Professional Documents
Culture Documents
organizations business units and employees towards specific dimensions and levels of performance. Objectives also provide the benchmarks for evaluating the subsequent outcomes Each objective should contain four components: 1. A performance dimension or attribute sought 2. A measure or index for evaluating progress 3. A target or hurdle level to be achieved 4. A time frame within which the target is to be
interest of various corporate constituencies such as: 1. Employees: Competitive wages 2. Customers: High Quality and Competitive Price 3. Suppliers/Debt holders: Financial Claims that must be satisfied with cash when they fall due 4. Stock holders: Look for cash dividends and the prospects of future dividends reflected in stocks market price Shareholders value can be stated in terms of target return on shareholder equity, increase in the stock price or earning per share. Recently such objectives are stated in terms of EVA or MVA MVA= (Debt + Market Value)- Capital invested in the company
Do not always provide guidance for a firms lower-level managers or benchmarks for evaluating performance 2. Standard Accounting measures such as earning per share and return on investment can not be always linked to true value of firms share 3. Finally there is a danger that a narrow focus on short term financial, shareholder objectives may lead managers to pay little attention to actions necessary to provide value to the firms customers and sustain a competitive advantage
1.
Multiple Objectives
Corporate generally have multiple objectives such as: 1. Growth (sales $, market share %) 2. Competitive strength (brand awareness, market share) 3. Innovation (New product sales results, new process savings) 4. Profitability (ROI (return on investment), RONA (return on net assets) and ROE (return on equity)) 5. Resource utility (return on capital equipment or fixed assets) 6. Shareholder returns (returns paid to owners, earnings per share, P/E ratio (price to earnings)) 7. Contribution to customers (competitiveness, product quality, unique selling proposition, customer loyalty) 8. Contribution to employees (salaries paid, personnel development and turnover rates) 9. Contribution to society (Charitable or social and environmental contributions)
1.
2. 3. 1. 2. 3. 4.
Market Penetration Product Development Market Development Diversification Vertical Integration: Forward and Backward Related Diversification Unrelated Diversification Diversification Through organizational relationships or networks
Curren t Market s
Market Penetration Strategies: Increase Market Share Increase Product Usage 1. Increase Frequency of Use 2. Increase Quantity 3. New Application
Market Development Strategies Expand Market for Existing Product 1. Geographic Expansion 2. Target New Segment
New Market s
Diversification Strategies Vertical Integration 1. Forward Integration 2. Backward Integration Diversification into related business (Concentric Diversification) Diversification into unrelated business (Conglomerate
Stars
High
Cash Cows Fig 3.1: Boston Consulting Groups (BCG) Growth Share Matrix
Low
Dogs
10 0.1
High
1.0
Low
large amount of cash not only for expansion to keep up with rapidly growing market but also for marketing activities. To increase market share and catch industry leader. The strategic implication is that management must select the question marks carefully to invest in for future growth. The firm is advised to divest or harvest the businesses before its resources are drained
Stars: It is the market leader in high growth market. They often are net
users of cash rather suppliers. The firm must continue to invest in these businesses to maintain their market share. Share maintenance in important for star businesses to become cash cows rather than dogs as their industries mature
Generate cash to support stars and question marks. When firm attempt to harvest too much of cash from such businesses they risk suffering from premature decline.
Dogs: Low-Share businesses with low growth markets. Divestiture is
Stars
High
Question Marks
Low
Cash Flows
Cash Cows
10 0.1 High 1.0
Dog
Low
industry attractiveness Relative market share is inadequate as a description of overall competitive strength The outcomes of a growth-share analysis are highly sensitive to variations in how growth and share are measured While the matrix specifies appropriate investment strategies for each business, it provides little guidance on how best to implement those strategies The model implicitly assumes that all business units are independent of one another except for the flow of cash
Size Growth Share By Segment Customer Loyalty Margins Distribution Technology Skills Patents Marketing Flexibility
Size Growth Customer Satisfaction Levels Competitions: Quantity, Types, Effectiveness, Commitment Price Levels Profitability Technology Governmental Regulations Sensitivity to Economic Trends
overcome the shortcomings and unanswered questions of portfolio analysis by assessing the shareholder value a given strategy is likely to create. Helps in identifying economic gain from investing in different businesses A number of value-based planning methods are currently in use, but all share three basic features: 1. They assess the economic value a strategy is likely to produce by examining the cash flows it will generate rather than relying on distorted accounting measures such as return on investment 2. They estimate the shareholder value that a strategy will produce by discounting its forecasted cash flows by the businesses risk adjusted cost of capital 3. They evaluate strategies based on the likelihood that the investment
Value based planning (Discounted Cash Flow Model by Alfred Rappaport and the Alcar Group Inc.
