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Second Meeting
R
Dr. S. Borna
Mkg 690
LECTURE OUTLINE
1. Strategic Planning
2. Meaning of “Strategy”
3. A Brief History of Marketing
Strategy
4. The Hierarchy of Strategies
LECTURE OUTLINE (CONT.)
5. Major Steps in Strategic
Planning At Corporate,
Strategic Business Unit
(SBU), and Product Levels
6. Marketing Environments
7. Meaning of Environment
LECTURE OUTLINE (CONT.)
8. Different layers of
Environment
9. Marketing Macro
Environment
10. Characteristics of the
Macro-Environment
LECTURE OUTLINE (CONT.)
11. Strategic Environmental
Issue Management
a. Environmental
Scanning
b. Key Environmental
Issue Identification
LECTURE OUTLINE (CONT.)
c. Impact Evaluation
d. Formulation of
Response Strategies
A BRIEF HISTORY OF
MARKETING STRATEGY
By: Schnaars
Chapter 2
The Free Press
Different Usage of the
Term
“Marketing Strategy”
Marketing Strategy at
Macro Level:
• Identification of target
market(s) and designing
an appropriate marketing
mix for that market(s).
There are also
marketing element strategies:
For example: skimming vs.
penetration price strategies
Finally, Product-market Entry
Strategies
Historical Trends in
Marketing Strategy
1950s
1960s
1970s
1980s
Budgeting Search for
overall Corp. Strategy
Long Range Planning
Formula Planning
Strategic Thinking
Budgeting
• No explicit strategy
• Emphasis on control
rather than strategy
An interest in integrating functions of
organization: production, finance,
marketing etc.
Key Characteristics of
Long-Range Planning
• Objectives and Goals
• Long-Range Forecasting
Formula Planning
(1970s)
Decline of Formula Planning
Theoretical but
Impractical
The notion that an effective strategy
can be constructed by someone in
an ivory tower is totally bankrupt.
•Ritualistic Rather than Useful
(planning became ritualistic
and mechanistic)
(Relied on data rather than
marketing instincts. Moved
away from customers and
competitors)
• Problems with forecasting
Strategic Thinking
• From Forecasting to
Competitive Advantage
• From elitism to
egalitarianism
•From competitors to
competitors and
consumers
•From calculation to
creativity
What is competitive Advantage?
Competitive advantage is something that allows a firm to earn
higher-than-average profits
What is Strategy?
The art and science of
adapting and coordinating
resources to the attainment
of an objective.
Three Recurring
Themes
• Environmental analysis
• Firm’s resources
• Objective and goals
Adapted To
Resources
Opportunity
To Attain
Objectives
A company can outperform
rivals only if it can establish
a difference that it can
preserve.
The essence of strategy is
choosing to perform
activities differently than
rivals do.
According to Porter
(HBR 1996)
Strategy is the creation of a
unique and valuable position,
involving a different set of
activities.
Strategic Positions
Can Be Based On:
1. Variety-based Positioning
ex. Jiffy Lube
2. Needs-based Positioning
(segmentation) ex. Ikea
3. Access-based Positioning
ex. Carmike Cinemas
Porter’s Main Points:
1. Distinguish between
Operational efficiency and
strategy
2. Identify a unique strategic
position
3. Consider trade-offs (do not be
Jack of all trades.)
4. Strategic positions should
have a horizon of a decade or
more.
The components of strategy
1. Scope (industries, products
market segments etc.)
2. Goals and objectives
3. Resource deployment
4. Identification of a sustainable
competitive advantage
5. Synergy (the whole becomes
grater than sum of its parts
Three Organizational
Levels
1. Corporate Level
(Corporate strategy)
2. Business Level
(Business-level strategy)
3. Product Level
(functional strategies)
Strategic Planning at the
Corporate Level
STRATEGIC PLANNING
PROCESS
(AT CORPORATE LEVEL)
CORPORATE
MISSION
PORTFOLIO
ANALYSIS
S.B.U.
IDENTIFICATION
GROWTH
STRATEGIES
Strategic Planning
Strategic Planning at the
Corporate Level Consists of :
• Defining Corporate Mission
• Defining Corporate
Objectives
Strategic Planning
(Cont.)
