second meeting r mkg 690 dr. s. borna. lecture outline 1. strategic planning 2. meaning of...

Second MeetingSecond Meeting

R

Mkg 690Mkg 690Dr. S. BornaDr. S. Borna

LECTURE OUTLINELECTURE OUTLINE

1. Strategic Planning1. Strategic Planning

2. Meaning of “Strategy”2. Meaning of “Strategy”

3. A Brief History of Marketing 3. A Brief History of Marketing

StrategyStrategy

4. The Hierarchy of Strategies4. The Hierarchy of Strategies

5. Major Steps in Strategic 5. Major Steps in Strategic Planning At Corporate, Planning At Corporate, Strategic Business Unit Strategic Business Unit

(SBU), and Product Levels(SBU), and Product Levels

6. Marketing Environments6. Marketing Environments

7. Meaning of Environment7. Meaning of Environment

LECTURE OUTLINE (CONT.)LECTURE OUTLINE (CONT.)

LECTURE OUTLINE (CONT.)LECTURE OUTLINE (CONT.)

8. Different layers of8. Different layers of Environment Environment

9. Marketing Macro9. Marketing Macro Environment Environment

10. Characteristics of the10. Characteristics of the Macro-Environment Macro-Environment

LECTURE OUTLINE (CONT.)LECTURE OUTLINE (CONT.)

11. Strategic Environmental11. Strategic Environmental Issue Management Issue Management a. Environmental a. Environmental Scanning Scanning b. Key Environmental b. Key Environmental Issue Identification Issue Identification

c. Impact Evaluationc. Impact Evaluation

d. Formulation of d. Formulation of Response Strategies Response Strategies

LECTURE OUTLINE (CONT.)LECTURE OUTLINE (CONT.)

A BRIEF HISTORY OF A BRIEF HISTORY OF MARKETING STRATEGYMARKETING STRATEGY

By: SchnaarsBy: Schnaars

Chapter 2Chapter 2

The Free PressThe Free Press

Different Usage of the Different Usage of the Term Term

“Marketing Strategy”“Marketing Strategy”

Marketing Strategy at Marketing Strategy at Macro Level: Macro Level:

• Identification of target Identification of target market(s) and designing market(s) and designing an appropriate marketing an appropriate marketing mix for that market(s).mix for that market(s).

There are alsoThere are also marketing element strategiesmarketing element strategies::

For example: skimming vs. For example: skimming vs. penetration price strategiespenetration price strategies

Finally, Finally, Product-market Entry Product-market Entry StrategiesStrategies

Historical Trends in Historical Trends in Marketing StrategyMarketing Strategy

1950s Budgeting Search for1950s Budgeting Search for overall Corp. Strategyoverall Corp. Strategy1960s Long Range Planning1960s Long Range Planning1970s Formula Planning1970s Formula Planning1980s Strategic Thinking1980s Strategic Thinking

BudgetingBudgeting

• No explicit strategyNo explicit strategy

• Emphasis on control Emphasis on control rather than strategyrather than strategy

An interest in integrating functions ofAn interest in integrating functions oforganization: production, finance,organization: production, finance,marketing etc.marketing etc.

Key Characteristics of Key Characteristics of Long-Range PlanningLong-Range Planning

• Objectives and GoalsObjectives and Goals

• Long-Range ForecastingLong-Range Forecasting

Formula PlanningFormula Planning

Decline of Formula PlanningDecline of Formula Planning

Theoretical but Theoretical but ImpracticalImpractical

The notion that an effective strategyThe notion that an effective strategycan be constructed by someone incan be constructed by someone inan ivory tower is totally bankrupt.an ivory tower is totally bankrupt.