Corporate Objective Creating shareholder value Shareholder return Dividends Capital Gains
Valuation Component
Discount Rate
Value Drivers
Cost of capital
Management Decision
Operating
Investment
Financing
evaluates strategy alternatives Inaccurate forecast of cash flows can create problems in implementing value based planning Some kind of strategic alternatives are undervalued
industries and/or marketing activities, these divisions are called strategic business units or SBUs. It is the responsibility of the SBU manager to develop marketing strategies by analyzing their specific market, determining objectives and implementing the plans in line with the corporate directives and goals.
How product markets should be clustered into a business unit: Technical Compatibility Similarity in customer Needs Similarity in personal characteristics
other SBUs) based on corporate objectives. They are specific enough to have meaning, yet broad enough to allow for innovation and specialized market knowledge.
corporate level allocations; e.g. value-based and portfolio models. It is generally acknowledged that the value-based tools are more useful at the SBU level as the information gathered is more specific; i.e. the market is usually a known size whereas industry attractiveness can be more subjective or non-specific At SBU level managers must determine 1. Attractiveness of individual markets 2. Competitive position of their product within those markets 3. Cash flows each product entry will likely generate rather than analyzing industry attractiveness and the overall competitive strengths of the firm
two choices: 1. What is SBUs competitive domain or scope 2. How will the business unit distinguish itself from competitors in its target markets
Competitive Scope
Broad Target
Cost Leadership
Differentiation
Narrow Target
Cost Focus
Differentiation Focus
Robert E. Miles and Charles C Snow identified another set of business strategies
Prospector 1. 2. 3. 4. 1. 2. 3.
4.
Undergoes periodic redefinition Values being the first mover in new product and market Responds rapidly to early signals concerning areas of opportunity Competes primarily by stimulating and meeting new market opportunities Defender Attempts to locate and maintain secure position in stable product and service areas Offers relatively limited range of products or services compared to competitors Offers lower prices, high quality and better service then competitor Not at the forefront of technological new product development
Robert E. Miles and Charles C Snow identified another set of business strategies
Analyzer 1.
2. 3. 1. 2. 3. 4. 5.
An intermediate type make fewer and slower products market changes than prospectors but is also not committed to stability and efficiency like defenders Maintain stable limited line of products or services carefully selects promising new product developing in the market Seldom a first mover Reactor Lack any well defined policy for competition Does not have as consistent a product market orientation as its competitors Not as willing to assume the risk of new products Not aggressive in marketing established products Responds primarily when it is forced by environmental pressure
Analyzer
Defender Units primarily concerned with maintaining a differentiated position in mature markets
Reactor
Units with strong core business; actively seeking to Units primarily expand into concerned with related productattaining growth markets with through differentiated aggressive pursuit offerings of new productUnits with strong market core business; opportunities actively seeking to expand into related product-markets with low-cost
Competitive Strategy
Goals & Obj. Adaptability (New Pdt. success) Effectiveness(In cr. in MKT Share)
Extensive
Little
Little
Large
Mixture of defender & Prospector Strategies Need cash for product development less then Prospector
Danger in sharing operating facilities and programs better to share technology/ marketing
different competitive approaches, they do not all work equally well under the same environmental circumstances Changing Strategies at different stages in the industry life cycle
Prospector Introductory or early growth stage of industry life cycle Many unidentified or underdeveloped customer segments
Analyzer Late growth or early maturity stage of industry life cycle Some segments well established but potential segments or application remain underdeveloped Basic technology well developed but product improvements/ modification still possible Many Competitors Industry structure still emerging Changes in relative market shares likely
Differentiated Defender Maturity or decline stage of industry life cycle Most segments well developed; sales primarily due to repeat/ replacement purchase Basic technology fully developed and stable
Low Cost Defender Maturity or decline stage of industry life cycle Most segments well developed; sales primarily due to repeat/ replacement purchase Basic technology fully developed and stable Several well established competitors Industry structure stable but consolidation is possible
Technology
Competition
Several well established competitors Industry structure stable but consolidation is possible
Businesss
R&D
Process engineering
Process engineering
Process engineering
+ _ +
+ + _
_ ? _
+ + ?
