Second Meeting R Mkg 690 Dr. S. Borna

LECTURE OUTLINE 1. Strategic Planning 2. Meaning of “Strategy” 3. A Brief History of Marketing Strategy Strategy 4. The Hierarchy of Strategies

5. Major Steps in Strategic Planning At Corporate, Strategic Business Unit (SBU), and Product Levels (SBU), and Product Levels 6. Marketing Environments 7. Meaning of Environment LECTURE OUTLINE (CONT.)

8. Different layers of Environment 8. Different layers of Environment 9. Marketing Macro Environment 9. Marketing Macro Environment 10. Characteristics of the Macro-Environment

LECTURE OUTLINE (CONT.) 11. Strategic Environmental Issue Management a. Environmental Scanning b. Key Environmental Issue Identification

c. Impact Evaluation d. Formulation of Response Strategies LECTURE OUTLINE (CONT.)

A BRIEF HISTORY OF MARKETING STRATEGY By: Schnaars Chapter 2 The Free Press

Different Usage of the Term “Marketing Strategy”

Marketing Strategy at Macro Level: Identification of target market(s) and designing an appropriate marketing mix for that market(s).Identification of target market(s) and designing an appropriate marketing mix for that market(s).

There are also marketing element strategies: marketing element strategies: For example: skimming vs. penetration price strategies Finally, Product-market Entry Strategies

Historical Trends in Marketing Strategy 1950s Budgeting Search for overall Corp. Strategy overall Corp. Strategy 1960s Long Range Planning 1970s Formula Planning 1980s Strategic Thinking

Budgeting No explicit strategyNo explicit strategy Emphasis on control rather than strategyEmphasis on control rather than strategy An interest in integrating functions of organization: production, finance, marketing etc.

Key Characteristics of Long-Range Planning Objectives and GoalsObjectives and Goals Long-Range ForecastingLong-Range Forecasting

Formula Planning Decline of Formula Planning Theoretical but Impractical The notion that an effective strategy can be constructed by someone in an ivory tower is totally bankrupt. (1970s)

Ritualistic Rather than UsefulRitualistic Rather than Useful (planning became ritualistic and mechanistic) (Relied on data rather than (Relied on data rather than marketing instincts. Moved marketing instincts. Moved away from customers and competitors) Problems with forecasting Problems with forecasting

Strategic Thinking From Forecasting to Competitive AdvantageFrom Forecasting to Competitive Advantage From elitism to egalitarianismFrom elitism to egalitarianism

From competitors to competitors and consumersFrom competitors to competitors and consumers From calculation to creativityFrom calculation to creativity

What is competitive Advantage? Competitive advantage is some- thing that allows a firm to earn higher-than-average profits

What is Strategy? The art and science of adapting and coordinating resources to the attainment of an objective.

Three Recurring Themes Environmental analysisEnvironmental analysis Firm’s resourcesFirm’s resources Objective and goalsObjective and goals

ResourcesOpportunityObjectives Adapted To To Attain

A company can outperform rivals only if it can establish a difference that it can preserve. The essence of strategy is choosing to perform activities differently than rivals do.

According to Porter (HBR 1996) Strategy is the creation of a unique and valuable position, involving a different set of activities.

Strategic Positions Can Be Based On: 1. Variety-based Positioning ex. Jiffy Lube ex. Jiffy Lube 2. Needs-based Positioning (segmentation) ex. Ikea (segmentation) ex. Ikea 3. Access-based Positioning ex. Carmike Cinemas ex. Carmike Cinemas

Porter’s Main Points: 1. Distinguish between Operational efficiency and strategy 2. Identify a unique strategic position position 3. Consider trade-offs (do not be Jack of all trades.) Jack of all trades.) 4. Strategic positions should have a horizon of a decade or more.

The components of strategy 1. Scope (industries, products market segments etc.) market segments etc.) 2. Goals and objectives 3. Resource deployment 4. Identification of a sustainable competitive advantage competitive advantage 5. Synergy (the whole becomes grater than sum of its parts grater than sum of its parts

Three Organizational Levels 1. Corporate Level ( Corporate strategy) ( Corporate strategy) 2. Business Level (Business-level strategy) (Business-level strategy) 3. Product Level ( functional strategies) ( functional strategies)

Strategic Planning at the Corporate Level

STRATEGIC PLANNING PROCESS (AT CORPORATE LEVEL) CORPORATEMISSION S.B.U.IDENTIFICATION PORTFOLIOANALYSIS GROWTHSTRATEGIES

Strategic Planning Strategic Planning at the Corporate Level Consists of : Defining Corporate MissionDefining Corporate Mission Defining Corporate ObjectivesDefining Corporate Objectives