(1970s)(1970s)

•Ritualistic Rather than UsefulRitualistic Rather than Useful

(planning became ritualistic(planning became ritualistic

and mechanistic)and mechanistic)

(Relied on data rather than (Relied on data rather than

marketing instincts. Moved marketing instincts. Moved

away from customers andaway from customers and

competitors)competitors)

• Problems with forecastingProblems with forecasting

Strategic ThinkingStrategic Thinking

• From Forecasting to From Forecasting to Competitive AdvantageCompetitive Advantage

• From elitism toFrom elitism toegalitarianismegalitarianism

•From competitors to From competitors to competitors and competitors and consumers consumers

•From calculation toFrom calculation to creativity creativity

What is competitive Advantage?What is competitive Advantage?

Competitive advantage is some-Competitive advantage is some-thing that allows a firm to earnthing that allows a firm to earnhigher-than-average profitshigher-than-average profits

What is Strategy?What is Strategy?

The art and science of The art and science of adapting and coordinatingadapting and coordinatingresources to the attainment resources to the attainment of an objective.of an objective.

Three Recurring Three Recurring ThemesThemes

• Environmental analysisEnvironmental analysis

• Firm’s resourcesFirm’s resources

• Objective and goalsObjective and goals

ResourcesResources OpportunityOpportunity ObjectivesObjectives

Adapted ToAdapted To To AttainTo Attain

A company can outperformA company can outperformrivals only if it can establishrivals only if it can establisha difference that it cana difference that it canpreserve.preserve.The essence of strategy isThe essence of strategy ischoosing to performchoosing to performactivities differently thanactivities differently thanrivals do.rivals do.

According to Porter According to Porter (HBR 1996)(HBR 1996)

Strategy is the creation of aStrategy is the creation of aunique and valuable unique and valuable position,position,involving a different set ofinvolving a different set ofactivities.activities.

Strategic PositionsStrategic PositionsCan Be Based On:Can Be Based On:

1. Variety-based Positioning1. Variety-based Positioning ex. Jiffy Lubeex. Jiffy Lube2. Needs-based Positioning2. Needs-based Positioning (segmentation) ex. Ikea(segmentation) ex. Ikea3. Access-based Positioning3. Access-based Positioning ex. Carmike Cinemasex. Carmike Cinemas

Porter’s Main Points:Porter’s Main Points:1. Distinguish between1. Distinguish between Operational efficiency and Operational efficiency and strategy strategy2. Identify a unique strategic 2. Identify a unique strategic positionposition3. Consider trade-offs (do not be3. Consider trade-offs (do not be Jack of all trades.)Jack of all trades.)4. Strategic positions should4. Strategic positions should have a horizon of a decade or have a horizon of a decade or more. more.

The components of strategyThe components of strategy

1. 1. ScopeScope (industries, products (industries, products market segments etc.)market segments etc.)2. Goals and objectives2. Goals and objectives3. Resource deployment3. Resource deployment4. Identification of a sustainable4. Identification of a sustainable competitive advantagecompetitive advantage5. Synergy (the whole becomes5. Synergy (the whole becomes grater than sum of its partsgrater than sum of its parts

Three Organizational Three Organizational LevelsLevels

1. Corporate Level1. Corporate Level

((Corporate strategy)Corporate strategy)

2. Business Level2. Business Level

(Business-level strategy)(Business-level strategy)

3. Product Level3. Product Level

((functional strategies)functional strategies)

Strategic Planning at theStrategic Planning at theCorporate LevelCorporate Level

STRATEGIC PLANNING STRATEGIC PLANNING PROCESSPROCESS

(AT CORPORATE LEVEL) (AT CORPORATE LEVEL)

CORPORATE CORPORATE MISSIONMISSION

S.B.U.S.B.U.IDENTIFICATIONIDENTIFICATION

PORTFOLIOPORTFOLIOANALYSISANALYSIS

GROWTHGROWTHSTRATEGIESSTRATEGIES

Strategic PlanningStrategic Planning

Strategic Planning at theStrategic Planning at theCorporate Level Consists of :Corporate Level Consists of :

• Defining Corporate MissionDefining Corporate Mission

• Defining Corporate Defining Corporate ObjectivesObjectives

Strategic Planning Strategic Planning (Cont.)(Cont.)

