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Discussion Questions and Answers
1. State the critical issues that should be addressed at each of the following
levels:
a. Corporate strategy.
b. Business-level strategy.
c. Marketing strategy.
Answer:
Corporate strategy
Business-level (SBU) strategy
Marketing strategy
Level
Critical Issues
Corporate
What business(es) is the company in?
What business(es) should the company be in?
What portion of total resources should the company
devote to each business to achieve its overall goals and
objectives?
Business
What distinctive competencies can give the business unit a
competitive advantage?
Which of these competencies best matches the needs and
wants of the customers in the business target segment(s)?
Marketing
What target market(s) exist for each product and product
line?
How can the marketing mix elements best be tailored to
the needs and wants of potential customers in each target
market?
2. Levitt argues that it is better to define a firm’s mission in terms of what
customer needs are to be satisfied and the functions the firm must
perform to satisfy them. This advice has been criticized as being too
broad and failing to take into account a firm’s specific competencies.
Even so, many would argue that getting management to consider serving
a variety of customer needs with the same product or technology is a
helpful concept. What additional businesses might a watch company
consider if its mission statement was changed from the "production and
sale of high-quality wristwatches" to the satisfaction of the need to
measure time?
Answer:
In answering this question, do not attempt to evaluate the feasibility of the
various businesses you list. By changing the mission statement from being
product-oriented, the firm opens up the possibility of considering servicing those
industries needing timers ranging from the simple to the highly complex for
controlling their machines such as major appliances, TV sets, CD players,
automobiles and trucks, robots, computers, automated factory machinery,
security systems, and on and on.
3. A well-known international chemical company developed a corporate
responsibility code that proclaimed that the giving of gifts, loans, favors,
or other services by any employee on behalf of the corporation is
absolutely forbidden. Almost immediately the company’s international
vice president received a protest from the manager of a southwest Pacific
country stating in effect that if the new code were rigorously enforced, it
would put the company at a serious competitive disadvantage since some
European, Japanese, and American companies were more lenient in the
way they handled "local commissions." The manager went on to say that
the code was inconsistent with the company’s objective of gaining
market share locally. How should the international vice president answer
this protest?
Answer:
This is obviously a difficult question to answer, one which poses a dilemma for the
company. While most countries have laws which forbid bribery, there is
considerable difference in the way anti-bribery laws are enforced across countries.
One problem is the way bribery is defined since it can range from the payment of
a few dollars to a minor government official or business manager to facilitate the
processing of papers or the unloading of a truck, to the payment of thousands—
even millions of dollars to obtain a lucrative contract.
In the case at hand, the company policy forbidding "gifts, loans, favors, or other
services" needs further definition. In the U.S. it is legal to entertain business
clients (sporting events), give relatively inexpensive gifts, and pay for meals
(including tips). Surely, such forms of "bribery" are acceptable in other countries
provided moderation is practiced. But bribery in the form of payments for
preferential treatment in securing a contract of substance should, of course, be
prohibited. Still, the answer to the question of bribery is not a straightforward
one. Given the variety of ethical standards existing in different countries as well
as the varying morality level, the dilemma of ethics versus practicality will not be
resolved any time in the near future.
4. The Kelly Bottling Company, located in a large metropolitan area of some
five million people, produced and marketed a line of carbonated
beverages consisting mainly of flavored soft drinks (not including colas),
soda water, and tonics. They were sold in different types of packages and
sizes to a wide variety of retail accounts. How might such a company
expand its revenues by pursuing each of the different expansion
strategies discussed in Exhibit 2.9?
Answer:
Kelly might expand its revenues via each of the following expansion strategies:
a.
b.
c.
d.
Market penetration in present markets—increasing market share by
taking share from competitors, increasing product usage among present
customers (increasing home inventories).
Market development by expanding into new markets with the same
product line—entering proximate metropolitan areas, selling essentially
the same product under private label (store brand), selling concentrate to
bottlers in other areas.
Product development via becoming the franchisee for an existing soft
drink brand (Dr. Pepper, 7UP, Canada Dry Ginger Ale), mixer (Sweppes),
or bottled water; adding new beverage products under own name;
improve the taste of present products and/or reduce calories; and add
new package types and size(s).
Diversification in the form of forward integration (vending machines),
backward integration (flavor company), purchase of a competitor, and
investment in real estate.
5. Which diversification strategy is illustrated by each of the following
acquisitions? What synergies or benefits might each purchase produce?
a. A packaged food company’s acquisition of a fast-food company
that features hamburgers and french fries.
b. A large retailer’s purchase of an interest in a company producing
small appliances.
c. A tobacco company’s acquisition of a beer company.
d. An oil company’s acquisition of an insurance company.
Answer:
Packaged food company's acquisition of a fast-food company which features
hamburgers and french fries.
A large retailer's purchase of an interest in a company producing small
appliances.
A tobacco company's acquisition of a beer company.
An oil company's acquisition of an insurance company.
The packaged food company's acquisition could be considered forward vertical
integration in that the company produces ingredients used by the fast-food
company. Benefits would involve cost reductions.
The second case illustrates backward integrations. Benefits would derive from
scale economies and control over quality.
