Strategic Positioning & Growth Strategies

By

Dr. Ravindra Pratap Gupta

ISSUED IN PUBLIC INTEREST

Advisable“All material in slides need not be understood. Use your

currentworking environment and experience to relate to situations Errors and omissions regrettable. Subject to corrections on

being brought to notice”

Learning Objectives

1. Define the terms market segment, marketing strategy, target market , marketing mix, marketing objective, & positioning,

2. Identify the reasons that have made positioning essential in today’s business climate.

3. List and describe the steps required for effective positioning (the five Ds).

4. List and describe the six different approaches to positioning.

5. Growth Strategies6. Questions

Market Segment

A market segment is a large identifiable group of customers within a market, which shows a predictable pattern of behavior in buying

situations and can be profitably reached by means of distribution and communication

Marketing Strategy

The selection of a course of action from among several alternatives that involves specific customer

groups, communication methods, distribution channels, and pricing structures.

It is a combination of target markets andmarketing mixes.

Target Market

A target market is a market segment selected by a

hospitality and travel organization for marketing attention.

Market segmentation involves dividingcustomers into groups (market segments)

with common characteristics.

Marketing Mix

A marketing mix includes those controllable factors that have been chosen to satisfy customer needs.

The eight controllable factors are product, price, place, promotion, packaging, programming,

partnership, and people.

These are also know as the 8 Ps.

Marketing Objective

A marketing objective is a measurable goal that a hospitality or travel organization attempts to achieve for a target market

within a specific time period,typically one year.

Positioning

Positioning is the development of a service and a marketing mix

to occupy a specific place in the mindsof customers within target markets.

Understanding the Competitors

Objectives and CommitmentObjectives and Commitment

Image and PositioningImage and PositioningSize, Growth

& ProfitabilitySize, Growth

& Profitability

Current and Past Strategies

Current and Past Strategies

Strengths and WeaknessesStrengths and Weaknesses

Cost StructureCost Structure

Exit BarriersExit Barriers Organization and CultureOrganization and Culture

Competitor Actions

Competitor Actions

Figure 3.3

11

BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0

Strategic Planning Process for Service

Strategic Hierarchy Strategic Positioning – sets out a corporate-level set of objectives, goals, mission

Service Strategy – takes these corporate level strategies and refines them into specific objectives and missions

Tactical Execution – executes the service strategy

Reasons for Increased Importance of Positioning

1. Perceptual processes of customers They screen out most information2. Greater competition

More organizations competing for share of mind3. Growing volume of commercial messages

Advertising and promotion clutterRegardless of the approach taken, the objectives of strategic positioning is

to definethe ‘target market’ the company will serve, define strategies and its

mission and objectives.

Steps Required for Effective Positioning (the five Ds)

g Documentingg Decidingg Differentiatingg Designingg Delivering

The 5 Ds of Positioning

g DocumentingWhat benefits are the most important to your current and potential customers?

g DecidingWhat image do you want your current and potential customers to have of your organization?

g DifferentiationWhich competitors do you want to appear different from, and what are the factors that you will use to make your organization different from them?

The 5 Ds of Positioning

g DesigningHow will you develop and communicate these differences?

g DeliveringHow will you make good on what you’ve promised, and how do you make sure that you have “delivered?”

Positioning Approaches:Six Major Alternatives

g Specific product featuresg Benefits, problem solution, or

needsg Specific usage occasionsg User categoryg Against another “product”g “Product class” dissociation

Growth Strategy

Growth Strategy is an approach by which an organizationSubstantially broadens the scope of one or more of itsbusiness in terms of their respective customer group,customer functions and alternative technologies toImprove its overall performance.

Growth Strategies

Growth Strategies are grand strategies that involve organization expansion along some major dimensiona. Concentrationb. Vertical Integrationc. Diversification

Concentration

Focuses on effecting the growth of a single product or service or a smaller number of closely related productsI. Market development is gaining a larger share of

current market or expanding in to new ones example Marico’s Safola, Revive

II. Product development is improving a basic product or service or expanding in to a closely related products or service example improved parachute oil

III. Horizontal integration is adding one or more business that is similar usually by purchasing such business example acquisition of Nahar Coconut oil

Vertical Integration

Involves effecting growth through production of inputs previously provided by suppliers or through replacement of a customer role (such as that of a distributor) by disposing of one’s own outputsI. Backward integration occurs when business grows

becoming its own supplier example online software distribution

II. Forward integration occurs when organizational growth encompasses a role previously fulfilled by a customer example EBay

Diversification

Entails effecting growth through the development of new areas that are clearly distinct from current businessI. Conglomerate diversification takes place when an

organization diversifies in to areas that are unrelated to its current business example Kohinoor Group.