• Corporate Development Corporate Development Strategy (growth Strategy (growth strategies)strategies)

• Allocating Corporate Allocating Corporate Resources (corp. portfolio Resources (corp. portfolio evaluation & strategy)evaluation & strategy)

FACTORS THAT FACTORS THAT INFLUENCE THE INFLUENCE THE

CORPORATE MISSIONCORPORATE MISSION

• ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS

• ORGANIZATIONS PAST ORGANIZATIONS PAST HISTORYHISTORY

• MANAGEMENT MANAGEMENT PREFERENCEPREFERENCE

DEFINING THE DEFINING THE ORGANIZATION’S MISSIONORGANIZATION’S MISSION

• WHAT BUSINESS(ES) ARE WE WHAT BUSINESS(ES) ARE WE IN?IN?

• WHAT BUSINESS(ES) SHOULD WHAT BUSINESS(ES) SHOULD WE BE IN?WE BE IN?

• HOW TO ALLOCATE OUR HOW TO ALLOCATE OUR RESOURCES AMONG RESOURCES AMONG DIFFERENT UNITS?DIFFERENT UNITS?

CRITERIA FOR DEFINING CRITERIA FOR DEFINING THE CORPORATE MISSIONTHE CORPORATE MISSION

• Target customers and Target customers and MarketsMarkets

• Principle Products or Principle Products or ServicesServices

• Geographic DomainGeographic Domain

•Core TechnologiesCore Technologies•Concern for Survival, GrowthConcern for Survival, Growth and profitability and profitability•PhilosophyPhilosophy•Self conceptSelf concept•Public ImagePublic Image

CRITERIA FOR DEFININGCRITERIA FOR DEFINING THE CORPORATE MISSIONTHE CORPORATE MISSION

MISSION STATEMENTMISSION STATEMENTBROADBROAD SPECIFICSPECIFIC

Long Distance Trans.Long Distance Trans.for large-vol, producersfor large-vol, producersof low value,of low value, low-density productslow-density products

RailroadRailroadBusinessBusiness

Long-Haul Coal-Long-Haul Coal-Carrying RailroadCarrying Railroad

FUNCTIONALFUNCTIONALbased on based on consumer needsconsumer needs

PHYSICALPHYSICALbased onbased onexistingexistingproducts or products or technologytechnology

BusinessBusinessTransportationTransportation

A MISSION STATEMENTA MISSION STATEMENT

To provide low-cost personal To provide low-cost personal motorized transportation for motorized transportation for low- to moderate income low- to moderate income consumers through providing consumers through providing small cars designed with most small cars designed with most fuel-efficient technology.fuel-efficient technology.

COMPANY OBJECTIVES:COMPANY OBJECTIVES:MEASURES OF MEASURES OF PERFORMANCEPERFORMANCE

EXAMPLE:EXAMPLE:

To realize an average To realize an average return of 15% on return of 15% on investment over the next investment over the next five years.five years.

Objectives and Objectives and StrategiesStrategies

• Objectives are ends Objectives are ends strategies are means of strategies are means of achieving these ends.achieving these ends.

Boston Consulting Group Boston Consulting Group (BCG)(BCG)

STARSSTARSQUESTIONQUESTIONMARKSMARKS

CASH COWCASH COW DOGSDOGS

MARKET MARKET GROWTH GROWTH RATERATE

RELATIVE MARKET SHARERELATIVE MARKET SHARE

2%2%

6%6%

10%10%

20%20%

16%16%

10x10x 4x4x 1x1x 0.4x0.4x 0.1x0.1x

?

