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2016-03-01 Course Outline - 1 Strategic Marketing Management Strategic Marketing vs. Marketing Planning – Introduction Mission & Objectives establishing the corporate mission influences on objectives and strategy guidelines for establishing objectives and setting goals Analysing the Product Portfolio models of portfolio analysis market attractiveness and business position assessment criticism of portfolio analysis 2 Course Outline - 2 Course Outline - 3 Strategic Gap Analysis and Growth&Consolidation Strategies Allocation Strategies Demand Growth Strategies types of the strategic gap growth strategies consolidation strategies Strategies for Market Leaders growth fast growth selective growth aliance optimalization market position defence market exit strategies 3 strategies based on the number of buyers strategies based on the level of consumption selective demand growth strategies position defence flanking defence preemptive defence counteroffensive defence mobile defence contraction defence 4 1 2016-03-01 Course Outline - 4 Strategies for Market-Challengers frontal attack flank attack encirclement attack bypass attack guerilla attack Strategies for Market-Followers& Nichers Assignment following closely following at a distance following selectively 70% final exam (test with open-ended questions) 30% case study/ies: (written preparation: 2-5 pages; case is to be done in groups: 2-3 persons) Strategies for different PLC stages strategies strategies strategies strategies in in in in the the the the introduction stage growth stage maturity stage decline stage 5 Lesson 1. Designing Marketing Strategies Lesson 1. Designing Marketing Strategies Outline Strategic Marketing vs. Marketing Planning – Introduction 2 2016-03-01 Levels of strategy (1/2) Strategic Marketing vs. Marketing Planning. An Introduction Levels of strategy (2/2) Corporate strategy Business strategies Operational & functional strategies ‘Corporate’ or ‘Marketing’? Vision Corporate strategy Mission Business strategy (SBU 1) Business strategy (SBU 3) Operations Objectives Corporate Objectives Business strategy (SBU 3) Corporate Strategy Functional strategies Marketing Objectives HRM Objectives Marketing Strategy Logistics Objectives R&D Operations Marketing HRM Finance Marketing Tactics 3 2016-03-01 Source: Weitz & Wensley,1998 Strategy / Tactics Corporate versus Marketing Strategy Tactics Importance More importance Less importance Corporate strategy Conducted by Senior managers Junior managers Concerned with overall, long term organisational direction Concerned with day-to-day performance and results Timeframe Long term Short term Frequency Continuous Periodic Provides the long-term framework for the organisation Represents only one stage in the organisation’s development Problem Unstructured / unique high risk / low certainty Structured repetitive Functional and professional orientation tends to predominate. Information External, subjective futuristic Accounting & marketing research Overall orientation needed to match the organisation to its environment Detail Broad Specific Goals and strategies are evaluated from an overall perspective. Goals are subdivided into specific targets Ease of evaluation Difficult Easy (relative) Relevance of goals and strategies is only evident in the long-term Relevance of goals and strategies is immediately evident Corporate Strategic Planning defining the corporate mission (vision) establishing SBU assigning resources to each SBU planning new business, downsizing & terminating older businesses Marketing Marketing Planning Analysis Planning Implementation Control 4 2016-03-01 The Organisation’s Marketing Environment Analysis The economy Analysis External Demography Cultural forces Suppliers Internal Distributors & dealers Market demands Macroenvironment Microenvironment SWOT The organisation Social factors Competitors Customers Legal structures Political structures Technology References Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003 Lesson 2. Designing Marketing Strategies 5 2016-03-01 Lesson 2. Designing Marketing Strategies Outline Mission & Objectives Mission Mission & Objectives establishing the corporate mission influences on objectives and strategy guidelines for establishing objectives and setting goals describes the organisation’s basic function in society explains why the company exists provides the commercial logic for the company needs to be converted into everyday performance is a cultural glue that enables the organisation to function as a unity Corporate Mission - Fundamental Questions What is our business? Who is the customer? What is of value to our customer? What will our business be? What should our business be? 6 2016-03-01 Infuences on the mission statement company’s history preferences, values and expectations of managers & owners environmental factors available resources distinctive competences Mission or/and vision vision gives general sense of direction to the company, is the orientation point that guides the company vision ignores real. practical problems, vision can degenerate to wishful thinking mission is about here and now, vision refers to the future, mission is designed to motivate, vision – not! Workable mission brief – easy to understand and remember flexible – to accomodate change distinctive – to make the firm stand out Objectives S Specific - descriptive, succinct and provide clarity throughout the organization as to what is to be achieved M Measurable - clearly state tangible targets that can be measured in the future A Aspirational - challenging but achievable, motivational R Realistic - based on sound market