Professional Documents
Culture Documents
• Corporate-level strategies
• Disposed of its interests in other restaurants
Nature of Competition: Basic
concepts
• Strategic Competitiveness
• Achieved when a firm formulate & implements a value-
creating strategy
• Strategy
• Integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a
competitive advantage
• Competitive Advantage (CA)
• Implemented strategy that competitors are unable to
duplicate or find too costly to imitate
• Above Average Returns
• Returns in excess of what investor expects in comparison to
other investments with similar risk
Nature of Competition: Basic
concepts (Cont’d)
• Risk
• Investor’s uncertainty about economic gains/losses
resulting from a particular investment
• Average Returns
• Returns equal to what investor expects in comparison
to other investments with similar risk
• Strategic Management Process (SMP)
• Full set of commitments, decisions and actions
required for a firm to achieve strategic competitiveness
and earn above average returns
The Strategic Management Process
Chapter 1: Strategic Management
and Strategic Competitiveness
• Overview: Eight content areas
• Nature of Competition
• The Competitive Landscape
• I/O Model of Above-Average Returns (AAR)
• Resource-Based Model of AAR
• Strategic Vision and Mission
• Stakeholders
• Strategic Leaders
• The Strategic Management Process
The Competitive Landscape
• Introduction: The Competitive Landscape (CL)
• Pace of change is rapid
• Industry boundaries are blurring
• Financial capital is more scarce and markets are
increasingly volatile
• Other CL characteristics: Economies of scale,
advertising budgets not as effective as before, change
in managerial mind-set from “traditional” to more
flexible and innovative
The Competitive Landscape (Cont’d)
• Introduction: The Competitive Landscape (CL)
• Hypercompetition – extremely intense rivalry among
competing firms, characterized by
• Escalating & increasingly aggressive competitive moves
• Assumptions of market stability replaced with notion of
INstability and change
• Two primary drivers of the competitive landscape:
• The global economy
• Technology
The Competitive Landscape (Cont’d)
• The Global Economy
• Goods, services, people, skills and ideas move freely
across geographic borders
• Europe, through the European Union (EU) is the world’s
largest single market
• EU vs U.S. GDP: 35% higher
• Emerging major competitive forces: China & India
• In summary: globalization increased economic
interdependence among countries as reflected in the
flow of goods and services, financial capital, and
knowledge across country borders
The Competitive Landscape (Cont’d)
• Technology and Technological Changes
• 3 categories:
• 1. Technology diffusion & disruptive technologies
• 2. The information age
• 3. Increasing knowledge intensity
The Competitive Landscape (Cont’d)
• Technology and Technology Changes (Cont’d)
• Technology diffusion
• Perpetual innovation: describes how new information-
intensive technologies are replacing older forms
• Speed to market may be primary competitive advantage
• 12 – 18 month timeframe to gather info re: competitor R&D
• Disruptive technologies
• Technologies that
• Destroy value of existing technology
• Create new markets
The Competitive Landscape (Cont’d)
• Technology and Technology Changes (Cont’d)
• 1. Technology diffusion & disruptive technologies
• 2. The information age
• 3. Increasing knowledge intensity
The Competitive Landscape (Cont’d)
• Technology and Technology Changes (Cont’d)
• The information age
• Dramatic changes over last several years
• Major technological developments effect how information is
used and disseminated
• Internet provides infrastructure for information anytime,
anywhere
• Increasing knowledge intensity
• Defined as information, intelligence & expertise and is the
basis of technology and its application
• Gained through experience, observations and inferences
• Strategic Flexibility – set of capabilities used to respond to
various demands and opportunities existing in a dynamic and
uncertain competitive environment
Chapter 1: Strategic Management
and Strategic Competitiveness
• Overview: Eight content areas
• Nature of Competition
• The Competitive Landscape
• I/O Model of Above-Average Returns (AAR)
• Resource-Based Model of AAR
• Strategic Vision and Mission
• Stakeholders
• Strategic Leaders
• The Strategic Management Process
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
• Basic Premise – to explain the dominant influence of the external
environment on a firm's strategic actions and performance
• Underlying Assumptions
• External environment imposes pressures and constraints that determine
the strategies resulting in AAR
• Most firms compete within a particular industry/segment
