Marketing Strategy

Str ate gic and Mar keting Planning

Benefits of Planning Consistency Consistency

Commitment Commitment

Responsibility Responsibility

Benefits Benefits of of Planning Planning

Communication Communication

Direction Direction

Approaches to Planning #1:

#2:

#3:

Top Down

Bottom Up

Goals Down, Plans Up

Sun Tze on Strategy • “Know your enemy, know yourself, and your victory will not be threatened. Know the terrain, know the weather, and your victory will be complete.”

Organizational Marketing Levels Hofer and Schendel suggested that organizations develop strategies at three structural levels: • Corporate level—(corporate marketing) • SBU level—(Strategic Marketing) • Product/Market level—(Functional Marketing)

The Strategy Hierarchy Corporat e Level

Strategic Business Unit Level

Corporate Strategy • Mission and vision • Objectives • Business portfolio strategy • Resource development • Corporate values

SBU Strategy

Strategic Planning • Investment Management • Growth & Company Position • Strategy

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

Functio nal Marketing Strategy Level of R&D Strategy Production Finance and Marketing SBU Technology and operation administration objectives Product markets strategies

Product development

strategy

Strategy

Human resources Strategy

Corporate, Business and Marketing Strategy Model • Business portfolio Corporate Strategy • Capital investments and • Building core resource allocation competencies • Corporate culture • Corporate structure

Focus Economic value added

• Product/market portfolioBusiness Strategy • Resource allocation • Distinctive competenciesFocus • Product-markets • Developing competitive • Business culture Economic position • Strategic cost • Competitive advantage value added management • • • • •

Sharehold er Value

Business Value

Marketing Strategy Markets Focus Products and services • Developing market Customer Profit-yielding strategies position Customer value Value Brand management • Customer satisfaction creation, maintenance and Profit improvement defence

Strategic-Planning, Implementation, and Control Process Planning Corporate planning

Implementation Organising

Division planning Business planning Product planning

Control Measuring results Diagnosing results

Implementing Taking corrective action

Corporate Plan Objectives Objectives Address Two Questions:

Where do we want to be? When do we expect to get there?

Planning Terms • Vision: the long term, “I have a dream” • Mission: purpose of organisation • Objective: a shorter term goal leading to the achievement of the Mission • Strategy: a description of the method of achieving the objective • Tactic: the short term application of the strategy

BHAG • Objectives of BHAG • A powerful way to stimulate progress; it reaches out and engages people • Articulating some common goal towards which the entire organisation is focused on • Characteristics of BHAG • Long term orientation, 10-30 years • Can be achieved with difficulty (Probability 50-70%) • Self explanatory, does not need explanation • Moves beyond current capabilities, skill sets and product lines

Types of BHAG

Sony’s BHAG & Vivid Description

Corporate Mission • Broad purposes of the organization • General criteria for assessing the longterm organizational effectiveness • Driven by heritage & environment • Mission statements are increasingly being developed at the SBU level as well

Examples of Corporate Mission SINGAPORE AIRLINES is engaged in air transportation and related businesses. It operates world-wide as the flag carrier of the Republic of Singapore, aiming to provide services of the highest quality at reasonable prices for customers and a profit for the company

Examples of Corporate Mission MARRIOTT’S Mission Statement: We are committed to being the best lodging and food service company in the world, by treating employees in ways that create extraordinary customer service and shareholder value

Corporate Culture most abstract level of managerial • The thinking • How do you define culture? is the significance of culture to • What an organization? does marketing affect culture in • How the organization?

Corporate Objectives & Goals • An objective is a long-range purpose • Not quantified and not limited to a time period • E.g. increasing the return on shareholders’ equity

• A goal is a measurable objective of the business • Attainable at some specific future date through planned actions • E.g. 10% growth in the next two years

Porter’s five forces model POTENTIAL ENTRANTS Bargaining power of suppliers

SUPPLIERS Threat of Substitute Products or Services

Threat of entry

INDUSTRY COMPETITORS

BUYERS

Rivalry among Bargaining power of Existing Firms buyers

SUBSTITUTES

Porter’s five-forces model (2) Threat Threatofof new newentrants entrants

Bargaining Bargainingpower power ofofsuppliers suppliers

Competitive Competitive rivalry rivalry

Threat Threatof of substitutes substitutes

Bargaining Bargainingpower power ofofbuyers 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.

