_products.html

Distribution

Service Providers

(e.g. debitel)

Shops

Tele- marketing

E- Commerce

Retail*

Private Customers

New channels, e.g. Aldi

Mobile Operator

Figure 3-24: Multichannel Sales System for multi brand concept

Direct Sales

Business

Customers

Service Provider

Channels

* Further differentiation in free retailers, contract retailers and E-Commerce retailers

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…


http://www.google.de/imgres?imgurl=http://www.kumita.de/ratgeber/wp-content/uploads/2011/10/aldi-talk.png&imgrefurl=http://www.kumita.de/ratgeber/schnaeppchen/preiswerter-tarif-von-aldi-talk-1328.html&usg=__0v0AfgmzqZWciw0KAdJPD9bdzVk=&h=170&w=227&sz=13&hl=de&start=2&zoom=1&tbnid=Mq3ztPcIMbUGpM:&tbnh=81&tbnw=108&ei=mqFQUIn9DITP4QTsu4GwAQ&prev=/search%3Fq%3Daldi%2Btalk%26hl%3Dde%26sa%3DX%26gbv%3D2%26rlz%3D1R2ADBR_de%26tbm%3Disch%26prmd%3Divns&itbs=1

http://www.google.de/imgres?imgurl=http://www.future-tel.de/wp-content/uploads/2012/07/simyo_logo.png&imgrefurl=http://www.future-tel.de/prepaid-anbieter-simyo/165&usg=__GfOAeNI1yH64ckE0UdY1CuaJAXs=&h=299&w=400&sz=9&hl=de&start=2&zoom=1&tbnid=k7c-XW_EeBK7PM:&tbnh=93&tbnw=124&ei=E6JQUOvsJ4mI4gST44HwDQ&prev=/search%3Fq%3Dsimyo%26hl%3Dde%26gbv%3D2%26rlz%3D1R2ADBR_de%26tbm%3Disch&itbs=1

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3.3 Market Targeting Decision, how many and which market segments shall be targeted 1) To what extent does the firm distinguish the market that it wants to operate in?

Mass market strategy: Offering standardised products which satisfy average needs of average customers.

Market segmentation strategy:

Identifying special groups of customers who get a special product and marketing mix.

2) Should the company work on the total market or just on some parts of the total market?

Total market covering: The firm covers the whole market

Partial market covering:

The firm targets selected market segments

⇒ see Figure 3-25

3 Marketing strategies 3.3 Market Targeting


105

Figure 3-25: The four general strategic options for targeting a market

Mass market strategy:

Market segmentation strategy:

• with complete market coverage

• with partial market coverage

• with complete market coverage

• with partial market coverage

e.g. Nivea universal cream

e.g. Atrix hand cream

e.g. several Lauder-care products: Estée Lauder, Clinique, Aramis, Prescriptives, Origins

e.g. Vichy-care system

Source: based on Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, S. 240



106

Mass Market Strategy a) Mass market strategy with a complete coverage of the market Principle: The seller engages in the mass production, mass distribution and mass promotion of one product for all buyers (no distinction between different customer segments with different needs)

Strategy aims at creating the largest potential market Positive impact on production costs (lowest costs) and possibly lower prices or

higher margins Examples:

Henry Ford offered the Model-T-Ford “in any color, as long as it is black”. Coca Cola sold only one kind of Coke in a 6.5-ounce bottle.

Market: Basic market only minus these buyers, who can not be taken into consideration for this product



107

b) Mass market strategy with a partial coverage of the market Principle: Mass markets which are defined more narrowly compared to the mass market with total coverage of the market ⇒ Including characteristics that consider general differences in the customers’ needs.



108

Market segmentation strategy Means to identify and distinguish these market segments are the segmentation criteria see Figure 3-26 a) Market segmentation strategy with a complete coverage of the market → Every segment is covered by the company, but with different brands b) Market segmentation strategy with a partial coverage of the market → The firm only targets a single or few market segments



109

Figure 3-26: Segmentation Criteria for Consumer Goods Markets

Demographic criteria

Social-economic criteria

Psychographic criteria

Behaviourial criteria

• Age • Gender • Life stage • Residence • ...

• Size of the household • Income / purchasing power • Social classes (school education, job) • Possessory aspects • ...

• Personality (sincere, rebellious …) • Knowledge • Motives / sought-after benefits • Attitudes • Buyer-readiness-stage • ...

• Quantity and frequency of purchasing • Usage rate • Selection of the stores • Communication behavior • ...

Source: based on Steffenhagen, H. Marketing - Eine Einführung, 6. Aufl., Stuttgart 2008, S. 42

„Lifestyle“ Segmentation



110

Conclusion Market segmentation has gained more and more importance within the last decades. Nonetheless: There are both arguments for mass marketing and for market segmentation. see Figure 3-27 Advantages and disadvantages of both strategic options: see Figure 3-28



111

Figure 3-27: Factors favouring a Process of Standardisation or Differentiation

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, S.289

• Standard products

• Mass distribution channels

• Urbanisation

• Modern communication techniques

• Increasing mobility

Factors favoring standardisation (strategic tendency: mass marketing)

Factors favoring differentiation (strategic tendency: market segmentation)

• Satisfaction of basic needs

• Increasing individuality of the people

• Increasing knowledge and education

• Creativity in production and consumption

• Increasing purchasing power



112

Disadvantages

Figure 3-28: Advantages and Disadvantages of Mass Market and Segmentation Strategy

Source: Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, S. 290

Segmentation strategy (“sniper concept”)

• Necessity of demand analysis (to be able to fulfill the specific needs of the target groups)

• Gaining above-average scope for raising prices

• Good possibilities for steering the submarkets

• Opportunity to replace the price competition largely by a quality competition

Overall assessment

General assessment

Advantages

Mass market strategy (“shotgun concept”)

• Higher marketing expenditures • Possibly giving up mass production

(and by that the cost advantages) • Partly limited stability of market segments • Large demand for marketing know-how

(resp. appropriate marketing organisation)

• Cost advantages due to mass production

• Covering the whole basic market (taking advantage of the whole potential)

• Marketing mix which is simplified, standardised and less expensive

• Simplified marketing organisation

• Depending on the market characteristics it is not possible to fulfil all customer needs

• Limited scope for changing prices (“monopolistic” range is fairly small)

• Limited opportunities to steer the market systematically

• Danger of price competition in mass markets

Profitability due to the price competition depends mainly on a low cost position Profitability due to above average prices



113

What does the suitability of a segmentation strategy depend on? 1. Existence of segment-specific product expectation / a preference structure

see Figure 3-29

2. Cost-benefit analysis

Are the buyers willing to bear the additional costs caused by the segmentation, e.g. special product, distribution and communication measures?