analysis, financial, human & physical resources should underpin the objectives T Timebound - a timescale should be set against the achievment of each objective in order for performance measurement to be undertaken 7 2016-03-01 Marketing Objectives e.g. Objectives hierarchy Corporate objectives – increase profits rate of return on investment net profits cash flow total sales revenue sales volume market share consumer awareness number of distribution outlets average realized price Production objectives – cut costs Personnel objectives – reduce headcount Marketing obejctives – increase revenue Objectives for the mix Product (10% of revenue ) Price (skimming) Promotion (recall) Place (coverage) Eight strategic trade-offs facing firms (1/2) short term profits vs. long term growth profit margins vs. competitive position direct sales effort development effort vs. market penetration of existing markets vs. the development of new markets Eight strategic trade-offs facing firms (2/2) related vs. non-related new opportunities as a source of long-term growth profit vs. non-profit goals growth vs. stability ‘riskless’ environment vs. high-risk environment 8 2016-03-01 References Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003 Lesson 3 & 4 Designing Marketing Strategies Outline Analysing the Product Portfolio - models of portfolio analysis - market attractiveness and business position assessment - criticism of portfolio analysis Lesson 3 & 4 Designing Marketing Strategies Corporate Strategic Planning defining the corporate mission (vision) ---------------------------------------- establishing SBU assigning resources to each SBU planning new business, downsizing & terminating older businesses 9 2016-03-01 SBU - Main Characteristics SBU Defining SBU is a pasrt of the company that for all intents and purposes has its own distinct products, markets and assets single business (or collection of related businesses) that can be planned separately from the rest of company has its own competitors has its own manager....... Portfolio Evaluation Frameworks Analysing the Product Portfolio BCG’s Growth Share Matrix GE Multifactor Matrix Shell Directional Policy Matrix ---------------------------------------------------- Abell & Hammond’s Investment Opportunity Matrix Arthur D. Little Strategic Condition Matrix 10 2016-03-01 BCG’s Growth Share Matrix (traditional approach) Taking a Portfolio Approach 100 % analysis based around evaluating SBU activities models help you think strategically about the business and its resources and provide analytical frameworks. But: Question marks Stars Market growth 10 % rate Cash cows Dogs 0% 1x O,5 x 0x Relative market share BCG Matrix & PLC introduction growth Stars High share, high growth, still needs support Infants Neg. Cash flow Question marks Low share, high growth, large neg. Cash flow( maturity Determinants of market attractiveness decline Cash Cows War horses high share, low growth, large positive Cash flow high share, negative growth, positive Cash flow Dogs Low share, Low growth, +/- Cash flow they are over-simplified cannot incorporate ‘risk’ often offer misleading representations of strategic options use over generous measures assume market leadership = benefit ignores competitive strategic factors Market factors (eg size, growth) Competitors Investment factors Technological change Other PEST factors Dodos Low share, negative growth, negative Cash flow time 11 2016-03-01 GE Multifactor Matrix Determinants of business strenght Product quality Distribution Brand reputation Production capacity Management skill High Medium Product attractiveness Low Invest for growth Invest selectively for growth ? Strong Invest selectively for growth ? Harvesting Average ? Harvesting Divest Weak Competitive position More Pros & Cons of taking a Portfolio Approach Shell Directional Policy Matrix Disinvest Phased withdrawal Double or quit Phased withdrawal Custodial Growth Try harder Cash generation Growth Leader Leader Unattractive Average Attractive Weak Average Enterprise’s competitive capabilities Strong BCG at individual SBUs, other matrices look at company’c competences in market sectors, without references to individual products They ignore opportunities of creative segmentation or identifying new niches They assume market is given rather than can be created Markets can be unattractive because has not been analysed sufficiently Marketers must come up with relavant data (decide if the industry is attractive or not) Prospects for sector profitability 12 2016-03-01 BCG’s Growth Share Matrix (practical approach) References 100 Stars Question marks Market 50 attractiveness Dogs Cash cows 0 0 50 100 Competitive position Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003 Lesson 5, 6 & 7. Strategic Gap Analysis and Growth & Consolidation Strategies Lesson 5, 6 & 7. Strategic Gap Analysis and Growth & Consolidation Strategies Outline types of the strategic gap growth strategies consolidation strategies 13 2016-03-01 Gap Analysis Gap Analysis Desired sales Diversification growth Diagrammatical approach to viewing the difference between: Integrative growth Intensive growth Sales The planning gap Where we are going? (in the current way) Current portfolio Where we want to be? (targets for achievement) Time Intensive Growth Ansoff’s Product - Market Matrix Intensive Growth Strategies Product Current Current Market penetration strategy New Product development strategy market penetration strategy market development strategy product development strategy Market New Market development strategy 14 2016-03-01 Market penetration strategy more purchasing and usage form existing customers Market penetration tools gain customers