• Control similar strategically relevant resources
• Pursue similar strategies in light of those resources
• Resources for implementing strategies are highly mobile across firms
• Therefore any resource differences between firms will be short-lived
• Organizational decision makers are rational and committed to acting in the
firm's best interests, as shown by their profit-maximizing behaviors
Industrial Organizational (I/O) Model of
Above-Average Returns (AAR)
• Five-Forces Model (Michael Porter)
• The 5 Forces includes
• Suppliers, buyers, competitive rivalry, product substitutes and potential entrants
• Reinforces the importance of economic theory
• Analytical tool previously lacking in the field of strategy
• Determines the nature/level of competition and profit potential in an industry
• Suggests an industry’s profitability is an interaction between these 5 forces
The Resource-Based Model of AAR
The Resource-Based Model of AAR (Cont’d)
• Basic Premise - a firm's unique [internal] resources & capabilities, in
combination, are the basis for firm strategy and AAR
• Each firm’s performance difference across time emerges (vs industry’s
structural characteristics)
• Combined uniqueness should define the firms’ strategic actions
• Resources are tangible and intangible
The Resource-Based Model of AAR (Cont’d)
• Resources
• Inputs into a firm's production process
• Includes capital equipment, employee skills, patents, high-quality managers, financial
condition, etc.
• Basis for competitive advantage: When resources are valuable, rare, costly to
imitate and nonsubstitutable
• Internal/firm-specific resources can be classified into three categories:
• Physical
• Things you can touch/feel = tangible
• Human
• People / employees
• Organizational capital
• Relative to the firm itself
The Resource-Based Model of AAR (Cont’d)
• Capability
• Capacity for a set of resources to perform a task or activity in an integrative
manner
• Core Competency
• A firm’s resources and capabilities that serve as sources of competitive
advantage over its rival
• Summary
• A firm has superior performance because of
• Unique resources and capabilities, and the combination makes them different, and
better, than their competition – driving the competitive advantage
Chapter 1: Strategic Management and Strategic
Competitiveness
• Overview: Eight content areas
• Nature of Competition
• The Competitive Landscape
• I/O Model of Above-Average Returns (AAR)
• Resource-Based Model of AAR
• Vision and Mission
• Stakeholders
• Strategic Leaders
• The Strategic Management Process
Vision and Mission
• Vision
• Picture of what the firm wants to be and, in broad
terms, what it ultimately wants to achieve
• An effective vision statement is the responsibility of the
leader who should work with others to form it
• Foundation for the mission
• Mission
• Specifics business(es) in which firm intends to compete
and customers it intends to serve
• More concrete than the vision
Stakeholders
• Basic Premise – a firm can effectively manage stakeholder relationships
to create a competitive advantage and outperform its competitors
• Stakeholders are both individuals and groups
• They can affect, and are affected by, the strategic outcomes/performance a firm
achieves
• Firms are not equally dependent on all stakeholders
• Classifications of Stakeholders
• Capital Market
• Expect returns commiserate with risk accepted by investments
• Higher the dependency relationship, the more direct and significant firm’s response
• Product Market
• Customers, suppliers, host communities, unions
• Organizational
• The employees
The Three Stakeholder Groups
Chapter 1: Strategic Management
and Strategic Competitiveness
• Overview: Eight content areas
• Nature of Competition
• The Competitive Landscape
• I/O Model of Above-Average Returns (AAR)
• Resource-Based Model of AAR
• Strategic Vision and Mission
• Stakeholders
• Strategic Leaders
• The Strategic Management Process
Strategic Leaders
• People located in different parts of the firm using
the strategic management process to help the firm
reach its vision and mission
• Decisive and committed to nurturing those around
them
• Organizational culture emerges from & sustained by
leaders
• Complex set of ideologies, symbols and core values shared
throughout the firm
• Affects leaders/their work which in-turn shapes culture
• Influences how the firm conducts business
Strategic Leaders (Cont’d)
• The Work of Effective Strategic Leaders
• Hard work, thorough analysis, desire for
accomplishment, tenacity
• Must be able to “think seriously and deeply…about the
purposes of the organizations they head or functions
they perform, about strategies, tactics,…..and
people…and about the important questions … they
need to ask.”