Do we lose our „economy of scales“ effect in the back office due to the segmentation (necessity of separate product management and market information systems)?



114

Figure 3-29: Basic Market-Preference Patterns in the Ice-Cream Market C

ream

ines

s

Cre

amin

ess

Cre

amin

ess

Sweetness Sweetness Sweetness

(a) Homogeneous preferences

(b) Diffused preferences

(c) Clustered preferences

Source: based on Kotler, P., Keller, K.L., Bliemel, F., Marketing-Management, 12. Aufl., München 2007, S. 364



115

Outlook Caused by the change in the field of communication technology, a third strategic alternative has emerged in today’s market: The One-to-One Marketing Past:

Almost complete orientation towards the mass market

Focus on a product in an anonymous market

Task of the mass marketing: Reaching the planned sales volume to achieve the calculated decline of costs.

Besides: Dividing the market according to target groups Problem: The proliferation of advertising media and distribution channels (“information overload”) is making it difficult and increasingly expensive to reach a mass audience.



116

Way out: Developing a Customer Relationship Management

see Figure 3-30

Further development: One-to-one concept of an individual customer marketing (articulated by Peppers/Rogers 1993 for the first time)

idea of a „mom-and-pop store“, where the owner personally knows the customers and their needs and is able to put cross-selling into action with success see Figure 3-31; 3-32



117

Value management for the customer

Value management from the customer (customer evaluation)

Integration of all communication and sales channels

Bringing together Marketing, Sales, Service and Administration

Customer oriented behaviour of all employees

Increase of customer value

Existing customers preferred to new customers

Permanent analysis, evaluation and optimisation of processes

CRM

Figure 3-30: Elements of CRM



118

Figure 3-31: Development of Strategic Patterns

Source: Weinberg, J., One-to-One-Marketing, in: Manschwetus, U., Rumler, A. (Hrsg.), Strategisches Internetmarketing,Wiesbaden 2002, S. 247

Individualisation 100 %

Gen

eral

isat

ion

100 % Undifferentiated mass marketing

Differentiated mass marketing

Segment-oriented marketing

Niche-oriented marketing

One-to-one marketing

The strategic marketing trend



119

Figure 3-32: From Mass Marketing to One-to-One-Marketing

Source: Kauffels, F.-J., E-Business, 2. Aufl., Bonn 2001, S. 76

Mass marketing One-to-one marketing

• Product-manager, who sells a product to as many customers as possible (share of market) in a certain period of time

• Attempt to generate a constant stream of new customers

• Cost-saving one-way communication: Reaching the largest possible group of addressees with the help of non-selective advertising via radio or TV

• Customer manager who sells as many products as possible to one customer (share of customer) in a certain period of time)

• Attempt to generate a constant stream of new businesses with current customers

• Two-way communication by interacting with customers and individual customer-care

Objective: Winning and keeping loyal customers with the help of individual contacts and treatment ⇒ Paradigm change from “more customers for my products” to “more products for my customers”

(“share of customer” instead of “market share”)



120

Problem: Enormous costs to implement this one-to-one approach using classic marketing ⇒ Only the progress in the information and communication technology enabled the practical

implementation of the one-to-one-marketing concept

⇒ The cost structure for the new media is determined by fixed costs, which leads to a reduction of the marginal unit costs with an increasing quantity of customers!

Background information on mass customisation: http://store.nike.com/index.jsp?cp=EUNS_KW_NS09_DE_Google_B&country=DE⟨_locale=de_DE&l=shop,nikeid http://www.spreadshirt.net/de/DE/T-Shirt-gestalten/Selbst-gestalten-59



121

3.4 Spatial strategies Decision about the firm’s market and sales areas Strategic question about the territory, geo-political decision (1) Domestic Marketing by covering … local markets … regional markets … multi-regional markets … national markets (2) Supranational Marketing by covering … multi-national markets … international markets … global markets

3.4 Spatial strategies 3 Marketing strategies


122

(1) Domestic Marketing Starting point for the geographic growth for most of the companies is a local market within its confines (small and medium-sized enterprises) Further development snowball-effect type growth, i.e. passive (automatic) and not in a really strategic manner The basic strategic options of the domestic marketing a) Concentric /circular widening of the territory • Existing territory is strengthened, systematically added by building rings • concentric area extension is often combined with a regionally different product- and

program-mix



123

b) Selective area extension Objective: Creating a sales area which is as closed as possible concerning the marketing policy with the help of a multi-stage procedure Implementation: Own concepts to open up the markets, co-operations / cooperative solutions, licensing, franchising c) Area extension step-by-step like independent islands

• Special case of the selective area extension • Selection of only a few areas • These islands constitute the starting point for a potential further development in a

concentric way of area extension Conclusion: today there is a trend towards a national coverage of the market



124

(2) Supranational Marketing

Reaches far beyond a simple sales-area-aspect More structuring, long-term binding effect for the whole business General stages of supranational marketing see Figure 3-34 Implementation of the internationalisation Entry strategies into foreign markets, also called “implantation strategies” see Figure 3-33



125

Figure 3-33: General stages of supranational marketing

Global strategy

International strategy

Multi-national strategy

→ The companies include several neighbouring foreign markets into their marketing and sales concepts (e.g. Germany neighbouring European countries)