form competitors convert non-users into users Market penetration strategy goals to increase market share through competitive pricing, advertising and sales promotion To secure dominance of growth markets To restructure a mature market by driving out competitors To increase usage by exusting custromers Loyalty programs, Commercial claims New opportunities to use Suggesting additional benefits Price cuts Distribution intensifying Establishing or joining new distribution channels Market penetration strategy Advantages: Synergy effect (marketing synergy, operating synergy, management synergy) Total Cost Time needed Disadvantages: Scale of incerase Predictibility Customer & technology dependance 15 2016-03-01 Market development strategy new market segments Market development tools new distribution chanells new geographic areas Market development strategy Advantages: Use of existing resources Capacity utilization Know-how and experience utilization Disadvantages: Level of risk (new customers, new business context) Lack of management knowlegde New targeting New positioning of the product and/or brand Commercial claims New distribution channels International expansion Price adapted to new clients’ requirements Product development strategy product modifications via new features different quality levels ‘new’ product 16 2016-03-01 Product development strategy Product development strategy Advantages: Forces competitors to innovate Creates bariers for new entrants Capacity utilization More options for customers Stronger barganing position towards distributors Disadvantages: Additional costs Limitations based on Pareto rule Time needed Integrative Growth Strategies Factors stimulating the need for integration: Scarce resources Increased competition Higher customer expectations Pressures form strog distributors Internationalization of markets Changing markets and technologies Turbulent and upredictable markets Source: Hooley, et al. 1998 17 2016-03-01 Integrative Growth Strategies Integrative Growth Strategies Development beyond the present product market, but still within the same market system Horizontal integration (HMS) Vertical integration (VMS) - backward - forward Horizontal integration Horizontal integration S M W R M W R R Refers to development into activities which are competitive or directly complimentary to company’s present activities Horizontal = the same level of marketing system! S M W R M W R R R W R R Customers W R R S – supplier, M – manufacturer, W – wholesaler, R - retailer 18 2016-03-01 Horizontal integration - advantages Horizontal integration - disadvantages Acces to competitors clients, distributors, markets, brands…. Cooperation instead of competition on markets Reduction of R&D costs Strenghtening barganing power Vertical integration Corporate culture maladjustment, Strategy redefinition Schizophrenic corporate identity Vertical integration Company becomes its own: S S M W R M W R R M W R M W R R R W R R Customers supplier of raw materials, components or services (backward vertical integration) distributor or sales agent (forward vertical integration) W R R S – supplier, M – manufacturer, W – wholesaler, R - retailer Vertical = between different levels of MS! 19 2016-03-01 Vertical integration advantages Secure supply of components or raw materials with more control Reduction of supplier barganing power Strenghten the relationships and contacts of the manufacturer with the final consumer of the product Raise barriers to entry New business opportunities Vertical integration disadvantages Diversification Growth Strategies Overconcentration (‘more eggs in the same basket’) Inflexible policy, more sensitive to instabilities Increases the firm’s dependence on particular aspect of economic demand Lack of know-how and experience High risk Diversification Growth Strategies Development beyond the present industry (marketing system) 20 2016-03-01 Diversification Growth Strategies Concentric diversification New client New product Technological consistency concentric diversification horizontal diversification conglomerate (lateral) diversification Concentric diversification - advantages Knowledge & experience Well established cooperation with suppliers & distributors Increasing potential demand thanks to new customers Better adjustment to customer needs&preferences Concentric diversification disadvantages Technological overconcentration Level of risk as a consequence of ‘unknown’ customer New market reality - new competitors 21 2016-03-01 Horizontal diversification The same customer Completely new (unrelated) product Horizontal diversification disadvantages High risk in case of customer unsatisfaction Need to invest into new technology or konw-how Necessity of establishing new business relations Time & costs Horizontal diversification advantages Well recognized customer’s needs, wants & preferencess High level of customer satisfaction and loyalty Can use company’s image and reputation Lateral diversification New clients New products Completely unrelated businesses 22 2016-03-01 Lateral diversification - advantages Risk spreading (protects against the failure of current products& markets) Creates additional souces of profits Helps escape from present business Offer the chance of growth without creating a monopoly Exploit under-utilised resources Can use company’s image and reputation Methods of growth Acqusitions/ mergers Organic growth (achived through the development of internal resources) Corporate: Lateral diversification - disadvantages Acquisition Merger Joint venture Contracual: Dilution of shareholders’ earnings Lack of the common identity and purpose Lack of management experience Costs & risk & time Acquiring already existing businesses from their current owners via the purchase of a controlling interest in another company Joining of two or more separate companies to form a single one Cooperation Licencing Franchising 23 2016-03-01 Acqusitions – advantages (1/2) Buy new product range Buy a market presence Rationalisation of distribution and promotion Eliminate competition Current market protection Higher ulitisation of production facilities ‘buy in’ technologies and skills Obtaining greater production capacity Joint-venture Is a separate business unit created by two or more firms Share funding, cut risk, synergies, technology, learning But also… Conficts of interests, disagreements over profit shares, money invested, management & strategy Acqusitions – advantages (2/2) ‘buy in’ technologies and skills Obtaining greater production capacity Improve purchasing by buying in bulk Safeguard future supplies of raw materials Accesing high quality management Obtain cach resources Obtain tax advantages Overcome barriers of entry Cooperation Firms share data, resource and activities to achieve mutually beneficial objectives Agreements to co-operate on variuos issues, shared research & development, supply chain rationalisation, synergy effects 24 2016-03-01 Licensing A commercial contract whereby the licenser gives something of value to the licensee in exchange for certain performances and payments The royalty for:rights to produce patented product, manufacturing konwhow, technical & marketing advice & assistance, right to use brand… Franchising A method of expanding the business on less capital then would otherwise be possible The franchiser offers: name, googwill, systems & business method, support services The franchisee: provides capital, personal involvement & local market knowledge, takes risk Consolidation/limitation strategies Deinwestment De(z)integration References Prunning Reduction Harvesting Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003 25 2016-03-01 Case study Lesson 8 Allocation strategies Allocation strategies Portfolio Analysis – Allocation Strategies Competitive position To assign company’s resources (money!) to each SBU To settle objectives for each SBU due to company’s strategic goals in accordance with growth or consolidation strategies Weak Market High Attractiveness Low Strong Alliance Fast growth Growth Selective growth Fast growth Growth Selective growth Market position defence Optimization Market exit (gradual) Market exit Market position defence Optimization Selective growth Growth 26 2016-03-01 Allocation Strategies - 1 Allocation strategies - 2 Type of strategy Main objectives Investments Growth & Consollidation Strategies Type of strategy Main objectives Investments Growth & Consollidation Strategies Fast growth Increase market share (offensively) and negative profitabilty Increase marketing as well as R&D investments Diversification Intensive growth Integrative growth Market position defence increase profitability & maintain market share Maintain marketing investments and limit R&D investments Market penetration Harvesting Optimization Growth Increase market share and decrease of profitability Increase marketing as well as R&D investments Intensive growth Integrative growth Increase profitability & reduction of the market share Decrease of total marketing and R&D investments Harvesting Reduction Pruning Disintegration Selective growth Increase market share and maintain profitability Increase marketing and R&D investments (for selected market segments and products) Intensive growth Integrative growth Market exit (gradual) Alliance Parter for alliance search and increase market share Redused marketing and R& D investments through alliance HMS Diversification VMS Intensive growth Increase profitability & considerable reduction of the market share (sales) Decrease of marketing investments, no R&D financial support Reduction Pruning Disintegration Deinvstment Market exit Withdrawal Minimal marketing and R&D investments to maintain the value of the business Dezinvestment Allocation strategies – an example Lesson 9 Competitive position Weak Strong Demand Growth Strategies Selective growth Market High attractiveness SBU3 Growth SBU4 SBU2 SBU1 Low Optimization Market position defence 27 2016-03-01 Process of marketing strategy creation (product level) Corporate strategy general findings (SBU) Determinants of product marketing strategy Analysis of the market situation Marketing goals Marketing strategies (level of product) Expanding the total market Analysis of market situation Selective demand growth strategies Strategies based on the company’s competitive position Marketing budget Strategies for different PLC stages Analysis of market situation – typical components Analysis of market 1. customer analysis situation - external 2. demand analysis 3. competitors analysis 4. distribution analysis 5. suppliers analysis 6. macroenvironment analysis Marketing Objectives Analysis of market 1. former marketing activities analysis situation - internal 2. company’s market position assesment 3. sales analysis 4. marketing costs analysis 5. profitability analysis 6. marketing effectiveness & efficiency analysis 7.customer satisfaction analysis Analysis of situation - outputs market 1. SWOT analysis 2. market segments attractiveness assesment 3.perceptual map 4. PLC assesment 5. sales forecasts 28 2016-03-01 Marketing Budget - dimensions Marketing Budget What costs are included in the marketing budget? Value (total value of financial support in a specific period of time) Percent of the value of sales (it shows the level of intensity of marketing activities) Factors influencing the marketing