1. 1-1 McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved C H A P T E R TWO Corporate Strategy Decisions and Their Marketing Implications 2

2. 1-2 2-2 Ryanair  1991 pre low cost adad  Low cost no frills  Own planes Boeing 737s  Fast turn around 25 minutes on ground  Under utilized Regional airports  Lower fees, Best on time  Carry and stow own bags, no in-flight services  Flight attendants pay for own training and uniformtraining

3. 1-3 2-3 More RyanairRyanair  Pays no fees to computer reservations systems and no commissions  Competition from Major airlines  Easyjet Easyjet  Marketing costs same per passenger- kilometer  Too much growth?  Documentary Documentary

4. 1-4 2-4 Scope, mission and intent  What business(es) should the firm be in?  What customer needs, market segments, and/or technologies should be focused on”?  What is the firm’s enduring strategic purpose or intent?

5. 1-5 2-5 Discussion Questions 1. In defining their strategies, should companies pursue broadly or narrowly defined missions? 2. What are the advantages of each approach? Marketing Myopia Fit or Future

6. 1-6 2-6 Exhibit 2.2 Characteristics of Effective Corporate Mission Statements BroadSpecific Functional Based on customer needs Transportation 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 Source: Adapted from Strategy Formulation: Analytical Concepts, by C. W. Hofer and D. Schendel. Copyright © by West Publishing Company. All rights reserved.

7. 1-7 2-7 Sustainable?  3% currently do a good job  2/3rds have code of ethics  Chevron Chevron  To bribe or not to bribe

8. 1-8 2-8

9. 1-9 2-9 Objectives  What performance dimensions should the firm’s business units and employees focus on?  What is the target level of performance to be achieved on each dimension?  What is the time frame in which each target should be attained?

10. 1-10 2-10 Discussion Question 3. What are some common performance dimensions and measures used to specify corporate objectives?

11. 1-11 2-11  S pecific  M easurable  A ttainable  R elevant  T ime-bound  Multiple objectives/Trade offs

12. 1-12 2-12

13. 1-13 2-13 Discussion Question 4. What kind of company resources provide the foundation for effective competitive and marketing strategies? What human, technical, or other resources or competencies available to the firm provide a basis for a sustainable competitive advantage?

14. 1-14 2-14 Samsung  Korean  R&D  Marketing to improve brand Marketingbrand  Changed Channel emphasis

15. 1-15 2-15 Development Strategy  How Can the firm achieve a desired level of growth over time?  Can the desire growth be attained by expanding the firm’s current business?  Will the company have to diversify into new businesses or product-markets to achieve its future growth objectives?

16. 1-16 2-16 Discussion Question 5. Ansoff says there are four strategies for growing a business. What are their merits and drawbacks?.

17. 1-17 2-17 Ansoff: Corporate Growth Strategies

18. 1-18 2-18 Exhibit 2.5 Alternative Corporate Growth Strategies Market penetration strategies Increase market share Increase product usage Increase frequency of usefrequency Increase quantity used New applications Product development strategies Product improvements Product-line extensions New products for same market Market development strategies Expand markets for existing products GeographicGeographic expansion Target new segmentsnew Diversification strategies Vertical integration Forward/backward integration Diversification into related bus (concentric diversification) Diversification into unrelated businesses (conglomerate diversification) Current productsNew products Current markets New markets

19. 1-19 2-19 Resource allocation  How should the firm’s limited financial resources be allocated across its businesses to produce the highest returns?  Of the alternative strategies that each business might pursue, which will produce the greatest returns for the dollars invested?

20. 1-20 2-20 Discussion Question 6. What models can we use at the corporate level to help in resource allocation decisions?

21. 1-21 2-21 Resource Allocation: The BCG Growth Share Matrix (Exhibit: 2.6.) High Low Stars Dogs Question marks 100.1 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 10 13 1 2 3 1112

22. 1-22 2-22 Cash Flows Across Businesses in BCG Portfolio Model (Exhibit 2.7.) Growth rate (cash use) High Low Stars Cash cows Dogs Question marks HighLow Relative market share Desired direction of business development Cash Flows

23. 1-23 2-23 Resource Allocation: The GE Nine-Cell Matrix (Exhibit: 2.8.) Business’s competitive position High Low Medium Industry attractiveness HighMediumLow 112 123 233 1 Invest/grow 2 Selective investment/ maintain position 3 Harvest/divest

24. 1-24 2-24 Factors Affecting the Creation of Shareholder Value (Exhibit: 2.9.) Creating shareholder value Shareholder return Dividends Capital gains Corporate objective Sales growth Operating profit margin Income tax rate Discount rate Debt Operating Cash flow from operations InvestmentFinancing Working capital investment Fixed capital investment Cost of capital Value growth duration Valuation components Value drivers Management decisions 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.

25. 1-25 2-25 Cone DriveDrive  What is the value of keeping current customers happy?  Use customer equity

26. 1-26 2-26 Sources of Synergy  What competencies, knowledge, and customer-based intangibles (e.g., brand recognition, reputation) might be developed and shared across the firm’s businesses?  What operation resources, facilities, or functions (e.g., plants, R&D, salesforce) might the firm’s business share to increase their efficiency?

27. 1-27 2-27 Discussion Question 7. Where do potential synergies lie at the corporate level?

28. 1-28 2-28  Knowledge-based Synergies  Learning organization  Centralized R&D  Corporate Identity and the Corporate Brand  Disney/The Body Shop/Caterpillar Disney  One brand name for all Cisco Systems, Siemens, IBM  Dual Branding  Individual Branding  Synergy from shared resources  Sharing operational resources across business units  Single plant  Single sales force