McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. C H A P T E R Developing A Product Strategy: - Setting Objectives - Choosing a Marketing Strategy 7

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Quick Review Ch.2: Boundary of your business domain Chs. 3-5: Analysis of Major Stakeholders Ch. 6: Your prediction about future  Potential and Forecasting Ch. 7: Strategy (to achieve your objectives)  Target (Competitive & Customer)  Positioning (Value Proposition)

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Action Plan Where are we headed?  How will we get there?  What will we do? 

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. A Successful Strategy: Helps achieve coordination among functional areas of the organization. Defines how resources are to be allocated. Leads to a superior market position.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Elements of a Product Strategy 1.Statement of the objective(s) the product should attain* 2.Selection [Consideration] of strategic alternative(s) 3.Selection of customer targets 4.Choice of competitor targets 5.Statement of the core strategy 6.Description of supporting marketing mix. 7.Description of supporting functional programs

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Hierarchy of Objectives Company mission/vision Corporate objectives Corporate strategies Divisional objectives Divisional strategies Product/brand objectives Brand strategies Program objectives Tactics Level I Level 0 Level III Level II Level IV

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 1. Setting Objectives 1.Characteristics of Good Objectives 1.Quantified standards 2.Challenging 3.Milestone 2.Two Major Decisions 1.Which Objective to Pursue? 2.How High it should be?

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2. Consideration of Strategic Alternatives 1.Corporate Objectives 2.Two Major Paths 1.Increasing Sales/Market Share 1.Market Development Strategy 2.Market Penetration Strategy 2.Increasing Profitability 1.Decreasing Inputs 2.Increasing Outputs

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Alternatives Long-term profits Growth in sales or market share New segments Market development Convert nonusers New product development Competitors’ customers Efficiency, short-run profits Reduce costs Decrease inputs Improve asset utilization Increase price Increase outputs Improve sales mix Existing customers Market penetration

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Criteria for Evaluating Strategic Alternatives Size/growth of the segment Opportunities for obtaining competitive advantage  Know Yourself Resources available to penetrate the segment

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning Choice of Customer Targets Choice of Competitor Targets Statement of the Core Strategy =Value Proposition Economic (cost/price) Advantage Functional Advantage Psychological Advantage

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Target Segments for Handspring

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning (cont’d) Five Areas of Differentiation Quality Convenience and Service Status and Image Branding Distribution Channels

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Joint Space for Colas Diet Noncola Fresca Diet Pepsi Tab Segment 3 Pepsi RC Cola Segment 2 Nondiet Cola Dr Peppe r 7-Up Segment 1 Coke Diet Rite

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Total Product Concept Generic product Expected product Augmented product Potential product

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Managing Brand Equity Reduced marketing costs Trade leverage Attracting new customers Create awareness Reassurance Time to respond to competitive threats Anchor to which other associations can be attached Familiarity-liking Signal of substance/ commitment Brand to be considered Provides value to customer by enhancing customer’s: Interpretation/ processing of information Confidence in the purchase decision Use satisfaction Brand loyalty 4. Brand loyalty Brand loyalty 1. Brand awareness Brand loyalty Brand equity

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Brand Equity (cont’d). Reason-to-buy Differentiate/position Price Channel member interest Extensions Help process/ retrieve information Reason-to-buy Create positive attitude/feelings Extensions Provides value to firm by enhancing: Efficiency and effectiveness of marketing programs Brand loyalty Prices/margins Brand extensions Trade leverage Competitive advantage Brand loyalty 3. Perceived quality Brand loyalty 2. Brand associations Brand loyalty Brand equity Competitive advantage Brand loyalty Other proprietary brand assets

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning (cont’d) Values Being Sought by Customers (Rackham) Transactional Sales: Intrinsic Value Consultative Sales: Extrinsic Value Enterprise Sales: Strategic Value Relationship Life Cycle and Strategy Customer Acquisition Customer Retention Customer Expansion Customer Deletion*

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Making Sense of A Strategy Jungle Strategy at different levels Corporate or Business Level: Porter’s Generic Strategy Functional Level Strategies: Cost Leadership: Fixed Cost and Variable Cost Differentiation: Supply side and Demand side Focus: Segmentation Relationship Life Cycle-based Strategy Product Life Cycle-based Strategy: First mover advantage

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategy Over the Life Cycle

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 4. Supporting Marketing Mix & Programs Product and Brand Pricing Marketing Channels Communication: ex) Advertising and Sales Promotion

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Illustration: Handspring Objective : To capture 15 percent of the PDA market by the end of year 2 Customer Targets: Price-conscious professionals Nonbusiness professionals Nonprofessionals Palm Sharp Competitive Targets: Core Strategy: Simplicity/convenience Low price Expandability (via expansion slot)