BUSINESS STRATEGIES AND THEIR MARKETING

IMPLICATIONS

DAY 4Place Strategy AND PLC

Strategy

Place Strategies

Place Strategies - Distribution

The “place ” element of the marketing mix.Distribution makes products available in

adequate quantities, in convenient locations, and at times when customers want to buy them.

Consider this

IBM’s sales force sells to large accounts, outbound telemarketing sells to medium-sized accounts, direct mail sells to small accounts, retailers sell to still smaller accounts, and the Internet to sell specialty items

ICICI Direct enables its customers to do transactions in branch offices, over the phone, or via the Internet

Today most consumer durable companies market through traditional retail, direct-response Internet sites, virtual malls and affiliated sites.

Learning Objectives

Functions of marketing channels?Designing, managing, evaluating, and

modifying their channelsTrends in channel dynamicsChannel conflictChannel IntermediariesTypes of distribution channelChannel strategy & management

What is the need for a Marketing Channel?

Many producers lack the financial resources to carry out direct marketing

In some cases direct marketing simply is not feasible

Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business

Role of Intermediaries

Greater efficiency in making goods available to target markets.

Intermediaries provide Contacts Experience Specialization Scale of operation

Match supply and demand

What does a channel do?

Key functions include: Gather information about potential and current customers,

competitors, and others Develop and disseminate persuasive communications to

stimulate purchasing Reach agreements on price and other terms so that

transfer of ownership or possession can be effected Place orders with manufacturers Acquire funds to finance inventories at different levels in the

marketing channel Assume risk connected with carrying out channel work Provide for the successive storage and movement of

physical products Oversee actual transfer of ownership from one

organization or person to another

What does a channel do?

Breaking bulkReduce number of transactions and create

bulk for transportAccessibility to marketsProvide specialist support service

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Channel intermediaries - Wholesalers

Break down ‘bulk’ buys from producers and sell small quantities to

retailersProvides storage facilities

reduces contact cost between producer and consumer

Wholesaler takes some of the marketing responsibility e.g sales force, promotions

Wholesaling

Selling and promotingBuying and assortment buildingBulk breakingWarehousingTransportationFinancingRisk bearingMarket informationManagement services and counseling

Wholesaler Marketing Decisions

Target MarketProduct Assortment and ServicesPrice DecisionPromotion DecisionPlace Decision

Channel intermediaries - Agents

Mainly used in international marketsCommission agent - does not take title of the

goods. Secures orders.Stockist agent - hold ‘consignment’ stockControl is difficult due to cultural differencesTraining, motivation, etc are expensive

Channel intermediaries - Retailer

Much stronger personal relationship with the consumer

Hold a variety of productsOffer consumers creditPromote and merchandise productsPrice the final productBuild retailer ‘brand’ in the high street

Types of Retailers

Specialty Store: Narrow product line with a deep assortment.

Department Store Several product lines with each line operated as a separate department

Supermarket Relatively large, low-cost, low-margin, high volume, selfservice operation

Convenience Store Relatively small store located near residential area

Nonstore retailing Categories of nonstore retailing

Direct selling Direct marketing

Telemarketing Television direct-response marketing Electronic shopping

Automatic vending Buying service

Corporate Retailing

Retailing

Marketing DecisionsTarget MarketProduct Assortment and Procurement

Breadth Depth

Product-differentiation Strategy Possibilities Feature exclusive national brands that are not available at

competing retailers Feature mostly private branded merchandise Feature blockbuster distinctive merchandise events Feature surprise or ever-changing merchandise Feature the latest or newest merchandise first Offer merchandise customizing services Offer a highly targeted assortment