• Predicting Outcomes: Profit Pools (PP)
• Anticipates their decisions relative to the PP
• PP entails the total profits earned in an industry at all
points along the value chain
Strategic Management Process
• Rational approach used by firms to achieve
strategic competitiveness and earn above-average
returns (AAR)
• Figure 1.1 (Diagram of chapter relationships)
• Part 1: Strategic Mgmt Inputs
• Part 2: Strategic Actions: Strategy Formulation
• Part 3: Strategic Actions: Strategy Implementation
• Part 4: Cases
BUSINESS STRATEGY DIAMOND Arenas
• Where will we be active? ( and
with how much emphasis?)
– Which product categories?
– Which channels?
Arenas – Which market segments?
– Which geographic areas?
– Which core technologies
– Which value-creation
Staging strategies?
• What will be our speed and Economic Vehicles
sequence of moves? Staging Vehicles
– Speed of expansion?
logic • How will we get there?
– Sequence of initiatives – Internal development?
– Joint ventures?
– Licensing/franchising?
– Experimentation?
Economic logic
Differentiators – Acquisitions?
• How will returns be obtained?
– Lowest costs through scale Differentiators
advantages?
– Lowest costs through scope and
• How will we win?
– Image?
replication advantages
– Customization?
– Premium prices due to unmatchable
– Price?
service?
– Styling?
– Premium prices due to proprietary
– Product reliability?
product features? 31 – Speed to market?
Strategic Management:
Concepts and Cases 9e
• Threat
• General environment condition that may hinder a company's efforts to
achieve strategic competitiveness
External Environment Analysis (Cont’d)
• 4 components of External Environment Analysis
• Scanning
• Monitoring
• Forecasting
• Assessing
Chapter 2: The External Environment:
Opportunities, Threats, Industry Competition
and Competitor Analysis
• Overview: Seven content areas
• The firm’s external environment
• General and industry environment
• External environment analysis process activities
• General environment segments
• Porter’s 5 Competitive Forces
• Strategic groups: Definition and influence
• Competitor Analysis: Intelligence and ethics
Segments of the General Environment
• 7 Segments
• Demographic
• Economic
• Political/Legal
• Sociocultural
• Technological
• Global
• Physical Environment
Chapter 2: The External Environment:
Opportunities, Threats, Industry Competition
and Competitor Analysis
• Overview: Seven content areas
• The firm’s external environment
• General and industry environment
• External environment analysis process activities
• General environment segments
• Porter’s 5 Competitive Forces
• Strategic groups: Definition and influence
• Competitor Analysis: Intelligence and ethics
Industry Environment Analysis
• Industry
• Definition: Group of firms producing products that are close substitutes
• Industry environment, in comparison to the general environment, has more
direct effect of firm’s
• Strategic competitiveness and
• Above-average returns
• Intensity of industry competition and industry’s profit potential are a function
of 5 forces (See next slide)
The Five Forces of Competition Model
Industry Environment Analysis (Cont’d)
• Porter’s 5 Forces
• 1/5: New entrants
• Can threaten market share of existing competitors
• May bring additional production capacity
• Function of two factors
• 1: Barriers to entry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Gov’t policy
• 2: Expected retaliation
Industry Environment Analysis (Cont’d)
• Porter’s 5 Forces
• 2/5: Bargaining power of suppliers
• They are powerful when …
• 1. Few large companies and more concentrated than the
• industry to which they sell
• 2. No substitutes
• 3. Industry firms not significant customer to supplier gp
• 4. Supplier’s goods are critical to buyer’s success
• 5. High switching costs due to effectiveness of supplier’s products
• 6. Threat of forward integration
Industry Environment Analysis (Cont’d)
• Porter’s 5 Forces
• 3/5: Bargaining power of buyers
• They are powerful when …
