2. Chapter 2 Themes for Class Discussion
The Marketing Implications of Corporate and Business Strategies
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3. What do marketers mean when they say their firms are market oriented?
Company’s primary company goal is to satisfy customer needs
Peter Drucker: The purpose of any business is to win a customer.
True for all parts of the organization, i.e., cross-functional coordination
The above should result in superior profitability

4. Does having a market orientation make sense. What are the advantages
Does having a market orientation make sense? What are the advantages? What might be the drawbacks?
Advantages
Promotes listening to the customer
Happier customers more likely to be more loyal – good for long term profitability
More customer and competitive information is likely to be obtained and used – good for profitability
More likely to identify changes in market and competitive conditions – avoid being blindsided
If the first two steps are done well, the third should take care of itself
Helps employees focus on profit, not sales volume
Possible drawbacks
May lead the firm to seek to satisfy all customer groups – a possible prescription for disaster
Customers may not be able to articulate what they really want and need – and will pay for!
Current customers may not be the most attractive target – must avoid tyranny of current customers, if others are more attractive
Implies tailoring products to different needs of different segments – may be costly
Implies need for research – costs money, may slow reaction to market changes

5. Companies often talk about their strategies? 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.
The definition suggests that a strategy should specify:
What (objectives to be accomplished)
Where (on which industries and product-markets to focus)
How (which resources and activities to allocate to each product-market to meet environmental opportunities and threats and to gain a competitive advantage)

6. In defining their strategies, should companies pursue broadly or narrowly defined missions? What are the advantages of each approach?
Advantages of a narrowly defined mission
Helps focus scarce resources
Provides clear guidance re what should be done
Clarifies competencies needed in the firm
Can lead to better understanding of a narrow customer group or focused technological domain
Advantages of a broadly defined mission
Larger market to serve
Facilitates evolution of the firm’s strategy with market and technological changes: e.g., railroads  transportation
Helps avoid being blind-sided
In short, no easy answer here. One key (Abell 1980) is to think in terms of
Customer groups
Customer functions or needs to be satisfied
Technology employed (broadly defined)
Example - Disney: Jim Collins and Jerry Porras (HBR 1996) argue that while a company’s practices and strategies should change continually, its core ideology should not; i.e.:
Its core values: a handful of guiding principles by which it navigates
Disney: imagination and wholesomeness
Its core purpose: its most fundamental reason for being
Disney: to make people happy
What does Disney’s core ideology tell its leaders about what kinds of products or services to offer and not to offer, or what markets to serve?

7. Exhibit 2.9 Alternative Corporate Growth Strategies
Current products
New products
Market penetration strategies
Increase market share
Increase product usage
Increase frequency of use
Increase quantity used
New applications
Product development strategies
Product improvements
Product-line extensions
New products for same
market
Current
markets
Market development strategies
Expand markets for existing products
Geographic expansion
Target new segments
Diversification strategies
Vertical integration
Forward/backward integration
Diversification into related bus (concentric diversification)
Diversification into unrelated businesses (conglomerate diversification)
markets
New
Ansoff says there are four strategies for growing a business. Let’s consider their merits and drawbacks.
Which growth strategies require what new capabilities?
Product development: ability to understand new technology, new processes
Market development: ability to understand new customers and their needs
Which are riskier? Safest? Why?
Safest: market penetration
Most risky: diversification
Others are intermediate in risk 5

8. Ultimately the goal for the firm, and for each SBU, is to gain sustainable competitive advantage. What key decisions are necessary to get there?
Decide what is the SBU’s competitive domain or scope? Which market segments can it target, and which customer needs can it satisfy?
Once a scope is defined, decide how much and how will resources be allocated within an SBU?
Decide how the business unit can distinguish itself from competitors in its target market(s)? What distinctive competitive competencies can it rely on to achieve a unique position relative to its competitors?

9. Tools for Allocating Resources in Diversified Companies: The BCG Growth Share Matrix
High
Low
Stars
Dogs
Question marks 10
0.1
Relative market share
Market
growth
rate
(in
constant
dollars)
10% 1
Source: Adapted from Barry Hedley, “Strategy and the Business Portfolio,” Long Range Planning 10 (February 1977). 5 6 9 8 7
Cash cows 4 13 2 3 11 12
Why is the BCG model useful?
It analyzes the impact of investing resources in different businesses on the corporation’s future earnings and cash flows.
It gives a company a quick glance on where their business units fall in an industry in terms of market share and market growth. This in turn can help generate competitive strategies to improve or maintain a position in the market.
What are its limitations?
Market growth rate is an inadequate descriptor of overall industry attractiveness.
Relative market share is inadequate as a descriptor of overall competitive strength.
The outcomes of a growth-share analysis are highly sensitive to variations in how growth and share are measured
While the matrix specifies appropriate investment strategies for each business, it provides little guidance on how best to implement those strategies.
The model implicitly assumes that all business units are independent of one another except for the flow of cash.

10. Exhibit 2.11 Cash Flows Across Businesses in the BCG Portfolio Model
Question
marks
Stars
High
Growth rate (cash use)
Cash
Flows
Low
Dogs
Cash cows
Which kinds of businesses consume cash?
Stars, especially in their high-growth stages
Question marks
Dogs (though not be design!)
Where does the cash come from?
Cash cows
External financing
High
Low
Relative market share
Desired direction of business development 8

11. Tools for Allocating Resources in Diversified Companies: The GE Nine-Cell Matrix
competitive position
Business’s
High
Low
Medium
Industry attractiveness 1 2 3
How would you assess competitive position and industry attractiveness?
Factors to assess competitive position
Size
Growth
Relative share
Customer loyalty
Margins
Distribution
Technology
Marketing skills
Patents
Factors to assess industry attractiveness
Competitive intensity
Price levels
Profitability
Technological sophistication
Government regulations
1 Invest/grow
2 Selective investment/ maintain position
3 Harvest/divest

12. Exhibit 2.13 Factors Affecting the Creation of Shareholder Value
Creating
shareholder
value
Shareholder return
Dividends
Capital gains
Corporate
objective
Valuation
components
Cash flow
from
operations
Discount
rate
Debt
Value growth duration
Sales growth
Operating profit margin
Income tax rate
Working capital investment
Fixed capital investment
Cost of capital
Value
drivers
Which elements in this picture are most influenced by marketing decisions?
Sales growth (through marketing mix decisions)
Operating profit margins (through pricing and marketing spending decisions)
Management
decisions
Operating
Investment
Financing
Source: Reprinted with permission of The Free Press, A Division of Macmillan, Inc., from Crating Shareholder Value by Alfred Rappaport. Copyright © 1986 by Alfred Rappaport. 10