→ Often: experimental strategy to select experiences in foreign countries, avoiding high investments in foreign countries

→ Export with a minimum of risks

Two options: • Indirect export: The company

operates via independent intermediates (e.g. domestic-based export merchants)

• Direct export: The company handles their own exports (e.g. by foreign-based distributors or agents)

→ Ethnocentric approach

→ Mainly connected with the foundation of independent sales subsidiaries or production facilities abroad

→ Branch is usually run by managers from the foreign country

→ Marketing plan is done on the spot, adaptation strategy for the marketing mix

→ Subsidiaries get a certain scope

of decision-making so that they can orientate their strategy towards the specific characteristics of the market and by that appear as quasi-national companies

→ Polycentric approach → Smooth transition to next stage

→ Operating on a worldwide level → Large quantity of branches and

subsidiaries abroad → Large share of foreign production → International procurement of capital → Worldwide recruiting of the top

management → Headquarters as holding with

guideline competence → Marketing is as standardised as

possible and orientates towards country- respectively multi-cross-regional target groups

⇒ Geocentric approach Typical:

Multi-national standardisation of marketing mix

Requirement: Homogeneous structure of needs,

e.g. computers, cars, planes



126

Figure 3-34: Implementation stages of supranational marketing


100%

100%

Capital and management

from the headquarters

Capital and management from the foreign country

Export

Franchising

Licensing

Joint Venture

Foreign-based assembly

Manufacturing facilities

Subsidiary

Direct investments



Export via japanese importer

Sales and Service

company

Manufacturing facility

60s

Manufacturer of innovative products such as industrial laser-systems

stepwise Internationalisation since the early 60s

Direct and indirect sales

Investment in 2009: more than € 14 m US$

from 2009 from 1977

Figure 3-35: Example of internationalisation: Trumpf in Japan


127 WS 2012/13 Strategic Sales and Marketing

128

Evaluation of foreign markets Evaluation according to various criteria: see Figure 3-36 Conclusion with respect to spatial strategies

Home-country-focused firms are usually not able to cover just a local or regional market but are forced to cover the whole national market

International companies are usually not able to remain on the level of export-orientation

The level and the speed of expansion are dependent on the venturesomeness of the company and of the management board



129

Figure 3-36: Sequential Evaluation of Foreign Markets


29

72

22

attractive countries

11

150 countries

121 countries

49 countries

27 countries

16

Pre-selection - political situation - legal restrictions

Pre-selection - Population - Gross national product

22 countries with a low potential - demand for living space - economic basis

Evaluation of the… - market potential - market size - technical level - number of regulations - availability of resources



130

3.5 Strategic Combinations and Competitive Strategies So far: Isolated view of different types of strategies on four diverse strategic levels But: Successful strategic concepts are rarely the result of a strategic decision on just one level but commonly the result of a strategy-bundling on various levels (1) Vertical strategic combinations see Figure 3-37 For your strategic decisions it is useful to include the profiles of the most important competitors into the process of decision making. Objective: Deduction of strategic options for the own company But: Freedom for the combination of strategies is only given in parts. Some strategy-types have to be combined with certain other ones to achieve the best possible effect

3.5 Strategic Combinations and Competitive Strategies 3 Marketing strategies


131

Figure 3-37: Strategy Profiles of your own Business Compared with an Important Competitor


Strategic levels

1. Growth

Strategies

2. Positioning Strategies

3. Market Targeting

4. Spatial Strategies

Strategic options

Own business Main competitor

Market penetration strategy

Market development strategy

Product development strategy

Diversification strategy

Preference strategy

Overall cost leadership

Segmentation strategy (complete) (partial)

Local strategy

Regional strategy

National strategy

Multina- tional strategy

Interna- tional strategy

Global strategy

Multi- regional strategy

Mass market strategy (complete) (partial)



132

(2) Horizontal strategic combinations Bundling of strategies on a horizontal level were already illustrated above, e.g.:

Alphabetical strategy paths (growth strategies)

Combination of preference strategy and overall-cost leadership with the help of a multi-brand concept (positioning strategies)

Combination of mass-market- and segmentation strategy by a multi-brand-concept as well (market targeting)

Reasons:

very often caused by stagnating or slowly growing markets Market polarisation

see Figure 3-38



133

Figure 3-38: Classical Multi-Zone Marketing and Limits of the Multi-Level Marketing


brand B (new)*

brand A

Trading up

lower market

upper market

medium market brand A

possible market coverage

Classical market structure (“onion”)

Newer market structure (“bell”)

As long as the medium market is the biggest one the pointed out market coverage may be enough! (multi-zone marketing)

As soon as the lower market becomes the biggest one there is a need to participate in the lower market. (multi-level marketing)

* Implementation if necessary also by production of trade- or generic goods



134

Competitive Strategies Competitive strategies can’t be seen as independent strategic concepts; they make use of general strategic action patterns; it’s about the way of dealing with competitors, i.e. about the strategic style Basic patterns of competitive strategies Two dimensions to differentiate the basic patterns: (1) Level of „standing out“ of the competition regarding marketing and technology

→ Innovative versus imitative (2) Time of taking marketing measures

→ Avoiding competition (reactive) versus facing the competition (active)



135

Figure 3-39: Types of Competitive Behaviour

Source: Meffert, H.: Marketing-Management, 1. Auflage, Wiesbaden, 1994, S. 157

Facing competition

Imitative

Conflict

Dimensions of behaviour Innovative

Avoiding competition Evasion Adaptation

Cooperation



136

Evasion strategies → Attempt to avoid the higher competitive pressure by partially differing from the

competitor’s measures

Adaptation strategies → Aligning the own behaviour with the competitor’s one

Cooperation strategies

→ Explicit or implicit agreement concerning certain business practices

Conflict strategies

→ The company’s target is to gain market shares by an innovative behaviour. In the most

aggressive way it is the objective to weaken the competitor as much as possible or even to put him out of business



