Corporate Marketing Planning

Chapter 2

Corporate Marketing planning• The process by which an organization sets its long term priorities

regarding products and markets in order to enhance the value of the overall company

• Two kinds of decisions are involved:1. Corporate strategy2. Product mix strategy1. In corporate strategy, management identifies the business in

which the company will be involved in future by specifyinga) The range of markets to be servedb) The kinds of products to be offered 2. Product mix strategy identify the role each product is expected to

play in building the value of the business. It should specify a) The relative share of the firm’s resources to be devoted to each

product or product lineb) The kind of contribution ( rapid sales growth or high profitability)

that each product or product line is expected to make toward building the company’s value

• The product mix strategy provide guidance to middle level managers about top management’s expectations

Comprehensive Strategic Management Model

Develop Vision and Mission Statement

Scan external Environment

Perform internal audit

Establish long term objectives

Implement strategies

Evaluate Strategy

Factors Influencing Corporate Strategy

Environmental problems and opportunities

Corporate mission and Objectives

Organizational resources and Competencies

Corporate Strategy

Identifying Environmental Opportunities and Threats

1. Scanning General Environment

2. Scanning Specific Environment

Developing Vision and Mission • “What is our business?” is synonymous with asking the question, “

what is our Mission”• Mission statement is declaration of an organization’s “ reason for

being” • A clear mission statement is essential for effectively establishing

objectives and formulating strategies• It is usually broad in scope for at-least two reasons1. A good mission statement allows for the generation and

consideration of range of feasible alternative objectives and strategies without stifling management creativity. Excess specificity would limit the potential growth for the organization. On the other hand an overly general statement that does not exclude any strategy alternative should be dysfunctional

2. A mission statement needs to be broad to effectively reconcile the differences among and appeal to an organization’s diverse stakeholders

• Vision statement:• Should answer the question what do we want to become

Example of Vision and Mission Statement

John Deere, Inc.Vision statement:

John Deere is committed to providing genuine value to the Company’s stakeholders, including our customers, dealers, shareholders, employees, and communities. In support of our commitment, Deere aspires to:

• Grow and pursue leadership positions in each of our business• Extend our preeminent leadership position in the agricultural

equipment market worldwide• Create new opportunities to leverage the John Deere brand globallyMission Statement:

John Deere has grown and prospered through a long standing partnership with the world’s most productive farmers. Today, John Deere is a global company with several equipment operations and complementary service businesses. These businesses are closely interrelated, providing the company with significant growth opportunities and other synergistic benefits

Scanning the external environment

Analysis of General Environment Economic, socio-cultural, technological, political-legal factors

Market Analysis

Competitor analysis

Supplier Analysis

Government Analysis

Identification of Opportunities and Threats

Scanning General Environment1. Demographics: Age distribution, birthrate population

growth, regional population shifts etc.2. Social cultural values: attitudes towards health and

nutrition, the need for self expression, materialism, ecological concerns, product safety, etc.

3. Economic factors: inflation, unemployment rates, economic growth, raw material scarcities, energy cost, interest rates, import duties, excise taxes

4. Technology: developing and anticipated changes that affect the kinds of product available in the market and the kinds of processes( such as automation or the use of synthetic materials) used to produce these products

5. Political / Legal and regulatory actions: including regulation on the type of advertising, product labeling and testing requirements, limitation against product contents, pollution control, and restrictions or incentives with respect to imports and exports

Industry Analysis: Porter’s Five Forces Model

Entry and Exit Barriers

Power of Buyers

Power of Suppliers

Industry Competitiveness

Rivalry among existing firms

Threat of substitutes

Threat of new entrantsEase of exit

Scanning Task Environment

Threat of new entrants• New entrants to an industry brings new capacity, a desire to gain

market share, and substantial resources. They are threat to an established firm

• The threat of an entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors

• An entry barrier is an obstruction that makes it difficult for a company to enter an industry

• Possible barriers to entry are:1. Economies of scale: ( Entry barriers high if existing firms have cost

advantage because of economy of scales)2. Product differentiation: ( Products of firms sold on the basis of

differentiation or as commodity, if commodity entry barriers are low)

3. Capital Requirement:4. Switching Cost ( the ease with which the new product can easily

replace the existing firms products)5. Access to distribution channels: ease with which a new firm can

obtain distribution and proper shelf space): 6. Government Policy:

Exit Barriers

• Specialized Assets

• Fixed Cost of Exit

• Strategic interrelationship

• Government Barriers

Rivalry Among Existing Firms• In most industries corporations are mutually dependent• A competitive move by one firm can be expected to

have a noticeable effect on the competitors and cause retaliation or counter efforts

• Intense rivalry is related to several factors:1. Number of competitors of equal size:2. Rate of Industry Growth3. Product or service characteristics (Specialty vs.

commodity)4. Amount of fixed cost: 5. Capacity increase by one firm6. Height of Exit barriers

Bargaining Power of Buyers• Buyers affect an industry through their ability to force down

prices, bargain for higher quality or more services, and play competitors against each other.

