Lesson 4. Aim Understand the tools used to develop a strategic marketing strategy.

STRATEGIC MARKETING

Lesson 4

Aim

Understand the tools used to develop

a strategic marketing strategy

LO 2.1 assess the value of models used in strategic marketing

planning

General areas

Models: organisation, industry and market environment situation analysis; Porter’s Five Forces model; structure, conduct and performance; SWOT (strengths, weaknesses, opportunities, threats) analysis, STEEPLE (social, ethnological, economical, environmental, political, legal, ethical) analysis, PEST (political, economic, social, technological) analysis, marketing audit; portfolio analysais techniques eg BCG matrix, Product Life Cycle model, Ansoff matrix

Political/Legal

Political/Legal

EconomicEconomic

TechnologicalTechnological

GlobalGlobal

DemographicDemographicSocioculturalSociocultural

CompetitiveEnvironment

Industry Environment


Components of the General Environment

Components of the General Environment

SWOT Analysis

Strengths Weaknesses Opportunities Threats

The purpose of SWOT Analysis

It is an easy-to-use tool for developing an overview of a company’s strategic situationIt forms a basis for matching your company’s

strategy to its situation

SWOT is the starting point

It provides an overview of the strategic situation.

It provides the “raw material” to do more extensive internal and external analysis.

Opportunities

An OPPORTUNITY is a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment.

Possible Opportunities:Emerging customer needsQuality ImprovementsExpanding global marketsVertical Integration

Threats

A THREAT is a factor in your company’s external environment that poses a danger to its well-being.

Possible Threats:New entry by competitorsChanging demographics/shifting demandEmergence of cheaper technologiesRegulatory requirements

Opportunities and Threats form a basis for EXTERNAL analysis

By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification.

By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position.

The purpose of Five-Forces Analysis

The five forces are environmental forces that impact on a company’s ability to compete in a given market.

The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

Threat of New

Entrants

Threat of New

Entrants

Threat of New Entrants


Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Threat of New EntrantsThreat of New Entrants

Barriers to Entry

Barriers to Entry

Expected Retaliation

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Scale

Bargaining Power of Suppliers


Threat of New

Entrants




Bargaining Power of SuppliersBargaining Power of Suppliers

Suppliers exert power in the industry by:

Suppliers exert power in the industry by:

* Threatening to raise* Threatening to raiseprices or to reduce qualityprices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms

Suppliers’ products have few substitutes

Buyer is not an important customer to supplier

Suppliers’ product is an important input to buyers’ product

Suppliers’ products are differentiated

Suppliers’ products have high switching costs

Supplier poses credible threat of forward integration

Bargaining Power of Buyers


Threat of New

Entrants






Bargaining Power of BuyersBargaining Power of Buyers

Buyers compete with the supplying industry

by:

Buyers compete with the supplying industry

by:

* Bargaining down prices* Bargaining down prices

* Forcing higher quality* Forcing higher quality

* Playing firms off of

* Playing firms off ofeach

othereach other

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases are large relative to seller’s sales

Purchase accounts for a significant fraction of supplier’s sales

Products are undifferentiated

Buyers face few switching costs

Buyers’ industry earns low profits

Buyer presents a credible threat of backward integration

Product unimportant to quality

Buyer has full information

Threat of Substitute Products


Threat of New

Entrants








Threat of Substitute ProductsThreat of Substitute Products

Products with similar function limit the prices firms can charge

Products with similar function limit the prices firms can charge

Keys to evaluate substitute products:

Products with improving price/performance tradeoffs relative to present industry products

Example:

Electronic security systems in place of security guards

Fax machines in place of overnight mail delivery



Threat of New

Entrants



Rivalry Among Competing Firms in

Industry

Rivalry Among Competing Firms in

Industry






Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Jockeying for strategic position

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may be costly to smaller competitors

Cutthroat competition is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitors

Slow growth industry

High fixed costs

Lack of differentiation or switching costs

High storage costs

Capacity added in large increments

High strategic stakes

High exit barriers

Diverse competitors

The Five Forces are Unique to Your Industry

Five-Forces Analysis is a framework for analyzing a particular industry.Yet, the five forces affect all the other

businesses in that industry.

Competitor AnalysisCompetitor Analysis

The follow-up to Industry Analysis is effective analysis of a firm’s

Competitors

CompetitiveEnvironment



Competitor AnalysisCompetitor AnalysisAssumptions

What assumptions do our competitors hold about the future of industry and themselves?

Current Strategy

Does our current strategy support changes in the competitive environment?

Future Objectives

How do our goals compare to our competitors’ goals?

Capabilities

How do our capabilities compare to our competitors?

ResponseResponseWhat will our competitors do in the future?What will our competitors do in the future?

Where do we have a competitive advantage?Where do we have a competitive advantage?

How will this change our relationship with our competition?


Future Objectives

Future ObjectivesHow do our goals

compare to our competitors’ goals?

How do our goals compare to our competitors’ goals?Where will emphasis be placed in the future?Where will emphasis be placed in the future?

What is the attitude toward risk?What is the attitude toward risk?

What Drives the competitor?


What is the competitor doing?

What can the competitor do?