• 1. Purchase large portion of industry’s total output
• 2. Product sales accounts for significant seller annual revenue
• 3. Low switching costs (to other industry product)
• 4. Industry products are undifferentiated or standardized and
• threat of backward integration
•
Industry Environment Analysis (Cont’d)
• Porter’s 5 Forces
• 4/5: Threat of substitute products
• Goods or services outside of given industry perform same or similar functions at a
competitive price (i.e., plastic has replaced steel in many applications)
• 5/5: Intensity of Rivalry Among Competitors
• Numerous or equally balanced competitors
• Slow industry growth
• High fixed costs or high storage costs
• Lack of differentiation or low switching costs
• High strategic stakes
• High exit barriers
Industry Environment Analysis (Cont’d)
• Porter’s 5 Forces
• 5/5: Intensity of Rivalry Among Competitors
• High exit barriers (Cont’d)
• 1. Specialized assets
• 2. Fixed costs of exit (i.e., labor agreements)
• 3. Strategic interrelationships (i.e., one business depends on another)
• 4. Emotional barriers (i.e., loyalty to employees, etc.)
• 5. Government and social restrictions
•
Chapter 2: The External Environment:
Opportunities, Threats, Industry Competition
and Competitor Analysis
• Overview: Seven content areas
• The firm’s external environment
• General and industry environment
• External environment analysis process activities
• General environment segments
• Porter’s 5 Competitive Forces
• Strategic groups: Definition and influence
• Competitor Analysis: Intelligence and ethics
Strategic Groups
• Strategic Groups
• Set of firms emphasizing similar strategic dimensions to use a similar strategy
• Implications
• Because firms within a group compete (offer similar products) rivalry can be intense –
the greater the rivalry the greater the threat to each firm’s profitability
• Strengths of the 5 forces differs across strategic groups
• The closer the strategic groups, in terms of strategy, the greater the likelihood of rivalry
Chapter 2: The External Environment:
Opportunities, Threats, Industry Competition
and Competitor Analysis
• Overview: Seven content areas
• The firm’s external environment
• General and industry environment
• External environment analysis process activities
• General environment segments
• Porter’s 5 Competitive Forces
• Strategic groups: Definition and influence
• Competitor Analysis: Intelligence and ethics
Competitor Analysis
• Competitor analysis and organization response:
• What drives competitors
• Shown by organization's future objectives
• What the competitor is doing and can do
• Revealed in organization's current strategy
• What the competitor believes about the industry
• Shown in organization's assumptions
• What the competitor’s capabilities are
• Shown by organization's strengths and weaknesses
Competitor Analysis Components
Competitor Analysis (Cont’d)
• Competitor intelligence
• Set of data and information the firm gathers to better understand and
anticipate competitors' objectives, strategies, assumptions, and capabilities
Intelligence Collection (Cont’d)
• Follow ethical practices when gathering competitor intelligence
• Obtain public information
• Attend trade fairs and shows and collect brochures, view exhibits, listen to
their discussions
• Some practices may be legal, but unethical
• Unethical tactics can include
• Blackmail
• Trespassing
• Eavesdropping
• Stealing drawings, samples or documents
Strategic Management:
Concepts and Cases 9e
W S
- Turnaround - Related
- Captive company - Unrelated
- Sell-out/Divestment
- Bankruptcy/Liquidation
Retrenchment Diversification
T
TOWS Matrix
TOWS Matrix (cont’d)
Strategic Management:
Concepts and Cases 9e
Part II: Strategic Actions:
Strategy Formulation
Chapter 4: Business-Level Strategy
THE STRATEGIC MANAGEMENT PROCESS
Chapter 4: Business-Level Strategy
• Overview: Five content areas
• Defining business-level strategy
• Relationship between customers and strategy
• Differences in business-level strategies
• 5-Forces