Channel intermediaries - Internet

Sell to a geographically disperse marketAble to target and focus on specific

segmentsRelatively low set-up costsUse of e-commerce technology (for

payment, shopping software, etc)Paradigm shift in commerce and

consumption

Six basic channel decisions

Direct or indirect channelsSingle or multiple channelsLength of channelTypes of intermediariesNumber of intermediaries at each levelWhich intermediaries? Avoid intrachannel

conflict

Marketing Flows in the Channel

Channel-Design Decisions

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

The Value-Adds versus Costs of Different Channels

Channel Strategy

Channel Strategy DecisionsChannel selection

Distribution Intensity

Channel Integration

• Market factors• Buyer behavior,

geographical concentration of customers

• Producer factors• Available resources

product mix offered• Product factors• Product size, bulky or

difficult to handle?• Competitive factors• Competitor’s control over

traditional distribution channels)

• Intensive distribution• use of all available markets

(e.g. cigarettes)• Selective distribution• use of a limited number of

outlets in a geographical area (e.g. computers)

• Exclusive distribution• only one intermediary is

used in a geographic area (e.g. cars sold by only one dealer in each town)

• Conventional channels• Independence of channel

members, little or no control (e.g. pricing, brand image)

• Franchise operation• Legal contract in which

producer and channel intermediaries agree each a member’s rights and obligations

• Channel ownership• By purchasing retail outlets,

producers control their purchasing, production and marketing activities

CHANNEL MANAGEMENT

•Identification of candidates•Development of selection criteriaSelection•Motivate Channel members on various parameters•Rewards & recognitionMotivation

•Requisite training on various competencesTraining•Identify an take corrective action to keep channel motivated and performingEvaluation•Sources of conflict•Identify & avoid / resolve conflictManaging Conflict

Channel Behavior and Conflict

The channel will be most effective when: Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals

and satisfy the target market.Focus on individual goals leads to conflict

Horizontal Conflict occurs among firms at the same level of the channel.

Vertical Conflict occurs between different levels of the same channel.

Channel Management Decisions

SelectingSelecting

MotivatingMotivating

EvaluatingEvaluating

FE

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Logistics

Involves entire supply chainIncreasing importance of logistics

Effective logistics is becoming a key to winning and keeping customers

Logistics is a major cost element for most companies The explosion in product variety has created a need

for improved logistics management Information technology has created opportunities for

major gains in distribution efficiency

Goals of Logistics system

Provide a Targeted Level of Customer Service at the Least Cost.

Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels

Logistics Functions

Order ProcessingWarehousingInventory ManagementTransportationDesign system to minimize costs of attaining

objectives

Transportation Modes

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

WaterLow cost for shipping bulky, low-value

goods, slowest form

WaterLow cost for shipping bulky, low-value

goods, slowest form

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

AirHigh cost, ideal when speed is needed or to

ship high-value, low-bulk items

AirHigh cost, ideal when speed is needed or to

ship high-value, low-bulk items

Selection consideration

Market segment - must know the specific segment and target customer

Changes during plc - different channels are exploited at various stages of plc

Producer-distributor fit - their policies, strategies and image

Qualification assessment - experience and track record must be established

Distributor training and support

Product Life Cycle Strategies

A new product progresses through a sequence of stages from introduction to growth, maturity, and decline..

..impacting the marketing strategy and the marketing mix

Product Life Cycle

Product Life-Cycle Marketing Strategies

To say that a product has a life cycle asserts four things Products have a limited life. Product sales pass through distance stages, each

posing different challenges, opportunities, and problems to the seller.

Profits rise and fall at different stages of the product life cycle.

Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life-cycle stage.

Sale

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Development Introduction Growth Maturity Saturation Decline

Product Life Cycle

Cost Product Life-Cycle Patterns

Style, Fashion, and Fad Life Cycles

Product Life Cycle

Product Life Cycle – shows the stages that products go through from development to withdrawal from the market

Product Portfolio – the range of products a company has in development or available for consumers at any one time

Managing product portfolio is important for cash flow

Product Life Cycle

Each product may have a different life cyclePLC determines revenue earnedContributes to strategic marketing planningMay help the firm to identify when a product

needs support, redesign, reinvigorating, withdrawal, etc.

