1 Strategic Planning • The process of developing and maintaining a fit between a compan y’s goals and capabilities and its changing marketing opportunities • It involves: – Defining company vision/mission – Specifying objectives – Designing portfolio of products/businesses – Coordinating functional strategies Three Levels of Strategy in an Organization Business unit strategy • Mission • Business goals • Competencies Corporate strategy • Vision • Corporate goals • Philosophy and culture Research & development Information systems Finance Marketing Manufacturing Human resources Functional strategy
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Strategic Planning
• The process of developing and maintaining a fit between a compan y’s goals and capabilities and its changing marketing opportunities
• It involves:– Defining company vision/mission– Specifying objectives– Designing portfolio of products/businesses– Coordinating functional strategies
Three Levels of Strategy in an Organization
Business unit strategy• Mission• Business goals• Competencies
Business unit strategy• Mission• Business goals• Competencies
Corporate strategy• Vision• Corporate goals• Philosophy and culture
Corporate strategy• Vision• Corporate goals• Philosophy and culture
Research &development
Informationsystems
Finance Marketing
Manufacturing
Human resources
Functional strategy
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Components of Strategy
• Scope• Breadth of strategic domain: number and types of industries, product lines, market
segments. Reflects company mission and strategic intent (vs. Strategic fit)• MCI... Core business (long distance), Contiguous business (fastest growing sector -
communications related products: wireless paging, Internet, local service), Content (invested $2 billion in News Corp): Vision of Bert Roberts, Chairman
• MMM• PCL
• EllisDon• Mattamy
Components of Strategy
• Goals and Objectives• Desired level of accomplishment on one or more performance dimensions and the
growth vector
• Resource deployments• Allocation of human, financial and other resources across businesses, markets, etc.
• Identification of a sustainable competitive advantage• What are the distinctive competencies or strengths relative to competitors?• MMM• PCL• EllisDon• Mattamy
• Synergy• Improving overall efficiency and effectiveness by exploiting syn ergies across
businesses and product markets
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Market Oriented Vision / Missions
COMPANY
PRODUCT-ORIENTED VISION/MISSION STATEMENTS
MARKET-ORIENTED VISION/MISSION STATEMENTS
Revlon We make cosmetics.
Disney We run theme parks.
Wal-Mart We run discount stores.
We sell lifestyle and self expression;success and status;memories, hopes and dreams.
We provide fantasies andentertainment -- a place where America still works the way it is supposed to.
We offer products and services that deliver value to middle Americans.
Market Oriented Vision / Missions
COMPANY
PRODUCT-ORIENTED VISION/MISSION STATEMENTS
MARKET-ORIENTED VISION/MISSION STATEMENTS
MMM
PCL
EllisDon
Mattamy
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The Strategic Marketing Process:
1. Situation and SWOT analysis
2. Market-product focus & goal setting
3. Marketing programs
1. Situation Analysis: The Three Cs
Company
Customers
Competitors
•Market Potential (size, growth rate)
•Customer Behavior(wants and needs, segmentation, price sensitivity)
•Market Potential (size, growth rate)
•Customer Behavior(wants and needs, segmentation, price sensitivity)
• Fit company strengths and weaknesses to the opportunities in theenvironment
– Analyze current SBU’s– Which SBU’s should receive more, less, or no investment?– Develop growth strategies
2. Identify SBUs
• Single business standing alone from rest of company
• Having own competitors to equal or surpass
• Has own manager who is responsible for strategic planning and profit
• Examples?
