Market-Oriented Perspectives Underlie Successful Corporate, Business, and Marketing Strategies This is the latest version 12/25/07 1

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question What does strategy mean? A fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors, and other environmental factors.

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Scope Goals and objectives Resource deployments Identification of sustainable competitive advantage Synergy Exhibit 1.3 Components of Strategy

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Need to be Market Oriented. Persuade customers to buy What company has Generic product, production process, and delivery system Lowest delivered cost Volume, cost, profit margins Short term, reactive Persuade company to have what customers want Augmented product, customer benefits, and market segments Superior customer value Profitable use of resources, market position, customer satisfaction, and loyalty Medium and long-run view of threats and opportunities Internal Orientation Market Orientation Focus Competitive Advantage Objectives Time Horizon

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. How to be a Market-Driven Organization. Keep close to customers and ahead of competition Love the customer more than the product Our legitimacy is based on customer satisfaction Do business the way the customer wants to do it Our mission is to find needs and fill them, not to make products and sell them If we’re not customer-driven, our products won’t be either

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Strategic Planning. …is the managerial process of developing and maintaining a strategic fit between the organization's objectives and resources and its changing market opportunities. Org Objectives Resources Changing Environment Strategic Fit

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. The Role of Strategy. Corporate Mission & Objectives Strategy: Corporate Business Functional Operating Plans

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. An Overview of Marketing Strategies. Strategies based on market dominance: Leader, Challenger, Followermarket dominance Porter generic strategies (strategy on the dimensions of strategic scope and strategic strength): Cost leadership, Product differentiation, Market segmentation Porter generic strategies Innovation strategies: Pioneers, Close followers, Late followers Growth strategies: Intensification, Vertical integration, Horizontal integration, Diversification Management style strategies: Prospector, Analyzer, Defender, Reactor Marketing warfare strategies - draws on parallels between marketing strategies and military strategies. Marketing warfare strategies

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Sun Tzu 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.” (from The Art of War, 6 th century BCE)

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Strategic Marketing. “ Marketing Strategy is a series of integrated actions leading to a sustainable competitive advantage.” John Scully President, PepsiCo ( ) CEO, Apple ( ) Partner, Scully Bros. LLC (1995-Present)PepsiCo

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions 3. Does having a market orientation make sense? What are the advantages and drawbacks? 4. Why do some firms lack orientation towards the market?

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Organizational Marketing Levels. Organizations develop strategies at three structural levels: Corporate level—(corporate marketing) SBU level—(Strategic Marketing) Product/Market level—(Functional Marketing)

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. What is a Strategic Business Unit? (SBU). A set of products or product lines  With clear independence from other products or product lines  for which a business or marketing strategy should be designed Characteristics of a viable SBU?

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Characteristics of a viable SBU. Unique business mission Definable set of competitors Integrative planning done independently Responsible for resource management in all areas Large enough but not so large as to become bureaucratic ( Source: Subhash Jain, Marketing Planning & Strategy, 6 th Ed.)

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Marketing at the SBU Level - Strategic Marketing. Strategic Marketing requires  Detailed understanding of market needs, and  Proactive use of competitive intelligence at the corporate as well as SBU’s levels Strategic Marketing  Focuses on what the firm do best at the SBU level  To secure and maintain a sustainable competitive advantage

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Other Characteristics of Competitive Advantage. Substantiality Sustainability Ability to be leveraged (Source: Strategic Marketing Management, Aakers)

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Seeking Competitive Advantages. Position advantages  Superior customer value  Lower relative total cost Performance advantages  Customer satisfaction, Loyalty, Market Share, Profit Sources of advantages  Superior skills & knowledge, Superior resources, Superior business process

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Key Elements of Marketing Strategy Formulation. The strategic 3 Cs - Customers, Competitors & the Corporation Environment analysis Strategic Marketing Decisions - Where to compete - How to compete - When to compete

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Must have: a clearly defined market a good match between corporate strengths and market needs significant positive differentiation in the key success factors of the business A Viable Marketing Strategy.