• A buyer or group of buyers are powerful if:1. A buyer purchase a large proportion of sellers product or service2. A buyer has the potential to integrate backward by producing the

product itself3. Alternate suppliers are plentiful because product is standard or

undifferentiated4. Switching cost of changing supplier low5. The purchased product represent a high percentage of buyer’s

cost, thus providing a incentive to shop around6. A buyer earns low profits and thus is very sensitive to costs and

service differences7. The purchased product is unimportant to the final quality or price

of a buyer’s product or services and thus can be easily substituted without affecting the final product adversely

Bargaining Power of suppliers• Suppliers can affect an industry through their ability to

raise prices, or reduce the quality of purchased goods and services.

• Supplier group is powerful if some of the following factors apply:

1. The supplier industry is dominated by a few companies2. The product or service is unique or has a built in

switching costs ( word processing software)3. Substitutes are not available ( electricity)4. Suppliers are able to integrate forward and compete

directly with their present customers5. A purchasing industry buys a small portion of the

suppliers group’s goods and services and is thus unimportant to the supplier.

Threat of Substitutes

• Threat of Obsolescence of Industry’s product• Aggressiveness of substitute products in

promotion• Switching Cost• Perceived price/ value

Competitor Analysis• Identifying Key Success factors within the industry• Key success factors are those variables that can affect

significantly the overall competitive position of all companies within that industry

• Usually determined by the economic and technological characteristics of the industry and by competitive weapons on which on which the industry have built their strategies

• Examples: Low cost Extensive distribution Reliability and durability of products Market share• Developing Competitive profile matrix

Competitive Profile Matrix

Key Success Factors Weight

Company A Rating

Company A Weighted score

Company B Rating Company B

Weighted score

1 2 3 4 5 6

Total 1.0 Total Score Total Score

Steps for Competitive Profile Matrix1. In column 1 (key success factors) list 6 – 8 factors that appear to

determine current and expected success in the industry2. In column 2 ( weight) assign a weight to each factor from 1.0 ( most

important) to 0.0 (least or not important) based on the factor’s probable impact on the overall industry’s current and future success. All weight must sum to 1.0 regardless of the number strategic factors)

3. In Column 3 (Company A rating) examines a particular company within the industry. Assign a rating of 4 for outstanding to 1.0 for poor

4. In column 4, ( company A weighted score) multiply the weight in column 2 for each factor times in column 3 to obtain that factor’s weighted score for company A. This result in a weighted score for each key success factor ranging from 4 (outstanding) to 1.0 to poor

5. In column 5 ( company B rating) examine a second company within the industry . Assign rating to each key success factor from 4 – 1 based on the company’s B current response to each particular factor

6. In Column 6, ( company B weighted Score) multiply the weight in column 2 for each factor times its rating in column 5 to obtain that factor’s weighted score

7. Add the weighted scores for all the factors in column 4 and 6 to determine the total weighted score for each company.

8. The total weighted score indicates how well each company is responding to current and expected key success factor in the industry environment

Using Resources to Gain competitive advantage

1. Identify and classify the firm’s resources in terms of strengths and weaknesses

2. Combine the firm’s strengths into specific capabilities. Core competencies are the things that a corporation can do exceedingly well. Distinctive competencies are superior to competitors and provide the firm with competitive advantage

3. Appraise the profit potential of these resources and capabilities in terms of their potential for sustainable competitive advantage and the ability to harvest the profits resulting from the use of these resources and capabilities

4. Select the strategy that best exploits the firm’s resources and capabilities relative to external opportunities

5. Identify resource gaps and invest in upgrading weaknesses

Sources of competitive advantage

A superior market position (e.g. a differentiated competitive stance, a lower cost base, or protected niche)

A superior knowledge and or relationship base (e.g. detailed customer knowledge, trade relationships, technical expertise, political links or cartel membership

A superior resource base (e.g. Size and economies of scale, financial structures, strategic alliances, the breadth of geographic coverage, marketing and manufacturing flexibility, image/ reputation, or channel control