May help in new product development planning

May help in forecasting and managing cash flow

Product Life Cycle

Extended stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal

Product Life Cycle - Development

The Development Stage: Initial Ideas – possibly large number May come from any of the following –

Market research – identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches? Futures thinking – what will people be

using/wanting/needing 5,10,20 years hence?

Product Life Cycle - Development

Product Development: Stages New ideas/possible inventions Market analysis – is it wanted? Can it be produced at

a profit? Who is it likely to be aimed at? Product Development and refinement Test Marketing – possibly local/regional Analysis of test marketing results and amendment of

product/production process Preparations for launch – publicity, marketing

campaign

Product Life Cycle - Introduction

Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product

Marketing Strategies: Introduction Stage

The Pioneer AdvantageInventorProduct pioneerMarket pioneer

Long-Range Product Market Expansion Strategy(P = Product;M = Market)

Sales

Costs

Profits

Marketing Objectives

Product

Price

Low sales

High cost per customer

NegativeCreate product awareness and

trial

Offer a basic product

Use cost-plus basis

Distribution Build selective distribution

Advertising Build awareness among innovators,early adopters

Marketing Strategies: Introduction Stage

Toyota Hybrid : Introductory stage product

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Product Life Cycle - Growth

Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction?

Sales

Costs

Profits

Marketing Objectives

Product

Price

Rapidly rising sales

Average cost per customer

Rising profits

Maximize market share

Offer product extensions, service, warranty

Penetration Pricing

Distribution Build intensive distribution

Advertising Build awareness in the mass market

Marketing Strategies: Growth Stage

Marketing Strategies: Growth Stage

Improve product quality and add new product features and improved styling

Add new models and flanker productsEnter new market segmentsIncrease distribution coverage and enter new

distribution channelsShift from product-awareness advertising to

product-preference advertisingLower prices to attract next layer of price

sensitive buyers

Flipkart – Growth Stage Offering

Product Life Cycle - Maturity

Saturation: New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies becomes more

pressing: Searching out new markets:

Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures – media/music, etc.

Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range

Product Life Cycle - Maturity

Maturity: Sales reach peak Cost of supporting the product declines Ratio of revenue to cost high Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market – changes/amendments/new

strategies?

Marketing Strategies: Maturity Stage

Market Modification Expand number of brand

users by: Converting nonusers Entering new market

segments Winning competitors’

customers Convince current users

to increase usage by: Using the product on

more occasions Using more of the

product on each occasion Using the product in new

ways

Product modification Quality improvement Feature improvement

Marketing-Mix Modification Prices Distribution Advertising Sales promotion Personal selling Services

Sales

Costs

Profits

Marketing Objectives

Product

Price

Peak sales

Low cost per customer

High profits

Maximize profit while defending market share

Diversify brand and models

Price to match or best competitors

Distribution Build more intensive distribution

Advertising Stress brand differences and benefits

Marketing Strategies: Maturity Stage

A product at the Mature Stage54

Product Life Cycle - Decline

Decline and Withdrawal: Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent on

availability of new products and whether fashions/trends will come around again?

Marketing Strategies: Decline Stage

Increase firm’s investment (to dominate the market and strengthen its competitive position)

Maintain the firm’s investment level until the uncertainties about the industry are resolved.

Decrease the firm’s investment level selectively by dropping unprofitable customer groups, while simultaneously strengthening the firm’s investment in lucrative niches

Harvesting (“milking”) the firm’s investment to recover cash quickly

Divesting the business quickly by disposing of its assets as advantageously as possible.

