Strategy
• Lecture #8
“Strategy”
• Greek word origin (~400 B.C.)
• Pertained to the art and science of directing military forces
Six Basic Strategies
• Stability
• Product Development
• Market Development
• Vertical Integration
• Merger
• Retreat
Stability
• No new products, markets, acquisitions
• For example: Retain current market share.
• For example: 11% of market; 110,000 unit sales
Product Development
• New products for an existing market.
• Same customers will buy continuing line of products.
• Products aimed at same customer base.
Product Development
• RCA TV, Video Recorders, Video Discs
• Cereals: Plain, sugared, frosted, colors, shapes, characters, etc.
Chocolate Frosted Sugar Bombs
Market Development
• New markets for existing products
• New uses for existing products
• New geographic markets for existing products
Market Development
Market Development
• Japanese sports car to the U.S.
• Tried to get car renamed, because the translated name was “Fairy Princess”
• Automaker agreed to market the car using the internal production number
Market Development
• 8 oz. Servings
U.S. per capita: 310 / year
Russia per capita: / year
China per capita: / year
Vertical Integration
• Firm incorporates pre- or post- operation enterprise into its business
Tire Manufacturer Example
Tire Manufacturer
• Rubber Tree Plantation
• Rubber Processing Plant
• Tire Manufacturer
• Retail Store
• Consumer
Tire Manufacturer
• If buys out Rubber Processing Plant, this is known as Backward Vertical Integration
• Rubber Tree Plantation• Rubber Processing Plant• Tire Manufacturer• Retail Store• Consumer
Tire Manufacturer
• If buys out Retail Store chain, this is known as Forward Vertical Integration
• Rubber Tree Plantation• Rubber Processing Plant• Tire Manufacturer• Retail Store• Consumer
Vertical Integration
• Eliminates Middleman
• Which results in more profit potential for the firm
• ALSO…
Vertical Integration
• Reduces uncertainty
• For example, what happens if your supplier dries up?
• Or, your retail outlet no longer chooses to carry your product?
Merger
• A type of diversification.
• Firm enters a related business area. Examples: Mattel buys Tyco, Hershey buys Peter Paul.
• Firm enters unrelated business area. Example: Ralston Purina buys the Blues
Merger
Merger
• PepsiCo owns Pepsi Cola
• PepsiCo owns Frito Lay
PepsiCo
Retreat
• Firm gets out of businesses it once thought were good opportunities.
• Example: Ralston Purina
Ralston used to own:
• St. Louis Blues hockey team
• Tuna fishing operation
• Mushroom growing business
Retreat at Ralston
• Sold off these divisions
• Got back to basics