II. Concentric diversification occurs when an organization diversifies in to related, but distinct business example Pepsi in food products

Growth Strategies Implementation/Types of Growth Strategies

These growth strategies can be implemented through a number of meansInternal GrowthMergerAcquisitionJoint VentureStrategic Alliance

Internal Growth

As the organization grows by building on its own internal resources example Raymond's,

MERGERS

In merger two firms, agree to move ahead and exist as a single new company. Merger can be

merger of equals : both companies are of equal sizes. merger of unequal's : large company merge with smaller

one

Voluntary process : consent of both companies. Name of new merged entity is usually a combination of

both parent companies Mergers are mostly financed by a stock swap. Both

companies surrender their stocks and stock of the new company is issued as a replacement.

Types of merger

Horizontal merger : When two merging companies are of the same industry and produce similar products.

Example : Footwear Company Merging with Footwear companyVertical merger : When two companies are producing the same goods,

but are at different stages, it is a vertical merger. Example : Footwear Company Merging with Leather TanneryConcentric merger : when two companies are related to each other in

terms of customer functions or customer groups. Example : Footwear Company Merging with another specialty

Footwear CompanyConglomerate merger : When two companies operate in different

industries. Example : Footwear Company Merging with Pharmaceutical Firms

Are all mergers successful?Hindalco-Novelis (failure)

Hindalco (metal maker of Birla group) acquired Novelis for a staggering $ 5.76 billion.Novelis , on a net worth of $ 322 million, had a debt of $ 2.33 billion

Hindalco took $ 3.13 bn loan to aquire Novelis. Right after the acquisition hindalco came on a rough road.

With the debt market tightening , the metal maker is left with no choice but to dilute its equity through a 1:3 rights issue.

Further, high interest costs, which rose by over 490 % loan increased from Rs 3.13 billion in FY 07 to Rs 18.49 billion in FY 08.

Finally Hindalco’s earning per share in FY08 dropped to Rs.15.76, from Rs. 26.73 in FY07, a fall of 41% !

Acquisition is a deal when one company takes over another

company and buyer becomes sole proprietor. At times takeover occurs when the target company does

not want to be purchased. However with better offering of prices shareholder are attracted by acquirer.

In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's stock continues to be traded.

Unlike mergers which are friendly, acquisitions can be friendly and unfriendly.

AQUISITION

Why M & A OCCUR ?

To reduce competition.

To increase growth rate & capture a greater market share

To improve value of organization’s stock.

To acquire a needed resource quickly.

To take advantage of synergy.

To acquire resources to stabilize operations.

To achieve economies of scale.

Disadvantages of M&A

Reduced competition may even facilitate monopolistic or oligopolistic tendencies among firms.

Increase of prices.

Job losses for employees.

Difficulties in cultural integration of the merging firms.

Interest of minority shareholders is not protected.

Tata Steel and Corus

On January 31, 2007, Tata Steel Limited, one of the leading steel producers in India,

acquired the Anglo Dutch steel producer Corus Group for US$ 12.11 billion. Corus was 2.5 times bigger company than TATA.

It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed

the deal at US $ 7.6 bn and later it ended up by paying US $ 12.11 bn, making it

an expensive turnover.

This acquisition was the biggest overseas acquisition by an Indian

company. Tata Steel emerged as the fifth largest steel producer in the world.

After acquisition Tata benefited itself from Corus: Distribution network of Europe. Expertise in steel making for automobiles. In return Corus benefit itself from Tata Steel's expertise in low cost

manufacturing of steel.

JOINT VENTURE

An entity formed between two or more parties to undertake a specified activity together. Parties agree to create a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The venture can be for one specific project only or a continuing business relationship Example: Sony Ericsson, Future Generali

Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist.

Types of Joint Ventures (a) Between 2 Indian org. in one industry (b) Between 2 Indian org. across different industries. (c) Between an Indian org. & a foreign org. in India. (d) Between an Indian org. & a foreign org. in that foreign country. (e) Between an Indian org. & a foreign org. in third country.