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3. Evaluate your Current Portfolio
• The Boston Consulting Group (BCG) Matrix
• The General Electric (GE) Approach
Portfolio Analysis: The BCG Matrix
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Strategies Associated with the BCG Matrix
• Business unit strategy:
Manage your portfolio
• Marketing/product strategy:
Build
Hold
HarvestDivest
Limitations of the BCG
• Beyond growth rate:– Barriers to entry– Long term, stable consumer demand
– High ROI relative to other options
• Beyond market share:– Technological leadership
– Related competencies• Distribution strength• Supplier relationships• Management skills• Leverage/extend brand equity
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General Electric’s stoplight strategy chart
Mar
ket a
ttra
ctiv
enes
s
Business positionStrong Medium Weak
High
Medium
Low
Green band = “Go” signal = Build Yellow band = “Caution” signal = Hold
High ov
erall a
ttractiv
eness
overal
l
Low ov
erall a
ttractiv
eness
Med
ium
attrac
tivenes
s
B A
C
Red band =“Stop” signal = Divest
Competitive Analysis
• Market structure– Leader– Follower
– Nicher
• Defining competition– Industry Based Definition
– Market Based Definition• Substitutes
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Porter’s Five Forces
Bargaining Power of Suppliers
Bargaining Power of Buyers
Intensity of Competitive
Rivalry & Barriers to
Exit
Barriers to Potential Entrants
Substitutes in Other
Industries
External environment
• Political trends-- “politically correct,” partisan• Regulatory trends – what’s (il)legal• Economic trends: macro, micro• Social and Cultural trends
– Changing family, immigration
• Technological trends• Other:
– Demographic trends
– Natural resources
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Agenda for Competitor Analysis
• Introduction
• Competitive Analysis – Strengths and Weaknesses– Behaviors
• Competitive Strategy for dealing with competition– Game Theory
– Porter’s 5 Forces Framework
Competitive Analysis and Strategy
• Competitive analysis answers …– What is driving competition in this industry or industries the firm may consider
joining?
– What actions are competitors likely to take, and what are the best responses?– How will the industry evolve?
• … in order to set strategy, which answers– How should the firm be positioned to compete in the long-run?
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Competitive Analysis
Current position and strategy – Market share and sales– Target market and positioning– Marketing mix (4 P’s)– Manufacturing and R&D– Financial strength
Capabilities: Ability to…– Design new products– Manufacture
– Market– Finance
– Manage
Future Goals– Product portfolio– Share or profit– Product Differentiation or Cost
Leadership
Step 2: Market-product focus & goal setting
1. Set market & product objectives
2. Select target markets
3. Find points of difference
4. Position the product
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Step 3: Marketing Programs
Marketing MixMarketing Mix
Target MarketTarget Market
ProductProduct Variety
Quality
Design
Features
Brand Name
Packaging
Sizes
Services
Warranties
Returns
PlaceChannels
Coverage
Assortments
Locations
Inventory
TransportPriceList Price
Discounts
Allowances
Payment Period
Credit Terms
PromotionSales Promotion
Advertising
Sales Force
Public Relations
Direct Marketing
Current marketing situation (3 C’s)
Opportunity and issue analysis (3 C’s)
Objectives
Marketing strategy(4 P’s)
Action programs(4 P’s)
Project profit-and-loss statement
Background data on sales, costs, profits, market, competitors, distribution, and environment.
Identifies the main opportunities/threats, strengths/weaknesses.
Defines plan’s financial and marketing goals in terms of sales volume, market share, and profit.
Presents the broad marketing approach that will be used to achieve the plan’s objectives.
Presents the special marketing programs designed to achieve the business objectives.
Forecasts the plan’s expected financial outcomes.
The Marketing Plan- Integrating the 3 C’s and the 4 P’s -
Adapted From: Philip Kotler, Marketing Management, pg. 89.