budget for the product Product innovations Marketing communication Market research Distribution (logistics) Sales Additional services Price discounts Intermediary margins Financial position of the company Scope of common marketing activities Marketing objectives and programs Former marketing budgets Sales forecasts Competitors marketing spendings Average expenditure of the industry 29 2016-03-01 Marketing budget and strategy for the product High budget: Market development product differentiation Offensive strategies First or second phase of the PLC Product development Low budget: Cost leader Defensive strategies Neutral strategies Third or fourth phase of the PLC Reduction as well as pruning strategy Process of marketing strategy creation (product level) Corporate strategy general findings (SBU) Determinants of product marketing strategy Analysis of the market situation Marketing goals Marketing strategies (level of product) Expanding the total market Selective demand growth strategies Strategies based on the company’s competitive position Marketing budget Strategies for different PLC stages Expanding the total market All activities and marketing tools which leads to total market expansion Typically initiated by market leaders and pretenders Effective and efficient in the first and second phase of PLC Expanding the total market Expanding the total market Expanding the number of customers Increasing the scale of usage 30 2016-03-01 Expanding the number of customers Increasing the scale of usage Expanding the number of customers Awareness Average usage /consumption Availability New opportunities Ability to Use Increasing the scale of usage Benefit Deficiency Increasing the value of the product (and price) Faster product replacement Affordability New applications Sea food and fish consumption in Poland Sea food and fish consumption in Poland Total market worth 6.6 billion PLN Average for UE: 21.4 kg, Average consumption 12 kg per person in the year, 60% fresh warter fish, 40% salt water, 3.9 kg Romania, 5kg Bulgaria, 6 kg Slovakia, 17kg Germany, 25kg Italy, 46kg Norway, 37kg Lithuania, 39kg Spain, 56.9kg Portugal Codfish, herring, plaice, trout, salmon, tuna, mackerel As a leading producer suggest different marketing activities and tools increasing total market. 31 2016-03-01 Expanding the number of customers Awareness Additional potential customers would buy the product if they knew it was available and accurately understood its benefits Availability Lack of availability of products that may be in short supply, or difficult to make available, or lack services to support their use Ability to Use These customers lack the knowledge, lack other resources (electricity), and /or requirement to make the product or service workable Benefit Deficiency The key benefits of product or service are not important (or even unattractive) to a subset of potential customer. Affordability The cost of products is too high for some consumers Expanding the number of customers Benefit Deficiency Affordability • New positioning • New RTB • New marketing communication • Cheap, basic versions of the product • New financing solutions and programs • Alternative methods of access Expanding the number of customers Awareness • Collaborative efford of entire industry • Intensive marketing communication •Training addressed to customers Availability • New distribution channels • Vending machines • More intensive distribution • Special events Ability to Use • training addressed to potential customers • simpler products • additional support Increasing the scale of usage Increasing the average usage Encouraging customers to use more of the product at every opportunity 32 2016-03-01 Increasing the scale of usage Increasing the scale of usage New opportunities use after every meal (chewing gum) new opportunities to celebrate (Valentine’s Day) Increasing the scale of usage Faster product replacement Shortening of PLC (new versions of the product, product modifications), New product offered at lower price, Aternative options of financing the purchase (leasing, favorable credit), Promotion facused on creating the NEED of using latest, better version of the product Increasing the value of the product (as well as the price) Product ‘upgrading’ New additional benefits Increasing the scale of usage New usage of the product This strategy leads to the new market creation! 33 2016-03-01 Selective demand growth strategies Selective demand growth strategies are creating and sustaining competitive advantage Selective demand growth strategies There are two main strategic options: Cost leadership strategy A cost leadership strategy seeks to achieve the position of lowest-cost producer in the industry. By producing at the lowest cost, the manufacturer can compete on price with any other producer in the industry. Cost leadership Offer differentiation Cost leadership strategy Economy of scale Internal focus Learning curve effect Improving productivity Only one firm Low margins 34 2016-03-01 Cost leadership strategy Mass marketing Avoiding niches and small market segments Product standarization Limited augmented product Intensive distribution Effective logistics Limited promotional spendings Low prices Standarization of marketing strategies and efforts Differentiation strategy The influence of market position on strategy Lesson 10, 11 &12 Strategies based on the company’s competitive position Brand image and reputation Market segmentation Targeting Focus on customers (needs, preferences, etc.) Product differentiation Intensive marketing efforts including marketing communication Prices higher than avarage Augmented products High costs R&D investments Market leader – has the largest market share, it determines the nature, pace and bases of competition, typically is the benchmark for other companies in the industry Market challengers & followers – firms with slightly smaller market share can adopt one of two stances. they may choose to adopt aggressive stance and attack other firms, including the market leader, to gain share are dominance (challengers) or adopt less aggressive stance in order to maintain the status quo (followers). 