Sales

Costs

Profits

Marketing Objectives

Product

Price

Declining sales

Low cost per customer

Declining profits

Reduce expenditure and milk the brand

Phase out weak items

Cut price

Distribution Go selective: phase out unprofitable outlets

Advertising Reduce to level needed to retain hard-core loyal customers

Marketing Strategies: Decline Stage

Product at the decline stage

Sale

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Effects of Extension Strategies on PLC

Sale

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fits

Time

PLC

Losses

Break Even

Profits

Product Life Cycle and Profits

Sale

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Importance of a Portfolio of products

Four products in the portfolio

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END OF DAY 4

DAY 5Portfolio Evaluation Matrix

BCG & GE Matrix

Introduction

The creation of SBUs enables the setting of SBU’s mission and objectives and the allocation of resources across SBUs in the organization

Senior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysis

BCG (Boston Consulting Group) Matrix

Provides a framework for senior management in allocating resources across business units in a diversified firm by Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC)

BCG Product Portfolio Matrix

Relative Market Share (Log Scale)

Product Sales Growth Rate

BCG Matrix (cont’d)

The horizontal axis is the Relative Market Share shown in a log scale

Vertical line is usually set as 1.0 Relative Market Share

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

Conversely, an SBU to the right of this line (1.o RMS) means it is not the leader

BCG Matrix (cont’d)

The vertical axis is the growth rate5 levels may be used: product, product lines,

market segment, SBU and business growth rate

Horizontal line is usually set as 10% Growth Rate

SBUs above the set value (10% line) represents high growth rates

Conversely, SBUs below this value depicts slower growth rate

Measuring Market Growth Rate

Measure of a Market’s Attractiveness

growthRateSalesNow SalesEarlier

SalesEarlier

Measuring Market Share

marketShare mySales

mySales competitors'Sales

relativeMarketShare mySales

leadingCompetitorsSales

Measured in terms of Volume or Revenue

Matrix Quadrants

High Low

High

Low

Product Sales Growth Rate

Relative Market Share

Key Assumptions of BCG Matrix

Stable cost/price relationship Not valid if the firm is pricing on projected lower

average unit costs in the futureMarket leader influences the average costsProfit margin is a function of market share

This ignores profitable niches

Strategic Perspectives of Products in Different Quadrants

Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications

Question Marks (Problem Children)

Low market share in an expanding industryInvestment—heavy initial capacity

expenditures and high R&D costsEarnings—negative to lowCash-flow—negative (net cash user)Strategy Implications

If possible to dominate segment, go after share. If not, redefine the business or withdraw

= “?”

Stars

Is a leader in an expanding industryInvestment—continue to invest for capacity

expansionEarnings—Low to high earningsCash-flow—Negative (net cash user)Strategy Implications

Continue to increase market share—even at the expense of short-term earnings

Cows

Investment—Capacity maintenanceEarnings—High Cash-flow—Positive (net cash contributor)Strategy ImplicationsMaintain market share and cost leadership

until further investment becomes marginal

“Cash Cow”

Dogs

Investment Gradually reduce capacity

Earnings—High to lowCash-flow

Positive (net cash contributor) if deliberately reducing capacity

Strategy Implications Plan an orderly withdrawal to maximize cash flow Or

differentiate for niche

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-sustaining

Stars 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 (cont’d)

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 marks Trade further opportunities for present cash flow

Under invest in the stars Allow competitors to gain share in a high growth

market Over milked the cash cows

Three Paths to Failure (cont’d)

High Low

High

Low

Market Growth Rate

Relative Market Share

GE McKinsey Multi-Factor Matrix

Originally developed by GE’s planners drawing on McKinsey’s approaches

Market attractiveness is based on as many relevant factors as are appropriate in a given context

Business-position assessment also made on a many factors SBU needs to be rated on each factor

GE Multifactor Portfolio Matrix

Invest/Grow

Selectivity/earnings

Harvest /Divest

Industry Attractiveness

Bu

sin

ess

Str

eng

ths

High

High

Medium

Medium

Low

Low

Protect Position

Invest to Build

Build selectively

Build selectively

Selectively manage for

earnings

Limited expansion or harvest

Protect & refocus Divest

Manage for earnings

Some Limitations of the GE Model

Subjective measurements across SBUsProcess also highly subjective

From the selection and weighting of factors to the subsequent development of both a firm’s position and the market attractiveness

Businesses may have been evaluated with respect to different criteria

Sensitive to how a product market is defined

END OF DAY 5