Future Objectives





Current StrategyCurrent StrategyHow are we currently

competing?How are we currently competing?

Does this strategy support changes in the competitive structure?

Does this strategy support changes in the competitive structure?


What does the competitor believe about itself and the industry?

Future Objectives







Does this strategy support changes in the competition structure?


Do we assume the future will be volatile?Do we assume the future will be volatile?

Are we assuming stable competitive conditions?

Are we assuming stable competitive conditions?

What assumptions do our competitors hold about the industry and themselves?


AssumptionsAssumptions


What are the competitor’s capabilities?

Future Objectives










Are we operating under a status quo?Are we operating under a status quo?




What are my competitors’ strengths and weaknesses?

What are my competitors’ strengths and weaknesses?How do our capabilities compare to our competitors?


Capabilities


Future Objectives










Are we operating under a status quo?Are we operating under a status quo?




ResponseResponseWhat will our competitors do in the future?

What will our competitors do in the future?Where do we have a competitive advantage?

Where do we have a competitive advantage?How will this change our relationship with our competition?


Capabilities

CapabilitiesWhat are my

competitors’ strengths and weaknesses?

What are my competitors’ strengths and weaknesses?How do our capabilities compare to our competitors?



The Structure – conduct- performance Paradigm

32

Basic Conditions: factors which shape the market of the industry, e.g. demand, supply, political factors

Structure: attributes which give definition to the supply-side of the market, e.g. economies of scale, barriers to entry, industry concentration, product differentiation, vertical integration.

Conduct: the behavior of firms in the market, e.g. pricing behavior advertising, innovation.

Performance: a judgment about the results of market behaviour, e.g. efficiency, profitability, fairness/income distribution, economic growth.

How can the government improve the performance in an industry?

LIFE-CYCLE STRATEGIES

Learning Goals

1. Know the stages of the product life cycle

2. Realize how marketing strategies change during the product’s life cycle

Product Life-Cycle Strategies The Product Life Cycle (PLC) has Five

StagesProduct Development, Introduction, Growth,

Maturity, DeclineNot all products follow this cycle:

○ Fads○ Styles○ Fashions

Goal 1: Know the stages of the product life cycle process

Product Life-Cycle Strategies The product life cycle concept can be

applied to a:Product class (soft drinks)Product form (diet colas)Brand (Diet Dr. Pepper)

○ Using the PLC to forecast brand performance or to develop marketing strategies is problematic

Goal 1: Know the stages of the product life cycle process

Product Life-Cycle Strategies

Product development Introduction Growth Maturity Decline

Begins when the company develops a new-product idea

Sales are zero Investment costs are

high Profits are negative

PLC Stages

Goal 2: Realize how marketing strategies change during the product life cycle



Low sales High cost per customer

acquired Negative profits Innovators are targeted Little competition

PLC Stages


Marketing Strategies: Introduction Stage Product – Offer a basic product Price – Use cost-plus basis to set Distribution – Build selective distribution Advertising – Build awareness among early

adopters and dealers/resellers Sales Promotion – Heavy expenditures to

create trial




Rapidly rising sales Average cost per

customer Rising profits Early adopters are

targeted Growing competition

PLC Stages


Marketing Strategies: Growth Stage Product – Offer product extensions,

service, warranty Price – Penetration pricing Distribution – Build intensive distribution Advertising – Build awareness and interest

in the mass market Sales Promotion – Reduce expenditures to

take advantage of consumer demand




Sales peak Low cost per customer High profits Middle majority are

targeted Competition begins to

decline

PLC Stages


Marketing Strategies: Maturity Stage Product – Diversify brand and models Price – Set to match or beat competition Distribution – Build more intensive

distribution Advertising – Stress brand differences and

benefits Sales Promotion – Increase to encourage

brand switching




Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition

PLC Stages


Marketing Strategies: Decline Stage Product – Phase out weak items Price – Cut price Distribution – Use selective distribution:

phase out unprofitable outlets Advertising – Reduce to level needed to

retain hard-core loyalists Sales Promotion – Reduce to minimal level


Dimensions Existing Products New Products

ExistingMarkets

1.1. Do nothing2. Withdraw

3. Consolidate4. Penetrate

Product Development

(risky + expensive)

NewMarkets

Market Development

(when product is very competitive)

Diversification(assuming new

activities)

Ansoff-Matrix orProduct-Market Expansion Grid

Ansoff-MatrixImproving the performance of existing businesses “Do Nothing” if the environment is static (short-run only) “Withdraw” when there is an irreversible decline in demand

or opportunity costs of staying in a market are too high “Consolidation” means concentration of resources and

focusing on existing competitive advantages “Penetration” means gaining market share

SWOT AnalysisSWOT is a universal analytical tool developed by the

military:Matching corporate skills and resources with

forecasted market opportunities1. Strengths: Internal Positives (available skills &

competencies)2. Weaknesses: Internal Negatives (poor use or lack

of skills) 3. Opportunities: External Positives (evaluating areas

where advantages may be gained, ex: add a new product, target new segments)

4. Threats: External Negatives (evaluating forces that may prevent the company from accomplishing its objectives, ex: competition, regulation, customer preferences)

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Lesson 4. Aim Understand the tools used to develop a strategic marketing strategy.

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