35 2016-03-01 The influence of market position on strategy The influence of market position on strategy Market nichers – small firms which survive and prosper by choosing to specialize in parts of the market which are too limited in size and potential to be of real interest to larger firms; nichers are able to build up specialist market knowledge and avoid expensive fights with larger companies •Expand the market •Protect the current share •Expand share Leaders Challengers Nichers Followers Get smart! Strategies for market leaders How best to expand the total market? How to protect the organization’s current share of the market? How to increase market share? •Dicsount or cut prices •Cheap goods •Innovative products and distribution •Improve services •Advertise heavily •Proliferate the range •Reduce costs •Segment carefully •Use R&D cleverely •Challenge conventional wisdoms Market leadership Guarding the existing market Expansion of the current market share Strong market positioning Heavy advertising Development and refinement of meaninful competitive advantage Improved distribution Price incentives Continuous product and process innovation New product development Proactive stance Takeovers Heavy advertising Geographic expansion Strong customer and ditributionrelations Distributor expansion Mergers 36 2016-03-01 Marketing strategy and military analogies Strategies based on the company’s competitive position Offensive strategies Frontal attack Offensive warfare – first of all for market challengers Defensive warfare – for market leaders guarding the market position Neutral strategies – for market nichers and followers Flanking attack Encirlement attack Defensive strategies Neutral strategies Position defence Following Flank position defence Specialization Mobile defence Byepass attack Counteroffensive defence Guerrilla warfare Pre-emptive defence Cantratiction defence Strategic withdrawal Defensive warefare Strategy Comment Position defence Static defence of a current position, retaining current product-market by consolodating resources within existing areas. Exclusive raliance on a position defence effectively means that a business is a sitting target for competition. Mobile defence A high degree of mobility prevents the attacker’s chances of lacalising defence and accumulating its forces for a decisive battle. A business should seek market development, product development and diversification to create a stronger base. Pre-emptive defence Attack is the best form of defence. Pre-emptive defence is launched in a segment where an attack is anticipated instead of a move into related or new segments. Defensive warefare Strategy Comment Flanking defence This is used to occupy a position of potential future importance in order to deny that position to the opponent. Leaders need to develop and hold secondary markets to prevent competitors using them as a spring board into the primary market. Contraction defence Company has little hope of defending itself fully. It concentrates its resources in areas considered to be less vulnerable. 37 2016-03-01 Defensive warefare Strategy Comment Counter-offensive defence This is attacking where one is being attacked. This required immediate response to any competitor entering a segment or initiating new moves. Examples are price wars, where firms try to undercut each other. Strategic withdrawal Position defence (fortress) May be a last resort, but ‘cutting your losses’ can be the best option in the long run. Management resistance to what it seen as a drastic step is likely to be the biggest barrier. Position defence (fortress) Company attempting fortress defence will find retreating form line after line of fortification into shrinking product markets Even a dominant leader cannot afford to maintain static defence, it must continually engage in product improvement, line extensions and product proliferations One of the last successful methods of defence Relies on the apparent impregnability of a fixed position To overcome a position defence the attacker adopts on indirect approach rather than head-on attack that the defender expects Mobile defence Rather than becoming preoccupied with the defence of current products and markets firms concentrates upon market broadening and diversification Companies cover new territories that might in the future serve as focal points both for offence and defence The need for management to define and redefine the business it’s in Involves diversification into unrelated industries 38 2016-03-01 Pre-emptive defence Mobile defence Market broadening and market diversification To major principles for market broadening: principle of the objective – clearly defined and realistic objective) & principle of mass (focus efforts upon the enemy’s point of weakness) FUD marketing Guerilla actions – hitting one competitor here, another there to keep everyone off balance Dissuade competitors form attacking (bluff) Companies with strong assets may prefere to entice the opponents into expensive and costly attacks that will not pay off in long run Involves gathering information on potential attacks and then capitalizing upon competitive advantages, striking first Two broad forms: the company behaves aggressively