• Corporate Development
Strategy (growth
strategies)
• Allocating Corporate
Resources (corp. portfolio
evaluation & strategy)
FACTORS THAT
INFLUENCE THE
CORPORATE MISSION
• ENVIRONMENTAL FACTORS
• ORGANIZATIONS PAST
HISTORY
• MANAGEMENT
PREFERENCE
DEFINING THE
ORGANIZATION’S MISSION
• WHAT BUSINESS(ES) ARE WE
IN?
• WHAT BUSINESS(ES) SHOULD
WE BE IN?
• HOW TO ALLOCATE OUR
RESOURCES AMONG
DIFFERENT UNITS?
CRITERIA FOR DEFINING
THE CORPORATE MISSION
• Target customers and
Markets
• Principle Products or
Services
• Geographic Domain
CRITERIA FOR DEFINING
THE CORPORATE MISSION
•Core Technologies
•Concern for Survival, Growth
and profitability
•Philosophy
•Self concept
•Public Image
MISSION STATEMENT
BROAD
FUNCTIONAL
based on
consumer needs
PHYSICAL
based on
existing
products or
technology
Business
Transportation
Railroad
Business
SPECIFIC
Long Distance Trans.
for large-vol, producers
of low value,
low-density products
Long-Haul CoalCarrying Railroad
A MISSION STATEMENT
To provide low-cost personal
motorized transportation for
low- to moderate income
consumers through providing
small cars designed with
most fuel-efficient
technology.
COMPANY OBJECTIVES:
MEASURES OF
PERFORMANCE
EXAMPLE:
To realize an average
return of 15% on
investment over the next
five years.
Objectives and
Strategies
• Objectives are ends
strategies are means of
achieving these ends.
Boston Consulting Group
MARKET
(BCG)
GROWTH
RATE
20%
16%
STARS
QUESTION
MARKS
?
10%
CASH COW
6%
DOGS
2%
10x
4x
1x
0.4x
RELATIVE MARKET SHARE
0.1x
LIMITATIONS OF BCG
METHOD
INTERDEPENDENT AMONG
SBU’S, MARKET GROWTH
RATE AS A PROXY MEASURE
OF INDUSTRY
ATTRACTIVENESS IS
INADEQUATE.
cont.
Limitations Of BCG
Cont.
RELATIVE MARKET SHARE
AS PROXY MEASURE OF
COMPETITIVE STRENGTH
IS INADEQUATE.
LIMITATIONS OF BCG
METHOD (CONTINUED)
• CLASSIFICATION IS
SENSITIVE TO
VARIATIONS IN HOW
“GROWTH” & “SHARE”
ARE MEASURED.
General Electric Method
strong
high
medium
weak
Market
Attractiveness
3.67
medium
2.33
low
1.00
(Mkt Size,
Growth Rate,
Profit Margin,
Competition)
3.67
5.00
2.33
1.00
Competitive Position (Mkt Share, Growth,
Quality, Network)
MARKET ATTRACTIVENESS
•
•
•
•
•
•
•
Overall market size
Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
MARKET ATTRACTIVENESS
(CONTINUED)
• Environmental impact
• Social/political/legal
COMPETITIVE
POSITIONS
•
•
•
•
•
Market share
•
Share growth
Product quality •
Brand reputation
•
Distribution
network
• Promotional
effectiveness
• Unit cost
Material
supplies
R&D
performance
Managerial
personnel
competitive position
strong
high
medium
weak
joints
3.67
hydraulic
pumps
aerospace
fittings
medium
2.33
flexible
clutches diaphragms
fuel pumps
low
1.00
5.00
3.67
relief valves
2.33
1.00
Corporate Growth
Strategies
Internal Growth
1. Market Penetration
2. Market Development
3. Product Development
Corporate Growth
Strategies
External Growth
Integrative Growth
1. Backward Integration
2. Forward Integration
3. Horizontal Integration
Corporate Growth
Strategies
External Growth
Diversification
1. Concentric
Diversification
2. Conglomerate
Diversification
Strategic Business Unit
1. It is a single business or
collection of related
businesses
2. It has a distinct mission
3. It has its own competitors
4. It has a responsible manager
5. It can benefit from strategic
planning
6. It can be planned
independently of other
businesses
The Business Unit
Strategic Process
•
•
•
•
•
•
•
Business Mission
Environmental Analysis
Goal Formulation
Strategy Formulation
Program Formulation
Implementation
Feedback and Control
Marketing Strategy
Planning
1. Identification of the
target market(s);
2. Designing appropriate
marketing mix for that
market(s).
