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Marketing Strategy

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  • Strategic and Marketing Planning

  • Benefits

    of

    Planning

    Consistency

    Commitment

    Responsibility

    Communication

    Benefits of Planning

    Direction

  • #1:

    Top Down

    #2:

    Bottom Up

    #3:

    Goals Down,

    Plans Up

    Approaches to Planning

  • The Strategy Hierarchy

    SBU

    Strategy

    Marketing Strategy

    Marketing

    objectives

    Product markets

    strategies

    Corporate Level

    Functional Level of SBU

    Strategic Business Unit Level

    Corporate Strategy

    Mission and vision Objectives Business portfolio strategy Resource development Corporate values

    SBU Strategy

    Business definition Objectives Product market portfolio Competitive strategy Resource allocation and management

    SBU

    Strategy

    Finance and

    administration

    Strategy

    Production

    and operation

    strategy

    R&D Strategy

    Technology

    Product

    development

    Human

    resources

    Strategy

    Strategic Planning

    Investment Management Growth & Company Position Strategy
  • Corporate, Business and Marketing Strategy Model

    Corporate Strategy

    Building core competencies Business portfolio Capital investments and

    resource allocation

    Corporate culture Corporate structure Product/market portfolio Resource allocation Product-markets Business culture Strategic cost

    management

    Markets Products and services Profit-yielding strategies Brand management Profit improvement

    Business Strategy

    Distinctive competencies Developing competitive

    position

    Competitive advantage

    Marketing Strategy

    Developing market

    position

    Customer satisfaction

    Focus

    Customer value creation, maintenance and defence

    Focus

    Economic

    value added

    Focus

    Economic

    value added

    Shareholder

    Value

    Business

    Value

    Customer

    Value

  • Strategic-Planning, Implementation, and Control Process

    Planning

    Measuring

    results

    Diagnosing

    results

    Taking

    corrective

    action

    Implementation

    Corporate

    planning

    Division

    planning

    Business

    planning

    Product

    planning

    Organising

    Implementing

    Control

  • Objectives Address Two Questions:

    Where do we want to be?

    When do we expect to get there?

    Corporate Plan Objectives

  • Planning Terms

    Vision: the long term, I have a dreamMission: purpose of organisationObjective: a shorter term goal leading to the achievement of the MissionStrategy: a description of the method of achieving the objectiveTactic: the short term application of the strategy
  • Porters five forces model

    SUBSTITUTES

    INDUSTRY

    COMPETITORS

    Rivalry among

    Existing Firms

    BUYERS

    POTENTIAL

    ENTRANTS

    Threat of entry

    Bargaining power of suppliers

    Bargaining power of buyers

    Threat of Substitute Products or Services

    SUPPLIERS

  • Porters five-forces model (2)

    Bargaining power

    of suppliers

    Threat of

    new entrants

    Competitive

    rivalry

    Threat of

    substitutes

    Bargaining power

    of buyers

    Where there are numerous or equally balanced competitors,

    there is slow industry growth, lack of differentiation, low buyer switching costs, high fixed costs, overcapacity, perishable products (and services) and high exit barriers.

  • Porters five-forces model (3)

    Bargaining power

    of suppliers

    Threat of

    new entrants

    Competitive

    rivalry

    Threat of

    substitutes

    Bargaining power

    of buyers

    When there are only a few large buyers in the market, the buying volume is large, there is low differentiation between competitive products, the value of the industry product is low, the sellers quality is relatively unimportant to the buyer, there are low switching costs for the buyer or high switching costs for the seller, the buyer is a low profit earner, the buyer has access to full market information or the buying company could forward integrate and become a competitor.

  • Porters five-forces model (4)

    Bargaining power

    of suppliers

    Threat of

    new entrants

    Competitive

    rivalry

    Threat of

    substitutes

    Bargaining power

    of buyers

    When the barriers to industry entry are low, there are:

    no cost advantages for existing competitorsa lack of product differentiationlow capital costs for market entryrelatively easy access to distribution channels.
  • Porters five-forces model (5)

    When there are only a few large suppliers, the suppliers product is highly differentiated or unique, the supplier sells the same product to other industries or a supplier could forward-integrate and enter the market as a competitor.

