1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Corporate Strategy Decisions and Their Marketing Implications 2 C H A P T E R TWO

2. 2-2 Components of a Corporate Strategy oOverall scope and mission of the organization oCompany goals and objectives oSource of competitive advantage oDevelopment strategy for future growth oAllocation of corporate resources across firm’s various businesses oSources of synergy

3. 2-3 Corporate Scope—Defining the Firm’s Mission oClearly stated mission can help instill: oA shared sense of direction oRelevance oAchievement among employees oPositive image of the firm

4. 2-4 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 Source: Adapted from Strategy Formulation: Analytical Concepts, 1st edition, by C. W. Hofer and D. Schendel, Thomson Learning 1978.

5. 2-5 Social Values and Ethical Principles oEthics oIs concerned with the development of moral standards by which actions and situations can be judged oIs more proactive than the law oImportant to craft mission statements specifying explicit social values, goals and programs

6. 2-6 The Marketing Implications of Ethical Standards oUnethical practices can: oDamage the trust between a firm and its suppliers or customers oDisrupt the development of long- term exchange relationships oResult in the likely loss of sales and profits over time

7. 2-7 Corporate Objectives oComponents of an objective: oA performance dimension oA measure or index for evaluating progress oA target or hurdle level to be achieved oA time frame within which the target is to be accomplished oSpecific, Measurable, Attainable, Relevant, and Time-bound

8. 2-8 Enhancing Shareholder Value oManagement’s primary objective: oCapital investments oAcquisitions oBusiness strategies oMany firms set explicit objectives targeted to increase shareholder value oObjectives are sometimes expressed in terms of market value added (MVA)

9. 2-9 The Marketing Implications of Corporate Objectives oManagers can reconcile conflicting goals by: oPrioritizing them oStating one of them as a constraint or hurdle oConsistent customer-focused objectives are: oSatisfaction oRetention oLoyalty

10. 2-10 Corporate Growth Strategies oFirms can head in two major directions for future growth: oExpansion of its current businesses and activities oDiversification into new businesses

11. 2-11 Exhibit 2.5 Alternative Corporate Growth Strategies 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 Market development strategies Expand markets for existing products Geographic expansion Target new segments Diversification strategies Vertical integration Forward/backward integration Diversification into related businesses (concentric diversification) Diversification into unrelated businesses (conglomerate diversification ) Current products New products Current markets New markets

12. 2-12 Allocating Corporate Resources oTwo sets of analytical tools are used: oPortfolio models oValue-based planning

13. 2-13 Portfolio Models oThe Boston Consulting Group’s (BCG) Growth- Share Matrix oResource Allocation and Strategy Implications oQuestion marks–Businesses in high-growth industries with low relative market shares oStars–Market leader in a high-growth industry oCash cows–Businesses with a high relative share of low-growth markets oDogs–Low-share businesses in low-growth markets

14. 2-14 Exhibit 2.6 BCG’s Market Growth Relative Share Matrix High Low Stars Dogs Question marks 100.1 Relative market share Market growth rate (in constant dollars) 10% 1 5 6 9 8 7 Cash cows 4 10 13 1 2 3 1112 Source: From Long Range Planning, Volume 10 (February 1977), Barry Hedley, “Strategy and the Business Portfolio,” Copyright 1977, Elsevier Science. Reprinted with permission.

15. 2-15 Exhibit 2.7 Cash Flows across Businesses in BCG Portfolio Model Growth rate (cash use) High Low Stars Cash cows Dogs Question marks HighLow Relative market share Desired direction of business development Cash Flows

16. 2-16 Exhibit 2.8 The Industry Attractiveness- Business Position Matrix Business’s competitive position High Low Medium Industry attractiveness HighMediumLow 112 123 233 1 Invest/grow 2 Selective investment/ maintain position 3 Harvest/divest

17. 2-17 Value-Based Planning Methods oAssess the economic value of a strategy by examining the cash flows it will generate oEstimate the shareholder value produced by discounting its forecasted cash flows by the business’s risk-adjusted cost of capital

18. 2-18 Exhibit 2.9 Factors Affecting the Creation of Shareholder Value 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 capitalValue growth duration Valuation components Value drivers Management decisions Source: to come

19. 2-19 Sources of Synergy oKnowledge-Based Synergies oCorporate Identity and the Corporate Brand

20. 2-20 Corporate Branding Strategy oA firm might pursue one of three options concerning the corporate brand: oMight serve as the brand name of all or most of the firm’s products in markets around the world oDual branding strategy where each offering carries both a corporate identifier and an individual product brand. oEach product offering might be given a unique brand and identity oA second potential source of corporate synergy is inherent in sharing operational resources