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.  Executive summary Current situation and trends Performance review Key issues Objectives Marketing strategy Action plans Projected profit-and-loss statement Controls Contingency plans Exhibit 1.10 Contents of a Marketing Plan

Corporate Strategy Decisions and Their Marketing Implications 2

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Corporate Mission. Broad purposes of the organization General criteria for assessing the long-term organizational effectiveness Driven by heritage & environment Mission statements are increasingly being developed at the SBU level as well

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Exhibit 2.2 Characteristics of Effective Corporate Mission Statements BroadSpecific Functional Based on customer needs Transportati on business Long-distance transportation for large-volume producers of low- value, low-density products Physical Based on existing products or technology Railroad business Long-haul, coal carrying railroad

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Corporate Objectives & Goals. Objective: a long-range purpose  Not quantified and not limited to a time period - e.g. increasing the return on shareholders’ equity Goal: a measurable objective of the business  Attainable at some specific future date through planned actions - e.g. 10% growth in the next two years

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Corporate Culture. The most abstract level of managerial thinking How do you define culture? What is the significance of culture to an organization? How does marketing affect culture in the organization?

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. How do Firms Compete. Value proposition Assets & competencies Function area strategies and programs Implementation

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question 5. Ansoff says there are four strategies for growing a business. What are their merits and drawbacks?.

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Sources of Synergy 1.Knowledge-based synergies 2.Corporate identity-based synergies 3.Corporate branding-based synergies  GE, IBM, Amazon etc.  Virgin Records, Virgin Airlines, etc.  Individual brands such as P & G’s Ivory, Pampers, cheer, Clairol, Olay, etc. 4.Shared resources-based synergy

Business Strategies and Their Marketing Implications 3

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. How SBUs are Defined Product-markets should be clustered into an SBU on the bases of  Technical compatibility  Similarity in customer needs  Similarity in customer characteristics or behavior In practice SBUs are defined by product- markets requiring similar technologies, production facilities, and employee skills

How Business Strategies Differ in Scope, Objectives, Resource Deployments, and Synergy Exhibit 3.4. Dimensions Scope Goals and obj. Adaptability (new product success) Effectiveness (↑ mrkt share) Efficiency (ROI) Resource deployment Synergy Low-cost defender Mature/stable/well- defined domain; mature tech.and cust. segments Very little Low High Generate excess cash (cash cows) Need to seek operating synergies to achieve efficiencies Differentiated defender Mature/stable/well- defined domain; mature tech.and cstmr segment Little Low High Generate excess cash (cash cows) Need to seek operating synergies to achieve efficiencies

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. How Business Strategies Differ in Scope, Objectives, Resource Deployments, and Synergy Exhibit 3.4. Dimensions Scope Goals and obj. Adaptability (new product success) Effectiveness ( ↑ mrkt. share) Efficiency (ROI) Resource deployment Synergy Prospector Broad/dynamic domains; tech. and cust. segments not well-established Extensive High Low Need cash for product dev. (? or *) Danger in sharing operating fac. and programs - better to share tech./mktg skills Analyzer Mixture of defender and prospector strategies Mix. of defender & prospector strats. Mix. of def. & prosp. strats Need cash for prod. dev. but < prospectors Danger in sharing operating fac. and programs - better to share tech./mktg. skills

Understanding Market Opportunities 4

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. The Seven Domains of Attractive Opportunities Macro Level Micro Level Market DomainsIndustry Domains Mission, Ability to Aspirations, Execute Propensity on CSFs for Risk Connectedness up and down Value Chain Team Domains Market Attractiveness Target Segment Benefits and Attractiveness Industry Attractiveness Sustainable Advantage

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question 1. What’s a market? 2. What’s an industry? Is the market vs. industry distinction important? Why or why not?

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Macro Trend Analysis Demographic environment Sociocultural environment Economic environment Regulatory environment Technological environment Natural environment Think of an example of each and its impact

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions 6. Does industry attractiveness matter? Why or why not?

A Tool for Assessing Industry Attractiveness: Porter’s Five Forces Rivalry among existing industry firms Threat of substitute products Bargainingpower of buyers Bargainingpower of suppliers Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal, July-August 1980, p. 33. Threat of new entrants entrants

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Identifying an Industry A firm is a pert of an industry where suppliers of key inputs, processes which create added value, and buyers are similar to other firms in the industry of which the company considers itself a part. Sources of information for macro-level industry analysis: Exhibit 4.12, p. 99

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Understanding Markets at the Micro Level Involves looking individually at customers to understand the attractiveness of the target segment. Attractive opportunities exist when: 1. there is a clearly defined source of customer pain, for some in the target segment, which the offering resolves, 2. the offering provides customer benefits that others do not 3. the target segment is likely to grow and 4. the current segment may provide a springboard for future entry into other segments.

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Understanding Industries at the Micro Level Involves looking at the company and whether it has a sustainable competitive advantage

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. The Team Domains Opportunities are only as good as the people who will pursue them

Measuring Market Opportunities: Forecasting and Market Knowledge 5