The Role Of SWOT Analysis• An opportunity can be seen as any sector of the market in

which the company would enjoy a competitive advantage• These opportunities could then be assessed according to

attractiveness and the organization’s probability of success in this area

• The probability of success is influenced by several factors, but more obviously by the organization’s strength, in particular its distinctive competencies, match key success requirements for operating effectively in the target market and exceed those of competitors

• Competence by itself is rarely sufficient in anything more than short time since, given time, competitive forces will erode this competence

• Because of this strategist needs to concentrate on developing competitive advantages which are sustainable over time

Step 1: prepare a profile of the enterprise which embraces (a) type of business, (b) geographic domain, © competitive situation, (d) culture of senior mgt. team

Step 2: identify and evaluate the economic, social, political, demographic, products and technology, market competitive environment

Step 3: prepare a forecast, make predictions and assess future

Step 4: Prepare a detailed strengths and weaknesses audit: (a) management and organization, (b) operations, © finance, (d) marketing, (e) other parts of organization

Step 5: Identify strategic choices facing the organization

Step 6: Make the strategic choices

Step 7: Prepare the Contingency plans

Basic questions concerning the internal and external environments

The present and the future external environment

The audit of the organization internal resources

The actions needed to achieve organization’s overall purpose and objectives

The opportunity matrix

Probability of success

High low

Attractiveness

High

Low

1 2

43

Opportunities offering the greatest scope and management should focus upon these

Represents opportunities which are either too small or which the organization is unable to exploit

Offer attractive opportunities and need to examine closely of increasing the probability of success

Offer certain attractions management must examine these closely to see scope exists for improving attractiveness

The threat matrixA threat is a challenge posed by unfavorable trend or development in the environment that in absence of distinct organizational response will lead to the erosion of company’s market position

Probability of occurrence

High Low

1 2

3 4

Strategist needs to monitor developments closely and have detailed contingency plans available to cope with any changes that take placeSeriousness

High

Low

Minor and can be ignored

Closely Monitor

Closely monitor

Market overall attractiveness

• An ideal business is characterized by numerous opportunities but few if any threats

• A speculative business is high on both threats and opportunities

• A mature business is low on both threats and opportunities

• A troubled business is low in opportunities and high on threats

TOWS Matrix

External Elements

Internal Elements

Organizational Strengths

Organizational Weaknesses

Strategic Options

Environmental opportunities

Environmental Threats

SO: Strengths can be used to capitalize or build upon existing opportunities

WO: The strategies developed need to overcome organizational weaknesses if existing or emerging opportunities are to be exploited

ST: Strengths in the organization can be used to minimize existing or emerging threats

WT: The strategies pursued must minimize or overcome weaknesses and cope with threats

Corporate Objectives• Corporate objectives reflect

management's specific expectations regarding organizational performance.

• An organization may have more than one objective at a given time.

• They usually have one primary goal towards which a corporate strategy is directed

Common types of corporate strategy

1. Profitability: Net profit as a percent of sale Net profit as percent of total investment Net profit per share of common stock2. volume: Market share Percentage growth in sales Sales rank in the market Production capacity utilization3. Stability: Variance in annual sales volume Variance in seasonal sales volume Variance in profit4. Non-financial Maintenance of family control Improved corporate image Enhancement of technology

Types of Corporate strategies • Organizations have two fundamental directions

in which to proceed when selecting a corporate strategy

1. Growth Growth strategy is one in which sales growth ( usually from new products or markets) becomes a vehicle for achieving a stability or enhanced profitability

2. Consolidation• The firm seek to achieve current goals

(especially enhanced profits) through non-growth means.

Basic types of corporate strategies• Growth Strategies: For current markets- Market penetration- Product development- Vertical integration For new markets- Market development- Market expansion- Diversification- Strategic alliances• Consolidation- Retrenchment - Pruning- Divestment

Growth strategies for Current Market1. Market penetration Aims at increasing sales of existing products in the

current market Is achieved by increasing the level of marketing effort (

increasing advertisement, distribution, number of sales personnel)

It is essentially a status quo because it requires no change in firm’s products or services

As long as the current performance is sound, and the environment supports growth and profits opportunities, a firm may want o stick to its basic business

Market penetration may not be feasible when a brand reaches a practical ceiling of sales

2. Product Development Involves the development of new product for existing markets in order

to:- Meet customer needs- March new competitive offerings- Take advantage of new technology- Meet the needs of specific market segments The strategy involves replacing or reformulating existing products or

expanding the product line Product development is appropriate when changing needs and tastes

result in the emergence of new segments or when competitive and technological changes motivate firms to modify their product lines