137

Figure 3-40: Combination of Strategic Key Factors to Gain a Competitive Advantage

Approach compared with industry standard1

worse

higher

smaller

later

Key factors

Competitor profiles: company A company B 1 Standard might be the market leader or the top five companies – depending on the numbers of competitors 2 aspired product-/ service quality and ability to solve problems 3 planned pricing 4 planned market area 5 planned strategic timing

1.Performance2

2.Price3

3.Area4

4.Time5

better

lower

larger

earlier

same

same

same

same



138

Figure 3-41: Influencing Factors Concerning the Market-Entry Timing

Timing of the market-entry:

• Pioneer • Early adopter • Late adopter

Corporate factors Fa

ctor

s of

the

sale

s m

arke

t Product factors

Technological factors

• basic strategic behaviour

• venturesomeness • company size • market

attractiveness • market resistance due to consumers’ needs • competitive market pressure

• innovation level • complexity

• dynamics of the technological progress • complexity of the technology



139

Three fundamental strategies for the market-entry strategy: (1) Pioneer-strategy / First Entry

→ The pioneer is always and definitely the first one in the market, i.e. he initiates the introduction stage of a product

(2) Strategy of the early-adopters

→ Market-entry shortly after the pioneer → Early adopter developed the product and the marketing-concept almost parallel to the

pioneer (possibly on purpose to learn from the pioneer’s experience) (3) Strategy of the late adopters

→ Enters the market relatively late (after the end of the introduction in the product life cycle)

→ Need to imitate regarding technology or marketing (often necessary to enter the market with a low-price-strategy)

→ Possible reasons • avoiding high risk of market entry • lagging behind the technological product development



140

Selection of sales channels

Decision for type of sales

partner

Decision regarding number of

sales partners

Decisions in the context of multichannel-

sales

4.1 Sales Channel Strategy 4 Sales Partner Strategies

Figure 4-1: Relevant decisions to set up the sales channel strategy


141

Sales Channel

Direct

Personal sales

POS at customer

POS at supplier

Changing POS, e.g. fair

Impersonal sales

Telefone sales

E-Commerce

Mail order business

…

Indirect

Sales agents, e.g. sales

repre-sentatives

Authorised dealers,

e.g. franchise partners

Free dealers

retailers

wholesalers


Figure 4-2: Direct and indirect sales channels


142

Type of sales partner

Domestic commerce

One-level

Retail

Wholesale

Multi-level

Cooperation

Concentration

Foreign commerce

Import business

Export business

Source: based on Meffert 2012, p. 552


Figure 4-3: Type of sales partners


143

Manufacturer

Customers

Drug-stores

doctors

Delivery / Invoice

Example Pharmaceutical Industry

Manufacturer

Customers

Sanitary and building retailer

Building comp./ plumber

Delivery / Invoice

Need development

Need development

Example Sanitary products

architects

Figure 4-4: Examples for market structures and involved parties

Need development

Need development



144

Cement industry Pharmaceutical industry

Front Market (customers / sales) Building material retailer pharmacies

Back Market (Processing / Usage) Construction companies Doctors, hospitals

Consulting Market (intermediariess) Architects, planning offices Health insurances, legislation

User Market (End-user)

Private households, industry … patients

Source: based on Ackerschott, 2001, p. 194


Figure 4-5: Examples for market structures and involved parties


145

Universal Sales Selective Sales Concentrated Sales

Concept

Sales via all possible kinds of sales partners

Limitation of kind and number of sales partners to one or only a few categories Consideration of those partners which fulfill defined criteria (e.g. certain consulting and service levels

Conscious selection of individual partners within a category fulfilling high demands (among other with respect to location, product range etc.) Extreme case: exclusive sales

Goal

Strong presence Increase of brand awareness

Trying to achieve brand being more sought after

High motivation and qualification of sales partners Implementation of a demanding marketing concept

MarketingStrategy

Mass market strategy

Market segmentation strategy (partial coverage aimed at)

Market segmentation strategy (partial coverage aimed at)


Figure 4-6: Number of sales partners


146

A company uses a Multichannel Sales System, if the products are sold at least via two, usually more, sales channels Examples for multichannel sales systems

− Insurance companies with own sales force, E-commerce offer, independent broker and telefone sales

− Mobile operators such as T-Mobile und E-Plus − Companies such as Nike and Adidas selling through own shops, retail chains,

Factory Outlet Centers, E-Commerce, … − …

Important decisions in the context of multichannel systems Shall the products be sold via several sales channels? Under which circumstances does it make sense to open new channels such as

discounters or E-Commerce? How shall the coordination of the sales channels be done?



147

Source: Becker 2000, p. 93

E-Commerce in existing value chains

Support for existing sales system

Innovative services for endcustomers / sales parter, extension of

delivery service

Building up new value chains

New business field

New and innovative offers in E-Commerce

Additional sales channel

Setting up a new sales channel for the existing

company products


Figure 4-7: Options for implementing E-Commerce in the sales system


148

Source: based on Ehrlich/Erbenich/Kirchgeorg 2010, p. 68

MP 3 Player TV Sets

Laptops / Notebooks

Which information channels have you used to inform yourself about consumer electronic products on offer (in % of asked participants)

before purchase at purchase

Figure 4-8: Use of channels in a multichannel sales system, example consumer electronics



149

Source: based on Kotler, Bliemel, Keller, Marketing Management 2007, p. 887

Functions of sales management

customers

Opening sales

opportu-nities

Evaluation of sales opportu-

nities

Sales Preparation

Sale Services Account management

after sales

Key Account Management Classical Direct Sales

Large accounts

Telemarketing Medium sized accounts

Retail

Sales Representatives

Small and potential customers

Value adding reseller

Figure 4-9: Clear allocation of functions to sales channels in a multichannel sales system