MARKETING
ENVIRONMENT
WHAT DO WE MEAN BY
ENVIRONMENT?
The environment is the totality
of forces that are external
and potentially relevant to the
particular agent.
Rapid Change of
Environmental Forces
1.
2.
3.
4.
5.
Economy
Technology
Governmental Regulation
Cultural Environment
Political Environment
To Identify Environmental
Forces, Ask Two Questions
1. Can I do anything about it?
2. Does it matter relative to my
objective?
Environmental Forces
CHARACTERISTICS:
1. Environmental Forces are
boundless
2. It is difficult to detect and
interpret environmental
forces
3. Environmental forces are
difficult to control
4. Since environmental forces
are diverse, it requires
diversity of expertise to
handle these forces.
Layers of Product’s
Environment
4
3
2
1
Product
Intraorganization Environment
Task Environment
Macro-Environment
Global
Intraorganizational
Environment
Other Corporate
Departments and
Personnel.
Task Environment
Suppliers
Marketing
Intermediaries
Company
Market
MACROENVIRONMENT
• Cultural Environment
• Economic Environment
• Technological
Environment
• Natural Environment
GLOBAL ENVIRONMENT
• International Changes
Strategic Environmental
Issue Management
1. Environmental Scanning
2. Key Environmental Issue
Identification
3. Impact Evaluation
4. Formulation of a Response
Strategy
Alternative approaches to
environmental Scanning
Nature of Scanning Activity:
Irregular
Ad-hoc studies
Regular
Periodically updated studies
Continuos
Structured data collection and
processing system
Scope of Scanning
Specific Events
Selected Elements
Broad range of environmental
components
Impetus for scanning
Crisis initiated
Problem areas
planning process
Strategic Orientation
Reactive
Proactive
Proactive
Time frame for data
Retrospective
Current and retrospective
Current and prospective
Time frame for decision impact
Current and near term
Near term
Long term
Organizational Responsibility
Specially designed teams
Various staff services
Environmental Scanning Unit
Which of these three environmental
scanning approaches is suitable
for your organization?
Answer:
Depends on the firm’s potential
vulnerability to environmental
forces
Key environmental Issue
Identification
Somehow the system (the firm)
must determine:
1. The probability that an issue
can materialize into a threat
or an opportunity;
2. The degree of impact it can have
on the firm.
KEY ENVIRONMENTAL ISSUE
IDENTIFICATION
PROBABILITY
HIGH
HIGH
LOW
1
9
6
2
IMPACT
LOW
Few examples:
1. Interstate barriers to bank are
lowered
6. Antitrust actions are taken against
large banks
9. Government regulation favors
non-bank financial institutions
2. Technological breakthroughs occur
in information processing
Impact Evaluation
You have to answer the following
questions:
1. Does the issue represents a threat
or opportunity?
2. How significant will its impact on
the performance of the firm?
3. What is the likely timing of the
impact
4. What specific marketing areas
will be affected?
Profit impact
30%
20%
10%
0
Issue
A
Uncertainty
on timing
5 year
-10
-20
-30
Issue
B
Uncertainty
on impact
C Time horizon
10 year
15 year
Formulation of a Response
Strategy
Reactive Strategy
Proactive Strategy
Response Strategies to
Environmental Issues:
1. Opposition
2. Adaptation
(N. Rifle A.)
(usually compulsory
ex. Auto industry
mandatory fuel
standards)
3. Offensive Strategy
Waste Management Inc.:
How to improve waste disposal?
4. Redeployment Strategy:
Example Tobacco Industry and
diversification
5. Contingency Strategy:
If saccharin is band in drugs
foods, soft drinks, etc.
6. Passive strategy: (do nothing
wait and see strategy)