3. Vertical Integration: To make a firm more efficient in serving existing markets. Such integration is is accomplished when a firm becomes its own

supplier( Backward integration) or intermediary ( forward integration) These strategies will be most appropriate when the ultimate markets

have high growth potential, because integration requires extensive resources

In practice, vertical integration is not nearly as simple as other current market strategies because the skills required for forward or backward integration may be very different

Growth Strategies for New Markets1. Market Development: Bringing current products to new markets Management will employ this strategy when:- existing products are stagnant- Market share increases are difficult to achieve because market

shares are already very high or competitors are very strong This strategy can be implemented by identifying new uses or new

users2. Market Expansion: Moving into new geographic market areas International market expansion can be pursued at three levels:- Regional strategy implies that a company will concentrate its

resources and efforts in one or two areas- Multinational strategies (multi-domestic) involves a commitment to

a broad range f national markets including those in Europe. Asia, and the Americas. Such firms organize their businesses around nations so that separate marketing strategies (including range of products to offer) are left largely to local subsidiary

- Global strategy is employed when an organization operates in a broad set of markets but with a common set of strategic principles.

3. Diversification strategy: A strategy that involves both new products and new markets This strategy is likely to be chosen when one or more of the

following conditions exist- No other growth opportunities can be established with existing

products or markets- The firm has unstable sales or profits because it operates in

markets that are characterized by unstable environments- The firm wishes to capitalize on a distinctive competence• Types of diversificationa) Related Diversification- Company taking advantage of manufacturing technology,

Research and Development distribution, customers to get economies of scope

i. Concentric Diversification: - Adding new but related products or servicesii. Horizontal diversification- Adding new, unrelated products or services for present customersb) Conglomerate diversification: - Adding new and unrelated products to new customers

• Strategic alliances: Strategic alliance is more than joint venture In joint venture, two firms essentially create a

third entity that develops on its own In a true strategic alliance, two firms collaborate

in a far more complete way way by exchanging some key resources ( although new entities may also be formed) and enable both parties to enhance their performance.

Typically, alliance involve exchange of one or more of the resources listed below

- Access to sales and distribution networks- New product technology- Production technology and capacity

Consolidation strategies• Three types of consolidation strategiesi. Retrenchment Essentially the opposite of market development A firm reduces its commitment to its existing products by withdrawing

from weaker markets This strategy is pursued when a firm has experienced uneven

performance in different marketsii. Pruning : When a firm reduces the number of products offered in a market Opposite to product development and occurs when a firm decides that

some market segments are too small or too costly to operateiii. Divestment; When a firm sells off a part of its business to another organization Divestment is opposite to diversification as the firm is taking itself out of

a particular market A firm typically pursues divestment strategies when management

becomes aware that:- A particular business is not meeting the organization’s objectives- A diversification strategy has failed. This is more likely to happen when

the business does not fit the organization’s competencies and when top management fails to appreciate the kinds of skills central to success in that market

Product Mix Strategies

Introduction Growth Maturity Decline

Product Life Cycle

• Plays an important part in the development of product mix strategy

• It helps in identifying the significance of sales trends and to assess the changing nature of competition, costs, and market opportunities over time

1. Introduction The product is new to the market No direct competition Buyers must be educated about what the product does, how

it is used, and where to buy it2. Growth: Product is more widely known Sales grow rapidly because new buyer’s enter the market

and buyer find many ways to use the product Many competitors enter the market Major marketing task is to build market share

3. Maturity: Sales growth levels off as nearly all potential buyers

have entered the market Consumers are knowledgeable about the alternatives Repeat purchase dominate the sales, and product

innovations are restricted to minor improvements Only the strongest competitors survive4. Decline> Sales slowly declines because of changing buyer

needs or because of introduction of new products that are sufficiently different to have their own life cycles

Product life cycleDifferent Definitions of Relevant MarketsLevel Illustrative Measure(s)

Product Form Sale of regular tea, or decaffeinated tea, or herbal tea

Product Class Sale of tea

Generic Need

Sales of all beverages

Managers could select from different portrayal of life cycle for a given product

An executive at a company that makes tea could consider three different levels of the markets in which the product competes when measuring unit sales. The decision involved in selecting a level is known as determining the relevant market

• One could arrive at a very different interpretation of product life cycle depending on how the relevant market is defined

• Generic need life cycles are seldom useful for strategy purposes because they seldom experience significant changes

• Product form and product class life cycles are of substantial value to the process of developing strategies

• From the view point of corporate marketing planning, the product life-cycle has two major contributions

1. Product form life cycle stage tells more about the market opportunities than does current brand growth rate. Low brand-sales growth may occur because the market share may be declining in a growth stage because market share is stable in a mature market. But knowing which state a product is in enables the management to evaluate the opportunities for enhancing brand-sales growth

2. Knowing the stage of product life-cycle enables a firm to project future costs and profits

Limitations of Product life-cycle concept

1. It does not take into consideration specific competencies and resources of the competitors in a given market. Thus:

If the competitors have extensive financial resources available, the level of marketing expenditure necessary at various stages may be greater than the model suggest

Competitors that are financially strong due to sales of the other products may survive into market maturity even with small market shares

2. Competitors may mistake leveling of growth as an indicator of maturity when the true cause is a lack of industry promotional effort or prices that are too high.