150

Factors influencing

sales channel structure

Product characteristics

Competitive situation

Customer preferences

ressources

Strenth of sales partners

and conflict situations

Possibilities for customer retention

Strategy

Figure 4-10: Factors influencing sales channel structure



151

Causes of conflict in a sales channel system are to lead back to differences in the relation between manufacturer and retailer regarding …

Objectives Roles Power Communication


Figure 4-11: Strength of sales partners and conflict situation


152

Active in the response to marketing activities of the retailers

Active in the design of the sales channels

Cooperation (acquisition of power)

Behavior of manufacturer

Passive in the design of the sales channels

Passive in the response to marketing activities of the retailers

Alignment (acceptance of power)

Conflict (power struggle)

Avoidance (avoid power struggle)


Figure 4-12: Basic Strategies in the cooperation of manufacturers to retailers


153

Own retail chain

Concession

Factory Outlets

Shop in Shop

Franchise

Vertical integration of the sales channel

Manufacturer Retailer

Own product ideas

Long term contractual bonding of supplier

Acquisition of a supplier

Source: based on Boston Consulting Group / Markenverband (2005)


Figure 4-13: Vertical integration


154

Key Account Management

Who are the Key Accounts?

Large customers by revenue / sales volume Customers of high strategic relevance, e.g. reference customers Selected sales partners

Tasks

Systematic acquisition of key accounts Development of customer specific marketing-concepts and actions Cross section function: Steering all activities of a company towards the key accounts …

Objectives

Long term customer retention through exploring common success potentials and from this ensuring cost reductions Short term securing sales targets such as sales / revenue …

4.2 Cooperation models with sales partners 4 Sales Partner Strategies

Figure 4-14: Key Account Management as organisational basis for cooperation


155

II. Cross

Selling

Source: Belz / Senn 1995, p. 48

Inte

grat

ion

and

syne

rgy

pote

ntia

l of

man

ufac

ture

rs

Integration and synergy potential of Key account

high low

low

hi

gh

IV. Strategic

Alliance

I. Early

warning

III.

Partnership


Figure 4-15: Strategic options for Key Accounts


156

Multfifunctional teams substitute „KAM as lone warrior“

Setting up strategic account relationships

Building value-enhancing partnerships

Outsourcing of KAM

Europe-wide and globally active Key Account Manager

Environmental changes such as Internationalisation of customers, increasing product complexity etc.


Figure 4-16: Trends in Key Account Management


157

Success factors in sales partner management

1. Attractive business model

a. Contractual sales system as framework b. Rights and duties of the manufacturer c. Rights and duties of the sales partner d. Pricing and terms of sale

2. Support in the operative business

Decision for push- or pull approach Support for marketing Motivation of sales agents Information systems

3. Cooperation management

Efficient Consumer Response (ECR) Supply Chain Management (SCM) Category Management (CM)


Figure 4-17: Success factors in sales partner management


158

Efficient Consumer Response (ECR) involves cooperative partnerships between teh manufacturer and retailer in logistics and marketing with the objective to serve customer needs better than in isolation Through this short term optimisations can be done as well as build up long term competitive advantages For this a very intense cooperation and communication between the parties is necessary to steer and optimise product- and information flows. Example: http://www.markenartikel-magazin.de/no_cache/events/artikel/details/1003291-ecr-award-an-unternehmen-und-persoenlichkeiten-verliehen/

See figure 4-18



159

Cooperation in Logistics (Supply Chain Management)

Cooperation in Marketing (Category Management)

Efficient Administration Efficient composition of assortment

Reduction of paper exchange

Avoiding multiple gatherings Using EDI

Assortment composition per

shop

Assortment composition

considering all manufacturers

Optimisation of price and sales

space

Efficient operative logistics Efficient Promotion

Standardised packaging

Efficient consignment Cross Docking Sales promotions

per shop

Joint evaluation of sales

promotion

Reduction of price promotions

Efficient stock replenishment Efficient Product Introduction

Vendor managed inventory / Co-

managed inventory

Automation of order transactions

Vendor Managed Inventory

Joint product development

Cooperative product and market tests

Cooperative product

introduction

Source: Homburg / Schäfer / Schneider 2012, p. 340


Figure 4-18: Cooperation areas of ECR (Efficient Consumer Response)

Efficient Consumer Response


160

Efficient administration

Efficient operative logistics

Efficient stock replenishment

Efficient promotion

Efficient composition of assortment

Efficient product introduction

high

stra

tegi

c

Source ECR Study by Coca-Cola, quoted by Frey 1997, p. 172

oper

ativ

e C

oope

ratio

n

Complexity little

Category Mgt.

Supply Chain Mgt.

Increase revenue and profit, realisation of new growth potentials through more efficient marketing Improvement of the cost structure of the product- and information flows along the value chaing through eliminating non value adding processes


Figure 4-19: Main targets of ECR (Efficient Consumer Response)


161

Supply Chain Management (SCM) is a computer-based steering of material, information and capital flows along the entire value chain from gaining raw material to the end customer with the objective to integrate processes The task of SCM is the optimisation of the delivery chain beyond the own company SCM is characterised through different principles New technologies such as Radio Frequency Identification (RFID) lead to a continuous increase ot the relevance of SCM

See figure 4-20

See figure 4-21



Supply Chain Management

Purchasing and supplier-management Sales and Order Processing

Manufacturer of end-customer

products Sales

intermed. Sales agent

End-customer

Supplier

Supplier

Supplier

Supplier of supplier

Supplier of supplier

Flow of information

Flow of materials

Flow of financials

Source: Meffert et al., 2012, p. 580


Figure 4-20: Structure and task of SCM


163

Source: Corsten/Gabriel 2002, p.10


Figure 4-21: Principles of SCM

• What are customer needs? • Visualise value chain • Determination of critical activities • Adjustment of strategy

Positioning

• Adjustment of product and process acchitecture • Buildung product modules • Late set up of variants • Standardisation of interfaces

Postponement

• Exchange of information and data • Integration of IT-Systems • Convergence of logistics, IT and Operations Research • Use of Internet technology

Planning

• Synchronisation of value chain steps • Integration of suppliers • Optimising replenishment • Just in time principles

Pull Principle

• Intensive communication • Cooperation with suppliers of systems • Building confidence • Search for „global optimum“

Partnering


EAN-based processes, hence personal inventory taking

Many mistakes in inventory maintenance, due to theft etc.