Strategic Planning (Cont.) Corporate Development Strategy (growth strategies)Corporate Development Strategy (growth strategies) Allocating Corporate Resources (corp. portfolio evaluation & strategy)Allocating Corporate Resources (corp. portfolio evaluation & strategy)

FACTORS THAT INFLUENCE THE CORPORATE MISSION ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS ORGANIZATIONS PAST HISTORYORGANIZATIONS PAST HISTORY MANAGEMENT PREFERENCEMANAGEMENT PREFERENCE

DEFINING THE ORGANIZATION’S MISSION WHAT BUSINESS(ES) ARE WE IN?WHAT BUSINESS(ES) ARE WE IN? WHAT BUSINESS(ES) SHOULD WE BE IN?WHAT BUSINESS(ES) SHOULD WE BE IN? HOW TO ALLOCATE OUR RESOURCES AMONG DIFFERENT UNITS?HOW TO ALLOCATE OUR RESOURCES AMONG DIFFERENT UNITS?

CRITERIA FOR DEFINING THE CORPORATE MISSION Target customers and MarketsTarget customers and Markets Principle Products or ServicesPrinciple Products or Services Geographic DomainGeographic Domain

Core TechnologiesCore Technologies Concern for Survival, Growth and profitabilityConcern for Survival, Growth and profitability PhilosophyPhilosophy Self conceptSelf concept Public ImagePublic Image CRITERIA FOR DEFINING THE CORPORATE MISSION THE CORPORATE MISSION

MISSION STATEMENT BROADSPECIFIC Long Distance Trans. for large-vol, producers of low value, low-density products low-density products RailroadBusiness Long-Haul Coal- Carrying Railroad FUNCTIONAL based on consumer needs PHYSICAL based on existing products or technology BusinessTransportation

A MISSION STATEMENT To provide low-cost personal motorized transportation for low- to moderate income consumers through providing small cars designed with most fuel-efficient technology. To provide low-cost personal motorized transportation for low- to moderate income consumers through providing small cars designed with most fuel-efficient technology.

COMPANY OBJECTIVES: MEASURES OF PERFORMANCE EXAMPLE: To realize an average return of 15% on investment over the next five years.

Objectives and Strategies Objectives are ends strategies are means of achieving these ends.Objectives are ends strategies are means of achieving these ends.

Boston Consulting Group (BCG) STARS QUESTIONMARKS CASH COW DOGS MARKETGROWTHRATE RELATIVE MARKET SHARE 2% 6% 10% 20% 16% 10x 4x 1x0.4x0.1x ?

LIMITATIONS OF BCG METHOD INTERDEPENDENT AMONG SBU’S, MARKET GROWTH RATE AS A PROXY MEASURE OF INDUSTRY ATTRACTIVENESS IS INADEQUATE. INTERDEPENDENT AMONG SBU’S, MARKET GROWTH RATE AS A PROXY MEASURE OF INDUSTRY ATTRACTIVENESS IS INADEQUATE. cont.

RELATIVE MARKET SHARE AS PROXY MEASURE OF COMPETITIVE STRENGTH IS INADEQUATE. Limitations Of BCG Cont.

LIMITATIONS OF BCG METHOD (CONTINUED) CLASSIFICATION IS SENSITIVE TO VARIATIONS IN HOW “GROWTH” & “SHARE” ARE MEASURED.CLASSIFICATION IS SENSITIVE TO VARIATIONS IN HOW “GROWTH” & “SHARE” ARE MEASURED.

General Electric Method strongmediumweak high medium low Competitive Position (Mkt Share, Growth, Quality, Network) MarketAttractiveness (Mkt Size, Growth Rate, Profit Margin, Competition)

MARKET ATTRACTIVENESS Overall market sizeOverall market size Annual market growth rateAnnual market growth rate Historical profit marginHistorical profit margin Competitive intensityCompetitive intensity Technological requirementsTechnological requirements Inflationary vulnerabilityInflationary vulnerability Energy requirementsEnergy requirements

MARKET ATTRACTIVENESS (CONTINUED) Environmental impactEnvironmental impact Social/political/legalSocial/political/legal

COMPETITIVE POSITIONS Market shareMarket share Share growthShare growth Product qualityProduct quality Brand reputationBrand reputation Distribution networkDistribution network Promotional effectivenessPromotional effectiveness Unit costUnit cost Material suppliesMaterial supplies R&D performanceR&D performance Managerial personnelManagerial personnel

competitive position strong mediumweak high medium low hydraulicpumps joints aerospacefittings fuel pumps relief valves clutches flexiblediaphragms

Corporate Growth Strategies Internal Growth 1. Market Penetration 2. Market Development 3. Product Development

Corporate Growth Strategies External Growth Integrative Growth 1. Backward Integration 2. Forward Integration 3. Horizontal Integration