The third case illustrates a related (concentric) diversification. Thus, its marketing
skills ¾ primarily in the areas of promotion and development of new products ¾
should benefit the acquisition as well as its economic resources.
The last case illustrates unrelated (conglomerate) diversification with few, if any,
synergies or benefits deriving from such an acquisition. At the corporate level
such diversification is sometimes instituted to level revenue flows and investment
risks.
6. A manufacturer of electrical components for industrial applications has
five strategic business units (SBUs), shown in the following table. Using
the Boston Consulting Group portfolio model, evaluate the strength of the
company’s current and potential future condition. What strategies should
it consider to improve its future position?
SBU
Sales
($Mil)
A
$1.0
B
3.2
Sales of Top
Three Competitors
($Mil)
$1.4
3.2
$1.4
3.2
$1.0
2.0
Market
Growth
Rate
15%
20
C
3.8
3.8
3.0
2.5
.7
D
6.5
6.5
1.6
1.4
4
E
7.0
3.0
2.5
2.0
4
Answer:
A = question mark
B = borderline question mark or star
C = cash cow
D = cash cow
E = dog
An approximation of the BCG growth - share matrix in this situation is shown below.
Note that relative market share is determined by dividing company SBU market share
by average of top three competitors.
The implication is that funds from the "cash cows" D and C might be used to fund the
"question mark" business A, and the borderline "question mark"/"star" business B.
Because the remaining business (E) is a "dog," it might be considered for divestment
or harvesting.
However, this analysis should be supplemented with additional analyses, including
perhaps another portfolio and other analyses specific to the situations inherent in
each business.
7. Critics argue that the BCG portfolio model sometimes provides
misleading advice concerning how resources should be allocated across
SBUs or product markets. What are some of the possible limitations of
the model? What might a manager do to reap the benefits of portfolio
analysis while avoiding at least some shortcomings you have identified?
Answer:
Limitations of the BCG growth - share matrix include:
a.
b.
c.
d.
e.
Inadequacy of growth as a measure of overall industry attractiveness.
Inadequacy of relative share as a measure of overall competitive
strength.
Level of aggregation may include too many products and markets.
Sensitivity of the growth - share matrix to variations in how "growth" and
"share" are defined.
Lack of guidance about how appropriate investment strategies might be
implemented.
Managers might avoid some of those problems by making definitions more explicit
and by utilizing the BCG growth - share matrix as only one part of the corporate
planning process.
With regard to definitions, it would be useful for managers to require more
explicit statements about the product-market relationship (and competitors) and
their use in deriving relative share.
With regard to instruments used in the planning process, the growth - share
matrix might be used as one among other planning tools (which might also
include the use of another portfolio type and other situation-specific analyses). If
multiple methods are used, the implications of the growth - share matrix can be
reconciled with those of other methods. Also the model should be used on a trend
basis; for example, at two-year intervals. It should also be used to show the
portfolios of major competitors.
8. How are the basic business philosophies or orientations of a major
consumer products firm such as General Mills and a small entrepreneurial
start-up in a fast-growing, high-tech industry likely to differ? What are
the implications of such philosophical differences for the role of
marketers in the strategic planning processes of the two firms?
Answer:
General Mills is likely to have a strong market orientation. This orientation would
be characterized by: (1) the emphasis placed on high-quality, new products; (2)
using consumer research in new-product development; (3) adapting its marketing
mix to specific market segments; (4) cross-functional involvement in marketing.
A small entrepreneurial start-up in a fast-growing high-tech industry is likely to
have a production orientation. This orientation would result from threats posed by
production problems.
9. As the small entrepreneurial firm described in question 8 grows larger,
its market matures, and its industry becomes more competitive, how
should its business philosophy or orientation change? Why?
Answer:
The firm is likely to move from a production to a sales and, perhaps, finally to a
market orientation. The first movement results from competitors attracted into
the market by growing volume and profits. This is likely to increase competition
for product innovation and production process efficiency. At some point, as
production capacity is added to the industry and demand increases decline,
excess capacity will probably result. The existence of excess capacity will probably
focus company attention on moving available stocks (i.e., a sales orientation). If
the firm survives the shake-out phase of industry growth, it will likely move
toward a market orientation
10. Which role should marketing managers play in helping to formulate
business-level (SBU) strategies in a large diversified firm such as General
Motors? What kinds of information are marketers best able to provide as
a basis for planning? Which issues or elements of business-level strategy
can such information help to resolve?
Answer:
At the corporate level, the marketing manager can be: (1) a key participant
(along with the SBU general manager) in determining the SBU's objectives and
scope (both in terms of products and markets); (2) a strong contributor to
environmental, competitive, and situation assessments; (3) a key participant in
defining objectives and goals; and (4) a major contributor to development of
strategies.
Useful planning information includes that about the environment, focusing on
customers, and economic, political, and regulatory trends; competition, both
actual and potential; and specific information about industry and market
attractiveness, including profitability and segment growth rates.
At the business level, the marketing manager should have a primary role in
discussions pertaining to product-market development, product quality, and
product line, and may have an additional role (depending on specific
circumstances) in technology, human resources, business development, and
manufacturing facilities.