Product Portfolio Models• Organizations have a range of products with varying

characteristics. Top management strive to find a balance among alternative products.

• In seeking long-run balance managers must recognize that some products will generate large amount of cash over and above what is required for operating expenses or for additional investment. Other products will, at-least in short run will generate far less cash than is needed for operating expenses

• Portfolio models are methods that managers can use to classify products in order to determine the future cash requirements each product will have.

• In using a portfolio model, managers must examine the competitive position of a product and opportunities presented by the market

The BCG Growth Share Matrix• The BCG model assumes that cash flow and profitability

will be closely related to sales volume• Products are classified in terms of the product’s market

share dominance and in terms of rate of growth in that market

• A firm’s relative market share is the ratio of its share to that of its largest competitor (X). If our market share is equal to market share of largest competitor, our market share would be

• The rate of growth of the market can be interpreted as reflecting the stages in the PLC – high growth reflecting the first two stages and low growth reflecting the maturity and decline

• The BCG matrix enables the a manager to classify firm’s product s into four basic types: Stars, Problem child, cash cows, and dogs

BCG Growth Share Matrix

Market Dominance

Market Growth Rate

High Low

Low

High STAR

Cash Generated ++

Cash Use _ _ _

_________

NET (0.-)

Problem Child

Cash Generated +

Cash Use _ _ _

______

NET ( _ _ _)

Cash COW

Cash Generated + + +

Cash Use -

__________

NET ( + +)

Dogs

Cash generated +

Cash Use -

______

NET ( -.0)

Evaluating Industry Attractiveness Relative to othersEvaluating Industry Attractiveness Relative to others

Industry Attractiveness Factor

Weight

Rating

Rating A

Rating B

Market Size and projected growth

Intensity of competition

Emerging opportunities and threats

Seasonal cyclical factors

Resource Requirements

Industry profitability

Social, regulatory and environmental factors

Industry uncertainty and business fits

Competitive Strength of each of the company’s Business UnitsCompetitive Strength of each of the company’s Business Units

Competitive strength measure

Weight Rating SBU1 SBU2

Relative Market Share

Costs relative to competitors

Ability to match rivals on key product attributes

Bargaining leverag4e with suppliers/ buyers

Strategic-fit relationships with sister businesses

Technology and innovation capabilities

How well resources are matched to industry key success factors

Brand name reputation/image

Degree of profitability relative to competitors

Directional Policy Matrix

Competitive Position

Market Attractive-ness

Strong Medium Weak

HIGH

Medium

Low

Maintain leadership Challenge leaderOvercome weakness, find niche, or quit

Challenge leader Manage for earnings Harvest

Cash generator Harvest Divest

Limitation and Implications• Portfolio models implicitly assume that portfolio must be

in a cash balance, therefore there must be a sufficient number of cash cows, and dogs to fund stars and problem child. In reality, firms may also generate resources through borrowing, so it may not be necessary to exact all the cash flows from products in lower growth, less attractive higher growth markets

• Portfolio models suggest that cash cows can be milked with impunity because of their established market position and because they are in mature markets. In reality many market share leaders do experience extensive competitive challenges to their market leadership position – especially in large stable consumer goods market. Thus profitability objectives may have to be subordinated to an objective to market share maintenance, at-least in the short run

• Portfolio models indicate that resources should be invested in stars and in problem child products in order to enhance the market share of these products. However, there is no assurance that that the application of more resources will lead to increase in market share. The ability to maintain or increase market share is dependent not only on adequate resources but also on existence of competitive advantage. Thus managers should invest in high growth markets only if they can identify a feasible competitive marketing strategy

• The BCG model is criticized for relying only on two elements while the Directional Policy Matrix accommodates large number of factors. However, because each element of market attractiveness and competitive strength has different degree of importance in each situation, i9t is impossible to have a standard method for weighing the importance of the various elements. Additionally, the ratings are subjective, so different managers may not rate a particular business in the same way on every dimension