Corporate Growth Strategies External Growth Diversification 1. Concentric Diversification 2. Conglomerate Diversification

Strategic Business Unit 1. It is a single business or collection of related businesses businesses 2. It has a distinct mission 3. It has its own competitors

4. It has a responsible manager 5. It can benefit from strategic planning 6. It can be planned independently of other businesses

The Business Unit Strategic Process Business MissionBusiness Mission Environmental AnalysisEnvironmental Analysis Goal FormulationGoal Formulation Strategy FormulationStrategy Formulation Program FormulationProgram Formulation ImplementationImplementation Feedback and ControlFeedback and Control

Marketing Strategy Planning 1. Identification of the target market(s); 2. Designing appropriate marketing mix for that market(s).

MARKETING ENVIRONMENT

WHAT DO WE MEAN BY ENVIRONMENT? The environment is the totality of forces that are external and potentially relevant to the particular agent.

Rapid Change of Environmental Forces 1. Economy 2. Technology 3. Governmental Regulation 4. Cultural Environment 5. Political Environment

To Identify Environmental Forces, Ask Two Questions 1. Can I do anything about it? 2. Does it matter relative to my objective?

Environmental Forces 1. Environmental Forces are boundless 2. It is difficult to detect and interpret environmental forces forces CHARACTERISTICS:

3. Environmental forces are difficult to control 4. Since environmental forces are diverse, it requires are diverse, it requires diversity of expertise to diversity of expertise to handle these forces. handle these forces.

Layers of Product’s Environment Product Intraorganization Environment Task Environment Macro-Environment Global

Intraorganizational Environment Other Corporate Departments and Personnel. Other Corporate Departments and Personnel.

Task Environment SuppliersCompany MarketingIntermediaries Market

MACROENVIRONMENT Cultural EnvironmentCultural Environment Economic EnvironmentEconomic Environment Technological EnvironmentTechnological Environment Natural EnvironmentNatural Environment

GLOBAL ENVIRONMENT International ChangesInternational Changes

Strategic Environmental Issue Management 1. Environmental Scanning 2. Key Environmental Issue Identification Identification 3. Impact Evaluation 4. Formulation of a Response Strategy Strategy

Alternative approaches to environmental Scanning Nature of Scanning Activity: Irregular Irregular Ad-hoc studies Ad-hoc studies Regular Regular Periodically updated studies Periodically updated studies Continuos Continuos Structured data collection and Structured data collection and processing system processing system

Scope of Scanning Specific Events Selected Elements Broad range of environmental components

Impetus for scanning Crisis initiated Problem areas planning process

Strategic Orientation ReactiveProactiveProactive

Time frame for data Retrospective Current and retrospective Current and prospective

Time frame for decision impact Current and near term Near term Long term

Organizational Responsibility Specially designed teams Various staff services Environmental Scanning Unit

Which of these three environmental scanning approaches is suitable for your organization? Answer: Depends on the firm’s potential vulnerability to environmental forces

Key environmental Issue Identification Identification Somehow the system (the firm) must determine: 1. The probability that an issue can materialize into a threat can materialize into a threat or an opportunity; or an opportunity; 2. The degree of impact it can have on the firm. on the firm.

KEY ENVIRONMENTAL ISSUE IDENTIFICATION PROBABILITY HIGHLOW HIGH LOW IMPACT

Few examples: 1. Interstate barriers to bank are lowered lowered 6. Antitrust actions are taken against large banks large banks 9. Government regulation favors non-bank financial institutions non-bank financial institutions 2. Technological breakthroughs occur in information processing in information processing

Impact Evaluation You have to answer the following questions: 1. Does the issue represents a threat or opportunity? or opportunity? 2. How significant will its impact on the performance of the firm? the performance of the firm?

3. What is the likely timing of the impact impact 4. What specific marketing areas will be affected? will be affected?

IssueA Profit impact Time horizon 5 year 10 year 15 year 30%20%10% Uncertainty on impact Uncertainty on timing IssueB C

Formulation of a Response Strategy Strategy Reactive Strategy Proactive Strategy

Response Strategies to Environmental Issues: 1. Opposition (N. Rifle A.) 2. Adaptation (usually compulsory ex. Auto industry ex. Auto industry mandatory fuel mandatory fuel standards) standards) 3. Offensive Strategy Waste Management Inc.: Waste Management Inc.: How to improve waste disposal? How to improve waste disposal?

4. Redeployment Strategy: Example Tobacco Industry and Example Tobacco Industry and diversification diversification 5. Contingency Strategy: If saccharin is band in drugs If saccharin is band in drugs foods, soft drinks, etc. foods, soft drinks, etc. 6. Passive strategy: (do nothing wait and see strategy) wait and see strategy)