• Risks of business-level strategies
Acer Group’s Cost Strategy
• Four PC brands:
• Acer
• Gateway
• Packard Bell
• eMachines
• Elements of Acer’s Low Cost Strategy
• Sales only through retail/other outlets (no direct sales)
• Outsource all manufacturing and assembly
• Tight control of overhead costs
• Acer overhead-8% of sales; HP–15%; Dell–14%
• Focus on consumers and small/mid-size businesses
Chapter 4: Business-Level Strategy
• Overview: Five content areas
• Defining business-level strategy
• Relationship between customers and strategy
• Differences in business-level strategies
• 5-Forces
• Risks of business-level strategies
Introduction
• Strategy: Increasingly important to a firm’s success and concerned
with making choices among two or more alternatives. Choices
dictated by
• External environment
• Internal resources, capabilities and core competencies
• Business level-strategy: Integrated and coordinated set of
commitments and actions the firm uses to gain a competitive
advantage by exploiting core competencies in specific product
markets
Introduction
• Satisfying customers is the foundation of successful business
strategies
• Managing relationships with customers
• Reach, richness, affiliation
• Who will be served
• What needs will be satisfied
• How those needs will be satisfied
• Five (5) generic business level strategies
• Generic = can be used in any organization competing in any industry
• Follows the discussion of customers
Customers: Their Relationship with Business-
Level Strategies
• Strategic competitiveness results when firm can satisfy customers by
using its competitive advantages
• Returns earned are the lifeblood of firm
• Most successful companies satisfy current customers and/or meet
needs of new customers
Customers: Their Relationship with Business-
Level Strategies (Cont’d)
2. Differentiation
• Competitive advantage: Differentiation
• Competitive scope: Broad
• Integrated set of actions designed by a firm to produce or deliver goods or
services at an acceptable cost that customers perceive as being different in
ways that are important to them
• Target customers perceive product value
• Customized products – differentiating on as many features as possible
• Examples: Apple’s iPod
Examples of Value-Creating Activities
Associated with the Differentiation Strategy
Types of Business-Level Strategies (Cont’d)
2. Differentiation (Cont’d)
4. Focused Differentiation
• Competitive advantage: Differentiation
• Competitive scope: Narrow industry segment
• i.e., in the outdoor recreation business a firm that caters to fly fishing is following a
focused differentiation strategy (as opposed to discount stores that carry general fishing
gear)
• High quality equipment
• Knowledgeable personnel
• Guided tours
• Fly tying classes
Types of Business-Level Strategies (Cont’d)
5. Integrated CL/Differentiation
• Efficiently produce products with differentiated attributes
• Efficiency: Sources of low cost
• Differentiation: Source of unique value
• Can adapt to new technology and rapid changes in external environment
• Simultaneously concentrate on TWO sources of competitive advantage: cost
and differentiation – consequently…
• …must be competent in many of the primary and support activities
• Three sources of flexibility useful for this strategy
Types of Business-Level Strategies (Cont’d)
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Figure 6.2: Maslow Hierarchy of Needs
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Figure 6.4: Five-Stage Model of the
Consumer Buying Process
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Figure 6.5: Successive Sets Involved in
Consumer Decision Making
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Figure 6.6: Steps Between Evaluation
of Alternatives and a Purchase Decision
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The Business Market versus the Consumer
Market
1. Fewer, larger buyers—The business marketer normally deals with far fewer, much larger buyers than
the consumer marketer does.