or uses psychological warfare by letting it be known how it will behave if a competitors acts in a specific way (FUD marketing – fear uncertainty and despair) Pre-emptive defence Company should never rest even after it has achieved domination Should replace products frequently and support them aggressively 39 2016-03-01 Flanking defence Contraction defence Flank is often less protected than other parts of the organization (market) Secondary markets shouldn’t be ignored Company has little hope of defending itself fully. Opts for withdrawal from segments and geographical areas with higher threat It concentrates its resources in areas considered to be less vulnerable. Planned contraction – giving up the weaker territories and reassigning forces to stronger territories, to consolidate competitive strenght Strategic withdrawal Counter-offensive defence Market leader needs to respond competitor’s attacks in order to minimize the threat May be a last resort, but ‘cutting your losses’ can be the best option in the long run. This response can take one of three forms: Management resistance to what it seen as a drastic step is likely to be the biggest barrier. Meet the attack head-on Attack the attacker’s flank Develop a pincer movement in an attempt to cut off attacker’s operational base 40 2016-03-01 Strategies for market pretenders Basic conditions: Who to attack? Challenger must have a sustainable advantage either in terms of cost or differentiation Challenger must be able to partly or wholly neutralize the leader’s advantages, typically by doing almost as well as the leader which the leader does best Frontal attack Attacking the market leader Outcome depends on who has the greater strenght and endurance Attacking firms of similiar size to itself but which are either underfinanced or reactive For a pure frontal attack to succeed the aggresor needs a strenght advantage over competitor (at least 3:1) Attacking smaller regional firms 41 2016-03-01 Frontal attack Modified frontal attack can take two forms: Flankinng attack To match the leader’s offer on other counts and beat it on price (it works when the leader does not retaliate by cutting price, when competitor convinces the market that its product is equal to competitot’s or at a lower price it is a real value) To invest heavily in research to achive lower production costs and then attacks competitors on a price basis Flankinng attack Direct flan attack: geografpical (spotting areas in the country or the world in which the opponent is not performing at high levels) or segmental (spotting uncovered market needs not being served by the leaders) Higher probability of being successful than frontal attacks! The strategy of ‘indirect approach’ The agresor will act as if it will attack the strong side to tie up the defender’s troops but will launch the real attack at the side or rear Attack on those areas where the leader is geographically weak and in market segments or areas of technology which have been neglected Encirclement attack An attempt to capture a wide slice of the enemy’s territory through a ‘blitzkrieg’ attack It’s a grand offensive on several fronts, enemy must protect its front, sides and rear simultanously! 42 2016-03-01 Bypass attack The most indirect offensive strategy. It means bypassing the enemy and attacking easier markets to broaden resources base Three lines of approach: Diversification into unrelated products Geographical diversification Leapfrogging into new technologies Guerilla attack Typically short promotional and price attacks in random corners of the larger oponent calculated to gradually weaken the oponent’s market power. A continual stream of minor attack creates cumulative impact, disorganization and confusion Guerilla attack Available also to smaller undercapitalized aggressors. Making small attacks on different territories of the oponent, with the aim of harassing and demoralizing the oponent. The key is to focus the attack on a narrow territory Neutral strategies For market followers Following closely Following at a distance Following selectively Three broad followership strategies: Cloner Imitator Adapter For market nichers Specialization 43 2016-03-01 Following Broad followership strategies Closely – by emulating the leaders in as many market segments and marketing mix areas as possible Cloner At a distance – following the leader in Imitator Adapter terms of major markets and product innovations, price level & distribution with more differentiating factors Selectively – to avoid direct competition, often grows into the future challenger Cloner Is a parasite that lives off the investment made by the leader in the marketing mix (such as in product or distribution). An extreme version of the cloner is counterfeiter, who produces fakes of the original. Imitator Copies some elements but differentiates on others 44 2016-03-01 Adapter Takes leader’s products and adapts or even improves them regarding market requirements. The adapter may grow to challenge the leader. Market nicher strategies Ideal niche: Sufficient size and purchasing power Growth potential Negligible interest of major competotors Firm has skills and resources to serve the niche effectively Firm’s godwill can help to defend the market position in case of major competitor attack Market nicher strategies End-user specialist – specialising in Market nicher strategies Geographic specialist – selling to one Product or service specialist – one type of customer Vertical-level specialist – specialising locality at one particular point of the production/distribution chain Customer-size specialist – mostly to small customers who are neglected by the majors Specific-customer