    Bargaining power

    of suppliers

    Threat of

    new entrants

    Competitive

    rivalry

    Threat of

    substitutes

    Bargaining power

    of buyers

  • Porters five-forces model (6)

    Bargaining power

    of suppliers

    Threat of

    new entrants

    Competitive

    rivalry

    Threat of

    substitutes

    Bargaining power

    of buyers

    When substitute products are close in performance and price to the industrys product, there are low switching costs and switching is a commonplace occurrence.

  • Business Portfolio Analysis

  • Outline

    IntroductionBCG (Boston Consulting Group) MatrixGE(General Electric)/McKinsey Multi-Factor Matrix
  • Introduction

    The creation of SBUs enables the setting of SBUs mission and objectives and the allocation of resources across SBUs in the organizationSenior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysisMany models but only 2 are covered here: BCG, & GE models
  • BCG (Boston Consulting Group) Matrix

    Provides a framework for senior management in allocating resources across business units in a diversified firm byBalancing cash flows among business units, andBalancing stages in the product life-cycle (PLC)
  • The BCG Matrix

    (Log Scale)

  • BCG Matrix (contd)

    The horizontal axis is the Relative Market Share shown in a log scaleVertical line is usually set as 1.0 Relative Market ShareAn SBU to the left of this line means it is the market leader in the industry or segment in which it operatesConversely, an SBU to the right of this line (1.0 RMS) means it is not the leaderThe vertical axis is the industry growth rate .The horizontal rate is usually set at 10% market growth
  • The BCG Matrix

    High

    Low

    High

    Low

    Market Growth Rate

    Relative Market Share

  • The Strategic Implications of the BCG

    Cash cowsInvestments sufficient to maintain competitive position. Cash surpluses used in developing and nurturing stars and selected question mark firms.StarsAggressive investments to support continued growth and consolidate competitive position of firms.
  • The Strategic Implications of the BCG

    Question marksSelective investments; divestiture for weak firms or those with uncertain prospects and lack of strategic fit.DogsDivestiture, harvesting, or liquidation and industry exit.Co then considers acquisitions, divestments and new ventures to get a balanced portfolio
  • Question Marks
    (Problem Children)

    Investmentheavy initial capacity expenditures and high R&D costsEarningsnegative to lowCash-flownegative (net cash user)Strategy ImplicationsIf possible to dominate segment, go after share. If not, redefine the business or withdraw
  • Stars

    Investmentcontinue to invest for capacity expansionEarningsLow to high earningsCash-flowNegative (net cash user)Strategy ImplicationsContinue to increase market shareeven at the expense of short-term earnings
  • Cows

    InvestmentCapacity maintenanceEarningsHigh Cash-flowPositive (net cash contributor)Strategy ImplicationsMaintain market share and cost leadership until further investment becomes marginal
  • Dogs

    InvestmentGradually reduce capacityEarningsHigh to lowCash-flowPositive (net cash contributor) if deliberately reducing capacityStrategy ImplicationsPlan an orderly withdrawal to maximize cash flow
  • Example of a BCG Matrix for a Engineering company in India

    High

    Low

    High

    Low

    Product Sales Growth Rate

    Relative Market Share

    Lighting

    Switchgear

    Transformer

    Fan

    Pumps

    Motor

    Objective: Continuously generate cash cows

    Money earned by a cash cow is not reinvested in that part of the business but in a question mark with the intent to gain share; hoping to turn a ? into a star.

    As the market matures, and competition lessens, that star will degenerate into a cash cow and the process will be repeated.

    With a new cash cow, the firm has a steady source of funds to pursue future avenues of growth.

  • BCG Matrix
    (Three Paths to Success)

    Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustainingStars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated.As for dogs, segment the markets and nurse the dogs to health or manage for cash
  • Three Paths to Success (contd)

    High

    Low

    High

    Low

    Market Growth Rate

    Relative Market Share

  • BCG Matrix
    (Three Paths to Failure)

    Over invest in cash cows and under invest in question marksTrade further opportunities for present cash flow Under invest in the starsAllow competitors to gain share in a high growth market Over milked the cash cows
  • Three Paths to Failure (contd)

    High

    Low

    High

    Low

    Market Growth Rate

    Relative Market Share

  • Limitations on Portfolio Planning

    Flaws in portfolio planning:The BCG model is simplistic if used blindly; considers only two competitive environment factors relative market share and industry growth rate.High relative market share is no guarantee of a cost savings or competitive advantage (but normally does a good job of predicting cash flow)Low relative market share is not always an indicator of competitive failure or lack of profitability (but normally does a good job of predicting cash flow).
  • Limitations on Portfolio Planning