? ? +
_ _ _
same implications for marketing policies and program elements as those for goods But services have certain characteristics that give rise to special marketing problems and therefore demand special kind of marketing policies and actions
products serve as symbols of service quality The service firms personnel can also be important tangible symbols of service quality Creating a tangible representation of the service Tying the marketing of services to the marketing of goods
Smoothing out the variability in demand Lowering fixed costs by making capacity more flexible
There is a high degree of uncertainty in the day-to-day operations of high-contact systems because the customer can disrupt the production system in a variety of ways Rarely does the demand for a high-contact service equal capacity at any one time It is difficult to set up an efficient production schedule for high-contact services because customers cannot be programmed Appearance of employees directly affect customer
distinct customer subsets of people with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and strategic marketing program. Marketers divide segment descriptors into four major categories: physical descriptors, person or firm related descriptors, product related behavioral descriptors and customer need descriptors Market Targeting: Not all customers in a market can be satisfied with one product at a time therefore the firms have to target the segment which can maximize the profits. Targeting is done on the basis of size, revenue potential and growth rate. Market Positioning: designing product offerings and developing strategic marketing programs which collectively create an enduring competitive advantage in the target market would need to be
5.
6. 7.
8.
9.
Age Gender Household Life Cycle/ Family Life Cycle Income Occupation Education Geography Event Race and ethnic origin
2.
1.
2.
3.
Homogeneous Heterogeneous Service Segmentation Customers are part of production and delivery Problems of consistency These problems can be overcome by: Use of hard technologies Use of soft technologies Hybrid Technologies
A Priori (Determined in advance) 2. Post Hoc (Research Based) Determination of whether and to what extent there are differences in the dependent (outcome) variables. Such as benefit sought segment is defined by demographics, product usage and lifestyle Evaluation of the results from step 2 to determine the effectiveness and usefulness of the segment scheme 1. Different: Segment must be distinguishable from all other segments 2. Identifiable: Possibility of accessibility 3. Adequate Size: To be cost effective 4. Measurability: use of measurable variables should be possible 5. Compatibility: Consistent with the companys resources
1.
Types of positioning
Positioning affects the way a customer perceives something, and
therefore occurs in the customers mind. Promoting recall of the product or service from the customers mind when its desired is the aim of positioning. There are several types of positioning that can make this happen. They are:
Physical positioning
Perceptual positioning
Types of positioning
Physical Positioning: When a business intends for its products or
services features to be compared with its competitors features it is known as physical positioning This type of positioning is used in products in which customers evaluate the product by comparing it with the competitive product A limitation of this type of positioning is that it is technical only Also customers attitude toward a product are based on perceptual comparisons of products aesthetics, appeal, status, image etc
Types of positioning
Perceptual Positioning: When a business aims for its products or
services benefits to be compared with its competitors benefits it is known as perceptual positioning. Unlike physical positioning, the technical details of the product are not the major concern in the consumers mind. Instead, the consumer is influenced more so by the products or services brand image, social appeal or aesthetics. On paper, buying an automobile on specifications alone would quickly narrow the market down to just a few competitors. However, in the brand and image conscious minds of the consumers, the look and image the vehicle portrays is more often the deciding feature. For example, theres no doubt that a Mercedez Benz is a finely specified automobile, yet the price tag, aesthetic appeal and image associated with owning such a car is what sets it apart from its competitors not its top speed or handling characteristics.
Types of positioning
Physical Positioning Perceptual Analysis
Technical Orientation
Physical Characteristics Objective Measures Data Readily Available Physical Brand Properties Large Number of Dimension Represents impact of product specifications and price
Consumer Orientation
Perceptual Attributes Perceptual Measures Need Marketing Research Perceptual Brand Positions and positioning Intensities Limited Number of Dimension Represents Impact of Products Specifications and Communication
Process of Positioning
Identify relevant set of competitive products Identify the set of determinant, attributes that defines the product space in which positions of current offerings are located Collect information from a sample of customers about perceptions of each product on the determinant attributes Analyze intensity of a products current position in customers mind Determine products current location in the product space (Product Positioning) Determine customers most preferred combination of determinant attribute Examine the fit between preferences of market segments and current position of product (Market Positioning) Select positioning or repositioning strategy
take place at the 1. Company level: How entire company is positioned against competitors 2. Product Category: customers perception regarding products that can be used as a substitute for companies product is examined 3. Product or Brand Levels: how brand is perceived compared with competitors brand Identify determinant attributes
Features Benefits Usage: end use, demographic, psychographic or behavioral Parentage Manufacturing Process Ingredients Endorsements Comparison ProEnvironment Product class (new different product) Price/Quality Country or geographic area