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Ansoff Product-Market Expansion Grid
Market Penetration
Market Development
Product Development
Diversification
ExistingMarkets
NewMarkets
Existing Products New Products
Strategy: Porter’s Five Forces Model
IndustryCompetitors
Rivalry amongexisting firms
Suppliers
PotentialEntrants
Customers
Substitutes
Threat ofnew entrants
Bargaining powerof suppliers
Bargaining powerof customers
Porter’s Five Forces Model - Each Force is a Threat
Threat of substitute offerings
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Existing Rivalry More Intense If:
• Numerous or equally balanced competitors• Slow industry growth• High fixed costs• Low customer loyalties or switching costs• Added capacity comes in large increments• Diverse competitors• High strategic stakes• High exit barriers
– Specialized assets, emotional barriers, government and social restrictions (e.g., concerns for job losses, etc)
Threat of New Entry
• Barriers to entry– Economies of scale– Brand loyalties– Capital requirements– Switching costs independent of loyalties– Access to distribution– Cost disadvantages independent of scale
• Market Attractiveness
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Expected Reactions of Firms
• Conditions that signal strong retaliation– Firms with history of retaliation to entrants– Firms with substantial resources
• Cash and unused debt and/or equity capacity
• Excess productive capacity• High leverage with channels or customers
– Firms with commitment to industry and high levels of idiosyncratic assets employed in it
– Slow industry growth
The Entry Deterring Price
• Structure of prices that just balances ...– the potential rewards from entry that are forecast by the potential entrant with– the expected costs of overcoming structural barriers to entry and costs of
retaliation
• If prevailing prices exceed the entry deterring price, entry will occur
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Bargaining Power of Customers
• Customers compete for lower prices
• Customers tend to be powerful when …– They represent a large portion of the firm’s sales– Offerings represent large portion of their expenditures– Offerings are undifferentiated
– Switching costs are low– They pose a credible threat of backward integration
– Quality of offerings is not important to them– They have full information
• Big customers are attractive and dangerous (e.g., Walmart)
Bargaining Power of Suppliers
• Suppliers “compete” with the industry by trying to force costs higher
• Suppliers tend to be powerful when …– They are concentrated– There are few substitutes to their offerings– The industry is not an important customer of theirs’
– Their offerings are important inputs to the firm’s– Their offerings are differentiated or there are high switching costs
– They pose a credible threat of forward integration– They have full information
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Customer or Competitor Orientation?
• Focus on competitors: Aggressive and alert for changes
• Focus on customers: Align resources to customer needs
• Bring in customers - Increase industry demand. • Educate consumers about your product • Pay customers (esp. early adopters)
• Subsidize some customers, other full paying customers will follow (Initial discount to lower risk)
• Become your own customer
• Bring in suppliers• Bring in complementors
• Do it yourself. • Encourage complementors to come (Banking)
• Bring in competitors• License technology to make money, avoid complacency• Create a second source to encourage buyers to adopt technology
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Changing the added value
• Limit your supply• DeBeers and diamonds
• Raise amount consumers are willing to pay
• Policies that build loyalty (frequent flier miles) increase will ingness to pay - GM / Ford credit cards; Intuit
• Lower competitors’ value
• Questions to ask :
• What is your added value?• How can you increase value by changing supply, buyers, suppliers, complementors, or
substitutors in your value net?
• What is the value added by other players? Should you be increasing or decreasing their added values?
Changing the rules
Questions to ask are:
• Which rules are helping you? Which ones are hurting you? Rules can be for pricing, advertising, product variety, satisfaction, etc.
• What kinds of contracts are you willing to write with your buyers and suppliers? Do you want Match Competition Clauses? What does this do for you?
• Do you have the power to change the rules? Does someone else have the power to overturn them?
• Can you signal your commitment credibly
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Changing tactics
Questions to ask are:• How do other players perceive the game? How do these perceptions affect the play of the game? • Which perception do you want to keep, which to change?
• Do you want the game to be transparent or opaque? When do you want to send signals that benefit you? When do you want to preserve the fog?
• To establish credibility (clear the fog)
– Accept a pay-for-performance contract– Offer guarantees or advertise
– Ask others to demonstrate their credibility to you• To preserve the fog
– Create complexity (long distance calling rates)– Bluff: Ask yourself whether you will be believed and under what circumstances– Ask what others stand to gain by preserving the fog, and what they could be bluffing about
Changing tactics
• Competitive stances that can be used to clear / add to the fog
Top Dog Fat Cat
Puppy DogLean &Hungry
Being Big
Being Small
AppearTough
AppearSoft
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• Fishbowl. This exercise brings everybody with an ax to grind on a given issue together in one room, with advocates of certain points of view in the center of the
• Red team / blue team. assign managers to teams representing major competitors and have them plan the strategies they would use to beat us.