Complex securing of products through hard-tags

Customer satisfaction through better product presence, revenue increase by 7,5% through reduction of out of stock situations

Reduction of wrong deliveries by 80%

Increase of share of secured products to 100%

Reduction of effort in logistics / goods received by 75%

Equipment of 25 mio. clothes with sewed RFID chips

164

Example: Efficient Replenishment through using RFID technology at Gerry Weber

Inefficiencies Results Use of SCM



165

Category Management (CM) is a joint process of retailer and manufacturer, where product groups are managed as strategic business units to increase customer benefit and through this business results Analogue to a product manager a Category Manager plans and coordinates the product group / category Targets and tasks of Category Management

See figure 4-22

See figure 4-23



166

Qualitative targets Quantitative targets

• Composition of assortment for different target groups and different types of sales partners

• Image improvement with respect to customer orientation, performance competence, pricing credibility etc.

• Exploring new customer segments • Using potentials resulting from

combination effects • Increase of customer loyalty • Developing profiles in retail competition • Pricing with high value added • Early discovery of trends

• Increase of profitability (contribution margin, revenue, revenue rate)

• Reduction of capital lockup, profit maximisation through revenue and profit increase

• Revenue increase through avoidance of out-of-stock situations

• Increase of expenditure intensity of customers

• Reduction of cost-intensive promotions • Cost optimisation of product launches

Source: based on Seifert, 2004, p. 152: Lingenfelder / Kahler 2004, p. 124


Figure 4-22: Targets of Category Management


Source: Henric Hahne: Category Management. Interface zum Handel, in: Absatzwirtschaft, Nr. 3, 1997, p. 74.


Figure 4-23: Functions of Category Management


Products which

are important for the target group are not available

Optimisation of assortment

through composition of product groups acc. To customer buying behaviour

Analysis of consumer panel data etc.

Reduction of brands

within a category Customer satisfaction

through good product presentation and product availability

Stock turnover increases POS space

designed according to targets of retailer or manufacturer, not on the basis of customer requirements

Optimisation of shelf-ideal

position of products on the basis of customer behaviour (e.g. video observation)

Internal criteria such as contribution margin are considered with second priority

168

Example: efficient composition of assortment


Inefficiencies Results Use of CM


Strong organisations, which aim at

expanding the ECR concept (ECR USA and ECR Europe)

Strong expansion in some industries such as food and consumer goods with traceable success

Focus of the implementation lies on shelf-optimisation and Supply Chain Management

Only few applications in certain industries such as consumer goods and specialised dealer

Less focus on marketing aspects of ECR

Main challenges − Building internal preconditions such as the

involvement of further departments, but also soft factors such as motivation, attitude

− Cultural fit with partner − Critical mass required due to high

investments in IT systems − Disclosure of dat with the risk of data

misuse − Inbuilt conflict potential between industry

and retailers

169

Achievements but



170

5 Analysis Tools for Market-Oriented Strategic Planning Various methods for evaluating strategies, tools for analysing and selecting actual strategies 5.1 Key Performance Indicators Starting point for each kind of strategic decision: see Chapter 1.4 Breakdown of the strategic situation regarding two aspects of analysis:

(1) Analysing the company

(2) Analysing the external environment

5 Tools for Strategic Planning 5.1 Key Performance indicators


171

(1) Analysing the company Key issues to be analysed in the context of the sales strategy

Do the sales channels behave according to

strategy?

Do they fulfill their sales expectations?

Do they fulfil quality expectations?

Do incentive- and coordination-mechanisms work?

Which costs and earnings contributions are there from the different sales channels?

see figure 5-1

Implications for the sales strategy and -management

Can management of the individual sales channels be improved?

Is a strategy change required to change the sales channel strategy?



Sales channel 1

Sales channel 2

Sales channel 3

Sales Channel 4

Contribution Margin I m € 338 788 421 207

per Ø customer and month € 13 18 21 30

Customer acquisition costs m € 73 174 88 59

per new customer € 156 236 234 207

customer retention costs m € 41 81 27 10

per Ø customer monthly € 2 2 1 1

Contribution Margin II m € 224 534 307 138

cots of marketing etc. m € 3 64 62 12

per Ø customer monthly € 0,1 1 3 2

Contribution Margin III M € 221 469 244 126

per Ø customer monthly € 8 11 12 19

Payback months 14 16 14 8

172


Figure 5-1: Stepwise contribution margin calculation of sales channels of a mobile operator


173

(2) Analysing the external environment Additional key figures to be analysed for the SWOT-analysis according to chapter 1-4:

• Market potential • Market volume • Sales volume • Market shares

see Figure 5-2 see Figure 5-3 For strategic planning not only the current situation is essential, but the key performance indicators have to be projected into the future ⇒ Forecasting methods



174

Figure 5-2: Relation Between Market Potential, Market Volume and Sales Volume

Market potential

Market Volume

Sales volume of company A to F

A

B C

D

E

F




175

Figure 5-3: Different Growth Potentials in Sub Segments of the Cosmetics Market


growth potential

growth potential

Not completely exploited market – Large potential e.g. cosmetics for men

The market is largely exhausted, the growth potential is small, e.g. cosmetics for women



176

There is a large variety of methods which can be differentiated along two dimensions… 1. ... according to the type of variable Development forecasts Variables that are to be forecasted are regarded as independent or exogenous, i.e. they cannot be influenced by the company Impact forecasts Variables that are to be forecasted depend on variables that can be influenced by the company (generally marketing instruments are regarded as independent variables) 2. ... according to the use of statistical methods quantitative methods: Data is predicted based on data from the past and using statistical methods qualitative methods (heuristic methods): Use of expert knowledge for prediction, trust in intuitive-subjective elements