LIMITATIONS OF BCG LIMITATIONS OF BCG METHODMETHOD

INTERDEPENDENT AMONG INTERDEPENDENT AMONG SBU’S, MARKET GROWTH SBU’S, MARKET GROWTH RATE AS A PROXY MEASURE RATE AS A PROXY MEASURE OF INDUSTRYOF INDUSTRYATTRACTIVENESS IS ATTRACTIVENESS IS INADEQUATE.INADEQUATE.

cont.cont.

RELATIVE MARKET SHARE RELATIVE MARKET SHARE AS PROXY MEASURE OF AS PROXY MEASURE OF COMPETITIVE STRENGTHCOMPETITIVE STRENGTHIS INADEQUATE.IS INADEQUATE.

Limitations Of BCGLimitations Of BCGCont.Cont.

LIMITATIONS OF BCG LIMITATIONS OF BCG METHOD (CONTINUED)METHOD (CONTINUED)

• CLASSIFICATION IS CLASSIFICATION IS SENSITIVE TO SENSITIVE TO VARIATIONS IN HOW VARIATIONS IN HOW “GROWTH” & “SHARE” “GROWTH” & “SHARE” ARE MEASURED.ARE MEASURED.

General Electric MethodGeneral Electric Methodstrongstrong mediummedium weakweak

highhigh

mediummedium

lowlow

3.673.67

2.332.33

1.001.005.005.00 3.673.67 2.332.33 1.001.00

Competitive Position (Mkt Share, Growth, Competitive Position (Mkt Share, Growth, Quality, Network)Quality, Network)

MarketMarketAttractivenessAttractiveness

(Mkt Size, (Mkt Size, Growth Rate,Growth Rate,Profit Margin,Profit Margin,Competition)Competition)

MARKET MARKET ATTRACTIVENESSATTRACTIVENESS

• Overall market sizeOverall market size• Annual market growth rateAnnual market growth rate• Historical profit marginHistorical profit margin• Competitive intensityCompetitive intensity• Technological requirementsTechnological requirements• Inflationary vulnerabilityInflationary vulnerability• Energy requirementsEnergy requirements

MARKET MARKET ATTRACTIVENESSATTRACTIVENESS

(CONTINUED)(CONTINUED)

• Environmental impactEnvironmental impact

• Social/political/legalSocial/political/legal

COMPETITIVE COMPETITIVE POSITIONSPOSITIONS

• Market shareMarket share• Share growthShare growth• Product qualityProduct quality• Brand reputationBrand reputation• Distribution Distribution