    Flaws in portfolio planning:Multifactor models (e.g., the McKinsey matrix or the GE Grid) are better though imperfect. Importantly, goals other than cash flow may be more critical (such as ROI). If so, use the BCG with cautionFail to look at dependencies among SBUs wrt transferring competencies, economies of scope,etc.
  • GE(General Electric)/McKinsey Multi-Factor Matrix

    Originally developed by GEs planners drawing on McKinseys approachesMarket attractiveness is based on as many relevant factors as are appropriate in a given contextBusiness-position assessment also made on a many factorsSBU needs to be rated on each factor

    Attempt to explain why different SBU had different profitability

  • GE Multifactor Portfolio Matrix

    Business Strength

    Industry attractiveness

    High

    High

    Medium

    Medium

    Low

    Low

    Invest/Grow

    Selectivity

    /earnings

    Harvest

    /Divest

    Protect Position

    Invest to Build

    Build selectively

    Build selectively

    Selectively manage for earnings

    Limited expansion or harvest

    Protect & refocus

    Divest

    Manage for earnings

  • GE Multifactor Portfolio Matrix (Contd)

    Invest/Grow

    Selectivity

    /earnings

    Harvest

    /Divest

    Business Strength

    Industry attractiveness

    High

    High

    Medium

    Medium

    Low

    Low

  • Some Limitations of the GE Model

    Subjective measurements across SBUsProcess also highly subjectiveFrom the selection and weighting of factors to the subsequent development of both a firms position and the market attractiveness Businesses may have been evaluated with respect to different criteriaSensitive to how a product market is defined
  • Ansoffs Growth Vector Matrix

    Market penetration

    Market

    development

    Diversification

    Product / Service

    development

    Present

    New

    Present

    New

    MARKET

    PRODUCTS / SERVICES

  • Using the Ansoff Matrix in the Objective-setting Process

    Market penetration (1)

    Market

    development (3)

    Diversification (4)

    Product / Service

    development (2)

    Established

    New

    Established

    New

    MARKET

    PRODUCTS / SERVICES

    High Risk

  • The Strategic-Planning Gap

    Sales

    10

    5

    0

    Time (years)

    Desired

    sales

    Integrative growth

    Intensive growth

    Current

    portfolio

    Strategic-

    planning

    gap

    Diversification growth

  • Integrative Growth

    Backward Integration

    Forward Integration

    Horizontal Integration

  • Diversification Growth

    Concentric diversification

    A process that occurs when new products related to current products are introduced into new markets.

    Conglomerate diversification

    A process that occurs when new products unrelated to current technology, products or markets are introduced into new markets.

  • Corp as a Portfolio of Competencies

    Identify current competenciesCompare competencies to opportunities and threatsDevelop an agenda for corporate developmentAdvantage is that this method recognizes need to add value by looking at inter-dependencies
  • From Agenda to Action

    Based on the analysis of the portfolio and what do you have to do the next step is how to you get thereInternal New VenturesAcquisitionsJoint Ventures
  • Internal New Venturing

    Internal new venturing is attractive when:Entering as a science-based company.Entering an emerging industry with no established competitors.Good if company has key competencies that can be leveraged
  • Internal New Venturing

    Pitfalls of new venturing (very high failure rate):Scale of entry Low-scale entry reduces probability of long-term success (low share drives high costs and low revenue)Commercialization Failure to develop a product that meets basic customer needs.Poor Implementation Using shotgun approach, not setting clear strategic objectives, abandoning projects too soon.
  • Internal New Venturing

    Guidelines for successful new venturing:Adopt a structural approach with clear strategic objectives setting R&D direction.Foster close links between R&D and marketing.Use project teams to reduce development time.
  • Internal New Venturing

    Guidelines for successful new venturing:Use a selection process to pick venture projects with the highest probability of success.Monitor progress of ventures in gaining initial market share goals.Large-scale entry is important for venture success.
  • Acquisitions as an Entry Strategy

    Acquisition is an attractive strategy when:Competencies important in a new business area are lacking in the entering firm.Speed of entry is considered important.Acquisition is perceived as a less risky form of entry.Barriers to entry can be overcome
    by acquisition of a firm in the
    industry targeted for entry.
  • Acquisitions as an Entry Strategy