• Future mapping. This is a fancy name for a way of looking at different scenarios for the future. We look at several alternative futures, or "end states," for our business, assign a probability to each one, and identify the forces that will determine whether that scenario will happen.
The Strategy Game
Strategic objectives for share leaders
• Typically the pioneer or initial entrant• Share maintenance objectives
• Retain current customers by:
– Maintaining and improving loyalty – Encourage / simplify repeat purchase– Reduce attractiveness of switching
• Stimulate selective demand among later adopters
– Head-to-head positioning against competition – Differential positioning against competition
• Attract new customers from lateradopters via better price / features
Market characteristics • Homogeneous market• Little preference or loyalty for existing
brandsCompetitors’ characteristics • Vulnerable to direct attack
• Few R&D and marketing resources
Firm’s characteristics • Stronger R&D, marketing resources thantarget competitor and / or
• Lower operating costs
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Leapfrog
Primary objective • Induce current buyers to switch to asuperior product offering
• Attract new customers via superiorbenefits
Market characteristics • Relatively homogeneous w.r.t. customerneeds and purchase criteria
• Some needs or criteria are currentlyunfulfilled
Competitors’ characteristics • One or more current competitors has strongmarketing competencies but relativelyweaker R&D capabilities
Firm’s characteristics • Firm has proprietary technology• Has necessary marketing and production
resources to stimulate and meet primarydemand for next generation products
Flank attack
Primary objective • Attract share of new customers inmarket segments where needs aredifferent from those of early adopters
Market characteristics • Two or more segments with distinct needs• Needs of at least one segment not currently
metCompetitors’ characteristics • Strong target competitor able to withstand
direct attack
Firm’s characteristics • Resources limited but sufficient topenetrate and serve at least one majormarket segment
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Encirclement
Primary objective • Attract share of new customers inseveral smaller, specialized segmentswhose needs are different from those ofearly adopters
Market characteristics • Heterogeneous• Some segments not currently served
Competitors’ characteristics • Strong competitors capable of withstandingdirect attack
Firm’s characteristics • Decentralized and adaptable managementstructure
• Resources to serve several small segments
Guerrilla attack
Primary objective • Capture modest share of repeat,replacement purchases in several marketsegments or territories
• Attract a share of new customers in anumber of existing segments
Market characteristics • Heterogeneous market, several segments• Needs of most currently being satisfied by
competitionCompetitors’ characteristics • Number of strong competitors capable of
direct attack
Firm’s characteristics • Limited resources• Decentralized and adaptable management
structure
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Rubbermaid’s growth strategy
Objectives for the 1990s
1. Corporate objective is to increase sales, earnings, and EPS 15% a year, while achieving a 20% return on shareholders’ equity
2. Pay approx. 30% of current year earnings as dividends to shareholders while using the remainder to fund future growth
3. Each year, 30% of sales are projected to come from new products introduced over the past 5 years. It is planned to enter an entirely new market every 12 to 18 months
4. The objective for customers and consumers is to offer the best value possible. Highest quality products at a reasonable price, a continuous flow of new products, and exceptional service to customers
5. Treat all constituents fairly and consider the interests of associates as individuals6. Aim to be an environmentally responsible corporate citizen
Rubbermaid’s growth strategy
• Incremental growth• Focus on growth within the company’s businesses that was responsive to customer needs and in turn,
provided value to these customers
• Leap growth• High visibility and high vulnerability• Win big or lose big
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Rubbermaid’s incremental growth strategy
• To increase the value of Rubbermaid’s existing products. The key to this growth area was in providing value to dealers, distributors, and consumers. The key to value is providing quality, low cost and service
• To upscale existing products to meet today’s consumer and new design preferences. Upscalingincludes introducing new colors to existing lines
• To extend existing lines to capitalize on product successes, increase retail shelf space, and boost sales volume
• To expand Rubbermaid’s international business as a significant growth opportunity during the 1990s
Rubbermaid’s leap growth strategy
• To develop new products. Goal is to have at least 30% of annual sales coming from new products introduced during the past 5 years
• To hone product lines and optimize the number of stock units retained to keep the lines manageable and provide proper customer service le vels