networknetwork• Promotional Promotional

effectivenesseffectiveness• Unit costUnit cost

• Material Material suppliessupplies

• R&D R&D performanceperformance

• Managerial Managerial personnelpersonnel

competitive positioncompetitive positionstrongstrong mediummedium weakweak

highhigh

mediummedium

lowlow

3.673.67

2.332.33

1.001.005.005.00 3.673.67 2.332.33 1.001.00

hydraulichydraulicpumpspumps

joints

aerospaceaerospacefittingsfittings

fuel pumpsfuel pumps

relief valvesrelief valves

clutchesclutches

flexibleflexiblediaphragmsdiaphragms

Corporate Growth Corporate Growth StrategiesStrategies

Internal GrowthInternal Growth

1. Market Penetration1. Market Penetration

2. Market Development2. Market Development

3. Product Development3. Product Development

Corporate Growth Corporate Growth StrategiesStrategies

External GrowthExternal GrowthIntegrative GrowthIntegrative Growth

1. Backward Integration1. Backward Integration

2. Forward Integration2. Forward Integration

3. Horizontal Integration3. Horizontal Integration

Corporate Growth Corporate Growth StrategiesStrategies

External GrowthExternal GrowthDiversificationDiversification

1. Concentric1. Concentric Diversification Diversification

2. Conglomerate2. Conglomerate Diversification Diversification

Strategic Business UnitStrategic Business Unit

1. It is a single business or1. It is a single business or collection of related collection of related

businessesbusinesses

2. It has a distinct mission2. It has a distinct mission

3. It has its own competitors3. It has its own competitors

4. It has a responsible manager4. It has a responsible manager

5. It can benefit from strategic5. It can benefit from strategic planning planning

6. It can be planned6. It can be planned independently of other independently of other businesses businesses

The Business UnitThe Business UnitStrategic ProcessStrategic Process

• Business MissionBusiness Mission• Environmental AnalysisEnvironmental Analysis• Goal FormulationGoal Formulation• Strategy FormulationStrategy Formulation• Program FormulationProgram Formulation• ImplementationImplementation• Feedback and ControlFeedback and Control

Marketing Strategy Marketing Strategy PlanningPlanning

1. Identification of the1. Identification of the target market(s); target market(s);

2. Designing appropriate2. Designing appropriate marketing mix for that marketing mix for that market(s). market(s).

MARKETING MARKETING ENVIRONMENTENVIRONMENT

WHAT DO WE MEAN BY WHAT DO WE MEAN BY ENVIRONMENT?ENVIRONMENT?

The environment is the totality The environment is the totality of forces that are external of forces that are external and potentially relevant to the and potentially relevant to the particular agent.particular agent.

Rapid Change of Rapid Change of Environmental ForcesEnvironmental Forces

1. Economy1. Economy

2. Technology2. Technology

3. Governmental Regulation3. Governmental Regulation

4. Cultural Environment4. Cultural Environment

5. Political Environment5. Political Environment

To Identify Environmental To Identify Environmental Forces, Ask Two QuestionsForces, Ask Two Questions

1. Can I do anything about it?1. Can I do anything about it?

2. Does it matter relative to my2. Does it matter relative to my objective? objective?

Environmental ForcesEnvironmental Forces

1. Environmental Forces are1. Environmental Forces are boundless boundless

2. It is difficult to detect and2. It is difficult to detect and interpret environmental interpret environmental

forcesforces

CHARACTERISTICS:CHARACTERISTICS:

3. Environmental forces are 3. Environmental forces are difficult to control difficult to control

4. Since environmental forces 4. Since environmental forces

are diverse, it requires are diverse, it requires

diversity of expertise todiversity of expertise to

handle these forces.handle these forces.

Layers of Product’s Layers of Product’s EnvironmentEnvironment

ProductProduct

Intraorganization EnvironmentIntraorganization EnvironmentTask EnvironmentTask Environment

Macro-EnvironmentMacro-Environment

GlobalGlobal

11

22

33

44

Intraorganizational Intraorganizational EnvironmentEnvironment

Other CorporateOther CorporateDepartments and Departments and Personnel.Personnel.

Task EnvironmentTask Environment

SuppliersSuppliers CompanyCompany

Marketing Marketing IntermediariesIntermediaries

MarketMarket

MACROENVIRONMENTMACROENVIRONMENT

• Cultural EnvironmentCultural Environment

• Economic EnvironmentEconomic Environment

• Technological Technological EnvironmentEnvironment

• Natural EnvironmentNatural Environment

GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT

• International ChangesInternational Changes

Strategic Environmental Strategic Environmental Issue ManagementIssue Management

1. Environmental Scanning1. Environmental Scanning

2. Key Environmental Issue 2. Key Environmental Issue

IdentificationIdentification

3. Impact Evaluation3. Impact Evaluation

4. Formulation of a Response 4. Formulation of a Response

StrategyStrategy

Alternative approaches to Alternative approaches to environmental Scanningenvironmental Scanning

Nature of Scanning Activity:Nature of Scanning Activity: IrregularIrregular Ad-hoc studiesAd-hoc studies RegularRegular Periodically updated studiesPeriodically updated studies ContinuosContinuos Structured data collection and Structured data collection and processing system processing system