    Pitfalls of acquisitions:Failing to follow through on postacquisition integration of the acquired firm.Overestimating the economic
    benefits of the acquisition.Underestimating the expense
    of an acquisition.Failing to properly screen candidates
    before acquisition.
  • Acquisitions as an Entry Strategy

    Guidelines for successful acquisitions:Properly identify acquisition targets and conduct a thorough preacquisition screening of the target firm.Use a bidding strategy with proper timing to avoid overpaying for an acquisition.
  • Acquisitions as an Entry Strategy

    Guidelines for successful acquisitions:Follow through on post acquisition integration synergy-producing activities of the acquired firm.Dispose of unwanted residual acquisition assets.
  • Joint Ventures as an Entry Strategy

    AttractionsSharing new project costs and risks.Increasing the probability of success
    in establishing the new business.
  • Joint Ventures as an Entry Strategy

    DrawbacksRequires a sharing of control with partner firms.Requires that partner firms share profits.Risks giving away critical knowledge.Risks creating a potential competitor.
  • Restructuring

    Why restructure?Pull-back from overdiversification.Attacks by competitors on core
    businesses.Diminished strategic advantages of
    vertical integration and diversification.
  • Restructuring

    Exit strategiesDivestment spinoffs of profitable SBUs to investors; management buy outs (MBOs).Harvest halting investment, maximizing cash flow.Liquidation Cease operations, write off assets.
  • Turnaround Strategy

    The causes of corporate declinePoor management incompetence, neglectOverexpansion empire-building CEOsInadequate financial controls no profit responsibilityHigh costs low labor productivity
  • Turnaround Strategy

    The causes of corporate declineNew competition powerful emerging competitorsUnforeseen demand shifts major market changesOrganizational inertia slow to respond to new competitive conditions
  • The Main Steps of Turnaround

    Changing the leadershipReplace entrenched management with new managers.Redefining strategic focusEvaluate and reconstitute the organizations strategy.Asset sales and closuresDivest unwanted assets for investment resources.
  • The Main Steps of Turnaround

    Improving profitabilityReduce costs, tighten finance and performance controls. AcquisitionsMake acquisitions of skills and competencies to strengthen core businesses.
  • Successful Planning

    Successful marketing

    planning requires:

    Commitment

    Time

    Understanding

  • The McKinsey 7-S Framework

    Skills

    Shared

    values

    Staff

    Style

    Strategy

    Structure

    Systems

  • Profit improvement options

    Profit Improvement

    Sales Growth

    Productivity Improvement

    Market

    Penetration

    Existing

    Assets

    Market

    Development

    Product

    Development

    Change

    Asset base

    Improve

    product

    sales

    mix

    ( margin)

    Increase

    Price

    Increase

    usage

    Take

    competitors

    customers

    Improve

    asset

    utilisation

    (experience

    and
    efficiency

    New

    Segments

    Convert

    non-users

    Existing

    Markets

    New

    Markets

    Cost

    Reduction

    Investment

    innovation diversification

    Divestment

    redeployment of

    capital resources

    Growth focus

    Cash and margin focus

    Capital utilisation focus

  • Extended Marketing Mix

    1. PRODUCT & SERVICE

    Variety

    Quality

    Design

    Features

    Brand name

    Packaging

    Sizes

    Add-ons

    Warranties

    Returns

    7. PROMOTION

    Advertising

    Sales Promotion

    Personal selling

    Direct marketing

    Public relations

    6. PLACEMENT
    for customer service

    Channels

    Coverage

    Locations

    Inventory

    Logistics management

    2. PRICE

    List price

    Discounts

    Allowances

    Settlement and
    credit terms

    3. PEOPLE

    People interacting with people is how many service situations might be described. Relationships are important in marketing

    4. PROCESS

    In the case of high-contact services, customers are involved in the process. Technology is also important in conversion operations and service delivery

    5. PHYSICAL EVIDENCE

    Services are mostly intangible. Thus the meaning of other tools and techniques used in measures of satisfaction are important

    TARGET CUSTOMERS

    INTENDED
    POSITIONING

  • The Marketing Environment

    Target

    Consumers

    Product

    Place

    Price

    Promotion

    Marketing

    Implementation

    Marketing

    Planning

    Marketing

    Control

    Marketing

    Analysis

    Competitors

    Marketing

    Channels

    Publics

    Suppliers

    Demographic-

    Economic

    Environment

    Technological-

    Natural

    Environment

    Political-

    Legal

    Environment

    Social-

    Cultural

    Environment

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