Joint VentureMaruti Udyog Ltd. & Suzuki Motor Corp.

Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned.

Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan.

The Indian government held an initial public offering of 25% of the company in June 2003.

As of May 10, 2007, Govt. of India sold its complete share to

Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported.

In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983.

Strategic alliances

A strategic alliance is a form of affiliation that involves a mutual sharing of resources or “partnering” to improve efficiency.

In strategic alliances, the focus is on “sharing” of resources rather than seeking change in control. Equity investment in each others company is not any focus example Pfizer with Aventis for marketing oral insulin's, Jet airways & kingfisher

Types of strategic alliances :

Pre competitive alliance : vertical value chain alliances b/w manufacturers and suppliers.

Non competitive alliances : Intra industry partnerships b/w noncompetitive firms

like two firms in same industry but different geographical locations. Competitive alliance : partnerships which brings two rival firms in a

cooperative arrangement where intense interaction is necessary. Pre competitive alliance : partnerships which brings two firms of different

industry together to work on well defined industries such as new technology

development.

Reasons for strategic alliances

Market entry -A strategic alliance can ease entry into a foreign market . Eg: strategic alliance between British Airways and American Airlines.

Share risk & expenses -firms involved can share risks. Eg: In early 1990’s film manufacturers Kodak and Fuji joined with camera manufacturers Nikon, Canon, and Minolta to create cameras and film for an "Advanced Photo System.

Synergistic Effects of Shared Knowledge and Expertise-

help a firm gain knowledge and expertise Skills+ brand + market knowledge+ assets= synergizing

effect Eg: For example, in the early 1990s, Motorola initiated an alliance

among various partners, including Raytheon, Lockheed Martin, China Great Wall, and Nippon Iridium, to develop and build a global satellite-based communications network.

Gaining Competitive Advantage-

Pitfalls

Lack of trust & commitment. Perceived misunderstanding among partners. Conflicting goals & interests. Inadequate preparation for entering into partnership. Hasty implementation of plans.

Jet airways-Kingfisher Alliance

market leaders with share of Jet – 30% kingfisher – 29% Economic slowdown and high ATF prices resulted in decline of air travel

both in international and domestic segments of the air travel market. Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year

Thus Jet and Kingfisher have decided to form an alliance in fields including fuel management, ground handling, sharing of technical resources and crew for training and cross-utilization on similar aircraft types.

This will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect.

They could not merge as of rule that two airline companies with combined market share greater than 40 % can not merge in India. So they

formed an alliance.

MERGER AQUISITION

JOINT VENTURE STRATEGIC ALLIANCE

Usually two companies of equal size merge Together.

Voluntary and friendly process

Stock swap : both companies surrender their stocks and stocks of new companies are given as replacement.

Parent companies cease to exist.

Large company takes over the smaller Company.

Often forceful or unfriendly where larger company attracts the shareholders of targetcompany by offering them better price for their shares.

Parent companies cease to exist.

Two or more companies agree to form an Entity for a specific task or period.

Always friendly.

One company receives financial assistance,Managerial inputs and technological inputs from superior company.

Parent companies keep functioning in theirRespective areas.

To improve efficiency of companies.

Includes no equity investments.

Parent companies keep functioning as normal by supporting each other.

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Rivalry Among Competing

Firms in Industry

Rivalry Among Competing

Firms in Industry

Bargaining Power of

Buyers

Bargaining Power of

Buyers

Bargaining Power

of Suppliers

Bargaining Power

of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Business-Level Strategies For Growth

Market Penetration

Strategy

Product Development

Strategy

Market Development

Strategy

Diversification Strategy

Existing

New

Domain

(i.e., Industry Market

Product/Service

Existing New

Product/Market Expansion: Scale Strategies

Market Penetration

Goal: increase market share

Low risk/marginal returns

Every business does this

Market Development

Goal: find new markets

Marketing expertise

Mature products/services

Product/Market Expansion: Scope Strategies

Product Development

Goal: develop & introduce new products/services

Technical expertise

Growth of products/services

(Could Entail Related Diversification)

Diversification

Goal: develop & introduce products/services to new or emerging markets

(Most likely Unrelated Diversification)

Questions

Discuss the significance & 5D’s of positioning?

Discuss the various types of Growth Strategies with detail example one of the various types of Growth Strategy?

Thanks for your participation!