specialist – to one offerning specialised services not available form other firms Quality/price specialist – operating at low or high end of the market Channel specialist – concentrating on just one channel of distribuion or a few major customers only 45 2016-03-01 Lesson 13 &14 The Product Life Cycle Strategies for different PLC stages ALL products have a finite life-cycle and will eventually die During this cycle they will move through distinct phases, requiring different strategies to exploit Profit potential from each stage will vary Common Curves introduction growth maturity decline sales sales Cycle - Profit Relationship Cycle - recycle fashion emphasises continual need to review objectives and strategies highlights need for balanced portfolio of products keeps focus on short term potential of innovation time time scallop sales sales growth-slump-maturity time profit time time 46 2016-03-01 Source: Wilson & Gilligan, 2001 Product Life Cycle - Implications Introduction Growth Maturity Decline Sales low rapid increase peaking declining Costs high average low low Profit negative increasing high declining Competition few increasing high shake-out Goal creating product awarness & trial market share maximization profit maximization expenditure reduction Product basic developing modify phase out weak Price low…. penetration competition reducing Place selective intensive heavy discount selective Promotion heavy spend Segment? Manage costs Modify? Enhance? Rejuvenate? moderate/mass brand differentiation focussed to retain loyalty Rejuvenate? Kill? Market penetration or Market skimming? Intensity of marketing support? Manage decline / resources Innovators - Followers Promotion Are we pioneers (innovators) or followers (copying competitors)? Question Answer Decision intensive weak How long is probabale product category life time? Long PLC Short PLC Follower Innovator high Rapid skimming strategy Slow skimming strategy What is predicted market penetration level? Low High Follower Innovator low Rapid market penetration Slow market penetration What are estimated costs of imitation? Low high Follower Innovator What are company’s resources? Big Small Follower Innovator What are costs of deliverer change? Low High Follower Innovator How important is a brand as a purchase decision factor? Less important Very important Follower Innovator What is the level of clients education costs? High Low Follower Innovator Price How to expand the total market? Stage Considerations Competitive strategy? Differentiation Strategies for introduction phase Are we innovators or followers? How to grow selective demand? 47 2016-03-01 Rapid skimming strategy Firm charges high price in order to recover as much gross profit per unit as possible Intensive promotion to convince the market of the product’s merits & to accelerate the rate of market penetration Reasonable when: A large part of the market is unaware of the product Aware people are eager to get the product & are able to pay for it Firm wants to build up brand preference Rapid penetration strategy Promises to bring about the fastest market penetration and the largest market share Resonable when: Market is large Market is unaware of the product Most buyers are price sensitive There is strong potential competition Company’s costs fall with the scale of production and accumulated manufacturing experience Slow skimming strategy Firm charges high price in order to recover as much gross profit per unit as possible Low level of promotion keeps marketing expenses down Reasonable when: Market is limited in size Most of the market id aware of product Buyers are willing to pay high price Potential competition is not imminent Slow penetration strategy Company believes that market demand is highly price elastic but minimally promotion elastic Reasonable when: The market is large The market id highly aware of the product The market is price sensitive There is some potential competition 48 2016-03-01 Strategies for growth phase How to grow selective demand? Growth stage strategies Which strategies based on the company’s competitive position? How to expand the total market? Strategies for maturity phase How to grow selective demand? Improve product quality, add new product features, improve the style of the product Add new models Enter new market segments Enter new distribution channels Shifts advertisinig from creating product awarness to bring product conviction and purchase Lower price to attract the nest layer of price-sensitive buyers Market modification Market modification Product modification Marketing-mix modification Which strategies based on the company’s competitive position? Convert nonusers Enter new market segments Win competitors’ customers More frequent use More usage per occasion New and more varied uses How to expand the total market? 49 2016-03-01 Product modification – new features Marketing mix modification Bulid a company image of progressiveness and leadership Can be adapted quickly, dropped quickly and made optional at little expence Can win the loyalty of customers Can bring free publicity Generate sales-force and dictributors’ enthusiasm Strategies for decline phase Readings Leadership Niche Harvesting Drop decision Which strategies based on the company’s competitive position? Prices Distribution Advertising Sales promotion Personal selling Services P. Kotler, Marketing Management. Analysis, Planning, Implementation and Control, Chapter 11, p. 318-365 Strategic Marketing Management: Planning & Control, Professional Education, 2003 R. M. S. Wilson, C. Gilligan, Strategic Marketing Management: Planning, Implementation and Control, Butterworth Heinemann , Chapter 10, p. 326 - 388 50