Scope of ScanningScope of Scanning

Specific EventsSpecific Events

Selected ElementsSelected Elements

Broad range of environmental Broad range of environmental componentscomponents

Impetus for scanningImpetus for scanning

Crisis initiatedCrisis initiated

Problem areasProblem areas

planning processplanning process

Strategic OrientationStrategic Orientation

ReactiveReactive

ProactiveProactive

ProactiveProactive

Time frame for dataTime frame for data

RetrospectiveRetrospective

Current and retrospectiveCurrent and retrospective

Current and prospectiveCurrent and prospective

Time frame for decision impactTime frame for decision impact

Current and near termCurrent and near term

Near termNear term

Long termLong term

Organizational ResponsibilityOrganizational Responsibility

Specially designed teamsSpecially designed teams

Various staff servicesVarious staff services

Environmental Scanning UnitEnvironmental Scanning Unit

Which of these three environmentalWhich of these three environmentalscanning approaches is suitablescanning approaches is suitablefor your organization?for your organization?

Answer:Answer:

Depends on the firm’s potentialDepends on the firm’s potentialvulnerability to environmentalvulnerability to environmentalforcesforces

Key environmental IssueKey environmental Issue IdentificationIdentification

Somehow the system (the firm)Somehow the system (the firm)must determine:must determine:

1. The 1. The probabilityprobability that an issue that an issue can materialize into a threatcan materialize into a threat or an opportunity;or an opportunity;2. The degree of 2. The degree of impact impact it can haveit can have on the firm.on the firm.

KEY ENVIRONMENTAL ISSUE KEY ENVIRONMENTAL ISSUE IDENTIFICATIONIDENTIFICATION

11 99

66 22

PROBABILITYPROBABILITY

HIGHHIGH LOWLOW

HIGHHIGH

LOWLOW

IMPACTIMPACT

Few examples:Few examples:

1. Interstate barriers to bank are1. Interstate barriers to bank are loweredlowered6. Antitrust actions are taken against6. Antitrust actions are taken against large bankslarge banks9. Government regulation favors9. Government regulation favors non-bank financial institutionsnon-bank financial institutions2. Technological breakthroughs occur2. Technological breakthroughs occur in information processingin information processing

Impact EvaluationImpact Evaluation

You have to answer the followingYou have to answer the followingquestions:questions:

1. Does the issue represents a threat1. Does the issue represents a threat or opportunity?or opportunity?2. How 2. How significantsignificant will its impact on will its impact on the performance of the firm?the performance of the firm?

3. What is the likely timing of the3. What is the likely timing of the impactimpact4. What specific marketing areas 4. What specific marketing areas will be affected?will be affected?

IssueIssueAA

Profit impactProfit impact

Time horizonTime horizon

5 year 10 year 15 year5 year 10 year 15 year

30%30%

20%20%

10%10%

00

-10-10

-20-20

-30-30

UncertaintyUncertaintyon impacton impact

UncertaintyUncertaintyon timingon timing

IssueIssueBB

CC

Formulation of a Response Formulation of a Response

StrategyStrategy

Reactive StrategyReactive Strategy

Proactive StrategyProactive Strategy

Response Strategies to Response Strategies to Environmental Issues:Environmental Issues:

1. 1. OppositionOpposition (N. Rifle A.) (N. Rifle A.)2. 2. Adaptation Adaptation (usually compulsory (usually compulsory ex. Auto industryex. Auto industry mandatory fuelmandatory fuel standards)standards)3. 3. Offensive StrategyOffensive Strategy Waste Management Inc.:Waste Management Inc.: How to improve waste disposal?How to improve waste disposal?

4. 4. Redeployment StrategyRedeployment Strategy:: Example Tobacco Industry andExample Tobacco Industry and diversificationdiversification

5. 5. Contingency Strategy:Contingency Strategy: If saccharin is band in drugsIf saccharin is band in drugs foods, soft drinks, etc.foods, soft drinks, etc.

6. 6. Passive strategy:Passive strategy: (do nothing (do nothing wait and see strategy)wait and see strategy)