• To enter entirely new markets. This is consistent with the corporate objective to enter a new market every 18-24 months
• To engage in joint ventures or acquisitions to enter new markets by combining the capabilities of a strong outside partner with the many strengths of Rubbermaid
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Implications
High
Price
Low
LowCost-to-serve
High
C
B
D
A
Value axis
Power axis
1
2
4
3
Growth markets
• Share gains are easier. Due to• Gaps or undeveloped segments in the market
• Lower risk of retaliation from share leader given growth
» Problem: Leader has higher expectations given growth• Share gains are worth more
• Based on the expectation that earnings produced by each share point expands as market expands. This depends critically upon
» Changes in technology and other success factors » Competitive structure (large number of new entrants: PC)» Market fragmentation
• Price competition less intense?• Early entry necessary to maintain technical expertise
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Marketing strategies for mature markets
Maintain current market share• Maximize flow of profits over the remaining life which (could be several
decades)• Need to maintain repeat purchases via customer satisfaction• For large players
– Use fortress defense to» improve customer satisfaction and loyalty» encourage and simplify repeat purchasing
– Expand product line or launch flanker brands• For small players
– Avoid prolonged direct confrontation with the “big guys”– Niche strategy
Extend volume growth....(later)
Marketing strategies for mature markets
Extend volume growth• Sales depend upon
(1) Number of persons buying product(2) Number of units purchased per person(3) How often the product is purchased
• So, one of the following strategies can be used
– Increased penetration strategy– Increased frequency of use– Wider variety of uses
• Market expansion strategy
– Underdeveloped domestic markets (BDI / CDI analysis)– New customer or application segments– Produce private labels– Global expansion via sequential strategies
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Marketing strategies for mature markets
• Assess the relative attractiveness of declining markets
• Conditions of demand
– speed of decline, certainty of decline, existence of pockets of enduring demand, extent of product differentiation in market, price stability
• Exit barriers
– reinvestment requirements, amount of excess capacity, age of assets, resale market for assets, extent of facilities shares with other SBUs, extent of vertical integration, number of single product competitors
• Intensity of future competitive rivalry
– bargaining power of customers, customer switching costs, diseconomies of scale
Marketing strategies for mature markets....
• Divestment or liquidation• Strategies for remaining competitors
• Harvesting
• Maintenance• Profitable survivor
• Niche
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Problem
• Not easy to tell when a market has reached maturity• Variations in brands, marketing programs, and customer groups can mean that
different brands and segments reach maturity at different times
• Industry stability also affected by threats and opportunities• Customer preferences can shift• Product substitutes may appear
• Raw material costs may increase• Changes in government regulation
• Entry of low-cost foreign producers• Mergers and acquisitions
• Product improvements• Process technology improvements• Other environmental factors
Strategic issues
• Shakeout• declining growth rate
• potential for overestimating future demand, hence over capacity• competition intensifies as volume increases needed to cover fixed costs• weaker businesses fail, withdraw or acquired
• Maturity• volume stabilizes
• replacement sales dominate• continued satisfaction and loyalty of existing customers key• not all segments and all brands reach maturity simultaneously
• possibility of extending life via new uses, applications or creative marketing• Decline
• divest, liquidate or hang-on?• consolidation
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Shakeout
• Excess capacity
• More intense competition
• Difficulty in maintaining differentiation
• Distribution problems
• Pressures on prices and profits
Strategic traps during shakeout
• Failure to recognize events signaling the beginning of a shakeout...hence optimistic forecasts
• Stuck without a clear strategic advantage during shakeout
• Failure to recognize declining importance of product differentiation and increasing importance of price and / or service
• Giving up market share in favor of short term profits...hence priced out of the market
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Strategies to beat the commodity magnet
• Pro-active strategies• Value-added strategy• Process innovation strategy
• Reactive strategies• Market focus strategy
• Service innovation strategy
• Demand side: Value added & Market focus• Supply side: Process innovation & Service innovation
International Marketing Strategy
• Strategic Alliances• Global Companies
– International Firm • Take our domestic practices overseas
– Multinational firm• Customize strategies to each market