Porter’s five-forces model (3) Threat Threatofof new newentrants entrants

Bargaining Bargainingpower power ofofsuppliers suppliers

Competitive Competitive rivalry rivalry

Threat Threatofof substitutes substitutes

Bargaining Bargainingpower power ofofbuyers 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 seller’s 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.

Porter’s five-forces model (4)

Threat Threatofof new newentrants entrants

Bargaining Bargainingpower power ofofsuppliers suppliers

Competitive Competitive rivalry rivalry

Threat Threatofof substitutes substitutes

When the barriers to industry entry are low, there are: •no cost advantages for existing competitors •a lack of product differentiation •low capital costs for market entry •relatively easy access to distribution channels.

Bargaining Bargainingpower power ofofbuyers buyers

Porter’s five-forces model (5) Threat Threatofof new newentrants entrants

Bargaining Bargainingpower power ofofsuppliers suppliers When there are only a few large suppliers, the supplier’s 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.

Competitive Competitive rivalry rivalry

Threat Threatofof substitutes substitutes

Bargaining Bargainingpower power of ofbuyers buyers

Porter’s five-forces model (6) Threat Threatofof new newentrants entrants

Bargaining Bargainingpower power of ofsuppliers suppliers

Competitive Competitive rivalry rivalry

Threat Threatofof substitutes substitutes

Bargaining Bargainingpower power ofofbuyers buyers

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

Porter’s four generic business strategies

Business Portfolio Analysis

Outline •

Introduction

•

BCG (Boston Consulting Group) Matrix

•

GE(General Electric)/McKinsey Multi-Factor 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 • Many 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 by • Balancing cash flows among business units, and • Balancing stages in the product life-cycle (PLC)

The BCG Matrix

(Log Scale)

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 (1.0 RMS) means it is not the leader • The vertical axis is the industry growth rate . • The horizontal rate is usually set at 10% market growth

The BCG Matrix Relative Market Share High Low High Market Growth Rate Low

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

The Strategic Implications of the BCG • Question marks • Selective investments; divestiture for weak firms or those with uncertain prospects and lack of strategic fit. • Dogs • Divestiture, harvesting, or liquidation and industry exit. • Co then considers acquisitions, divestments and new ventures to get a “balanced” portfolio

Question Marks (Problem Children)

• Investment—heavy initial capacity expenditures and high R&D costs • Earnings—negative to low • Cash-flow—negative (net cash user) • Strategy Implications

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

Stars • Investment—continue to invest for capacity expansion • Earnings—Low to high earnings • Cash-flow—Negative (net cash user) • Strategy Implications

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

Cows • • • •

Investment—Capacity maintenance Earnings—High Cash-flow—Positive (net cash contributor) Strategy Implications

• Maintain market share and cost leadership until further investment becomes marginal

Dogs • Investment

• Gradually reduce capacity

• Earnings—High to low • Cash-flow

• Positive (net cash contributor) if deliberately reducing capacity

• Strategy Implications

• Plan an orderly withdrawal to maximize cash flow

Example of a BCG Matrix for a Engineering company in India Relative Market Share High

Low

High Product Sales Growth Rate

Lighting

Fan Motor

Pumps

Low

Transformer

Switchgear

Boston Consulting Group portfolio analysis for Kodak, as it might appear in 2004

Kodak digital camera

Kodak film sales: US, Canada, & W. Europe

Kodak digital photo printer

Kodak selfservice kiosk

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 caution • Fail to look at “dependencies” among SBUs wrt transferring competencies, economies of scope,etc.