2. Close supplier-customer relationship—Because of the smaller customer base and the importance and
power of the larger customers, suppliers are frequently expected to customize their offerings to
individual business customer needs.
3. Professional purchasing—Business goods are often purchased by trained purchasing agents, who must
follow their organization’s purchasing policies, constraints, and requirements.
4. Multiple buying influences—More people typically influence business buying decisions. Buying
committees consisting of technical experts and even senior management are common.
5. Multiple sales calls—Because more people are involved in the selling process, it takes multiple sales
calls to win most business orders, and some sales cycles can take years.
6. Derived demand—The demand for business goods is ultimately derived from the demand for
consumer goods. Thus, the business marketer must closely monitor the buying patterns of ultimate
consumers.
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The Business Market versus the Consumer
Market
7. Inelastic demand—The total demand for many business goods and
services is inelastic—that is, not much affected by price changes. Demand
is also inelastic for business goods that represent a small percentage of
the item’s total cost.
8. Fluctuating demand—The demand for business goods and services tends
to be more volatile than that for consumer goods and services.
9. Geographically concentrated buyers—Business buyers tend to be
concentrated in certain regions. The geographical concentration of
producers helps to reduce selling costs.
10. Direct purchasing—Business buyers often buy directly from
manufacturers rather than through intermediaries.
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Buying Situation: Straight Rebuy
• In a straight rebuy, the purchasing department re-orders on a routine basis and chooses from suppliers
on an approved list.
• The suppliers make an effort to maintain product and service quality and often propose automatic re-
ordering systems to save time.
• “Out-suppliers” attempt to offer something new or to exploit dissatisfaction with a current supplier.
• Out-suppliers try to get a small order and then enlarge their purchase share over time.
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Buying Situation: Modified Rebuy
• The buyer wants to modify product specifications, prices, delivery
requirements, or other terms.
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Buying Situation: New Task
• A purchaser buys a product or service for the first time (e.g., office
building, new security system).
• The greater the cost or risk, the larger the number of participants and
the greater their information gathering—and therefore the longer the
time needed to make a decision.
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Seven Roles in a Buying Center
1.Initiators—Users or others in the organization who request that something be
purchased.
2.Users—Those who will use the product or service. In many cases, the users
initiate the buying proposal and help define the product requirements.
3.Influencers—People who influence the buying decision. They often help define
specifications and also provide information for evaluating alternatives. Technical
personnel are particularly important influencers.
4.Deciders—People who decide on product requirements or on suppliers.
5.Approvers—People who authorize the proposed actions of deciders or buyers.
6.Buyers—People who have formal authority to select the supplier and arrange the
purchase terms. Buyers may help shape product specifications, but they play
their major role in selecting vendors and negotiating.
7.Gatekeepers—People who have the power to prevent sellers or information from
reaching members of the buying center.
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The Buyphase Stages
a.Problem recognition
b.General need description
c.Product specification
d.Supplier search
e.Proposal solicitation
f.Supplier selection
g.Order-routine specification
h.Performance review
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Table 8.1: Major Segment Variables for
Consumer Markets
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Table 8.1 Major Segment Variables for
Consumer Markets (cont’d)
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Table 8.2: Major Segmentation Variables for
Business Markets
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Table 8.2: Major Segmentation Variables for
Business Markets (cont’d)
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Table 8.3: Steps in the Segmentation Process
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Cluster Analysis
• Cluster analysis is a class of techniques used to classify objects or cases into
relatively homogeneous groups called clusters. Objects in each cluster tend to be
similar to each other and dissimilar to objects in the other clusters. Cluster
analysis is also called classification analysis, or numerical taxonomy.
• Both cluster analysis and discriminant analysis are concerned with classification.