177

Figure 5-4: Use of forecasting methods in marketing (survey results)


(3) Frequency of use

(if used at all) (A) Statistical-mathematical methods: 1. Extrapolation of trends 2. Moving average 3. Regression analysis 4. Exponential smoothing 5. Simulation approaches 6. Input-output forecasting

(B) More subjective methods: 1. Estimate by sales force 2. Estimate by management (technical and

business) 3. Forecasts based on customer surveys

4. Forecasts based on product tests

5. Analogy method (e.g. historical

or geographical analogy) 6. Extrapolation of test market results 7. Group estimates (Delphi method)

(1) Use in % of

334 companies

(2) Assessment of

reliability

Characteristics Forecasting methods

73.7 67.7 35.9 32.9 15.9 14.4

h h m m s s

d d b d g d

87.7 85.9

81.7

50.0

46.7

37.7 15.9

d b d d b d d

h h h

m h

m s

Assessment of reliability: b = particularly good, d = average, g = poor (determined by a combination of ratings and percentages of average forecast-actual deviations) Frequency of use: h = frequently, m = sometimes, s = rarely (clustering on the basis of averages)



178

5.2 Gap analysis Principle: the planned development of a key figure (e.g. profit or turnover) is confronted with the expected results at the time of the planning date Gap analysis can be differentiated according to... ... old and new products to take the product life cycle into consideration ... strategic and operative gap see Figure 5-5

Ansoff´s Product-Market Expansion Grid might be an obvious solution to close the gap see Figure 5-6

5 Tools for Strategic Planning 5.2 Gap analysis


179

Figure 5-5: Gap analysis (strategic and operative gap)


Turnover / Profit

Time

Strategic planning gap

Operative gap

Target line

new business

Adjusted current business

current business

Planning date



180

Figure 5-6: Using Ansoff’s Product-Market expansion grid to close the gap


Turnover / Profit

Time

Expected development (development line)

diversification strategy

product-development strategy

market-development strategy

market-penetration strategy

without implementing any further actions

Planning date

Originally planned figures (target line)

5 Tools for Strategic Planning 5.3 Portfolio analysis


181

5.3 Portfolio analysis Basis: Financial considerations about the composition of a securities portfolio in order to reach the best mixture of investments regarding risk and return Goal Choosing the best product program regarding the future development of return ⇒ Mixture of strategic business units that yield and consume financial resources ⇒ Consideration of interdependencies between business units Principle: Integrating in a two-dimensional matrix a ...

• business component (strengths / weaknesses of the relevant business units) and an

• environmental component (opportunities / threats within the relevant environmental structure)

⇒ The strategic business units of a company are shown to derive norm strategies on this basis



182

Steps: (1) Dividing company into strategic business units (SBU) The SBU is a single business or bundle of related businesses that can be planned separately from the rest of the company It clearly differs from other product-market combinations (internal homogeneity, external heterogeneity) regarding… ... customer needs (need of quality, price and service) ... its own set of competitors (structure of competition) ... structure of costs It has it’s own management that is responsible for strategic planning and profit performance. Furthermore, the management is able to reinvest a certain share of the profit on its own.

It is possible to establish and take advantage of a competitive advantage for each product-market combination.



183

(2) Definition of the key success factors Which key figures are originally responsible for the success of a company?

⇒ PIMS project (Profit Impact of Marketing Strategies) of the Strategic Planning Institute, Cambridge / Mass. Up to now it is the most comprehensive examination of the correlation between the company’s strategic variables and the achievement of corporate goals Subject: Examination of correlations between 37 strategic key factors (e.g. marketing budget etc.) as independent variables and especially profitability and cash flow as dependent variables Basis: about 450 companies with more than 3000 SBUs within each line of business



184

Result: market share is the central factor that strongly correlates with profitability and cash flow What is the reason for the high importance of market share for profitability?

• … • … • The learning curve

The average costs per unit related to the product’s value adding process (without material costs) fall about 20 to 30 % after its accumulated production volume doubles

see Figure 5-7



185

Figure 5-7: The learning curve


Costs in Euro per unit

Cumulative output (experience) 1 2 4 8 16 32

1

2

4

8

6

10

In case of a 20% drop in costs

In case of a 30% drop in costs



186

The concept of the experience curve is background for the particular importance of two key factors: Market share: The company, that achieves a higher market share, benefits from the experiences the company succeeds with higher volumes of production and sales, leading to falling costs ⇒ Highly compressed factor for the company / internal component Market growth: ... ⇒ Highly compressed factor for the environment / external component Two concepts of portfolio analysis: (1) Growth-Share-Matrix of the Boston Consulting Group (BCG matrix) (2) General-Electric-Model of McKinsey



187

(1) Growth-Share-Matrix of the Boston Consulting Group The two dimensions of this portfolio matrix are: • relative market share: • market growth: average annual growth rate in % Furthermore: • Turnover On this basis: Plotting the SBUs in this matrix, which is subdivided into four cells see Figure 5-8

SBU‘s market share market share of the largest competitor



188

Figure 5-8: Growth-Share-Matrix of the Boston Consulting Group

Source: based on Becker, J.: Marketing Konzeption, 9. Auflage, München 2009, S. 425

Mar

ket g

row

th ra

te (i

n %

)

Relative market share high low

low

hi

gh

Question Marks

Stars

Poor Dogs Cash Cows

0 1.0 ... ...

0%

?