GE(General Electric)/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

Industry attractiveness

High High

Business Strength Medium Low

Protect Position

Invest to Build

Build selectively

Selectively Limited Build Medium selectively manage for expansion earnings or harvest Low

Protect & Manage for refocus earnings

Divest

Invest/Grow Selectivity /earnings Harvest /Divest

GE Multifactor Portfolio Matrix (Cont’d)

Industry attractiveness

High

Business Strength Medium Low

High

Medium

Invest/Grow Selectivity /earnings

Low

Harvest /Divest

Some Limitations of the GE Model • Subjective measurements across SBUs • Process 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

Ansoff’s Growth Vector Matrix PRODUCTS / SERVICES

Present

New

Market penetration

Product / Service development

New

MARKET

Present

Market development

Diversification

Using the Ansoff Matrix in the Objective-setting Process PRODUCTS / SERVICES

Establish ed New

MARKET

Establish New ed Market penetration (1) Product / Service development (2)

High Risk Market development (3)

Diversification (4)

The Strategic-Planning Gap Desired Desired sales sales

Diversification growth

Strategicplanning gap

Sales

Integrative growth Intensive growth Current Current portfolio portfolio

0

5 Time (years)

10

Successful Planning Successful marketing planning requires: Commitment

Time

Understanding

The McKinsey 7-S Framework Structure Structure

Strategy Strategy

Systems Systems Shared Shared values values

Skills Skills

Style Style Staff Staff

Profit improvement options Profit Improvement Sales Growth

Market Penetration

Market Development

Productivity Improvement

Product Development

Take Increase New Convert Existing competitors’ usage Segments non-users Markets customers

Existing Assets

Change Asset base

New Markets

Cost Reduction

Growth focus

Improve asset utilisation (experience and efficiency

Increase Price

Cash and margin focus Investment • innovation • diversification

Divestment • redeployment of capital resources

Capital utilisation focus

Improve product sales mix ( margin)

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

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

TARGET CUSTOMERS INTENDED POSITIONING

6. PLACEMENT for customer service Channels Coverage Locations Inventory Logistics management

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

The Marketing Environment DemographicEconomic Environment

g ti n ke ol ar tr M Con

PoliticalLegal Environment

Target Price Consumers Promotion

Competitors

Publics

Im M pl ark em e en ting ta t io n

M An ark al eti ys ng is

Place

Product

g tin g ke in ar n M lan P

Suppliers

TechnologicalNatural Environment

Marketing Channels

SocialCultural Environment

PEST Analysis – Political •Ecological/environmental issues •Current legislation home market •Future legislation •National /international legislation •Regulatory bodies and processes •Government policies •Government term and change •Trading policies •Funding, grants and initiatives •Home market lobbying/pressure groups •International pressure groups •Wars and conflict

PEST Analysis – Economic •Home economy situation •Home economy trends •Overseas economies and trends •General taxation issues •Taxation specific to product/services •Seasonality/weather issues •Market and trade cycles •Specific industry factors •Market routes and distribution trends •Customer/end-user drivers •Interest and exchange rates •International trade/monetary issues

PEST Analysis – Social •Lifestyle trends •Demographics •Consumer attitudes and opinions •Media views •Law changes affecting social factors •Brand, company, technology image •Consumer buying patterns •Fashion and role models •Major events and influences •Buying access and trends •Ethnic/religious factors •Ethical issues

PEST Analysis – Technological •Competing technology development •Research funding •Associated/dependent technologies •Replacement technology/solutions •Maturity of technology •Manufacturing maturity and capacity •Information and communications •Consumer buying mechanisms/technology •Technology legislation •Innovation potential •Technology access, licensing, patents •Intellectual property issues •Global communications

The strategic marketing process: actions and information

Slide 22-13

THE PLANNING PHASE OF THE STRATEGIC MARKETING PROCESS • The Variety of Marketing Plans  Long-Range Marketing Plans  Annual Marketing Plans

Slide 22-15