However, discriminant analysis requires prior knowledge of the cluster or group
membership for each object or case included, to develop the classification rule. In
contrast, in cluster analysis there is no a priori information about the group or
cluster membership for any of the objects. Groups or clusters are suggested by
the data, not defined a priori.
An Ideal Clustering Situation Fig. 20.1
Variable 1
Variable 2
Dendrogram Using Ward’s Method
Fig. 20.8
What is a Brand Equity?
• Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, enhance,
and protect brands.
• The American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a
combination of them, intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors.”
• A brand is thus a product or service whose dimensions differentiate it in some way from other
products or services designed to satisfy the same need.
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Brand Equity
• Brand equity is the added value endowed to products and services.
• It may be reflected in the way consumers think, feel, and act with
respect to the brand, as well as in the prices, market share, and
profitability the brand commands.
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Brands Perform Valuable Functions for the
Firm
1. A credible brand signals a certain level of quality so that satisfied buyers can easily choose the product
again.
2. Brand loyalty provides predictability and security of demand for the firm and creates barriers to entry
for other firms.
4. To firms, brands represent enormously valuable pieces of legal property that can influence consumer
behavior, be bought and sold, and provide their owner the security of sustained future revenues.
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Figure 9.4: Brand Resonance Pyramid
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The Six Choice Criteria
1.Memorable—How easily is the brand element recalled? How easily
recognized? Is this true at both purchase and consumption. Moreover, the
brand name should also look distinctive to be memorable in Asia.
2.Meaningful—To what extent is the brand element credible and suggestive
of the corresponding category? Does it suggest something about a product
ingredient or the type of person who might use the brand?
3.Likeable—How aesthetically appealing do consumers find the brand
element? Is it inherently likeable visually, verbally, and in other ways?
4.Transferable—Can the brand element be used to introduce new products
in the same or different categories? To what extent does the brand
element add to brand equity across geographic boundaries and market
segments?
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The Six Choice Criteria
5. Adaptable—How adaptable and updatable is the brand element? As
many Asian brands modernize, their elements need to be adaptable
and yet retain the traditional values of the brand.
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Figure 9.5: Secondary Sources of Brand Knowledge
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Brand Value Chain
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Brand Reinforcement
• As the company’s major enduring asset, a brand needs to be carefully
managed so that its value does not depreciate.
• Long-lived Asian brands include Mikimoto pearls, Poh Chai pills, and
San Miguel beer.
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Brand Reinforcement
• As the company’s major enduring asset, a brand needs to be carefully
managed so that its value does not depreciate.
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Brand Extensions
Brand extensions fall into two general categories:
1.In a line extension, the parent brand covers a new product within a
product category it currently serves.
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Brand Line Extension – Frito-Lay
• Frito-Lay extends its potato chip line by introducing flavors that adapt to Asian tastes.
Flavors include Peking duck, kimchi, and chili crab.
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Brand Portfolios
• Some reasons to introduce multiple brands in a category include:
i. To increase shelf presence and retailer dependence in the store
ii. To attract consumers seeking variety who may otherwise have switched to another brand
iv. To yield economies of scale in advertising, sales, merchandising, and physical distribution
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Levels of Diversification
1. Low Levels
• Single Business Strategy
• Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business
area
• Dominant Business Diversification Strategy
• Corporate-level strategy whereby firm generates 70-95% of total sales revenue within a single business area
2. Moderate to High Levels
• Related Constrained Diversification Strategy
• Less than 70% of revenue comes from the dominant business
• Direct links (i.e., share products, technology and distribution linkages) between the firm's businesses
• Related Linked Diversification Strategy (Mixed related and unrelated)
• Less than 70% of revenue comes from the dominant business
• Mixed: Linked firms sharing fewer resources and assets among their businesses (compared with related
constrained, above), concentrating on the transfer of knowledge and competencies among the businesses
3. Very High Levels: Unrelated
• Less than 70% of revenue comes from dominant business
• No relationships between businesses
Levels and Types of Diversification