analyze customers perceptions about the competitive positioning of alternative products or brands are: Multiple Dimension Scaling (MDS) and Discriminate Analysis 1. Discriminate analysis: determines the consumers perceptual dimensions on the basis of which attribute best discriminate among brands 2. MDS: Paired comparison becomes complex when used with number of attributes as well as adding or deleting new brands to the category Analyze the intensity of a products current position: Build brand awareness by strongly associating it with several concepts relating to purchase decision. 1. Marketing opportunities to gain positioning intensity 2. Constraints imposed by an intense position a) Problem in repositioning b) Existing intense position could be diluted as a result of mergers c) New products dilute the image of old one if it is not successful
Products current position can be identified by marketing research and analyzing it using different techniques (Positioning grid or Perceptual Map and Value curve). Actual position of all competitors and the companys brand can give an idea about where to reposition the existing brand and where is the gap for a new product. These gaps may occur due to two reasons: Technical constraints or unattractive market. Limitation of positioning analysis 1. It only tells where consumers are positioning companys brand comparative to competitors 2. It does not give idea about which is the most preferred position 3. Customers preferences can give an idea to solve this problem
can be asked to think of the ideal product or brand within a product category- a hypothetical brand possessing the perfect combination of attributes (from customers viewpoint). Respondents could then rate the ideal product and existing product on a number of attributes. Also it can be asked to the respondents to not only judge the degree of similarity between pairs of existing brands but to also indicate their degree of preference for each. Define Market positioning and market segmentation: market segments need to be defined to get an idea about the difference in the benefit sought by different customers. A market position can simultaneously identify distinct market segments as well as perceived positions of different brands. By examining the preferences of customers in different segments together with their perceptions of the positions of existing brands, analysts can learn much about: 1. The competitive strength of different brands in different segments 2. The intensity of the rivalry between brands in a given segment
and how to reposition a brand should be based on both market target analysis and market position analysis. 1. Sales potential of market positions: Purchase intention share represents the percentage of consumers who intend to buy a specific brand before actually searching for it. 2. Evaluation of the sales potential of alternative positions also should consider the more pertinent market dynamics. These include: a) Growth of market segments b) Evolution of segments ideal points c) Changes in positioning intensity d) Evolution of existing brands positions e) Emerging attributes f) Development of new segments g) Introduction of new brands
Mono-segment Positioning 2. Multi-segment Positioning 3. Standby Positioning 4. Imitative Positioning 5. Anticipatory Positioning 6. Adaptive Positioning 7. Defensive Positioning Positioning of services: is similar to products
1.
reasons; the specific marketing mix, the unique selling proposition, the personal selling skills of an individual all affect the decision to buy. A marketers role is to ensure that the most favorable conditions are in place for the consumer to buy the particular product. One way in which to achieve this is to stand out from the competition. This can be achieved through unique attractive packaging, memorable advertising, brand associations, effective positioning, substantially different value proposition or a combination of all of these factors. The important point is that the product or service has to be different from the competitors in order to grow sales. This is the basis of a differentiation strategy.
Importance
Increase the perceived value of firms products (or services) compared
to competitors products (or services) Create a customer preference for firms products / services Increase in sales Building Brand Image and Corporate Image Increasing Market Share
Sources
Product Attributes
Firm-Customer Relationship
Firm Linkages
Product Attribute
Product Features
TANGIBLE DIFFERENTATION Observable product characteristics: size, color, materials, etc. performance packaging complementary services INTANGIBLE DIFFERENTATION Unobservable and subjective characteristics relating to image, status, exclusivity, identity
Product Complexity e.g. multiple functions on mobile phone Timing of Introduction being the first to market, e.g. Sonys Walkman Location e.g. restaurant located next to a metro station
Firm-Customer Relationship
Customization creating a unique product for a customer
Firm Linkages
Linkages among functions in the company to exploit certain resources
Is it Valuable
Is it Rare? Is it costly to Imitate?
(if product/service is truly differentiated, then it is, by definition, rare but do consumers value it?)
Imitability: How easy/costly would it be for competitors to imitate the differentiating factor?
a)
if would-be imitators face a cost disadvantage of imitation, they will rationally choose not to imitate duplication and/or substitution if no substitutes are obvious, then we would conclude that imitation through substitution will be costly at least for the present time
Exploiting Opportunities
Fragmented Industry Branding: commodity differentiated product Example: Kelloggs Corn Flakes Emerging Industry First mover advantages: captures market share Example: Motorola Mobile Phones Mature Industry Refining product or adding services Example: IBMs emphasis on service Declining Industry Exploiting niches: serving those with strong needs/preferences Example: production of analogue films
Service Differentiation
Ordering Ease
Delivery
Installation Customer Training Customer Consulting Maintenance and Repair