189

The main results to derive from this kind of portfolio are: Understanding that different SBUs with different conditions according to competition and different growth rates have to be managed differently ⇒ Each SBU must, according to its strategic position, either yield or receive financial resources ⇒ Each SBU must be arranged in a balanced company portfolio The SBU’s position in the four cells indicates a different type of business and recommended strategy (norm-strategy): see Figure 5-9, 5-10



190

Figure 5-9: Characteristics of the BCG Matrix and its Norm Strategies (incl. Product-Life-Cycle)


I. Question Marks Characteristics: SBU has to spent a lot of money to keep up with the fast-growing market; Cash-Flow is clearly negative PLC: Introduction Norm strategy: Either raise the market share considerably if the prospect is good otherwise divest or just harvest

Characteristics: SBU that has a large relative market share in a market with a slowed growth rate; produces a lot of cash which enables the company to support other SBUs. PLC: Maturity Norm strategy: Hold the market share or harvest

Characteristics : SBU has a weak market share in a low-growth market. The cash flow might be negative or balanced on a low level. PLC: Decline Norm strategy: Cut the market share / divest

Characteristics: SBU as the leader in a fast growing market earns a lot of money; to keep up with the market and to fight off attacks it has to spend substantial funds; Cash-Flow might be balanced

PLC: Growth

Norm strategy: Hold or increase market share (expansion strategy)

II. Stars

III. Cash Cows IV. Poor Dogs



191

Figure 5-10: Product Life Cycle and the Course of Cash-Flow in the BCG matrix

Source: Hinterhuber, H. H.: Strategische Unternehmensführung, Bd. 1, 6. Auflage, Berlin-New-York, 1996 S. 163

Product Life Cycle Direction of cash flow (the cash flow caused by the withdrawal was not taken into consideration)

10

Mar

ket g

row

th ra

te i

n %

I

II

III IV

Inve

stm

ent

Con

tribu

tion

mar

gin

0 0.5 1.0 2.0 4.0

Relative market share = Market share of the company Market share of the strongest competitor



192

(2) General-Electric Model of McKinsey The portfolio is put up by two dimensions: • Market attractiveness • Relative competitive advantages / business strengths Main difference to BCG matrix: To measure the two dimensions strategic planners must identify the factors underlying each dimension and find a way to measure them and combine them in an index (multifactor matrix)



193

Market Attractiveness is determined by: • Overall market size and annual market growth rate • Market quality • Energy and raw material supply • Environmental requirements (determined by degree of governmental intervention,

environmental protection regulations, …) Relative competitive advantages are determined by: • Relative market position, determined by market share, company image, type of competitive

advantages etc. • Relative productive capacity, determined by production profitability, condition of production

facilities, number and location of production facilities etc. • Relative R&D potential, determined by product portfolio, product quality, rate of innovation

etc. • Relative qualification of management and employees



194

Determining the values for each business: Scoring model see Figure 5-11 Based on both indicators: Construct a matrix of nine cells Depending on the SBUs’ position von der Position in the matrix: norm strategies see Figure 5-12, 5-13



195

Figure 5-11: Scoring model (Hydraulic Pumps Market)

Market Attractiveness

Own competitive advantage

Overall market size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerability Energy requirements Environmental impact Social-political-legal

Market share Share growth Product quality Brand reputation Distribution network Promotional effectiveness Productive capacity Productive efficiency Unit costs Material supplies R&D performance Managerial personnel

Weight 0.20 0.20 0.15 0.15 0.15 0.05 0.05 0.05

Must be acceptable 1.00

Weight 0.10 0.15 0.10 0.10 0.05 0.05 0.05 0.05 0.15 0.05 0.10 0.05

1.00

Score (1-5) 4 5 4 2 4 3 2 3

Score (1-5) 4 2 4 5 4 3 3 2 3 5 3 4

Weighted score 0.80 1.00 0.60 0.30 0.60 0.15 0.10 0.15

3.70

Weighted score 0.40 0.30 0.40 0.50 0.20 0.15 0.15 0.10 0.45 0.25 0.30 0.20

3.40

Source: based on Kotler, P., Keller, K.L., Bliemel, F., Marketing-Management, 12. Aufl., München 2007, S. 101 f.



196

Figure 5-12: Market Attractiveness-Competitive-Position Portfolio Matrix (McKinsey)


Mar

ket A

ttrac

tiven

ess

Relative competitive advantage

high medium low

high

medium

low

Value added

Con

sum

ptio

n of

reso

urce

s

33 67 100

33

67

100

0

Investment and growth strategies

Selective strategies

Harvesting or disinvesting strategies



197

Figure 5-13: Norm strategies of McKinsey Matrix (1/2)

Source: Sander, M., Marketing-Management, Stuttgart 2004, S. 314

Investment and growth strategies

Objective


Actions

Cash-flow:

Holding or strengthening the competitive advantages

Technical and marketing-related efforts must aim at eliminating weaknesses, at consolidating or strengthening the market position and preventing competitors from entering the market segments

Negative in the short run, positive in the medium or long term

Meaning: SBU contribute to future profit and growth and require large investments

Objective: Growth or profit

Actions SBUs require large investments with uncertain economic outcome and might contribute to future growth of the company

A:Offensive strategies

Company must build on competitive advantages (e.g. increasing the relative market share, lowering unit costs, increasing differentiation)

Cash-flow: Negative in short and medium term, positive in the long run

Meaning: Company has to select the most promising of these SBU to ensure future profit potential



198

Figure 5-14: Norm strategies of McKinsey Matrix (2/2)

Source: Sander, M., Marketing-Management, Stuttgart 2004, S. 314


Harvesting or disinvesting strategies

Actions: Cost cutting efforts, product differentiation, improvement of customer services, pricing policy etc.

B: Transition strategies

Consolidating investment/growth strategy or a harvesting/disinvesting strategy to maximise the cashflow by economisation and without using up too many resources

Cash-flow: Positive in the short and medium term

Meaning: SBU contribute to company’s current profit and require little investment to sustain relative competitive advantages

C: Defensive strategies

Company must hold relative competitive advantage and prevent competitors from entering this market segment

Objective:

Actions:

Cash-flow:

Maximise cashflow, minimise loss

Use of complete cost cutting potential and synergies in production and sales

Positive in short run, negative in medium and long term

Meaning: SBU can contribute to current profit and do not require any substantial additional investments; instead these SBU are candidates for disinvestment



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